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A N N U A L R E P O R T
Clearwater Paper Corporation
601 West Riverside Ave., Suite 1100
Spokane, WA 99201
Dear Stockholders,
January 2014 marked one year since I became Clearwater Paper’s CEO. Those 12 months
were eventful for our company, with equal measures of challenge and reward. I am pleased to
share these highlights:
• We sharpened our focus on meeting our customers’ needs throughout the year. In Pulp
and Paperboard, we made investments in our liquid packaging and cup stock machine to
improve quality and consistency. In Consumer Products, we strengthened relationships
with customers through our new TAD bathroom tissue.
• We ended the year with solid operating results despite tight market conditions, including
record net sales for our consumer products division, record paperboard shipments for
our pulp and paperboard division, and record production at several of our plants.
• We posted our best safety results ever, with 40 percent fewer recordable injuries than
the industry average and 41 percent fewer lost days. Several mills exceeded safety
goals and set new records.
• We returned $100 million of cash to our stockholders through our stock repurchase
program. Reflecting our focus on driving stockholder value, the board has approved an
additional $100 million stock repurchase program.
• We launched our DRIVE strategy program, soliciting ideas and a focus on continuous
improvement from all employees from every facet of our business. We made significant
strides in our continuous improvement goals by engaging employees in more than 500
continuous improvement events.
• We made progress toward our sustainability goals, investing in environment-related
capital projects and implementing employee-driven projects such as water conservation
solutions that we expect will save over a half-million gallons per day at our Lewiston
pulp and paperboard mill.
• For 2014, we are already progressing toward our operational and financial goals by
executing year two of DRIVE, our strategy. We are focused on improving our safety
performance even further. We are also implementing systems for accounting,
procurement and maintenance across all of our mills, which will act as a strong
foundation for further systems improvements and our focus on increasing efficiency.
And, we continue to push steadily toward the goals that will make us an even more
sustainable company.
As someone who has been part of Clearwater Paper since its inception as a public company
more than five years ago, I am proud of the work we have done in 2013. I am also keenly aware
of this company’s potential to excel. With the momentum we have built to date, with our
commitment to customer service and product quality, and with the contributions from the
Clearwater Paper team, I am confident that we will continue to deliver value to our stockholders,
our employees and our communities.
From all of us at Clearwater Paper, we thank our stockholders, customers and all stakeholders
for your support, and look forward to a successful 2014.
Sincerely,
Linda K. Massman
President and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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
(State or other jurisdiction of incorporation or organization)
20-3594554
(IRS Employer Identification No.)
601 W. Riverside Avenue, Suite 1100
Spokane, Washington
(Address of principal executive offices)
99201
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (509) 344-5900
TITLE OF EACH CLASS
Common Stock ($0.0001 par value per share)
NAME OF EACH EXCHANGE ON WHICH REGISTERED
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes
No
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
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 (§ 232.405 of this chapter) during
No
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
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
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
As of June 30, 2013 (the last business day of the registrant’s most recently completed second quarter), the aggregate market value
of the common stock held by non-affiliates of the registrant was $1.02 billion. Shares of common stock beneficially held by each
officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 14, 2014, 20,912,248 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed on or about March 24, 2014, with the Securities and Exchange Commission in
connection with the registrant’s 2014 annual meeting of stockholders are incorporated by reference in Part III hereof.
CLEARWATER PAPER CORPORATION
Index to 2013 Form 10-K
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risks
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
PAGE
NUMBER
2-8
9-16
16
17
18
18
19-20
20
21-39
40
41-81
82
82
82
83
83
84
84
84
85
86
87-91
Part I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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 Thomaston, Georgia facility, 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 levels, capitalized interest, interest expenses, and the tax
treatment of the alternative fuels and cellulosic biofuels tax credits. 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 in operating results include those risks discussed in Item 1A of this report,
as well as the following:
customer acceptance and timing of purchases of our new through-air-dried, or TAD, products and quantity;
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 business from 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. You are advised, however,
to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current
reports on Form 8-K filed with the Securities and Exchange Commission, or SEC.
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ITEM 1.
Business
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, or AFH, parent rolls (non-converted tissue product),
machine-glazed tissue, bleached paperboard and pulp at 14 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. Our products are made primarily from wood fiber pulp.
On December 27, 2010, we acquired Cellu Tissue Holdings, Inc., or Cellu Tissue, a tissue manufacturing and converting
company whose customers included consumer retailers and AFH distributors of tissue products, vertically integrated
manufacturers and third-party converters serving the tissue and machine-glazed tissue sectors. Cellu Tissue sold
product as finished cases and parent rolls.
In the fourth quarter of 2012, we completed construction of our through-air-dried, or TAD, paper machine and converting
facility in Shelby, North Carolina.
Company Strengths
Leading private label tissue manufacturer with a broad footprint in North America. Our consumer products business
is a premier private label tissue manufacturer. We have production facilities strategically located throughout North
America as a result of the expansion of our manufacturing footprint through significant capital investments and the
acquisition of Cellu Tissue. We have TAD tissue manufacturing facilities in North Carolina, Las Vegas, Nevada and
Ontario, Canada and converting operations across the United States. We believe we were the sixth largest manufacturer
in the North American tissue market as of December 31, 2013, based on tissue parent roll capacity. Our broad
manufacturing footprint allows us to better and more cost effectively service a diverse customer base, including major
grocery store chains and value retailers across the entire U.S.
High quality brand-equivalent tissue and other products to meet retailers' private label strategies. Our
consumer
products business produces high-quality products that match the quality of the leading national brands. We focus on
high value tissue products across a wide variety of categories and retail channels. We also manufacture a broad range
of cost-competitive consumer products, including recycled tissue, tissue parent rolls and machine-glazed paper. In
addition to our conventional paper-making capabilities, we produce TAD tissue that we convert into national brand-
equivalent, ultra-quality paper towels and bath tissue. Our expanded TAD tissue offerings are expected to create new
opportunities to increase our private label consumer tissue business around our broad manufacturing footprint by
allowing us to supply these key products to customers across the U.S.
High quality premium bleached paperboard products. Our pulp and paperboard business produces premium
paperboard products with ultra-smooth print surfaces, superior cleanliness, and excellent forming and sealing ability.
Products are available in several thicknesses to provide the rigidity and strength needed for a wide range of applications.
The high quality of our paperboard allows buyers to use our products for packaging where branding and quality are
critical, such as health and beauty packaging, pharmaceutical packaging, and point of purchase displays.
Complementary, long-standing customer relationships. Our consumer products business supplies private label tissue
products to several of the largest national grocery chains. Our top 10 consumer products customers in 2013 accounted
for approximately 58% of our total consumer products net sales. Our largest customer in 2013 was the Kroger Company,
which accounted for 10.8% of our total company net sales. The average tenure of these customers was approximately
12 years. In addition to these long-standing customer relationships, we have a diverse base of over 110 customers
across a broad geographic area. We also have long-standing customer relationships with our paperboard customers.
Our top 10 paperboard customers in 2013 accounted for approximately 42% of our total paperboard net sales. The
average tenure of these customers was approximately 31 years.
Strategically positioned pulp and paperboard facilities. Our pulp and paperboard mill in Lewiston, Idaho is one of only
two solid bleach sulfate, or SBS, paperboard mills, and the only coated SBS paperboard mill, in the Western U.S. to
offer a full range of specialized products to meet the needs of customers for traditional folding carton, plates, cup and
liquid packaging. This facility's geographic location reduces transportation costs to customers for the western U.S. as
well as Asia, which allows us to compete on a cost-advantaged basis relative to East Coast competitors. Our Cypress
Bend, Arkansas mill is centrally located, which reduces transportation costs to the Midwestern and Eastern U.S. and
complements the Lewiston mill in shipping to customers nationwide.
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Strategy
Our long-term strategy is to grow the size and scope of our consumer products business and optimize the profitability
of that business as well as that of our paperboard business. In the near-term, our focus remains on maximizing the
strategic and financial benefits from the integration of our existing facilities and our TAD paper machine and converting
lines in North Carolina. We also continue to work on optimizing the operating efficiencies and cost effectiveness of our
premium bleached paperboard production.
Grow Our Consumer Products Business. Our long-term strategy has been to grow within the private label
tissue market. As part of this strategy, we expanded our tissue manufacturing footprint through the acquisition
of Cellu Tissue in 2010 and the construction of additional converting and TAD paper making capacity. Most
notably, our North Carolina facility has been the cornerstone of our strategy to expand our TAD tissue
operations in the Eastern U.S. With our broad manufacturing footprint now in place, we plan to continue to
capitalize on our position as one of the largest premium private label tissue producers in North America by
taking advantage of the attractive tissue market and the increasing adoption of store brand products by
retailers and their customers.
Optimize Our Consumer Products Business. We intend to continue optimizing the strategic and financial
benefits of our broad-based manufacturing operations by improving our operational integration and enhancing
our manufacturing facilities. Improving our operational integration allows us to better serve existing private
label grocery customers by providing them the full spectrum of consumer tissue products across the U.S.,
and provides us with the capability to continue to expand further into grocery stores as well as other private
label distribution channels, including drug stores, mass merchants and discount stores. Optimizing our
manufacturing facilities includes the implementation of cost savings programs as well as consolidating
converting such as our recent closure of the Thomaston, Georgia facility and strategic redeployment of its
converting lines to other of our facilities.
Optimize Our Pulp and Paperboard Business. We intend to continue improving our operational efficiency,
and product quality and mix of customers to which we sell our paperboard products, as well as controlling
our raw material and energy costs. We have implemented cost saving programs that are based primarily on
lean manufacturing and cost optimization initiatives. Our cost saving programs include the implementation
of 18 to 24 month (versus the previous 12 to 18 month) major maintenance cycles at our Lewiston and
Cypress Bend facilities, as well as the strengthening of our wood fiber supply chain through the acquisition
of a wood chipping facility near our Lewiston facility.
ORGANIZATION
Our businesses are organized into two operating segments: Consumer Products and Pulp and Paperboard. Additional
information relating to the amounts of net sales, operating income, depreciation and amortization, identifiable assets
and capital expenditures attributable to each of our operating segments for 2011-2013, as well as geographic information
regarding our net sales, is set forth in Note 17 to our consolidated financial statements included under Part II, Item 8
of this report.
Consumer Products Segment
Our Consumer Products segment manufactures and sells a complete line of at-home tissue products as well as AFH
products. Our integrated manufacturing and converting operations and geographic footprint enable us to deliver a
broad range of cost-competitive products with brand equivalent quality to our consumer products customers. In 2013,
our Consumer Products segment had net sales of $1.1 billion. A listing of our Consumer Products segment facilities
is included under Part I, Item 2 of this report.
Tissue Industry Overview
Consumer Tissue Products. The U.S. tissue market can be divided into two market segments: the at-home or consumer
retail purchase segment, which represents approximately two-thirds of U.S. tissue sales; and the AFH segment, which
represents the remaining one-third of U.S. tissue market sales and includes locations such as airports, restaurants,
hotels and office buildings.
The U.S. at-home tissue segment consists of bath, paper towels, facial and napkin products categories. Each category
is further distinguished according to quality segments: ultra, premium, value and economy. As a result of process
improvements and consumer preferences, the majority of at-home tissue sold in the U.S. is ultra and premium quality.
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At-home tissue producers are comprised of companies that manufacture branded tissue products, private label tissue
products, or both. Branded tissue suppliers manufacture, market and sell tissue products under their own nationally
branded labels. Private label tissue producers sell tissue products to retailers to sell as their store brand.
In the U.S., at-home tissue is primarily sold through grocery stores, mass merchants, warehouse clubs, drug stores
and discount dollar stores. Tissue has historically been one of the strongest segments of the paper industry due to its
steady demand growth and the absence of severe supply imbalances that occur in a number of other paper segments.
In addition to economic and demographic drivers, tissue demand is affected by product innovations and shifts in
distribution channels.
Machine-Glazed Tissue. Machine-glazed tissue has a glazed coating and, in some cases, other moisture and grease-
resistant coatings. Machine-glazed tissue is converted into products such as fast food and commercial food wrappers,
gum wrappers, coffee filters, cigarette pack liner paper, wax paper and butter wraps.
Our Consumer Products Business
In bathroom tissue, the majority of our sales are high quality two-ply ultra and premium products, including TAD tissue
products. In paper towels, we produce and sell ultra quality TAD towels as well as premium and value towels. In the
facial category, we sell ultra-lotion three-ply and a complete line of two-ply premium products as well as value facial
tissue. In napkins, we manufacture ultra two- and three-ply dinner napkins, as well as premium and value one-ply
luncheon napkins. Recycled fiber value grade products are also available to customers who wish to further diversify
their product portfolio. We compete primarily in the at-home portion of the U.S. tissue market, which made up
approximately 89% of our Consumer Products segment sales in 2013.
We manufacture and sell a line of AFH products to customers with commercial and industrial tissue needs. Products
include conventional one- and two-ply bath tissue, two-ply paper towels, hard wound towels and dispenser napkins.
Tissue parent rolls that we manufacture to requested specifications but do not convert are sold to third-party converters
or brokers for conversion into various end products, including at-home tissue products and absorbent products used
to produce liners for diapers, feminine care products, surgical waddings and other medical and sanitary disposable
products.
We also manufacture and sell machine-glazed tissue products, including wax paper products for retail food wrappers
and machine-glazed tissue parent rolls for third-party converters.
Our consumer products are manufactured on 21 paper machines in our facilities located throughout the U.S. and in
Ontario, Canada. Parent rolls from these paper machines are then converted and packaged at our converting facilities
located across the U.S. Three of our paper machines, located in Nevada, North Carolina and Ontario produce TAD
tissue that we convert into national brand comparable, ultra quality towels and/or bath tissue.
In 2013 and 2012, through multi-outlet channels, which include grocery, drug, dollar, super and club stores, as well as
military purchasing, we sold approximately 34% of the total private label tissue products in the U.S. When only
considering private label tissue products sold in grocery stores, we sold approximately 65% of the total private label
tissue products sold in the U.S. for 2013 and 2012.
We believe that we are the only U.S. consumer tissue manufacturer that solely produces a full line of quality private
label tissue products for large retail trade channels. Most U.S. tissue producers manufacture only branded products,
or both branded and private label products, or in the case of certain smaller or midsize manufacturers, only produce
a limited range of tissue products or quality segments. Branded producers generally manufacture their private label
products at a quality grade or two below their branded products so as not to impair sales of the branded products.
Because we do not produce and market branded tissue products, we believe we are able to offer products that match
the quality of leading national brands, but generally at lower prices. We are committed to maintaining a high level of
quality for our products that matches the quality of the leading national brands, and we utilize independent companies
to routinely test our product quality.
We sell private label tissue products through our own sales force based on product quality, customer service and price.
We deliver customer-focused business solutions by assisting in managing product assortment, category management,
and pricing and promotion optimization.
Pulp and Paperboard Segment
Our Pulp and Paperboard segment manufactures and markets bleached paperboard for the high-end segment of the
packaging industry and is a leading producer of SBS paperboard. This segment also produces hardwood and softwood
pulp, which is primarily used as the basis for our paperboard products, and slush pulp, which it supplies to our Consumer
Products segment. In 2013, our Pulp and Paperboard segment had net sales of $740.1 million. A listing of our pulp
and paperboard facilities is included under Part I, Item 2 of this report.
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Pulp and Paperboard Industry Overview
SBS paperboard is a premium paperboard grade that is most frequently used to produce folding cartons, liquid
packaging, cups and plates as well as commercial printing items. SBS paperboard is used to make these products
because it is manufactured using virgin fiber combined with the kraft bleaching process, which results in superior
cleanliness, brightness and consistency. SBS paperboard is often manufactured with a clay coating to provide superior
surface printing qualities. SBS paperboard can also be extrusion coated with a plastic film to provide a moisture barrier
for some uses.
In general, the process of making paperboard begins by chemically cooking wood fibers to make pulp. The pulp is
bleached to provide a white, bright pulp, which is formed into paperboard. Bleached pulp that is to be used as market
pulp is dried and baled on a pulp drying machine, bypassing the paperboard machines. The various grades of
paperboard are wound into rolls for shipment to customers for converting to final end uses. Liquid packaging and cup
stock grades are often coated with polyethylene, a plastic coating, in a separate operation to create a resistant and
durable liquid barrier.
Folding Carton Segment. Folding carton is the largest portion of the SBS category of the U.S. paperboard industry
comprising approximately 41% of the category in 2013. Within the folding carton segment there are varying qualities
of SBS paperboard. The high end of the folding carton category in general requires a premium print surface and
includes uses such as packaging for pharmaceuticals, cosmetics and other premium retail goods. SBS paperboard is
also used in the packaging of frozen foods, beverages and baked goods.
Liquid Packaging and Cup Segment. SBS liquid packaging paperboard is primarily used in the U.S. for the packaging
of juices. In Japan and other Asian countries, SBS liquid packaging paperboard is primarily used for the packaging of
milk and other liquid items. The cup segment of the market consists primarily of hot and cold drink cups and food
packaging. The hot and cold cups are primarily used to serve beverages in quick-service restaurants, while round food
containers are often used for packaging premium ice-cream and dry food products.
Commercial Printing Segment. Commercial printing applications use bleached bristols, which are heavyweight paper
grades, to produce postcards, signage and sales literature. Bristols can be clay coated on one side or both sides for
applications such as brochures, presentation folders and paperback book covers. The customers in this segment are
accustomed to high-quality paper grades, which possess superior printability and brightness compared to most
paperboard packaging grades. Suppliers to this segment must be able to deliver small volumes, often within 24 hours.
Market Pulp. The majority of the pulp manufactured worldwide is integrated with paper and paperboard production,
usually at the same mill. In those cases where a paper mill does not produce its own pulp, it must purchase it on the
open market. Market pulp is defined as pulp produced for sale to these customers and it excludes tonnage consumed
by the producing mill or shipped to any of its affiliated mills within the same company.
Our Pulp and Paperboard Business
Our Pulp and Paperboard segment operates facilities in Idaho, which has two paperboard machines, and Arkansas,
which has one paperboard machine. As of December 31, 2013, we were one of the five largest producers of bleached
paperboard in North America with approximately 11% of the available production capacity.
Our overall pulp and paperboard production consists primarily of folding carton, liquid packaging, cup, plate, commercial
printing grades and hardwood and softwood pulp.
Folding carton board used in pharmaceuticals, cosmetics and other premium packaging, such as those that incorporate
foil and holographic lamination, accounts for the largest portion of our total paperboard sales. We focus on high-end
folding carton applications where the heightened focus on product quality provides for differentiation among suppliers,
resulting in margins that are more attractive than less critical packaging applications.
Our liquid packaging paperboard is known for its cleanliness and printability, and is engineered for long-lived
performance due to its three-ply, softwood construction. Our reputation for producing liquid packaging meeting the
most demanding standards for paperboard quality and cleanliness has resulted in meaningful sales in Japan, where
consumers have a particular tendency to associate blemish-free, vibrant packaging with the cleanliness, quality and
freshness of the liquids contained inside.
We also sell cup stock and plate stock grades for use in food service products. A majority of our sales in this area
consist of premium clay coated cup stock grades used for high-end food packaging, such as premium ice cream.
5
We do not produce converted paperboard end-products, so we are not simultaneously a supplier of and a competitor
to our customers. Of the five largest SBS paperboard producers in the U.S., we are the only producer that does not
also convert SBS paperboard into end products. We believe our position as a non-integrated supplier has resulted in
a diverse group of loyal customers because when there is decreased market supply of paperboard, we do not divert
our production to internal uses.
At our Idaho facility we produce bleached softwood pulp primarily for internal use. As a result of the acquisition of Cellu
Tissue, which relied entirely on purchased pulp, we have significantly decreased external sales of pulp produced by
our Pulp and Paperboard segment and instead utilize that pulp in our Consumer Products segment. Depending on
market factors, we may sell some pulp externally going forward.
Our pulp mills are currently capable of producing approximately 856,000 tons of pulp on an annual basis. In 2013, we
utilized 80% of our pulp production, or approximately 650,000 tons, to produce approximately 766,000 tons of
paperboard. The increase in tonnage from pulp to paperboard production is due to the addition of coatings and other
manufacturing processes. We also used 19% of our pulp production, or approximately 158,000 tons, in our Consumer
Products segment to produce tissue products. The remaining 1% of our pulp production, or approximately 9,000 tons,
was sold externally.
We utilize various methods for the sale and distribution of our paperboard and softwood pulp. The majority of our
paperboard is sold to packaging converters domestically through sales offices located throughout the U.S., with a
smaller percentage channeled through distribution to commercial printers. The majority of our international paperboard
sales are conducted through sales agents and are primarily denominated in U.S. dollars. Our principal methods of
competing are product quality, customer service and price.
RAW MATERIALS AND INPUT COSTS
For our manufacturing operations, the principal raw material used is wood fiber, which consists of purchased pulp and
chips, sawdust and logs. During 2013, our purchased pulp costs were 17.6% of our cost of sales, while chips, sawdust
and logs accounted for 8.3%. In 2013, our Consumer Products segment sourced approximately 30% of its total pulp
supply from our Pulp and Paperboard segment, with the remainder purchased from external suppliers. We operate a
wood chipping facility located in Clarkston, Washington, near our Lewiston, Idaho, facility in an effort to bolster our
wood fiber position and obtain short-term and long-term cost savings.
We utilize a significant amount of chemicals in the production of pulp and paper, including caustic, polyethylene, starch,
sodium chlorate, latex and specialty process paper chemicals. Many of the chemicals used in our manufacturing
processes, particularly in the pulp-making process, are petroleum-based or are impacted by petroleum prices. During
2013, chemical costs accounted for 11.5% of our cost of sales.
Transportation is a significant cost input for our business. Fuel prices impact our transportation costs for delivery of
raw materials to our manufacturing facilities and delivery of our finished products to customers. Our total transportation
costs were 10.8% of our cost of sales in 2013.
We consume substantial amounts of energy, such as electricity, hog fuel, steam and natural gas. During 2013, energy
costs accounted for 7.6% of our cost of sales. We purchase a significant portion of our natural gas and electricity under
supply contracts, most of which are between a specific facility and a specific local provider. Under most of these
contracts, the providers have agreed to provide us with our requirements for a particular type of energy at a specific
facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. In
addition, we use firm-price contracts to mitigate price risk for certain of our energy requirements.
As a significant producer of private label consumer tissue products, we also incur expenses related to packaging
supplies used for retail chains, wholesalers and cooperative buying organizations. Our total packaging costs for 2013
were 6.2% of our cost of sales.
Our maintenance and repairs, including major maintenance and repairs, represented 5.8% of our cost of sales for
2013 and are expensed as incurred. We perform routine maintenance on our machines and equipment and periodically
replace a variety of parts such as motors, pumps, pipes and electrical parts.
We also record depreciation expense associated with our plant and equipment. Depreciation expense was 4.8% of
our cost of sales for 2013.
6
SEASONALITY
Our Consumer Products segment experiences some drop in shipments during the fourth quarter generally as a result
of decreased consumer demand, retail brand holiday promotions, and end of year inventory management by non-
retail customers. In addition, customer buying patterns for our paperboard generally result in lower sales for our Pulp
and Paperboard segment during the first and fourth quarters, when compared to second and third quarters of a given
year.
ENVIRONMENTAL
Information regarding environmental matters is included under Part II, Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” of this report, and is incorporated herein by reference.
WEBSITE
Interested parties may access our periodic and current reports filed with the SEC, at no charge, by visiting our website,
www.clearwaterpaper.com. In the menu select “Investor Relations,” then select “Financial Information & SEC Filings.”
Information on our website is not part of this report.
EMPLOYEES
As of December 31, 2013, we had approximately 3,860 employees, of which approximately 2,610 were employed by
our Consumer Products segment, approximately 1,110 were employed by our Pulp and Paperboard segment and
approximately 140 were corporate administration employees. This workforce consisted of approximately 760 salaried
employees and approximately 3,100 hourly and fixed rate employees. As of December 31, 2013, approximately 53%
of our workforce was covered under collective bargaining agreements.
Unions represent hourly employees at eight of our manufacturing sites. There was one hourly union labor contract
that expired in 2013, which was renegotiated during the year. Four collective bargaining agreements expire in 2014
and will need to be renegotiated:
CONTRACT
EXPIRATION
DATE
August 31, 2014
August 31, 2014
DIVISION AND LOCATION
Consumer Products Division and Pulp
& Paperboard Division-Lewiston, Idaho
UNION
United Steel Workers
(USW)
Consumer Products Division and Pulp
& Paperboard Division-Lewiston, Idaho
International Brotherhood of
Electrical Workers (IBEW)
October 31, 2014
Consumer Products Division-
Natural Dam, New York
December 13, 2014 Consumer Products Division-
Menominee, Michigan
United Steel Workers
(USW)
United Steel Workers
(USW)
APPROXIMATE
NUMBER OF HOURLY
EMPLOYEES
1,000
55
75
95
7
EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are deemed our “executive officers” under the Securities Exchange Act of 1934 as of
December 31, 2013. Executive officers of the company are generally appointed as such at the annual meeting of our
board, and each officer holds office until the officer’s successor is duly elected and qualified or until the earlier of the
officer’s death, resignation, retirement, removal by the board or as otherwise provided in our bylaws. There are no
arrangements or understandings between any of our executive officers and any other persons pursuant to which they
were selected as officers. No family relationships exist among any of our executive officers.
Linda K. Massman (age 47), has served as Chief Executive Officer and as a director since January 2013. Ms. Massman
served as President and Chief Operating Officer from November 2011 until December 31, 2012, and as Chief Financial
Officer from December 2008 to April 2012. From May 2011 to November 2011, Ms. Massman served as Senior Vice
President, Finance, and as Vice President, Finance from December 2008 to May 2011. From September 2008 to
December 2008, Ms. Massman served as a Vice President of Potlatch Corporation, pending completion of the spin-
off of Clearwater Paper Corporation. From May 2002 to August 2008, Ms. Massman served as the Group Vice President,
Finance and Corporate Planning for SUPERVALU Inc., a grocery retail company.
John D. Hertz (age 47) joined the company in June 2012 as Senior Vice President, and has served as Senior Vice
President, Finance and Chief Financial Officer since August 2012. Before joining our company, Mr. Hertz was the Vice
President and Chief Financial Officer, of Novellus Systems, Inc., a position he held from June 2010 to June 2012.
From October 2007 to June 2010, he served as Novellus' Vice President of Corporate Finance and Principal Accounting
Officer and as Vice President and Corporate Controller from June 2007 to October 2007. From 2000 to 2007, Mr. Hertz
worked for Intel Corporation where he held a number of positions, including Central Finance Controller of the Digital
Enterprise Group, Finance Controller of the Enterprise Platform Services Division and Accounting Policy Controller.
Prior to that Mr. Hertz was a Senior Manager with KPMG.
Michael S. Gadd (age 49) has served as Senior Vice President since May 2011 and General Counsel and Corporate
Secretary since December 2008. In addition, he served as Vice President from December 2008 to May 2011. From
March 2006 to December 2008, Mr. Gadd served as Associate General Counsel of Potlatch Corporation, and served
as Corporate Secretary of Potlatch from July 2007 to December 2008. From 2000 to January 2006, Mr. Gadd was an
attorney with Perkins Coie, LLP in Portland, Oregon.
Thomas A. Colgrove (age 62), has served as Senior Vice President and President of Consumer Products since January
2013, and served as Senior Vice President and President of Pulp and Paperboard from May 2011 until December 31,
2012. Mr. Colgrove served as Vice President of Pulp and Paperboard from May 2009 to May 2011. He was employed
by Kimberly-Clark Corporation from 1984 to 2009, in various manufacturing management positions, including as Senior
Director-North America Product Supply with responsibility for seven North American tissue facilities from September
2006 to April 2009.
Danny G. Johansen (age 63) has served as Senior Vice President and President of Pulp and Paperboard since January
2013. From December 2008 through December 2012, he served as Vice President, Sales and Marketing, for Pulp and
Paperboard. Prior to December 2008, Mr. Johansen was employed by Potlatch Corporation for nearly 36 years. From
2002 to December 2008, he served as the Director of Sales, Idaho Pulp and Paperboard division, for Potlatch.
Jackson O. Lynch (age 45) has served as Senior Vice President of Human Resources since April 2013. Before joining
our company, Mr. Lynch served as Vice President of Human Resources for Nestlé USA’s Direct Store Delivery division
from March 2010 to February 2013. From June 2007 to March 2010, he served as National Director of Human Resources
for Nestlé USA's Dreyer's Ice Cream division. Prior to June 2007, Mr. Lynch held various senior human resources
roles with PepsiCo, Inc.
8
ITEM 1A.
Risk Factors
Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties,
including those described below, and as a result, the trading price of our common stock could decline.
The expansion of our TAD tissue offerings may not proceed as anticipated.
In connection with our long-term growth strategy, we built a new TAD paper machine and installed five converting lines
at our facility in Shelby, North Carolina and upgraded our TAD manufacturing capabilities at our Las Vegas, Nevada
facility. As these are recently completed projects, we are still in the process of optimizing the mix and the quality of the
TAD products being produced at these facilities, the converting and distribution of our TAD and existing tissue products
and the sales mix of our new TAD product offerings with existing product lines. We also continue to work with existing
customers as well as new customers to develop marketing and sales programs in connection with the new TAD
products. These ongoing efforts entail numerous risks, including difficulties in integrating the new TAD products with
existing products, difficulties in integrating the new operations and personnel with our other tissue operations and
market acceptance of and demand for the new TAD products. Any of these risks, if realized, could have a material
adverse effect on our business, financial condition, results of operations and liquidity. In addition, such events could
also divert management's attention from other business concerns.
Additionally, over the past few years, several new or refurbished TAD paper machines have been completed or
announced by our competitors, including private label competitors, that will result in a substantial increase in the supply
of TAD tissue in the North American market. This increase in supply of TAD products, as well as the effects of that
increased supply in displacing existing conventional tissue product sales, could have a material adverse effect on the
price of TAD tissue products and on the market demand for conventional tissue products, which will continue to represent
a majority of our total production for the foreseeable future.
The loss of, or a significant reduction in, orders from, or changes in prices in regards to, any of our large
customers could adversely affect our operating results and financial condition.
In 2013, our Consumer Products segment derived approximately 33% of its net sales and we derived approximately
20% of our total net sales from three customers. If we lose any of these customers or a substantial portion of their
business or if the terms of our relationship with any of them becomes less favorable to us, our net sales would decline,
which would harm our business, results of operations and financial condition. We have experienced increased price
and promotion competition for our consumer products customers, particularly in regards to TAD products, which can
decrease our gross margins and adversely affect our financial condition. Some of our customers have the capability
to produce the parent rolls or products themselves that they purchase from us. Our Pulp and Paperboard segment
sells its products to a large number of customers, although certain customers have historically purchased a significant
amount of our pulp or paperboard products.
We do not have long-term contracts with any of our customers, including our largest customers, that ensure a continuing
level of business from them. In addition, our agreements with our customers are not exclusive and generally do not
contain minimum volume purchase commitments. Our relationship with our large customers will depend on our ability
to continue to meet their needs for quality products and services at competitive prices. If we lose one or more of these
customers or if we experience a significant decline in the level of purchases by any of them, we may not be able to
quickly replace the lost business volume and our operating results and business could be harmed. In addition, our
focus on these large accounts could affect our ability to serve our smaller accounts, particularly when product supply
is tight and we are not able to fully satisfy orders for these smaller accounts.
We depend on external sources of wood pulp, which subjects our business and results of operations to
potentially significant fluctuations in the price of market pulp.
Our Consumer Products segment sources a significant portion of its wood pulp requirements from external suppliers.
In 2013, it sourced approximately 70% of its pulp requirements externally. Approximately 17.6% of our cost of sales
in 2013 consisted of purchased pulp costs. Our dependence on external sources of wood pulp increases our exposure
to fluctuations in prices for wood pulp, which in turn could have a material adverse effect on our financial results,
operations and cash flows.
Pulp prices can, and have, changed significantly from one period to the next. The volatility of pulp prices can adversely
affect our earnings if we are unable to pass cost increases on to our customers or if the timing of any price increases
for our products significantly trails the increases in pulp prices. We have not hedged these risks.
9
Changes in the cost and availability of wood fiber used in production of our products may adversely affect
our results of operations and cash flow.
Wood fiber is the principal raw material used to create wood pulp, which in turn is used to manufacture our pulp and
paperboard products and consumer products. In 2013, our wood fiber costs were 8.3% of our cost of sales. Much of
the wood fiber we use in our pulp manufacturing process in Lewiston, Idaho, is the by-product of sawmill operations.
As a result, the price of these residual wood fibers is affected by operating levels in the lumber industry. The significant
reduction in home building over the past five years resulted in the closure or curtailment of operations at many sawmills.
The price of wood fiber is expected to remain volatile until the housing market recovers and sawmill operations increase.
Additionally, the supply and price of wood fiber can be negatively affected by weather and other events.
The effects on market prices for wood fiber resulting from various governmental programs involving tax credits or
payments related to biomass and other renewable energy projects are uncertain and could result in a reduction in the
supply of wood fiber available for our pulp and paperboard manufacturing operations. If we and our pulp suppliers are
unable to obtain wood fiber at favorable prices or at all, our costs will increase and financial results, operations and
cash flows may be materially adversely affected.
We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations
of our facilities may harm our operating performance.
We regularly incur significant expenses to maintain our manufacturing equipment and facilities. The machines and
equipment that we use to produce our products are complex, have many parts and some are run on a continuous
basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts
such as motors, pumps, pipes and electrical parts. In addition, our pulp and paperboard facilities require periodic
shutdowns to perform major maintenance. These scheduled shutdowns of facilities result in decreased sales and
increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future
periods as a result of changes to equipment and operational and mechanical processes made during the shutdown
period.
Unexpected production disruptions could cause us to shut down or curtail operations at any of our facilities. For example,
we have had to curtail operations at certain of our facilities as the result of an electrical malfunction and a fire in
previous years. Disruptions could occur due to any number of circumstances, including prolonged power outages,
mechanical or process failures, shortages of raw materials, natural catastrophes, disruptions in the availability of
transportation, labor disputes, terrorism, changes in or non-compliance with environmental or safety laws and the lack
of availability of services from any of our facilities' key suppliers. Any facility shutdowns may be followed by prolonged
startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to
several weeks, depending on the reason for the shutdown and other factors. Any prolonged disruption in operations
at any of our facilities could cause significant lost production, which would have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Increases in our transportation costs or disruptions in our transportation services could have a material
adverse effect on our business.
Our business, particularly our Consumer Products business, is dependent on transportation services to deliver our
products to our customers and to deliver raw materials to us. In 2013, our transportation costs were 10.8% of our cost
of sales. The costs of these transportation services are primarily determined by fuel prices, which have steadily
increased since 2008 and are affected by geopolitical and economic events. We have not been in the past, and may
not be in the future, able to pass along part or all of any fuel price increases to customers. If we are unable to increase
our prices as a result of increased fuel costs charged to us by transportation providers, our gross margins may be
materially adversely affected.
If any transportation providers fail to deliver raw materials to us in a timely manner, we may be unable to manufacture
products on a timely basis. Shipments of products and raw materials may be delayed or disrupted due to weather
conditions, labor strikes, regulatory actions or other events. Any failure of a third-party transportation provider to deliver
raw materials or products in a timely manner could harm our reputation, negatively affect our customer relationships
and have a material adverse effect on our business, financial condition, results of operations and cash flows.
10
Our business and financial performance may be harmed by future labor disruptions.
As of December 31, 2013, 53% of our full-time employees are represented by unions under collective bargaining
agreements. As these agreements expire, we may not be able to negotiate extensions or replacement agreements
on terms acceptable to us. Four collective bargaining agreements have a 2014 expiration date and will need to be
renegotiated. Any failure to reach an agreement with one of the unions may result in strikes, lockouts or other labor
actions. Any such labor actions, including work slowdowns in the future or stoppages, could have a material adverse
effect on our operations and financial results.
The cost of chemicals and energy needed for our manufacturing processes significantly affects our business.
We use a variety of chemicals in our manufacturing processes, including latex and polyethylene, many of which are
petroleum-based chemicals. In 2013, our chemical costs were 11.5% of our cost of sales. Prices for these chemicals
have been and are expected to remain volatile. In addition, chemical suppliers that use petroleum-based products in
the manufacture of their chemicals may, due to supply shortages and cost increases, ration the amount of chemicals
available to us, and therefore we may not be able to obtain at favorable prices the chemicals we need to operate our
business, if we are able to obtain them at all.
Our manufacturing operations utilize large amounts of electricity and natural gas and our energy requirements,
particularly natural gas, have increased significantly as a result of operations at our North Carolina facility. In 2013,
our energy costs were 7.6% of our cost of sales. Energy prices have fluctuated widely over the past decade, which
in turn affects our cost of sales. We purchase on the open market a substantial portion of the natural gas necessary
to produce our products, and, as a result, the price and other terms of those purchases are subject to change based
on factors such as worldwide supply and demand, geopolitical events, government regulation, and natural disasters.
Our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity
needs internally, on changes in market prices for natural gas and on reducing energy usage.
Any significant energy shortage or significant increase in our energy costs in circumstances where we cannot raise
the price of our products could have a material adverse effect on our business, financial condition, results of operations
and cash flows. Any disruption in the supply of energy could also affect our ability to meet customer demand in a timely
manner and could harm our reputation.
Larger competitors have operational and other advantages over our operations.
The markets for our products are highly competitive, and companies that have substantially greater financial resources
compete with us in each market. Some of our competitors have advantages over us, including lower raw material and
labor costs and better access to the inputs of our products.
Our Consumer Products business faces competition from companies that produce the same type of products that we
produce or that produce alternative products that customers may use instead of our products. Our Consumer Products
business competes with the branded tissue products producers, such as Procter & Gamble, and branded label
producers who manufacture branded and private label products, such as Georgia-Pacific and Kimberly-Clark. These
companies are far larger than us, have much greater sales, marketing and research and development resources than
we do, and enjoy significant cost advantages due to economies of scale. In addition, because of their size and resources,
these companies may foresee market trends more accurately than we do and develop new technologies that render
our products less attractive or obsolete.
Our ability to successfully compete in the pulp and paperboard industry is influenced by a number of factors, including
manufacturing capacity, general economic conditions and the availability and demand for paperboard substitutes. Our
Pulp and Paperboard business competes with International Paper, MeadWestvaco, Georgia-Pacific, RockTenn and
international producers, most of whom are much larger than us. Any increase in manufacturing capacity by any of
these or other producers could result in overcapacity in the pulp and paperboard industry, which could cause downward
pressure on pricing. For example, several new, large paperboard manufacturing facilities in China have recently been,
or soon will be, completed, the output of which is expected to increase paperboard supplies on the international market.
In addition, customers could choose to use types of paperboard that we do not produce or could rely on alternative
materials, such as plastic, for their products. An increased supply of any of these products could cause us to lower
our prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The consolidation of paperboard converting businesses, including through the acquisition and integration of such
converting business by larger competitors of ours, could result in a loss of customers and sales on the part of our Pulp
and Paperboard business, which does not include paperboard converting facilities or capabilities. A loss of paperboard
customers or sales as a result of consolidations and integrations could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
11
Changes in demand for certain products could adversely affect our financial results.
Our ability to compete successfully depends on our ability to adjust to increases and decreases in demand. If we are
unable to respond to increases in demand, we may need to limit deliveries of some orders for existing customers,
which could harm our reputation and our long-term relationships with these customers. Alternatively, if we experience
a decrease in demand for certain products, we may incur significant costs in revising our manufacturing plan. If we
are not able to respond to changes in demand for our products in a timely manner, our financial position, results of
operations and cash flows may be adversely affected.
Competitors' branded products and private label products could have an adverse effect on our financial results.
Our consumer products compete with well-known, branded products, as well as other private label products. Inherent
risks in our competitive strategy include whether our products will receive direct and retail customer acceptance, new
product offerings by competitors, the effects of consolidation within retailer and distribution channels, and price
competition from companies that may have greater financial resources than we do. If we are unable to offer our existing
customers, or new customers, tissue products comparable to branded products or private label TAD products in terms
of quality and/or price, we may lose business or we may not be able to grow our existing business and be forced to
sell lower-margin products, all of which could negatively affect our financial condition and results of operations.
Increased competition and supply from foreign manufacturers could have adverse effects on the demand for
our products and financial results.
Foreign manufacturers, particularly in Asia, are currently increasing, and are expected to continue to increase, their
paper production capabilities, particularly of paperboard. This, in turn, may result in increased competition in the North
American paper markets from direct sales by foreign competitors into these markets and/or increased competition in
the U.S. as domestic manufacturers seek increased U.S. sales to offset displaced overseas sales caused by increased
sales by Asian suppliers into those markets. An increased supply of Asian paper products could cause us to lower our
prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our company-sponsored pension plans are currently underfunded, and we are required to make cash
payments to the plans, reducing cash available for our business.
We have company-sponsored pension plans covering certain of our salaried and hourly employees. The significant
decline in the securities markets beginning in 2008 and resulting substantial decline in the value of equity and fixed
income investments held by these plans, coupled with a low interest rate environment resulting in higher liability
valuations, caused these plans to be underfunded so that the projected benefit obligation exceeded the aggregate fair
value of plan assets. At December 31, 2013, and 2012, our company sponsored pension plans were underfunded in
the aggregate by approximately $6.8 million and $78.7 million, respectively. As a result of underfunding, we are required
to make contributions to our qualified pension plans. In 2013, we contributed $15.1 million to these pension plans. We
may be required to make increased annual contributions to our pension plans in future years, which would reduce the
cash available for business and other needs.
We may be required to pay material amounts under multiemployer pension plans.
We contribute to two multiemployer pension plans. The amount of our annual contributions to each of these plans is
negotiated with the plan and the bargaining unit representing our employees covered by the plan. In 2013, we contributed
approximately $6 million to these plans, and in future years we may be required to make increased annual contributions,
which would reduce the cash available for business and other needs. In addition, in the event of a partial or complete
withdrawal by us from any multiemployer plan that is underfunded, we would be liable for a proportionate share of
such multiemployer plan's unfunded vested benefits, referred to as a withdrawal liability. A withdrawal liability is
considered a contingent liability. In the event that any other contributing employer withdraws from any multiemployer
plan that is underfunded, and such employer cannot satisfy its obligations under the multiemployer plan at the time of
withdrawal, then the proportionate share of the plan’s unfunded vested benefits that would be allocable to us and to
the other remaining contributing employers, would increase and there could be an increase to our required annual
contributions. In renegotiations of collective bargaining agreements with labor unions that participate in these
multiemployer plans, we may decide to discontinue participation in these plans.
One of the multiemployer pension plans to which we contribute, the PACE Industry Union-Management Pension Fund,
or PIUMPF, was certified to be in “critical status” for the plan year beginning January 1, 2010, and continued to be in
critical status for the plan year beginning January 1, 2013. In 2013, two large employers withdrew from PIUMPF. Further
withdrawals by other contributing employers could cause a “mass withdrawal” from, or effectively a termination of,
PIUMPF or alternatively we could elect to withdraw. Although we have no current intention to withdraw from PIUMPF,
12
if we were to withdraw, either completely or partially, we would incur a withdrawal liability based on our share of
PIUMPF’s unfunded vested benefits. Based on information as of December 31, 2012 provided by PIUMPF and
reviewed by our actuarial consultant, we estimate that, as of December 31, 2013, the payments that we would be
required to make to PIUMPF in the event of our complete withdrawal would be approximately $5.7 million per year on
a pre-tax basis. These payments would continue for 20 years, unless we were deemed to be included in a “mass
withdrawal” from PIUMPF, in which case these payments would continue in perpetuity. However, we are not able to
determine the exact amount of our withdrawal liability because the amount could be higher or lower depending on the
nature and timing of any triggering event, the funded status of the plan and our level of contributions to the plan prior
to the triggering event. These withdrawal liability payments would be in addition to pension contributions to any new
pension plan adopted or contributed to by us to replace PIUMPF, all of which would reduce the cash available for
business and other needs. Adverse changes to pension laws and regulations could increase the likelihood and amount
of our liabilities arising under PIUMPF.
Our pension and health care costs are subject to numerous factors which could cause these costs to change.
In addition to our pension plans, we provide health care benefits to certain of our current and former U.S. salaried and
hourly employees. There is a risk of higher enrollment and claims in our health care plans and likely increased costs
due to the Affordable Care Act’s individual mandate and required coverage. Our health care costs vary with changes
in health care costs generally, which have significantly exceeded general economic inflation rates for many years. Our
pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions about
future investment returns. Pension plan assets are primarily made up of equity and fixed income investments.
Fluctuations in actual equity market returns as well as changes in general interest rates may result in increased pension
costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected rates of return
on plan assets could also increase pension costs. Significant changes in any of these factors may adversely impact
our cash flows, financial condition and results of operations.
We are subject to significant environmental regulation and environmental compliance expenditures, which
could increase our costs and subject us to liabilities.
We are subject to various federal, state and foreign environmental laws and regulations concerning, among other
things, water discharges, air emissions, hazardous material and waste management and environmental cleanup.
Environmental laws and regulations continue to evolve and we may become subject to increasingly stringent
environmental standards in the future, particularly under air quality and water quality laws and standards related to
climate change issues, such as reporting of greenhouse gas emissions. Increased regulatory activity at the state,
federal and international level is possible regarding climate change as well as other emerging environmental issues
associated with our manufacturing sites, such as water quality standards based on elevated fish consumption rates.
Compliance with regulations that implement new public policy in these areas might require significant expenditures
on our part or even the curtailment of certain of our manufacturing operations.
We are required to comply with environmental laws and the terms and conditions of multiple environmental permits.
In particular, the pulp and paper industry in the United States is subject to several performance based rules associated
with effluent and air emissions as a result of certain of its manufacturing processes. Federal, state and local laws and
regulations require us to routinely obtain authorizations from and comply with the evolving standards of the appropriate
governmental authorities, which have considerable discretion over the terms of permits. Failure to comply with
environmental laws and permit requirements could result in civil or criminal fines or penalties or enforcement actions,
including regulatory or judicial orders enjoining or curtailing our operations or requiring us to take corrective measures,
install pollution control equipment, or take other remedial actions, such as product recalls or labeling changes. We
also may be required to make additional expenditures, which could be significant, relating to environmental matters
on an ongoing basis.
In 2012, we were notified that the U.S. Environmental Protection Agency, or EPA, submitted a civil referral to the U.S.
Department of Justice, or DOJ, alleging violations of the Clean Air Act stemming from an EPA investigation at our
Lewiston, Idaho pulp facility. Prior to the filing of any formal action, we and the DOJ agreed to discuss the resolution
of the allegations, and the parties entered into an agreement to toll the statute of limitations. The tolling agreement
expires on July 31, 2014, unless further extended by the parties. Discussions with the DOJ and EPA are ongoing.
However, this matter could result in civil penalties or enforcement actions, including regulatory or judicial orders enjoining
or curtailing our operations or requiring us to take corrective measures, install pollution control equipment, or take
other remedial actions.
13
We own properties, conduct or have conducted operations at properties, and have assumed indemnity obligations in
connection with our spin-off in 2008 from Potlatch Corporation, for properties or operations where hazardous materials
have been or were used for many years, including during periods before careful management of these materials was
required or generally believed to be necessary. Consequently, we will continue to be subject to risks under environmental
laws that impose liability for historical releases of hazardous substances. There can be no assurance that future
environmental permits will be granted or that we will be able to maintain and renew existing permits, and the failure
to do so could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on information technology in critical areas of our operations, and a disruption relating to such
technology could harm our financial condition.
We use information technology, or IT, systems in various aspects of our operations, including enterprise resource
planning, or ERP, management of inventories and customer sales. Some of these systems have been in place for long
periods of time. Additionally, with the acquisition of Cellu Tissue, we have different legacy IT systems which we are
continuing to integrate, including the implementation of a single company-wide ERP system. If one of these systems
or the ERP implementation was to fail or cause operational or reporting interruptions, or if we decide to change these
systems or hire outside parties to provide these systems, we may suffer disruptions, which could have a material
adverse effect on our results of operations and financial condition. In addition, we may underestimate the costs and
expenses of developing and implementing new systems.
We face cyber-security risks.
Our business operations rely upon secure information technology systems for data capture, processing, storage and
reporting. Despite careful security and controls design, implementation and updating, our information technology
systems could become subject to cyber attacks. Network, system, application and data breaches could result in
operational disruptions or information misappropriation, which could result in lost sales, business delays, negative
publicity and could have a material adverse effect on our business, results of operations and financial condition.
United States and global economic conditions could have adverse effects on the demand for our products
and financial results.
U.S. and global economic conditions have negatively affected and may continue to negatively affect our business and
financial results. For example, the away-from-home consumer paper products market has experienced a decline
because of the slowdown in the travel and restaurant industries as a result of the ongoing economic downturn. Recessed
economic conditions affect our business in a number of ways, including causing: (i) increased pressure for price
concessions from customers; (ii) declines in domestic and global demand for paperboard; (iii) shifts in customer
purchases that affect the mix of our product sales; (iv) decreased or low housing starts, which increase production
costs due to lower wood fiber supplies; and (v) financial distress or insolvency for certain customers which could affect
our sales volumes or our ability to collect accounts receivable on a timely basis from those customers.
Cyclical industry conditions have in the past affected and may continue to adversely affect the operating
results and cash flow of our Pulp and Paperboard business.
Our Pulp and Paperboard business is particularly affected by cyclical market conditions. We may be unable to sustain
pricing in the face of weaker demand, and weaker demand may in turn cause us to take production downtime. In
addition to lost revenue from lower shipment volumes, production downtime causes unabsorbed fixed manufacturing
costs due to lower production levels. Our results of operations and cash flows may be materially adversely affected
in a period of prolonged and significant market weakness. We are not able to predict market conditions or our ability
to sustain pricing and production levels during periods of weak demand.
We rely on a limited number of third-party suppliers for certain raw materials required for the production of
our products.
Our dependence on a limited number of third-party suppliers, and the challenges we may face in obtaining adequate
supplies of raw materials, involve several risks, including limited control over pricing, availability, quality, and delivery
schedules. We cannot be certain that our current suppliers will continue to provide us with the quantities of these raw
materials that we require or will continue to satisfy our anticipated specifications and quality requirements. Any supply
interruption in limited raw materials could materially harm our ability to manufacture our products until a new source
of supply, if any, could be identified and qualified. Although we believe there are other suppliers of these raw materials,
we may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable
terms. Any performance failure on the part of our suppliers could interrupt production of our products, which would
have a material adverse effect on our business.
14
Additional expansion of our business through construction of new facilities or acquisitions may not proceed
as anticipated.
In addition to the acquisition of Cellu Tissue and construction of our North Carolina facility, in the future we may build
other converting and papermaking facilities, pursue acquisitions of existing facilities, or both. We may be unable to
identify future suitable building locations or acquisition targets. In addition, we may be unable to achieve anticipated
benefits or cost savings from construction projects or acquisitions in the timeframe we anticipate, or at all. Any inability
by us to integrate and manage any new or acquired facilities or businesses in a timely and efficient manner, any inability
to achieve anticipated cost savings or other anticipated benefits from these projects or acquisitions in the time frame
we anticipate or any unanticipated required increases in promotional or capital spending could adversely affect our
business, financial condition, results of operations or liquidity. Large construction projects or acquisitions can result in
a decrease in our cash and short-term investments, an increase in our indebtedness, or both, and also may limit our
ability to access additional capital when needed and divert management's attention from other business concerns.
The indentures for our outstanding notes that we issued in 2010 and 2013, and the credit agreement governing
our senior secured revolving credit facility, contain various covenants that limit our discretion in the operation
of our business.
The indentures governing our outstanding notes that we issued in 2010 and 2013, and the credit agreement governing
our senior secured revolving credit facility, contain various provisions that limit our discretion in the operation of our
business by restricting our ability to:
undergo a change in control;
sell assets;
pay dividends and make other distributions;
make investments and other restricted payments;
redeem or repurchase our capital stock;
incur additional debt and issue preferred stock;
create liens;
consolidate, merge, or sell substantially all of our assets;
enter into certain transactions with our affiliates;
engage in new lines of business; and
enter into sale and lease-back transactions.
These restrictions on our ability to operate our business at our discretion could seriously harm our business by, among
other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.
In addition, our senior secured revolving credit facility requires, among other things, that we maintain a minimum fixed
charge coverage ratio of at least 1.0-to-1.0 when availability falls below $50 million or an event of default exists. Events
beyond our control could affect our ability to meet this financial test, and we cannot assure you that we will meet it.
Our failure to comply with the covenants contained in our senior secured revolving credit facility or the
indentures governing our outstanding notes, including as a result of events beyond our control, could result
in an event of default that could cause repayment of the debt to be accelerated.
If we are not able to comply with the covenants and other requirements contained in the indentures governing our
outstanding notes, our senior secured revolving credit facility or our other debt instruments, an event of default under
the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under our other
debt instruments, prohibit us from accessing additional borrowings, and permit the holders of the defaulted debt to
declare amounts outstanding with respect to that debt to be immediately due and payable. Our assets and cash flow
may not be sufficient to fully repay borrowings under our outstanding debt instruments. In addition, we may not be
able to refinance or restructure the payments on the applicable debt. Even if we were able to secure additional financing,
it may not be available on favorable terms.
15
To service our indebtedness, we must generate significant cash flows. Our ability to generate cash depends
on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including our outstanding notes, and to fund
planned capital expenditures, will depend on our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings
will be available to us under our senior secured revolving credit facility in an amount sufficient to enable us to pay our
indebtedness, including the notes, or to fund our other liquidity needs. We cannot assure you that we will be able to
refinance any of our indebtedness, including our senior secured revolving credit facility and our existing notes, on
commercially reasonable terms or at all.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may make it difficult for
stockholders to change the composition of our Board of Directors and may discourage hostile takeover
attempts that some of our stockholders may consider to be beneficial.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may have the effect of delaying or
preventing changes in control if our Board of Directors determines that such changes in control are not in the best
interests of the company and our stockholders. The provisions in our certificate of incorporation and bylaws include,
among other things, the following:
a classified Board of Directors with three-year staggered terms;
the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other
terms, including preferences and voting rights, of those shares without stockholder approval;
stockholder action can only be taken at a special or regular meeting and not by written consent;
advance notice procedures for nominating candidates to our Board of Directors or presenting matters at
stockholder meetings;
removal of directors only for cause;
allowing only our Board of Directors to fill vacancies on our Board of Directors; and
supermajority voting requirements to amend our bylaws and certain provisions of our certificate of incorporation.
While these provisions have the effect of encouraging persons seeking to acquire control of the company to negotiate
with our Board of Directors, they could enable the Board of Directors to hinder or frustrate a transaction that some, or
a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage
attempts to remove and replace incumbent directors. We are also subject to Delaware laws that could have similar
effects. One of these laws prohibits us from engaging in a business combination with a significant stockholder unless
specific conditions are met.
ITEM 1B.
Unresolved Staff Comments
None.
16
ITEM 2.
Properties
FACILITIES
We own and operate facilities located throughout the United States and one in Canada. The following table lists each of our
facilities and its location, use, and 2013 capacity and production:
USE
LEASED OR OWNED CAPACITY
PRODUCTION1
CONSUMER PRODUCTS
Tissue manufacturing
facilities:
East Hartford, Connecticut
Gouverneur, New York
Ladysmith, Wisconsin
Las Vegas, Nevada
Lewiston, Idaho
Menominee, Michigan
Neenah, Wisconsin
Shelby, North Carolina3
St. Catharines, Ontario
Wiggins, Mississippi
Tissue
Tissue
Tissue
TAD tissue
Tissue
Machine-glazed tissue
Tissue
TAD tissue
TAD tissue
Machine-glazed tissue
Tissue
Machine-glazed tissue
Tissue converting facilities:
Central Islip, New York2
Tissue converting
Elwood, Illinois2
Tissue converting
Tissue converting
Las Vegas, Nevada
Tissue converting
Lewiston, Idaho
Machine-glazed tissue converting
Menominee, Michigan
Neenah, Wisconsin
Tissue converting
Oklahoma City, Oklahoma2 Tissue converting
Shelby, North Carolina3
Tissue converting
Thomaston, Georgia2, 4
Tissue converting
PULP AND PAPERBOARD
Pulp Mills:
Cypress Bend, Arkansas
Lewiston, Idaho
Pulp
Pulp
Bleached Paperboard Mills:
Cypress Bend, Arkansas
Lewiston, Idaho
Paperboard
Paperboard
CORPORATE
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned/Leased
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned/Leased
Leased
36,000 tons
39,000 tons
56,000 tons
38,000 tons
190,000 tons
36,000 tons
84,000 tons
70,000 tons
20,000 tons
23,000 tons
29,000 tons
33,000 tons
654,000 tons
38,000 tons
68,000 tons
61,000 tons
95,000 tons
27,000 tons
99,000 tons
29,000 tons
62,000 tons
— tons
479,000 tons
32,000 tons
39,000 tons
52,000 tons
35,000 tons
185,000 tons
34,000 tons
80,000 tons
54,000 tons
22,000 tons
23,000 tons
29,000 tons
33,000 tons
618,000 tons
29,000 tons
58,000 tons
52,000 tons
72,000 tons
6,000 tons
63,000 tons
15,000 tons
37,000 tons
12,000 tons
344,000 tons
Owned
Owned
Owned
Owned
316,000 tons
540,000 tons
856,000 tons
291,000 tons
526,000 tons
817,000 tons
343,000 tons
445,000 tons
788,000 tons
325,000 tons
441,000 tons
766,000 tons
Alpharetta, Georgia
Spokane, Washington
Operations and administration
Corporate headquarters
Owned/Leased
Leased
N/A
N/A
N/A
N/A
1
2
3
4
Production amounts are approximations for full year 2013.
The buildings located at these facilities are leased by Clearwater Paper or a subsidiary, and the operating equipment located within the building is owned
by Clearwater Paper or a subsidiary.
In December 2012, our new TAD tissue machine in North Carolina began producing tissue. In addition to two converting lines installed in 2011, and two
more converting lines installed in 2012, at our North Carolina location, two more tissue converting lines at that site became operational during 2013.
On March 6, 2013, we announced the planned permanent closure of our Thomaston, Georgia converting and distribution facility. As of December 31, 2013,
all converting lines have been relocated and installed at our other facilities. As a result, the capacity from our Thomaston facility has been reallocated
accordingly.
In addition to the manufacturing facilities listed in this table, we own a chip shipment facility in Columbia City, Oregon and a chipping
producing facility in Clarkston, Washington.
17
ITEM 3.
Legal Proceedings
On August 13, 2012, we were notified that the U.S. Environmental Protection Agency, or EPA, submitted a civil referral
to the U.S. Department of Justice, or DOJ, alleging violations of the Clean Air Act stemming from an EPA investigation
that included an inspection of our Lewiston, Idaho pulp facility in July 2009 and a subsequent information request
dated February 24, 2011. On July 19, 2013, the EPA issued to us an additional information request. Prior to the filing
of any formal action, we and the DOJ agreed to discuss the resolution of the allegations. On October 21, 2013, the
parties entered into a new agreement to toll the statute of limitations. The tolling period commenced as of September
14, 2012 and expires on July 31, 2014, unless further extended by the parties. Discussions with the DOJ and EPA are
ongoing.
In addition to the matters discussed above, we may from time to time be involved in claims, proceedings and litigation
arising from our business and property ownership. We believe, based on currently available information, that the results
of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition.
ITEM 4.
Mine Safety Disclosures
Not applicable.
18
Part II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
MARKET FOR OUR COMMON STOCK
Our common stock is traded on the New York Stock Exchange. The following table sets forth, for each period indicated,
the high and low sales prices of our common stock during our two most recent years.
Year Ended December 31, 2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended December 31, 2012:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
HOLDERS
Common Stock Price
High
Low
$ 53.91 $ 47.15
45.13
44.64
38.94
50.40
52.47
53.01
$ 42.79 $ 37.33
33.37
29.84
32.51
41.98
34.79
40.19
On February 14, 2014, the last reported sale price for our common stock on the New York Stock Exchange was $65.88
per share. As of February 14, 2014, there were approximately 1,000 registered holders of our common stock.
DIVIDENDS
We have not paid any cash dividends and do not anticipate paying a cash dividend in 2014. We will continue to review
whether payment of a cash dividend on our common stock in the future best serves the company and our stockholders.
The declaration and amount of any dividends, however, will be determined by our Board of Directors and will depend
on our earnings, our compliance with the terms of our notes and revolving credit facility that contain certain restrictions
on our ability to pay dividends, and any other factors that our Board of Directors believes are relevant.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Please see Part III, Item 12 of this report for information relating to our equity compensation plans.
ISSUER PURCHASES OF EQUITY SECURITIES
On February 5, 2014, in an event subsequent to the close of our 2013 fiscal year, 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.
On January 17, 2013, 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, which was completed in 2013. The repurchases
were authorized to be carried out by the utilization of a number of different methods, including but not limited to, open
market purchases, accelerated buybacks and negotiated block purchases. 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 average price of $48.51 per share.
19
On July 28, 2011, we announced that our Board of Directors had authorized the repurchase of up to $30.0 million of
our common stock. Under the stock repurchase program, we were authorized to repurchase shares in the open market
or as otherwise determined by management, subject to market conditions, business opportunities and other factors.
We completed this repurchase program in the fourth quarter of 2012. The total number of shares repurchased under
this program was 853,470 at an aggregate cost of $30.0 million and an average price of $35.15 per share.
The following table provides information about share repurchases that we made during the three months ended
December 31, 2013:
Total
Number of
Shares
Purchased
Average
Price Paid per
Share
494,760 $
— $
— $
494,760 $
48.95
—
—
48.95
Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Program
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
Program
494,760 $
— $
— $
494,760
—
—
—
Period
October 1, 2013 to October 31, 2013
November 1, 2013 to November 30, 2013
December 1, 2013 to December 31, 2013
Total
ITEM 6.
Selected Financial Data
All of the data listed below has been derived from our audited financial statements. Our historical financial and other
data is not necessarily indicative of our future performance. In addition, all amounts below for 2010 reflect the acquisition
of Cellu Tissue on December 27, 2010, including four days of Cellu Tissue’s operating results and incurrence of
acquisition related expenses. Amounts for 2011 forward, are reflective of the sale of our Lewiston, Idaho sawmill in
November 2011.
Earnings per share and common shares outstanding data have been retroactively adjusted to reflect our two-for-one
stock split that was effected in the form of a stock dividend distributed on August 26, 2011 to shareholders of record
on August 12, 2011.
(In thousands, except
earnings per share amounts)
Net sales
Income from operations1
Net earnings
Working capital2
Long-term debt, net of current portion
Stockholders’ equity
Capital expenditures3
Property, plant and equipment, net
Basic net earnings per common share
Basic average common shares
outstanding
Diluted net earnings per common share
$
$
Diluted average common shares
outstanding
2013
2012
2011
2010
2009
$
1,889,830
$
1,874,304
$
1,927,973
$
1,372,965
$
1,250,069
99,328
106,955
375,975
650,000
605,094
86,508
884,698
145,387
64,131
293,733
523,933
540,894
207,115
877,377
115,445
39,674
390,839
523,694
484,904
137,743
735,566
98,767
73,800
394,346
538,314
468,349
47,033
654,456
4.84
$
2.75
$
1.73
$
3.22
$
22,081
23,299
22,914
22,947
4.80
$
2.72
$
1.66
$
3.12
$
297,440
182,464
452,583
148,285
363,736
19,328
364,024
947,463
8.03
22,721
7.75
Total assets
1,744,825
1,633,456
1,571,318
1,545,336
22,264
23,614
23,952
23,670
23,540
1
Income from operations for the year ended December 31, 2009, included $170.6 million associated with the Alternative Fuel Mixture Tax
Credit.
2 Working capital is defined as our current assets less our current liabilities as presented on our Consolidated Balance Sheets.
3
Capital expenditures in 2012, 2011 and 2010 primarily include expenditures related to our through-air-dried tissue expansion project at our
Shelby, North Carolina, and Las Vegas, Nevada, manufacturing and converting facilities.
20
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements
and notes thereto that appear elsewhere in this report. This discussion contains forward-looking statements reflecting
our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed
in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk
Factors” and elsewhere in this report.
Unless the context otherwise requires or unless otherwise indicates, references in this report to “Clearwater Paper
Corporation,” “we,” “our,” “the company” and “us” refer to Clearwater Paper Corporation and its subsidiaries.
OVERVIEW
2013 Highlights
Consumer Products Expansion
In December 2012, we announced the start-up of our new through-air-dried, or TAD, paper machine and the completion
of two additional converting lines that became operational in Shelby, North Carolina during the fourth quarter of 2012.
With the completion of two additional converting lines at that facility in 2013, bringing the total to six, and upgrades
to our TAD tissue manufacturing facility in Las Vegas, Nevada, we expect to increase our ultra and premium offerings
to existing and new customers.
Overall, our TAD tissue expansion project, or TAD project, will allow us to supply a full range of TAD products, including
paper towels and bath tissue, to customers across the U.S., while reducing transportation costs. We believe this project,
along with our existing manufacturing capabilities, establishes us as the only private label tissue products company
in the U.S. to offer a full line of tissue products to customers.
Capital Allocation
On February 5, 2014, in an event subsequent to the close of our 2013 fiscal year, 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.
On January 23, 2013, we issued $275 million aggregate principal amount of 4.5% senior notes, which we refer to as
the 2013 Notes. Approximately $166 million of the net proceeds from the issuance was used to redeem all of our $150
million aggregate principal amount of 10.625% senior notes due 2016, which we refer to as the 2009 Notes.
On January 17, 2013, 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, which was completed in fourth quarter. The
repurchases were authorized to be carried out by the utilization of a number of different methods, including but not
limited to, open market purchases, accelerated buybacks and negotiated block purchases. 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.
Facility Closures
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 having ceased at the end of 2013. We incurred $6.0 million of costs associated with the
closure in 2013.
On February 17, 2014, in an event subsequent to the close of our 2013 fiscal year, we announced the permanent and
immediate closure of our Long Island, New York, tissue converting and distribution facility. We expect the total impact
of non-recurring exit related costs to be approximately $12 million to $15 million, of which approximately $10 million
is expected to be incurred in 2014 and the remainder in 2015.
21
Business
We are a leading producer of private label tissue and premium bleached paperboard products. Our products are
primarily wood pulp-based and predominately manufactured in the U.S.
Our business is organized into two reporting segments:
• Our Consumer Products segment manufactures and sells a complete line of at-home tissue products in each
tissue category, including bathroom tissue, paper towels, napkins and facial tissue. We also manufacture
away-from-home tissue, or AFH, machine-glazed tissue and parent rolls for external sales. Our integrated
manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-
competitive products with brand equivalent quality to our consumer products customers. In 2013, our
Consumer Products segment had net sales of $1.1 billion, representing approximately 61% of our total net
sales.
• Our Pulp and Paperboard segment manufactures and markets bleached paperboard for the high-end segment
of the packaging industry and is a leading producer of solid bleach sulfate paperboard. This segment also
produces hardwood and softwood pulp, which is primarily used as the basis for our paperboard products,
and slush pulp, which it supplies to our Consumer Products segment. In 2013, our Pulp and Paperboard
segment had net sales of $740.1 million, representing approximately 39% of our total net sales.
Developments and Trends in our Business
Net Sales
Prices for our consumer tissue products are affected by competitive conditions and the prices of branded tissue
products. Tissue has historically been one of the strongest segments of the paper and forest products industry due to
its steady demand growth and the absence of severe supply imbalances that occur in a number of other paper segments.
In recent years the industry has seen an increase in TAD tissue products as industry participants have added or
improved TAD production facilities. Our Consumer Products segment competes based on product quality, customer
service and price. We deliver customer-focused business solutions by assisting in managing product assortment,
category management, and pricing and promotion optimization.
Our pulp and paperboard business experiences cyclical market conditions and is affected by macro-economic
conditions around the world. As a result, historical prices for our products and sales volumes have been volatile.
Product pricing is significantly affected by the relationship between supply and demand for our products. Product
supply in the industry is influenced primarily by fluctuations in available manufacturing production, which tends to
increase during periods when prices remain strong. In addition, currency exchange rates affect U.S. supplies of
paperboard, as non-U.S. manufacturers are attracted to the U.S. market when the dollar is relatively strong. Our
paperboard business, through exports denominated in U.S. dollars, has benefited significantly from general weakness
in the U.S. dollar over the past few years. Paperboard pricing was relatively flat when comparing 2013 to 2012.
The markets for our products are highly competitive and companies that have substantially greater financial resources
than we do compete with us in each of our markets. In addition, our businesses are capital intensive, which leads to
high fixed costs, large capital outlays and generally results in continued production as long as prices are sufficient to
cover variable costs. These conditions have contributed to substantial price competition, particularly during periods of
reduced demand. Some of our competitors have lower production costs and greater buying power and, as a result,
may be less adversely affected than we are by price decreases.
Net sales consist of sales of consumer tissue and pulp and paperboard, net of discounts, returns and allowances and
any sales taxes collected.
22
Operating Costs
Prices for our principal operating cost items are variable and directly affect our results of operations. For example, as
economic conditions improve, we normally would expect at least some upward pressure on these operating costs.
Competitive market conditions can limit our ability to pass cost increases through to our customers.
(Dollars in thousands)
Purchased pulp
Chemicals
Transportation1
Chips, sawdust and logs
Energy
Packaging supplies
Maintenance and repairs2
Depreciation
2013
2012
2011
Years Ended December 31,
Cost
$ 294,911
191,473
180,188
139,456
126,687
103,286
97,006
80,758
$1,213,765
Percentage of
Cost of Sales
Cost
Percentage of
Cost of Sales
Cost
17.6% $ 242,921
183,606
11.5
171,114
10.8
162,904
8.3
109,592
7.6
86,282
6.2
5.8
4.8
98,217
69,880
72.6% $1,124,516
15.1% $ 291,595
174,660
11.5
185,329
10.6
196,017
10.1
130,179
6.8
94,926
5.4
6.1
4.3
99,775
70,564
69.9% $1,243,045
Percentage of
Cost of Sales
17.1%
10.3
10.9
11.5
7.6
5.6
5.9
4.1
73.0%
1
2
Includes internal and external transportation costs.
Excluding related labor costs.
Purchased pulp. We purchase a significant amount of the pulp needed to manufacture our consumer products, and
to a lesser extent our paperboard, from external suppliers. For 2013, total purchased pulp costs were 17.6% of our
cost of sales, representing a 2.5 percentage point increase compared to 2012. The higher purchased pulp costs were
due primarily to increased usage associated with the ramp up of our North Carolina TAD paper machine. In addition,
higher purchased pulp costs were driven by increased pricing, as well as the need to purchase additional pulp from
external suppliers to offset the reduction from internal sources resulting from the planned major maintenance at our
Idaho pulp and paperboard facility during the third quarter of 2013 and the machine downtime taken at our Arkansas
pulp and paperboard facility in the first quarter of 2013.
Chemicals. We consume a substantial amount of chemicals in the production of pulp and paperboard, as well as in
the production of our tissue products. The chemicals we generally use include polyethylene, caustic, starch, sodium
chlorate, latex and specialty paper process chemicals. A large portion of the chemicals used in our manufacturing
processes, particularly in the pulp-making process, are petroleum-based and are impacted by petroleum prices.
Our chemical costs increased $7.9 million compared to 2012, due to increased pricing for polyethylene and other
processing chemicals, as well as higher chemical consumption resulting from the first year of production on our North
Carolina TAD paper machine. In addition, chemical consumption increased in 2013 at our Arkansas pulp and paperboard
facility due to recovery boiler operational issues in the second quarter.
Transportation. Fuel prices impact transportation costs related to delivery of raw materials to our manufacturing facilities,
internal inventory transfers and delivery of our finished products to customers. Changing fuel prices particularly affect
our margins for consumer products because we supply customers throughout the U.S. and transport unconverted
parent rolls from our tissue mills to our tissue converting facilities. Our transportation costs for 2013, compared to
2012, were $9.1 million higher as a result of increased shipping costs related to an increase in average miles shipped
and increased shipments of converted TAD products, as well as lower first quarter inventory levels for our Consumer
Products segment related to our TAD transition. The reduced inventory levels required multiple shifts in regional
distributions for our tissue product lines, and as a result we incurred an overall increase of internal tons shipped.
Chips, sawdust and logs. We purchase chips, sawdust and logs used to manufacture pulp. We source residual wood
fibers under both long-term and short-term supply agreements, as well as in the spot market. Overall costs decreased
by $23.4 million for chips, sawdust and logs for 2013, compared to 2012. The overall decline in the 2013 period was
primarily attributable to lower overall pricing at our Idaho pulp and paperboard facility and decreased usage due to
our planned major maintenance during the third quarter of 2013 at the same facility. In addition, we experienced
decreased usage at our Arkansas pulp and paperboard facility due to recovery boiler operational issues, which were
partially offset by higher overall pricing at our Arkansas facility due primarily to supply limitations caused by wet weather
conditions in the region for part of 2013.
23
Energy. We use energy in the form of electricity, hog fuel, steam and natural gas to operate our mills. Energy prices
have fluctuated widely over the past decade. We have taken steps, and intend to continue to take steps, to reduce
our exposure to volatile energy prices through conservation. In addition, cogeneration facilities that produce steam
and electricity at our East Hartford, Connecticut, Lewiston, Idaho and Menominee, Michigan manufacturing sites help
to lower our energy costs. TAD tissue production, however, involves increased natural gas usage as compared to
conventional tissue manufacturing and, as a result, our natural gas requirements have increased with the ramp up our
North Carolina TAD paper machine. Energy costs for 2013 were 15.6% higher than 2012 due to the first full year of
production on our North Carolina TAD paper machine, as well as an increase in average market pricing for natural
gas. To help mitigate our exposure to changes in natural gas prices, from time to time we have used firm-price contracts
to supply a portion of our natural gas requirements. As of December 31, 2013, these contracts covered approximately
55% of the expected average monthly requirements for the first quarter of 2014. Our energy costs in future periods
will depend principally on our ability to produce a substantial portion of our electricity needs internally, on changes in
market prices for natural gas and on our ability to reduce our energy usage through conservation.
Packaging supplies. As a significant producer of private label consumer tissue products, we package to order for retail
chains, wholesalers and cooperative buying organizations. Under our agreements with those customers, we are
responsible for the expenses related to the unique packaging of our products for direct retail sale to consumers. For
2013, packaging costs were $17.0 million higher than 2012 primarily due to higher retail case shipments of facial and
bathroom tissue and an increase in prices for poly wrapping and corrugated cardboard.
Maintenance and repairs. We regularly incur significant costs to maintain our manufacturing equipment. We perform
routine maintenance on our machines and periodically replace a variety of parts such as motors, pumps, pipes and
electrical parts.
Major equipment maintenance and repairs in our Pulp and Paperboard segment also require maintenance shutdowns
approximately every 18 to 24 months, which increase costs and may reduce net sales in the quarters in which the
major maintenance shutdowns occur. Our next planned major maintenance outage is scheduled for the spring of 2015.
During the first quarter of 2013, we had four days of machine downtime costing $5.0 million, excluding labor, at our
Arkansas facility. During the third quarter of 2013, we incurred 11 days of paper machine downtime, costing $17.5
million, for the planned major maintenance at our Idaho facility. There was no major maintenance in the second and
fourth quarters of 2013.
In addition to ongoing maintenance and repair costs, we make capital expenditures to increase our operating capacity
and efficiency, to improve safety at our facilities and to comply with environmental laws. Excluding $11.9 million of
expenditures for our TAD project, we spent $74.5 million on capital expenditures during 2013.
Depreciation. We record substantially all of our depreciation expense associated with our plant and equipment in "Cost
of sales" on our Consolidated Statements of Operations. Depreciation expense for 2013 was $10.9 million higher than
2012 due primarily to $10.7 million of additional depreciation expense associated with our North Carolina TAD paper
machine, which started up in December 2012.
Other. Other costs not included in the above table primarily consist of wage and benefit expenses and miscellaneous
operating costs. Although period cut-offs and inventory levels can impact cost of sales amounts, we would expect this
impact to be relatively steady as a percentage of costs on a period-over-period basis. We experienced an increase in
wage and benefit expenses in 2013, compared to 2012, due largely to the incremental costs associated with the startup
of our North Carolina TAD facility, as well as higher overall employee costs.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of compensation and associated costs for sales and
administrative personnel, as well as commission expenses related to sales of our products. Our total selling, general
and administrative costs were $119.1 million in 2013 compared to $121.0 million in 2012. The lower expense for 2013
was due primarily to a decrease in profit-dependent compensation accruals and lower legal expenses during 2013,
partially offset by a $2.7 million increase in mark-to-market expense related to our directors' common stock units in
2013 compared to 2012.
24
Interest expense
Interest expense is mostly comprised of interest on the 2013 Notes and our $375 million aggregate principal amount
of 7.125% senior notes due 2018 issued in October 2010, which we refer to as the 2010 Notes. Interest expense also
includes amortization of deferred issuance costs associated with all of our notes and our revolving credit facility. As a
result of the issuance of the 2013 Notes at an interest rate significantly lower than that of our former 2009 Notes, which
were redeemed in the first quarter of 2013 using a portion of the proceeds from the 2013 Notes, our interest expense
decreased by approximately $3.6 million on an annual basis. However, this favorable change in interest expense
associated with our notes was more than offset by a decrease in capitalized interest, as no interest was capitalized in
2013 compared to total capitalized interest of $12.6 million in 2012.
Income taxes
Income taxes are based on reported earnings and tax rates in jurisdictions in which our operations occur and offices
are located, adjusted for available credits, changes in valuation allowances and differences in reported earnings and
taxable income using current law and enacted tax rates. The annual rate, including discrete items, for the year ended
December 31, 2013, was a benefit of 179.7%, compared to expense of 42.5% and 44.1% for 2012 and 2011, respectively.
The reasons for the change in the tax rate from 2013 compared to 2012 and 2011 were primarily due to three items.
The first was a decrease in the rate attributable to the release of uncertain tax positions, resulting in a benefit to the
rate of 180.9%. The second was a decrease due to the additional Cellulosic Biofuel Producer Credits, or CBPC,
identified as part of an Internal Revenue Service audit that were previously unclaimed, as well as a conversion from
the Alternative Fuel Mixture Tax Credit, or AFMTC, to CBPC, which resulted in benefits to the rate of 26.7%. Finally,
a decrease in the rate due to state tax credits resulted in a benefit to the rate of 5.9%.
The estimated annual effective tax rate for 2014 is expected to be approximately 38%.
25
RESULTS OF OPERATIONS
Our business is organized into two reporting segments: Consumer Products and Pulp and Paperboard. Intersegment
costs for pulp transferred from our Pulp and Paperboard segment to our Consumer Products segment are recorded
at cost, and thus no intersegment sales or cost of sales for these transfers are included in our segments' results. Our
financial and other data are not necessarily indicative of our future performance.
YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012
The following table sets forth data included in our Consolidated Statements of Operations as a percentage of net sales.
(Dollars in thousands)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Earnings before income taxes
Income tax benefit (provision)
Net earnings
Years Ended December 31,
2013
2012
$ 1,889,830
100.0% $ 1,874,304
100.0%
(1,671,371)
(119,131)
(1,790,502)
99,328
(44,036)
(17,058)
38,234
68,721
106,955
$
88.4
6.3
94.7
5.3
2.3
0.9
2.0
3.6
5.7% $
(1,607,872)
(121,045)
(1,728,917)
145,387
(33,796)
—
111,591
(47,460)
64,131
85.8
6.5
92.2
7.8
1.8
—
6.0
2.5
3.4%
Net sales—Net sales for 2013 increased by $15.5 million, or 0.8%, compared to 2012, due to increased shipments of
paperboard and higher net selling prices for retail tissue, which were favorably affected by a larger proportion of higher-
priced TAD product sales. These favorable comparisons were partially offset by lower non-retail shipments, as well
as lower external pulp shipments as we continue to increase our consumption of our internally produced pulp within
our Consumer Products segment. These items are discussed further below under “Discussion of Business Segments.”
Cost of sales—Cost of sales increased 2.6 percentage points in 2013 to 88.4% of net sales, compared to 85.8% of
net sales in 2012. The increase was primarily a result of $15.7 million in TAD transition costs incurred during the 2013
period, an increase in depreciation expense of $10.7 million related to our North Carolina TAD machine, $6.0 million
of costs related to the Thomaston, Georgia facility closure, $2.9 million of incremental costs associated with an electrical
disruption and operational issues with maintenance and repairs on the recovery boiler at our Arkansas pulp and
paperboard facility, and higher energy, employee and packaging costs.
Selling, general and administrative expenses—Selling, general and administrative expenses decreased $1.9 million,
or 1.6%, during 2013 when compared to 2012, due to a decrease in profit-dependent compensation accruals and
lower legal expense, which was higher in 2012 due to the First Quality/Metso Paper litigation. These decreases were
partially offset by a $4.1 million mark-to-market expense adjustment related to our directors' common stock units
compared to $1.4 million of such expense in 2012.
Interest expense—Interest expense increased $10.2 million during 2013, compared to the same period of 2012. The
increase was attributable to the absence of capitalized interest during the current year, compared to $12.6 million of
capitalized interest associated with our TAD tissue expansion project in 2012. The increase in interest expense was
partially offset by the benefit of refinancing the 2009 Notes with proceeds from the issuance of the 2013 Notes, which
carry a significantly lower interest rate.
Debt retirement costs—Debt retirement costs include a one-time charge in connection with the complete redemption
of the 2009 Notes on February 22, 2013. Total costs of $17.1 million include cash charges of approximately $14 million
related to a “make whole” premium plus accrued and unpaid interest and a non-cash charge of approximately $3
million related to the write off of deferred issuance costs and unamortized discounts.
26
Income tax provision—During 2013 and 2012, there were a number of items that were included in the calculation of
our income tax provision that we do not believe were indicative of our core operating performance. Excluding these
items, the adjusted tax rate for 2013 would have been 33.3%, compared to an adjusted 36.8% in 2012. The following
table details these items:
(In thousands)
Income tax benefit (provision)
Special items, tax impact:
Discrete tax items related to settlement of uncertain tax positions
Discrete tax items related to tax credit conversions
Debt retirement costs
Discrete tax items related to additional CBPC
Costs associated with Thomaston facility closure
Directors' equity-based compensation expense
Loss on sale of foam assets
Expense associated with Metso litigation
Adjusted income tax provision
Years Ended December 31,
2013
2012
$ 68,721 $ (47,460)
(67,457)
(9,832)
(6,277)
(3,495)
(2,033)
(1,399)
—
—
6,398
—
—
—
(609)
(356)
—
(709)
$ (21,772) $ (42,736)
We recorded an income tax benefit of $68.7 million in 2013, compared to a provision of $47.5 million in 2012. The
generally accepted accounting principles, or GAAP, rate for 2013 was a benefit of 179.7%, compared to a provision
of 42.5% for 2012. The lower rate was the result of the net impact of reporting discrete items, primarily relating to an
additional benefit realized from a release of uncertain tax positions.
27
DISCUSSION OF BUSINESS SEGMENTS
Consumer Products
(Dollars in thousands - except per ton amounts)
Net sales
Operating income
Percent of net sales
Shipments (short tons)
Non-retail
Retail
Total tissue tons
Converted products cases (in thousands)
Sales price (per short ton)
Non-retail
Retail
Total tissue
Years Ended December 31,
2013
$ 1,149,692
52,799
2012
$ 1,134,556
93,347
4.6%
8.2%
231,243
295,529
526,772
55,135
237,655
293,672
531,327
53,675
$
$
1,470
2,740
2,183
$
$
1,466
2,674
2,134
Our Consumer Products segment reported an increase in net sales of $15.1 million, or 1.3%, for 2013, compared to
2012. The higher net sales were due primarily to a 2.5% increase in retail tissue net selling prices, largely attributable
to a higher proportion of higher-priced TAD product sales, and a 2.7% increase in converted retail tissue case shipments,
softened by a 2.7% decrease in non-retail shipments.
Segment operating income for 2013 decreased by $40.5 million compared to the same period in 2012, primarily driven
by TAD transition costs of $15.7 million, an increase in depreciation expense of $10.7 million related to our North
Carolina TAD machine, and higher energy and employee costs also largely related to the ramp up of the North Carolina
facility. In addition, operating income was unfavorably affected by $6.0 million of costs associated with the closure of
our Thomaston, Georgia facility, as well as increased packaging costs due to increased pricing for poly wrapping and
corrugated cardboard. The TAD transition costs were incurred in the first three quarters of 2013 and consisted primarily
of increased transportation, manufacturing and outside purchased paper costs associated with the increased
conventional tissue sales we took on to help offset the displacement of conventional tissue sales expected by the ramp
up of our new Ultra TAD bathroom tissue product in 2013.
Pulp and Paperboard
(Dollars in thousands - except per ton amounts)
Net sales
Operating income
Percent of net sales
Paperboard shipments (short tons)
Paperboard sales price (per short ton)
Years Ended December 31,
2013
$ 740,138
95,781
2012
$ 739,748
103,910
12.9%
14.0%
765,052
958
$
760,919
956
$
Net sales for our Pulp and Paperboard segment in 2013 were relatively flat when compared to 2012. While both
shipments and net selling pricing for our paperboard increased slightly, these gains were partially offset by a continued
decrease in net sales of external pulp, which is a direct result of our continued utilization of internally produced pulp
in our Consumer Products segment.
Operating income for the segment decreased $8.1 million during 2013, compared to 2012. The lower operating income
was primarily due to incremental costs of $2.9 million associated with an electrical disruption and operational issues
with maintenance and repairs on the recovery boiler at our Arkansas pulp and paperboard facility, an increase of
approximately 25% in average market pricing for natural gas, and higher employee, transportation and chemical costs.
28
YEAR ENDED DECEMBER 31, 2012 COMPARED TO YEAR ENDED DECEMBER 31, 2011
The following table sets forth data included in our Consolidated Statements of Operations as a percentage of net sales.
(Dollars in thousands)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Income from operations
Interest expense, net
Other, net
Earnings before income taxes
Income tax provision
Net earnings
Years Ended December 31,
2012
2011
$ 1,874,304
100.0% $ 1,927,973
100.0%
(1,607,872)
(121,045)
(1,728,917)
145,387
(33,796)
—
111,591
(47,460)
64,131
$
85.8
6.5
92.2
7.8
1.8
—
6.0
2.5
3.4% $
(1,702,530)
(109,998)
(1,812,528)
115,445
(44,809)
284
70,920
(31,246)
39,674
88.3
5.7
94.0
6.0
2.3
—
3.7
1.6
2.1%
Net sales—Net sales for 2012 decreased by $53.7 million, or 2.8%, compared to 2011, due to the sale of our Lewiston,
Idaho sawmill in November 2011, which accounted for $80.3 million of net sales in 2011. Excluding the impact of net
sales from the sawmill in 2011, overall net sales were higher in 2012 due to increased shipments and higher net selling
prices for our consumer products as well as increased paperboard shipments. These favorable comparisons were
partially offset by lower external pulp shipments, due to increased internal usage of pulp we produce, and lower pulp
and paperboard net selling prices. These items are discussed further below under “Discussion of Business Segments.”
Cost of sales—Cost of sales decreased 2.5 percentage points in 2012 to 85.8% of net sales, compared to 88.3% of
net sales in 2011. The favorable change in cost of sales was due primarily to lower costs for purchased pulp, chips,
sawdust and logs, energy, and transportation, partially offset by higher chemical costs.
Selling, general and administrative expenses—Selling, general and administrative expenses increased $11.0 million,
or 10.0%, during 2012 compared to 2011. The increase was primarily a result of higher wage and benefits expense,
increased incentive compensation expense, expense related to the First Quality/Metso Paper litigation and additional
expenses associated with the integration of Cellu Tissue Holdings, or Cellu Tissue, and incremental expenses
associated with achieving net cost saving synergies from the integration.
Interest expense—Interest expense in 2012 was mostly comprised of interest on the 2010 Notes and the 2009 Notes,
as well as the amortization of deferred finance costs associated with these notes and our revolving credit facility.
Interest expense in 2012 was partially offset by our capitalization of interest for our TAD project. Interest expense
before reductions for capitalized interest in 2012 decreased slightly compared to 2011 primarily as a result of the third
quarter 2011 redemption of our industrial revenue bonds.
29
Income tax provision—During 2012 and 2011, there were a number of items that were included in the calculation of
our income tax provision that we do not believe were indicative of our core operating performance. Excluding these
items, the adjusted tax rate for 2012 would have been 36.8%, compared to an adjusted 40.5% in 2011. The following
table details these items:
(In thousands)
Income tax provision
Special items, tax impact:
Discrete tax items related to tax credit conversions
Expense associated with Metso litigation
Directors' equity-based compensation expense
Loss on sale of foam assets
Discrete tax items related to settlement of uncertain tax positions
Lewiston, Idaho sawmill sale related adjustments
Adjusted income tax provision
Years Ended December 31,
2012
2011
$ (47,460) $ (31,246)
6,398
(709)
(609)
(356)
—
—
96
—
(651)
—
2,610
(1,271)
$ (42,736) $ (30,462)
We recorded an income tax provision of $47.5 million in 2012, compared to a provision of $31.2 million in 2011. The
GAAP rate for 2012 was a provision of 42.5%, compared to a provision of 44.1% for 2011. The reasons for the change
in the tax rate from 2012 compared to 2011 was primarily due to four items. The first was a decrease in the rate
attributable to state tax credits. The second was a decrease due to a remeasurement of state deferred tax assets and
liabilities using anticipated future tax rates that will be in effect when the underlying assets and liabilities reverse. The
third was a reduction of the valuation allowance relating to foreign tax credits. Lastly, the decision in the first quarter
of 2012 to convert certain gallons of alternative fuel originally claimed in 2009 under the AFMTC which had been
converted by us in 2010 to the CBPC, back to gallons under the AFMTC and associated uncertain tax position.
30
DISCUSSION OF BUSINESS SEGMENTS
Consumer Products
(Dollars in thousands - except per ton amounts)
Net sales
Operating income
Percent of net sales
Shipments (short tons)
Non-retail
Retail
Total tissue tons
Converted products cases (in thousands)
Sales price (per short ton)
Non-retail
Retail
Total tissue
Years Ended December 31,
2012
$ 1,134,556
93,347
2011
$ 1,092,133
42,806
8.2%
3.9%
237,655
293,672
531,327
53,675
216,109
299,410
515,519
49,865
$
$
1,466
2,674
2,134
$
$
1,484
2,577
2,119
Net sales for our Consumer Products segment in 2012 increased $42.4 million, or 3.9%, compared to 2011 due to
increased shipments and higher average net selling prices. Overall shipments increased 3.1% due to increased case
sales of retail tissue products, which were largely attributable to increased shipments of lighter weight TAD tissue from
our North Carolina converting facility, and higher non-retail shipments in 2012. The increase in net selling prices was
primarily due to a price increase for our retail tissue products implemented in the fourth quarter of 2011 and the first
quarter of 2012, partially offset by lower non-retail pricing.
Operating income, which more than doubled during 2012 with an increase of $50.5 million, outpaced the growth of
net sales due to lower purchased pulp and energy costs, as well as lower overall transportation and packaging costs
primarily attributable to net cost saving synergies from the integration of Cellu Tissue. These improvements were
partially offset by increased staffing, training and startup costs associated with our North Carolina paper making and
converting facilities, higher incentive compensation expense, increased commission expense and a loss on the sale
of legacy Cellu Tissue foam manufacturing assets.
Pulp and Paperboard
(Dollars in thousands - except per ton amounts)
Net sales
Operating income
Percent of net sales
Paperboard shipments (short tons)
Paperboard sales price (per short ton)
Years Ended December 31,
2012
$ 739,748
103,910
2011
$ 835,840
92,827
14.0%
11.1%
760,919
956
$
743,845
976
$
Net sales for our Pulp and Paperboard segment were down $96.1 million, or 11.5%, during 2012 compared to 2011.
The decrease was primarily attributable to the sale of our Lewiston, Idaho sawmill in November 2011, which accounted
for $80.3 million of the segment's net sales in 2011. Paperboard net sales increased slightly in 2012 due to a 2.3%
increase in shipments that was partially offset by a 2.0% decrease in net selling prices resulting primarily from market
pressure. The higher overall paperboard net sales in 2012 were more than offset by a decrease in net sales of external
pulp, which was largely the result of increased internal usage by our Consumer Products segment of pulp that we
produced.
Operating income in 2012 increased by 11.9% compared to 2011, primarily due to lower costs of energy and purchased
pulp, as well as benefits from the sale of our Lewiston, Idaho sawmill. These favorable comparisons were partially
offset by higher chemical, wage and benefit and transportation costs compared to 2011.
31
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (EBITDA) AND ADJUSTED EBITDA
We use earnings before interest (including debt retirement costs), tax, depreciation and amortization, or EBITDA, and
EBITDA adjusted for certain items, or Adjusted EBITDA, as supplemental performance measures that are not required
by, or presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives
to net earnings, operating income or any other performance measure derived in accordance with GAAP, or as
alternatives to cash flows from operating activities or a measure of our liquidity or profitability. In addition, our calculation
of EBITDA and Adjusted EBITDA may or may not be comparable to similarly titled measures of other companies.
EBITDA and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation,
or as a substitute for any of our results as reported under GAAP. Some of these limitations are:
EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital assets;
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital
requirements;
EBITDA and Adjusted EBITDA do not include cash pension payments;
EBITDA and Adjusted EBITDA exclude certain tax payments that may represent a reduction in cash available
to us;
EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to
service interest or principal payments on our debt;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized
will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements
for such replacements; and
other companies, including other companies in our industry, may calculate these measures differently than
we do, limiting their usefulness as a comparative measure.
We present EBITDA, Adjusted EBITDA and Adjusted income tax provisions because we believe they assist investors
and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we
do not believe are indicative of our core operating performance. In addition, we use EBITDA and Adjusted EBITDA:
(i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the
effectiveness of our business strategies and (iii) because our credit agreement and the indentures governing the 2010
Notes and 2013 Notes use measures similar to EBITDA to measure our compliance with certain covenants.
The following table provides our EBITDA and Adjusted EBITDA for the periods presented, as well as a reconciliation
to net earnings:
(In thousands)
Net earnings
Interest expense, net 1
Income tax (benefit) provision
Depreciation and amortization expense
EBITDA
Directors' equity-based compensation expense
Costs associated with Thomaston facility closure
Expense associated with Metso litigation
Loss on sale of foam assets
Lewiston, Idaho sawmill sale related adjustments2
Adjusted EBITDA
$
$
Years Ended December 31,
2013
106,955 $
61,094
(68,721)
90,272
189,600 $
4,084
5,977
—
—
—
2012
64,131 $
33,796
47,460
79,333
224,720 $
1,369
—
2,019
1,014
—
$
199,661 $
229,122 $
2011
39,674
44,809
31,246
76,933
192,662
1,476
—
—
—
2,883
197,021
1
2
Interest expense, net for the year ended December 31, 2013 includes debt retirement costs of $17.1 million.
The total impact of the sawmill sale and related adjustments on the Pulp and Paperboard segment was $15.4 million of expense. The net
impact to the company was $2.9 million of net expense in 2011 primarily due to offsetting LIFO inventory liquidation and other adjustments
recorded at the corporate level.
32
LIQUIDITY AND CAPITAL RESOURCES
The following table presents information regarding our cash flows for the years ended December 31, 2013, 2012 and
2011.
Cash Flows Summary
(In thousands)
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Years Ended December 31,
$
2013
136,357 $
(140,593)
15,332
2012
198,693 $
(177,004)
(17,549)
2011
68,395
(50,149)
(29,096)
Operating Activities—Net cash flows from operating activities for 2013 decreased $62.3 million compared to 2012 due
primarily to $15.0 million of cash used in working capital during the year, compared to $61.3 million of cash flows
generated from working capital in 2012. The decrease in working capital was primarily attributable to a build-up in
inventory to support our TAD tissue program, partially offset by higher accounts payable and accrued liabilities and
increased accrued interest due to the timing of interest payments on our 2013 Notes. In addition, operating cash flows
decreased due to lower net earnings, after adjusting for noncash related items. Included in our noncash adjustments
to net earnings was a $75.3 million reduction of tax reserves largely related to our decision to release certain tax
reserves based on the Internal Revenue Service's ruling on the taxability of the AFMTC. These decreases were partially
offset by a $21.2 million favorable change in cash flows from taxes receivable, an absence of excess tax benefits used
in 2013 compared to $15.8 million for 2012, which was a result of performance shares for the 2011-2013 performance
period not being paid or issued because the requisite market condition performance measure was not met, and a $5.6
million decrease in contributions to our qualified pension plans in 2013 compared to 2012.
For 2012, net cash flows from operating activities significantly increased compared to 2011 due primarily to cash
generated from working capital, compared to cash used for working capital in 2011, as well as higher earnings, after
adjusting for noncash items. These increases were partially offset by a $15.8 million excess tax benefit from equity-
based compensation arrangements in 2012, a $10.8 million increase in taxes receivable in 2012 compared to a slight
decrease in 2011, and an $8.1 million increase in contributions to our qualified pension plans in 2012 compared to
2011.
Investing Activities—Net cash flows from investing activities decreased $36.4 million in 2013, compared to 2012. The
decrease in cash used for investing activities was largely due to a $113.2 million decrease in capital spending for plant
and equipment in 2013 compared to 2012. The lower capital spending was due to the substantial completion in 2012
of our North Carolina TAD tissue facility associated with our TAD project. The decrease in cash used for investing
activities was partially offset by $50.0 million of cash converted into short-term investments in 2013, compared to $35.0
million provided by the conversion of short-term investments into cash during 2012.
Net cash flows from investing activities increased $126.9 million in 2012, compared to 2011. The increase was largely
due to increased capital spending for plant and equipment in 2012, primarily associated with our TAD project, as well
as a $36.1 million reduction in the amount of cash provided from the conversion of short-term investments into cash
in 2012 compared to 2011.
Financing Activities—Net cash flows from financing activities were $15.3 million in 2013, compared to $17.5 million of
cash flows used in financing activities in 2012. Cash flows from financing activities during 2013 were the result of the
issuance of the 2013 Notes, partially offset by the retirement of the 2009 Notes and $100.0 million associated with
repurchases of our outstanding common stock pursuant to our $100.0 million stock repurchase program, which was
completed in October 2013.
Net cash flows from financing activities was $17.5 million in 2012, compared with $29.1 million in 2011. Cash used for
financing activities in 2012 consisted of payments totaling $13.2 million for minimum tax withholdings associated with
settlement and distribution of equity-based awards and $18.7 million for treasury stock purchases, partially offset by
an excess tax benefit of $15.8 million associated with the equity-based awards settled and distributed in 2012.
33
Capital Resources
Due to the competitive and cyclical nature of the markets in which we operate, as well as an uncertain economic
environment, there is uncertainty regarding the amount of cash flows we will generate during the next twelve months.
However, we believe that our cash flows from operations, cash on hand, short-term investments and available borrowing
capacity under our credit facility will be adequate to fund debt service requirements and provide cash required to
support our ongoing operations, capital expenditures, and working capital needs for the next twelve months.
We may choose to refinance all or a portion of our indebtedness on or before maturity. We cannot be certain that we
will be able to refinance any of our indebtedness on commercially reasonable terms or at all. As of December 31, 2013,
our short-term investments were not restricted and were largely invested in demand deposits.
At December 31, 2013, our financial position included debt of $650.0 million, compared to the balance of $523.9 million
at December 31, 2012. Stockholders’ equity at December 31, 2013 was $605.1 million, compared to the December 31,
2012 balance of $540.9 million. Our total debt to total capitalization, excluding accumulated other comprehensive loss,
was 49.5% at December 31, 2013, compared to 44.4% at December 31, 2012.
In 2013, we issued the 2013 Notes, of which we received net proceeds of approximately $271 million, after deducting
discounts and estimated offering expenses. We used approximately $166 million of the net proceeds to redeem all of
our outstanding 2009 Notes, and used approximately $100 million of the remaining net proceeds to purchase shares
of the company's common stock pursuant to our $100.0 million stock repurchase program authorized in January 2013.
Debt Arrangements
2010 Notes
Our 2010 Notes mature on November 1, 2018, have an interest rate of 7.125% and were issued at their face value.
The issuance of these notes generated net proceeds of $367.5 million after deducting offering expenses. The net
proceeds from the issuance of the 2010 Notes were used to finance in part our acquisition of Cellu Tissue, to refinance
certain existing indebtedness of Cellu Tissue, and to pay fees and expenses incurred as part of the 2010 Note offering,
acquisition of Cellu Tissue and related transactions.
The 2010 Notes are guaranteed by certain of our existing and future direct and indirect domestic subsidiaries. The
2010 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 2010 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 2010 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.
We have the option to redeem all or a portion of the 2010 Notes at any time before November 1, 2014 at a redemption
price equal to 100% of the principal amount plus accrued and unpaid interest and a “make whole” premium. On or
after November 1, 2014, we may redeem all or a portion of the 2010 Notes at specified redemption prices plus accrued
and unpaid interest. In addition, we may be required to make an offer to purchase the 2010 Notes upon the sale of
certain assets and upon a change of control.
Our 2014 expected debt service obligation related to the 2010 Notes, consisting of cash payments for interest, is $26.7
million.
Redemption of $150 million senior notes due 2016 and issuance of $275 million senior notes due 2023
In June 2009, we issued senior unsecured notes, which we refer to as the 2009 Notes, in the aggregate principal
amount of $150 million. The 2009 Notes, which were due on June 15, 2016 and had an interest rate of 10.625%, were
issued at a price equal to 98.792% of their face value.
On February 22, 2013, we exercised our option to redeem all of the 2009 Notes at a redemption price equal to
approximately $166 million, which consisted of 100% of the principal amount, plus an approximate $13 million “make
whole” premium and accrued and unpaid interest of approximately $3 million. Proceeds to fund the redemption of our
2009 Notes were made available through the sale of $275 million aggregate principal amount senior notes on
January 23, 2013, 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.
34
The 2013 Notes are guaranteed by our existing and future direct and indirect domestic subsidiaries, 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 2013 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 2013 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.
Prior to February 1, 2016, we may redeem up to 35% of the 2013 Notes at a redemption price equal to 104.5% of the
principal amount plus accrued and unpaid interest with the proceeds from one or more qualified equity offerings. We
have the option to redeem all or a portion of the 2013 Notes at any time before February 1, 2018 at a redemption price
equal to 100% of the principal amount plus accrued and unpaid interest and a “make whole” premium. On or after
February 1, 2018 we may redeem all or a portion of the 2013 Notes at specified redemption prices plus accrued and
unpaid interest. In addition, we may be required to make an offer to purchase the 2013 Notes upon the sale of certain
assets and upon a change of control.
Our 2014 expected debt service obligation related to the 2013 Notes, consisting of cash payments for interest, is $12.4
million.
Revolving Credit Facility
In November 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 December 31, 2013, there were no borrowings outstanding under the credit facility, but approximately $6.6 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 December 31,
2013, we would have been permitted to draw approximately $118.4 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 December 31,
2013, the fixed charge coverage ratio for the most recent four quarters was 2.5-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.
35
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of December 31, 2013. Portions of the amounts shown
are reflected in our financial statements and accompanying notes, as required by GAAP. See the footnotes following
the table for information regarding the amounts presented and for references to relevant financial statement notes that
include a detailed discussion of the item.
Payments Due by Period
(In thousands)
Long-term debt1
Interest on long-term debt1
Capital leases2
Operating leases2
Purchase obligations3
Other obligations4,5
Total
$
Total
650,000 $
251,158
47,136
65,258
433,962
251,904
$ 1,699,418 $
Less
Than 1 Year
1-3 Years
3-5 Years
— $
— $
375,000 $
39,094
2,375
17,335
369,309
116,386
544,499 $
78,188
4,886
22,749
61,667
39,448
78,188
5,073
14,696
2,986
23,969
206,938 $
499,912 $
More Than
5 Years
275,000
55,688
34,802
10,478
—
72,101
448,069
1
2
3
4
5
Included above are the principal and interest payments that were due on our 2010 and 2013 Notes, which were outstanding as of December
31, 2013. For more information regarding specific terms of our long-term debt, see the discussion under the heading “Debt Arrangements,”
and Note 9, “Debt,” in the notes to the consolidated financial statements.
These amounts represent our minimum capital lease payments, including amounts representing interest, and our minimum operating lease
payments. See Note 16, “Commitments and Contingencies,” in the notes to the consolidated financial statements.
Purchase obligations consist primarily of contracts for the purchase of raw materials (primarily pulp) from third parties, trade accounts payable
as of December 31, 2013, and contracts with natural gas and electricity providers.
Included in other obligations are accrued liabilities and accounts payable (other than trade accounts payable) as of December 31, 2013,
liabilities associated with supplemental pension and deferred compensation arrangements, and estimated payments on qualified pension and
postretirement employee benefit plans. Since pension contributions are determined by factors that are subject to change each year, estimated
payments on qualified pension plans included above are only for years 1-5 and are based on current estimates of minimum required contributions.
Total excludes $2.7 million of unrecognized tax benefits due to the uncertainty of timing of payment. See Note 7, “Income Taxes,” in the notes
to the consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or
future effect on our financial conditions or consolidated financial statements.
ENVIRONMENTAL
Our operating facilities are subject to rigorous federal and state environmental regulation governing air emissions,
wastewater discharges, and solid and hazardous waste management. Our goal is continuous compliance with all
environmental regulations and we regularly monitor our activities to ensure compliance with all pertinent rules and
requirements. Compliance with environmental regulations is a significant factor in our business and requires periodic
capital expenditures as well as additional operating costs as rules change.
The new federal standard for hazardous air pollutants from boiler and process heaters were finalized by the U.S.
Environmental Protection Agency, or EPA, and became effective in early 2013. We anticipate that our sites at Lewiston,
Idaho, Menominee, Michigan, and Cypress Bend, Arkansas, will be affected by this new rule. We expect any capital
projects instituted by us in response to this rule will be executed between 2014 and 2017. Preliminary total cost
estimates for all required projects are expected to be between $5 and $7 million, with $2 million of that expected amount
to be incurred in 2015 and the remainder split between 2016 and 2017. We expect no technical issues with meeting
the new rule.
Concern over climate change, including the impact of global warming, may lead to future regulations. We believe there
are no U.S. or Canadian currently proposed rules that would have a material impact on our operations.
In 2012 we received notification of alleged Clean Air Act violations at our Lewiston facility. We have entered into a
tolling agreement and are negotiating with the U.S. Department of Justice and EPA to resolve these alleged violations.
We expect these negotiations to continue through 2014.
36
Our facilities are currently in substantial compliance with applicable environmental laws and regulations. We cannot
be certain, however, that situations that may give rise to material environmental liabilities will not be discovered or that
the enactment of new environmental laws or regulations or changes in existing laws or regulations will not require
significant expenditures by us.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires our management to select and apply
accounting policies that best provide the framework to report the results of operations and financial position. The
selection and application of those policies requires management to make difficult, subjective and complex judgments
concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets
and liabilities at the date of the financial statements. As a result, it is possible that materially different amounts would
be reported under different conditions or using different assumptions.
See Note 3, “Recently Adopted and Prospective Accounting Standards” to the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K for additional information regarding recently adopted and new
accounting pronouncements.
Goodwill and intangibles. Our acquisitions are accounted for using the purchase method of accounting as prescribed
by applicable accounting guidance. In accordance with the accounting guidance, we revalued the assets and liabilities
acquired at their respective fair values on the acquisition date. Changes in assumptions and estimates during the
allocation period affecting the acquisition date fair value of acquired assets and liabilities would result in changes to
the recorded values, resulting in an offsetting change to the goodwill balance associated with the business
acquired. Significant changes in assumptions and estimates subsequent to completing the allocation of purchase price
to the assets and liabilities acquired, as well as differences in actual results versus estimates, could have a material
impact on our earnings.
Goodwill from an acquisition represents the excess of the cost of a business acquired over the net of the amounts
assigned to assets acquired, including identifiable intangible assets and liabilities assumed. As a result of our Cellu
Tissue acquisition, we recorded $229.5 million of goodwill on our Consolidated Balance Sheet as of December 31,
2010, which has not been subsequently adjusted through December 31, 2013. Goodwill is not amortized but tested
for impairment annually and at any time when events suggest impairment may have occurred. When required, our
goodwill impairment test will be performed by comparing the fair value of the Consumer Products reporting unit to its
carrying value. We incorporate assumptions involving future growth rates, discount rates and tax rates in projecting
the future cash flows. In the event the carrying value exceeds the fair value of the reporting unit, an impairment loss
would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value.
Long-lived assets. A significant portion of our total assets are invested in our manufacturing facilities. Also, the cyclical
patterns of our businesses cause cash flows to fluctuate by varying degrees from period to period. As a result, long-
lived assets are a material component of our financial position with the potential for material change in valuation if
assets are determined to be impaired. Accounting guidance requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not
be recoverable, as measured by its undiscounted estimated future cash flows.
We use our operational budgets to estimate future cash flows. Budgets are inherently uncertain estimates of future
performance due to the fact that all inputs, including net sales, costs and capital spending, are subject to frequent
change for many different reasons. Because of the number of variables involved, the interrelationship between the
variables and the long-term nature of the impairment measurement, sensitivity analysis of individual variables is not
practical. Budget estimates are adjusted periodically to reflect changing business conditions, and operations are
reviewed, as appropriate, for impairment using the most current data available.
We believe we have adequate support for the carrying value of all of our long-lived assets based on anticipated cash
flows that will result from our estimates of future demand, pricing, and production costs, assuming certain levels of
capital expenditures.
37
Pension and postretirement employee benefits. The determination of pension plan expense and the requirements
for funding our pension plans are based on a number of actuarial assumptions. Two critical assumptions are the
discount rate applied to pension plan obligations and the rate of return on plan assets. For other postretirement
employee benefit, or OPEB, plans, which provide certain health care and life insurance benefits to qualified retired
employees, critical assumptions in determining OPEB expense are the discount rate applied to benefit obligations and
the assumed health care cost trend rates used in the calculation of benefit obligations.
Note 12, "Savings, Pension and Other Postretirement Employee Benefit Plans," to our consolidated financial statements
includes information for the three years ended December 31, 2013, 2012 and 2011, on the components of pension
and OPEB expense and the underlying actuarial assumptions used to calculate periodic expense, as well as the funded
status for our pension and OPEB plans as of December 31, 2013 and 2012.
The discount rate used in the determination of pension benefit obligations and pension expense is determined based
on a review of long-term high-grade bonds and management’s expectations. At December 31, 2013, we calculated
obligations using a 5.20% discount rate. The discount rates used at December 31, 2012 and 2011 were 4.15% and
4.90%, respectively. To determine the expected long-term rate of return on pension assets, we employ a process that
analyzes historical long-term returns for various investment categories, as measured by appropriate indices. These
indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving
at our determination of a composite expected return. The long-term rates of return used for the years ended
December 31, 2013, 2012 and 2011 were 7.50%, 8.00% and 8.00%, respectively.
Total periodic pension plan expense in 2013 was $12.7 million. An increase in the discount rate or the rate of expected
return on plan assets, all other assumptions remaining the same, would decrease pension plan expense, and
conversely, a decrease in either of these measures would increase plan expense. As an indication of the sensitivity
that pension expense has to the discount rate assumption, a 25 basis point change in the discount rate would affect
annual plan expense by approximately $0.5 million. A 25 basis point change in the assumption for expected return on
plan assets would affect annual plan expense by approximately $0.7 million. The actual rates of return on plan assets
may vary significantly from the assumptions used because of unanticipated changes in financial markets.
Our company-sponsored pension plans were underfunded by a net $6.8 million at December 31, 2013 and $78.7
million at December 31, 2012. As a result of being underfunded, we are required to make contributions to our qualified
pension plans. In 2013, we contributed $15.1 million to these pension plans. We also contributed $0.3 million to our
non-qualified pension plan in 2013. Our cash contributions in 2014 are estimated to be approximately $15 million.
For our OPEB plans, expense for 2013 was $4.8 million. We do not anticipate funding our OPEB plans in 2013 except
to pay benefit costs as incurred during the year by plan participants. The discount rate used to calculate OPEB
obligations, which was determined using the same methodology we used for our pension plans, was 5.05%, 4.05%
and 4.95% at December 31, 2013, 2012 and 2011, respectively. The assumed health care cost trend rate used to
calculate OPEB obligations and expense was 7.7% in 2013, grading to a range of 4.30% to 4.64% over approximately
70 years.
As an indication of the sensitivity that OPEB expense has to the discount rate assumption, a 25 basis point change
in the discount rate would affect plan expense by approximately $0.1 million. A 1% change in the assumption for health
care cost trend rates would have affected 2013 plan expense by approximately $0.4 million to $0.5 million and the
total postretirement employee obligation by approximately $8.0 million to $9.3 million. The actual rates of health care
cost increases may vary significantly from the assumption used because of unanticipated changes in health care costs.
Periodic pension and OPEB expenses are included in “Cost of sales” and “Selling, general and administrative expenses”
in the Consolidated Statements of Operations. The expense is allocated to all business segments. In accordance with
current accounting guidance governing defined benefit pension and other postretirement plans, at December 31, 2013
and 2012, long-term assets are recorded for overfunded plans and liabilities are recorded for underfunded plans. The
funded status of a benefit plan is measured as the difference between plan assets at fair value and the projected
benefit obligation. For underfunded plans, the estimated liability to be payable in the next twelve months is recorded
as a current liability, with the remaining portion recorded as a long-term liability.
Effective December 15, 2010, the salaried pension plan was closed to new entrants and after December 31, 2011, it
was frozen and ceased accruing further benefits.
38
Income taxes. The conclusion that deferred tax assets are realizable is subject to certain assessments, projections
and judgments made by management. In assessing whether deferred tax assets are realizable, the standard we use
is whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary
differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the impact of
available carry forward periods), projected taxable income, and amounts of taxable income we would have generated
historically if we had been a stand-alone company in making this assessment. In order to fully realize the deferred tax
asset, we will need to generate future taxable income before the expiration of the deferred tax assets governed by the
tax code.
Based on existing deferred tax liabilities and projected taxable income over the periods for which the deferred tax
assets are deductible, we believe that it is more likely than not that we will realize the benefits of these future deductible
differences, excluding items for which we have already recorded a valuation allowance. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income
during the carry forward period are reduced.
We have tax jurisdictions located in many areas of the United States and Canada and are subject to audit in these
jurisdictions. Tax audits by their nature are often complex and can require several years to resolve. In the preparation
of our consolidated financial statements, management exercises judgment in estimating the potential exposure to
unresolved tax matters and applies the guidance pursuant to uncertain tax positions which employs a more likely than
not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, in
management's judgment, we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax
matters.
39
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
Our exposure to market risks on financial instruments includes interest rate risk on our secured revolving credit facility.
As of December 31, 2013, there were no borrowings outstanding under our revolving credit facility. The interest rates
applied to borrowings under the credit facility are adjusted often and therefore react quickly to any movement in the
general trend of market interest rates. For example, a one percentage point increase or decrease in interest rates,
based on assumed outstanding credit facility borrowings of $10.0 million, would have a $0.1 million annual effect on
interest expense. We currently do not attempt to mitigate the effects of short-term interest rate fluctuations on our
credit facility borrowings through the use of derivative financial instruments.
Commodity Risk
We are exposed to market risk for changes in natural gas commodity pricing, which we have, from time-to-time, partially
mitigated through the use of firm price contracts for a portion of our natural gas requirements for our manufacturing
facilities. As of December 31, 2013, we had firm-price contracts for natural gas covering approximately 55% of the
expected average monthly requirements for the first quarter of 2014.
Foreign Currency Risk
We have minimal foreign currency exchange risk. Virtually all of our international sales are denominated in U.S. dollars.
Quantitative Information about Market Risks
(Dollars in thousands)
Long-term debt:
Fixed rate
Average interest rate
Fair value at December 31,
2013
2014
2015
2016
2017
2018
Thereafter
Total
Expected Maturity Date
$ — $ — $ — $ — $ 375,000
$ 275,000
$ 650,000
—%
—%
—%
—%
7.125%
4.500%
6.014%
$ 651,313
40
ITEM 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012
and 2011
Consolidated Balance Sheets at December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2012
and 2011
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Financial Statement Schedules:
All schedules have been omitted because the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the information required is included
in the consolidated financial statements, including the notes thereto.
PAGE
NUMBER
42
43
44
45
46
47-79
80-81
41
CLEARWATER PAPER CORPORATION
Consolidated Statements of Operations
(Dollars in thousands – except per-share amounts)
For The Years Ended December 31,
2013
2012
$ 1,889,830 $ 1,874,304 $ 1,927,973
2011
(1,671,371)
(1,607,872)
(1,702,530)
(119,131)
(121,045)
(109,998)
(1,790,502)
(1,728,917)
(1,812,528)
99,328
(44,036)
(17,058)
—
38,234
68,721
145,387
(33,796)
—
—
111,591
115,445
(44,809)
—
284
70,920
(47,460)
(31,246)
106,955 $
64,131 $
39,674
4.84 $
4.80
2.75 $
2.72
1.73
1.66
$
$
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Other, net
Earnings before income taxes
Income tax benefit (provision)
Net earnings
Net earnings per common share:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
42
CLEARWATER PAPER CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
Net earnings
Other comprehensive income (loss), net of tax:
Defined benefit pension and other postretirement employee benefits:
Net gain (loss) arising during the period, net of tax
of $32,346, $(6,359), and $(15,830)
Curtailments, net of tax of $298, $188 and $1,163
Prior service (cost) credit arising during the period, net of
tax of $(1,976), $2,079 and $ -
Amortization of actuarial loss included in net periodic cost,
net of tax of $5,742, $4,761, and $3,513
Amortization of prior service credit included in net
periodic cost, net of tax of $(64), $(806), and $(252)
Amortization of deferred taxes related to actuarial gain on other
postretirement employee benefit obligations
Foreign currency translation adjustment
Other comprehensive income (loss), net of tax
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
For The Years Ended December 31,
2013
106,955 $
2012
64,131 $
2011
39,674
$
51,262
471
(9,780)
(21,942)
289
1,613
(3,130)
3,199
—
9,098
7,324
4,869
(101)
(1,240)
—
—
57,600
(220)
—
(428)
(350)
(229)
(874)
(16,913)
$
164,555 $
63,703 $
22,761
43
CLEARWATER PAPER CORPORATION
Consolidated Balance Sheets
(Dollars in thousands – except share data)
ASSETS
Current assets:
Cash
Restricted cash
Short-term investments
Receivables, net
Taxes receivable
Inventories
Deferred tax assets
Prepaid expenses
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Pension assets
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Current liability for pensions and other postretirement employee benefits
Total current liabilities
Long-term debt
Liability for pensions and other postretirement employee benefits
Other long-term obligations
Accrued taxes
Deferred tax liabilities
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-24,007,581 and 23,840,683 shares issued
Additional paid-in capital
Retained earnings
Treasury stock, at cost, common shares–2,923,640 and 853,470
shares repurchased
Accumulated other comprehensive loss, net of tax
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
44
At December 31,
2013
2012
$
23,675 $
12,579
1,500
70,000
158,874
10,503
267,788
37,538
5,523
575,401
884,698
229,533
40,778
4,488
—
20,000
154,143
20,828
231,466
17,136
12,314
468,466
877,377
229,533
47,753
—
9,927
10,327
$1,744,825 $1,633,456
$ 190,648 $ 165,596
9,137
8,778
199,426
650,000
109,807
52,942
2,658
124,898
174,733
523,933
204,163
50,910
78,699
60,124
—
2
—
2
326,546
466,639
326,901
359,684
(130,000)
(30,000)
(58,093)
(115,693)
605,094
540,894
$1,744,825 $1,633,456
CLEARWATER PAPER CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to net cash flows from operating activities:
$
106,955
$
64,131
$
39,674
For The Years Ended December 31,
2013
2012
2011
Depreciation and amortization
Non-cash adjustments to unrecognized taxes
Deferred tax provision
Equity-based compensation expense
Employee benefit plans
Deferred issuance costs and discounts on long-term debt
Disposal of plant and equipment, net
Changes in working capital, net
Change in taxes receivable, net
Excess tax benefits from equity-based payment arrangements
Change in non-current accrued taxes, net
Funding of qualified pension plans
Change in restricted cash
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Cash paid for acquisitions, net of cash acquired
Proceeds from sale of assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Repayment of long-term debt
Purchase of treasury stock
Payments for long-term debt issuance costs
Payment of tax withholdings on equity-based payment arrangements
Excess tax benefits from equity-based payment arrangements
Other, net
Net cash flows from financing activities
Effect of exchange rate changes
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
Cash received from income tax refunds
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Changes in accrued plant and equipment
Property acquired under capital lease
The accompanying notes are an integral part of these consolidated financial statements.
$
$
$
45
90,272
(75,308)
5,629
10,960
10,131
4,964
1,493
(15,022)
10,325
—
569
(15,050)
(32)
471
136,357
(50,000)
(90,593)
—
—
(140,593)
275,000
(150,000)
(100,000)
(4,837)
(4,831)
—
—
15,332
—
11,096
12,579
23,675
36,147
3,256
1,577
$
$
79,333
3,275
12,870
9,703
9,366
2,010
2,003
61,281
(10,828)
(15,837)
960
(20,627)
769
284
198,693
35,001
(203,776)
(9,264)
1,035
(177,004)
—
—
(18,650)
(2)
(13,234)
15,837
(1,500)
(17,549)
—
4,140
8,439
12,579
30,086
18,719
2,220
(4,085) $
—
3,339
—
$
$
$
76,933
—
14,777
8,134
16,897
215
998
(86,012)
354
(885)
2,453
(12,498)
4,160
3,195
68,395
71,094
(134,069)
—
12,826
(50,149)
—
(15,595)
(11,350)
(638)
(2,400)
885
2
(29,096)
361
(10,489)
18,928
8,439
43,595
43,085
33,808
3,674
12,687
CLEARWATER PAPER CORPORATION
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders'
Equity
Balance, December 31,
2010
22,958
$
Net earnings
Performance share and
restricted stock unit
awards
Pension and OPEB, net
of tax of $(11,406)
Amortization of
deferred taxes related
to actuarial gain on
other postretirement
employee benefit
obligations
Foreign currency
translation adjustment
Purchase of treasury
stock
—
144
—
—
—
—
Balance, December 31,
2011
23,102
$
Net earnings
Performance share and
restricted stock unit
awards
Pension and OPEB, net
of tax of $(137)
Amortization of
deferred taxes related
to actuarial gain on
other postretirement
employee benefit
obligations
Purchase of treasury
stock
Net earnings
Performance share and
restricted stock unit
awards
Pension and OPEB, net
of tax of $36,346
Purchase of treasury
stock
Balance, December 31,
2013
—
739
—
—
167
—
—
2
—
—
—
—
—
—
2
—
—
—
$ 310,820
$
255,879
— $
— $
(98,352) $
468,349
—
39,674
5,144
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39,674
5,144
(15,810)
(15,810)
(229)
(874)
(229)
(874)
(333)
(11,350)
—
(11,350)
$ 315,964
$
295,553
(333) $
(11,350) $
(115,265) $
484,904
—
64,131
10,937
—
—
—
—
—
—
—
—
—
—
—
64,131
10,937
(208)
(208)
(220)
(220)
(520) $
(18,650) $
— $
(18,650)
—
—
—
—
2
—
—
—
—
$ 326,901
$
359,684
(853) $
(30,000) $
(115,693) $
540,894
—
106,955
(355)
—
—
—
—
—
—
—
—
—
—
—
—
—
106,955
(355)
57,600
57,600
(2,071)
(100,000)
—
(100,000)
—
—
—
— $
— $
— $
Balance, December 31,
2012
23,841
$
24,008
2
$ 326,546
$ 466,639
(2,924)
$ (130,000)
$
(58,093)
$
605,094
All common stock share numbers have been adjusted for the two-for-one stock split effected in the form of a stock dividend distributed on August
26, 2011.
The accompanying notes are an integral part of these consolidated financial statements.
46
CLEARWATER PAPER CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Basis of Presentation
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 14 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. Our products are made primarily from wood fiber pulp.
Unless the context otherwise requires or unless otherwise indicated, references in this report to “Clearwater Paper
Corporation,” “we,” “our,” “the company” and “us” refer to Clearwater Paper Corporation and its subsidiaries.
On November 28, 2011, we sold our Lewiston, Idaho, sawmill to Idaho Forest Group of Coeur d’Alene, Idaho. The
transaction included the sale of our sawmill, planer mill, dry kilns and related assets along with log and finished goods
inventories and timber under contract, in the aggregate amount of approximately $30 million. This sawmill was our
only wood products facility.
On December 28, 2012, we acquired the assets of a wood chipping facility located in Clarkston, Washington, near our
Lewiston, Idaho facility, in an effort to bolster our wood fiber position and obtain short-term and long-term cost savings.
The total consideration associated with the acquisition was approximately $11 million, which includes contingent
consideration over an 18 month period of up to $1.5 million in cash to be paid by the company, based on certain
performance and indemnity guarantees. At December 31, 2013, this $1.5 million is considered restricted cash. We
allocated the purchase price to the tangible and amortizable intangible assets acquired based on their estimated fair
values at the date of acquisition, resulting in the recognition of approximately $6 million in equipment, $4 million in
intangible assets for customer relationships and a $1 million intangible asset for a non-compete agreement with the
former owners. No goodwill was recorded.
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 having ceased as of the end of 2013. We incurred $6.0 million of costs associated with
the closure in 2013.
On February 17, 2004, in an event subsequent to the close of our 2013 fiscal year, we announced the permanent and
immediate closure of our Long Island, New York, tissue converting and distribution facility.
These consolidated financial statements include the financial condition and results of operations of Clearwater Paper
Corporation and its wholly-owned subsidiaries. All intercompany transactions and balances between operations within
the company have been eliminated.
NOTE 2 Summary of Significant Accounting Policies
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., which
we refer to in this report as 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 period. Significant areas requiring the use
of estimates and measurement of uncertainty include determination of net realizable value for deferred tax assets,
uncertain income tax positions, assessment of impairment of long-lived assets and goodwill, assessment of
environmental matters, allocation of purchase price and fair value estimates for business combinations, equity-based
compensation and pension and postretirement obligation assumptions. Actual results could differ from those estimates
and assumptions.
47
SHORT-TERM INVESTMENTS AND RESTRICTED CASH
Our short-term investments, which are classified as available for sale, are invested primarily in demand deposits, which
have very short maturity periods, and therefore earn an interest rate commensurate with low-risk instruments. Due to
our investments' short-term maturity periods there is no significant difference between the investments' cost and fair
value. 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” 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, compared to approximately $1.5 million of restricted cash classified as non-current and
included in "Other assets, net" as of December 31, 2012.
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 December 31, 2013 and 2012, we
had allowances for doubtful accounts of $1.9 million and $1.6 million, respectively. Bad debt expense, net, charged
to selling, general and administrative expenses during 2013, 2012 and 2011 was $1.5 million, $0.2 million and $1.0
million, respectively. All other activity impacting the allowance for doubtful accounts was immaterial for all periods.
INVENTORIES
At December 31, 2013, our inventories are stated at the lower of market or current average cost using the average
cost method. Prior to the November 2011 sale of our Lewiston, Idaho, sawmill, we used the last-in, first-out, or LIFO,
method to determine cost for our logs, wood fiber and the majority of our lumber.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including assets acquired under capital lease obligations and any
interest costs capitalized, less accumulated depreciation. Depreciation of buildings, equipment and other depreciable
assets is determined using the straight-line method. Estimated useful lives generally range from 10 to 40 years for
land improvements; 10 to 40 years for buildings and improvements; 5 to 25 years for machinery and equipment; and
2 to 15 years for office and other equipment. Assets we acquire through business combinations have estimated lives
that are typically shorter than the assets we construct or buy new.
LONG-LIVED ASSETS
Our long-lived assets include property, plant and equipment and amortizable intangible assets. We review the carrying
value of long-lived assets for impairment annually and when events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable. An impairment of long-lived assets exists when
the carrying value is not considered to be recoverable through future undiscounted cash flows from operations and
the carrying value of the asset or asset group exceeds the estimated fair value.
GOODWILL AND INTANGIBLE ASSETS
Goodwill from an acquisition represents the excess of the cost of a business acquired over the net of the amounts
assigned to assets acquired, including identifiable intangible assets and liabilities assumed. Goodwill and intangible
assets resulted from our acquisition of Cellu Tissue Holdings, or Cellu Tissue, on December 27, 2010. Intangible assets
also resulted from our December 2012 acquisition of a wood chipping facility. We used estimates in determining and
assigning the fair value of goodwill and intangible assets, including estimates of useful lives of intangible assets, the
amount and timing of related future cash flows and fair values of the related operations. Our intangible assets have
definite lives and are amortized over their estimated useful lives. We assess our intangibles for impairment when
events or changes in circumstances indicate the carrying value may not be recoverable.
As a result of our acquisition of Cellu Tissue in December 2010, we recorded $229.5 million of goodwill as included
on our Consolidated Balance Sheets as of December 31, 2013 and 2012. All of the recorded goodwill was assigned
to our Consumer Products segment and reporting unit. Goodwill is not amortized but is tested for impairment annually
as of November 1, as well as any time when events suggest impairment may have occurred. In the event the carrying
value of our consumer products reporting unit, including goodwill, exceeds the estimated fair value of the reporting
unit, an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds
its implied fair value.
48
PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The determination of pension plan expense and the requirements for funding our pension plans are based on a number
of actuarial assumptions. Two critical assumptions are the discount rate applied to pension plan obligations and the
rate of return on plan assets. For other postretirement employee benefit, or OPEB, plans, which provide certain health
care and life insurance benefits to qualified retired employees, critical assumptions in determining OPEB expense are
the discount rate applied to benefit obligations and the assumed health care cost trend rates used in the calculation
of benefit obligations. We also participate in multiemployer defined benefit pension plans. We make contributions to
these multiemployer plans, as well as make contributions to a trust fund established to provide retiree medical benefits
for a portion of these employees.
The discount rate used in the determination of pension benefit obligations and pension expense is determined based
on a review of long-term high-grade bonds and management's expectations. To determine the expected long-term
rate of return on pension assets, we employ a process that analyzes historical long-term returns for various investment
categories, as measured by appropriate indices. These indices are weighted based upon the extent to which plan
assets are invested in the particular categories in arriving at our determination of a composite expected return.
An increase in the discount rate or the rate of expected return on plan assets, all other assumptions remaining the
same, would decrease pension plan expense, and conversely, a decrease in either of these measures would increase
plan expense. The actual rates of return on plan assets may vary significantly from the assumptions used because of
unanticipated changes in financial markets.
The estimated net loss and prior service cost (credit) for the defined benefit pension and OPEB plans is amortized
from accumulated other comprehensive loss into net periodic cost (benefit) in accordance with current accounting
guidance.
Periodic pension and OPEB expenses are included in “Cost of sales” and “Selling, general and administrative expenses”
in the Consolidated Statements of Operations. The expense is allocated to all business segments. In accordance with
current accounting guidance governing defined benefit pension and other postretirement plans, at December 31, 2013
and 2012, long-term assets are recorded for overfunded single-employer plans and liabilities are recorded for
underfunded single-employer plans. The funded status of a benefit plan is measured as the difference between plan
assets at fair value and the projected benefit obligation. For underfunded single-employer plans, the estimated liability
to be payable in the next twelve months is recorded as a current liability, with the remaining portion recorded as a long-
term liability.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the consolidated financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The determination of our provision for income taxes requires significant judgment, the use of estimates, and the
interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts
of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax
positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability
that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances
change, we reassess these probabilities and record any changes in the consolidated financial statements as
appropriate.
REVENUE RECOGNITION
We recognize revenue when there is persuasive evidence of a sales agreement, the price to the customer is fixed and
determinable, collection is reasonably assured, and title and the risk of loss passes to the customer. Shipping terms
generally indicate when title and the risk of loss have passed. Revenue is recognized at shipment for sales when
shipping terms are free on board, or FOB, shipping point. For sales where shipping terms are FOB destination, revenue
is recognized when the goods are received by the customer. Revenue from both domestic and foreign sales of our
products can involve shipping terms of either FOB shipping point or FOB destination or other shipping terms, depending
upon the sales agreement with the customer.
In 2013 we had one customer in the Consumer Products segment, the Kroger Company, that accounted for
approximately $204 million, or 10.8%, of our total company net sales. In 2012 and 2011, we did not have any single
customer that accounted for 10% or more of our total net sales.
49
We provide for trade promotions, customer cash discounts, customer returns and other deductions as reductions to
net sales in the same period as the related revenues are recognized. Provisions for these items are determined based
on historical experience or specific customer arrangements.
Revenue is recognized net of any sales taxes collected. Sales taxes, when collected, are recorded as a current liability
and remitted to the appropriate governmental entities.
ENVIRONMENTAL
As part of our corporate policy, we have an ongoing process to monitor, report on and comply with environmental
requirements. Based on this ongoing process, accruals for environmental liabilities that are not within the scope of
specific authoritative guidance related to accounting for asset retirement obligations or conditional asset retirement
obligations are established in accordance with guidance related to accounting for contingencies. We estimate our
environmental liabilities based on various assumptions and judgments, the specific nature of which varies in light of
the particular facts and circumstances surrounding each environmental liability. These estimates typically reflect
assumptions and judgments as to the probable nature, magnitude and timing of required investigation, remediation
and monitoring activities and the probable cost of these activities. Currently, we are not aware of any material
environmental liabilities and have accrued for only specific environmental remediation costs that we have determined
are probable and for which an amount can be reasonably estimated. Fees for professional services associated with
environmental and legal issues are expensed as incurred.
STOCKHOLDERS’ EQUITY
On February 5, 2014, in an event subsequent to the close of our 2013 fiscal year, 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.
On January 17, 2013, 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, which was completed in 2013. The repurchases
were authorized to be carried out by the utilization of a number of different methods, including but not limited to, open
market purchases, accelerated buybacks and negotiated block purchases. 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.
On July 28, 2011, we announced that our Board of Directors had authorized the repurchase of up to $30.0 million of
our common stock. Under the stock repurchase program, we were authorized to repurchase shares in the open market
or as otherwise determined by management, subject to market conditions, business opportunities and other factors.
We completed this repurchase program in the fourth quarter of 2012. The total number of shares repurchased under
this program was 853,470 at an aggregate cost of $30.0 million and an average price of $35.15 per share.
In addition, on July 28, 2011, we announced that our Board of Directors had declared a two-for-one stock split of our
outstanding shares of common stock, which was effected in the form of a stock dividend distributed on August 26,
2011 to shareholders of record on August 12, 2011. On the August 26, 2011 distribution date, there were 11,373,460
shares of common stock outstanding. Immediately following the distribution date, there were 22,746,920 outstanding
shares of common stock. All common share and per share amounts have been adjusted for the stock split effected in
the form of a stock dividend.
DERIVATIVES
We had no activity during the years ended December 31, 2013, 2012 and 2011 that required hedge or derivative
accounting treatment. However, to partially mitigate our exposure to market risk for changes in utility commodity pricing,
we use firm price contracts to supply a portion of the natural gas requirements for our manufacturing facilities. As of
December 31, 2013, these contracts covered approximately 55% of the expected average monthly requirements for
the first quarter of 2014. For the years ended December 31, 2013, 2012 and 2011, approximately 16%, 29% and 2%,
respectively, of our natural gas volumes were supplied through firm price contracts. These contracts qualify for treatment
as “normal purchases or normal sales” under authoritative guidance and thus require no mark-to-market adjustment.
50
NOTE 3 Recently Adopted and Prospective Accounting Standards
In February 2013, the Financial Accounting Standards Board issued Accounting Standard Update, or ASU, 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which expands the disclosure
requirements for amounts reclassified out of accumulated other comprehensive income. This ASU requires an entity
to present, either parenthetically on the face of the financial statements where net income is presented or in the notes
to the financial statements, the effect of significant items reclassified in their entirety from accumulated other
comprehensive income and identification of the respective line items effecting net income for instances when
reclassification is required under GAAP. For items that are not required by GAAP to be reclassified in their entirety to
net income, an entity is required to cross-reference to other disclosures as required by GAAP. This ASU does not
change the current requirements for reporting net income or other comprehensive income in financial statements and
is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. We have adopted
this ASU, which did not affect our Consolidated Financial Statements.
NOTE 4 Inventories
(In thousands)
Pulp, paperboard and tissue products
Materials and supplies
Logs, pulpwood, chips and sawdust
2013
2012
$
$
182,715 $
69,836
15,237
267,788 $
147,627
67,889
15,950
231,466
During the three months ended March 31, 2012, the remaining lumber inventory from the sawmill was sold. The sale
of this inventory, which was valued at costs prevailing in prior years under the LIFO method, had the effect of increasing
earnings before income taxes in the period ended March 31, 2012 by an immaterial amount. The fluctuations of LIFO
inventories increased earnings before income taxes by approximately $10.6 million in 2011.
NOTE 5 Property, Plant and Equipment
(In thousands)
Machinery and equipment
Buildings and improvements
Land improvements
Office and other equipment
Land
Construction in progress
Less accumulated depreciation and amortization
2013
2012
$
$
$
1,937,914 $
304,971
54,277
11,951
11,827
40,204
2,361,144 $
(1,476,446)
884,698 $
1,866,263
299,642
52,929
10,946
11,827
37,160
2,278,767
(1,401,390)
877,377
The December 31, 2013 and 2012 buildings and improvements and machinery and equipment combined balances
each include $23.1 million associated with capital leases.
Depreciation expense, including amounts associated with capital leases, totaled $83.3 million, $74.6 million and $70.6
million in 2013, 2012 and 2011, respectively. We did not capitalize any interest during 2013. For 2012 and 2011, we
capitalized $12.6 million and $3.7 million of interest expense, respectively, associated with our TAD tissue expansion
project, which includes the construction of our new tissue manufacturing and converting facilities in Shelby, North
Carolina, and upgrades to our tissue manufacturing facility in Las Vegas, Nevada.
51
NOTE 6 Goodwill and Intangible Assets
The carrying amount of goodwill is reviewed at least annually for impairment as of November 1. The first step of the
goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the carrying amount of a reporting unit is greater than zero and its estimated fair value
exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. For the purpose of goodwill
impairment testing we identify two reporting units, Consumer Products and Pulp and Paperboard, the same as our two
reportable operating segments (see Note 17, "Segment Information"). All of the recorded goodwill is assigned to our
Consumer Products reporting unit.
As of November 1, 2013 and 2012, we performed calculations of both a discounted cash flow and market-based valuation
model for our Consumer Products reporting unit. The assumptions used in these models allowed us to evaluate the
estimated fair value of our reporting unit. The determination of these assumptions required significant estimates on our
part. Due to the inherent uncertainty involved in making such estimates, actual results could differ from those assumptions.
However, we evaluated the merits of each significant assumption, both individually and in the aggregate, used to determine
the estimated fair value of our reporting unit for reasonableness. Upon completion of this exercise, we concluded that the
estimated fair value of the Consumer Products reporting unit exceeded its carrying amount. We determined that no further
testing was necessary and did not record any impairment loss on our goodwill for the years ended December 31, 2013
and 2012.
Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair
values of the intangible assets were determined by using the income approach, discounting projected future cash flows
based on management’s expectations of the current and future operating environment. The rates used to discount projected
future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums
including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their
useful lives, which range from 2.5 to 10 years. Authoritative guidance requires that the carrying amount of a long-lived
asset with a definite life that is held-for-use be evaluated for recoverability whenever events or changes in circumstances
indicate that the entity may be unable to recover the asset’s carrying amount. During 2013, we permanently closed our
Thomaston converting and distribution facility. This closure did not require an assessment of recoverability on our assets
as all converting lines were relocated and installed at our other facilities. There were no other such events or changes in
circumstances that required us to assess whether our definite-lived intangible assets were impaired for the years ended
December 31, 2013 and 2012. We do not have any indefinite-lived intangible assets recorded from acquisitions.
Intangible assets at the balance sheet dates are comprised of the following:
(Dollars in thousands, lives in years)
Customer relationships
Trade names and trademarks
Non-compete agreements
Total intangible assets
(Dollars in thousands, lives in years)
Customer relationships
Trade names and trademarks
Non-compete agreements
Total intangible assets
Useful
Life
9.0
10.0
2.5 - 5.0
Useful
Life
9.0
10.0
2.5 - 5.0
$
$
$
$
December 31, 2013
Historical
Cost
Accumulated
Amortization
Net
Balance
53,957
5,300
1,674
60,931
$
$
(17,234) $
(1,590)
(1,329)
(20,153) $
36,723
3,710
345
40,778
December 31, 2012
Historical
Cost
Accumulated
Amortization
Net
Balance
53,957
5,300
1,674
60,931
$
$
(11,237) $
(1,060)
(881)
(13,178) $
42,720
4,240
793
47,753
As of December 31, 2013, estimated future amortization expense related to intangible assets is as follows (in
thousands):
Years ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total
52
Amount
6,663
6,608
6,587
6,587
6,524
7,809
40,778
$
$
NOTE 7 Income Taxes
Earnings (loss) before income taxes is comprised of the following amounts in each tax jurisdiction:
(In thousands)
United States
Canada
Earnings before income taxes
2013
2012
2011
$
$
38,900 $
(666)
38,234 $
111,278 $
313
111,591 $
72,156
(1,236)
70,920
The income tax (benefit) provision is comprised of the following:
(In thousands)
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
Income tax (benefit) provision
2013
2012
2011
$
$
(75,119) $
506
263
(74,350)
10,177
(4,423)
(125)
5,629
(68,721) $
27,724 $
6,637
229
34,590
16,243
(3,180)
(193)
12,870
47,460 $
9,619
6,880
(30)
16,469
12,865
1,931
(19)
14,777
31,246
The income tax benefit or provisions differ from the amounts computed by applying the statutory federal income tax
rate of 35.0% to earnings before income taxes due to the following:
(In thousands)
Computed expected tax provision
2013
2012
2011
$
13,381
$
39,063
$
24,822
State and local taxes, net of federal income tax impact
Adjustment for state deferred tax rate
State investment tax credits
Federal credits and net operating losses
Federal manufacturing deduction
Uncertain tax positions
Non-deductible acquisition costs
Change in valuation allowances
U.S. tax provision on foreign operations
Other
Income tax provision
Effective tax rate
1,279
(762)
(2,263)
(10,234)
—
(69,144)
—
(1,334)
67
289
4,398
(742)
(9,077)
4,121
(3,288)
4,801
—
6,932
(33)
1,285
1,482
2,916
—
(412)
(2,443)
2,610
(1,215)
2,796
365
325
$
(68,721)
$
47,460
$
31,246
(179.7)%
42.5%
44.1%
We have tax benefits relating to equity-based compensation that are being utilized to reduce our U.S. taxable income.
Our Consolidated Balance Sheets reflect net operating losses and tax credit carryforwards excluding amounts resulting
from equity-based compensation. We have made an accounting policy election 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 carryforwards not generated from equity-based compensation and which were in
excess of equity-based compensation expense 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. As of December 31,
2012, we had a total amount of excess tax benefits that were not recognized on our Consolidated Balance Sheet of
approximately $1.4 million. During the year ended December 31, 2013, we generated excess tax benefits relating to
53
the payout or issuance of performance shares for the 2010-2012 performance period and certain restricted stock units
for the 2009-2011 and 2011-2013 periods. Based on the incremental method, our excess tax benefits associated with
equity-based compensation plans were not allocated to additional paid-in capital as a component of stockholders’
equity, as there was no cash tax benefit to be realized in the current year. The tax effect of this transaction was $2.3
million and it has been recorded as a reduction to our federal net operating loss deferred tax asset. Additionally, we
had a tax affected $2.4 million reduction to additional paid-in capital relating to performance shares for the 2011-2013
performance period that will not be paid or issued because the requisite market condition performance measure was
not met.
Based on the incremental method, our excess tax benefits associated with equity-based compensation plans, which
have been allocated directly to additional paid-in capital as a component of stockholders’ equity, reducing income taxes
payable was in the amount of $15.8 million and $0.9 million, in the years ended December 31, 2012, and 2011,
respectively, while no reduction was incurred in the current year. As of December 31, 2013, we have a total amount
of excess tax benefits that are not allocated directly to additional paid-in capital on our Consolidated Balance Sheet
until such time as they affect a cash tax benefit of approximately $2.3 million.
(In thousands)
Deferred tax assets:
Employee benefits
Postretirement employee benefits
Incentive compensation
Inventories
Pensions
Federal and state credit carryforwards
Net operating losses
Federal benefit from state taxes resulting from uncertain tax positions
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Plant and equipment
Intangible assets
Inventories
Total deferred tax liabilities
Net deferred tax liabilities
Net deferred tax assets (liabilities) consist of:
(In thousands)
Current deferred tax assets
Current deferred tax liabilities
Net current deferred tax assets
Non-current deferred tax assets
Non-current deferred tax liabilities
Net non-current deferred tax liabilities
Net deferred tax liabilities
$
$
$
$
$
2013
2012
$
8,612 $
41,515
8,937
5,898
152
27,597
13,930
—
7,390
114,031 $
(13,622)
100,409 $
(178,227) $
(9,542)
—
(187,769)
(87,360) $
37,538 $
—
37,538
62,871
(187,769)
(124,898)
8,630
52,751
9,130
—
31,140
20,447
7,649
5,595
5,757
141,099
(14,957)
126,142
(157,973)
(10,843)
(314)
(169,130)
(42,988)
20,473
(3,337)
17,136
110,762
(170,886)
(60,124)
(42,988)
2013
2012
In each of the years ended December 31, 2013 and 2012, we recorded a $0.7 million tax benefit reflecting a
remeasurement of state deferred tax assets and liabilities using anticipated tax rates that will be in effect when the
underlying assets and liabilities will reverse.
54
$
(87,360) $
As of December 31, 2013, we had deferred tax assets arising from deductible temporary differences, tax losses and
tax credits of approximately $114 million before the offset of certain deferred tax liabilities. With the exception of certain
deferred tax assets related to federal foreign tax credits, state tax losses and state tax credits totaling $13.6 million,
management believes it is more likely than not that forecasted income, together with the tax effect of the deferred tax
liabilities, will be sufficient to fully recover the remaining deferred tax assets.
During 2013, the valuation allowance for deferred tax assets decreased by a net $1.3 million. We decreased the
valuation allowances for state tax losses incurred by $1.2 million and decreased the valuation allowances for state tax
credits by $0.4 million. Both of these items were recorded as current period deferred tax benefit. We also increased
the valuation allowance relating to foreign tax credits by $0.3 million, which was recorded as a deferred tax expense
to the income tax provision.
During 2012, the valuation allowance for deferred tax assets increased by a net $6.9 million. We decreased the valuation
allowances for state tax losses incurred by $0.5 million and increased the valuation allowance for state tax credits by
$8.2 million. Both of these items were recorded as current period deferred tax benefit and expense, respectively. We
also reduced the valuation allowance relating to foreign tax credits by $0.8 million, which was recorded as a deferred
tax benefit to the income tax provision. During 2011, the valuation allowance for deferred tax assets increased by a
net $2.8 million. We increased the valuation allowances for state tax losses incurred by certain subsidiaries and state
tax credits by $2.5 million and $2.2 million, respectively. Both of these items were recorded as current period deferred
tax expense. We also reduced the valuation allowance relating to foreign tax credits by $1.9 million, which was recorded
as a deferred tax benefit to the income tax provision. The reduction is based upon tax planning strategies that we
believe will more likely than not allow us to utilize a portion of the foreign tax credits before they expire.
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, 2011. During 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. These audits are in advanced stages as of the filing of this document. During
the year, the company settled audits with the Canada Revenue Agency (CRA) for tax years 2009-2011, as well as
numerous state income tax audits, including the State of Idaho. As part of the IRS audit, we identified additional gallons
that qualify for the Cellulosic Biofuel Producer Credit that were previously unclaimed. During the third quarter of 2013,
we recognized $3.5 million of additional benefit related to these gallons, resulting in a favorable adjustment.
Tax years subject to examination by major taxing jurisdictions are as follows:
Jurisdiction
United States
Canada
Arkansas
California
Georgia
Idaho
Illinois
Wisconsin
Years
2008 - 2013
2011 - 2013
2010 - 2013
2009 - 2013
2010 - 2013
2011 - 2013
2008 - 2013
2009 - 2013
Tax credits and losses subject to expiration by major taxing jurisdictions are as follows (dollars in thousands):
Jurisdiction
United States
Net operating losses
Foreign tax credits
Cellulosic biofuel credits
Other federal tax credits
Connecticut tax losses
Georgia tax losses
Idaho tax credits
North Carolina tax credits
Oklahoma tax losses
Gross Values
Years
$
27,428
3,832
3,495
4,264
20,385
7,267
4,851
15,966
35,122
2030 - 2033
2016 - 2019
2015
2026 - 2033
2018 - 2033
2027 - 2033
2013 - 2027
2015 - 2017
2030 - 2033
55
As of December 31, 2013, there were no undistributed earnings relating to our Canadian subsidiary, Interlake Acquisition
Corporation, as all historical earnings were repatriated under Cellu Tissue ownership. Management’s intent is to reinvest
future earnings indefinitely.
A review of our uncertain income tax positions at December 31, 2013 and 2012 indicates that liabilities are required
to be recorded for gross unrecognized tax benefits following authoritative accounting guidance. The following presents
a roll forward of our unrecognized tax benefits and associated interest and penalties, as included in the Accrued Taxes
line item in non-current liabilities in our Consolidated Balance Sheets.
(In thousands)
Balance at January 1, 2012
Increase in prior year tax positions
Increase in current year tax positions
Reductions as a result of a lapse of the applicable statute of limitations
Gross
Unrecognized
Tax Benefits,
Excluding
Interest and
Penalties
$
69,651 $
2,544
154
(345)
Interest
and
Penalties
Total Gross
Unrecognized
Tax Benefits
74,464
4,426
154
(345)
4,813 $
1,882
—
—
Balance at December 31, 2012
Decrease in prior year tax positions
Decrease due to settlements
Increase in current year tax positions
Balance at December 31, 2013
$
72,004 $
(69,816)
6,695 $
(5,397)
(525)
469
(777)
5
$
2,132 $
526 $
78,699
(75,213)
(1,302)
474
2,658
The company has operations in many states within the U.S., as well as in Ontario, Canada, and is subject, at times,
to tax audits in these jurisdictions. These tax audits by their nature are complex and can require multiple years to
resolve. The final resolution of any such tax audits could result in either a reduction in the company’s accruals or an
increase in its income tax provision, both of which could have an impact on the results of operations in any given
period. With a few exceptions, the company is no longer subject to U.S. federal, state and local, or foreign income tax
examinations by tax authorities for years prior to 2009. The company regularly evaluates, assesses and adjusts these
accruals in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period
to period.
In November 2013, the Internal Revenue Service released a memorandum from the Office of Chief Counsel relating
to the tax treatment of the Alternative Fuel Mixture Tax Credit, or AFMTC. The memorandum concluded that excise
tax credits and the corresponding payments were not items of gross income under the Internal Revenue Code. Based
upon this memorandum, there was sufficient evidence for the company to reassess the uncertain tax position relating
to the taxability of the AFMTC as more likely than not that the income from the 2009 year is not taxable and therefore
a reduction to the reserve for uncertain tax positions in the amount of $62.6 million was recorded during the fourth
quarter, net of the associated deferred tax asset. A total reduction to the reserve for uncertain tax positions, net of
deferred tax assets associated with such positions, during the year totaled $69.1 million and was recorded as a benefit
to income tax expense.
Unrecognized tax benefits net of related deferred tax assets at December 31, 2013, if recognized, would favorably
impact our effective tax rate by decreasing our tax provision by $2.7 million. We reflect accrued interest related to tax
obligations, as well as penalties, in our provision for income taxes. For the years ended December 31, 2013, 2012
and 2011, we accrued interest and no penalties of $2.0 million, $1.9 million and $2.4 million, respectively, in our income
tax provision.
56
NOTE 8 Accounts Payable and Accrued Liabilities
(In thousands)
Trade accounts payable
Accrued wages, salaries and employee benefits
Accrued interest
Accrued utilities
Accrued discounts and allowances
Accrued taxes other than income taxes payable
Other
NOTE 9 Debt
$375 MILLION SENIOR NOTES DUE 2018
2013
2012
$
108,192 $
38,563
9,691
8,309
6,410
6,322
13,161
$
190,648 $
75,949
42,491
5,242
8,205
4,785
6,993
21,931
165,596
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. The issuance of these notes generated net proceeds of $367.5 million after deducting offering expenses.
The 2010 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2010 Notes 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 the 2010 Notes. The 2010 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 2010 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 2010 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.
We have the option to redeem all or a portion of the 2010 Notes at any time before November 1, 2014 at a redemption
price equal to 100% of the principal amount plus accrued and unpaid interest and a “make whole” premium. On or
after November 1, 2014, we may redeem all or a portion of the 2010 Notes at specified redemption prices plus accrued
and unpaid interest. In addition, we may be required to make an offer to purchase the 2010 Notes upon the sale of
certain assets and upon a change of control.
REDEMPTION OF $150 MILLION SENIOR NOTES DUE 2016 AND ISSUANCE OF $275 MILLION SENIOR NOTES
DUE 2023
In June 2009, we issued senior unsecured notes, which we refer to as the 2009 Notes, in the aggregate principal
amount of $150 million. The 2009 Notes were due on June 15, 2016 and had an interest rate of 10.625%. The 2009
Notes were issued at a price equal to 98.792% of their face value.
We had the option to redeem all or a portion of the 2009 Notes at any time prior to June 15, 2013 at a redemption
price equal to 100% of the principal amount thereof plus a “make whole” premium and accrued and unpaid interest.
On February 22, 2013, we exercised our option to redeem all of the 2009 Notes at a redemption price equal to
approximately $166 million, which consisted of 100% of the principal amount, plus a $12.6 million “make whole”
premium and accrued and unpaid interest of approximately $3.0 million. The make whole premium and a portion of
the unpaid interest, as well as an unamortized discount and deferred issuance costs associated with the 2009 Notes,
were recorded as components of the debt retirement costs totaling $17.1 million in the first quarter of 2013, as included
in the accompanying Consolidated Statement of Operations. Proceeds to fund the redemption of the 2009 Notes were
made available through the sale of $275 million aggregate principal amount of senior notes on January 23, 2013, 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 issuance of these notes generated net proceeds of approximately $271 million after
deducting offering expenses.
57
The 2013 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2013 Notes 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 the 2013 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. The 2013 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 2013 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.
Prior to February 1, 2016, we may redeem up to 35% of the 2013 Notes at a redemption price equal to 104.5% of the
principal amount plus accrued and unpaid interest with the proceeds from one or more qualified equity offerings. We
have the option to redeem all or a portion of the 2013 Notes at any time before February 1, 2018 at a redemption price
equal to 100% of the principal amount plus accrued and unpaid interest and a “make whole” premium. On or after
February 1, 2018, we may redeem all or a portion of the 2013 Notes at specified redemption prices plus accrued and
unpaid interest. In addition, we may be required to make an offer to purchase the 2013 Notes upon the sale of certain
assets and upon a change of control.
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 December 31, 2013, there were no borrowings outstanding under the credit facility, but approximately $6.6 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 December 31,
2013, we would have been permitted to draw approximately $118.4 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 December 31,
2013, the fixed charge coverage ratio for the most recent four quarters was 2.5-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 10 Other Long-Term Obligations
(In thousands)
Long-term lease obligations, net of current portion
Deferred compensation
Deferred proceeds
Other
58
2013
2012
$
$
24,815 $
14,149
11,205
2,773
52,942 $
25,240
9,939
11,668
4,063
50,910
NOTE 11 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss at the balance sheet dates is comprised of the following:
(In thousands)
Balance at December 31, 2012
Pension and
Other Post
Retirement
Employee
Benefit Plans
Adjustments
Total
Foreign
Currency
Translation
Adjustments1
$
(874) $ (114,819) $ (115,693)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income, net of tax2
Balance at December 31, 2013
—
—
—
9,468
48,132
57,600
9,468
48,132
57,600
$
(874) $
(57,219) $
(58,093)
1
2
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.
Net periodic costs associated with our pension and other postretirement employee benefit plans included in other comprehensive income and
reclassified from accumulated other comprehensive loss includes $83.6 million of net gain on plan assets, $14.8 million of actuarial loss
amortization, $5.1 million of prior service costs arising during the period, $0.8 million of curtailments and $0.2 million related to prior service
credit, net of tax of $36.3 million. These accumulated other comprehensive loss components are included in the computation of net periodic
pension and OPEB costs in Note 12, “Pension and Other Postretirement Employee Benefit Plans.”
NOTE 12 Savings, Pension and Other Postretirement Employee Benefit Plans
Certain of our employees are eligible to participate in defined contribution savings and defined benefit postretirement
plans. These include 401(k) savings plans, defined benefit pension plans including company-sponsored and
multiemployer plans, and Other Postretirement Employee Benefit, or OPEB, plans, each of which is discussed below.
401(k) Savings Plans
Substantially all of our employees are eligible to participate in 401(k) savings plans, which include a company match
component. In 2013, 2012 and 2011, we made matching 401(k) contributions on behalf of employees of $16.8 million,
$14.9 million and $8.1 million, respectively.
Company-Sponsored Defined Benefit Pension Plans
A majority of our salaried employees and a portion of our hourly employees are covered by company-sponsored
noncontributory defined benefit pension plans.
During the second quarter of 2013, we recorded a curtailment loss of $0.8 million in net periodic cost, and a
corresponding change in Other Comprehensive Income, net of tax, due to the freezing of pension benefits for certain
employees at our Lewiston, Idaho pulp and paperboard facility, effective June 30, 2013. In the fourth quarter of 2012,
we recorded a curtailment loss of $0.5 million in net periodic cost, and a corresponding change in Other Comprehensive
Income, net of tax, as a result of certain hourly employees at our Cypress Bend, Arkansas pulp and paperboard facility
electing to cease accruing further pension benefits effective December 31, 2012. In exchange, beginning January 1,
2013 and lasting for a certain number of years, these employees began receiving an enhanced employer contribution
to one of our existing 401(k) savings plan in which they participate. In the fourth quarter of 2011, we recorded a
curtailment loss of $2.8 million in net periodic cost, and a corresponding change in Other Comprehensive Income,
net of tax, as a result of the sale of our sawmill. In addition, we recorded a $0.4 million decrease in our pension liability
with a corresponding decrease in Accumulated Other Comprehensive Loss.
Company-Sponsored OPEB Plans
We also provide benefits under company-sponsored defined benefit retiree health care and life insurance plans, which
cover certain salaried and hourly employees. Most of the retiree health care plans require retiree contributions and
contain other cost-sharing features. The retiree life insurance plans are primarily noncontributory.
59
Funded Status of Company-Sponsored Plans
As required by current standards governing the accounting for defined benefit pension and other postretirement plans,
we recognized the funded status of our company-sponsored plans on our Consolidated Balance Sheets at
December 31, 2013 and 2012. The funded status is measured as the difference between plan assets at fair value (with
limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation;
for any other postretirement employee benefit plan, such as a retiree health care plan, the benefit obligation is the
accumulated postretirement employee benefit obligation.
We use a December 31 measurement date for our benefit plans.
The changes in benefit obligation, plan assets and funded status for company-sponsored benefit plans as of
December 31 are as follows:
(In thousands)
Benefit obligation at beginning of year
Service cost
Interest cost
Plan changes
Actuarial (gains) losses
Medicare Part D subsidies received
Benefits paid
Benefit obligation at end of year
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the Consolidated Balance Sheets:
(In thousands)
Noncurrent asset
Current liabilities
Noncurrent liabilities
Net amount recognized
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
$
2013
333,257 $
1,738
13,375
—
(36,859)
—
(18,123)
293,388
254,556
34,779
15,386
(18,123)
286,598
$
(6,790) $
2012
2012
136,710
307,658 $
693
2,485
5,815
14,693
(5,278)
—
3,151
30,612
569
—
(7,042)
(22,191)
134,618
333,257
18
218,557
1
37,308
—
20,882
—
(22,191)
254,556
19
(78,701) $ (107,307) $ (134,599)
2013
134,618 $
552
4,730
5,106
(30,322)
308
(7,665)
107,327
19
1
—
—
20
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2013
2012
2013
2012
$
$
4,488 $
(364)
(10,914)
(6,790) $
— $
— $
—
(8,856)
(281)
(8,414)
(78,420)
(125,743)
(98,893)
(78,701) $ (107,307) $ (134,599)
Amounts recognized (pre-tax) in Accumulated Other Comprehensive Loss as of December 31 consist of:
(In thousands)
Net loss (gain)
Prior service cost (credit)
Net amount recognized
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2013
109,218 $
308
109,526 $
2012
177,343 $
1,414
178,757 $
$
$
2013
(5,915) $
(896)
(6,811) $
2012
24,408
(6,504)
17,904
60
Information as of December 31 for certain pension plans included above with accumulated benefit obligations in excess
of plan assets were as follows:
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2013
2012
$ 293,388 $ 333,257
333,257
254,556
293,388
286,598
Pre-tax components of Net Periodic Cost and other amounts recognized in Other Comprehensive Income (Loss) for
the years ended December 31 were as follows:
Net Periodic Cost (Benefit):
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial loss
Curtailments
Net periodic cost
Pension Benefit Plans
2013
1,738 $
2012
2,485 $
2011
7,725 $
$
13,375
14,693
15,092
(18,352)
(19,685)
(19,532)
337
14,840
634
12,085
1,193
8,382
769
477
$ 12,707 $ 10,689 $ 15,636 $
2,776
Other Postretirement
Employee Benefit Plans
2013
2012
2011
552 $
693 $
702
4,730
—
5,815
—
6,857
—
(502)
(2,680)
(1,795)
—
—
4,780 $
—
—
—
—
3,828 $
5,764
Other amounts recognized in Other Comprehensive Income (Loss):
(In thousands)
Net (gain) loss
Curtailments
Prior service cost (credit)
Amortization of prior service (cost) credit
Amortization of actuarial loss
Total recognized in other comprehensive
(income) loss
Total recognized in net periodic cost and
other comprehensive (income) loss
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2013
2012
2011
2013
$ (53,285) $ 12,989 $ 43,207 $ (30,323) $
(769)
—
(337)
(14,840)
(477)
(2,776)
—
(634)
(12,085)
—
(1,193)
(8,382)
—
5,106
502
—
2012
3,150 $ (5,435)
2011
—
(5,278)
2,680
—
—
—
1,795
—
$ (69,231) $
(207) $ 30,856 $ (24,715) $
552 $ (3,640)
$ (56,524) $ 10,482 $ 46,492 $ (19,935) $
4,380 $
2,124
The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from
accumulated other comprehensive loss into net periodic cost (benefit) over the next fiscal year are $10.0 million and
$0.2 million, respectively. The estimated prior service credit for the OPEB plans that will be amortized from accumulated
other comprehensive loss into net periodic cost (benefit) over the next fiscal year is $0.5 million.
During 2013, $14.2 million of net periodic pension and OPEB costs were charged to cost of sales, and $3.3 million
was charged to selling, general and administrative expenses in the accompanying Consolidated Statements of
Operations.
The Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced a drug benefit under Medicare
Part D and a federal subsidy to sponsors of retiree health care benefit plans that provide an equivalent benefit. Our
actuaries determined that certain benefits provided under our plans are actuarially equivalent to the Medicare Part D
standard plan and are eligible for the employer subsidy. During 2013 and 2012, we received subsidy payments totaling
$0.3 million and $0.6 million for each respective year.
61
Weighted average assumptions used to determine the benefit obligation as of December 31 were:
Discount rate
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2013
5.20%
2012
4.15%
2011
4.90%
2013
5.05%
2012
4.05%
2011
4.95%
Weighted average assumptions used to determine the net periodic cost (benefit) for the years ended December 31
were:
Discount rate
Expected return on plan assets
Rate of salaried compensation increase
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2013
4.15%
7.50
—
2012
4.90%
8.00
—
2011
5.70%
8.00
4.00
2013
4.05%
—
—
2012
4.95%
—
—
2011
5.60%
—
—
The discount rate used in the determination of pension benefit obligations and pension expense was determined based
on a review of long-term high-grade bonds as well as management’s expectations. The discount rate used to calculate
OPEB obligations was determined using the same methodology we used for our pension plans.
The expected return on plan assets assumption is based upon an analysis of historical long-term returns for various
investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to
which plan assets are invested in the particular categories in arriving at our determination of a composite expected
return.
The assumed health care cost trend rate used to calculate OPEB obligations and expense was 7.7% in 2013, grading
to a range of 4.30% to 4.64% over approximately 70 years. This assumption has a significant effect on the amounts
reported. A one percentage point change in the health care cost trend rates would have the following effects:
(In thousands)
Effect on total of service and interest cost components
Effect on postretirement employee benefit obligation
1% Increase
$
521 $
9,304
1% Decrease
(438)
(7,997)
The investments of our defined benefit pension plans are held in a Master Trust. The assets of our OPEB plans are
held within an Internal Revenue Code section 401(h) account for the payment of retiree medical benefits within the
Master Trust.
The Master Trust has a securities lending agreement. The agreement authorizes the lending agent to loan securities
owned by the Master Trust to an approved list of borrowers. Under the agreement, the lending agent is responsible
for negotiating each loan for an unspecified term while retaining the power to terminate the loan at any time. At the
time each loan is made, the lending agent requires collateral equal to, but not less than, 102% of the market value of
the loaned securities and accrued interest. The Master Trust directs the agent as to the type of investment pool in
which to invest the borrower’s collateral based on established policy with specific limits; accordingly, the right to receive
the collateral and obligation to return it are disclosed as a component of Master Trust investments. While the securities
are loaned, the Master Trust retains all rights of ownership, except it waives its right to vote such securities. Securities
loaned subject to this securities lending agreement totaled $0.3 million at December 31, 2013. These securities are
principally corporate common stocks.
Current accounting rules governing fair value measurement establish a framework for measuring fair value, which
provides a fair value 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 (level 1
measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair
value hierarchy are described below:
62
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or
liabilities in active markets that the plans have the ability to access.
Level 2
Inputs to the valuation methodology include:
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by observable market data by
correlation or other means
If the asset or liability has a specified (contractual) term, the Level 2 input must be
observable for substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
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 need to maximize the use of observable
inputs and minimize the use of unobservable inputs.
Securities in the Master Trust are stated at fair value. Fair value is based upon quotations obtained from national
securities exchanges, if available. Where securities do not have a quoted market price, the recorded amount represents
estimated fair value. Many factors are considered in arriving at that fair market value. Following is a description of the
valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies
used during 2013.
Corporate common stock and mutual funds: Investments are valued at quoted market prices.
Common and collective trusts: The investment in common and collective trusts is based on the fair value of
the underlying assets and is expressed in units.
Corporate debt securities: In general, corporate bonds are valued based on yields currently available on
comparable securities of issuers with similar credit ratings.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value
or reflective of future fair values. Furthermore, while management believes the valuation methods are appropriate and
consistent with other market participants, the use of different methodologies or assumptions to determine the fair value
of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth by level, within the fair value hierarchy, the investments at fair value for our company-
sponsored pension benefit plans:
63
(In thousands)
Cash and cash equivalents
Common and collective trusts:
International small cap
Global/International equity
International equity emerging markets
Common stocks:
Industrials
Energy
Consumer
Healthcare
Finance
Utilities
Information technology
Foreign
Mutual funds:
Foreign large blend
Long-term bond fund
Mid-cap growth fund
Subtotal
Payable held under securities lending agreement
Total investments at fair value
(In thousands)
Cash and cash equivalents
Common and collective trusts:
International small cap
Global/International equity
Domestic equity – small/mid cap
International equity emerging markets
Common stocks:
Industrials
Energy
Consumer
Healthcare
Finance
Utilities
Information technology
Foreign
Mutual funds:
Foreign large blend
Long-term bond fund
Corporate debt securities
Subtotal
Payable held under securities lending agreement
Total investments at fair value
December 31, 2013
Level 1
Level 2
Level 3
Total
$
4,314 $
— $
— $
4,314
—
—
—
15,845
21,198
17,809
9,307
2,663
8,002
6,013
11,566
1,711
8,785
6,175
—
—
—
—
—
—
—
—
18,492
137,031
18,009
$ 232,068 $
—
—
—
54,852 $
—
—
—
—
—
—
—
—
—
—
—
15,845
21,198
17,809
9,307
2,663
8,002
6,013
11,566
1,711
8,785
6,175
18,492
—
137,031
—
—
18,009
— $ 286,920
(322)
$ 286,598
December 31, 2012
Level 1
Level 2
Level 3
Total
$
3,786 $
— $
— $
3,786
—
—
—
—
12,725
16,656
17,339
17,672
9,475
1,966
8,270
7,386
13,000
2,305
6,828
6,078
18,907
114,557
—
—
—
—
—
—
—
—
—
—
—
1,073
$ 192,558 $
65,465 $
—
—
—
—
—
—
—
—
—
—
—
—
12,725
16,656
17,339
17,672
9,475
1,966
8,270
7,386
13,000
2,305
6,828
6,078
18,907
—
114,557
—
—
1,073
— $ 258,023
(3,467)
$ 254,556
64
Our OPEB plan had approximately $20,000 held in cash and equivalents at December 31, 2013, which were categorized
as level 1.
We have formal investment policy guidelines for our company-sponsored plans. These guidelines were set by our
benefits committee, which is comprised of members of our management and has been assigned its fiduciary authority
over management of the plan assets by our Board of Directors. The committee’s duties include periodically reviewing
and modifying those investment policy guidelines as necessary and insuring that the policy is adhered to and the
investment objectives are met.
The investment policy includes specific guidelines for specific categories of fixed income and convertible securities.
Assets are managed by professional investment managers who are expected to achieve a reasonable rate of return
over a market cycle. Long-term performance is a fundamental tenet of the policy.
The general policy states that plan assets would be invested to seek the greatest return consistent with the fiduciary
character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The
specific investment guidelines stipulate that management is to maintain adequate liquidity for meeting expected benefit
payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revising long-
term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the value of
pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection included:
Assets are diversified among various asset classes, such as domestic equities, international equities, fixed
income and cash. The long-term asset allocation ranges are as follows:
Domestic equities
International equities, including emerging markets
Corporate bonds
Liquid reserves
19%-31%
16%-34%
40%-60%
0%-1%
Periodically, reviews of allocations within these ranges are made to determine what adjustments should be made
based on changing economic and market conditions and specific liquidity requirements.
Assets were managed by professional investment managers and could be invested in separately managed
accounts or commingled funds.
Assets were not invested in securities rated below BBB- by S&P or Baa3 by Moody’s.
The investment guidelines also required that the individual investment managers were expected to achieve a reasonable
rate of return over a market cycle. Emphasis was placed on long-term performance versus short-term market
aberrations. Factors considered in determining reasonable rates of return included performance achieved by a diverse
cross section of other investment managers, performance of commonly used benchmarks (e.g., Russell 3000 Index,
MSCI World ex-U.S. Index, Barclays Capital Long Credit Index), actuarial assumptions for return on plan investments
and specific performance guidelines given to individual investment managers.
At December 31, 2013, ten active investment managers managed substantially all of the pension funds, each of whom
had responsibility for managing a specific portion of these assets. Plan assets were diversified among the various
asset classes within the allocation ranges approved by the benefits committee.
We are required to make contributions to our qualified pension plans. In 2013 we contributed $15.1 million to these
pension plans. We also contributed $0.3 million to our non-qualified pension plan in 2013. Our cash contributions in
2014 are estimated to be approximately $15 million. These contributions are comprised of $8 million in actuarially
determined minimum contributions and $7 million of payments required to be made under a previous agreement with
the Pension Benefit Guarantee Corporation stemming from the 2011 sale of the Lewiston, Idaho Sawmill. We do not
anticipate funding our OPEB plans in 2013 except to pay benefit costs as incurred during the year by plan participants.
Estimated future benefit payments, which reflect expected future service and expected Medicare prescription subsidy
receipts, are as follows for the years indicated:
65
(In thousands)
2014
2015
2016
2017
2018
2019-2023
Pension Benefit
Plans
Other
Postretirement
Employee
Benefit Plans
Expected
Medicare
Subsidy
$
17,837 $
18,361
18,942
19,486
19,932
103,091
8,744 $
8,947
9,268
9,190
9,229
39,664
310
313
315
313
309
1,436
Multiemployer Defined Benefit Pension Plans
Hourly employees at two of our manufacturing facilities participate in multiemployer defined benefit pension plans: the
PACE Industry Union Management Pension Fund, or PIUMPF, which is managed by United Steelworkers, or USW,
Benefits; and the International Association of Machinist & Aerospace Workers National Pension Fund, or IAM. We
make contributions to these plans, as well as make contributions to a trust fund established to provide retiree medical
benefits for a portion of these employees, which is also managed by USW Benefits. The risks of participating in these
multiemployer plans are different from single-employer plans in the following respects:
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees
of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne
by the remaining participating employers.
Under applicable federal law, any employer contributing to a multiemployer pension plan that completely
ceases participating in the plan while it is underfunded is subject to an assessment of such employer's allocable
share of the aggregate unfunded vested benefits of the plan. In certain circumstances, an employer can also
be assessed a withdrawal liability for a partial withdrawal from a multiemployer pension plan. Based on
information as of December 31, 2012 provided by PIUMPF and reviewed by our actuarial consultant, we
estimate the aggregate pre-tax liability that we would have incurred if we had completely withdrawn from
PIUMPF in 2013 would have been in excess of $72 million. However, the exact amount of potential exposure
could be higher or lower than the estimate, depending on, among other things, the nature and timing of any
triggering events and the funded status of PIUMPF at that time. A withdrawal liability is recorded for accounting
purposes when withdrawal is probable and the amount of the withdrawal obligation is reasonably estimable.
Our participation in these plans for the annual period ended December 31, 2013, is outlined in the table below. The
“EIN" and "Plan Number” columns provide the Employee Identification Number, or EIN, and the three-digit plan number.
The most recent Pension Protection Act, or PPA, zone status available in 2013 and 2012 is for a plan’s year-end as
of December 31, 2012, and December 31, 2011, respectively. The zone status is based on information we received
from the plans and is certified by each plans’ actuary. Among other factors, plans in the red zone are generally less
than 65 percent funded, plans in the yellow zone are less than 80 percent but more than 65 percent funded, and plans
in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans
for which a financial improvement plan, or FIP, or a rehabilitation plan, or RP, is either pending or has been implemented
as required by the PPA as a measure to correct its underfunded status. The last column lists the expiration date(s) of
the collective-bargaining agreement(s) to which the plans are subject.
In 2013, the contribution rates for the IAM plan increased to $4.00 an hour, up from $3.25 an hour in 2012 and $3.00
an hour in 2011, affecting the comparability of the contributions year over year. Similarly, in November of 2011, the
USW plan’s contribution rates increased from $2.4285 an hour to $2.6714 an hour. The USW plan's rate increase was
implemented as part of the RP in lieu of the legally required surcharge, paid by the employers, to assist the fund’s
financial status. As such, the USW contribution rate changes affect comparability of the contributions year over year.
We were listed in the USW Plan’s Form 5500 report as providing more than five percent of the total contributions for
the years 2012 and 2011. At the date of issuance of our consolidated financial statements, Form 5500 reports for these
plans were not available for the 2013 plan year.
PPA Zone
Status
EIN
Plan
Number
2013
2012
FIP/
RP Status Pending/
Implemented
Contributions (in
thousands)
2013
2012
2011
51-6031295
11-6166763
002
001
Green Green
N/A
$
343
$
288
$
269
Red
Red
Implemented
5,718
5,673
5,648
Expiration
Date
of Collective
Bargaining
Agreement
5/31/2016
8/31/2014
Surcharge
Imposed
No
No
Pension
Fund
IAM
USW
Total Contributions:
$ 6,061
$ 5,961
$ 5,917
66
NOTE 13 Earnings Per Share
Basic and diluted earnings per common share are computed by dividing net earnings by the weighted average number
of common shares outstanding and by the weighted average number of dilutive potential common shares, in accordance
with accounting guidance related to earnings per share. The following table reconciles the number of common shares
used in calculating the basic and diluted net earnings per share:
Basic average common shares outstanding1
Incremental shares due to:
Restricted stock units
Performance shares
Diluted average common shares outstanding
Basic net earnings per common share
Diluted net earnings per common share
Anti-dilutive shares excluded from calculation
2013
22,081,026
2012
23,298,663
2011
22,913,881
53,803
129,003
22,263,832
$
24,086
291,036
23,613,785
4.84 $
4.80
41,337
2.75 $
2.72
9,992
220,457
817,946
23,952,284
1.73
1.66
88,674
1
Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance. See
Note 14, "Equity-Based Compensation Plans" for further discussion.
NOTE 14 Equity-Based Compensation Plans
The Clearwater Paper Corporation 2008 Stock Incentive Plan, or Stock Plan, which has been approved by our
stockholders, provides for equity-based awards in the form of restricted shares, restricted stock units, or RSUs,
performance shares, stock options, or stock appreciation rights to selected employees, outside directors, and
consultants of the company. The Stock Plan became effective on December 16, 2008. Under the Stock Plan, as
amended, we are authorized to issue up to approximately 4.1 million shares, which includes approximately 0.7 million
additional shares authorized in connection with our acquisition of Cellu Tissue that are available for issuance as equity-
based awards only to any employees, outside directors, or consultants who were not employed on December 26, 2010
by Clearwater Paper Corporation or any of its subsidiaries. At December 31, 2013, approximately 1.9 million shares
were available for future issuance under the Stock Plan.
We recognize equity-based compensation expense for all equity-based payment awards made to employees and
directors, including RSUs and performance shares, based on estimated fair values and net of estimates of future
forfeitures. Expense is classified in selling, general and administrative expense in our Consolidated Statements of
Operations and is recognized on a straight-line basis over the requisite service periods of each award. Based on the
terms of the Stock Plan, retirement-eligible employees become fully vested in outstanding awards on the later of that
date they reach retirement eligibility or at the end of the first calendar year of each respective grant. We account for
this feature when determining the service period over which to recognize expense for each grant of RSUs and
performance shares.
Employee equity-based compensation expense was recognized as follows:
(In thousands)
Restricted stock units
Performance shares
Total employee equity-based compensation
Related tax benefit
RESTRICTED STOCK UNITS
2013
2012
2011
$
$
$
1,801 $
5,075
6,876 $
2,049 $
970 $
7,364
8,334 $
2,886 $
1,212
5,446
6,658
2,290
RSUs granted under our Stock Plan are generally subject to a vesting period of one to three years. RSU awards will
accrue dividend equivalents based on dividends paid, if any, during the RSU vesting period. The dividend equivalents
will be converted into additional RSUs that will vest in the same manner as the underlying RSUs to which they relate.
RSUs granted under our Stock Plan do not represent common stock, and therefore the holders do not have voting
rights unless and until shares are issued upon settlement.
67
A summary of the status of outstanding unvested RSU awards as of December 31, 2013, 2012 and 2011, and changes
during those years, is presented below:
Unvested shares outstanding at
January 1
Granted
Vested
Forfeited
Unvested shares outstanding at
December 31
Aggregate intrinsic value (in
thousands)
2013
2012
2011
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
63,727 $
72,702
(30,190)
(3,581)
35.57
43.44
39.21
42.03
169,344 $
52,294
(155,177)
(2,734)
11.33
34.59
8.82
34.07
437,272 $
23,138
(286,486)
(4,580)
6.96
38.42
6.88
8.64
102,658
39.85
63,727
35.57
169,344
11.33
$
5,390
$
2,496
$
6,030
During 2013, 126,726 shares of RSUs were distributed. Of these shares, 22,370 were RSU shares that were settled
and distributed in the fourth quarter of 2013. The remaining 104,356 shares were RSU shares that 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 a net 73,154 shares were
issued during 2013. The minimum tax withholdings payment made in 2013 in connection with issued shares was $2.6
million.
During 2012, 288,336 shares of RSUs were settled, of which 112,682 shares were settled and distributed. The remaining
175,654 shares were deferred under Internal Revenue Code section 162(m). Included in the total shares settled during
2012 were RSUs of which a portion vested each year over a three year period ending in January 2012. After adjusting
for minimum tax withholdings and deferred shares, a net 78,029 shares were issued during 2012. The minimum tax
withholdings payment made in 2012 in connection with issued shares was $1.3 million.
As of December 31, 2013 a total of 84,602 shares remain deferred under Internal Revenue Code section 162(m).
The fair value of each RSU share award granted during 2013 was estimated on the date of grant using the grant date
market price of our common stock. The total fair value of share awards that vested during 2013 was $1.2 million.
As of December 31, 2013, there was $2.6 million of total unrecognized compensation cost related to outstanding RSU
awards. The cost is expected to be recognized over a weighted average period of 2.0 years.
PERFORMANCE SHARES
Performance share awards granted under our Stock Plan have a three-year performance period, with generally the
same service period, and shares are issued after the end of the period if the employee provides the requisite service
and the performance measure is met. The performance measure is a comparison of the percentile ranking of our total
stockholder return compared to the total stockholder return performance of a selected peer group. The performance
measure is considered to represent a “market condition” under authoritative accounting guidance, and thus, the market
condition is considered when determining the estimate of the fair value of the performance share awards. The number
of shares actually issued, as a percentage of the amount subject to the performance share award, could range from
0%-200%.
Performance share awards granted under our Stock Plan do not represent common stock, and therefore the holders
do not have voting rights unless and until shares are issued upon settlement. During the performance period, dividend
equivalents accrue based on dividends paid, if any, and are converted into additional performance shares, which vest
or are forfeited in the same manner as the underlying performance shares to which they relate. Generally, if an employee
terminates prior to completing the requisite service period, all or a portion of their awards are forfeited and the previously
recognized compensation cost is reversed. If an employee provides the requisite service through the end of the
performance period, but the performance measure is not met, following authoritative guidance for awards with a market
condition, previously recognized compensation cost is not reversed.
68
The fair value of performance share awards is estimated using a Monte Carlo simulation model. For performance
shares granted in 2013, the following assumptions were used in our Monte Carlo model:
Closing price of stock on date of grant
Risk free rate
Measurement period
Volatility
$
47.30
0.35%
3 years
30%
In addition to the above assumptions, the dividend yields for all companies were assumed to be zero since dividends
are included in the definition of total shareholder return.
A summary of the status of outstanding performance share awards as of December 31, 2013, 2012 and 2011, and
changes during those years, is presented below:
Outstanding share awards at
January 1
Granted
Settled
Forfeited
Outstanding share awards at
December 31
Aggregate intrinsic value (in
thousands)
2013
2012
2011
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
392,655 $
124,513
(246,592)
(10,735)
44.67
63.46
47.19
54.87
749,538 $
150,865
(499,680)
(8,068)
19.52
40.24
5.65
42.15
638,870 $
110,668
13.00
57.18
—
—
—
—
259,841
50.87
392,655
44.67
749,538
19.52
$
13,642
$
15,376
$
26,691
On December 31, 2013, the three-year performance period for 108,366 performance shares granted in 2011 ended.
The requisite market condition performance measure was not met, and as such no shares will be paid or issued under
these awards.
The service and performance period for 138,226 outstanding performance shares granted in 2010 ended on
December 31, 2012. Those performance shares were settled and distributed during the first quarter of 2013. The
number of shares actually distributed, as a percentage of the performance shares granted, was 101.4%. After adjusting
for the related minimum tax withholdings, a net 93,744 shares were issued in the first quarter of 2013. The related
minimum tax withholdings payment made in the first quarter of 2013 in connection with issued shares was $2.2 million.
As of December 31, 2013, there was $5.6 million of unrecognized compensation cost related to outstanding
performance share awards. The cost is expected to be recognized over a weighted average period of 1.5 years.
DIRECTOR AWARDS
In connection with joining our Board of Directors, in January 2009 our outside directors at that time were granted an
award of phantom common stock units, which were credited to an account established on behalf of each director and
vested ratably over a three-year period with the final vesting in January 2012. Subsequent equity awards have been
granted annually in May, or on a pro-rata basis as applicable, to our outside directors in the form of phantom common
stock units as part of their annual compensation, which are credited to their accounts. These awards vest ratably over
a one-year period. These accounts will be credited with additional phantom common stock units equal in value to
dividends paid, if any, on the same amount of common stock. Upon separation from service as a director, the vested
portion of the phantom common stock units held by the director in a stock unit account are converted to cash based
upon the then market price of the common stock and paid to the director. Due to its cash-settlement feature, we account
for these awards as liabilities rather than equity and recognize the equity-based compensation expense or income at
the end of each reporting period based on the portion of the award that is vested and the increase or decrease in the
value of our common stock. We recorded director equity-based compensation expense totaling $4.1 million, $1.4
million and $1.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013
and 2012, the liability amounts associated with director equity-based compensation included in "Other long-term
obligations" on our Consolidated Balance Sheets were $13.2 million and $9.1 million, respectively.
69
NOTE 15 Fair Value Measurements
The estimated fair values of our financial instruments as of our balance sheet dates are presented below:
(In thousands)
Cash, short-term investments and restricted cash (Level 1)
Long-term debt (Level 1)
2013
2012
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
95,206 $
95,206 $
34,079 $
34,079
650,000
651,313
523,933
572,625
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.
Cash, short-term investments, restricted cash and long-term debt are the only items measured at fair value on a
recurring basis. The carrying amount of our short-term investments approximates fair value due to their very short
maturity periods, and such investments are at or near market yields.
We do not have any financial assets measured at fair value on a nonrecurring basis. Nonfinancial assets measured
at fair value on a nonrecurring basis include items such as long-lived assets held and used that are measured at fair
value resulting from impairment, if deemed necessary.
NOTE 16 Commitments and Contingencies
LEASE COMMITMENTS
Our operating leases cover manufacturing, office, warehouse and distribution space, equipment and vehicles, which
expire at various dates through 2028. Additionally, we have capital leases related to our North Carolina converting and
manufacturing facilities. As leases expire, it can be expected that, in the normal course of business, certain leases will
be renewed or replaced.
As of December 31, 2013, under current operating and capital lease contracts, we had future minimum lease payments
as follows:
(In thousands)
2014
2015
2016
2017
2018
Thereafter
Total future minimum lease payments
Less interest portion
Present value of future minimum lease payments
Capital
Operating
$
$
$
2,375 $
2,420
2,466
2,513
2,560
34,802
47,136 $
(23,141)
23,995
17,335
12,926
9,823
8,555
6,141
10,478
65,258
Rent expense for operating leases was $19.4 million, $16.6 million and $16.1 million for the years ended December 31,
2013, 2012 and 2011, respectively.
70
NOTE 17 Segment Information
We are organized in two reportable operating segments: Consumer Products and Pulp and Paperboard. Intersegment
pulp transfers from our Pulp and Paperboard segment to our Consumer Products segment are transferred at cost. As
a result, there are no eliminations required to reconcile our total consolidated net sales to the segments' total net sales.
Following is a tabular presentation of business segment information for each of the past three years. Corporate
information is included to reconcile segment data to the financial statements.
(In thousands)
Segment net sales:
Consumer Products
Pulp and Paperboard
Total segment net sales
Operating income:
Consumer Products
Pulp and Paperboard1
Corporate and eliminations1
Income from operations
Depreciation and amortization:
Consumer Products
Pulp and Paperboard
Corporate
Total depreciation and amortization
Assets:
Consumer Products
Pulp and Paperboard
Corporate
Total assets
Capital expenditures:
Consumer Products
Pulp and Paperboard
Corporate
Total capital expenditures
2013
2012
2011
$ 1,149,692 $ 1,134,556 $ 1,092,133
835,840
$ 1,889,830 $ 1,874,304 $ 1,927,973
739,748
740,138
$
$
$
$
52,799 $
95,781
148,580
(49,252)
99,328 $
93,347 $
103,910
197,257
(51,870)
145,387 $
42,806
92,827
135,633
(20,188)
115,445
65,197 $
23,266
1,809
90,272 $
54,547 $
23,113
1,673
79,333 $
50,391
26,073
469
76,933
$ 1,215,919 $ 1,178,438 $ 1,081,988
355,886
1,437,874
133,444
$ 1,744,825 $ 1,633,456 $ 1,571,318
359,735
1,575,654
169,171
344,614
1,523,052
110,404
$
$
46,647 $
30,846
77,493
9,015
86,508 $
183,330 $
19,954
203,284
3,831
207,115 $
117,059
15,355
132,414
5,329
137,743
1
Results for Pulp and Paperboard for 2011 included additional expenses associated with the sale of the Lewiston, Idaho sawmill, which were
partially offset by LIFO inventory liquidation and other adjustments recorded at the corporate level.
71
Our manufacturing facilities and all other assets are located within the continental United States, except for one
production facility in St. Catharines, Ontario, Canada. We sell and ship our products to customers in many foreign
countries. Geographic information regarding our net sales is summarized as follows:
(In thousands)
United States
Japan
Canada
Korea
Australia
China
Mexico
Taiwan
Other foreign countries
Total net sales
2013
2011
2012
$ 1,751,001 $ 1,726,561 $ 1,751,482
63,584
31,256
5,426
6,246
15,081
13,619
16,205
25,074
$ 1,889,830 $ 1,874,304 $ 1,927,973
63,368
29,557
9,655
7,786
3,488
6,102
11,061
16,726
67,728
26,161
10,899
7,924
5,404
2,964
1,755
15,994
NOTE 18 Financial Results by Quarter (Unaudited)
(In thousands—
except per-share
amounts)
Net sales
Costs and
expenses:
Cost of sales
Selling, general and
administrative
expenses
Total operating
costs and
expenses
Income from
operations
Net (loss) earnings
Net (loss) earnings
per common share
Basic
Diluted
March 31
June 30
September 30
December 31
2013
2012
2013
2012
2013
2012
2013
2012
$ 460,824
$ 457,798
$ 471,002
$ 473,572
$ 487,845
$ 480,233
$ 470,159
$ 462,701
Three Months Ended
(414,209)
(403,076)
(414,521)
(398,546)
(441,237)
(409,822)
(401,404)
(396,428)
(34,132)
(29,074)
(26,767)
(30,529)
(27,766)
(30,649)
(30,466)
(30,793)
(448,341)
(432,150)
(441,288)
(429,075)
(469,003)
(440,471)
(431,870)
(427,221)
12,483
25,648
29,714
44,497
18,842
39,762
38,289
35,480
(882) $
3,726
$
11,658
$
21,489
$
13,317
$
19,064
$
82,862
$
19,852
(0.04) $
(0.04)
$
0.16
0.16
$
0.52
0.52
$
0.92
0.91
$
0.60
0.60
$
0.82
0.80
$
3.91
3.87
0.86
0.84
$
$
72
NOTE 19 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 December 31, 2013, 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 (Loss)
Twelve Months Ended December 31, 2013
Selling, general and administrative expenses
(94,861)
(22,918)
Total operating costs and expenses
(1,298,806)
(490,740)
(1,203,945)
(467,822)
Guarantor
Non-
Guarantor
Issuer
Subsidiaries Subsidiaries Eliminations
Total
$ 1,408,941
$
480,599
$
29,494
$
(29,204) $ 1,889,830
110,135
(44,031)
(17,058)
49,046
61,778
(15,370)
(10,141)
(5)
—
(10,146)
(4,420)
(804)
(28,808)
(1,352)
(30,160)
(666)
—
—
(666)
(138)
—
29,204
(1,671,371)
—
(119,131)
29,204
(1,790,502)
—
—
—
—
11,501
16,174
99,328
(44,036)
(17,058)
38,234
68,721
—
$
95,454
$
(15,370) $
(804) $
27,675
$
106,955
Other comprehensive income, net of tax
Comprehensive income (loss)
57,600
—
—
—
57,600
$
153,054
$
(15,370) $
(804) $
27,675
$
164,555
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Twelve Months Ended December 31, 2012
Selling, general and administrative expenses
(96,668)
(22,268)
Total operating costs and expenses
(1,246,081)
(476,651)
(1,149,413)
(454,383)
Guarantor
Non-
Guarantor
Subsidiaries Subsidiaries Eliminations
Total
Issuer
$ 1,375,732
$
492,074
$
26,478
$
(19,980) $ 1,874,304
129,651
(33,796)
95,855
(42,440)
1,339
15,423
—
15,423
(14,362)
278
(24,056)
(2,109)
(26,165)
313
—
313
(35)
—
19,980
(1,607,872)
—
(121,045)
19,980
(1,728,917)
—
—
—
9,377
(1,617)
145,387
(33,796)
111,591
(47,460)
—
$
$
54,754
$
1,339
$
278
$
7,760
$
64,131
(428)
—
—
—
(428)
54,326
$
1,339
$
278
$
7,760
$
63,703
73
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Income (loss) from operations
Interest expense, net
Debt retirement costs
Earnings (loss) before income taxes
Income tax benefit (provision)
Equity in income of subsidiary
Net earnings (loss)
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Income from operations
Interest expense, net
Earnings before income taxes
Income tax provision
Equity in income of subsidiary
Net earnings
Other comprehensive loss, net of tax
Comprehensive income
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Twelve Months Ended December 31, 2011
Selling, general and administrative expenses
(61,794)
(44,481)
Total operating costs and expenses
(1,318,301)
(537,819)
(1,256,507)
(493,338)
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Income (loss) from operations
Interest expense, net
Other, net
Earnings (loss) before income taxes
Income tax (provision) benefit
Equity in income of subsidiary
Net earnings
Other comprehensive loss, net of tax
Comprehensive income
Guarantor
Non-
Guarantor
Subsidiaries Subsidiaries Eliminations
Total
Issuer
$ 1,464,570
$
508,341
$
32,977
$
(77,915) $ 1,927,973
146,269
(44,187)
(215)
101,867
(34,018)
(31,542)
(29,478)
(622)
388
(29,712)
1,857
(3,687)
(30,600)
(3,723)
(34,323)
(1,346)
—
111
(1,235)
(2,452)
—
77,915
(1,702,530)
—
(109,998)
77,915
(1,812,528)
—
—
—
—
3,367
35,229
115,445
(44,809)
284
70,920
(31,246)
—
$
$
36,307
$
(31,542) $
(3,687) $
38,596
$
39,674
(16,913)
—
—
—
(16,913)
19,394
$
(31,542) $
(3,687) $
38,596
$
22,761
74
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2013
(In thousands)
ASSETS
Current assets:
Cash
Restricted cash
Short-term investments
Receivables, net
Taxes receivable
Inventories
Deferred tax assets
Prepaid expenses
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Intercompany receivable (payable)
Investment in subsidiary
Pension assets
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued
liabilities
Current liability for pensions and
other postretirement employee
benefits
Total current liabilities
Long-term debt
Liability for pensions and other
postretirement employee benefits
Other long-term obligations
Accrued taxes
Deferred tax liabilities
Accumulated other comprehensive loss,
net of tax
Stockholders’ equity excluding
accumulated other comprehensive loss
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
$
18,273 $
— $
5,402 $
1,500
70,000
119,278
3,709
198,476
42,289
4,704
458,229
636,662
229,533
—
91,865
196,763
4,488
8,772
$1,626,312 $
—
—
38,063
(15,882)
65,017
6,094
695
93,987
231,225
—
39,619
(63,932)
5,575
—
1,155
307,629 $
—
—
2,700
324
4,295
5
124
12,850
16,811
—
1,159
—
—
— $
—
—
23,675
1,500
70,000
(1,167)
158,874
22,352
—
(10,850)
—
10,335
—
—
—
10,503
267,788
37,538
5,523
575,401
884,698
229,533
40,778
—
—
(16,431)
(11,502)
(202,338)
—
4,488
—
9,927
14,389 $ (203,505) $1,744,825
—
$ 140,125 $
45,736 $
5,954 $
(1,167) $ 190,648
8,778
148,903
650,000
109,807
51,740
1,430
59,338
—
45,736
—
—
1,202
911
63,017
(58,093)
—
—
5,954
—
—
—
317
2,543
—
(1,167)
—
—
—
—
—
—
8,778
199,426
650,000
109,807
52,942
2,658
124,898
(58,093)
663,187
196,763
5,575
(202,338)
663,187
$1,626,312 $
307,629 $
14,389 $ (203,505) $1,744,825
75
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2012
(In thousands)
ASSETS
Current assets:
Cash
Short-term investments
Receivables, net
Taxes receivable
Inventories
Deferred tax assets
Prepaid expenses
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Intercompany receivable (payable)
Investment in subsidiary
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued
liabilities
Current liability for pensions and
other postretirement employee
benefits
Total current liabilities
Long-term debt
Liability for pensions and other
postretirement employee benefits
Other long-term obligations
Accrued taxes
Deferred tax liabilities (assets)
Accumulated other comprehensive loss,
net of tax
Stockholders’ equity excluding
accumulated other comprehensive loss
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
5 $
1,469 $
— $
12,579
—
20,000
(2,029)
154,143
$
11,105 $
20,000
109,129
20,712
163,422
11,750
11,441
347,559
618,076
229,533
—
108,530
209,431
9,948
$1,523,077 $
—
41,431
116
63,476
4,595
708
110,331
242,818
—
46,379
(91,881)
6,204
379
—
5,612
—
4,568
—
165
11,814
16,483
—
1,374
—
—
—
—
791
—
(1,238)
—
—
—
20,828
231,466
17,136
12,314
468,466
877,377
229,533
47,753
—
—
(15,858)
(791)
(215,635)
314,230 $
13,813 $ (217,664) $1,633,456
—
10,327
$ 132,360 $
30,630 $
4,635 $
(2,029) $ 165,596
9,137
141,497
523,933
204,163
49,102
76,617
(13,129)
—
30,630
—
—
1,808
1,771
70,590
(115,693)
—
—
4,635
—
—
—
311
2,663
—
—
(2,029)
—
—
—
—
—
—
9,137
174,733
523,933
204,163
50,910
78,699
60,124
(115,693)
656,587
209,431
6,204
(215,635)
656,587
$1,523,077 $
314,230 $
13,813 $ (217,664) $1,633,456
76
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2013
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings (loss)
Adjustments to reconcile net earnings (loss)
to net cash flows from operating activities:
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
$
95,454 $
(15,370) $
(804) $
27,675 $ 106,955
Depreciation and amortization
54,291
33,712
2,269
Non-cash adjustments to unrecognized
taxes
Deferred tax provision (benefit)
Equity-based compensation expense
Employee benefit plans
Deferred issuance costs and discounts
on long-term debt
Disposal of plant and equipment, net
Changes in working capital, net
Change in taxes receivable, net
Change in non-current accrued taxes, net
Funding of qualified pension plans
Change in restricted cash
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Net cash flows from investing activities
(75,308)
3,185
10,960
10,131
4,964
201
(31,256)
17,003
1,423
(15,050)
—
(452)
75,546
—
(9,072)
—
—
1,291
11,747
15,998
(860)
—
(32)
923
—
(125)
—
—
1
4,487
(324)
6
—
—
—
(50,000)
(65,708)
(115,708)
—
(22,562)
(22,562)
—
(2,323)
(2,323)
—
—
11,641
—
—
—
—
—
(22,352)
—
—
—
—
90,272
(75,308)
5,629
10,960
10,131
4,964
1,493
(15,022)
10,325
569
(15,050)
(32)
471
38,337
5,510
16,964
136,357
—
—
—
—
—
—
(50,000)
(90,593)
(140,593)
275,000
(150,000)
(100,000)
—
(4,837)
(4,831)
15,332
11,096
12,579
23,675
—
—
—
—
—
—
(15,780)
746
(16,964)
—
—
(15,780)
(5)
5
—
—
746
3,933
1,469
— $
5,402 $
—
—
(16,964)
—
—
— $
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt
Repayment of long-term debt
Purchase of treasury stock
Investment from (to) parent
Payment for long-term debt issuance costs
Payment of tax withholdings on equity-
based payment arrangements
Net cash flows from financing activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
275,000
(150,000)
(100,000)
31,998
(4,837)
(4,831)
47,330
7,168
11,105
18,273 $
$
77
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2012
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation and amortization
Non-cash adjustments to unrecognized
taxes
Deferred tax provision (benefit)
Equity-based compensation expense
Employee benefit plans
Deferred issuance costs and discounts
on long-term debt
Disposal of plant and equipment, net
Changes in working capital, net
Change in taxes receivable, net
Excess tax benefits from equity-based
payment arrangements
Change in non-current accrued taxes, net
Funding of qualified pension plans
Change in restricted cash
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Cash paid for acquisitions, net of
cash acquired
Proceeds from the sale of assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury stock
Investment from (to) parent
Payment for long-term debt issuance costs
Payment of tax withholdings on
equity-based payment arrangements
Excess tax benefits from equity-based
payment arrangements
Other, net
Net cash flows from financing activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
$
54,754 $
1,339 $
278 $
7,760 $
64,131
48,191
29,030
2,112
—
79,333
3,275
9,840
9,703
9,366
2,010
622
25,252
(11,755)
(15,837)
(242)
(20,627)
769
548
115,869
35,001
(190,296)
(9,264)
—
(164,559)
(18,650)
75,198
(2)
(13,234)
15,837
(1,500)
57,649
8,959
2,146
—
4,009
—
—
—
1,381
36,596
593
—
22
—
—
(264)
72,706
—
(11,632)
—
1,035
(10,597)
—
(66,463)
—
—
(188)
—
—
—
—
(567)
334
—
1,180
—
—
—
3,149
—
(1,848)
—
—
(1,848)
—
(1,766)
—
—
(791)
—
—
—
—
—
—
—
—
—
—
—
6,969
3,275
12,870
9,703
9,366
2,010
2,003
61,281
(10,828)
(15,837)
960
(20,627)
769
284
198,693
—
—
—
—
—
35,001
(203,776)
(9,264)
1,035
(177,004)
—
(6,969)
—
(18,650)
—
(2)
—
—
—
(13,234)
—
—
(66,463)
(4,354)
4,359
—
—
(1,766)
(465)
1,934
1,469 $
—
—
(6,969)
—
—
— $
15,837
(1,500)
(17,549)
4,140
8,439
12,579
$
11,105 $
5 $
78
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2011
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation and amortization
Deferred tax provision (benefit)
Equity-based compensation expense
Employee benefit plans
Deferred issuance costs and discount
on long-term debt
Disposal of plant and equipment, net
Changes in working capital, net
Change in taxes receivable, net
Excess tax benefits from equity-based
payment arrangements
Change in non-current accrued taxes, net
Funding of qualified pension plans
Change in restricted cash
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Proceeds from the sale of assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of long-term debt
Purchase of treasury stock
Investment from (to) parent
Payment for long-term debt issuance costs
Payment of tax withholdings on
equity-based payment arrangements
Excess tax benefits from equity-based
payment arrangements
Other, net
Net cash flows from financing activities
Effect of exchange rate changes
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
$
36,307 $
(31,542) $
(3,687) $
38,596 $
39,674
2,130
(2,815)
—
—
—
2
1,730
(217)
—
—
—
—
—
(2,857)
—
(456)
—
(456)
—
—
3,852
—
—
—
(4,480)
—
—
—
—
—
3,317
—
—
—
—
—
37,433
76,933
14,777
8,134
16,897
215
998
(86,012)
354
(885)
2,453
(12,498)
4,160
3,195
68,395
—
—
—
—
71,094
(134,069)
12,826
(50,149)
—
—
(37,433)
—
(15,595)
(11,350)
—
(638)
—
(2,400)
—
—
3,852
361
900
1,034
1,934 $
—
—
(37,433)
—
—
—
— $
885
2
(29,096)
361
(10,489)
18,928
8,439
45,439
(2,394)
8,134
16,897
215
324
(133,142)
(4,685)
(885)
2,453
(12,498)
4,160
3,195
(36,480)
29,364
24,466
—
—
—
672
45,400
1,939
—
—
—
—
—
70,299
71,094
(117,525)
12,826
(33,605)
—
(16,088)
—
(16,088)
(15,595)
—
(36,432)
—
—
—
—
(52,027)
—
2,184
2,175
4,359 $
—
(11,350)
70,013
(638)
(2,400)
885
2
56,512
—
(13,573)
15,719
$
2,146 $
79
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders
Clearwater Paper Corporation:
We have audited the accompanying consolidated balance sheets of Clearwater Paper Corporation and subsidiaries
as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income,
cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2013. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Clearwater Paper Corporation and subsidiaries as of December 31, 2013 and 2012, and the results
of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Clearwater Paper Corporation’s internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 19, 2014 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Seattle, Washington
February 19, 2014
80
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders
Clearwater Paper Corporation:
We have audited Clearwater Paper Corporation’s internal control over financial reporting as of December 31, 2013,
based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Clearwater Paper Corporation’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial
Reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Clearwater Paper Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Clearwater Paper Corporation and subsidiaries as of December 31, 2013
and 2012, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’
equity for each of the years in the three-year period ended December 31, 2013, and our report dated February 19,
2014 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Seattle, Washington
February 19, 2014
81
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
Evaluation of Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate,
to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The design of disclosure controls and procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
Subject to the limitations noted above, our management, with the participation of our CEO and CFO, has evaluated
the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year
covered by this annual report on Form 10-K. Based on that evaluation, the CEO and CFO have concluded that, as of
such date, our disclosure controls and procedures are effective to meet the objective for which they were designed
and operate at the reasonable assurance level.
Changes in Internal Controls
There was no change in our internal control over financial reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) of the Exchange Act).
Under the supervision of and with the participation of our CEO and our CFO, our management conducted an assessment
of the effectiveness of our internal control over financial reporting based on the framework and criteria established in
the Internal Control — Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, our management has concluded that as of December 31, 2013
our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting
as of December 31, 2013 has been audited by KPMG LLP, our independent registered public accounting firm, as stated
in its report which is included in this Annual Report on Form 10-K.
ITEM 9B.
Other Information
None.
82
Part III
ITEM 10.
Directors, Executive Officers and Corporate Governance
Information regarding our directors is set forth under the heading “Board of Directors” in our definitive proxy statement,
to be filed on or about March 24, 2014, for the 2014 annual meeting of stockholders, referred to in this report as the
2014 Proxy Statement, which information is incorporated herein by reference. Information concerning Executive
Officers is included in Part I of this report in Item 1. Information regarding reporting compliance with Section 16(a) for
directors, officers or other parties is set forth under the heading “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2014 Proxy Statement and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all directors and employees and a Code of
Ethics for Senior Financial Officers that applies to our CEO, CFO, the President, the Controller and other Senior
Financial Officers identified by our Board of Directors. You can find each code on our website by going to the following
address: www.clearwaterpaper.com, selecting “Investor Relations” and “Corporate Governance,” then selecting the
link for “Code of Business Conduct and Ethics" or "Code of Ethics for Senior Financial Officers.” We will post any
amendments, as well as any waivers that are required to be disclosed by the rules of either the SEC or the New York
Stock Exchange, on our website. To date, no waivers of the Code of Business Conduct and Ethics or the Code of
Ethics for Senior Financial Officers have been considered or granted.
Our Board of Directors has adopted corporate governance guidelines and charters for the Board of Directors’ Audit
Committee, Compensation Committee, and Nominating and Governance Committee. You can find these documents
on our website by going to the following address: www.clearwaterpaper.com, selecting “Investor Relations” and
“Corporate Governance,” then selecting the appropriate link.
The Audit Committee of our Board of Directors is an “audit committee” for purposes of Section 3(a)(58) of the Exchange
Act. As of December 31, 2013, the members of that committee were Boh A. Dickey (Chair), Beth E. Ford, William D.
Larsson and William T. Weyerhaeuser. The Board of Directors has determined that Messrs. Dickey and Larsson are
each an “audit committee financial expert” and that all of the members of the Audit Committee are “independent” as
defined under the applicable rules and regulations of the SEC and the listing standards of the New York Stock Exchange.
ITEM 11.
Executive Compensation
Information required by Item 11 of Part III is included under the heading “Executive Compensation Discussion and
Analysis” in our 2014 Proxy Statement, to be filed on or about March 24, 2014, relating to our 2014 Annual Meeting
of Shareholders and is incorporated herein by reference.
83
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information required by Item 12 of Part III is included in our 2014 Proxy Statement, to be filed on or about March 24,
2014, relating to our 2014 Annual Meeting of Shareholders and is incorporated herein by reference.
The following table provides certain information as of December 31, 2013, with respect to our equity compensation
plans:
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number Of Securities
To Be Issued Upon
Exercise Of
Outstanding Options,
Warrants And Rights1
Weighted Average
Exercise Price Of
Outstanding Options,
Warrants And Rights2
Number of Securities
Remaining Available
For Future Issuance
Under Equity
Compensation Plans
809,597
—
809,597
—
—
—
1,883,730
—
1,883,730
1
Includes 736,414 performance shares and 73,183 restricted stock units, or RSUs, which are the maximum number of shares that could be
awarded under the performance share and RSU programs, not including future dividend equivalents, if any are paid.
2 Performance shares and RSUs do not have exercise prices and therefore are not included in the weighted average exercise price calculation.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Information required by Item 13 of Part III is included under the heading “Transactions with Related Persons” in our
2014 Proxy Statement, to be filed on or about March 24, 2014, relating to our 2014 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 14.
Principal Accounting Fees and Services
Information required by Item 14 of Part III is included under the heading “Fees Paid to Independent Registered Public
Accounting Firm” in our 2014 Proxy Statement, to be filed on or about March 24, 2014, relating to our 2014 Annual
Meeting of Shareholders and is incorporated herein by reference.
84
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules
FINANCIAL STATEMENTS
Our consolidated financial statements are listed in the Index to Consolidated Financial Statements on page 41 of this
report.
FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the required information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information required is included in the consolidated financial
statements, including the notes thereto.
EXHIBITS
Exhibits are listed in the Exhibit Index on pages 87-91 of this report.
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEARWATER PAPER CORPORATION
(Registrant)
By
/S/ Linda K. Massman
Linda K. Massman
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 19, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
By
By
By
/S/ Linda K. Massman
Linda K. Massman
/S/ John D. Hertz
John D. Hertz
/S/ Johnathan D. Hunter
Johnathan D. Hunter
President, Chief Executive Officer
and Director (Principal Executive
Officer)
Senior Vice President, Finance
and Chief Financial Officer (Duly
Authorized Officer; Principal
Financial Officer)
Vice President, Corporate
Controller (Duly Authorized
Officer; Principal Accounting
Officer)
Date
February 19, 2014
February 19, 2014
February 19, 2014
*
Boh A. Dickey
*
Frederic W. Corrigan
*
Beth E. Ford
*
Kevin J. Hunt
*
William D. Larsson
*
Michael T. Riordan
*
William T. Weyerhaeuser
Director and Chair of the Board
February 19, 2014
February 19, 2014
February 19, 2014
February 19, 2014
February 19, 2014
February 19, 2014
February 19, 2014
*By
/S/ Michael S. Gadd
Michael S. Gadd
(Attorney-in-fact)
Director
Director
Director
Director
Director
Director
86
Exhibit Index
EXHIBIT
NUMBER
2.1*
2.2*
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*
4.5*
10.1*
10.2*
DESCRIPTION
Separation and Distribution Agreement, dated December 15, 2008, between Clearwater
Paper Corporation (the “Company”) and Potlatch Corporation (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission (the “Commission”) on December 18, 2008).
Agreement and Plan of Merger, dated as of September 15, 2010, by and among the
Company, Cellu Tissue Holdings, Inc., and Sand Dollar Acquisition Corporation (incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the
Commission on September 21, 2010).
Restated Certificate of Incorporation of the Company, effective as of December 16, 2008,
as filed with the Secretary of State of the State of Delaware (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on
December 18, 2008).
Amended and Restated Bylaws of the Company, effective as of December 16, 2008
(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed
with the Commission on December 18, 2008).
Indenture, dated as of October 22, 2010, between the Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed by the Company with the Commission on October 27, 2010).
Form of 7 1/8% Senior Notes due 2018 (incorporated by reference to Exhibit A to the Indenture
filed as Exhibit 4.1 to the Current Report on Form 8-K filed by the Company with the
Commission on October 27, 2010).
Indenture, dated as of January 23, 2013, by and among Clearwater Paper Corporation (the
“Registrant”), the Guarantors (as defined therein) and U.S. Bank National Association, as
trustee, (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K filed with the Commission on January 24, 2013).
Form of 4.500% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed with the Commission on January 24, 2013).
Registration Rights Agreement, dated as of January 23, 2013, by and among the Registrant,
the Guarantors (as defined therein), Goldman Sachs & Co. and Merrill Lynch, Pierce Fenner
& Smith Incorporated, as the initial purchasers, (incorporated by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K filed with the Commission on January 24, 2013).
Employee Matters Agreement, dated December 15, 2008, between the Company and
Potlatch Corporation (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q filed with the Commission for the quarter ended September 30, 2010).
Tax Sharing Agreement, dated December 15, 2008, among the Company, Potlatch
Corporation, Potlatch Forest Holdings, Inc. and Potlatch Land & Lumber, LLC (incorporated
by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the
Commission on December 18, 2008).
87
10.3*
10.3(i)*
10.3(ii)*
10.3(iii)*
10.3(iv)*
10.3(v)*
10.3(vi)*
10.3(vii)*
10.3(viii)*
10.4*1
10.5*1
Loan and Security Agreement, dated as of November 26, 2008, by and among the Company
and Bank of America, N.A., as administrative agent, and the lenders party thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Commission on December 3, 2008).
First Amendment to Loan and Security Agreement, dated as of September 15, 2010, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed with the Commission on September 21, 2010).
Second Amendment to Loan and Security Agreement, dated as of October 22, 2010, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Commission on October 27, 2010).
Third Amendment to Loan and Security Agreement, dated as of February 7, 2011, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.3(iii) to the Company’s Annual Report on Form 10-
K filed with the Commission on March 11, 2011).
Fourth Amendment to Loan and Security Agreement, dated as of March 2, 2011, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.3(iv) to the Company’s Annual Report on Form 10-
K filed with the Commission on March 11, 2011).
Fifth Amendment to Loan and Security Agreement, dated as of August 17, 2011, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-
Q filed with the Commission for the quarter ended September 30, 2011).
Sixth Amendment to Loan and Security Agreement, dated as of September 28, 2011, by
and among the financial institutions signatory thereto, Bank of America, N.A. and the
Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the Commission on September 30, 2011).
Seventh Amendment to Loan and Security Agreement, dated as of September 27, 2012, by
and among the financial institutions signatory thereto, Bank of America, N.A. and the
Company (incorporated by reference to Exhibit 10.3(vii) to the Company's Annual Report
on Form 10-K filed with the Commission on February 25, 2013).
Eighth Amendment to Loan and Security Agreement, dated as of January 17, 2013, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Commission on January 24, 2013).
Form of Indemnification Agreement entered into between the Company and each of its
directors and executive officers (incorporated by reference to Exhibit 10.15 to Amendment
No. 4 to the Company’s Registration Statement on Form 10 filed with the Commission on
November 19, 2008).
Employment Agreement between Linda K. Massman and the Company, dated effective
January 1, 2013 (incorporated by reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K filed with the Commission on February 25, 2013).
88
10.5(i)*1
10.6*1
10.6(i)*1
10.6(ii)*1
10.7*1
10.7(i)*1
10.8*1
10.8(i)*1
10.8(ii)*1
10.8(iii)*1
10.8(iv)*1
10.8(v)*1
Clearwater Paper Corporation 2008 Stock Incentive Plan-Restricted Stock Unit Agreement,
dated as of January 1, 2013, with Linda K. Massman (incorporated by reference to Exhibit
10.7(i) to the Company's Annual Report on Form 10-K filed with the Commission on February
25, 2013).
Clearwater Paper Corporation 2008 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on
December 19, 2008).
Amendment No. 1 to Clearwater Paper Corporation 2008 Stock Incentive Plan (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
Commission on December 28, 2010).
Amendment No. 2 to Clearwater Paper Corporation 2008 Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the
Commission for the quarter ended September 30, 2011).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Performance Share
Agreement, as amended and restated December 1, 2009, to be used for annual performance
share awards approved subsequent to December 31, 2009 (incorporated by reference to
Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the Commission
for the quarter ended September 30, 2010).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Performance Share
Agreement, to be used for annual performance share awards approved subsequent to
December 31, 2011 (incorporated by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K filed with the Commission December 14, 2011).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed with the Commission on December 19, 2008).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement, as amended and restated May 12, 2009, to be used for restricted stock unit
awards approved subsequent to May 12, 2009 (incorporated by reference to Exhibit 10.12
(i) to the Company’s Quarterly Report on Form 10-Q filed with the Commission for the quarter
ended June 30, 2009).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement, as amended and restated December 1, 2009, to be used for annual restricted
stock unit awards approved subsequent to December 31, 2009, (incorporated by reference
to Exhibit 10.12(ii) to the Company's Current Report on Form 8-K filed with the Commission
on December 4, 2009).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of RSU Deferral Agreement
for Annual LTIP and Founders Grant RSUs (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed with the Commission on December 14, 2011).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of RSU Deferral Agreement
for Founders Grant RSUs (incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed with the Commission on December 14, 2011).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Award, to be used for annual restricted stock unit awards approved subsequent to December
31, 2011 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on
Form 8-K filed with the Commission on December 14, 2011).
89
10.8(vi)*1
10.8(vii)*1
10.9*1
10.10*1
10.11*1
10.11(i)1
10.121
10.13*1
10.13(i)1
10.14*1
10.14(i)*1
10.15*1
10.161
10.17*1
Clearwater Paper Corporation 2008 Stock Incentive Plan-Form of Restricted Stock Unit
Award, to be used for special restricted stock unit awards (incorporated by reference to
Exhibit 10.10(vii) to the Company's Quarterly Report on Form 10-Q filed with the Commission
for the quarter ended September 30, 2012).
Clearwater Paper Corporation 2008 Stock Incentive Plan-Form of RSU Deferral Agreement
for Annual LTIP RSUs (incorporated by reference to Exhibit 10.10(viii) to the Company's
Quarterly Report on Form 10-Q filed with the Commission for the quarter ended September
30, 2012).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Stock Option Agreement
(incorporated by reference to Exhibit 10.13(i) to the Company’s Quarterly Report on Form
10-Q filed with the Commission for the quarter ended June 30, 2009).
Clearwater Paper Corporation Annual Incentive Plan (incorporated by reference to Exhibit
10.14(i) to the Company’s Current Report on Form 8-K filed with the Commission on May
14, 2010).
Amended and Restated Clearwater Paper Corporation Management Deferred
Compensation Plan (incorporated by reference to Exhibit 10.15(i) to the Company’s Quarterly
Report on Form 10-Q filed with the Commission for the quarter ended March 31, 2010).
Amendment to Clearwater Paper Corporation Management Deferred Compensation Plan,
dated December 17, 2013.
Clearwater Paper Executive Severance Plan.
Amended and Restated Clearwater Paper Corporation Salaried Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K
filed with the Commission for the year ended December 31, 2011).
Amendment to Clearwater Paper Corporation Salaried Supplemental Benefit Plan, dated
December 17, 2013.
Clearwater Paper Corporation Benefits Protection Trust Agreement (incorporated by
reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed with the
Commission for the year ended December 31, 2008).
Amendment to the Clearwater Paper Corporation Benefits Protection Agreement, dated
August 8, 2013 (incorporated by reference to Exhibit 10.16(i) to the Company's Quarterly
Report on Form 10-Q filed with the Commission for the quarter ended September 30, 2013).
Clearwater Paper Corporation Deferred Compensation Plan for Directors (incorporated by
reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the
Commission on December 19, 2008).
Clearwater Paper Change of Control Plan.
Offer Letter, dated June 25, 2012, with John D. Hertz, (incorporated by reference to Exhibit
10.10(vi) to the Company's Quarterly Report on Form 10-Q filed with the Commission for
the quarter ended June 30, 2012).
90
10.17(i)*1
Clearwater Paper Corporation 2008 Stock Incentive Plan-Restricted Stock Unit Award, dated
July 3, 2012, with John D. Hertz (incorporated by reference to Exhibit 10.18 to the Company's
Quarterly Report on Form 10-Q filed with the Commission for the quarter ended June 30,
2012).
(12)
(21)
(23)
(24)
(31)
(32)
101
*
1
Computation of Ratio of Earnings to Fixed Charges.
Clearwater Paper Corporation Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Rule 13a-14(a)/15d-14(a) Certifications.
Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18
U.S.C. Section 1350.
Pursuant to Rule 405 of Regulation S-T, the following financial information from the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, is formatted
in XBRL interactive data files: (i) Consolidated Statements of Operations for the years ended
December 31, 2013, 2012 and 2011; (ii) Consolidated Statements of Comprehensive Income
for the years ended December 31, 2013, 2012 and 2011; (iii) Consolidated Balance Sheets
at December 31, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2013, 2012 and 2011, (v) Consolidated Statements of Stockholders’
Equity for the years ended December 31, 2013, 2012 and 2011 and (vi) Notes to Consolidated
Financial Statements.
Incorporated by reference.
Management contract or compensatory plan, contract or arrangement.
91
Performance Graph
The below graph compares the cumulative total stockholder return of our common stock for the period beginning
December 31, 2008, and ending December 31, 2013, with the cumulative total return during such period of the
Russell 2000 Index and the group of peer companies listed below. The comparison assumes $100 was
invested on December 31, 2008, in our common stock and in the index and peer group and assumes dividends
were reinvested. The stock performance shown on the below graph represents historical stock performance
and is not necessarily indicative of future stock price performance.
We measure our relative corporate performance for purposes of performance-based equity awards issued to our
executive officers against a peer group of companies. Each year, a peer group is established to apply to
performance-based equity awards issued in that year, with peer group members being primarily selected based
on the industry in which they operate and secondarily on annual revenues and market capitalization. A
company may be added to, or removed from, a subsequent year’s peer group based on industry changes,
changes to the company’s business or other events, such as bankruptcy or acquisitions. The peer group
selected for 2013 is unchanged from 2012 and consists of the following companies: Boise, Inc.; Buckeye
Technologies, Inc.; Domtar Corporation; Graphic Packaging Holding Company; Greif, Inc.; International Paper
Company; KapStone Paper and Packaging Corporation; Kimberly-Clark Corporation; MeadWestvaco
Corporation; Neenah Paper, Inc.; Packaging Corporation of America; P.H. Glatfelter Company; Rock-Tenn
Company; Schweitzer-Mauduit International, Inc.; Sonoco Products Company; Wausau Paper Corporation; and
Weyerhaeuser Company.
Comparison of Cumulative Total Return *
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Clearwater Paper Corporation
Russell 2000 Index
Peer Group
*This comparison assumes $100 was invested on December 31, 2008, in our common stock and in the index
and peer group and assumes dividends were reinvested.
CLEARWATER PAPER 2013 ANNUAL REPORT
Corporate Information
management
linda k. massman
President and Chief Executive Officer
John d. Hertz
Senior Vice President, Finance and Chief Financial Officer
thomas a. Colgrove
Senior Vice President, President of Consumer Products Division
danny g. Johansen
Senior Vice President, President of Pulp and Paperboard Division
michael S. gadd
Senior Vice President, General Counsel and Corporate Secretary
Jackson o. lynch
Senior Vice President, Human Resources
Board oF direCtorS
Boh a. dickey
Chair of the Board, Director since 2008
Fredric w. Corrigan
Director since 2009
Beth e. Ford
Director since 2013
kevin J. Hunt
Director since 2013
william d. larsson
Director since 2008
linda k. massman
President and Chief Executive Officer, Director since 2013
michael t. riordan
Director since 2008
william t. weyerhaeuser
Director since 2008
exeCutive oFFiCeS
601 West Riverside Avenue
Suite 1100
Spokane, WA 99201
Phone: 509.344.5900
Forward-looking StatementS
StoCk liSting
Clearwater Paper common stock is listed under the
symbol CLW on the New York Stock Exchange.
annual meeting
The 2014 Annual Meeting of Stockholders will be held on Monday,
May 5, 2014, at 9:00 a.m. (Pacific Time). The meeting will be held at the
Grand Hyatt, 721 Pine Street, Seattle, Washington, 98101.
tranSFer agent
mailing addreSSeS
Shareholder correspondence should be mailed to:
Computershare
P.O. BOX 30170
College Station, TX 77842-3170
Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
SHareHolder weBSite
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
Toll Free Number
Outside the U.S.
Hearing Impaired
TDD International Shareholders
additional inFormation
866-205-6799
781-575-4591
800-952-9245
781-575-4592
Copies of the company’s filings with the Securities and Exchange
Commission, the company’s Corporate Governance Guidelines, Code
of Business Conduct and Ethics, and Charters of the Committees of
the Board of Directors are available free of charge at the company’s
website, www.clearwaterpaper.com.
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 delivering value to stockholders, the aggregate dollar value of the stock repurchase program,
operational and financial goals, performance and strategic direction, safety and sustainability performance and implementation of, and the benefits
from, enterprise-wide systems. 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 discussed in the “Risk
Factors” and “Developments and Trends in Our Business” sections contained in our Annual Report on Form 10-K for the year ended December 31,
2013, which is in this report. Forward-looking statements contained in this report present management’s views only as of the date of this report. We
undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.
FSC®-CertiFied PaPer
Clearwater Paper Corporation’s Annual Report was printed by RR Donnelley entirely on FSC-certified paper. Chain-of-Custody certificate
TT-COC-004624. The Annual Report was printed on Domtar Financial Opaque Text manufactured from FSC-recycled content.
Clearwater Paper Corporation
601 West Riverside Avenue, Suite 1100
Spokane, WA 99201
www.clearwaterpaper.com