2
0
1
6
A N N U A L R E P O R T
2016 Annual Report Shareholder Letter:
Dear Stockholders,
For Clearwater Paper, 2016 was an evolutionary year in which we continued to build on a solid foundation for
our long-term success. We made great progress with the Lewiston, Idaho, continuous pulp digester project,
warehouse automation, and broad operational efficiencies while improving our cost structure, particularly in our
consumer products business.
Clearwater Paper’s tissue business gained market share both in private label tissue and against the national
brands. Throughout the year, our pulp and paperboard business demonstrated outstanding operational
execution while managing downtime for major maintenance, an unplanned electrical outage in the third
quarter, and a challenging price environment for paperboard.
Our focus on overall equipment effectiveness that began in 2015 has allowed us to significantly increase the
operating uptime of our converting lines and thereby increasing tissue output. As a result, we were able to
streamline our converting asset base by closing our Oklahoma City converting facility. Additionally, the
shut-down of the Company’s two highest cost paper machines in our Neenah, Wisconsin, facility, resulted in
removing 32,000 tons of capacity, improving our overall paper making efficiency.
At the end of 2016, we acquired Manchester Industries – a paperboard sales, sheeting and distribution
supplier to the packaging and commercial print industries – for $68 million. We expect the acquisition to help
extend our service platform to small and mid-sized folding carton customers. Manchester’s employees and
culture are a good fit, and we are thrilled to have this talented team as part of Clearwater Paper.
We concluded 2016 with $1.7 billion in net sales, operating income of $111 million and an adjusted EBITDA of
$215 million, which are strong results thanks to the employees of Clearwater Paper and their unwavering
commitment to safety and taking care of our customers, communities, environment and each other.
For 2017, we are focused on executing our strategic initiatives, integrating Manchester Industries and
beginning work on the newly-announced paper machine, converting lines, and warehouse expansion at our
Shelby, North Carolina, manufacturing complex.
From all of us at Clearwater Paper, we thank our stockholders, customers and all stakeholders for your
continued support.
Sincerely,
Linda K. Massman
President and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
(cid:58)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
(cid:133)
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)
f
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. (cid:58) Yes (cid:133) 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. (cid:133) Yes (cid:58) 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. (cid:58) Yes (cid:133) 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
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (cid:58) Yes (cid:133) No
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. (cid:58)
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
(cid:95)
(cid:133)(cid:3)(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
(cid:133)(cid:3)
(cid:133)(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:133) Yes (cid:58) No
As of June 30, 2016 (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 $1.09 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 16, 2017, 16,463,862 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 28, 2017, with the Securities and Exchange Commission in
connection with the registrant’s 2017 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.
CLEARWATER PAPER CORPORATION
Index to 2016 Form 10-K
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
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
Quantitative and Qualitative Disclosures About Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
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
9-17
17
18
19
19
20-21
21
22-40
40-41
42-87
88
88-89
89
90
90
91
91
91
92
93
94-99
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
shareholder value, benefits of cost and optimization programs, benefits of the Manchester Industries acquisition,
Neenah paper machine shutdowns, and the Oklahoma City closure, our strategy, raw materials and input usage and
costs, including energy costs and usage, benefits, production quality and quantity, costs and timing associated with the
new Shelby, North Carolina facility, strategic capital projects and related costs, energy conservation, cash flows, capital
expenditures, return on investment from capital projects, tax rates, operating costs, selling, general and administrative
expenses, timing of and costs related to major maintenance and repairs, liquidity, benefit plan funding levels, capitalized
interest and interest expenses. Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “believe,”
“schedule,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These
forward-looking statements are based on management’s current expectations, estimates, assumptions and projections
that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the
forward-looking statements contained in this report. Important factors that could cause or contribute to such differences
in operating results include those risks discussed in Item 1A of this report, as well as the following:
• our ability to execute on our growth and expansion strategies;
• unanticipated construction delays involving our planned new tissue manufacturing operations in Shelby,
North Carolina;
• competitive pricing pressures for our products, including as a result of increased capacity as additional
manufacturing facilities are operated by our competitors;
• customer acceptance and timing and quantity of purchases of our tissue products, including the existence
of sufficient demand for and the quality of tissue produced at our recently announced Shelby, North
Carolina facility when it becomes operational;
• changes in the U.S. and international economies and in general economic conditions in the regions and
industries in which we operate;
the loss of or changes in prices in regards to a significant customer;
•
• our ability to successfully implement our operational efficiencies and cost savings strategies;
• changes in customer product preferences and competitors' product offerings;
• manufacturing or operating disruptions, including IT system and IT system implementation failures,
equipment malfunction and damage to our manufacturing facilities;
• changes in transportation costs and disruptions in transportation services;
• changes in the cost and availability of wood fiber and wood pulp;
•
• cyclical industry conditions;
• changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and
labor disruptions;
repairs;
• environmental liabilities or expenditures;
• our ability to realize the expected benefits of our Manchester Industries acquisition;
• changes in expenses and required contributions associated with our pension plans;
• cyber-security risks;
•
• our inability to service our debt obligations;
•
• changes in laws, regulations or industry standards affecting our business.
reliance on a limited number of third-party suppliers for raw materials;
restrictions on our business from debt covenants and terms; and
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.
1
ITEM 1.
Business
GENERAL
Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, bleached
paperboard and pulp at manufacturing facilities across the nation. The company is a premier supplier of private label
tissue to major retailers and wholesale distributors, including grocery, drug, mass merchants and discount stores. In
addition, the company produces bleached paperboard used by quality-conscious printers and packaging converters,
and offers services that include custom sheeting, slitting and cutting. Clearwater Paper's employees build shareholder
value by developing strong customer relationships through quality and service.
On December 16, 2016, we acquired Manchester Industries, an independently-owned paperboard sales, sheeting and
distribution supplier to the packaging and commercial print industries. The addition of Manchester Industries' customers
to our paperboard business extends our reach and service platform to small and mid-sized folding carton plants, by
offering a range of converting services that include custom sheeting, slitting, and cutting. These converting operations
include five strategically located facilities in Virginia, Pennsylvania, Indiana, Texas, and Michigan.
On November 29, 2016, we announced the permanent closure of our Oklahoma City converting facility. The closure of
the Oklahoma City facility is planned for March 31, 2017. Due to productivity gains from cost and optimization programs
across the company, we expect the production from this facility to be effectively absorbed and more efficiently supplied
by our other facilities.
Also on November 29, 2016, we announced the permanent shutdown of two tissue machines at our Neenah, Wisconsin,
tissue facility, effective in late-December 2016. We expect the shutdown of these paper machines and related
restructuring at this plant to lower our overall costs and improve operating efficiency at our Neenah facility.
On December 30, 2014, we sold our specialty business and mills to a private buyer. The specialty mill’s production
consisted predominantly of machine-glazed tissue and also included parent rolls and other specialty tissue products
such as absorbent materials and dark-hued napkins. The sale included five Clearwater Paper subsidiaries with facilities
located at Connecticut, Michigan, New York, Ontario, and Mississippi.
Company Strengths
Leading private label tissue manufacturer with a broad U.S. footprint. Our consumer products business is a premier
private label tissue manufacturer. We have through-air-dried, or TAD, tissue manufacturing facilities in Shelby, North
Carolina and Las Vegas, Nevada, and non-TAD manufacturing facilities located in Ladysmith, Wisconsin, Lewiston,
Idaho, and Neenah, Wisconsin, as well as converting operations strategically located across the United States. We
believe we were the sixth largest tissue manufacturer in the North American tissue market as of December 31, 2016,
based on tissue parent roll capacity. Our broad manufacturing footprint allows us to cost effectively service a diverse
customer base, including major grocery store chains and retailers across the 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 tissue products, as well as recycled tissue and tissue parent rolls.
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 characteristics.
Products are available in several thicknesses to provide the level of 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 ice cream containers, health and beauty packaging, pharmaceutical packaging, and point of
purchase displays.
Long-standing customer relationships. Our consumer products business supplies private label tissue products to several
of the largest national retail chains. Our top 10 consumer products customers in 2016 accounted for approximately 70%
of our total consumer products net sales. The average tenure of these customer relationships was approximately 13
years. In total, our consumer products business maintained114 customers across a broad geographic area. We also
have long-standing customer relationships with our paperboard customers. Our top 10 paperboard customers in 2016
accounted for approximately 50% of our total paperboard net sales. The average tenure of these customer relationships
was approximately 30 years.
2
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 products. This facility's geographic location reduces transportation costs to customers in the Western
U.S. as well as Asia, which allows us to compete on a cost-advantaged basis relative to East Coast producers. 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.
Largely integrated pulp and tissue operations. Our consumer products business sources a significant portion of its pulp
supply internally from our pulp and paperboard operations in Idaho. This relationship provides our consumer products
business with a secure pulp supply as well as significant transportation and drying cost savings, provides our pulp and
paperboard business with a steady demand source and helps mitigate input cost volatility associated with purchasing
external pulp.
Strategy
Our long-term strategy is to grow the size and scope of our business and optimize the profitability of both our consumer
products business and our paperboard business. In the near-term, our focus is on successfully completing strategic
capital projects, optimizing the operating efficiency and cost effectiveness of both segments of our company, growing in-
line with our customer's needs, and successfully integrating our Manchester Industries acquisition.
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 2014-2016, as well as geographic information
regarding our net sales, is set forth in Note 20, "Segment Information" 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 customers. In 2016, our Consumer Products
segment had net sales of $988.4 million. 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 manufacturing
process improvements and consumer preferences, the majority of at-home tissue sold in the U.S. is ultra and premium
quality.
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 manufacture tissue products for 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 relative absence of severe supply imbalances, largely due to population growth in the U.S., that
occur in a number of other paper industry segments. In addition to economic and demographic drivers, tissue demand is
affected by product innovations and shifts in distribution channels.
3
Our Consumer Products Business
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 mass 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 utilize independent companies to
routinely test our product quality.
In bathroom tissue, the majority of our sales are high quality two-ply ultra and premium products. In paper towels, we
produce and sell ultra quality 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 produced for 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 90% of our Consumer Products
segment sales in 2016.
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.
During 2016, our consumer products were manufactured on 12 paper machines in facilities located throughout the U.S.
Parent rolls from our paper machines are then converted and packaged at our converting facilities located across the
U.S. Two of our paper machines, located in Las Vegas, Nevada and Shelby, North Carolina, produce TAD tissue that we
convert into national brand comparable, ultra quality towels and bath tissue. In December 2016, we permanently shut
down two of the five paper machines at our Neenah, Wisconsin tissue facility.
In 2016 and 2015, through multi-outlet channels, which include grocery, drug, dollar, super and club stores, as well as
military purchasing, we sold approximately 33% and 32%, respectively, of the total private label tissue products in the
U.S.
We had one customer in the Consumer Products segment, the Kroger Company, that accounted for approximately $232
million, or 13.4%, of our total company net sales in 2016 and approximately $215 million, or 12.3%, of our total company
net sales in 2015. In 2014, we did not have any single customer that accounted for 10% or more of our total net sales.
We sell private label tissue products through our own sales force and compete 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, as well as offering services that include custom
sheeting, slitting and cutting of 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
2016, our Pulp and Paperboard segment had net sales of $746.4 million. A listing of our Pulp and Paperboard segment
facilities is included under Part I, Item 2 of this report.
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 for such 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.
4
Folding Carton Segment. Folding carton is the largest portion of the SBS category of the U.S. paperboard industry,
comprising approximately 38% of the category in 2016. 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 consumable liquids. 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. 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 used in paper and paperboard production, usually at
the same mill location. In those cases where a paper mill is not paired with pulp production operations or requires pulp
with different production qualities, it must purchase pulp 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 pulp and paperboard facilities in Idaho, which has two paperboard
machines, and Arkansas, which has one paperboard machine. As of December 31, 2016, we were one of the five
largest producers of bleached paperboard in North America with approximately 12% of the available production capacity.
Additionally, through our recent acquisition of Manchester Industries, we provide custom sheeting, slitting, and cutting of
paperboard products from five converting facilities.
Our overall pulp and paperboard production consists primarily of folding carton, liquid packaging, cup and plate
products, 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 product quality requirements provide for differentiation among
suppliers, generally 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.
With the exception of our capability to supply just-in-time sheeting and narrow rolls as a result of our acquisition of
Manchester Industries, we do not produce converted paperboard end-products, so we are not simultaneously a supplier
of and a competitor to our customers in key market segments, notably folding carton. Of the five largest SBS
paperboard producers in the U.S., we are the only producer that does not convert SBS paperboard into folding cartons,
cups, plates, and liquid packaging end-use products. We believe our position provides us a diverse group of loyal
customers because when there is increased market demand for paperboard, we do not anticipate diverting our
production to internal uses. With the acquisition of Manchester Industries, we can convert paperboard parent rolls to flat
sheets and narrow rolls, which expands our in-market service capabilities and allows us to support the small and mid-
sized folding carton converters that buy sheeted paperboard to convert into packaging end-products. Expanding our
service platform in this way grows the key folding carton segment of our business and does not compete with our
customers in other key market segments.
At our Idaho facility we produce bleached softwood pulp primarily for internal use, including in our Consumer Products
segment.
5
Our pulp mills are currently capable of producing approximately 857,000 tons of pulp on an annual basis. In 2016, we
produced approximately 802,000 tons of pulp in the aggregate and utilized approximately 83% of that production, or
approximately 664,000 tons, to produce approximately 788,000 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
approximately 17% of our pulp production, or approximately 136,000 tons, in our Consumer Products segment to
produce tissue products. The remaining pulp production of less than 1%, or approximately 2,000 tons, was sold
externally by our Consumer Products segment.
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. Additionally, with our recent Manchester
Industries acquisition we directly sell sheeted paperboard products to folding carton converters, merchants and
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 2016, our purchased pulp costs were 13.2% of our cost of sales, while chips, sawdust
and logs accounted for 9.9%. In 2016, our Consumer Products segment sourced approximately 45% of its total pulp
supply from our Pulp and Paperboard segment, with the remainder purchased from external suppliers. We own and
operate a wood chipping facility located in Clarkston, Washington, near our Lewiston, Idaho, facility, which we believe
bolsters our wood fiber position and provides 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. A portion of the chemicals used in our manufacturing
processes, particularly in the pulp-making process, are petroleum-based or are impacted by petroleum prices. During
2016, chemical costs accounted for 11.2% 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 12.2% of our cost of sales in 2016.
We consume substantial amounts of energy, such as electricity, hog fuel, steam and natural gas. During 2016, energy
costs accounted for 5.8% 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 2016
were 5.7% of our cost of sales.
Our maintenance and repairs represented 6.4% of our cost of sales for 2016 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 5.4% of our
cost of sales for 2016.
SEASONALITY
Our Consumer Products segment experiences a decrease 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 the 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.
6
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, 2016, we had approximately 3,370 employees, of which approximately 1,930 were employed by our
Consumer Products segment, approximately 1,270 were employed by our Pulp and Paperboard segment and
approximately 170 were corporate administration employees. This workforce consisted of approximately 800 salaried
employees and approximately 2,570 hourly and fixed rate employees. As of December 31, 2016, approximately 48% of
our workforce was covered under collective bargaining agreements.
Unions represent hourly employees at three of our manufacturing sites. There were three hourly union labor contracts
that expired in 2016. Two of those contracts were renegotiated during the year. The following contract that expired in
2016 that is currently being negotiated:
CONTRACT
EXPIRATION
DATE
May 31, 2016
DIVISION AND LOCATION
UNION
Consumer Products Division-Neenah,
Wisconsin
United Steel Workers
(USW)
APPROXIMATE
NUMBER OF HOURLY
EMPLOYEES
295
The following two hourly union labor contracts expire in 2017:
CONTRACT
EXPIRATION
DATE
August 31, 2017 Consumer Products Division and Pulp
DIVISION AND LOCATION
& Paperboard Division-Lewiston, Idaho
UNION
United Steel Workers (USW)
August 31, 2017 Consumer Products Division and Pulp
& Paperboard Division-Lewiston, Idaho
International Brotherhood of
Electrical Workers (IBEW)
APPROXIMATE
NUMBER OF HOURLY
EMPLOYEES
975
55
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, 2016. 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 50), has served as President and Chief Executive Officer, as well as a director, since January
2013. Ms. Massman served as President and COO from November 2011 to December 2012. She served as CFO and
Senior Vice President, Finance from May 2011 to November 2011, and as CFO and Vice President, Finance from
December 2008 to May 2011. From September 2008 to December 2008, Ms. Massman served as Vice President of
Potlatch Corporation pending completion of the spin-off of Clearwater Paper Corporation. From May 2002 to August
2008, Ms. Massman was Group Vice President, Finance and Corporate Planning, for SUPERVALU Inc., a grocery retail
company. In 2017, Ms. Massman was elected to the position of board chair for the American Forest & Paper Association
(AF&PA), the national trade association of the forest products industry. Ms. Massman also serves as a director of Black
Hills Corporation (NYSE: BKH), an energy company, and as a member of its Compensation Committee, as well as a
director for TreeHouse Foods, Inc. (NYSE:THS) and is a member of its Audit Committee.
John D. Hertz (age 50) 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. From June 2010 to June 2012, Mr. Hertz was the
Vice President and Chief Financial Officer of Novellus Systems, Inc. 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, LLP.
Patrick T. Burke (age 56) has served as Senior Vice President, Group President since October 2015, and served as
Senior Vice President and President, Consumer Products Division from April 2015 to October 2015. From May 2014 to
April 2015, he served as Vice President, Supply Chain. From March 2011 to April 2014, Mr. Burke served as the Director
of West for Pepsi Beverage Company, and from January 2008 to February 2011, as the Director of the Western Region
for Gatorade, for Pepsi America Beverages.
Michael S. Gadd (age 52) has served as Senior Vice President since May 2011 and General Counsel and Corporate
Secretary since December 2008. 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 January 2001 to January 2006, Mr. Gadd was an
attorney with Perkins Coie, LLP in Portland, Oregon.
Kari G. Moyes (age 49) has served as Senior Vice President, Human Resources since February 2015, and served as
Vice President, Labor Relations from July 2013 through January 2015. From November 2010 through June 2013, Ms.
Moyes served as National Director of Human Resources for Nestlé, a food manufacturer. Prior to her tenure with Nestle,
Ms. Moyes spent 10 years with Pepsico in various capacities.
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 business through the construction of new paper making and converting facilities may not
proceed as anticipated.
In connection with our long-term growth strategy, we are adding a paper machine capable of producing certain premium
and ultra-quality tissue products, and converting facilities to our Shelby, North Carolina site. The tissue machine to be
installed in North Carolina is highly complex and costly and it can be manufactured by only one company in the world.
Installing this machine and building the supporting facilities entails numerous risks, including difficulties in completing the
project on time due to construction issues or permitting issues, cost overruns, difficulties in integrating the new
operations and personnel, and uncertainties regarding the existence of sufficient customer demand and acceptance of
the quality of the tissue produced once the new paper machine becomes operational. 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.
Increases in tissue supply could adversely affect our operating results and financial condition.
Over the past few years, several new or refurbished premium and ultra-quality tissue paper machines have been
completed or announced by us and by our competitors, including private label competitors, which will result in a
substantial increase in the supply of premium and ultra-quality tissue in the North American market. Additionally, several
new or refurbished conventional tissue machines have been installed or announced, including as a result of foreign
competitors increasing their presence and operations in North America. If demand for tissue products in the North
American market does not increase or consumer preferences as to tissue products changes, the increase in supply of
ultra-quality tissue products, could have a material adverse effect on the price of premium and ultra-quality tissue
products. In addition, increased supply of tissue, including displacement of conventional tissue by increased premium
and ultra-quality supply could adversely effect the market demand and price for conventional tissue products, which will
continue to represent a significant portion of our total production for the foreseeable future.
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 a significant impact on our business and financial results. Recessed global
economic conditions and a strong U.S. dollar can affect our business in a number of ways, including causing declines in
global demand for consumer tissue and paperboard, which increases the likelihood or the pace of foreign manufacturers
entering into or increasing sales into the U.S. market.
Increased competition and supply from foreign manufacturers could have adverse effects on the demand for
our products and financial results.
Foreign manufacturers in Asia and Europe are currently in the process of increasing, and are expected to continue to
increase, their paper production capabilities, particularly with respect to 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 foreign suppliers into Asia and European markets. An increased supply of
foreign 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 results of operations and cash flows.
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.
We derive a substantial amount of revenues from a concentrated group of customers. For example, our top 10
consumer products customers in 2016 accounted for approximately 70% of our total consumer products net sales. Our
top 10 paperboard customers in 2016 accounted for approximately 50% of our total paperboard net sales. 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 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, and this competition has decreased our gross margins and adversely affected our financial
condition. Some of our customers have the capability to produce the parent rolls or products that they purchase from us.
9
We generally do not have long-term contracts with many of our customers that ensure a continuing level of business
from them. In addition, our agreements with our customers, including our largest customers, are not exclusive and
generally do not contain minimum volume purchase commitments. Our relationship with our largest and most important
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.
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. Our
business may be harmed by 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 products in terms of quality, customer service, 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.
Our investments to increase operational efficiencies may not be fully achieved or may not support the level
of investment we are making.
Our near term strategy of investing to achieve increased operational efficiencies and cost effectiveness may not be fully
achieved. The capital projects we are investing in may not achieve expected operational or financial results in the time
frames we anticipate, or at all. Such delays or failures could materially affect our business, cash flows and financial
condition.
Disruptions in transportation services or increases in our transportation costs 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. Shipments of products and raw materials may be delayed
or disrupted due to weather conditions, labor shortages or strikes, regulatory actions or other events. If our
transportation providers are unavailable or fail to deliver our products in a timely manner, we may incur increased costs.
If any transportation providers are unavailable or fail to deliver raw materials to us in a timely manner, we may be unable
to manufacture products on a timely basis.
In 2016, our transportation costs were 12.2% of our cost of sales. The costs of these transportation services are
influenced by the factors described above as well as fuel prices, which are affected by geopolitical and economic
events. We have not been able in the past, and may not be able in the future, 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 or transportation costs, our
gross margins 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 they occur 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. We had one
scheduled major maintenance shutdown in 2016, which occurred during the third quarter at our Lewiston, Idaho pulp
and paperboard facility.
Unexpected production disruptions could cause us to shut down or curtail operations at any of our facilities. For
example, we experienced a significant disruption in operations in the third quarter of 2016 due to an electrical
outage and the subsequent startup at our Lewiston, Idaho facility and had a fire in the fourth quarter of 2016 at our
Las Vegas facility. 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
10
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 results of operations.
We depend on external sources of wood pulp and wood fiber for a significant portion of our tissue production,
which subjects our business and results of operations to potentially significant fluctuations in the price of
market pulp and wood fiber.
Our Consumer Products segment sources a significant portion of its wood pulp requirements from external suppliers,
which exposes us to price fluctuation. In 2016, it sourced approximately 55% of its pulp requirements externally,
comprising approximately 13.2% of our cost of sales.
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.
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 2016, our wood fiber costs were 9.9% 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 several 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 also be negatively affected by weather and other events.
For example, our Arkansas pulp and paperboard facility relies on whole log chips for a significant portion of its wood
fiber, and in the past this facility has experienced increases in the costs for wood fiber due to extremely wet weather
conditions in the Southeastern U.S. that limited accessibility and availability.
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. Additionally, wood pellet facilities
or fluff pulp facilities, such as a fluff pulp facility recently announced in Arkansas, can increase demand and prices for
wood fiber. If we and our pulp suppliers are unable to obtain wood fiber at favorable prices or at all, our costs will
increase and our operations and financial results may be harmed.
Our business and financial performance may be harmed by future labor disruptions.
As of December 31, 2016, 48% 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. In 2017, the collective bargaining agreement for the majority of hourly employees at our
Lewiston, Idaho facility, which affects approximately 975 employees, is scheduled to expire and will be subject to
negotiation. Additionally, the collective bargaining agreement at our Neenah, Wisconsin facility, which expired in 2016,
remains subject to negotiation. Any failure to reach an agreement with one of the unions may result in strikes, lockouts,
work slowdowns, stoppages or other labor actions, any of which could have a material adverse effect on our operations
and financial results.
Cyclical industry conditions have in the past affected and may continue to adversely affect the operating
results and cash flows of our pulp and paperboard business.
Our pulp and paperboard business has historically been 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 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. We have different legacy IT systems that we are continuing to integrate. If one of these systems 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
11
operations and financial condition. In addition, we may underestimate the costs and expenses of developing and
implementing new systems.
The cost of chemicals and energy needed for our manufacturing processes significantly affects our results of
operations and cash flows.
We use a variety of chemicals in our manufacturing processes, including petroleum-based polyethylene and certain
petroleum-based latex chemicals. In 2016, our chemical costs were 11.2% 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 also utilize large amounts of electricity and natural gas. In 2016, our energy costs were
5.8% 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 results of operations. 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.
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. 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 own properties, conduct or have conducted operations at properties, and have assumed indemnity obligations 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 and to liability for other potential violations of environmental laws or permits at existing sites or ones for
which we have indemnity obligations.
12
We may not realize the expected benefits of the acquisition of Manchester Industries because of integration
difficulties and other challenges.
In December 2016, we acquired Manchester Industries, to provide us a direct paper-board sales and converting
platform. This is a new business and operational area for us and we may not be able to realize the anticipated benefits
from the acquisition. The integration process will be complex and time-consuming. The potential risks associated with
our efforts to integrate the Manchester business and operations include, among others:
•
failure to effectively implement our business plan for the business;
• unanticipated issues in integrating financial, manufacturing, logistics, information, communications and other
•
•
•
systems;
failure to retain key employees;
failure to retain key customers, including our customers in the sheeting and commercial print business as well
as Manchester’s customers;
inconsistencies in standards, controls, procedures and policies, including internal control and regulatory
requirements under the Sarbanes-Oxley Act of 2002; and
• unanticipated issues, expenses and liabilities.
Further, the integration of the Manchester operations and business requires the focused attention of our management
team, including a significant commitment of their time and resources. The need for our management to focus on
integration matters could have a material and adverse impact on our sales and operating results.
In addition, we may not be able to maintain the levels of revenue, earnings or operating efficiency that Manchester had
previously achieved. Failure to achieve, or a delay in achieving, the anticipated benefits of the acquisition could result in
increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, and
could materially impact our business, financial condition, operating results and cash flows.
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 more 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, WestRock, Georgia-Pacific, 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 newer facilities in China have large paperboard manufacturing capacities, the output of
which is expected to increase paperboard supplies on the international market. Also, a large European manufacturer is
expected to begin paperboard production at a new facility with products intended for the North American market.
Furthermore, 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 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. 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.
13
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 volatility 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, has caused these plans to be underfunded as the projected benefit obligation has exceeded
the aggregate fair value of plan assets by varying year-end amounts since 2008. At December 31, 2016, and 2015, our
company sponsored pension plans were underfunded in the aggregate by $18.8 million and $24.4 million, respectively.
As a result of underfunding, we may be required to make contributions to our qualified pension plans in future years,
which would reduce the cash available for business and other needs. In 2016, we made no contributions to these
pension plans, and we are not required to make contributions in 2017.
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 2016, 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 through the plan year beginning January 1, 2014. For the plan years beginning January 1, 2015 and
January 1, 2016, PIUMPF was certified to be in "critical and declining status" under the Multiemployer Pension Plan
Reform Act of 2014. In 2013, two large employers withdrew from PIUMPF and in 2015 the largest employer in PIUMPF
also withdrew. Further withdrawals by 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, 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, 2016 provided by PIUMPF and
reviewed by our actuarial consultant, we estimate that, as of December 31, 2016, 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 or requirements under pension laws and regulations
or the fund's rehabilitation plan could increase the likelihood and amount of our liabilities arising under PIUMPF.
Our pension and health care costs are subject to numerous factors that could cause these costs to change.
In addition to our pension plans, we provide health care benefits to certain of our current and former salaried and hourly
employees. There is a risk of 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, expected rates of return on plan assets and mortality rates could also increase pension costs. Significant
changes in any of these factors may adversely impact our cash flows, financial condition and results of operations.
14
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.
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.
Additional expansion of our business through construction of new facilities or acquisitions may not proceed as
anticipated.
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.
To service our substantial indebtedness, we must generate significant cash flows. Our ability to generate cash
depends on many factors beyond our control.
As of December 31, 2016, we had $710 million of outstanding indebtedness, and we could incur substantial additional
indebtedness in the future. 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 significant 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 facilities in an amount sufficient to enable us to pay our
indebtedness, including our outstanding 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 facilities and our outstanding
notes, on commercially reasonable terms or at all.
15
The indenture for our outstanding notes that we issued in 2013 and the credit agreements governing our senior
secured revolving credit facilities, contain various covenants that limit our discretion in the operation of our
business.
The indenture governing our outstanding notes that we issued in 2013 and the credit agreements governing our senior
secured revolving credit facilities, contain various provisions that limit our discretion in the operation of our business by
restricting our ability to:
(cid:402) undergo a change in control;
(cid:402) sell assets;
(cid:402) pay dividends and make other distributions;
(cid:402) make investments and other restricted payments;
(cid:402)
(cid:402)
redeem or repurchase our capital stock;
incur additional debt and issue preferred stock;
(cid:402) create liens;
(cid:402) consolidate, merge, or sell substantially all of our assets;
(cid:402) enter into certain transactions with our affiliates;
(cid:402) engage in new lines of business; and
(cid:402) 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 facilities require, among other things, that we maintain a consolidated
total leverage ratio in an amount not to exceed 4.00 to 1.00 (subject to certain exceptions with respect to acquisitions in
excess of an agreed threshold amount) and a consolidated interest coverage ratio in an amount not less than 2.25 to
1.00. Events beyond our control could affect our ability to meet these financial tests, and we cannot assure you that we
will meet them.
Our failure to comply with the covenants contained in our senior secured revolving credit facilities 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 facilities 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.
16
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:
(cid:402) a classified Board of Directors with three-year staggered terms;
(cid:402)
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;
(cid:402) stockholder action can only be taken at a special or regular meeting and not by written consent;
(cid:402) advance notice procedures for nominating candidates to our Board of Directors or presenting matters at
stockholder meetings;
(cid:402)
removal of directors only for cause;
(cid:402) allowing only our Board of Directors to fill vacancies on our Board of Directors; and
(cid:402) 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.
17
ITEM 2.
Properties
FACILITIES
We own and operate facilities located throughout the United States. The following table lists each of our facilities
and its location, use, and 2016 capacity and production:
USE
LEASED OR OWNED CAPACITY1
PRODUCTION1
CONSUMER PRODUCTS
Tissue manufacturing facilities:
Ladysmith, Wisconsin
Las Vegas, Nevada
Lewiston, Idaho
Neenah, Wisconsin3
Shelby, North Carolina2
Tissue
TAD tissue
Tissue
Tissue
TAD tissue
Tissue converting facilities:
Elwood, Illinois2
Las Vegas, Nevada
Lewiston, Idaho
Neenah, Wisconsin3
Oklahoma City, Oklahoma2, 4
Shelby, North Carolina2
Tissue converting
Tissue converting
Tissue converting
Tissue converting
Tissue converting
Tissue converting
PULP AND PAPERBOARD
Pulp Mills:
Cypress Bend, Arkansas
Lewiston, Idaho
Pulp
Pulp
Bleached Paperboard Mills:
Cypress Bend, Arkansas
Lewiston, Idaho
Paperboard
Paperboard
Mendon, Michigan2,5
Wilkes-Barre, Pennsylvania2,5
Dallas, Texas2,5
Richmond, Virginia2,5
Hagerstown, Indiana2,5
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Owned
Owned
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Owned
Owned/Leased
Owned/Leased
56,000 tons
38,000 tons
190,000 tons
54,000 tons
75,000 tons
413,000 tons
60,000 tons
64,000 tons
90,000 tons
70,000 tons
25,000 tons
73,000 tons
382,000 tons
50,000 tons
34,000 tons
188,000 tons
80,000 tons
69,000 tons
421,000 tons
56,000 tons
61,000 tons
70,000 tons
64,000 tons
21,000 tons
68,000 tons
340,000 tons
Owned
Owned
Owned
Owned
317,000 tons
540,000 tons
857,000 tons
306,000 tons
496,000 tons
802,000 tons
360,000 tons
465,000 tons
825,000 tons
338,000 tons
450,000 tons
788,000 tons
Owned/Leased
Owned/Leased
Owned/Leased
Owned/Leased
Owned/Leased
50,000 tons
40,000 tons
36,000 tons
35,000 tons
32,000 tons
193,000 tons
— tons
— tons
— tons
— tons
— tons
— tons
CORPORATE
Alpharetta, Georgia
Spokane, Washington
Operations and administration
Corporate headquarters
Owned/Leased
Leased
N/A
N/A
N/A
N/A
1
2
3
4
5
Production amounts are approximations for full year 2016. Annual capacity is an estimate based on assumptions and judgments concerning, among other things,
both market demand and product mix, which change from time-to-time.
The buildings located at these facilities are leased by Clearwater Paper or a subsidiary, and the operating equipment located within the buildings are owned by
Clearwater Paper or a subsidiary.
On November 29, 2016 we announced the permanent shutdown of two tissue machines at our Neenah, Wisconsin tissue facility. Production throughout 2016 took
place on five machines. However, capacities presented for this location reflect the shutdown and depict our capacity at December 31, 2016 with the remaining three
machines.
On November 29, 2016 we announced the permanent closure of our Oklahoma City converting facility. We intend to run the facility until its permanent closure on
March 31, 2017.
On December 16, 2016, we acquired Manchester Industries. Production tonnages for the five Manchester facilities have been excluded from the table above as these
facilities were owned for only 16 days in 2016.
In addition to the manufacturing facilities listed in this table, we lease a chip shipment facility in Columbia City, Oregon
and own a wood chipping facility in Clarkston, Washington.
18
ITEM 3.
Legal Proceedings
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, results of operations and cash flows.
ITEM 4.
Mine Safety Disclosures
Not applicable.
19
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, 2016:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended December 31, 2015:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
HOLDERS
Common Stock Price
High
Low
$ 68.40 $ 50.30
59.18
47.55
32.00
69.75
66.65
49.58
$ 51.79 $ 42.63
42.64
55.93
58.43
59.70
67.99
75.69
On February 16, 2017, the last reported sale price for our common stock on the New York Stock Exchange was $59.65
per share. As of February 16, 2017, there were approximately 840 registered holders of our common stock.
DIVIDENDS
We have not paid any cash dividends and do not anticipate paying a cash dividend in 2017. 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, would be determined by our Board of Directors and would
depend on our earnings, our compliance with the terms of our notes and revolving credit facilities 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 December 15, 2015, we announced that our Board of Directors had approved a stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of
our common stock from time to time through open market purchases, negotiated transactions or other means, including
accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other
restrictions. In 2016, we repurchased 1,355,946 shares of our outstanding common stock at an average price of $48.18
per share under this program.
On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. We completed this program during the fourth
quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock at an average price of
$53.13 per share under this program.
20
The following table provides information about share repurchases that we made during the three months ended
December 31, 2016 (in thousands, except share and per share amounts):
Total
Number of
Shares
Purchased
Average
Price Paid
per
Share
153,969 $
103,409
—
257,378 $
54.65
52.05
—
53.61
Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Program
Approximate
Dollar Value of
Shares that May
Yet Be
Purchased
Under the
Program
153,969 $
103,409
—
257,378
40,058
34,673
34,673
Period
October 1, 2016 to October 31, 2016
November 1, 2016 to November 30, 2016
December 1, 2016 to December 31, 2016
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. Amounts for 2014 forward reflect the sale of our specialty
business and mills on December 30, 2014.
(In thousands, except net
earnings (loss) per share amounts)
Net sales
Income from operations1
Net earnings (loss)
Working capital2
Long-term debt, net of current portion
Stockholders’ equity
Capital expenditures3
Property, plant and equipment, net
Total assets
Net earnings (loss) per basic common
share
Average basic common shares
outstanding
Net earnings (loss) per diluted common
share
Average diluted common shares
outstanding
$
$
$
2016
1,734,763 $
111,317
49,554
79,975
569,755
469,873
155,677
945,328
1,684,342
2015
1,752,401 $
123,670
55,983
199,010
568,987
474,866
134,104
866,538
1,527,369
2014
1,967,139 $
79,811
(2,315 )
302,069
568,221
497,537
99,600
810,987
1,579,149
2013
1,889,830 $
99,328
106,955
374,416
640,410
605,094
86,508
884,698
1,735,235
2012
1,874,304
145,387
64,131
292,047
515,570
540,894
207,115
877,377
1,625,093
2.91
$
2.98
$
(0.11 ) $
4.84
$
2.75
17,001
18,762
20,130
22,081
23,299
2.90
$
2.97
$
(0.11 ) $
4.80
$
2.72
17,106
18,820
20,130
22,264
23,614
1
Income from operations for the year ended December 31, 2013, includes the reversal of uncertain tax positions.
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 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.
21
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
Recent Events
Acquisition of Manchester Industries
On December 16, 2016, we acquired Manchester Industries, an independently-owned paperboard sales, sheeting and
distribution supplier to the packaging and commercial print industries, for total consideration of $71.7 million. The
addition of Manchester Industries' customers to our paperboard business extends our reach and service platform to
small and mid-sized folding carton plants, by offering a range of converting services that include custom sheeting,
slitting, and cutting. These converting operations include five strategically located facilities in Virginia, Pennsylvania,
Indiana, Texas, and Michigan.
Strategic Capital Projects
As part of our focus on strategic capital spending on projects that we expect to provide a positive return on investments,
we announced on September 8, 2015, the construction of a continuous pulp digester project at our Lewiston, Idaho,
pulp and paperboard facility. We estimate that the total cost for this pulp optimization project will be approximately $148-
$158 million, excluding estimated capitalized interest. Construction on this project began in 2015 and is expected to be
completed in the second half of 2017. As of December 31, 2016, we have incurred a total of $90.8 million in total project
costs, of which $59.8 million was incurred in 2016. We expect to spend the remainder in 2017. We have also capitalized
$2.7 million of interest related to the project to date, of which $2.3 million was incurred in 2016. We anticipate that this
project will significantly reduce air emissions, result in operational improvements through increased pulp quality and
production, and lower our costs through the more efficient utilization of wood chips.
Facility Closure
On November 29, 2016, we announced the permanent closure of our Oklahoma City converting facility. The closure of
the Oklahoma City facility is planned for March 31, 2017. Due to productivity gains from cost and optimization programs
across the company, we expect the production from this facility to be more efficiently supplied by our other facilities. As
of December 31, 2016, we have incurred $1.7 million of costs associated with this announced closure. These costs
include $1.3 million in accelerated depreciation on certain fixed assets.
Machine Shutdowns
Also on November 29, 2016, we announced the permanent shutdown of two of the five tissue machines at our Neenah,
Wisconsin, tissue facility, effective late-December 2016. We expect the shutdown of these high-cost machines and
related restructuring at this plant to lower our overall costs and improve operating efficiency at our Neenah facility. As
of December 31, 2016, we have incurred $1.0 million of costs related to the shutdown of these machines.
Capital Allocation
On December 15, 2015, we announced that our Board of Directors had approved a new stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of
our common stock from time to time through open market purchases, negotiated transactions or other means, including
accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other
restrictions. Through December 31, 2016, we repurchased 1,355,946 shares of our outstanding common stock at an
average price of $48.18 per share under this program.
22
On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. We completed this program during the fourth
quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock at an average price
of $53.13 per share under this program.
New Tissue Machine
On February 8, 2017, we announced plans to build a new tissue machine and related converting equipment at a site
adjacent to our existing facility in Shelby, North Carolina. The new tissue machine will produce a variety of high-quality
private label premium and ultra-premium bath, paper towel and napkin products. At full production capacity, the new
tissue machine is expected to produce approximately 70,000 tons of tissue products annually. The estimated cost for the
project includes approximately $283 million for the tissue machine, converting equipment and buildings, and
approximately $57 million for the purchase and expansion of an existing warehouse that will consolidate all southeastern
warehousing in Shelby. We project that the construction of the new facility will be completed in early 2019 and will be
fully operational in 2020.
Business
We are a leading producer of private label tissue and premium bleached paperboard products. Our products are
primarily wood pulp based and 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, 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 2016, our Consumer Products segment
had net sales of $988.4 million, representing approximately 57% of our total net sales.
• Our Pulp and Paperboard segment manufactures and markets bleached paperboard for the high-end segment
of the packaging industry, is a leading producer of solid bleach sulfate paperboard and offers services that
include custom sheeting, slitting and cutting of 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 2016, our Pulp and Paperboard segment had net sales of
$746.4 million, representing approximately 43% 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. In recent years, the industry has seen an increase in ultra tissue products as industry
participants have added or improved through-air-dried, or TAD, or equivalent production capacity. 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 is affected by macro-economic conditions around the world and has historically
experienced cyclical market conditions. 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 more attracted to the U.S. market when the dollar is relatively strong.
Paperboard pricing decreased in 2016 compared to 2015.
The markets for our products are highly competitive. Our business is capital intensive, which leads to high fixed costs
and 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, paperboard, and to a lessor extent pulp, net of discounts, returns and
allowances and any sales taxes collected.
23
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 our operating costs.
Competitive market conditions can limit our ability to pass cost increases through to our customers. The following table
shows our principal operating cost items and associated percentage of net sales for each of the past three years:
2016
2015
2014
Years Ended December 31,
(Dollars in thousands)
Purchased pulp
Transportation1
Chemicals
Chips, sawdust and logs
Maintenance and repairs2
Energy3
Packaging supplies
Depreciation
Cost
$ 196,848
182,145
166,954
148,583
95,800
87,163
86,273
80,652
$ 1,044,418
Percentage of
Cost of Sales
Cost
Percentage of
Cost of Sales
Cost4
Percentage of
Cost of Sales
13.2 % $ 186,065
184,824
12.2
179,812
11.2
147,498
9.9
90,709
6.4
100,322
5.8
90,696
5.7
5.4
76,379
69.8 % $ 1,056,305
12.3 % $ 295,889
191,774
12.2
206,054
11.9
151,331
9.7
84,309
6.0
137,719
6.6
103,769
6.0
5.0
80,094
69.7 % $ 1,250,939
17.3%
11.2
12.1
8.9
4.9
8.1
6.1
4.6
73.2%
1
2
3
4
Includes internal and external transportation costs.
Excluding related labor costs.
Energy costs for 2015 and 2014 were reclassified to conform to the 2016 presentation.
Results include the specialty business and mills, which were sold in December 2014.
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 2016, total purchased pulp costs increased by $10.8 million
compared to 2015, due primarily to increased tissue shipments in 2016 and incremental externally purchased pulp in
2016 due to reduced pulp production at our Idaho facility resulting from a planned major maintenance outage in the third
quarter and an unplanned power outage in July. These increases were offset by favorable market pulp pricing and
strategic spot buys in our Pulp and Paperboard segment, as well as operational improvements attributable to recent
productivity initiatives.
Transportation. Fuel prices, mileage driven and line-haul rates largely impact transportation costs for the 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 2016 decreased $2.7 million compared to 2015 due primarily to favorable line-haul rates and improvements in
our network in 2016 compared to 2015.
Chemicals. We consume a substantial amount of chemicals in the production of pulp and paperboard, as well as in the
production of TAD tissue. The chemicals we generally use include polyethylene, caustic, starch, sodium chlorate, latex
and paper processing chemicals. A portion of the chemicals used in our manufacturing processes, particularly in the
paperboard extrusion process, are petroleum-based and are impacted by petroleum prices.
In 2016, our chemical costs decreased $12.9 million from 2015, primarily due to decreased pricing for polyethylene and
other paper making chemicals. In addition, chemical consumption was lower due to reduced pulp production caused by
the July 2016 unplanned power outage at our Idaho facility, as well as improvements due to strategic capital projects.
Chips, sawdust and logs. We purchase chips, sawdust and logs that we use 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 were
relatively flat, increasing $1.1 million in 2016 compared to 2015 driven by increased wood prices in the Idaho region,
partially offset by operational improvements.
24
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 at both our Idaho and Arkansas facilities, which increase costs and may reduce
net sales in the quarters in which the major maintenance shutdowns occur. In 2016, maintenance costs increased $5.1
million compared to 2015 due to a planned increase in maintenance for our Consumer Products segment, higher
maintenance spending associated with the unplanned power outage at our Idaho facility in the third quarter of 2016 and
a fire at our Las Vegas, Nevada consumer products facility in the fourth quarter of 2016. These higher costs were
partially offset by lower planned major maintenance in 2016 compared to 2015 for our Pulp and Paperboard segment.
We expect our 2017 planned major maintenance costs to be approximately $7 million at our Arkansas facility during the
second quarter of 2017 and $18 million at our Idaho facility during the third quarter of 2017, while operations are
shutdown in connection with the anticipated startup of our new continuous pulp digester. The planned major
maintenance is expected to result in three days of paper machine downtime at our Arkansas facility and four days of
paper machine downtime at our Idaho facility.
In addition to ongoing maintenance and repair costs, we make capital expenditures to increase our operating capacity
and efficiency, improve safety at our facilities and comply with environmental laws. In 2016, we spent $153.4 million on
capital expenditures, excluding capitalized interest of $2.3 million, which included $93.9 million of capital spending on
strategic projects and other projects designed to reduce future manufacturing costs and provide a positive return on
investment. During 2015, excluding capitalized interest of $0.4 million, we spent $133.7 million on capital expenditures,
which included $73.2 million of strategic capital spending.
Energy. We use energy in the form of electricity, hog fuel, steam and natural gas to operate our mills. Energy prices may
fluctuate widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates. We
generally strive to reduce our exposure to volatile energy prices through conservation. In addition, a cogeneration facility
that produces steam and electricity at our Lewiston, Idaho manufacturing site helps to lower our energy costs.
Energy costs for 2016 were $13.2 million lower than those for 2015 due largely to lower usage and pricing for natural
gas, as well as lower pricing for electricity and hog fuel.
To help mitigate our exposure to changes in natural gas prices, we use firm-price contracts to supply a portion of our
natural gas requirements. As of December 31, 2016, these contracts covered approximately 20% of our expected
average monthly natural gas requirements for 2017, which includes approximately 28% of the expected average
monthly requirements for the first quarter. 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 their consumers.
For 2016, packaging costs decreased $4.4 million compared to 2015 due to favorable pricing for packaging supplies,
including lower negotiated prices for poly wrap and cartons.
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 2016 increased $4.3 million,
compared to 2015, primarily as a result of increased depreciation related to capital spending during recent periods, as
well as accelerating depreciation on certain Oklahoma City assets in association with the announced March 2017 facility
closure.
Other. Other costs not included in the above table primarily consist of wage and benefit expenses and miscellaneous
operating costs. Although period cut-offs 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. Certain other costs decreased in 2016 compared to 2015
due in part to insurance recoveries for both the Lewiston power outage and the fire at our Las Vegas facility. These
favorable cost impacts were partially offset by a $1.9 million pension settlement charge to "Cost of Sales" associated
with a lump sum buyout for vested participants in the third quarter of 2016.
25
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of compensation and associated expenses for sales and
administrative personnel, as well as commission expenses related to sales of our products. Our total selling, general
and administrative expenses were $129.6 million in 2016, compared to $117.1 million in 2015. The higher expense was
primarily a result of $4.8 million of mark-to-market expense in 2016 related to our directors' common stock units, which
will ultimately be settled in cash, compared to $4.1 million of mark-to-market benefit in 2015, $2.7 million of costs
associated with our acquisition of Manchester Industries in the fourth quarter of 2016, a $1.6 million pension settlement
charge in the third quarter of 2016, and higher depreciation expense and higher profit dependent compensation accruals
in 2016. These were partially offset by $2.0 million of non-routine legal expenses and settlement costs in 2015, including
those related to a dispute involving one of our closed facilities, as well as $1.4 million of reorganization related expenses
in 2015.
Interest expense
Interest expense is primarily comprised of interest on our $275 million aggregate principal amount of 4.5% senior notes
issued January 2013 and due 2023, which we refer to as the 2013 Notes, and interest on our $300 million aggregate
principal amount of 5.375% senior notes issued in 2014 and due in 2025, which we refer to as the 2014 notes. Interest
expense also includes interest on the amount drawn under our revolving credit facilities and amortization of deferred
issuance costs associated with all of our notes and revolving credit facilities. Interest expense decreased $0.9 million
compared to 2015 primarily due to higher capitalized interest in 2016 associated with our continuous pulp digester
project, partially offset by higher interest associated with additional borrowings on our credit facilities.
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 between reported earnings and
taxable income using current tax laws and rates.
The following table details our tax provision and effective tax rates for the years ended December 31, 2016, 2015 and
2014:
(Dollars in thousands)
Income tax provision (benefit)
Effective tax rate
2016
31,112
$
2015
36,505
$
2014
18,556
$
38.6 %
39.5 %
114.3%
Our provision for income taxes for 2014 was unfavorably impacted primarily by a non-recurring tax provision of 65.0%
related to losses on divested assets recorded in our Consolidated Statement of Operations that did not have a
corresponding tax benefit. Additionally, the rate was unfavorably impacted by changes in valuation allowances of 14.4%.
The estimated annual effective tax rate for 2017 is expected to be approximately 36%.
26
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, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015
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
Gain on divested assets, net
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Earnings before income taxes
Income tax provision
Net earnings
Years Ended December 31,
2016
$ 1,734,763
2015
100.0 % $ 1,752,401
100.0%
(1,495,627 )
(129,574 )
1,755
(1,623,446 )
111,317
(30,300 )
(351 )
80,666
(31,112 )
49,554
$
86.2
7.5
0.1
93.6
6.4
1.7
—
4.6
1.8
2.9 % $
(1,512,849 )
(117,149 )
1,267
(1,628,731 )
123,670
(31,182 )
—
92,488
(36,505 )
55,983
86.3
6.7
0.1
92.9
7.1
1.8
—
5.3
2.1
3.2%
Net sales—Net sales for 2016 decreased by $17.6 million, or 1.0%, compared to 2015, primarily due to lower average
paperboard net selling prices due to increased competition and a mix shift in paperboard. These unfavorable
comparisons were partially offset by an increase in retail tissue shipments. These items are further discussed below
under “Discussion of Business Segments."
Cost of sales—Cost of sales was 86.2% of net sales for 2016 compared to 86.3% of net sales for 2015. Our overall cost
of sales was $17.2 million lower in 2016 due primarily to reduced energy and chemical pricing in addition to lower overall
packaging costs and transportation rates and operational improvements from recent productivity initiatives. During 2016,
we also received a partial reimbursement of previously incurred costs related to performance issues with the recovery
boiler at our Arkansas pulp and paperboard facility during the second quarter of 2013 through the first quarter of 2015.
These favorable comparisons were partially offset by higher costs for purchased pulp and maintenance, as well as $3.5
million of costs, net of insurance received, as a result of the July power outage and a $1.9 million pension settlement
charge in the third quarter of 2016.
Selling, general and administrative expenses—Selling, general and administrative expenses increased $12.4 million
during 2016 compared to 2015. The higher expense was primarily a result of $4.8 million of mark-to-market expense in
2016 related to our directors' common stock units, which will ultimately be settled in cash, compared to $4.1 million of
mark-to-market benefit in 2015, $2.7 million of costs associated with our acquisition of Manchester Industries in the
fourth quarter of 2016, a $1.6 million pension settlement charge in the third quarter of 2016, and higher depreciation
expense and higher profit dependent compensation accruals in 2016. These were partially offset by $2.0 million of non-
routine legal expenses and settlement costs in 2015, including those related to a dispute involving one of our closed
facilities, as well as $1.4 million of reorganization related expenses in 2015.
Gain on divested assets, net— During 2016, we recognized a net gain of $1.8 million as a result of the release to us of
$2.3 million from an indemnity escrow account related to the December 2014 sale of our former specialty business and
mills, less $0.5 million of other related settlement costs. During 2015, we recognized a $1.3 million gain primarily related
to the release of restricted cash balances pertaining to the settlement of a working capital escrow account established in
connection with the sale of our former specialty business and mills.
Interest expense—Interest expense decreased $0.9 million during 2016, compared to 2015. The decrease was
attributable to capitalized interest of $2.3 million in 2016 compared to $0.4 million in 2015, partially offset by higher
interest expense in 2016 associated with additional borrowings on our revolving credit facilities.
27
Debt retirement costs—Debt retirement costs for 2016 consist of the write-off of $0.4 million of deferred finance costs in
connection with the refinancing of our $125 million senior secured line of credit with two new senior secured revolving
credit facilities that provide for up to $300 million in revolving loans.
Income tax provision—We recorded an income tax provision of $31.1 million in 2016, compared to $36.5 million in 2015.
The effective tax rate determined under generally accepted accounting principles, or GAAP, for 2016 was 38.6%,
compared to 39.5% for 2015. During 2016 and 2015, 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 both 2016 and 2015 would have been approximately 38%. The following table details
these items:
Non-GAAP Adjusted Income Tax Provision
(In thousands)
Income tax provision
Special items, tax impact:
Directors' equity-based compensation (expense) benefit
Pension settlement expense
Manchester Industries acquisition related expenses
Costs associated with Neenah paper machines shutdown
Costs associated with announced Oklahoma City facility closure
Costs associated with Long Island facility closure
Gain associated with optimization and sale of the specialty mills
Discrete tax items related to foreign tax credits
Legal expenses and settlement costs
Reorganization related expenses
Costs associated with labor agreement
Adjusted income tax provision
Years Ended December 31,
2016
(31,112) $
$
2015
(36,505)
(1,693)
(1,242)
(465)
(371)
(589)
(672)
626
—
—
—
—
1,288
—
—
—
—
(780)
395
1,309
(626)
(470)
(533)
$
(35,518) $
(35,922)
28
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,
$
2016
988,380
67,916
2015
$ 959,894
55,704
6.9 %
5.8%
81,952
314,042
395,994
52,875
90,178
292,438
382,616
52,149
$
$
1,480
2,757
2,493
$
$
1,469
2,825
2,505
Net sales for our Consumer Products segment increased by $28.5 million, or 3.0%, in 2016 compared to 2015, due to
higher retail sales volumes, partially offset by decreases in parent roll sales. The increase in retail sales was partially
offset by a decrease in sales price caused by a mix shift that resulted in a lower average net selling price. The decrease
in parent roll sales was the result of increased finished goods sales and inventory balancing. Average selling prices
decreased due to competitive pricing and product and customer mix changes.
The segment reported $67.9 million in operating income for 2016, compared to $55.7 million in 2015. The increase was
primarily driven by the increase in net sales, which contributed to favorable per ton operating costs and operating
income, as well as by lower packaging costs, lower energy costs due to favorable natural gas pricing in 2016, and
operational improvements from recent productivity initiatives. In addition, a net gain of $1.8 million was recorded in the
third quarter 2016 as a result of the release to us of a $2.3 million indemnity escrow account related to the sale of our
former specialty business and mills, less $0.5 million of other related settlement costs.
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,
2016
$ 746,383
112,732
2015
$ 792,507
120,861
15.1 %
15.3%
796,158
937
$
796,733
990
$
Net sales for our Pulp and Paperboard segment decreased by $46.1 million, or 5.8%, in 2016 compared to 2015. The
decrease was due to lower net selling prices, primarily due to a mix shift from higher priced extruded paperboard sales
toward non-extruded paperboard sales.
Operating income for the segment decreased $8.1 million, or 6.7%, during 2016 compared to 2015, due primarily to
decreased net sales. This unfavorable comparison was partially offset by lower operating costs due to lower energy
costs resulting from decreased natural gas pricing, lower chemical usage and pricing, lower transportation costs due to
lower line haul rates and fuel pricing, reduced planned major maintenance and operational improvements from
productivity initiatives. These lower operating costs were partially offset by $3.5 million of net costs incurred due to an
unplanned power outage at the Lewiston facility in the third quarter of 2016.
29
YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014
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
Gain (loss) on divested assets, net
Impairment of assets
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Earnings before income taxes
Income tax (provision) benefit
Net earnings (loss)
Years Ended December 31,
2015
$ 1,752,401
2014
100.0 % $ 1,967,139
100.0%
(1,512,849 )
(117,149 )
1,267
—
(1,628,731 )
123,670
(31,182 )
—
92,488
(36,505 )
55,983
$
86.3
6.7
0.1
—
92.9
7.1
1.8
—
5.3
2.1
3.2 % $
(1,708,840 )
(130,102 )
(40,159 )
(8,227 )
(1,887,328 )
79,811
(39,150 )
(24,420 )
16,241
(18,556 )
(2,315 )
86.9
6.6
2.0
0.4
95.9
4.1
2.0
1.2
0.8
0.9
0.1 %
Net sales—Net sales for 2015 decreased by $214.7 million, or 10.9%, compared to 2014, primarily due to a decline in
non-retail tissue shipments as a result of the sale of our specialty business and mills in December 2014, as well as
decreases in tissue converted product cases sold and lower pricing for commodity grade paperboard. These items are
discussed below under “Discussion of Business Segments.”
Cost of sales—Cost of sales was 86.3% of net sales for 2015 and 86.9% of net sales for 2014. Our overall cost of sales
was 11.5% lower compared to 2014 primarily due to the absence of operating costs in 2015 associated with our former
specialty business and mills, incremental costs in the same period of 2014 associated with the extreme cold weather
conditions in the Midwest and Northeast and operational issues at our Arkansas pulp and paperboard facility. In
addition, cost of sales for 2014 included $14.8 million of costs related to the closure of our Thomaston, Georgia and
Long Island, New York facilities, compared to $2.5 million of Long Island closure costs in 2015. These favorable
comparisons were partially offset by approximately $22 million of planned major maintenance costs that were incurred at
our pulp and paperboard facilities in 2015.
Selling, general and administrative expenses—Selling, general and administrative expenses decreased $13.0 million
during 2015 compared to 2014, due primarily to a $4.1 million mark-to-market benefit in 2015, compared to $4.6 million
of mark-to-market expense in 2014, related to our directors' common stock units, which will ultimately be settled in cash,
as well as reduced headcount and administrative costs related to the sale of the specialty business and mills and the
closure of our Long Island facility. These were partially offset by $2.0 million of non-routine legal expenses and
settlement costs, including those related to a dispute involving one of our closed facilities, as well as $1.4 million of
reorganization related expenses.
Gain (loss) on divested assets, net—During 2015, we recognized a $1.3 million gain primarily related to the release of
restricted cash balances pertaining to the settlement of a working capital escrow account established in connection with
the December 2014 sale of our specialty business and mills. We received approximately $108 million of net proceeds in
2014 from the sale of the mills. In total, $40.2 million was recorded as a loss on divested assets in 2014, which included
losses on $105.7 million of net assets sold, write-offs of $20.4 million and $4.9 million, respectively, of goodwill and
intangible assets associated with the specialty business and mills, and other expenses related to the sale, net of
proceeds received.
Impairment of assets—During 2014, as a result of the permanent closure of our Long Island facility, based on our
recoverability assessment, we recorded non-cash impairment losses totaling $5.1 million for intangible and long-lived
assets. In addition, we determined during the fourth quarter of 2014 that a customer relationship intangible asset
associated with the Pulp and Paperboard segment's wood chipping facility was fully impaired, and as a result we
recorded an additional $3.1 million non-cash impairment loss.
30
Interest expense—Interest expense decreased $8.0 million during 2015, compared to 2014. The decrease was largely
attributable to reduced interest rates on our debt as a result of the third quarter 2014 redemption of the $375 million
aggregate principal amount of senior notes issued on October 22, 2010, which we refer to as the 2010 Notes, and the
issuance of the lower interest bearing 2014 Notes.
Debt retirement costs—Debt retirement costs for 2014 consist of a one-time $24.4 million charge in connection with the
redemption of the 2010 Notes in August 2014. These costs were comprised of cash charges of $19.8 million, which
consisted of a "make-whole" premium of $17.6 million plus unpaid interest of $2.2 million, and a non-cash charge of
$4.6 million related to the write-off of deferred issuance costs.
Income tax provision—We recorded an income tax provision of $36.5 million in 2015, compared to $18.6 million in 2014.
The effective tax rate determined under GAAP for 2015 was approximately 39.5%, compared to 114.3% for 2014. The
higher rate in 2014 was primarily the result of adjustments for losses on divested assets. During 2015 and 2014, 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 2015 would have been
approximately 38%, compared to approximately 36% in 2014. The following table details these items:
Non-GAAP Adjusted Income Tax Provision
(In thousands)
Income tax (provision) benefit
Special items, tax impact:
Directors' equity-based compensation benefit (expense)
Costs associated with Long Island facility closure
Debt retirement costs
Gain (loss) associated with optimization and sale of the specialty mills
Loss on impairment of Clearwater Fiber intangible asset
Discrete tax item related to state tax rate changes
Costs associated with Thomaston facility closure
Discrete tax items related to foreign tax credits
Legal expenses and settlement costs
Costs associated with labor agreement
Reorganization related expenses
Adjusted income tax provision
Years Ended December 31,
2015
(36,505) $
$
2014
(18,556)
1,288
(780)
—
395
—
—
—
1,309
(626)
(533)
(470)
(35,922) $
(1,625)
(6,677)
(8,643)
(3,774)
(1,054)
1,388
(448)
—
—
—
—
(39,389)
$
31
DISCUSSION OF BUSINESS SEGMENTS
Consumer Products
(Dollars in thousands - except per ton amounts)
Net sales
Operating (loss) 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,
2015
$ 959,894
55,704
2014
$ 1,183,385
(6,028)
5.8 %
(0.5)%
90,178
292,438
382,616
52,149
233,943
293,907
527,850
55,501
$
$
1,469
2,825
2,505
$
$
1,504
2,822
2,238
Net sales for our Consumer Products segment decreased by $223.5 million, or 18.9%, in 2015 compared to 2014, due
to a decline in non-retail shipments resulting from the sale of our specialty business and mills. The segment's net sales
were also lower due to a decrease of 2.3% in non-retail average net selling prices.
The segment reported $55.7 million in operating income for 2015, compared to an operating loss of $6.0 million in
2014. The increase was primarily driven by a $40.2 million loss on the sale of our specialty business and mills in
2014. In addition, the segment incurred $2.5 million of costs related to the closure of our Long Island facility during
2015, compared to $20.1 million of costs related to the closure of our Thomaston and Long Island facilities incurred
during the same period of 2014. Operating costs for 2014 also included incremental costs associated with the
extreme cold weather conditions in the Midwest and Northeast. The favorable comparisons in 2015 were partially
offset by slightly higher purchased pulp and the absence of income generated by our specialty business and mills.
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,
2015
$ 792,507
120,861
2014
$ 783,754
144,171
15.3 %
18.4%
796,733
990
$
774,665
1,009
$
Net sales for our Pulp and Paperboard segment increased by $8.8 million for 2015 compared to 2014. This increase
was primarily attributable to a 2.8% increase in shipments, partially offset by a 1.9% decrease in average net selling
prices.
Operating income for the segment decreased $23.3 million, or 16.2%, during 2015 compared to 2014, primarily due to
approximately $22 million in planned major maintenance costs incurred at our Idaho and Arkansas facilities during the
first half of 2015. These unfavorable comparisons were partially offset by lower chemical consumption related to the
resolution of operational issues at our Arkansas facility experienced during 2014 and lower energy costs due primarily to
favorable natural gas pricing throughout the segment.
32
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 used by 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:
(cid:402) EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital assets;
(cid:402) EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital
requirements;
(cid:402) EBITDA and Adjusted EBITDA do not include cash pension payments;
(cid:402) EBITDA and Adjusted EBITDA exclude certain tax payments that may represent a reduction in cash available
to us;
(cid:402) EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to
service interest or principal payments on our debt;
(cid:402) 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
(cid:402) 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 2013
Notes and 2014 Notes use metrics similar to EBITDA to measure our compliance with certain covenants.
33
The following table provides our EBITDA and Adjusted EBITDA for the periods presented, as well as a reconciliation to
net earnings:
Years Ended December 31,
(In thousands)
Net earnings (loss)
Interest expense, net 1
Income tax provision
Depreciation and amortization expense2
EBITDA
Directors' equity-based compensation expense (benefit)
Manchester Industries acquisition related expenses
Pension settlement expense
Costs associated with Neenah paper machines shutdown
Costs associated with announced Oklahoma City facility closure
Costs associated with Long Island facility closure
(Gain) loss associated with optimization and sale of the specialty mills
Legal expenses and settlement costs
Reorganization related expenses
Costs associated with labor agreement
Loss on impairment of Clearwater Fiber intangible asset
Costs associated with Thomaston facility closure
Adjusted EBITDA
2015
2016
30,651
31,112
91,090
31,182
36,505
84,732
$ 49,554 $ 55,983 $
2014
(2,315)
63,570
18,556
90,145
$ 202,407 $ 208,402 $ 169,956
4,606
—
—
—
—
18,813
40,801
—
—
—
3,078
1,257
$ 214,836 $ 210,697 $ 238,511
4,779
2,665
3,482
1,049
318
1,891
(1,755)
—
—
—
—
—
(4,073)
—
—
—
—
2,463
(1,267)
1,972
1,470
1,730
—
—
1
2
Interest expense, net for the years ended December 31, 2016 and 2014 includes debt retirement costs of $0.4 million and $24.4 million,
respectively.
Depreciation and amortization for 2016 includes $1.3 million of accelerated depreciation associated with the announced closure of our Oklahoma
City facility.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents information regarding our cash flows for the years ended December 31, 2016, 2015 and
2014.
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,
$
2016
172,751 $
(222,506 )
67,146
2015
159,675 $
(78,548 )
(102,848 )
2014
139,100
35,687
(171,131)
Operating Activities—Net cash flows from operating activities for 2016 increased by $13.1 million compared to 2015.
The increase in operating cash flows was driven by an increase in earnings, after adjusting for noncash related items, of
$7.0 million. Additionally, there was an increase due to $5.1 million of cash from taxes receivable in 2016 compared to a
net $13.6 million increase in taxes receivable in 2015. These increases in cash flows from operating activities were
partially offset by $3.5 million of cash used in working capital in 2016, compared to $14.8 million of cash flows generated
from working capital in 2015.
Net cash flows from operating activities for 2015 increased by $20.6 million compared to 2014. The increase in
operating cash flows was largely due to a $27.1 million increase in cash flows generated from working capital and a
$13.8 million decrease in contributions to our qualified pension plans compared to 2014, partially offset by a net $13.6
million increase in taxes receivable in 2015 compared to $9.2 million of cash from taxes receivable in 2014. The cash
flows generated from working capital were primarily the result of a decrease in inventories and higher accounts payable
and accrued liabilities, partially offset by higher accounts receivable, and prepaid expense balances in 2015 compared
to 2014.
34
Investing Activities—Net cash flows used for investing activities increased $144.0 million in 2016, compared to 2015.
This was largely driven by the acquisition of Manchester Industries totaling $67.4 million, net of cash acquired. Cash
spent for plant and equipment increased $26.4 million compared to 2015 due to our investments in strategic capital
projects, including our continuous pulp digester project at our Lewiston, Idaho facility. In addition, net investing cash
flows were impacted by the conversion of $0.3 million of short-term investments into cash during 2016, compared to the
conversion of $49.8 million of short-term investments into cash during 2015.
Net cash flows from investing activities decreased $114.2 million in 2015, compared to 2014. The decrease in cash
flows from investing activities was largely due to $107.7 million of net cash proceeds received in 2014 from divested
assets, which related to the sale of our specialty business and mills. In addition, cash spent for plant and equipment
increased $35.9 million compared to 2014. These decreases were partially offset by a $29.8 million increase in
cash provided by the conversion of short-term investments into cash during 2015 compared to 2014.
Financing Activities—Net cash flows from financing activities were $67.1 million for 2016, and were largely driven by net
borrowings on our revolving credit facilities of $135.0 million partially offset by $65.3 million in repurchases of our
outstanding common stock pursuant to our most recent $100 million stock repurchase program.
Net cash flows used for financing activities were $102.8 million for 2015, and were largely driven by the completion
of our 2015 $100 million stock repurchase program.
Capital Resources
Due to the competitive and cyclical nature of the markets in which we operate, 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,
our cash on hand and our borrowing capacity under our senior secured revolving credit facilities will be adequate to fund
debt service requirements and provide cash required to support our ongoing operations, capital expenditures, stock
repurchase program 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.
At December 31, 2016 and 2015, our financial position included gross debt of $710.0 million and $575.0 million,
respectively. Stockholders’ equity at December 31, 2016 was $469.9 million, compared to the December 31, 2015
balance of $474.9 million. Our total debt to total capitalization, excluding accumulated other comprehensive loss, was
57.5% at December 31, 2016, compared to 52.0% at December 31, 2015.
Debt Arrangements
$300 Million Senior Notes Due 2025
On July 29, 2014, we issued $300 million aggregate principal amount of Senior Notes due 2025, which we refer to as
the 2014 Notes, which mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face value.
The issuance of these notes generated net proceeds of approximately $298 million after deducting offering expenses.
We redeemed all of our 2010 Notes using the net proceeds from the 2014 Notes along with company funds and a draw
from our senior secured revolving credit facility during the third quarter of 2014.
The 2010 Notes had a maturity date of November 1, 2018, and an interest rate of 7.125%. On August 28, 2014, we
redeemed all of the 2010 Notes at a redemption price equal to 100% of the principal amount of $375 million and a
“make whole” premium of $17.6 million plus accrued and unpaid interest of $8.7 million, for an aggregate amount of
$401.3 million.
The 2014 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2014 Notes will also be
guaranteed by each of our future direct and indirect domestic subsidiaries that do not constitute an immaterial subsidiary
under the indenture governing the 2014 Notes. The 2014 Notes are equal in right of payment with all other existing and
future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. The
2014 Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings
under our secured revolving credit facilities, which are secured by certain of our accounts receivable, inventory and
cash. The terms of the 2014 Notes limit our ability and the ability of any restricted subsidiaries to incur certain liens,
engage in sale and leaseback transactions and consolidate, merge with, or convey, transfer or lease substantially all of
our or their assets to another person.
We may, on any one or more occasions, redeem all or a part of the 2014 Notes, upon not less than 30 days nor more
than 60 days' notice, at a redemption price equal to 100% of the principal amount of the 2014 Notes redeemed, plus the
applicable premium as of, and accrued and unpaid interest, if any, to the date of redemption. Unless we default in the
35
payment of the redemption price, interest will cease to accrue on the 2014 Notes or portions thereof called for
redemption on the applicable redemption date. In addition, we may be required to make an offer to purchase the 2014
Notes upon the sale of certain assets and upon a change of control.
Our 2017 expected debt service obligation related to the 2014 Notes, consisting of cash payments for interest, is $16.1
million.
$275 Million Senior Notes Due 2023
On February 22, 2013, we exercised the option to redeem our 10.625% senior notes due in 2016 at a redemption price
equal to approximately $166 million. Proceeds to fund the redemption of these notes were made available through the
sale of the $275 million aggregate principal amount of 4.5% senior notes due 2023, which we refer to as the 2013
Notes.
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 facilities, which are 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.
At any time prior to February 1, 2018, we may on any one or more occasions redeem all or a part of the 2013 Notes,
upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount, plus
the applicable premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption. 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.
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 2017 expected debt service obligation related to the 2013 Notes, consisting of cash payments for interest, is $12.4
million.
Revolving Credit Facilities
On October 31, 2016, we terminated and paid in full all outstanding amounts under our $125 million senior secured
revolving credit facility and replaced that facility with two new senior secured revolving credit facilities. The new senior
secured revolving credit facilities provide in the aggregate, on a combined basis, for the extension of up to $300 million
in revolving loans under: (i) a $200 million credit agreement with Wells Fargo Bank, National Association, as
administrative agent, and the lenders party thereto (the “Commercial Credit Agreement”); and (ii) a $100 million credit
agreement with Northwest Farm Credit Services, PCA, as administrative agent, and the lenders party thereto (the “Farm
Credit Agreement”). We refer to both of these credit agreements collectively as the “Credit Agreements.” The revolving
credit facilities provided under the Credit Agreements mature on October 31, 2021.
Revolving Loans borrowed under the Commercial Credit Agreement bear interest, at our option, at a LIBOR rate or at a
base rate, plus an applicable margin, which for LIBOR rate loans may range from 1.25% per annum to 2.00% per
annum, based on the Company’s consolidated total leverage ratio. The applicable margin for base rate loans under the
Commercial Credit Agreement is 1.00% per annum less than for LIBOR rate loans. Revolving Loans borrowed under
the Farm Credit Agreement are calculated in substantially the same manner as under the Commercial Credit
Agreement, however, the applicable margin under the Farm Credit Agreement is 0.25% per annum higher than the
Commercial Credit Agreement, and the prime rate used in the calculation of base rate loans is based upon the prime
rate published by the Wall Street Journal. In addition, under the Farm Credit Agreement, we have the option to elect
fixed rate periods of interest which bear interest at an applicable margin equal to the LIBOR rate. We also pay
commitment fees on the unused portion of the revolving loan commitments under the Credit Agreements, which range
from 0.20% per annum to 0.35% per annum.
The Credit Agreements are secured by substantially all of the personal property of the Company and its domestic
subsidiaries through separate liens granted under each Credit Agreement for the benefit of each secured party
36
thereunder on an equal and ratable basis. The Company’s obligations under the Credit Agreements are guaranteed by
the Company’s domestic subsidiaries.
The Credit Agreements contain various loan covenants that restrict the ability of the Company and its subsidiaries to
take certain actions, including, incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of
assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with
affiliates or changing the nature of their business. In addition, the Credit Agreements contain financial covenants which
require the Company to maintain a consolidated total leverage ratio in an amount not to exceed 4.00 to 1.00 (subject to
certain exceptions with respect to acquisitions in excess of an agreed threshold amount) and a consolidated interest
coverage ratio in an amount not less than 2.25 to 1.00.
Each Credit Agreement also contains customary events of default, including failure to make payments under such Credit
Agreement, breach of any representation or warranty or covenant under such Credit Agreement, default under or
acceleration of other indebtedness for borrowed money in excess of an agreed amount, any change in control of the
Company based upon a third party acquiring more than 35% of the equity interests of the Company, bankruptcy events,
invalidity of such Credit Agreement, the incurrence of certain liabilities, termination events or withdrawals from specified
benefit plans, and unpaid or uninsured judgments in excess of an agreed amount.
As of December 31, 2016, there were $135 million of borrowings outstanding under the Credit Agreements and we were
in compliance with the covenants contained in the Credit Agreements. The borrowings outstanding under the Credit
Agreements as of December 31, 2016, consisted of short-term base and LIBOR rate loans and no term loans and are
classified as current liabilities in our Consolidated Balance Sheet.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of December 31, 2016. 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)
Revolving lines of credit
Long-term debt1
Interest on long-term debt1
Capital leases2
Operating leases2
Purchase obligations3
Other obligations4,5
Total
$
Total
135,000 $
575,000
217,500
40,140
44,416
264,510
185,858
$ 1,462,424 $
Less
Than 1 Year
1-3 Years
3-5 Years
More Than
5 Years
135,000 $
—
28,500
2,601
14,400
245,471
106,803
532,775 $
— $
—
57,000
5,346
18,037
8,486
22,045
110,914 $
— $
—
57,000
5,371
7,625
3,767
13,000
86,763 $
—
575,000
75,000
26,822
4,354
6,786
44,010
731,972
1
2
3
4
5
Included above are the principal and interest payments that were due on our 2013 and 2014 Notes, which were outstanding as of December 31,
2016. For more information regarding specific terms of our long-term debt, see the discussion under the heading “Debt Arrangements,” and Note
11, “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 18, “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, 2016, contracts for outside wood chipping 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, 2016, liabilities
associated with supplemental pension and deferred compensation arrangements, and estimated payments on postretirement employee benefit
plans.
Total excludes $2.4 million of unrecognized tax benefits due to the uncertainty of timing of payment. See Note 9, “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.
37
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 that compliance. 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 was finalized by the U.S.
Environmental Protection Agency in 2013. To comply with this new standard, we completed a biomass boiler project at
our Lewiston facility in 2016 at a cost of approximately $8 million, $7 million of which was incurred in 2016.
Concern over climate change, including the impact of global warming, may lead to future regulations. We believe there
are no U.S. rules currently proposed that would have a material impact on our operations.
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. 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 acquisition
of Cellu Tissue Holdings, Inc., or Cellu Tissue, on December 27, 2010, we recorded $229.5 million of goodwill on our
Consolidated Balance Sheet as of December 31, 2010, which was all assigned to our Consumer Products reporting unit.
As a result of our December 30, 2014 sale of our specialty business and mills, a portion of goodwill was allocated to the
divested mills and included in our loss on divested assets on our Consolidated Statement of Operations. On December
16, 2016, we acquired Manchester Industries. The acquisition resulted in the recognition of $35.2 million of goodwill,
which is included in our Pulp and Paperboard segment.
As of December 31, 2016, we had $244.3 million of goodwill included on our Consolidated Balance Sheet. Goodwill is
not amortized but tested for impairment annually each November 1st and at any time when events suggest impairment
may have occurred. When required, our goodwill impairment test is performed by comparing the fair value of the
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.
38
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.
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. Three critical assumptions are the discount
rate applied to pension plan obligations, the rate of return on plan assets and mortality rates. 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 income or expense are the discount rate applied to benefit
obligations, the assumed health care cost trend rates used in the calculation of benefit obligations and mortality rates.
Note 14, "Savings, Pension and Other Postretirement Employee Benefit Plans," to our consolidated financial statements
includes information for the three years ended December 31, 2016, 2015 and 2014, on the components of pension
expense and OPEB income 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, 2016 and 2015.
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, 2016, we calculated
obligations using a 4.45% discount rate. The discount rates used at December 31, 2015 and 2014 were 4.70% and
4.25%, 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,
2016, 2015 and 2014 were 6.75%, 7.00% and 7.50%, respectively.
Total periodic pension plan expense in 2016 was $11.2 million, which includes $3.5 of pension settlement expense. 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 $0.6 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 $18.8 million at December 31, 2016 and $24.4
million at December 31, 2015. As a result of being underfunded, we may be required to make contributions to our
qualified pension plans. In 2016, we did not make contributions to these pension plans. We contributed $0.4 million to
our non-qualified pension plan in 2016. We do not expect to make any cash contribution to our qualified pension plans in
2017.
For our OPEB plans, income for 2016 was $6.0 million. We do not anticipate funding our OPEB plans in 2017 except to
pay benefit costs as incurred during the year by plan participants. The discount rates used to calculate OPEB
obligations, which was determined using the same methodology we used for our pension plans, were 4.30%, 4.50% and
4.15% at December 31, 2016, 2015 and 2014, respectively. The assumed health care cost trend rate used to calculate
2016 OPEB income was 7.80%, grading to 4.30% over approximately 70 years. The health care cost trend rate used to
calculate December 31, 2016 OPEB obligations was 7.10% in 2016, grading to 4.30% over approximately 70 years, for
participants whose benefits are not provided through Health Reimbursement Accounts (HRAs), and 2.50% annually for
participants whose benefits are provided through HRAs.
As an indication of the sensitivity that OPEB income has to the discount rate assumption, a 25 basis point change in the
discount rate would affect plan income by approximately $0.6 million. A 1% change in the assumption for health care
cost trend rates would have affected 2016 plan income by approximately $0.2 million and the total postretirement
employee obligation by approximately $3.8 million to $4.4 million. The actual rates of health care cost increases may
vary significantly from the assumption used because of unanticipated changes in health care costs.
39
Net 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, 2016 and 2015, 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.
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 carryforward periods), projected taxable income, and amounts of taxable income we would have generated
historically. 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
carryforward period are reduced.
We operate in tax jurisdictions located in many areas of the United States 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.
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 facilities.
As of December 31, 2016, there were $135.0 million in borrowings outstanding under our revolving credit facilities. The
interest rates applied to borrowings under the credit facilities 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 outstanding credit facilities' borrowings of $135.0 million, would have a $1.35 million annual
effect on interest expense. During 2016, we alleviated the effect of short-term interest rate fluctuations through the use
of a short-term LIBOR Rate option for $90.0 million of our overall outstanding credit facilities' borrowings balance of
$135.0 million.
We currently do not attempt to alleviate 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 partially mitigate through the use
of firm price contracts for a portion of the natural gas requirements of our manufacturing facilities. As of December 31,
2016, these contracts covered approximately 20% of the expected average monthly requirements for 2017, including
approximately 28% of the expected average monthly requirements for the first quarter.
Foreign Currency Risk
We have minimal foreign currency exchange risk. Virtually all of our international sales are denominated in U.S. dollars.
40
Quantitative Information about Market Risks
(Dollars in thousands)
Long-term debt:
Fixed rate
Average interest rate
2017
2018
2019
2020
2021
Thereafter
Total
Expected Maturity Date
$ —
$ —
$ —
$ —
$ —
$ 575,000
$ 575,000
—%
— %
— %
—%
— %
4.957 %
4.957%
Fair value at December 31, 2016
$ 567,875
41
ITEM 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016,
2015 and 2014
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015
and 2014
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
43
44
45
46
47
48-84
85-87
42
CLEARWATER PAPER CORPORATION
Consolidated Statements of Operations
(Dollars in thousands – except per-share amounts)
For The Years Ended December 31,
2016
2015
$ 1,734,763 $ 1,752,401 $ 1,967,139
2014
(1,495,627 )
(129,574 )
1,755
—
(1,623,446 )
111,317
(30,300 )
(351 )
80,666
(31,112 )
49,554 $
(1,512,849 )
(117,149 )
1,267
—
(1,628,731 )
123,670
(31,182 )
—
92,488
(36,505 )
55,983 $
(1,708,840)
(130,102)
(40,159)
(8,227)
(1,887,328)
79,811
(39,150)
(24,420)
16,241
(18,556)
(2,315 )
$
$
2.91 $
2.90
2.98 $
2.97
(0.11 )
(0.11)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Gain (loss) on divested assets, net
Impairment of assets
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Earnings before income taxes
Income tax provision
Net earnings (loss)
Net earnings (loss) per common share:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
43
CLEARWATER PAPER CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net earnings (loss)
Other comprehensive income (loss), net of tax:
For The Years Ended December 31,
2016
49,554 $
2015
55,983 $
$
2014
(2,315)
Defined benefit pension and other postretirement employee benefits:
Net gain (loss) arising during the period, net of tax
of $248, $5,814 and $(15,103)
Prior service credit arising during the period, net of
tax of $ -, $ -, and $3,278
Amortization of actuarial loss included in net periodic cost,
net of tax of $1,576, $4,972, and $3,836
Amortization of prior service credit included in net
periodic cost, net of tax of $(669), $(829), and $(772)
Settlement, net of tax of $1,366, $-, and $-
Foreign currency translation amounts reclassified from accumulated
other comprehensive loss
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
379
—
8,944
(23,523)
—
5,106
2,321
7,647
5,975
(1,021 )
2,116
(1,276 )
—
(1,202)
—
—
3,795
53,349 $
—
15,315
71,298 $
874
(12,770)
(15,085 )
$
44
CLEARWATER PAPER CORPORATION
Consolidated Balance Sheets
(Dollars in thousands – except share data)
At December 31,
2016
2015
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Restricted cash
Receivables, net
Taxes receivable
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets, net
TOTAL ASSETS
$
23,001 $
—
—
147,074
9,709
258,029
8,682
446,495
945,328
244,283
40,485
7,751
5,610
250
2,270
139,052
14,851
255,573
9,331
426,937
866,538
209,087
19,990
4,817
$ 1,684,342 $ 1,527,369
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities
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
TOTAL 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-24,223,191 and 24,193,098 shares issued
Additional paid-in capital
Retained earnings
Treasury stock, at cost, common shares–7,736,255 and 6,380,309
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.
$
135,000 $
223,699
7,821
366,520
569,755
81,812
41,776
2,434
152,172
1,214,469
—
220,368
7,559
227,927
568,987
89,057
46,738
1,676
118,118
1,052,503
—
—
2
347,080
569,861
2
340,095
520,307
(395,317 )
(51,753 )
469,873
(329,990)
(55,548)
474,866
$ 1,684,342 $ 1,527,369
45
CLEARWATER PAPER CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash flows from
operating activities:
For The Years Ended December 31,
2016
2015
2014
$
49,554 $
55,983 $
(2,315)
Depreciation and amortization
Equity-based compensation expense
Impairment of assets
Deferred tax provision
Employee benefit plans
Deferred issuance costs on debt
Loss on divestiture of assets
Disposal of plant and equipment, net
Non-cash adjustments to unrecognized taxes
Changes in working capital, net of acquisition
Change in taxes receivable, net
Excess tax benefits from equity-based payment arrangements
Funding of qualified pension plans
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Acquisition of Manchester Industries, net of cash acquired
Net proceeds from divested assets
Proceeds from sale of assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock
Borrowings on revolving credit facilities
Repayments of revolving credit facilities' borrowings
Proceeds from long-term debt
Repayment of long-term debt
Payments for 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 and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents 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.
46
91,090
12,385
—
18,327
(1,979 )
1,242
—
1,381
758
(3,462 )
5,142
(312 )
—
(1,375 )
172,751
250
(155,349 )
(67,443 )
—
36
(222,506 )
84,732
4,557
—
16,081
3,011
928
—
1,492
(1,020 )
14,841
(13,596 )
(1,433 )
(3,179 )
(2,722 )
159,675
49,750
(128,902 )
—
—
604
(78,548 )
(65,327 )
1,273,959
(1,138,959 )
—
—
(1,906 )
(933 )
312
—
67,146
17,391
5,610
23,001 $
(99,990 )
—
—
—
—
—
(4,152 )
1,433
(139 )
(102,848 )
(21,721 )
27,331
5,610 $
26,690 $
17,655
11,289
28,195 $
35,849
2,533
328 $
—
5,202 $
—
$
$
$
90,145
12,790
8,227
13,813
2,115
6,141
29,059
959
328
(12,248)
9,248
(864)
(16,955)
(1,343)
139,100
20,000
(93,028)
—
107,740
975
35,687
(100,000)
—
—
300,000
(375,000)
(3,002)
(1,523)
864
7,530
(171,131)
3,656
23,675
27,331
34,418
6,851
11,867
6,187
385
CLEARWATER PAPER CORPORATION
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Stock
Shares Amount
Additional
Paid-In
Capital
$
24,008
—
2
—
$ 326,546
—
$
Retained
Earnings
Treasury Stock
Shares Amount
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders'
Equity
466,639
(2,315 )
(2,924 ) $
—
(130,000 ) $
—
(58,093 ) $
—
605,094
(2,315)
48
—
—
—
—
—
—
—
7,528
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,528
(13,644 )
(13,644)
874
874
(1,574 )
(100,000 )
—
(100,000)
$
24,056
—
2
—
$ 334,074
—
$
464,324
55,983
(4,498 ) $
—
(230,000 ) $
—
(70,863 ) $
—
497,537
55,983
137
—
—
—
—
—
6,021
—
—
—
—
—
—
—
—
—
—
6,021
15,315
15,315
(1,882 )
(99,990 )
—
(99,990)
$
24,193
—
2
—
$ 340,095
—
$
520,307
49,554
(6,380 ) $
—
(329,990 ) $
—
(55,548 ) $
—
474,866
49,554
30
—
—
—
—
—
6,985
—
—
—
—
—
—
—
—
—
—
3,795
6,985
3,795
(1,356 )
(65,327 )
—
(65,327)
24,223
$
2
$ 347,080
$
569,861
(7,736 ) $
(395,317 ) $
(51,753 ) $
469,873
Balance at December 31,
2013
Net loss
Performance share,
restricted stock unit,
and stock option
awards
Pension and OPEB, net
of tax of $(8,761)
Foreign currency
translation adjustment
Purchase of treasury
stock
Balance at December 31,
2014
Net earnings
Performance share,
restricted stock unit,
and stock option
awards
Pension and OPEB, net
of tax of $9,957
Purchase of treasury
stock
Balance at December 31,
2015
Net earnings
Performance share,
restricted stock unit,
and stock option
awards
Pension and OPEB, net
of tax of $2,521
Purchase of treasury
stock
Balance at December 31,
2016
The accompanying notes are an integral part of these consolidated financial statements.
47
CLEARWATER PAPER CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Basis of Presentation
Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, bleached
paperboard and pulp at manufacturing facilities across the nation. The company is a premier supplier of private label
tissue to major retailers and wholesale distributors, including grocery, drug, mass merchants and discount stores. In
addition, the company produces bleached paperboard used by quality-conscious printers and packaging converters,
and offers services that include custom sheeting, slitting and cutting. Clearwater Paper's employees build shareholder
value by developing strong customer relationships through quality and service.
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 February 17, 2014, we announced the permanent and immediate closure of our Long Island, New York, tissue
converting and distribution facility. We have incurred $23.2 million of costs associated with the closure, of which $1.9
million was incurred in 2016 primarily related to a facility lease that expires in 2017.
On December 30, 2014, we sold our specialty business and mills to a private buyer for $108 million in cash, net of sale
related expenses and adjustments. The specialty business and mills' production consisted predominantly of machine-
glazed tissue and also included parent rolls and other specialty tissue products such as absorbent materials and dark-
hued napkins. The sale included five of our former subsidiaries with facilities located at East Hartford, Connecticut;
Menominee, Michigan; Gouverneur, New York; St. Catharines, Ontario; and Wiggins, Mississippi.
On November 29, 2016, we announced the permanent closure of our Oklahoma City converting facility. The closure of
the Oklahoma City facility is planned for March 31, 2017. As of December 31, 2016, we have incurred $1.7 million of
costs associated with this announced closure.
Also on November 29, 2016, we announced the permanent shutdown of two tissue machines at our Neenah, Wisconsin,
tissue facility, effective in late-December 2016. As of December 31, 2016, we have incurred $1.0 million of costs related
to the shutdown of these machines.
On December 16, 2016, we acquired Manchester Industries, an independently-owned paperboard sales, sheeting and
distribution supplier to the packaging and commercial print industries for total consideration of $71.7 million. Manchester
Industries' customers extend our reach and service platform to small and mid-sized folding carton plants, offering a
range of converting services that include custom sheeting, slitting, and cutting. Manchester Industries operates five
strategically located converting facilities in Virginia, Pennsylvania, Indiana, Texas, and Michigan. Refer to Note 4,
"Business Combinations."
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 valuation 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.
48
CASH AND CASH EQUIVALENTS
We consider all highly liquid instruments with maturities of three months or less to be cash equivalents. As of December
31, 2016 and 2015, we had cash and cash equivalents of $23.0 million and $5.6 million, respectively, on our
Consolidated Balance Sheets.
SHORT-TERM INVESTMENTS AND RESTRICTED CASH
Our short-term investments are invested primarily in demand deposits, which have very short maturity periods, and
therefore earn an interest rate commensurate with low-risk instruments. We do not attempt to hedge our exposure to
interest rate risk for our short-term investments. Our restricted cash in which the underlying instrument has a term of
greater than twelve months from the balance sheet date is classified as non-current and is included in “Other assets,
net” on our Consolidated Balance Sheet. In the third quarter of 2016, an indemnity escrow account established in
connection with the December 2014 sale of our former specialty business and mills was settled, resulting in the release
of $2.3 million from a restricted cash escrow account, and as of December 31, 2016, we had no restricted cash
classified as current on our Consolidated Balance Sheet. As of December 31, 2015, we had $2.3 million of restricted
cash classified as current on our Consolidated Balance Sheet.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear
interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of
our customers to make required payments. We generally determine the allowance based on a combination of actual
historical write-off experience and an analysis of specific customer accounts. As of December 31, 2016 and 2015, we
had allowances for doubtful accounts of $1.5 million and $1.4 million, respectively. Bad debt expense, net, charged to
selling, general and administrative expenses during 2016, 2015 and 2014 was $0.7 million, $0.2 million, and $0.1
million, respectively. All other activity impacting the allowance for doubtful accounts was immaterial for all periods.
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.
We review the carrying value of our property, plant and equipment for impairment when events or changes in
circumstances indicate that the carrying amount of those assets may not be recoverable. An impairment of property,
plant and equipment exists when the carrying value is not considered to be recoverable through future undiscounted
cash flows from operations and the carrying value of the assets exceeds the estimated fair value.
During the first quarter of 2014, we permanently closed our Consumer Products segment's Long Island converting and
distribution facility, the Long Island Closure. As a result of this closure, we impaired certain plant and equipment. In
addition, as a result of the December 30, 2014, sale of our specialty business and mills, the Specialty Business Sale,
certain property, plant and equipment associated with the divested mills were written off and included in our loss on
divested assets. See Note 5, "Asset Divestiture" and Note 7, "Property, Plant and Equipment" for further discussion.
On November 29, 2016, we announced the permanent closure of our Oklahoma City converting facility. The closure of
the Oklahoma City facility is planned for March 31, 2017. As of December 31, 2016, we have incurred $1.7 million of
costs associated with this announced closure. These costs include $1.3 million in accelerated depreciation on certain
fixed assets. Also on November 29, 2016, we announced the permanent shutdown of two of the five tissue machines at
our Neenah, Wisconsin, tissue facility, effective late-December 2016.
INTANGIBLE ASSETS
We use estimates in determining and assigning the fair value of the 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 intangible assets for impairment annually and when
events or changes in circumstances indicate that the carrying amount may not be recoverable.
We recorded intangible assets as a result of our acquisition of Cellu Tissue Holdings, Inc., or Cellu Tissue, on December
27, 2010. We also recorded intangible assets as a result of our December 2012 acquisition of a wood chipping facility.
As a result of the Long Island Closure, we impaired certain intangible assets. In addition, during the fourth quarter of
2014 we determined that a customer relationship intangible asset related to our Pulp and Paperboard segment's wood
49
chipping facility was fully impaired. As a result of the Specialty Business Sale, certain intangible assets associated with
the divested mills were written off and included in our loss on divested assets. Finally, we recorded intangible assets as
a result of our December 2016 acquisition of Manchester Industries. See Note 4, "Business Combinations," Note 5,
"Asset Divestiture" and Note 8, "Goodwill and Intangible Assets" for further discussion.
GOODWILL
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. We use estimates in
determining and assigning the fair value of goodwill, including the amount and timing of related future cash flows and fair
values of the related operations. 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 the reporting
unit in which our goodwill is assigned exceeds the estimated fair value of that reporting unit, an impairment loss would
be recognized to the extent the carrying amount of the reporting unit exceeds its implied fair value.
We recorded $229.5 million of goodwill in connection with our acquisition of Cellu Tissue in December 2010. All of the
recorded goodwill was assigned to our Consumer Products segment and reporting unit. As a result of the Specialty
Business Sale, a portion of goodwill was allocated to the divested mills and included in our loss on divested assets. We
recorded $35.2 million of goodwill in connection with our acquisition of Manchester Industries. The goodwill from this
acquisition is included in our Pulp and Paperboard segment. See Note 4, "Business Combinations," Note 5, "Asset
Divestiture" and Note 8, "Goodwill and Intangible Assets" for further discussion. As of December 31, 2016 and 2015, we
had $244.3 million and $209.1 million of goodwill included on our Consolidated Balance Sheet.
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. Three critical assumptions are the discount rate applied to pension plan obligations, the rate of
return on plan assets and mortality rates. 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
income are the discount rate applied to benefit obligations, the assumed health care cost trend rates used in the
calculation of benefit obligations and mortality rates. 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.
Net 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, 2016 and 2015, 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.
50
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 net sales 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.
We had one customer in the Consumer Products segment, the Kroger Company, that accounted for approximately $232
million, or 13.4%, of our total company net sales in 2016 and approximately $215 million, or 12.3%, of our total company
net sales in 2015. In 2014, we did not have any single customer that accounted for 10% or more of our total net sales.
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 only for specific costs related to environmental matters 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 December 15, 2015, we announced that our Board of Directors had approved a stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of
our common stock from time to time through open market purchases, negotiated transactions or other means, including
accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other
restrictions. In 2016, we repurchased 1,355,946 shares of our outstanding common stock at an average price of $48.18
per share under this program.
On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program
authorizing the repurchase of up to $100 million of our common stock. We completed this program during the fourth
quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock at an average price of
$53.13 per share under this program.
On February 5, 2014, we announced that our Board of Directors had approved a stock repurchase program authorizing
the repurchase of up to $100 million of our common stock. We completed this program during the third quarter of 2014.
In total, we repurchased 1,574,748 shares of our outstanding common stock at an average price of $63.50 per share
under this program.
51
DERIVATIVES
We had no activity during the years ended December 31, 2016, 2015 and 2014 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, 2016, these contracts covered approximately 20% of the expected average monthly requirements for
2017, including approximately 28% of the expected average monthly requirements for the first quarter. For the years
ended December 31, 2016, 2015 and 2014, approximately 45%, 57%, and 58%, 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.
NOTE 3 Recently Adopted and Prospective Accounting Standards
In January 2017, the FASB issued Accounting Standard Update (ASU) 2017-04, Simplifying the Test for Goodwill
Impairment (Topic 350). This ASU eliminates step two of the impairment test, the performance of a hypothetical
purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference
between the carrying amount and the fair value of the reporting unit.This ASU will be effective for annual periods
beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for
goodwill impairment tests with measurement dates after January 1, 2017. We plan to adopt this standard as of January
1, 2017. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial
statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. This ASU clarifies the definition of a business and provides a screen to determine when an integrated set of
assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross
assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the
set is not a business. This ASU will be effective for annual periods beginning after December 15, 2017, and interim
periods within those fiscal years. We have adopted this standard as of January 1, 2017, with prospective application to
any business development transaction. This ASU did not impact our December 16, 2016 acquisition of Manchester
Industries.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which
provides amendments to current guidance to address the classification and presentation of changes in restricted
cash in the statement of cash flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present
and classify certain cash receipts and cash payments in the statement of cash flows. Both of these ASU's will be
effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. We
do not expect the adoption of these ASU's to have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than
Inventory. This ASU eliminates the exception for an intra-entity transfer of an asset other than inventory. Under the new
standard, entities should recognize the income tax consequences on an intra-entity transfer of an asset other than
inventory when the transfer occurs. This ASU will be effective for annual periods beginning after December 15, 2017,
and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material impact on
our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326),
which establishes guidance on the measurement and recognition of credit losses on most financial assets. For trade
receivables, loans, and held-to-maturity debt securities, the current probable loss recognition methodology is being
replaced by an expected credit loss model. The guidance will become effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. The guidance is consistent with our current
methodology for calculating the allowance on trade receivables, and therefore, we do not anticipate that the adoption of
this ASU will have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic
718). Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects
related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax
withholding requirements and classification on the statement of cash flows. This ASU requires excess tax benefits or
deficiencies for share-based payments to be recorded in the period shares vest or settle as income tax expense or
benefit, rather than within Additional paid-in capital. Cash flows related to excess tax benefits will be included in Net
cash provided by operating activities and will no longer be separately classified as a financing activity. This ASU also
allows us to withhold more of an employee’s shares for tax withholding purposes and provides an accounting policy
52
election to account for forfeitures as they occur. We have elected to continue to estimate forfeitures and are currently
evaluating the possibility of changing tax withholdings. This ASU is effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We will adopt ASU
2016-09 in the first quarter of 2017 and, believe the most significant impact of our adoption of ASU 2016-09 to our
consolidated financial statements will be to recognize in our provision for income taxes line on our Consolidated
Statement of Operations, instead of to consolidated equity, certain tax benefits or tax shortfalls upon a restricted stock
award vesting, performance share award settlement, or stock option exercise relative to the deferred tax asset position
established. We are unable to quantify the impact at this time to our provision for income taxes nor the corresponding
impact on earnings per share, however, in any given period the adoption may have a material impact on our provision
for income taxes and earnings per share. This adoption will also result in a classification change for excess tax benefits
or deficiencies in the Consolidated Statement of Cash Flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use
(ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with
terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the
pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is
required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. We have operating
leases covering office space, equipment, warehousing and converting facilities, land, and vehicles expiring at various
dates through 2028, which would require a right-of-use asset and a lease liability, initially measured at the present value
of the lease payments, to be recognized in the statement of financial position as well as additional leasing disclosures.
Lease costs would generally continue to be recognized on a straight-line basis. The future minimum payments required
under our operating leases totaled $44.4 million at December 31, 2016. We are continuing our assessment, which may
identify other impacts, and we are addressing necessary policy and process changes in preparation for adoption.
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory. This ASU applies
only to inventory for which costs is determined by methods other than last-in, first-out and the retail inventory method,
which includes inventory that is measured using first-in first-out or average cost. Inventory within the scope of this
standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. We adopted this ASU as of December 31, 2016, which did not have an impact on our financial position or
results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of
the new standard is for companies to recognize revenue in a manner that depicts the transfer of goods or services to
customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in
exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed comprehensively, such as service revenue and contract
modifications, and clarify guidance for multiple-element arrangements. This standard was originally issued as effective
for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption
prohibited. However, in July 2015, the FASB approved deferring the effective date by one year to December 15, 2017 for
annual reporting periods beginning after that date. In its approval, the FASB also permitted the early adoption of the
standard, but not before the original effective date of fiscal years beginning after December 15, 2016. The standard may
be applied under either a retrospective or cumulative effect adoption method. We plan on adopting the standard on the
deferred effective date under the cumulative effect adoption method. Additionally, the new guidance requires enhanced
disclosures, including revenue recognition policies to identify performance obligations to customers and significant
judgments in measurement and recognition. Based on our current assessment, we do not anticipate the adoption of this
standard will have a material impact on our consolidated financial statements. We continue to assess the standard's
impact on certain distribution channel arrangements, contracts pertaining to our December 16, 2016, acquisition of
Manchester Industries, and policy and procedure updates surrounding variable consideration offered to customers, but
do not anticipate these types of arrangements to have a material impact to the amount or timing of revenue recognition.
We anticipate enhancing our disclosures upon the adoption of this standard. We are continuing our assessment, which
may identify other impacts, and we are addressing necessary policy and process changes in preparation for adoption.
We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable
to our business.
53
NOTE 4 Business Combinations
On December 16, 2016, we acquired Manchester Industries for total consideration of $71.7 million. The purchase
price included a $67.5 million cash payment, after adjusting for a working capital closing adjustment of $0.7 million,
as well as $4.2 million in net liabilities effectively settled. The acquisition was financed with existing cash and
proceeds from our revolving credit facilities. The acquisition resulted in the recognition of $35.2 million of goodwill,
which is not deductible for tax purposes. Manchester's operations are included in our Pulp and Paperboard
segment.
Goodwill recorded in the acquisition of Manchester Industries is based on the preliminary purchase price allocation.
We are continuing to collect information to determine the fair values included in the purchase price which could
affect goodwill. We allocated the purchase price to the net assets of Manchester Industries acquired in the
acquisition based on our estimates of the fair value of assets and liabilities as follows:
(in thousands)
Current assets
Property, plant and equipment
Goodwill
Intangibles
Assets acquired
Current liabilities
Deferred tax liabilities
Liabilities assumed
Net assets acquired
Amount
22,046
6,967
35,196
25,472
89,681
5,403
12,613
18,016
71,665
$
$
We estimated the fair value of the assets and liabilities of Manchester Industries utilizing information available at the
time of acquisition. We considered outside third-party appraisals of the tangible and intangible assets to determine
the applicable fair market values.
All costs associated with advisory, legal and other due diligence-related services performed in connection with
acquisition-related activity are expensed as incurred. These costs were $2.7 million for 2016 and were recorded as
selling, general and administrative expenses on our Consolidated Statement of Operations.
No supplemental pro-forma information is presented for the acquisition due to the immaterial pro-forma effect of the
acquisition on our results of operations for all years presented.
NOTE 5 Asset Divestiture
Specialty Business and Mills Divestiture
On December 30, 2014, we sold our specialty business and mills, which includes our former Menominee, Michigan; St.
Catharines, Ontario; East Hartford, Connecticut; Gouverneur, New York; and Wiggins, Mississippi manufacturing,
converting and distribution sites from our Consumer Products reporting segment for net proceeds of approximately $108
million. We assessed the sale of our specialty business and mills under the relevant authoritative accounting guidance
related to discontinued operations reporting and concluded that this divestiture of assets did not qualify for discontinued
operations reporting as the divestiture did not constitute a disposal of a component of our Consumer Products reporting
segment. Furthermore, we concluded during our assessment that the sale of our specialty business and mills did not
represent either a strategic shift in the Consumer Products segment, nor did it represent a major impact on our
operations and financial results. Rather, consistent with our long-term corporate strategy, the sale of the specialty
business and mills was intended to sharpen our Consumer Products segment's focus on its core retail businesses by
investing net proceeds from the sale into capital projects within our Consumer Products segment.
54
In total, $40.2 million was recorded as "Loss on divested assets" and included as a component of operating income
within our Consolidated Statements of Operations, as well as a component of our Consumer Products segment's
operating income as disclosed in Note 20, “Segment Information.” Among other charges, the loss on divested assets
included a $20.4 million allocation of goodwill, which was originally recorded in connection with the Cellu Tissue
acquisition and was allocated to the sale of the specialty business and mills. Consistent with authoritative guidance, the
goodwill was allocated to our divested assets by estimating the fair value of the specialty business compared to the
estimated fair value of the Consumer Products reporting unit, which was then used to estimate the percentage of
goodwill to allocate to the sale of this business. In addition, "Loss on divested assets" within our Consolidated
Statements of Operations included a $4.9 million intangible asset write-off related to certain identifiable customer
relationship and trade name and trademark intangibles associated with the divested mills. Both the goodwill and
intangible asset charges are discussed further in Note 8, “Goodwill and Intangible Assets."
In total, $105.7 million of assets were sold, consisting primarily of $86.7 million of property, plant and equipment and
$18.0 million of inventory. As part of the sales transaction, we also agreed to certain brokerage and service
arrangements totaling approximately $6.0 million to be recognized over a five-year period. Furthermore, as a result of
this sale we recorded restricted cash balances totaling $3.8 million on our December 31, 2014 Consolidated Balance
Sheet, which included contingencies related to certain indemnity and working capital guarantees. During the second
quarter of 2015, the working capital escrow account established in connection with the sale of the specialty business
and mills was settled, resulting in the release of $1.5 million from the restricted cash escrow account and the recognition
of a corresponding gain recorded in "Gain (loss) on divested assets" within our Consolidated Statements of Operations.
During the third quarter of 2016, a $2.3 million indemnity escrow account established with the sale of the specialty
business and mills was settled, resulting in the release of the remaining $2.3 million from the restricted cash account
and the recognition of a net $1.8 million in "Gain (loss) on divested assets" within our Consolidated Statements of
Operations, which included the release of this escrow account less $0.5 million of other settlement related costs.
NOTE 6 Inventories
(In thousands)
Pulp, paperboard and tissue products
Materials and supplies
Logs, pulpwood, chips and sawdust
$
December 31,
2016
154,460 $
82,005
21,564
258,029 $
December 31,
2015
156,055
80,020
19,498
255,573
$
At December 31, 2016, our inventories are stated at the lower of net realizable value or current average cost using the
average cost method.
NOTE 7 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
December 31,
2016
December 31,
2015
328,251
47,844
40,051
7,266
103,429
$ 2,000,512 $ 1,879,890
320,808
46,843
34,903
7,266
88,964
$ 2,527,353 $ 2,378,674
(1,512,136)
866,538
945,328 $
(1,582,025)
$
The December 31, 2016 and 2015 buildings and improvements and machinery and equipment combined balances
include $24.4 million for each year associated with capital leases.
Depreciation expense, including amounts associated with capital leases, totaled $86.1 million, $79.8 million and $83.6
million in 2016, 2015 and 2014, respectively. For 2016 and 2015, we capitalized $2.3 million and $0.4 million,
55
respectively, of interest expense associated with the construction of a continuous pulp digester at our Lewiston, Idaho
pulp and paperboard mill. We did not capitalize any interest during 2014.
Consistent with authoritative guidance, we assess the carrying amount of long-lived assets with definite lives that are
held-for-use and evaluate them for recoverability whenever events or changes in circumstances indicate that we may be
unable to recover the carrying amount of the assets. As a result of the Long Island Closure, we considered an outside
third party's appraisal in assessing the recoverability of the facility's long-lived plant and equipment based on available
market data for comparable assets sold through private party transactions. Based on this assessment, we determined
the carrying amounts of certain long-lived plant and equipment related to the Long Island facility exceeded their fair
value. As a result, we recorded $3.8 million of non-cash impairment charges to our accompanying Consolidated
Statement of Operations in the year ended December 31, 2014. In addition, on December 30, 2014 we completed the
sale of our specialty business and mills, which included $86.7 million of net property, plant and equipment. This event
did not impact the recoverability of our remaining long-lived assets. For additional discussion regarding the sale of our
specialty business and mills, see Note 5, "Asset Divestiture."
On November 29, 2016, we announced the permanent closure of our Oklahoma City converting facility, effective March
31, 2017, and the permanent shutdown of two of the five tissue machines at our Neenah, Wisconsin, tissue facility,
effective late-December 2016. As a result of the planned Oklahoma City converting facility closure, we recorded
accelerated depreciation of $1.3 million on certain Oklahoma City facility assets in the fourth quarter of 2016. There
were no other such events or changes in circumstances that impacted our remaining long-lived assets.
NOTE 8 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, goodwill associated with the Cellu Tissue acquisition was measured at the Consumer Products
reporting unit level, which is the same as the Consumer Products reportable operating segment (see Note 20, "Segment
Information"). As of December 31, 2016, we had goodwill of $244.3 million recorded on our Consolidated Balance
Sheet, which includes $35.2 million related to our acquisition of Manchester Industries, as discussed in Note 4,
"Business Combinations" and is included in our Pulp and Paperboard segment. In addition, we recorded $25.5 million
of intangible assets related to the Manchester acquisition.
As of November 1, 2016 and 2015, 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, 2016 and 2015.
On December 30, 2014, we sold our Consumer Products reporting unit's specialty business and mills. We considered
the sale to be highly probable during our 2014 annual goodwill review and as such included its impact in estimating the
fair value of the Consumer Products reporting unit, concluding that this event did not require additional impairment
testing. However, consistent with authoritative guidance we allocated a portion of our goodwill to the specialty business
and mills sold. As a result, we assigned $20.4 million of goodwill to the specialty business sale, which was originally
recorded in connection with the Cellu Tissue acquisition and was allocated to the sale of the specialty mills business. In
addition, certain of our customer relationships and trade name and trademarks intangible assets were associated with
our divested specialty business and mills, and as a result we recorded a $4.9 million write-off of these assets. These
charges are included in "Gain (loss) on divested assets" within our accompanying Consolidated Statement of
Operations. For additional discussion regarding the sale of our specialty business and mills, see Note 5, "Asset
Divestiture."
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
56
over their useful lives, which have historically ranged from 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.
As a result of the Long Island closure, we performed an assessment of the recoverability of our intangible assets
associated with this facility. It was determined that the carrying amounts of certain trade names and trademarks related
to the Long Island facility were exceeding their fair value. As a result, we recorded a $1.3 million non-cash impairment
charge in our accompanying Consolidated Statement of Operations for the year ended December 31, 2014. Fully
amortized non-compete agreements related to the Long Island facility were also disposed of during the facility closure.
During the fourth quarter of 2014, we evaluated the recoverability of our remaining intangible assets under the income
approach and noted that a customer relationship intangible asset relating to our Pulp and Paperboard segment's wood
chipping facility was fully impaired. As a result, we recorded an additional non-cash impairment charge of $3.1 million in
our accompanying Consolidated Statement of Operations.
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, 2016 and 2015. 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)
Weighted Average
Useful Life
Historical
Cost
Accumulated
Amortization
Net
Balance
December 31, 2016
Customer relationships
Trade names and trademarks
Non-compete agreements
Other intangibles
Total intangible assets
9.3 $
7.4
5.0
6.0
$
62,401 $
6,786
574
572
70,333 $
(27,364 ) $
(1,972 )
(512 )
—
(29,848 ) $
35,037
4,814
62
572
40,485
(Dollars in thousands, lives in years)
Customer relationships
Trade names and trademarks
Non-compete agreements
Total intangible assets
Weighted Average
Useful Life
Historical
Cost
Accumulated
Amortization
Net
Balance
December 31, 2015
9.0 $
10.0
5.0
$
41,001 $
3,286
574
44,861 $
(22,778 ) $
(1,643 )
(450 )
(24,871 ) $
18,223
1,643
124
19,990
As of December 31, 2016, estimated future amortization expense related to intangible assets is as follows (in
thousands):
Years ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Amount
7,970
7,798
7,798
3,243
2,914
10,762
40,485
$
$
57
NOTE 9 Income Taxes
Earnings before income taxes is comprised of the following amounts in each tax jurisdiction:
(In thousands)
United States
Canada
Earnings before income taxes
The income tax provision is comprised of the following:
(In thousands)
Current
Federal
State
Foreign
Total current
Deferred
Federal
State
Total deferred
Income tax provision
2016
2015
2014
80,666 $
—
80,666 $
92,488 $
—
92,488 $
16,253
(12)
16,241
2016
2015
2014
7,434 $
5,351
—
12,785
15,573
2,754
18,327
31,112 $
15,579 $
4,855
(10)
20,424
13,006
3,075
16,081
36,505 $
2,355
1,872
516
4,743
11,432
2,381
13,813
18,556
$
$
$
$
The income tax provision or benefit differs from the amount 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
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
Loss on divested assets
State attribute true up
New York state attribute true up
Change in valuation allowances
Other, net
Income tax provision
Effective tax rate
$
$
2016
28,233
3,966
606
(921 )
(2,850 )
(1,022 )
2,191
—
—
—
550
359
31,112
$
$
2015
32,371
4,175
104
1,146
4,010
(1,873 )
(1,020 )
—
1,167
—
(3,986 )
411
36,505
2014
5,685
1,543
1,546
(1,039)
(485)
(674)
355
10,554
(2,874)
1,654
2,346
(55)
18,556
$
$
38.6 %
39.5 %
114.3%
During 2016 and 2015, the valuation allowance for deferred tax assets changed by $0.6 million and $4.0 million,
respectively. The change in 2015 was primarily driven by certain state credits and losses.
Our provision for income taxes for 2014 was unfavorably impacted primarily by a non-recurring tax provision of 65.0%
related to losses on divested assets recorded in our Consolidated Statement of Operations that did not have a
corresponding tax benefit. Additionally, the rate was unfavorably impacted by changes in valuation allowances of 14.4%.
58
During the year ended December 31, 2014, we recorded discrete expense for a reduction in our blended state tax rate
as well as adjustments to New York state specific deferred items. These changes were due to amendments we made to
our New York state return filings as a result of changes in New York state tax laws. In reviewing the changes in the tax
laws, we identified that, in prior years, we had not applied the proper apportionment factor when certain New York state
net operating loss carryforwards were generated, which resulted in a $2.9 million overstatement. We corrected this in
the second quarter of 2014 by including the overstatement as a discrete item within state rate adjustments due to
immateriality.
The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:
(In thousands)
Deferred tax assets:
Employee benefits
Postretirement employee benefits
Incentive compensation
Inventories
Pensions
Federal and state credit carryforwards
State net operating losses
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Plant and equipment
Intangible assets
Total deferred tax liabilities
Net deferred tax liabilities
Net deferred tax assets (liabilities) consist of:
(In thousands)
Non-current deferred tax assets1
Non-current deferred tax liabilities
Net non-current deferred tax liabilities
Net deferred tax liabilities
2016
2015
6,255 $
27,370
11,356
8,859
8,338
8,369
1,462
3,774
75,783 $
(4,407)
71,376 $
8,611
28,125
8,334
7,557
10,460
16,154
1,578
6,220
87,039
(11,983)
75,056
(206,502) $
(14,136)
(220,638)
(149,262) $
(186,203)
(4,656)
(190,859)
(115,803)
2016
2,910
(152,172)
(149,262)
(149,262) $
2015
2,315
(118,118)
(115,803)
(115,803)
$
$
$
$
$
$
1
Included in "Other assets, net" on our accompanying December 31, 2016 and 2015 Consolidated Balance Sheets.
During the year ended December 31, 2016, we recognized a $0.3 million increase to additional paid-in capital from
excess tax benefits relating to the payout of stock-based compensation.
We have net credits and losses associated with state jurisdictions totaling $5.4 million which expire between 2017
and 2033.
During 2016, the valuation allowance for deferred tax assets decreased by $7.6 million, primarily due to expiration
of credits upon which we had previously recognized a valuation allowance. During 2015, the valuation allowance for
deferred tax assets decreased by $4.0 million.
59
The following presents a roll forward of our unrecognized tax benefits and associated interest and penalties, $2.4
million of which is included in the Accrued taxes line item in non-current liabilities in our Consolidated Balance
Sheets. We also reflect $0.6 million in current liabilities. The remaining $2.1 million consists of unrecorded
receivables and certain tax attributes that are uncertain.
(In thousands)
Gross
Unrecognized
Tax Benefits,
Excluding
Interest and
Penalties
Interest
and
Penalties
Balance at January 1, 2015
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
$
Balance at December 31, 2015
Increase in prior year tax positions
Reductions as a result of a lapse of the applicable statute of limitations
Increase in current year tax positions
$
Balance at December 31, 2016
$
2,406 $
2,479
226
(884 )
4,227 $
619
(234 )
291
4,903 $
Total Gross
Unrecognized
Tax Benefits
2,696
2,524
226
(998)
4,448
655
(254)
291
5,140
290 $
45
—
(114 )
221 $
36
(20 )
—
237 $
Unrecognized tax benefits net of related deferred tax assets at December 31, 2016, if recognized, would favorably
impact our effective tax rate by decreasing our tax provision by $5.1 million. For each of the years ended December 31,
2015 and 2014, if recognized, the balance of unrecognized tax benefits would favorably impact our effective tax rate by
$4.4 million and $2.7 million, respectively. We reflect accrued interest related to tax obligations, as well as penalties, in
our provision for income taxes. For the years ended December 31, 2016, 2015, and 2014, we accrued interest of
approximately $0.1 million each year in our income tax provision. We recorded no penalties in the years ended
December 31, 2016, 2015, and 2014.
The company has certain state benefits related to filing positions taken which have not been recognized on the balance
sheet. Although the uncertain tax position was not reflected in the balance sheet as a recorded liability, it is disclosed in
the tabular roll forward for unrecognized tax benefits.
We have operations in many states within the U.S. and are subject, at times, to tax audits in these jurisdictions. With a
few exceptions, we are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax
authorities for years prior to 2013. We expect that the outcome of any examination will not have a material effect on our
consolidated financial statements. Although the timing of resolution of audits is not certain, we evaluate all audit issues
in the aggregate, along with the expiration of applicable statutes of limitations, and estimate that it is reasonably possible
the total gross unrecognized tax benefits could decrease by approximately $0.4 million within the next 12 months.
NOTE 10 Accounts Payable and Accrued Liabilities
(In thousands)
Trade accounts payable
Accrued wages, salaries and employee benefits
Accrued interest
Accrued discounts and allowances
Accrued taxes other than income taxes payable
Accrued utilities
Other
60
$
December 31,
2016
128,106 $
49,871
12,149
10,291
6,946
6,712
9,624
223,699 $
December 31,
2015
128,045
43,997
11,981
8,954
5,112
7,536
14,743
220,368
$
NOTE 11 Debt
$300 MILLION SENIOR NOTES DUE 2025
On July 29, 2014 we issued $300 million aggregate principal amount of senior notes, which we refer to as the 2014
Notes. The 2014 Notes mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face
value. The issuance of these notes generated net proceeds of approximately $298 million after deducting offering
expenses. We redeemed our entire $375 million aggregate principal amount of senior notes issued on October 22,
2010, which we refer to as the 2010 Notes, using the net proceeds from the 2014 Notes along with company funds and
a $37 million draw from our senior secured revolving credit facility during the third quarter of 2014.
The 2010 Notes had a maturity date of November 1, 2018, and an interest rate of 7.125%. On August 28, 2014, we
redeemed all of the 2010 Notes at a redemption price equal to 100% of the principal amount of $375 million and a
“make whole” premium of $17.6 million plus accrued and unpaid interest of $8.7 million, for an aggregate amount of
$401.3 million. The make whole premium and a portion of the unpaid interest, as well as a $4.6 million non-cash charge
relating to the unamortized deferred issuance costs associated with the 2010 Notes, were recorded as components of
"Debt retirement costs" and included in our Consolidated Statement of Operations.
The 2014 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2014 Notes will also be
guaranteed by each of our future direct and indirect domestic subsidiaries that do not constitute an immaterial subsidiary
under the indenture governing the 2014 Notes. The 2014 Notes are equal in right of payment with all other existing and
future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. The
2014 Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings
under our secured revolving credit facilities, which are secured by certain of our accounts receivable, inventory and
cash. The terms of the 2014 Notes limit our ability and the ability of any restricted subsidiaries to incur certain liens,
engage in sale and leaseback transactions and consolidate, merge with, or convey, transfer or lease substantially all of
our or their assets to another person.
We may, on any one or more occasions, redeem all or a part of the 2014 Notes, upon not less than 30 days nor more
than 60 days' notice, at a redemption price equal to 100% of the principal amount of the 2014 Notes redeemed, plus the
applicable premium as of, and accrued and unpaid interest, if any, to the date of redemption. Unless we default in the
payment of the redemption price, interest will cease to accrue on the 2014 Notes or portions thereof called for
redemption on the applicable redemption date. In addition, we may be required to make an offer to purchase the 2014
Notes upon the sale of certain assets and upon a change of control.
$275 MILLION SENIOR NOTES DUE 2023
On February 22, 2013, we exercised the option to redeem our 10.625% senior Notes due in 2016 at a redemption price
equal to approximately $166 million. Proceeds to fund the redemption of these 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.
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 facilities, which are 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.
At any time prior to February 1, 2018, we may on any one or more occasions redeem all or a part of the 2013 Notes,
upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount, plus
the applicable premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption. 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.
61
REVOLVING CREDIT FACILITIES
On October 31, 2016, we terminated and paid in full all outstanding amounts under our $125 million senior secured
revolving credit facility and replaced that facility with two new senior secured revolving credit facilities. The new senior
secured revolving credit facilities provide in the aggregate, on a combined basis, for the extension of up to $300 million
in revolving loans under: (i) a $200 million credit agreement with Wells Fargo Bank, National Association, as
administrative agent, and the lenders party thereto (the “Commercial Credit Agreement”); and (ii) a $100 million credit
agreement with Northwest Farm Credit Services, PCA, as administrative agent, and the lenders party thereto (the “Farm
Credit Agreement”). We refer to both of these credit agreements collectively as the “Credit Agreements.” The revolving
credit facilities provided under the Credit Agreements mature on October 31, 2021.
Revolving Loans borrowed under the Commercial Credit Agreement bear interest, at our option, at a LIBOR rate or at a
base rate, plus an applicable margin, which for LIBOR rate loans may range from 1.25% per annum to 2.00% per
annum, based on the Company’s consolidated total leverage ratio. The applicable margin for base rate loans under the
Commercial Credit Agreement is 1.00% per annum less than for LIBOR rate loans. Revolving Loans borrowed under
the Farm Credit Agreement are calculated in substantially the same manner as under the Commercial Credit
Agreement, however, the applicable margin under the Farm Credit Agreement is 0.25% per annum higher than the
Commercial Credit Agreement, and the prime rate used in the calculation of base rate loans is based upon the prime
rate published by the Wall Street Journal. In addition, under the Farm Credit Agreement, we have the option to elect
fixed rate periods of interest which bear interest at an applicable margin equal to the LIBOR rate. We also pay
commitment fees on the unused portion of the revolving loan commitments under the Credit Agreements, which range
from 0.20% per annum to 0.35% per annum.
The Credit Agreements are secured by substantially all of the personal property of the Company and its domestic
subsidiaries through separate liens granted under each Credit Agreement for the benefit of each secured party
thereunder on an equal and ratable basis. The Company’s obligations under the Credit Agreements are guaranteed by
the Company’s domestic subsidiaries.
The Credit Agreements contain various loan covenants that restrict the ability of the Company and its subsidiaries to
take certain actions, including, incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of
assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with
affiliates or changing the nature of their business. In addition, the Credit Agreements contain financial covenants which
require the Company to maintain a consolidated total leverage ratio in an amount not to exceed 4.00 to 1.00 (subject to
certain exceptions with respect to acquisitions in excess of an agreed threshold amount) and a consolidated interest
coverage ratio in an amount not less than 2.25 to 1.00.
Each Credit Agreement also contains customary events of default, including failure to make payments under such Credit
Agreement, breach of any representation or warranty or covenant under such Credit Agreement, default under or
acceleration of other indebtedness for borrowed money in excess of an agreed amount, any change in control of the
Company based upon a third party acquiring more than 35% of the equity interests of the Company, bankruptcy events,
invalidity of such credit agreement, the incurrence of certain liabilities, termination events or withdrawals from specified
benefit plans, and unpaid or uninsured judgments in excess of an agreed amount.
As of December 31, 2016, there were $135 million of borrowings outstanding under the Credit Agreements and we were
in compliance with the covenants contained in the Credit Agreements. The borrowings outstanding under the Credit
Agreements as of December 31, 2016, consisted of short-term base and LIBOR rate loans and are classified as current
liabilities in our Consolidated Balance Sheet.
NOTE 12 Other Long-Term Obligations
(In thousands)
Long-term lease obligations, net of current portion
Deferred compensation
Deferred proceeds
Other
62
$
December 31,
2016
23,152 $
7,219
9,013
2,392
41,776 $
December 31,
2015
24,054
10,755
9,386
2,543
46,738
$
NOTE 13 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss at the balance sheet dates is comprised of the following:
(In thousands)
Balance at December 31, 2014
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income, net of tax1
Balance at December 31, 2015
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss2
Other comprehensive income, net of tax1
Balance at December 31, 2016
Pension and Other Post
Retirement Employee
Benefit Plan
Adjustments
$
$
$
(70,863)
6,371
8,944
15,315
(55,548)
1,300
2,495
3,795
(51,753)
1 For the year ended December 31, 2016, net periodic costs associated with our pension and other postretirement employee benefit, or OPEB,
plans included in other comprehensive loss and reclassified from accumulated other comprehensive loss, or AOCL, included $0.6 million of net
gain on plan assets, $3.9 million of actuarial loss amortization, and $1.7 million of prior service credit amortization, less total tax of $1.2 million.
For the year ended December 31, 2015, net periodic costs associated with our pension and OPEB plans included in other comprehensive
income and reclassified from AOCL included $14.8 million of net gain on plan assets, $12.6 million of actuarial loss amortization, and $2.1 million
of prior service credit amortization, less total tax of $10.0 million. These accumulated other comprehensive loss components are included in the
computation of net periodic pension and OPEB costs in Note 14, “Savings, Pension and Other Postretirement Employee Benefit Plans.”
2
Included in "Amounts reclassified from accumulated other comprehensive loss" above for the twelve months ended December 31, 2016 is
settlement expense of $3.5 million associated with the remeasurement of our salaried pension plan, which is discussed further in Note 14,
“Savings, Pension and Other Postretirement Employee Benefit Plans.” The settlement expense is net of tax totaling $1.4 million.
NOTE 14 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 both 2016 and 2015 we made 401(k) contributions on behalf of employees of$16.9 million, and in 2014
we made contributions of $17.4 million.
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 2016, we announced a voluntary, limited-time opportunity for
former employees who are vested participants in certain of our qualified pension plans to request early payment of their
entire pension plan benefit in the form of a single lump sum payment. The amount of total payments under this program
totaled approximately $10.6 million for salaried employees and $4.8 million for hourly employees and were made from
the applicable plan's trust assets during the third quarter of 2016. Based on the level of payments made, settlement
accounting rules applied to our salaried pension plan and resulted in a remeasurement of that plan as of August 31,
2016 and the recognition of $3.5 million in settlement expense.
Company-Sponsored OPEB Plans
We also provide retiree health care and life insurance plans, which cover certain salaried and hourly employees. Retiree
health care benefits for Medicare eligible participants over the age of 65 are provided through Health Reimbursement
Accounts, or HRA's. Benefits for retirees under the age of 65 are provided under our company-sponsored health care
plans, which require retiree contributions and contain other cost-sharing features. The retiree life insurance plans are
primarily noncontributory.
63
Funded Status of Company-Sponsored Plans
As required by current standards governing the accounting for defined benefit pension and other postretirement benefit
plans, we recognized the funded status of our company-sponsored plans on our Consolidated Balance Sheets at
December 31, 2016 and 2015. 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 settlements
Actuarial losses (gains)
Benefits paid
Benefit obligation at end of year
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan settlements
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2016
318,444 $
1,562
14,072
(10,629 )
6,225
(25,286 )
304,388
294,076
27,056
421
(10,629 )
(25,286 )
285,638
(18,750 ) $
2015
338,001 $
1,244
13,931
—
(15,295 )
(19,437 )
318,444
321,055
(11,120 )
3,578
—
(19,437 )
294,076
(24,368 ) $
$
$
2016
71,672 $
249
3,075
—
816
(6,649 )
69,163
20
—
—
—
—
20
(69,143 ) $
2015
104,715
363
3,881
—
(30,701)
(6,586)
71,672
20
—
—
—
—
20
(71,652 )
The December 31, 2016 pension funded status was affected by favorable asset returns, partially offset by a decrease in
the discount rate. The December 31, 2016 OPEB benefit obligation decreased slightly primarily driven by changes in the
assumed health care cost trend rate and census changes, partially offset by a decrease in the discount rate. The
December 31, 2015 OPEB benefit obligation was favorably impacted by changes in the assumed health care cost trend
rate, as well as an increase in the discount rate.
Amounts recognized in the Consolidated Balance Sheets:
(In thousands)
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognized
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2016
2015
2016
$
$
1,740 $
(397 )
(20,093 )
(18,750 ) $
596 $
(414 )
(24,550 )
(24,368 ) $
— $
(7,424 )
(61,719 )
(69,143 ) $
2015
—
(7,145)
(64,507)
(71,652 )
Pre-tax amounts recognized 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
2016
117,640 $
2015
134,031 $
8
30
117,648 $
134,061 $
2016
(20,906 ) $
(3,211 )
(24,117 ) $
2015
(29,290 )
(4,923)
(34,213 )
$
$
64
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
2016
2015
$ 170,716 $ 181,744
181,744
156,780
170,716
150,226
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:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial loss (gain)
Settlement
Net periodic cost
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
$
2016
1,562 $
14,072
(19,389 )
22
11,463
3,482
$ 11,212 $
2015
1,244 $
13,931
(20,117 )
73
12,619
—
7,750 $
2014
1,390 $
14,825
(20,196 )
205
10,097
—
6,321 $
2016
2015
2014
249 $
3,075
(1 )
(1,712 )
(7,566 )
—
(5,955 ) $
363 $
3,881
(1 )
(2,178 )
—
—
2,065 $
454
4,565
—
(2,179 )
(286 )
—
2,554
Other amounts recognized in Other Comprehensive Income (Loss):
(In thousands)
Net (gain) loss
Prior service credit
$
Amortization of prior service (cost) credit
Amortization of actuarial (loss) gain
Settlement
Total recognized in other comprehensive
(income) loss
Total recognized in net periodic cost and
other comprehensive (income) loss
Pension Benefit Plans
2014
2015
2016
(1,445 ) $ 15,942 $ 31,587 $
—
(73 )
(12,619 )
—
—
(205 )
(10,097 )
—
—
(22 )
(11,463 )
(3,482 )
Other Postretirement
Employee Benefit Plans
2016
2015
818 $ (30,700 ) $
—
1,712
7,566
—
—
2,178
—
—
2014
7,039
(8,384 )
2,179
286
—
$ (16,412 ) $
3,250
$ 21,285
$ 10,096
$ (28,522 ) $
1,120
$
(5,200 ) $ 11,000
$ 27,606
$
4,141
$ (26,457 ) $
3,674
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 $10.1 million and less
than $0.1 million, respectively. The estimated net gain and 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 are $5.9 million and
$1.5 million respectively.
During 2016, $3.0 million of net periodic pension and OPEB costs were charged to "Cost of sales," and $2.3 million
were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of
Operations, as compared to $6.8 million and $3.0 million, respectively, during 2015.
Weighted average assumptions used to determine the benefit obligation as of December 31 were:
Discount rate
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2016
4.45 %
2015
4.70 %
2014
4.25 %
2016
4.30 %
2015
4.50 %
2014
4.15 %
65
Weighted average assumptions used to determine the net periodic cost for the years ended December 31 were:
Discount rate
Expected return on plan assets
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2016
4.70 %
6.75
2015
4.25 %
7.00
2014
5.20 %
7.50
2016
4.50 %
—
2015
4.15 %
—
2014
5.05%
—
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 2016 OPEB income was 7.80% in 2016, grading to 4.30%
over approximately 70 years. The health care cost trend rate used to calculate December 31, 2016 OPEB obligations
was 7.10% in 2017, grading to 4.30% over approximately 70 years, for participants whose benefits are not provided
through HRAs, and 2.50% annually for participants whose benefits are provided through HRAs. 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
1% Decrease
220 $
4,393
(192)
(3,838)
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.
As of December 31, 2014, the Master Trust no longer has a securities lending agreement.
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:
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:
(cid:402)
(cid:402)
(cid:402)
(cid:402)
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.
66
There have been no changes in the methodologies used during 2016 and 2015. In 2014, a majority of our investments
were transferred into a common and collective trust. Investments in common and collective trust funds, hedge funds and
liquidating trusts that maintain investments in mortgage-backed securities are generally valued based on their respective
net asset value, or NAV, (or its equivalent), as a practical expedient to estimate fair value due to the absence of a readily
determinable fair value. Investments that may be fully redeemed at NAV in the near-term are disclosed in the table
below as "Investments measured at net asset value" in accordance with ASU 2015-07, Fair Value Measurement (Topic
820).
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:
(In thousands)
Cash and cash equivalents
Common and collective trust:
Collective investment funds
Total investments at fair value
(In thousands)
Cash and cash equivalents
Common and collective trusts:
Collective investment funds
Total investments at fair value
December 31, 2016
Investments
measured at net
asset value
Total
— $
2,002
283,636
283,636 $
283,636
285,638
Level 1
2,002 $
—
2,002 $
December 31, 2015
Investments
measured at net
asset value
Total
— $
2,004
292,072
292,072 $
292,072
294,076
Level 1
2,004 $
—
2,004 $
$
$
$
$
Our OPEB plan had $20,000 held in cash and cash equivalents at December 31, 2016 and 2015 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 guidelines for specific categories of equity and fixed income 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.
67
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, avoid the risk of large losses and also attempt to preserve the funded status of the plans. Major steps taken
to provide this protection included:
(cid:402) 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
14%-22%
13%-22%
50%-70%
0%-5%
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.
(cid:402) Assets were managed by professional investment managers and could be invested in separately managed
accounts or commingled funds.
(cid:402) Assets were not invested in securities rated below BBB- by S&P or Baa3 by Moody’s.
The investment guidelines also require that the individual investment managers are expected to achieve a reasonable
rate of return over a market cycle. Emphasis is placed on long-term performance versus short-term market aberrations.
Factors considered in determining reasonable rates of return include 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.
As of December 31, 2016, nine 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.
In 2016, we did not make any contributions to our qualified pension plans, and we do not anticipate making any cash
contributions to those plans in 2017. We also contributed $0.4 million to our non-qualified pension plan in 2016. We do
not anticipate funding our OPEB plans in 2017 except to pay benefit costs as incurred during the year by plan
participants.
Estimated future benefit payments are as follows for the years indicated:
(In thousands)
2017
2018
2019
2020
2021
2022-2026
Pension Benefit
Plans
Other
Postretirement
Employee
Benefit Plans
7,444
7,421
6,954
6,562
5,435
20,372
19,614 $
19,808
20,103
20,143
20,131
100,433
$
68
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 NPF. 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:
(cid:402) Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of
(cid:402)
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. In 2013, two large employers withdrew from PIUMPF and in 2015, the
largest employer in PIUMPF also withdrew. Further withdrawals by contributing employers could cause a “mass
withdrawal” from, or effectively a termination of, PIUMPF or alternatively we could elect to withdraw.
(cid:402) 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, 2015 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 2016
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, 2016, 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 2016 and 2015 is for a plan’s year-end as of
December 31, 2016 and December 31, 2015, respectively. The zone status is set under the provisions of the
Multiemployer Pension Plan Reform Act of 2014 and is based on information we received from the plans and is certified
by each plan's 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 Funding 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 NPF plan increased to $4.00 per hour, up from $3.25 per hour in 2012. In
2016, the contribution rates for PIUMPF were increased to $2.79 per hour, up from $2.67per hour in 2015, as part of the
RP to assist the fund's financial status. In 2011, contribution rates for PIUMPF were increased as part of the RP in lieu of
the legally required surcharge, paid by the employers, to assist the fund’s financial status. We were listed in PIUMPF’s
Form 5500 report as providing more than five percent of the total contributions for the years 2015 and 2014. At the date
of issuance of our consolidated financial statements, Form 5500 reports for these plans were not available for the 2016
plan year.
PPA Zone
Status1
Contributions
(in thousands)
Pension
Fund
EIN
Plan
Number
IAM NPF 51-6031295
PIUMPF 11-6166763
002
001
2016 2015
Green Green
Red Red
FIP/RP Status Pen
ding/
Implemented
N/A
Implemented
2016
2015
2014
$
335 $
329 $
5,679
5,631
343
5,665
Surcharge
Imposed
No
No
Total Contributions: $ 6,014 $ 5,960 $ 6,008
Expiration
Date
of Collective
Bargaining
Agreement
5/31/2018
8/31/2017
1
PIUMPF has been certified as in "Critical and Declining Status" for 2016 and 2015, under the provisions of the Multiemployer Pension Plan
Reform Act of 2014.
69
NOTE 15 Earnings Per Share
Basic earnings (loss) per share are based on the weighted average number of shares of common stock outstanding.
Diluted earnings per share are based upon the weighted average number of shares of common stock outstanding plus
all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period
under the treasury stock method. This method requires that the effect of potentially dilutive common stock equivalents
be excluded from the calculation of diluted earnings per share for the periods in which net losses are reported because
the effect is anti-dilutive. For the year ended December 31, 2014, our incremental shares related to restricted stock
units, performance shares, and stock options excluded 566,041 shares from our earnings per share calculation due to
their anti-dilutive effect as a result of our net loss during the period.
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
Stock options
Diluted average common shares outstanding
Basic net earnings (loss) per common share
Diluted net earnings (loss) per common share
Anti-dilutive shares excluded from calculation
2016
2015
17,000,599 18,762,451 20,129,557
2014
21,668
76,525
7,648
33,128
24,717
—
—
—
—
17,106,440 18,820,296 20,129,557
$
(0.11 )
(0.11)
566,041
2.98 $
2.97
331,168
2.91 $
2.90
220,037
1
Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance. See Note
16, "Equity-Based Compensation Plans" for further discussion.
NOTE 16 Equity-Based Compensation Plans
The Clearwater Paper Corporation Amended and Restated 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, and was amended and restated
effective as of January 1, 2015. Under the Stock Plan, as amended and restated, 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, 2016, approximately 1.6 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, performance shares and stock options, based on estimated fair values and net of estimates
of future forfeitures. The 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,
performance shares, and stock options.
70
Employee equity-based compensation expense was recognized as follows:
(In thousands)
Restricted stock units
Performance shares
Stock options
Total employee equity-based compensation
Related tax benefit
RESTRICTED STOCK UNITS
2016
2015
2014
1,381 $
3,311
2,913
7,605 $
2,767 $
2,116 $
4,408
2,106
8,630 $
3,193 $
1,966
4,964
1,254
8,184
2,955
$
$
$
RSUs granted under our Stock Plan are generally subject to a vesting period of one to three years, with generally the
same service period. 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.
A summary of the status of outstanding unvested RSU awards as of December 31, 2016, 2015, and 2014, 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)
2016
2015
2014
Weighted
Average
Grant Date
Fair Value
Shares
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
46,029 $
44,627
(29,338 )
(6,858 )
60.17
39.10
55.16
47.80
93,254 $
23,148
(65,217 )
(5,156 )
47.95
62.02
43.86
58.58
102,658 $
31,567
(32,117 )
(8,854 )
39.85
66.33
38.94
52.28
54,460
47.16
46,029
60.17
93,254
47.95
$
3,570
$
2,096
$
6,393
During 2016, 45,143 RSU shares were distributed. Of these shares, 19,196 were RSU shares that were settled and
distributed in the fourth quarter of 2016. Another 1,697 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 30,093 shares were issued during
2016. The minimum tax withholdings payment made in 2016 in connection with issued shares was $0.9 million.
During 2015, 61,592 RSU shares were settled and distributed in the fourth quarter. After adjusting for minimum tax
withholdings and deferred shares, a net 39,120 shares were issued during 2015. The minimum tax withholdings
payment made in 2015 in connection with issued shares was $1.1 million.
As of December 31, 2016 a total of 35,438 shares remain deferred under Internal Revenue Code section 162(m).
The fair value of each RSU share award granted during 2016 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 2016 was $1.6 million.
As of December 31, 2016, there was $1.4 million of total unrecognized compensation cost related to outstanding RSU
awards. The cost is expected to be recognized over a weighted average period of 1.6 years.
71
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. For 2016 and prior years, the performance measure used was a comparison of
the percentile ranking of our total stockholder return compared to the total stockholder return performance of a selected
peer group or index. 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.
The fair value of performance share awards is estimated using a Monte Carlo simulation model. For performance shares
granted in 2016, the following assumptions were used in our Monte Carlo model:
Closing price of stock on date of grant
Risk free rate
Measurement period
Volatility
$
38.75
0.83%
3 years
31%
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, 2016, 2015, and 2014, 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)
2016
2015
2014
Weighted
Average
Grant Date
Fair Value
Shares
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
$
92,563
93,397
—
(10,277 )
84.18
39.70
—
54.55
$
300,864
47,513
(245,525 )
(10,289 )
59.77
62.05
50.43
73.61
$
259,841
54,379
—
(13,356 )
50.87
105.08
—
71.03
175,683
62.26
92,563
84.18
300,864
59.77
$
11,516
$
4,214
$
20,624
On December 31, 2016, the performance period for performance shares granted in 2014 ended. Those performance
shares will be settled and distributed, subject to approval of the Board of Directors' Compensation Committee, at a
range of 0%-200% of shares granted, in the first quarter of 2017.
On December 31, 2015, the three-year performance period for 107,750 performance shares granted in 2013 ended. The
requisite market condition performance measure was not met, and as such no shares were paid or issued under those
awards.
As of December 31, 2016, there was $3.1 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.
72
STOCK OPTIONS
Beginning in 2014, stock options were granted to certain employees under our Stock Plan. The stock options are
generally subject to a vesting period of one to three years, with generally the same service period. Upon vesting, the
holder is entitled to purchase a specified number of shares of Clearwater Paper common stock at a price per share
equal to the closing market price of Clearwater Paper common stock on the date of grant. The options are exercisable
for 10 years from the date of grant.
Stock options granted under our Stock Plan do not represent common stock, and therefore the holders do not have
voting rights unless and until shares have been issued to the employee.
The fair value of stock option awards was determined using a Black-Scholes option-pricing model. The Black-Scholes
model utilizes a range of assumptions related to dividend yield, volatility, risk-free interest rate and employee exercise
behavior. Expected volatility is based on Clearwater Paper's historical stock prices. The risk-free interest rate is based
on constant maturity treasury rates with maturities matching the options' expected life on the grant date. The expected
life, estimated in accordance with Securities and Exchange Commission Staff Accounting Bulletin 110, is the
approximate mid-point between the expected vesting time and the remaining contractual life. The weighted-average fair
value of stock options granted in 2016 on the grant date was estimated at $14.42 per option based on the following
assumptions:
Volatility
Risk-free interest rate
Expected life-years
35%
1.39%
6.4
A summary of the status of outstanding stock option awards as of December 31, 2016, and changes during the year, is
presented below:
2016
2015
2014
Outstanding options at January 1
Granted
Forfeited
Outstanding options at December 31
Aggregate intrinsic value (in
thousands)
Weighted
Average
Exercise
Price
64.47
38.86
47.79
51.83
Shares
277,693 $
280,191
(30,830 )
527,054
Weighted
Average
Exercise
Price
66.84
61.93
64.12
64.47
Shares
150,580 $
142,542
(15,429)
277,693
Weighted
Average
Exercise
Price
—
66.85
66.97
66.84
Shares
— $
163,137
(12,557 )
150,580
$
7,232
$
—
$
258
During 2016, 137,860 stock option awards vested with a weighted average exercise price of $66.85. These options are
outstanding at December 31, 2016 and become exercisable on January 1, 2017. The weighted average remaining
contractual term of outstanding stock options is 8.2 years for all options and 7 years for the exercisable options. As of
December 31, 2016, there was $3.3 million of unrecognized compensation cost related to nonvested stock options. 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.
73
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 $4.8 million for the year ended December 31, 2016,
compensation benefit totaling $4.1 million for the year ended December 31, 2015, and compensation expense totaling
$4.6 million for the year ended December 31, 2014.
At December 31, 2016, the liability amounts associated with director equity-based compensation included in "Other
long-term obligations" and "Accounts payable and accrued liabilities" on our Consolidated Balance Sheet were $7.9
million and $3.2 million, respectively. At December 31, 2015, the liability amounts associated with director equity-based
compensation were all included in "Other long-term obligations" on our Consolidated Balance Sheet and totaled $9.4
million.
NOTE 17 Fair Value Measurements
The estimated fair values of our financial instruments as of our balance sheet dates are presented below:
December 31, 2016
December 31, 2015
(In thousands)
Cash, short-term investments, and restricted cash (Level 1) $ 23,001 $ 23,001 $
Borrowings under revolving credit facilities (Level 1)
Carrying
Amount
Fair
Value
135,000
575,000
135,000
567,875
Long-term debt (Level 2)
Carrying
Amount
Fair
Value
8,130 $
—
575,000
8,130
—
558,250
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.
74
NOTE 18 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. In addition, we have operating leases for the five Manchester Industries
paperboard sheeting facilities. We have capital leases related to our North Carolina converting and manufacturing
facilities as well as various office equipment. 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, 2016, under current operating and capital lease contracts, we had future minimum lease payments
as follows:
(In thousands)
2017
2018
2019
2020
2021
Thereafter
Total future minimum lease payments
Less interest portion
Present value of future minimum lease payments
Capital
Operating
$
$
$
2,601 $
2,649
2,697
2,661
2,710
26,822
40,140 $
(17,327)
22,813
14,400
11,318
6,719
4,365
3,260
4,354
44,416
Rent expense for operating leases was $14.3 million, $14.8 million and $18.6 million for the years ended December 31,
2016, 2015 and 2014, respectively.
NOTE 19 Business Interruption and Insurance Recovery
On July 6, 2016, our Lewiston, Idaho facility experienced an electrical incident that caused a complete plant-wide power
outage. Power was restored in approximately 18 hours. However, damage to certain equipment limited pulping
operations throughout the remainder of July. In addition to repair costs, we incurred other various costs, including
incremental pulp replacement costs, incremental natural gas costs, lost electrical generation and increased labor,
chemical and wood costs. We maintain property and business interruption insurance and filed a claim with our insurance
provider to recover the cost of repairs to the equipment and estimated lost profits due to the disruption of the operations
during the repair period. All associated costs and insurance recoveries were recorded in "Cost of sales" in our
Consolidated Statement of Operations and included in the "Net earnings" line in our Consolidated Statement of Cash
Flows. The insurance claim for this event totaled $8.5 million.
The claim was settled in its entirety in September 2016, and, net of the policy deductible and certain exclusions totaling
$3.5 million, we received $5.0 million from our property insurance provider as final payment of the claim.
On November 14, 2016, we experienced a fire at our Las Vegas, Nevada facility. There was minimal disruption to the
converting operations at that facility, however certain paper machine equipment was damaged and we incurred
approximately 17 days of paper machine downtime while repairs were being made. We were unable to produce through-
air-dried parent rolls during this period at the Las Vegas facility. We were able to replace a portion of this lost production
capacity by shipping parent rolls from our Shelby, North Carolina facility, in addition to making open market purchases.
We maintain property and business interruption insurance and filed a claim with our insurance provider to recover the
cost of repairs to the equipment and estimated lost profits due to the disruption of the operations during the repair
period. All associated costs and insurance recoveries through December 31, 2016 were recorded in "Cost of sales" in
our Consolidated Statement of Operations and included in the "Net earnings" line in our Consolidated Statement of
Cash Flows.
The insurance claim for this event net of policy deductible is expected to be approximately $3.0 million, of which $1.5
million was recorded as a receivable in 2016. We expect resolution with regard to the balance of this claim in the first
quarter of 2017.
75
NOTE 20 Segment Information
We are organized in two reportable operating segments: Consumer Products and Pulp and Paperboard. The 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
Gain (loss) on divested assets1
Pulp and Paperboard
Corporate2
Income from operations
Depreciation and amortization:
Consumer Products3
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
2016
2015
2014
$
988,380 $
746,383
959,894 $ 1,183,385
783,754
792,507
$ 1,734,763 $ 1,752,401 $ 1,967,139
$
$
$
$
66,161 $
1,755
112,732
180,648
(69,331)
111,317 $
59,375 $
26,741
4,974
91,090 $
54,437 $
1,267
120,861
176,565
(52,895)
123,670 $
54,595 $
27,204
2,933
84,732 $
34,131
(40,159)
144,171
138,143
(58,332)
79,811
61,504
25,452
3,189
90,145
$ 1,031,563 $ 1,046,170 $ 1,037,912
413,143
1,451,055
128,094
$ 1,684,342 $ 1,527,369 $ 1,579,149
423,694
1,469,864
57,505
586,687
1,618,250
66,092
$
$
47,079 $
104,113
151,192
4,485
155,677 $
55,594 $
67,929
123,523
10,581
134,104 $
43,562
45,146
88,708
10,892
99,600
1
2
3
These costs relate to the sale of our Consumer Products segment’s specialty business and mills. For additional discussion, see Note 5, “Asset
Divestiture”.
Corporate expenses for 2016 include $2.7 million of expenses associated with the acquisition of Manchester Industries. Operating results
subsequent to the acquisition of Manchester Industries are included in the Pulp and Paperboard segment. Corporate expenses for 2016 also
include a $3.5 million settlement accounting charge associated with a pension lump sum buyout for term-vested participants.
Consumer Products depreciation and amortization expense for 2016 includes $1.3 million of accelerated depreciation associated with the
announced March 31, 2017 Oklahoma City facility closure.
76
Our manufacturing facilities and all other assets are located within the continental United States. 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
Korea
Canada
Australia
Other foreign countries
Total net sales
2016
2014
2015
$ 1,663,231 $ 1,653,208 $ 1,840,726
63,831
11,105
25,411
7,219
18,847
$ 1,734,763 $ 1,752,401 $ 1,967,139
59,463
10,016
6,896
5,578
17,240
44,970
5,260
6,831
4,790
9,681
NOTE 21 Financial Results by Quarter (Unaudited)
(In thousands—
except per-share
amounts)
Net sales
Costs and
expenses:
Cost of sales
Selling, general and
administrative
expenses
Gain (loss) on
divested
assets
Total operating
costs and
expenses
Income from
operations
Net earnings
Net earnings
per common share
Basic
Diluted
March 31,
June 30,
September 30,
December 31,
2016
2015
2016
2015
2016
2015
2016
2015
$ 437,204 $ 434,026 $ 436,671 $ 444,558 $ 435,320 $ 442,222 $ 425,568 $ 431,595
Three Months Ended
(368,647 )
(389,832 )
(361,851 )
(384,347 )
(396,605 )
(373,892 )
(368,524 )
(364,778)
(30,795 )
(29,088 )
(34,655 )
(29,469 )
(31,190 )
(28,284 )
(32,934 )
(30,308 )
—
131
—
1,331
1,755
—
—
(195 )
(399,442 )
(418,789 )
(396,506 )
(412,485 )
(426,040 )
(402,176 )
(401,458 )
(395,281 )
37,762
18,446 $
15,237
5,757 $
40,165
20,864 $
32,073
15,597 $
9,280
901 $
40,046
23,064 $
24,110
9,343 $
36,314
11,565
1.05 $
1.05
0.30 $
0.30
1.22 $
1.21
0.82 $
0.81
0.05 $
0.05
1.22 $
1.21
0.56 $
0.56
0.65
0.65
$
$
77
NOTE 22 Supplemental Guarantor Financial Information
All of our directly and indirectly owned, domestic subsidiaries guarantee the 2013 Notes on a joint and several basis.
There are no significant restrictions on the ability of the guarantor subsidiaries to make distributions to Clearwater Paper,
the issuer of the 2013 Notes. The following tables present the results of operations, financial position and cash flows of
Clearwater Paper and its subsidiaries, the guarantor and non-guarantor entities, and the eliminations necessary to arrive
at the information for Clearwater Paper on a consolidated basis.
We acquired Manchester Industries on December 16, 2016 and their results of operations, financial position and cash
flows are included below as a guarantor entity.
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Twelve Months Ended December 31, 2016
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Selling, general and administrative expenses
Gain on divested assets, net
Total operating costs and expenses
Income from operations
Interest expense, net
Debt retirement costs
Earnings before income taxes
Income tax provision
Equity in earnings of subsidiary
Net earnings
Other comprehensive income, net of tax
Comprehensive income
Issuer
$ 1,685,327 $
Guarantor
Subsidiaries Eliminations
Total
287,952 $
(238,516) $ 1,734,763
(1,468,691 )
(113,766 )
—
(1,582,457 )
102,870
(30,111 )
(351 )
72,408
(26,966 )
5,331
50,773 $
3,795
54,568 $
$
$
(263,577 )
(15,808 )
1,755
(277,630 )
10,322
(189 )
—
10,133
(4,802 )
—
5,331 $
—
5,331 $
236,641
—
—
236,641
(1,875 )
—
—
(1,875 )
656
(5,331 )
(6,550) $
—
(6,550) $
(1,495,627)
(129,574)
1,755
(1,623,446)
111,317
(30,300)
(351)
80,666
(31,112)
—
49,554
3,795
53,349
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Twelve Months Ended December 31, 2015
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Selling, general and administrative expenses
Gain on divested assets
Total operating costs and expenses
Income from operations
Interest expense, net
Earnings before income taxes
Income tax provision
Equity in loss of subsidiary
Net earnings
Other comprehensive income, net of tax
Comprehensive income
Issuer
$ 1,683,890 $
Guarantor
Subsidiaries Eliminations
Total
291,270 $
(222,759) $ 1,752,401
(1,458,121 )
(108,414 )
—
(1,566,535 )
117,355
(31,067 )
86,288
(32,371 )
2,476
56,393 $
(277,487 )
(8,735 )
1,267
(284,955 )
6,315
(115 )
6,200
(3,724 )
—
2,476 $
222,759
—
—
222,759
—
—
—
(410 )
(2,476 )
(2,886) $
(1,512,849)
(117,149)
1,267
(1,628,731)
123,670
(31,182)
92,488
(36,505)
—
55,983
15,315
71,708 $
—
2,476 $
—
(2,886) $
15,315
71,298
$
$
78
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Twelve Months Ended December 31, 2014
(In thousands)
Net sales
Cost and expenses:
Cost of sales
Selling, general and administrative expenses
Loss on divested assets
Impairment of assets
Total operating costs and expenses
Income (loss) from operations
Interest expense, net
Debt retirement costs
Earnings (loss) before income taxes
Income tax (provision) benefit
Equity in loss of subsidiary
Net loss
Other comprehensive loss, net of tax
Comprehensive loss
Non-
Guarantor
Guarantor
Subsidiaries Subsidiaries Eliminations
Total
531,520 $
43,929 $
(182,222) $ 1,967,139
Issuer
$ 1,573,912 $
(1,321,143)
(107,141)
—
—
(1,428,284)
145,628
(39,091)
(24,420)
82,117
(47,694)
(58,953)
(24,530 ) $
(526,192 )
(22,747 )
(40,159 )
(8,227 )
(597,325 )
(65,805 )
(59 )
—
(65,864 )
7,439
(528 )
(58,953 ) $
(43,727 )
(214 )
—
—
(43,941 )
(12 )
—
—
(12 )
(516 )
—
(528 ) $
182,222
—
—
—
182,222
—
—
—
—
22,215
59,481
81,696 $
(1,708,840)
(130,102)
(40,159)
(8,227)
(1,887,328)
79,811
(39,150)
(24,420)
16,241
(18,556)
—
(2,315)
(12,770)
(37,300 ) $
—
(58,953 ) $
—
(528 ) $
—
81,696 $
(12,770)
(15,085)
$
$
79
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2016
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
Receivables, net
Taxes receivable
Inventories
Other current assets
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:
Borrowings under revolving credit facilities
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
TOTAL LIABILITES
Issuer
Guarantor
Subsidiaries Eliminations
Total
19,586 $
130,098
15,143
208,472
8,161
381,460
802,064
244,283
3,135
30,034
145,089
8,433
$ 1,614,498 $
$ 135,000 $
202,187
7,821
345,008
569,755
81,812
41,424
1,614
105,012
1,144,625
3,415 $
27,252
35
51,432
521
82,655
143,264
—
37,350
(31,909 )
—
2,853
234,213 $
— $
23,001
147,074
9,709
258,029
8,682
446,495
945,328
244,283
40,485
—
—
7,751
(164,369 ) $ 1,684,342
(10,276 )
(5,469 )
(1,875 )
—
(17,620 )
—
—
—
1,875
(145,089 )
(3,535 )
— $
37,257
—
37,257
—
—
352
820
50,695
89,124
— $ 135,000
223,699
(15,745 )
—
(15,745 )
—
7,821
366,520
569,755
81,812
—
—
41,776
—
2,434
152,172
(3,535 )
(19,280 ) 1,214,469
Stockholders' equity excluding accumulated other
comprehensive loss
Accumulated other comprehensive loss, net of tax
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
521,626
(51,753 )
145,089
—
(145,089 )
—
521,626
(51,753)
$ 1,614,498
$
234,213
$
(164,369 ) $ 1,684,342
80
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2015
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Receivables, net
Taxes receivable
Inventories
Other current assets
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
TOTAL LIABILITIES
Accumulated other comprehensive loss, net of tax
Stockholders’ equity excluding
accumulated other comprehensive loss
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
81
Issuer
Guarantor
Subsidiaries Eliminations
Total
$
5,610 $
2,270
250
123,131
16,221
219,130
8,838
375,450
719,436
209,087
4,180
14,013
139,758
4,738
— $
—
—
15,921
(1,370 )
36,443
493
51,487
147,102
—
15,810
(15,151 )
—
79
$ 1,466,662 $
199,327 $
— $
—
—
—
—
—
—
—
—
—
—
1,138
(139,758 )
—
5,610
2,270
250
139,052
14,851
255,573
9,331
426,937
866,538
209,087
19,990
—
—
4,817
(138,620 ) $ 1,527,369
$ 196,891
$
23,477
$
—
$ 220,368
7,559
204,450
568,987
89,057
46,182
874
82,246
991,796
(55,548 )
—
23,477
—
—
556
802
34,734
59,569
—
—
—
—
7,559
227,927
568,987
—
89,057
—
46,738
—
1,676
118,118
1,138
1,138 1,052,503
(55,548)
—
530,414
139,758
(139,758 )
530,414
$ 1,466,662
$
199,327
$
(138,620 ) $ 1,527,369
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2016
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization
Equity-based compensation expense
Deferred tax provision
Employee benefit plans
Deferred issuance costs on debt
Disposal of plant and equipment, net
Non-cash adjustments to unrecognized taxes
Changes in working capital, net of acquisition
Change in taxes receivable, net
Excess tax benefits from equity-based payment arrangements
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Change in short-term investments, net
Additions to plant and equipment
Acquisition of Manchester Industries, 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
Borrowings on revolving credit facilities
Repayments of revolving credit facilities' borrowings
Payments for debt issuance costs
Investment from (to) parent
Payment of tax withholdings on equity-
based payment arrangements
Excess tax benefits from equity-based payment arrangements
Net cash flows from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
82
Issuer
Guarantor
Subsidiaries Eliminations
Total
$
50,773 $
5,331 $
(6,550 ) $
49,554
68,496
12,385
18,860
(1,979 )
1,242
781
740
(642 )
1,078
(312 )
(1,592 )
149,830
250
(145,579 )
(67,443 )
—
(212,772 )
22,594
—
605
—
—
600
18
774
(1,405 )
—
(921 )
27,596
—
(9,770 )
—
36
(9,734 )
(65,327 )
1,273,959
(1,138,959 )
(1,906 )
9,772
(933 )
312
76,918
13,976
5,610
19,586 $
—
—
—
—
(14,447 )
—
—
(14,447 )
3,415
—
3,415 $
—
—
(1,138 )
—
—
—
—
(3,594 )
5,469
—
1,138
(4,675 )
91,090
12,385
18,327
(1,979)
1,242
1,381
758
(3,462)
5,142
(312)
(1,375)
172,751
—
—
—
—
—
250
(155,349)
(67,443)
36
(222,506)
—
—
—
—
4,675
—
—
4,675
—
—
— $
(65,327)
1,273,959
(1,138,959)
(1,906)
—
(933)
312
67,146
17,391
5,610
23,001
Issuer
Guarantor
Subsidiaries Eliminations
Total
$
56,393 $
2,476 $
(2,886 ) $
55,983
65,078
4,557
9,944
3,011
928
1,587
(1,028 )
11,809
(9,461 )
(1,433 )
(3,179 )
(1,591 )
136,615
49,750
(121,720 )
—
(71,970 )
19,654
—
3,178
—
—
(95 )
8
3,032
(14,388 )
—
—
(1,131 )
12,734
—
(7,182 )
604
(6,578 )
—
—
2,959
—
—
—
—
—
10,253
—
—
—
10,326
84,732
4,557
16,081
3,011
928
1,492
(1,020)
14,841
(13,596)
(1,433)
(3,179)
(2,722)
159,675
—
—
—
—
49,750
(128,902)
604
(78,548)
(99,990 )
16,482
(4,152 )
1,433
(139 )
(86,366 )
(21,721 )
27,331
5,610 $
—
(6,156 )
—
(10,326 )
—
—
—
(6,156 )
—
—
— $
—
—
—
(10,326 )
—
—
— $
(99,990)
—
(4,152)
1,433
(139)
(102,848)
(21,721)
27,331
5,610
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2015
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization
Equity-based compensation expense
Deferred tax provision
Employee benefit plans
Deferred issuance costs on debt
Disposal of plant and equipment, net
Non-cash adjustments to unrecognized taxes
Changes in working capital, net
Change in taxes receivable, net
Excess tax benefits from equity-based payment arrangements
Funding of qualified pension plans
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
Purchase of treasury stock
Investment from (to) parent
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
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
83
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2014
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization
Equity-based compensation expense
impairment of assets
Deferred tax provision (benefit)
Employee benefit plans
Deferred issuance costs on debt
Loss on divestiture of assets
Disposal of plant and equipment, net
Non-cash adjustments to unrecognized taxes
Changes in working capital, net
Change in taxes receivable, net
Excess tax benefits from equity-based
payment arrangements
Funding of qualified pension plans
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 Proceeds from divested assets
Proceeds from the 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
Investment from (to) parent
Payments for 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 and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
$
(24,530 ) $
(58,953 ) $
(528) $
81,696 $
(2,315)
59,373
12,790
—
50,943
2,115
6,141
—
471
472
(8,162 )
(3,051 )
(864 )
(16,955 )
(636 )
78,107
20,000
(73,223 )
107,740
38
54,555
300,000
(375,000 )
(100,000 )
47,527
(3,002 )
(1,523 )
28,468
—
8,227
(21,921 )
—
—
29,059
488
173
(4,711 )
79
—
—
(707 )
(19,798 )
—
(19,450 )
—
937
(18,513 )
—
—
—
38,311
—
2,304
—
—
(2,538 )
—
—
—
—
(317 )
625
121
—
—
—
(333 )
—
(355 )
—
—
(355 )
—
—
—
(4,714 )
—
—
—
—
(12,671 )
—
—
—
—
—
—
12,099
—
—
—
81,124
—
—
—
—
—
90,145
12,790
8,227
13,813
2,115
6,141
29,059
959
328
(12,248)
9,248
(864)
(16,955)
(1,343)
139,100
20,000
(93,028)
107,740
975
35,687
—
—
—
(81,124 )
—
300,000
(375,000)
(100,000)
—
(3,002)
—
—
—
(1,523)
864
7,530
(123,604 )
9,058
18,273
27,331 $
—
—
38,311
—
—
— $
—
—
(4,714 )
(5,402 )
5,402
— $
—
—
(81,124 )
—
—
— $
864
7,530
(171,131)
3,656
23,675
27,331
84
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
(the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income (loss), cash flows, and stockholders’ equity for each of the years in the three-year period ended
December 31, 2016. 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, 2016 and 2015, and the results
of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, 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, 2016, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 22, 2017 expressed an unqualified opinion
on the effectiveness of the Company’s internal control over financial reporting. This report includes a paragraph stating
that management excluded from its assessment of the effectiveness of Clearwater Paper Corporation and subsidiaries’
internal control over financial reporting as of December 31, 2016, Manchester Industries' internal control over financial
reporting. Manchester Industries' total assets represented 5% of the Company’s consolidated total assets as of
December 31, 2016, and their statement of operations was immaterial to the Company’s consolidated statement of
operations for the year ended December 31, 2016 due to the fact that Manchester Industries' operations were only
included in sixteen days of their consolidated results in 2016.
/s/ KPMG LLP
Seattle, Washington
February 22, 2017
85
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders
Clearwater Paper Corporation:
We have audited Clearwater Paper Corporation’s (the Company’s) internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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. 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, 2016, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Clearwater Paper Corporation acquired Manchester Industries on December 16, 2016, and management excluded from
its assessment of the effectiveness of Clearwater Paper Corporation’s internal control over financial reporting as of
December 31, 2016, Manchester Industries' internal control over financial reporting. Manchester Industries' total assets
represented 5% of the Company’s consolidated total assets as of December 31, 2016, and their statement of operations
was immaterial to the Company’s consolidated statement of operations for the year ended December 31, 2016 due to
the fact that Manchester Industries' operations were only included in 16 days of their consolidated results in 2016. Our
audit of internal control over financial reporting of Clearwater Paper Corporation also excluded an evaluation of the
internal control over financial reporting of Manchester Industries.
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, 2016
86
and 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity,
and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated
February 22, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Seattle, Washington
February 22, 2017
87
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
On December 16, 2016, we acquired Manchester Industries. We are in the process of integrating Manchester. Our
management is analyzing, evaluating and, where necessary, will implement changes in controls and procedures relating
to the Manchester business as integration proceeds. As a result, this process may result in additions or changes to our
internal control over financial reporting. Otherwise, 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 in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework).
Our management appropriately excluded Manchester Industries from the scope of its assessment of our internal control
over financial reporting. We acquired Manchester Industries on December 16, 2016, as discussed in Note 4 of the notes
to our Consolidated Financial Statements included in Item 8 of this Annual Report. Manchester Industries' total assets
represented 5% of our consolidated total assets as of December 31, 2016 and their statement of operations was
immaterial to our total Consolidated Statement of Operations in 2016 due to the fact that Manchester Industries'
operations were only included in sixteen days of our consolidated results in 2016.
Based on our evaluation under the 2013 Framework, our management has concluded that as of December 31, 2016 our
internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as
88
of December 31, 2016 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.
89
ITEM 10.
Directors, Executive Officers and Corporate Governance
Part III
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 28, 2017, for the 2017 Annual Meeting of Stockholders, referred to in this report as the
2017 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
2017 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 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, 2016, the members of that committee were Boh A. Dickey (Chair), Beth E. Ford, and William D.
Larsson. 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 2017 Proxy Statement, to be filed on or about March 28, 2017, relating to our 2017 Annual Meeting of
Stockholders and is incorporated herein by reference.
90
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 2017 Proxy Statement, to be filed on or about March 28,
2017, relating to our 2017 Annual Meeting of Stockholders and is incorporated herein by reference.
The following table provides certain information as of December 31, 2016, 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
979,178
$
—
979,178 $
66.85
—
66.85
1,629,775
—
1,629,775
1
2
Includes 351,366 performance shares, 527,054 stock options, and 100,758 restricted stock units, or RSUs, which are the maximum number of
shares that could be awarded under the performance share, stock option, and RSU programs, not including future dividend equivalents, if any
are paid.
Performance shares and RSUs do not have exercise prices. During 2016, 137,860 stock option awards vested with a weighted average exercise
price of $66.85.
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
2017 Proxy Statement, to be filed on or about March 28, 2017, relating to our 2017 Annual Meeting of Stockholders 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 2017 Proxy Statement, to be filed on or about March 28, 2017, relating to our 2017 Annual
Meeting of Stockholders and is incorporated herein by reference.
91
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 42 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 94-99 of this report.
92
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 22, 2017
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
President, Chief Executive Officer
and Director (Principal Executive
Officer)
/S/ John D. Hertz
John D. Hertz
Senior Vice President, Finance
and Chief Financial Officer (Duly
Authorized Officer; Principal
Financial Officer)
Date
February 22, 2017
February 22, 2017
/S/ Robert N. Dammarell
Robert N. Dammarell
Vice President, Corporate
Controller (Duly Authorized Officer;
Principal Accounting Officer)
February 22, 2017
*
Boh A. Dickey
*
Frederic W. Corrigan
*
Beth E. Ford
*
Kevin J. Hunt
*
William D. Larsson
*
John P. O'Donnell
*
Alexander Toeldte
Director and Chair of the Board
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
*By
/S/ Michael S. Gadd
Michael S. Gadd
(Attorney-in-fact)
Director
Director
Director
Director
Director
Director
93
Exhibit Index
EXHIBIT
NUMBER
2.1*
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*
4.5*
10.1*
10.1(i)*
10.1(ii)*
10.1(iii)*
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).
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 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).
Indenture, dated as of July 29, 2014, 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 July 29, 2014).
Form of 5.375% Senior Notes due 2025 (incorporated by reference as Exhibit A to the
Indenture filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the
Commission on July 29, 2014).
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).
94
10.1(iv)*
10.1(v)*
10.1(vi)*
10.1(vii)*
10.1(viii)*
10.1(ix)*
10.1(x)*
10.1(xi)*
10.1(xii)*
10.1(xiii)*
10.2*1
10.3*1
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).
Ninth Amendment to Loan and Security Agreement, dated as of July 24, 2014, 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 July 29, 2014).
Tenth Amendment to Loan and Security Agreement, dated as of December 30, 2014, by and
among the financial institutions signatory thereto, Bank of America, N.A. and the Company
(incorporated by reference to Exhibit 10.1(x) to the Company's Annual Report on Form 10-K
filed with the Commission on February 26, 2015).
Eleventh Amendment to Loan and Security Agreement, dated as of September 28, 2015, 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 Quarterly Report on
Form 10-Q filed with the Commission for the quarter ended September 30, 2015).
Commercial Bank Agreement, dated as of October 31, 2016, by and among the financial
institutions signatory thereto, Wells Fargo Bank, National Association and Clearwater Paper
Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the Commission on November 3, 2016).
Farm Credit Agreement, dated as of October 31, 2016, by and among the financial institutions
signatory thereto, Northwest Farm Credit Services, PCA, and Clearwater Paper Corporation
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
with the Commission on November 3, 2016).
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).
95
10.3(i)*1
10.3(ii)*1
10.4*1
10.5*1
10.5(i)1
10.6*1
10.6(i)*1
10.6(ii)*1
10.6(iii)*1
10.6(iv)*1
10.6(v)*1
10.7*1
10.7(i)*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 - Amendment to Restricted Stock
Unit Agreement dated as of January 1, 2015 with Linda K. Massman (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 June 30, 2015).
Employment Agreement between Linda K. Massman and the Company, dated effective
January 1, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Annual
Report on Form 10-K filed with the Commission February 22, 2016).
Clearwater Paper Corporation Amended and Restated 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 May 8, 2015).
Amendment to the Clearwater Paper Corporation Amended and Restated 2008 Stock
Incentive Plan, effective January 1, 2017.
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 Performance Share
Agreement as amended and restated February 11, 2014, to be used for annual performance
share awards approved subsequent to December 31, 2013, (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission
February 18, 2014).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Amendment of
Performance Share Agreement, effective as of January 1, 2015 (incorporated by reference to
Exhibit 10.5(ii) to the Company's Annual Report on Form 10-K filed with the Commission on
February 26, 2015).
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, 2014 (incorporated by reference to Exhibit 10.5(iii) to the Company's Annual
Report on Form 10-K filed with the Commission on February 26, 2015).
Clearwater Paper Corporation Amended and Restated 2008 Stock Incentive Plan—Form of
Performance Share Agreement to be used for annual performance share awards approved
subsequent to December 31, 2015 (incorporated by reference to Exhibit 10.6(iv) to the
Company’s Annual Report on Form 10-K filed with the Commission February 22, 2016).
Clearwater Paper Corporation—Form of Performance Share Agreement, as amended and
restated, to be used for annual performance share awards approved subsequent to December
31, 2016 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed with the Commission on February 10, 2017).
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).
96
10.7(ii)*1
10.7(iii)*1
10.7(iv)*1
10.7(v)*1
10.7(vi)*1
10.7(vii)*1
10.7(viii)*1
10.7(ix)*1
10.7(x)*1
10.7(xi)*1
10.7(xii)*1
10.7(xiii)*1
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 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
Agreement, 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).
Clearwater Paper Corporation 2008 Stock Incentive Plan-Form of Restricted Stock Unit
Agreement, 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 Restricted Stock Unit
Agreement, to be used for annual restricted stock unit awards approved subsequent to
December 31, 2013 (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K filed with the Commission on February 18, 2014).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement, to be used for special restricted stock unit awards (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 June 30, 2014).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Amendment of Restricted
Stock Unit Agreement, effective as of January 1, 2015 (incorporated by reference to Exhibit
10.6(ix) to the Company's Annual Report on Form 10-K filed with the Commission on February
26, 2015).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement, to be used for annual restricted stock unit awards approved subsequent to
December 31, 2014 (incorporated by reference to Exhibit 10.6(x) to the Company's Annual
Report on Form 10-K filed with the Commission on February 26, 2015).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Restricted Stock Unit
Agreement, to be used for special restricted stock unit awards approved subsequent to
December 31, 2014 (incorporated by reference to Exhibit 10.6(xi) to the Company's Annual
Report on Form 10-K filed with the Commission on February 26, 2015).
Clearwater Paper Corporation Amended and Restated 2008 Stock Incentive Plan—Form of
Restricted Stock Unit Agreement, to be used for restricted stock unit awards approved
subsequent to December 31, 2015 (incorporated by reference to Exhibit 10.7(xii) to the
Company’s Annual Report on Form 10-K filed with the Commission February 22, 2016).
Clearwater Paper Corporation—Form of Restricted Stock Unit Agreement, as amended and
restated, to be used for restricted stock unit awards approved subsequent to December 31,
2016 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
filed with the Commission on February 10, 2017).
97
10.8*1
10.8(i)*1
10.8(ii)*1
10.8(iii)*1
10.8(iv)*1
10.9*1
10.9(i)*1
10.101
10.11*1
10.121
10.13*1
10.13(i)*1
10.14*1
10.15*1
10.16*1
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Stock Option Agreement
(incorporated by reference to Exhibit 10.3 to the Company’s current Report on Form 8-K filed
with the Commission on February 18, 2014).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Amendment of Stock
Option Agreement, effective as of January 1, 2015 (incorporated by reference to Exhibit 10.7(i)
to the Company's Annual Report on Form 10-K filed with the Commission on February 26,
2015).
Clearwater Paper Corporation 2008 Stock Incentive Plan—Form of Stock Option Agreement,
to be used for annual restricted stock unit awards approved subsequent to December 31,
2014 (incorporated by reference to Exhibit 10.7(ii) to the Company's Annual Report on Form
10-K filed with the Commission on February 26, 2015).
Clearwater Paper Corporation Amended and Restated 2008 Stock Incentive Plan—Form of
Stock Option Agreement, to be used for annual restricted stock unit awards approved
subsequent to December 31, 2015 (incorporated by reference to Exhibit 10.8(iii) to the
Company’s Annual Report on Form 10-K filed with the Commission February 22, 2016).
Clearwater Paper Corporation— Form of Stock Option Agreement, as amended and restated,
to be used for annual restricted stock unit awards approved subsequent to December 31,
2016 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
filed with the Commission on February 10, 2017).
Clearwater Paper Corporation Annual Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 9,
2014).
Amendment to the Clearwater Paper Corporation Annual Incentive Plan, effective as of
January 1, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed with the Commission on July 27, 2016).
Amended and Restated Clearwater Paper Corporation Management Deferred Compensation
Plan.
Clearwater Paper Executive Severance Plan (incorporated by reference to Exhibit 10.12 to the
Company’s Annual Report on Form 10-K filed with the Commission on February 20, 2014).
Amended and Restated Clearwater Paper Corporation Salaried Supplemental Benefit Plan.
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 (incorporated by reference to Exhibit 10.16 to the
Company’s Annual Report on Form 10-K filed with the Commission on February 20, 2014).
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).
98
10.16(i)*1
10.17*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).
Separation and General Release Agreement entered into by Clearwater Paper Corporation
and Thomas A. Colgrove, dated July 17, 2015 (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
June 30, 2015).
(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, 2016, is formatted
in XBRL interactive data files: (i) Consolidated Statements of Operations for the years ended
December 31, 2016, 2015 and 2014; (ii) Consolidated Statements of Comprehensive Income
for the years ended December 31, 2016, 2015 and 2014; (iii) Consolidated Balance Sheets at
December 31, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2016, 2015 and 2014, (v) Consolidated Statements of Stockholders’
Equity for the years ended December 31, 2016, 2015 and 2014 and (vi) Notes to Consolidated
Financial Statements.
Incorporated by reference.
Management contract or compensatory plan, contract or arrangement.
99
Performance Graph
The below graph compares the cumulative total stockholder return of our common stock for the period beginning
December 31, 2011 and ending December 31, 2016, with the cumulative total return during such period of the
Russell 2000® Index and the S&P MidCap 400® Index (excluding those companies classified as members of
the GICS® Financials sector). The comparison assumes $100 was invested on December 31, 2011, in our
common stock and in the indices 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 specific index. Each year, an index is established to apply to performance-based
equity awards issued in that year. We currently measure our relative performance, for purposes of performance-
based equity awards, against the S&P MidCap 400® Index (excluding those companies classified as members
of the GICS® Financials sector). The cumulative return for that index is listed below.
r
Comparison of Cumulative Five Year Total Return*
$250
$200
$150
$100
$50
$0
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Clearwater Paper Corporation
Russell 2000 Index
S&P MidCap 400® Index (excluding members of the GICS® Financials sector)
*This comparison assumes $100 was invested on December 31, 2011, in our common stock and in the indices
and assumes dividends were reinvested.
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Linda K. Massman
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
John D. Hertz
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:3)
TT
Patrick T. Burke
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:16)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)
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Michael S. Gadd
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)
Kari G. Moyes
Senior Vice President, Human Resources
BOARD OF DIRECTORS
Boh A. Dickey
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2008
Fredric W. Corrigan
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2009
Beth E. Ford
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2013
Kevin J. Hunt
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2013
William D. Larsson
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2008
Linda K. Massman
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)2013
John P. O’Donnell
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72) 2016
Alexander Toeldte
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72) 2016
TT
EXECUTIVE OFFICES
601(cid:3)(cid:58)(cid:72)(cid:86)(cid:87)(cid:3)(cid:53)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:36)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)
Suite 1100
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Phone: 509(cid:17)344(cid:17)5900
FORWARD-LOOKING STATEMENTS
STOCK LISTING
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(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:38)(cid:47)(cid:58)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:17)
ANNUAL MEETING
The 2016(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:82)(cid:81)(cid:71)(cid:68)(cid:92)(cid:15)(cid:3)
(cid:48)(cid:68)(cid:92) 8, 2017, at 9:00(cid:3)(cid:68)(cid:17)(cid:80)(cid:17)(cid:3)(cid:11)(cid:51)(cid:68)(cid:70)(cid:76)(cid:191)(cid:70)(cid:3)(cid:55)(cid:76)(cid:80)(cid:72)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)
(cid:42)(cid:85)(cid:68)(cid:81)(cid:71)(cid:3)(cid:43)(cid:92)(cid:68)(cid:87)(cid:87)(cid:15)(cid:3)721(cid:3)(cid:51)(cid:76)(cid:81)(cid:72)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:15)(cid:3)(cid:54)(cid:72)(cid:68)(cid:87)(cid:87)(cid:79)(cid:72)(cid:15)(cid:3)(cid:58)(cid:68)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)(cid:87)(cid:82)(cid:81)(cid:15) 98101(cid:17)
TRANSFER AGENT
MAILING ADDRESSES
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(cid:51)(cid:17)(cid:50)(cid:17)(cid:3)(cid:37)(cid:50)(cid:59) 30170
(cid:38)(cid:82)(cid:79)(cid:79)(cid:72)(cid:74)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:59) 77842-3170
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211(cid:3)(cid:52)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:38)(cid:76)(cid:85)(cid:70)(cid:79)(cid:72)(cid:15)(cid:3)(cid:54)(cid:88)(cid:76)(cid:87)(cid:72) 210
(cid:38)(cid:82)(cid:79)(cid:79)(cid:72)(cid:74)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:59)(cid:3)77845
SHAREHOLDER WEBSITE
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Shareholder online inquiries
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Hearing Impaired
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ADDITIONAL INFORMATION
866-205-6799
201-680-6578
800-490-1493
781-575-2694
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This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:191)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:73)(cid:191)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:191)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)
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FSC®-CERTIFIED PAPER
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Clearwater Paper Corporation
601 West Riverside Avenue, Suite 1100
Spokane, WA 99201
www.clearwaterpaper.com