2
0
1
9
A N N U A L R E P O R T
2019 BUSINESS HIGHLIGHTS
Consumer Products Division
Shelby, North Carolina expansion:
o Completed start-up of new paper machine, converting lines and warehousing
o Producing quality ultra and conventional tissue
o Producing at targeted startup levels and expect paper machine to reach full production run rate
in mid-2020 as targeted
Increased sales with new and existing customers in a competitive market
o Retained significant supply positions with leading retailers across all major channels
o Grew retail volume by 5% with new supply positions across major retailers
Continued to innovate with quality products, enabling retailers to continue to grow their private
brands
Received awards for outstanding support, execution, partnership, and distribution from major
customers
Pulp and Paperboard Division
Reached record paperboard production at our Cypress Bend, Arkansas mill
Introduced NUVO, a new brand of cup stock paperboard:
o Offers up to 32% post-consumer recycled fiber
o Provides food service operators options for their specific brand needs
o Sales to existing and new customers
Increased net sales and managed margins in an environment of increasing costs
Lewiston Pulp Optimization Project:
o Replaced a batch digester system with a continuous pulp digester and polysulfide reactor
o Reduced air emissions through new system
o Improved pulp quality, production and wood fiber usage
Corporate
Improved our financial control environment
Completed debt refinancing
o Provides additional operational flexibility and liquidity
o Allows focus on free cash flow generation and balance sheet metrics
Implemented critical cybersecurity enhancements to our IT systems
SUSTAINABILITY
Our products have two, critical environmental sustainability advantages:
Wood, the primary raw material used in our products, in the form of chips, sawdust, pulp, woody biomass,
and logs, is a 100 percent renewable and commonly recycled resource.
Renewability, our products can provide more sustainable alternatives to products made from non-renewable
resources.
To ensure we are well positioned to capitalize on these sustainability advantages, we have always been
committed to minimizing the environmental impact of our operations throughout the value chain. Examples of
environmental initiatives include:
Design and Sourcing
We design and manufacture products using circular economy principles where possible.
We support responsible forest management. We were the first U.S. company to offer a full line of FSC-
certified bleached paperboard products and the first to offer consumer FSC-certified facial tissue in private
brands.
We maintain 100 percent of our pulp as certified or controlled wood from known sources.
We offer an assortment of certified sustainable consumer and paperboard products, including the Forest
Stewardship Council (FSC®), Sustainable Forestry Initiative (SFI) and the Programme for the Endorsement of
Forest Certification (PEFC) programs.
We engage directly with suppliers to ensure certification standards are followed, including through contracts
and supply agreements.
Manufacturing
100% of our manufacturing facilities are located in the U.S. and are therefore subject to all U.S. federal, state,
and local environmental laws and regulations.
We are committed to cutting greenhouse gas emissions associated with energy consumption in our
manufacturing facilities. For example:
o We generate renewable energy through biomass derived from wood fiber, a by-product of several of our
manufacturing processes.
o We maximize energy efficiency inherent in combined heat-and-power systems.
We are committed to cutting other air emissions, including particulate matter, nitrogen oxide, volatile organic
compounds, and sulfur compounds.
We strive to reuse a significant amount of water in our manufacturing process, returning the majority back to
the environment following treatment using industry best practices.
We work to minimize manufacturing waste through beneficial reuse, reducing the amount of material to
landfills.
We are committed to the efficient recovery and reuse of chemicals and fiber, supporting our circular economy
principles.
In 2019 we made progress on our sustainability goals and were recognized for those accomplishments.
By the end of 2019 we have decreased water consumption by 11%, reduced waste to landfill by 68% and
decreased energy consumption by 2% from our baseline.
We were recognized for our sustainability awards by three different organizations in 2019.
o We received the Arkansas Environmental Stewardship Award in recognition of quality and innovation in
our environmental projects and programs at our Cypress Bend, AR mill.
o We received the Idaho Governor’s Award for Excellence in Energy Efficiency in recognition of our
reduction in annual energy consumption by 7.7 million kilowatt hours at our Lewiston, ID mill.
o We received the Idaho Pollution Prevention Champion Award to recognize the reduction of energy
consumption by the installation of several variable speed drives.
The company has committed to and is working on the implementation of American Forest & Paper
Associations’ Serious Injury and Fatality Prevention Program. We have also trained 150 mill leaders in
leadership principles.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34146
CLEARWATER PAPER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
20-3594554
(IRS Employer Identification No.)
601 W. Riverside Avenue, Suite 1100
Spokane,
Washington
(Address of principal executive offices)
99201
(Zip Code)
Registrant’s telephone number, including area code: (509) 344-5900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($0.0001 par value per share)
Trading Symbol
CLW
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
__________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically 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).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
As of June 28, 2019, the aggregate market value of the common stock held by non-affiliates was $300.4 million.
As of March 5, 2020, 16,525,788 shares of common stock were outstanding.
__________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2020 Annual Meeting of Stockholders to be held on May 13, 2020 are incorporated by
reference in Part III of this Form 10-K.
CLEARWATER PAPER CORPORATION
Index to 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.
ITEM 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
SIGNATURES
PAGE
NUMBER
2
5
16
17
18
18
19
20
21
29
30
74
75
79
80
81
82
82
82
83
89
90
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
production quality and quantity, costs and timing associated with the expansion of our Shelby, North Carolina facility;
our strengths and related benefits; our strategy; pulp production and the continuous digester at our Idaho facility;
competitive market conditions; raw materials and input usage and costs, including energy costs and usage; selling,
general and administrative cost reduction benefits; strategic projects and related costs and benefits; energy conservation;
cash flows; capital expenditures; return on investment from capital projects; compliance with our loan and financing
agreements; tax rates; operating costs; selling, general and administrative expenses; timing of and costs related to major
maintenance, construction, and repairs; liquidity; benefit plan funding levels; stockholder equity; 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:
•
•
•
•
•
•
•
•
•
•
competitive pricing pressures for our products, including as a result of increased capacity as additional
manufacturing facilities are operated by our competitors;
the loss of, changes in prices in regard to, or reduction in, orders from a significant customer;
changes in the cost and availability of wood fiber and wood pulp;
changes in transportation costs and disruptions in transportation services;
changes in customer product preferences and competitors' product offerings;
larger competitors having operational and other advantages;
customer acceptance and timing and quantity of purchases of our tissue products, including the existence of
sufficient demand for and the quality of tissue produced by our expanded Shelby, North Carolina operations;
consolidation and vertical integration of converting operations in the paperboard industry;
our ability to successfully implement our operational efficiencies and cost savings strategies, along with related
capital projects, and achieve the expected operational or financial results of those projects, including from the
continuous digester at our Lewiston, Idaho facility;
changes in the U.S. and international economies and in general economic conditions in the regions and
industries in which we operate;
• manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment
malfunctions and damage to our manufacturing facilities;
cyber-security risks;
changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs;
labor disruptions;
cyclical industry conditions;
changes in expenses, required contributions and potential withdrawal costs associated with our pension plans;
environmental liabilities or expenditures;
reliance on a limited number of third-party suppliers for raw materials;
our ability to attract, motivate, train and retain qualified and key personnel;
our substantial indebtedness and ability to service our debt obligations;
restrictions on our business from debt covenants and terms;
negative changes in our credit agency ratings; and
changes in laws, regulations or industry standards affecting our business.
•
•
•
•
•
•
•
•
•
•
•
•
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
We are a manufacturer and premier supplier of quality consumer tissue, away-from-home (AFH) tissue, parent roll tissue
and bleached paperboard. We supply private label tissue to major retailers and wholesale distributors, including grocery,
drug, mass merchants and discount stores. In addition, we produce and supply bleached paperboard to quality-conscious
printers and packaging converters, and offer services that include custom sheeting, slitting and cutting. We source
approximately 75% of our pulp internally. We build shareholder value by developing strong customer relationships
through quality and service. Our corporate headquarters is located in Spokane, Washington.
STRATEGY
Our long-term strategy is to expand our business to meet the needs of our customers and optimize the profitability of
both our Consumer Products and our Paperboard businesses. In the near-term, our focus is on reducing debt, optimizing
our recently installed capital projects and improving the operating and cost effectiveness of both segments of our
company.
ORGANIZATION
Our business is organized into two operating segments: Consumer Products and Pulp and Paperboard. Sales for these
businesses for the last three years are included in the table below:
(In millions)
Consumer Paper
Pulp and Paperboard
Consumer Products Segment
Year Ended December 31,
Increase (decrease)
2019
2018
2017
2019 - 2018
2018 - 2017
$
$
906.8
854.7
1,761.5
$
$
884.8
839.4
1,724.2
$
$
941.9
788.5
1,730.4
2.5%
1.8%
2.2%
(6.1)%
6.5 %
(0.4)%
Our Consumer Products segment sells and produces 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.
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. 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 bath 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. Value grade products utilizing
recycled fiber 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 95% of our Consumer Products
segment sales in 2019.
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, hardwound towels and dispenser napkins.
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 markets and manufactures bleached paperboard for the high-end segment of the
packaging industry and is a leading producer of Solid Bleached Sulfate (SBS) paperboard. We offer 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.
2
Our Pulp and Paperboard Business
We believe we are one of the four largest producers of bleached paperboard in North America with approximately 13%
of the available production capacity. We provide custom sheeting, slitting and cutting of paperboard products.
Our pulp and paperboard production consists of folding carton, liquid packaging, cup and plate products, blister and
carded packaging, top sheet and commercial printing grades 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 demanding 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.
With the exception of our capability to supply just-in-time sheeting and narrow rolls, 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 and cup. Of the five largest SBS paperboard producers in the United States, we are the
only producer that does not convert SBS paperboard into folding cartons, cups, plates or liquid packaging end-use
products. We position our independent status to attract a diverse group of loyal customers because when there is
increased market demand for paperboard, we do not divert our production to internal uses.
We can convert paperboard parent rolls to flat sheets and narrow rolls, which expands our in-market service capabilities
and allows us to support small and mid-sized folding carton converters that buy sheeted paperboard to convert into
packaging end-products. Providing a service platform in this way expands the key folding carton segment of our business
and does not compete with our customers in other key market segments.
We utilize various methods for the sale and distribution of our paperboard. The majority of our paperboard is sold to
packaging converters domestically through sales managers located throughout the United States, with a smaller
percentage channeled through distribution to commercial printers. We directly sell sheeted paperboard products to
folding carton converters, merchants and commercial printers. Our principal methods of competing are product quality,
customer service and price.
INPUT COSTS
Raw Materials
Wood fiber is our principal raw material, which consists of chips, sawdust and logs. We own and operate a wood
chipping facility which we believe bolsters our wood fiber position and provides short-term and long-term cost savings.
Additionally, we procure a portion of our pulp requirements. Overall, we purchase approximately 300,000 short tons of
our pulp on the open market through long-term contracts or market transactions. The Pulp and Paperboard segment
purchases approximately 50,000 short tons and the Consumer Products segment purchases approximately 250,000 short
tons. The remaining pulp needs are supplied internally by the Pulp and Paperboard segment.
In addition to wood fiber, 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.
Transportation
Transportation is a significant cost input for our business. Fuel prices, mileage driven and line-haul rates impact our
transportation costs for delivery of raw materials to our manufacturing facilities, internal inventory transfers and delivery
of our finished products to customers.
Energy
We consume substantial amounts of energy, such as electricity, hog fuel, steam and natural gas. 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
3
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 conditions.
SEASONALITY
Our Consumer Products segment can experience a decrease in shipments during the fourth quarter as a result of retail
brand holiday promotions. In addition, customer buying patterns for our paperboard generally result in lower sales for
certain grades of our Pulp and Paperboard segment during the first and fourth quarters, 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.
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, 2019, we had approximately 3,290 employees, of which approximately 1,520 of our workforce was
covered under collective bargaining agreements. Unions represent hourly employees at three of our manufacturing sites.
We had two hourly union labor contracts that remain expired at December 31, 2019. These contracts were subsequently
ratified in January 2020. See Note 18 in the Notes to the Consolidated Financial Statements included in Item 8 of this
report for additional information.
CONTRACT
EXPIRATION
DATE
August 31, 2017
August 31, 2017
DIVISION AND LOCATION
Consumer Products Division & Pulp &
Paperboard Division -
Lewiston, Idaho
Consumer Products Division & Pulp &
Paperboard Division -
Lewiston, Idaho
UNION
United Steel Workers (USW)
International Brotherhood of
Electrical Workers (IBEW)
The following hourly union labor contract expires in 2020:
CONTRACT
EXPIRATION
DATE
May 31, 2020
DIVISION AND LOCATION
Consumer Products Division - Neenah,
Wisconsin
UNION
United Steel Workers (USW)
APPROXIMATE
NUMBER OF HOURLY
EMPLOYEES
865
55
APPROXIMATE
NUMBER OF HOURLY
EMPLOYEES
290
4
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.
Increases in tissue supply, particularly in the premium and ultra categories, 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 has resulted and will
continue to 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. We believe that
increasing tissue capacity, together with intensifying competition experienced by our retail customers, has made it
difficult for us to pass through to our customers the significant increases in input costs we have experienced in the last
several years. If demand for tissue products in the North American market does not increase or consumer purchasing of
premium and ultra-quality tissue do not increase commensurate with the increased capacity, 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 premium and ultra-quality tissue may adversely affect the market prices for
such tissue and result in the displacement of demand for conventional tissue, which could adversely affect the market
price for conventional tissue products, which will continue to represent a significant portion of our total production for
the foreseeable future.
The loss of, or a significant reduction in, orders from, or changes in prices in regards to, any of our large customers
could adversely affect our operating results and financial condition.
We derive a substantial amount of revenues from a concentrated group of customers. Our top 10 customers accounted for
40% of sales in 2019. We have experienced increased price and promotion competition in our consumer products
business, and this competition has decreased our gross margins and adversely affected our financial condition. 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. Some of our customers have the capability to produce the parent rolls or products that they purchase from us.
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.
We have experienced increased price and promotion competition in our consumer products business, particularly and this
competition has decreased our gross margins and adversely affected our financial condition. 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. Some of
our customers have the capability to produce the parent rolls or products that they purchase from us. 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.
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. Generally, we source 40% of our Consumer Product segment pulp requirements
(or 25% overall) of our pulp from external sources. Pulp prices can, and have, changed significantly from one period to
5
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.
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. Wood fiber pricing is subject to regional market influences, and our cost of
wood fiber may increase in the areas our pulp and paperboard facilities are located due to market shifts in those regions.
For example, 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 both the pulp and
paper and lumber industries. Significant reductions in home building in the West during the past decade resulted in the
closure or curtailment of operations at many sawmills and consolidation among suppliers. Further, the expansion of
operations and production of other paper mills and wood pellet manufacturers in the Inland Northwest region of the
United States has increased the demand and price for wood fiber. Additionally, the ability of paper and wood pellet mills
in British Columbia to acquire wood fiber from the U.S. Inland Northwest region with limited to no reciprocal ability by
U.S. mills to acquire wood fiber from British Columbia, reduces the supply of, and increases the costs, for wood fiber.
The price of wood fiber in the Pacific Northwest is expected to remain volatile.
The primary source for wood fiber is timber, the availability of which may be limited by adverse weather, fire, insect
infestation, disease, ice storms, windstorms, flooding and other natural and man-made causes, thereby reducing supply
and increasing prices. Our Arkansas pulp and paperboard facility relies on whole log chips for a significant portion of its
wood fiber. In 2019, this facility experienced significant increases in the costs for wood fiber due to extremely wet
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 or from environmental litigation or regulation 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, 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.
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 as well as for intercompany shipments of parent rolls.
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 and we may be unable to manufacture and deliver our products on a
timely basis.
The costs of these transportation services are also affected by geopolitical and economic events. As a result of higher line
haul rates, diesel prices and weather related events our transportation costs spiked in the second half of 2018. 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.
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 other
companies' 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 we may be forced to sell lower-margin products, all of which could negatively
affect our financial condition and results of operations.
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.
6
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 WestRock, Georgia-Pacific, Graphic Packaging and other 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, a large European manufacturer recently converted a U.S. facility to produce SBS paperboard for
the North American market. Increased production by foreign manufacturers may result in increased competition in the
North American paperboard markets from direct sales by foreign competitors into these markets or increased competition
in the United States 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. 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 or demand for 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.
Changing retail purchasing patterns have increased the need to increase operating efficiencies and diversify our
customer base and sales channels.
We have historically sold a majority of our consumer tissue products through retail grocery stores. These and other
traditional retail outlets are facing increasingly intense competition from supercenters, club stores, wholesale grocers,
drug, dollar, variety and specialty stores. We also face increasingly intense competition from competitors who have
incorporated the internet as a direct-to-consumer channel and internet-only providers that sell tissue and other grocery
products. The intense competition faced by our customers has resulted in increased efforts by them to reduce costs from
suppliers like us and requires that we become more cost efficient in order to maintain our market share and
profitability. The changing retail landscape also requires that we develop and maintain relationships with a wider variety
of retailers and retail channels to succeed in this dynamic environment, which can decrease our supply network
efficiency and increase our costs.
The expansion of our business through the construction of new tissue making and converting facilities may not
proceed as anticipated.
In connection with our long-term expansion strategy, we added a paper machine capable of producing certain premium
and ultra quality tissue products and converting facilities to our Shelby, North Carolina site. The expansion in North
Carolina is highly complex. Installing the tissue machine and building the supporting facilities entails numerous risks,
including diverting management's attention from other business concerns, 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 by this new paper machine. In 2018, we experienced significant cost overruns for the Shelby
expansion. Any of these risks if realized, could have a material adverse effect on our business, financial condition, results
of operations and liquidity.
Consolidation in the North American paperboard and converting industry may adversely affect our business.
The ongoing consolidation of paperboard and paperboard converting businesses, including through the acquisition and
integration of such converting businesses by larger competitors of ours, could result in a loss of customers and sales in
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.
Our operational efficiency optimization and cost-saving goals may not be fully achieved or may not support the level
of investment or commitment we are making.
Our near-term strategy of improving our competitive position by investing to achieve increased operational efficiencies
and implementing cost control measures may not be fully achieved. These goals, along with the capital projects we have
invested in to help achieve these goals, including the continuous digester installed at our Lewiston facility, may not
7
achieve expected operational or financial results in the time frames we anticipate, or at all. The continuous digester in
Lewiston has delivered significantly less in expected financial benefits to date and we continue to work to achieve the
expected operational and financial benefits of the digester project. Such delays or failures could materially affect our
business, cash flows and financial condition.
United States and global economic conditions could have adverse effects on the demand for our products and
financial results.
U.S. and global economic conditions and currency exchange rates have a significant impact on our business and financial
results. Recessed global economic conditions and a strong U.S. dollar could affect our business in a number of ways,
including causing declines in global demand for consumer tissue and paperboard, and increased competition from
foreign manufacturers in the U.S. market.
Global health crises may adversely affect our financial condition.
Our business, the businesses of our customers and the businesses of our suppliers could be materially and adversely
affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent
outbreak of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could
result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could affect demand for our products and likely impact our operating results.
Such events could result in the complete or partial closure of one or more of our manufacturing facilities, the interruption
of our distribution system, temporary or long-term disruption in our supply chains from local and international suppliers,
or delays in the delivery of our product. If the impact of an outbreak continues for an extended period, it could materially
adversely impact our supply chain and the growth of our revenues.
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, interdependent, 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.
Unexpected production disruptions could cause us to shut down or curtail operations at any of our facilities. During
2019, we had a fire at our Shelby, North Carolina facility. In the first quarter of 2020, severe weather damage to power
lines resulted in a temporary shutdown of our Arkansas mill. Disruptions could occur due to any number of
circumstances, including prolonged power outages, mechanical or process failures, shortages of raw materials, natural
catastrophes, disruptions in the availability of transportation, labor disputes, terrorism, changes in or non-compliance
with environmental or safety laws, and the lack of availability of services from any of our facilities' key suppliers. Any
facility shutdowns may be followed by prolonged startup periods, regardless of the reason for the shutdown. Those
startup periods could range from several days to several weeks, depending on the reason for the shutdown and other
factors. Any prolonged disruption in operations at any of our facilities could cause significant lost production, which
would have a material adverse effect on our results of operations.
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. 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.
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Our manufacturing operations also utilize large amounts of electricity and natural gas. Energy prices have fluctuated
widely over the past decade, which in turn affects our operational costs. For example, we experienced a dramatic spike in
prices for natural gas at our Lewiston, Idaho facility in the first quarter of 2019 as a result of frigid temperatures in the
Pacific Northwest and limited capacity on a major pipeline that supplies the Pacific Northwest due to damage to that
pipeline that occurred in Canada. 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, weather, interruptions in pipeline and
other delivery systems 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 and our business.
Our business and financial performance may be harmed by future labor disruptions.
As of December 31, 2019, approximately 46% of our full-time employees were 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 2020, a collective bargaining agreement for hourly employees at our Neenah,
Wisconsin facility, which affects approximately 290 employees will expire. 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, management of inventories and customer sales. We have different legacy IT systems that we are continuing to
integrate, upgrade and move to the cloud. 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 manufacturing and sales operation, results of operations
and financial condition. In addition, we may underestimate the costs, complexity and time required to develop and
implement new systems.
We face cyber-security risks.
Our business operations rely upon secure information technology systems for data capture, processing, storage and
reporting. Despite careful security and controls design, implementation and updating, our information technology
systems or plant networks 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, production
interruption, business delays, negative publicity and could have a material adverse effect on our business, results of
operations and financial condition.
We may be required to pay material amounts under multiemployer pension plans; one of the plans in which we
participate is in “critical and declining” financial status and this subjects us to potential liabilities, particularly if we
withdraw from this plan.
We contribute to two multiemployer pension plans. The amount of our annual contributions to these plans is negotiated
with the union representing our employees covered by the plan. In 2019, we contributed approximately $5.6 million to
these plans. If in future years we continue to participate in these plans, we may be required to make increased annual
contributions, which would reduce the cash available for business and other needs. The decision whether to continue to
9
participate in these multiemployer plans does not rest solely with us; rather, it is negotiated as part of the collective
bargaining agreements with labor unions that participate in these plans. There are risks associated with both continuing
to participate in multiemployer plans and with withdrawing from multiemployer plans.
If we were to withdraw partially or completely from a multiemployer plan that is underfunded, we would be liable for a
proportionate share of that plan's unfunded vested benefits as required by law. This is called a withdrawal liability.
If we continue to participate in a multiemployer pension plan, the future increases in annual contributions are difficult to
predict and largely beyond our control. For example, if any other contributing employer withdraws from a multiemployer
plan that is underfunded, and the withdrawing employer cannot satisfy its withdrawal liability, 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.
We contribute to the PACE Industry Union-Management Pension Fund, or PIUMPF, which 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 through January 1, 2019, PIUMPF was
certified to be in "critical and declining status" under the Multiemployer Pension Reform Act of 2014. The number of
employers participating in PIUMPF fell from 135 during 2012 to 52 during 2018 and the ratio of inactive participants to
active employees participating in PIUMPF has increased from 3.4 inactive participants per each active employee at the
end of 2013 to 10.4 inactive participants per each active employee at the end of 2018. PIUMPF predicts it will become
insolvent in 2030. We are now the largest contributing employer remaining in PIUMPF. We therefore expect that if we
remain in PIUMPF our annual contributions could increase, although we have no way of knowing by how much.
If instead we were to withdraw from PIUMPF, either completely or partially, we would incur a statutory withdrawal
liability based on our proportionate share of PIUMPF’s unfunded vested benefits. Based on information available to us,
as well as information provided by PIUMPF, and reviewed by our actuarial consultant, we estimate that, as of
December 31, 2019, the withdrawal liability payments that we would be required to make to PIUMPF were we to
completely withdraw in 2019 would be approximately $5.7 million per year on a pretax basis. These payments would
continue for 20 years with an estimated present value in excess of $78 million on a pre-tax basis. If we were deemed to
be included in a “mass withdrawal” from PIUMPF, these payments could continue indefinitely.
Were we voluntarily to withdraw from PIUMPF in 2020 or later, we could be subject to substantial payments in addition
to the withdrawal liability payments described above. As a plan in critical and declining status, PIUMPF has adopted a
rehabilitation plan. That plan purports to require a withdrawing employer to make an additional, lump-sum payment -
above and beyond the statutory withdrawal liability - based on PIUMPF’s accumulated funding deficiency, or AFD. We
do not believe PIUMPF’s purported imposition of the AFD on withdrawing employers is legally enforceable. However,
we are aware that one large employer that withdrew from PIUMPF has recognized a liability for payment of an AFD
amount and that other withdrawing employers may have paid some amounts in respect to the AFD. There have been and
continue to be lawsuits in federal courts challenging PIUMPF’s AFD. Some of this litigation has ended without resolving
the issue. At least one lawsuit currently pending in the United States District Court for the District of Idaho challenges
the legality of the AFD. There are also efforts underway in the United States Congress intended to address the financial
situation of multiemployer plans, like PIUMPF, that are in critical and declining status. It is uncertain whether such
efforts will result in new legislation or if any new legislation will affect PIUMPF’s financial status.
If the AFD were held to be legally enforceable, and if we were to elect to withdraw in some future year, the amount of
our AFD liability at the time of our withdrawal would be material and subject to a variety of factors including without
limitation the nature and timing of a withdrawal, the solvency or insolvency of PIUMPF at the time of the withdrawal,
the level of contributions to the plan made by other contributing employers before our withdrawal, whether any
employers that had withdrawn in the intervening years had made AFD payments, and the effect of any Congressional
action to assist the funding of multiemployer plans.
We believe that the AFD, if held to be lawful, would be assessed only if an employer voluntarily withdraws from
PIUMPF and that plan insolvency or any other circumstance that does not involve a voluntary withdrawal by us would
not require us to make a payment in respect of the AFD. Therefore, since we currently have no plans to withdraw from
PIUMPF, we have not recognized any liability associated with a withdrawal from PIUMPF in our consolidated financial
statements.
If we were to decide to withdraw voluntarily from PIUMPF in the future, and if the AFD were held to be enforceable
against us, the resulting liabilities would have a material adverse effect on our results of operations, financial position,
liquidity and cash flows. Similarly, if, in the absence of a voluntary withdrawal by us, our understandings as stated above
10
are incorrect regarding the unenforceability of the AFD or the inapplicability of the AFD to us in the event of plan
insolvency or other circumstances not involving a voluntary withdrawal by us, the resulting liabilities would have a
material adverse effect on our results of operations, financial position, liquidity and cash flows.
Adverse changes to, or requirements under, pension laws and regulations or adverse changes, requirements or claims
pursuant to PIUMPF’s rehabilitation plan, such as the AFD, could increase the likelihood and amount of our liabilities.
Were PIUMPF to fail, or were we to withdraw from PIUMPF, these liabilities would be in addition to the pension
contributions we would have to make to any new pension plan adopted or contributed to by us to replace PIUMPF. All of
this could materially reduce the cash we would have available for business and other needs.
Our company-sponsored pension plans are currently underfunded, and we may be required to make cash payments to
the plans, reducing cash available for our business.
We have company-sponsored pension plans covering a portion 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, 2019 and 2018, our
company sponsored pension plans were underfunded in the aggregate by $9.9 million and $25.4 million. 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 2019, we made no contributions to these pension plans, and we
are not required to make contributions in 2020.
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. 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.
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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. 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.
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.
We May Fail to Attract, Motivate, Train and Retain Qualified Personnel, Including Key Personnel.
Our ability to effectively run our business depends on our ability to attract, motivate, train and retain employees with the
skills necessary to understand and adapt to the competitive markets in which we operate. The increasing demand for
qualified personnel makes it more difficult for us to attract and retain employees with requisite skill sets, particularly
employees with specialized technical and trade experience. Changing demographics and labor work force trends also
may result in a loss of knowledge and skills as experienced workers retire. If we fail to attract, motivate, train and retain
qualified personnel, or if we experience excessive turnover, we may experience declining sales, manufacturing delays or
other inefficiencies, increased recruiting, training and relocation costs and other difficulties, which may negatively
impact our results of operations, cash flows and financial condition.
In addition, we rely on key executive and management personnel to manage our business efficiently and effectively. The
loss of any of our key personnel could adversely affect our results of operations, cash flows and financial condition.
Effective succession planning is also important to our long-term success. Our failure to identify candidates with the
leadership skills to manage our organization, and our failure to ensure effective transfers of knowledge and smooth
transitions involving key executives, could hinder our strategic planning and execution.
We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition
and our ability to obtain financing in the future and to react to changes in our business.
We have a substantial amount of debt, which requires significant principal and interest payments. As of December 31,
2019, we had approximately $911 million face value of debt outstanding, collectively which is related to our $300 senior
secured Term Loan Credit Agreement, $275 million 2013 Notes, $300 million 2014 Notes, asset-based loan revolving
credit faclity (ABL Credit Agreement and together with the Term Loan Credit Agreement, collectively, the "Credit
Agreements") and finance leases. After giving effect to the borrowing base limitation and issuance of letters of credit, we
had availability of approximately $217 million under the ABL Credit Agreement as of December 31, 2019.
Our significant amount of debt could have important consequences. For example, it could:
• make it more difficult for us to satisfy our obligations under our notes and Credit Agreements;
•
increase our vulnerability to adverse economic and general industry conditions, including interest rate
fluctuations, because a portion of our borrowings, including those under the Credit Agreements, are and
will continue to be at variable rates of interest;
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which
would reduce the availability of our cash flow from operations to fund working capital, capital expenditures
or other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and industry;
•
•
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•
•
•
place us at a disadvantage compared to competitors that may have proportionately less debt;
limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive
covenants in our debt agreements; and
increase our cost of borrowing.
Despite our current indebtedness levels, we may still incur significant additional indebtedness. Incurring more
indebtedness could increase the risks associated with our substantial indebtedness.
We may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future.
After giving effect to the borrowing base limitation, we had availability of approximately $217 million under the
ABL Credit Agreement as of December 31, 2019. The terms of the Credit Agreements restrict. but do not prohibit us
from doing so. In addition, the Term Loan Credit Agreement allows us to issue additional secured term loans and/or
notes under certain circumstances, which would be guaranteed by our subsidiary guarantors. In addition, the indentures
governing our notes do not prevent us from incurring certain other liabilities that do not constitute indebtedness. If new
debt or other liabilities are added to our current debt levels, the related risks that we and our subsidiaries now face could
intensify.
If we default under the Credit Agreements, or other indebtedness, we may not be able to service our debt obligations.
In the event of a default under the Credit Agreements or other indebtedness, lenders could elect to declare all amounts
borrowed, together with accrued and unpaid interest and other fees, to be due and payable. If such acceleration occurs,
thereby permitting an acceleration of amounts outstanding under our debt obligations, we may not be able to repay the
amounts due. Events of default are separately defined in each credit agreement or indenture, but include events such as
failure to make payments when due, breach of covenants, default under certain other indebtedness, failure to satisfy
judgments in excess of a threshold amount, certain insolvency events and the occurrence of a change of control
(as defined in the Credit Agreements). The occurrence of an event of default could have serious consequences to our
financial condition and results of operations, and could cause us to become bankrupt or insolvent.
To service our substantial indebtedness, we must generate significant cash flows. Our ability to generate cash depends
on many factors beyond our control, and we may be forced to take other actions to satisfy our obligations under our
indebtedness, which may not be successful.
As of December 31, 2019, we had approximately $911 million of outstanding indebtedness, and we could incur
substantial additional indebtedness in the future. Our ability to make scheduled payments on or to refinance our
indebtedness, including our outstanding notes, and to fund planned capital expenditures, will depend on our ability to
generate cash from our operations. 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 credit agreements 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 Credit Agreements and our outstanding notes, on commercially reasonable terms or at all.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce
or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our
indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt
service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we
could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our
debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that
we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.
Additionally, our debt agreements limit the use of the proceeds from any disposition; as a result, we may not be allowed,
under these documents, to use proceeds from such dispositions to satisfy all current debt service obligations.
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The indenture for our outstanding notes that we issued in 2013 and Credit Agreements, 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, contain various
provisions that limit our discretion in the operation of our business by restricting our ability to:
undergo a change in control;
•
sell assets;
•
•
pay dividends and make other distributions;
• make investments and other restricted payments;
•
•
•
•
•
•
•
•
redeem or repurchase our capital stock;
incur additional debt and issue preferred stock;
guarantee indebtedness;
create liens;
consolidate, merge or sell substantially all of our assets;
enter into certain transactions with our affiliates;
engage in new lines of business; and
enter into sale and lease-back transactions.
These restrictions on our ability to operate our business at our discretion could seriously harm our business by, among
other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate
opportunities, or to borrow in order to fund further capital expenditures.
When (and for as long as) the availability under the ABL Credit Agreement is less than a specified amount for a certain
period of time, funds deposited into deposit accounts used for collections will be transferred on a daily basis into a
blocked account with the administrative agent and applied to prepay loans under the ABL Credit Agreement.
As a result of these covenants and restrictions, we may be limited in how we conduct our business and we may be unable
to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities.
The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that
we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to
obtain waivers from the lenders and/or amend the covenants.
There are various limitations on our ability to incur the full $250 million of commitments under the ABL Credit
Agreement, including covenants limiting the incurrence of debt under our 2013 Notes, and borrowings under our ABL
Credit Agreement are limited by a specified borrowing base consisting of a percentage of eligible accounts receivable
and inventory, less customary reserves. In addition, under the ABL Credit Agreement, a monthly fixed charge
maintenance covenant would become applicable during an event of default or if excess availability under the ABL Credit
Agreement is at any time less than 10.0% of the total $250 million of current revolving loan commitments, or $25
million currently. As of December 31, 2019, availability under the ABL Credit Agreement was approximately $217
million. However, due primarily to the seasonality of our operations, it is possible that availability under the ABL Credit
Agreement could fall below the 10.0% threshold in a future period. If the covenant trigger were to occur, we would be
required to satisfy and maintain on the last day of each quarter a fixed charge coverage ratio of at least 1.1x for the
preceding four quarter period for which financial statements had been delivered. As of December 31, 2019, our fixed
charge coverage ratio was approximately 2.92x. Our ability to meet the required fixed charge coverage ratio can be
affected by events beyond our control, and we cannot assure you that we will meet this ratio. A breach of any of these
covenants could result in a default under the ABL Credit Agreement.
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 Credit Agreements 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 Credit Agreements 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
14
restructure the payments on the applicable debt. Even if we were able to secure additional financing, it may not be
available on favorable terms.
Credit rating downgrades could increase our borrowing costs or otherwise adversely affect us.
Some of our outstanding indebtedness has received credit ratings from rating agencies. Our credit ratings could change
based on, among other things, our results of operations and financial condition. Credit ratings are subject to ongoing
evaluation by credit rating agencies and may be lowered, suspended or withdrawn entirely by a rating agency or placed
on a “watch list” for a possible downgrade or assigned a “negative outlook”. Although our indebtedness does not include
any triggers that would increase existing borrowing rates if there were a ratings downgrade, actual or anticipated changes
or downgrades, including any announcement that our ratings are under review for a downgrade or have been assigned a
negative outlook, could increase our future borrowing costs, which could in turn adversely affect our results of
operations, cash flows and financial condition, and the trading price of our common stock. If a downgrade were to occur
or a negative outlook were to be assigned, it could impact our ability to access the capital markets to raise debt and/or
increase the associated costs. In addition, while our credit ratings are important to us, we may take actions and otherwise
operate our business in a manner that adversely affects our credit ratings.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may make it difficult for
stockholders to change the composition of our Board of Directors and may discourage hostile takeover attempts that
some of our stockholders may consider to be beneficial.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may have the effect of delaying or
preventing changes in control if our Board of Directors determines that such changes in control are not in the best
interests of the company and our stockholders. The provisions in our certificate of incorporation and bylaws include,
among other things, the following:
•
•
•
•
•
•
•
a classified Board of Directors with three-year staggered terms;
the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other
terms, including preferences and voting rights, of those shares without stockholder approval;
stockholder action can only be taken at a special or regular meeting and not by written consent;
advance notice procedures for nominating candidates to our Board of Directors or presenting matters at
stockholder meetings;
removal of directors only for cause;
allowing only our Board of Directors to fill vacancies on our Board of Directors; and
supermajority voting requirements to amend our bylaws and certain provisions of our certificate of
incorporation.
While these provisions have the effect of encouraging persons seeking to acquire control of the company to negotiate
with our Board of Directors, they could enable the Board of Directors to hinder or frustrate a transaction that some, or a
majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage
attempts to remove and replace incumbent directors. We are also subject to Delaware laws that could have similar
effects. One of these laws prohibits us from engaging in a business combination with a significant stockholder unless
specific conditions are met.
15
ITEM 1B. Unresolved Staff Comments
None.
16
ITEM 2. Properties
Facilities
Our principal executive offices are located in Spokane, Washington. We believe that each of these facilities is adequately
maintained and is suitable for conducting our operations and business. Information regarding our principal facilities is set
forth in the following table.
Location
Products
Las Vegas, Nevada
Lewiston, Idaho
Neenah, Wisconsin
Shelby, North Carolina
Elwood, Illinois
Cypress Bend, Arkansas
Mendon, Michigan
Wilkes-Barre, Pennsylvania
Dallas, Texas
Richmond, Virginia
Hagerstown, Indiana
Columbia City, Oregon
Clarkston, Washington
Production Capacities
TAD tissue, Tissue converting
Tissue, Tissue converting, Pulp and Paperboard
Tissue, Tissue converting
TAD tissue, Tissue converting
Tissue converting
Pulp, Paperboard
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Paperboard sheeting
Chip shipment
Wood chipping
Owned or Leased
Owned
Owned
Owned
Owned/Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Information regarding currently operating production capacities is based on annual, normal operating rates and normal
production mixes under current market conditions, taking into account known constraints. Market conditions,
fluctuations in raw material supply, environmental restrictions and the nature of current orders may cause actual
production rates and mixes to vary significantly from the production rates and mixes shown.
(In tons)
Las Vegas, Nevada
Lewiston, Idaho
Neenah, Wisconsin
Shelby, North Carolina
Elwood, Illinois
Cypress Bend, Arkansas
Mendon, Michigan
Wilkes-Barre, Pennsylvania
Dallas, Texas
Richmond, Virginia
Hagerstown, Indiana
Tissue
39,000
190,000
54,000
152,000
Tissue
converting
Pulp
Paperboard
Sheeted
Paperboard
64,000
90,000
70,000
141,000
67,000
590,000
480,000
314,000
360,000
50,000
40,000
36,000
35,000
32,000
435,000
432,000
904,000
840,000
193,000
17
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.
18
Part II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
MARKET FOR OUR COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol "CLW."
HOLDERS
As of March 5, 2020, there were approximately 697 registered holders of our common stock.
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. As of December 31, 2019, we had up to $29.8 million of
authorization remaining. The repurchase program authorizes purchases of our common stock from time to time through
open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1
trading plans in accordance with applicable securities laws and other restrictions. We have no obligation to repurchase
stock under this program and may suspend or terminate the program at any time.
19
ITEM 6. Selected Financial Data
All of the data listed below has been derived from our audited financial statements. Our historical financial and other
data is not necessarily indicative of our future performance.
(In millions, except net
income (loss) per share amounts)
SUMMARY STATEMENT OF
OPERATIONS
Net sales
Income (loss) from operations
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Weighted average common shares
outstanding: (in thousands)
Basic
Diluted
SUMMARY BALANCE SHEET
INFORMATION
Working capital
Property, plant and equipment, net
Total assets
Long-term debt, net of current portion
Capital expenditures (including business
acquisitions)
2019
2018
2017
2016
2015
$
$
$
$
1,761.5
45.4
(5.6)
(0.34)
(0.34) $
$
1,724.2
(97.9)
(143.8)
(8.72)
(8.72) $
1,730.4
71.2
97.3
5.91
5.88
16,533
16,533
16,487
16,487
16,464
16,556
185.4
1,257.7
1,877.7
884.5
$
(5.3) $
1,269.3
1,788.1
692.9
33.5
1,051.0
1,802.3
592.0
$
$
$
$
$
$
1,734.8
114.8
49.6
2.91
2.90
17,001
17,106
80.0
945.3
1,684.3
592.7
1,752.4
123.7
56.0
2.98
2.97
18,762
18,820
199.0
866.5
1,527.4
592.7
$
140.1
$
295.7
$
199.7
$
222.8
$
134.1
20
ITEM 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements
and related notes 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. A discussion of the earliest year may be found in Management's Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10 K filed March 18, 2019.
OVERVIEW
Executive Summary
For the year ended 2019, we reported net sales of $1.8 billion, up from $1.7 billion reported for the year ended 2018. We
reported a net loss for the year of $5.6 million, or $0.34 per diluted share, compared to a net loss of $143.8 million or
$8.72 per diluted share in 2018. Included in our 2018 results was an impairment of our goodwill of $195 million and a
gain on a divestiture of our LadySmith facility of $24.0 million. Adjusted EBITDA for the year was $167.3 million
compared to $181.6 million reported in 2018. Reductions in Adjusted EBITDA for the year ended December 31, 2019 as
compared to December 31, 2018 were driven by improvements in price and mix with higher volumes due to our
expansion at our Shelby facility offset by higher maintenance expenses, input costs and operational disruptions. See
discussion on segment level results regarding sales, operating results and Adjusted EBITDA in “Our Operating Results”
below.
Business Drivers
Tissue Industry Overview
The U.S. tissue market can be divided into two market segments: the at-home or consumer retail purchase segment,
which represented approximately two-thirds of U.S. tissue sales in 2019; and AFH segment, which represents the
remaining one-third of U.S. tissue market sales and includes tissue for locations such as 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 United States 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 largely due to population growth in the United States. In addition to economic and demographic drivers,
tissue demand is affected by product innovations and shifts in distribution channels.
The U.S. tissue industry has experienced an increase in ultra and premium tissue products as industry participants have
added or improved through-air-dried, or TAD, or equivalent production capacity as well as added conventional tissue
capacity. Demand and pricing for consumer tissue products is currently being affected by this increased capacity, as well
as changing dynamics in the at-home tissue segment as a result of changing consumer purchasing habits, consolidations
and new entrants in the consumer retail channel, and new and evolving sales and distribution channels. These changing
conditions contributed to a very competitive environment for consumer tissue over the past several years, which has
continued through 2019.
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, blister and carded packaging, top sheet and 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.
21
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 converting to final end users. Liquid packaging and cup stock grades are often coated with
polyethylene, a plastic coating, in a separate operation to create a resistant and durable liquid barrier.
Folding Carton Category. Folding carton is the largest portion of the SBS category of the U.S. paperboard industry,
comprising approximately 40% of the category in 2019. 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 Category. SBS liquid packaging paperboard is primarily used in the United States for the
packaging of juices. In Japan and other Asian countries, SBS liquid packaging paperboard is primarily used for the
packaging of milk and a wide range of consumable liquids, including alcoholic beverages. 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, hot noodle and dry food products.
Commercial Printing Category. Commercial printing applications use bleached bristols, which are heavyweight paper
grades, to produce postcards, signage and promotional 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.
The pulp and paperboard industry is affected by macro-economic conditions around the world and has historically
experienced cyclical market conditions. As a result, historical prices for 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. Additionally, while
there has been some announced permanent reduction in SBS paperboard production in North America, there has also
been new SBS production capacity brought on line which makes for a dynamic supply and demand market between
paperboard grades and segments.
Critical Accounting Policies and Significant Estimates
A discussion of our significant accounting policies and significant accounting estimates and judgments is presented in
Note 1 of the Notes to Consolidated Financial Statements in Item 8 of this report. Throughout the preparation of the
financial statements, we employ significant judgments in the application of accounting principles and methods. We
believe that the accounting estimates discussed below represent the accounting estimates requiring the exercise of
judgment where a different set of judgments could result in the greatest changes to reported results. We reviewed the
development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board of
Directors. For 2019, these significant accounting estimates and judgments include:
Pension and Other Postretirement Employee Benefits
We have a number of pension plans in the United States covering many of our employees. Benefit accruals under most of
our defined benefit pension plan in the United States were frozen prior to January 2014.
We account for the consequences of our sponsorship of these plans using assumptions to calculate the related assets,
liabilities and expenses recorded in our financial statements. Net actuarial gains and losses occur when actual experience
differs from any of the assumptions used to value defined benefit plans or when assumptions change as they may each
year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value
obligations as of the measurement date and the differences between expected and actual returns on pension plan assets.
This accounting method results in the potential for volatile and difficult to forecast gains and losses.
We record amounts relating to these defined benefit plans based on various actuarial assumptions, including discount
rates, assumed rates of return, compensation increases and life expectancy. We review our actuarial assumptions on an
annual basis and make modifications to the assumptions based on current economic conditions and trends. We believe
22
that the assumptions utilized in recording our obligations under our plans are reasonable based on our experience and on
advice from our independent actuaries; however, differences in actual experience or changes in the assumptions may
materially affect our financial condition or results of operations.
A 25 basis point change in our discount rate assumption would lead to an increase or decrease in our pension liability of
approximately $8.7 million. A 25 basis point change in the long-term rate of return on plan assets used in accounting for
our pension plans would have a $0.7 million impact on pension expense and a 25 basis point change in the discount rate
would have a $0.5 million impact on pension expense. It is not possible to forecast or predict whether there will be
actuarial gains and losses in future periods, and if required, the magnitude of any such adjustment. These gains and
losses are driven by differences in actual experience or changes in the assumptions that are beyond our control, such as
changes in interest rates and the actual return on pension plan assets.
Non-GAAP Financial Measures
In evaluating our business, we utilize several non-GAAP financial measures. A non-GAAP financial measure is generally
defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash
flows, but excludes or includes amounts that would not be so excluded or included under applicable GAAP guidance. In
this report on Form 10-K, we disclose overall and segment earnings (loss) from operations before interest expense, net,
non-operating pension and other post employment benefit costs, taxes, depreciation and amortization, goodwill
impairment, other operating charges, net, and debt retirement costs as Adjusted EBITDA which is a non-GAAP financial
measure. Adjusted EBITDA is not a substitute for the GAAP measure of net income or for any other GAAP measures of
operating performance.
We have included Adjusted EBITDA on a consolidated and business segment basis in this report because we use it as
important supplemental measures of our performance and believe that it is frequently used by securities analysts,
investors and other interested persons in the evaluation of companies in our industry, some of which present Adjusted
EBITDA when reporting their results. We use Adjusted EBITDA to evaluate our performance as compared to other
companies in our industry that have different financing and capital structures and/or tax rates. It should be noted that
companies calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA measures may not be
comparable to Adjusted EBITDA reported by other companies. Our Adjusted EBITDA measures have material
limitations as performance measures because they exclude interest expense, income tax (benefit) expense and
depreciation and amortization which are necessary to operate our business or which we otherwise incur or experience in
connection with the operation of our business. In addition, we exclude other income and expense items which are
outside of our core operations.
23
The following table provides our Adjusted EBITDA reconciliation for the last three years:
(In millions)
Year ended December 31,
Net income (loss)
Income tax provision (benefit)
Interest expense, net
Debt retirement costs
Depreciation and amortization expense
Goodwill impairment
Non-operating pension and other post retirement employee benefit (income)
expense
Other operating charges, net1
Adjusted EBITDA
Consumer Products segment income (loss)
Depreciation and amortization
Adjusted EBITDA Consumer Products segment
Pulp and Paperboard segment income
Depreciation and amortization
Adjusted EBITDA Pulp and Paperboard segment
Corporate and other expense
Depreciation and amortization
Adjusted EBITDA Corporate and other
Consumer Products segment
Pulp and Paperboard segment
Corporate and other
Adjusted EBITDA
2019
2018
2017
(5.6) $
(2.3)
44.9
2.7
115.6
—
5.7
6.3
167.3 $
(6.6) $
69.7
63.1 $
(143.8) $
10.3
30.7
—
101.9
195.1
4.9
(17.5)
181.6 $
97.3
(56.4)
31.4
—
105.0
—
(1.1)
12.2
188.4
0.3 $
57.8
46.2
60.3
58.1 $
106.5
115.3 $
130.9 $
39.4
37.8
97.5
34.5
154.7 $
168.7 $
132.0
(57.0) $
6.5
(50.5) $
63.1 $
154.7
(50.5)
167.3 $
(51.5) $
6.3
(45.2) $
58.1 $
168.7
(45.2)
181.6 $
(55.7)
5.6
(50.1)
106.5
132.0
(50.1)
188.4
$
$
$
$
$
$
$
$
$
$
1 Other operating charges, net above excludes $4.6 million associated with accelerated depreciation related to our closures of the Oklahoma facility and
the Long Island facility in 2017 as this amount is already included in the depreciation and amortization amount.
OUR OPERATING RESULTS
Our operating results for each of our segments are discussed below. See Note 16 "Segment Information" of the Notes to
Consolidated Financial Statements included in Item 8 of this report for further information regarding our segments.
Consumer Products Segment
Our Consumer Products segment sells and manufacturers 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.
24
Segment sales, operating income and Adjusted EBITDA for the Consumer Products segment were as follows:
(Dollars in millions, except per unit)
Increase (decrease)
Year ended December 31,
2019
2018
2017
2019 - 2018
2018 - 2017
Sales:
Retail tissue
Non-retail tissue
Other
Operating income (loss)
Operating margin
Adjusted EBITDA
Adjusted EBITDA Margin
Shipments (short tons):
Retail tissue
Non-retail tissue
Sales price (short tons):
Retail tissue
Non-retail tissue
$
845.6
$
794.4
$
857.6
56.5
4.7
88.2
2.2
81.1
3.2
906.8
$
884.8
$
941.9
(6.6)
(0.7)%
0.3
—%
46.2
4.9%
$
$
$
6.4 %
(35.9)%
113.6 %
2.5 %
(7.4)%
8.8 %
(31.3)%
(6.1)%
nm
nm
63.1
$
58.1
$
106.5
8.6 %
(45.4)%
7.0 %
6.6%
11.3%
308,805
32,164
293,856
58,577
309,067
55,562
$
$
2,738
1,756
$
$
2,703
1,506
$
$
2,775
1,440
5.1 %
(45.1)%
1.3 %
16.6 %
(4.9)%
5.4 %
(2.6)%
4.6 %
Net sales for the Consumer Products segment increased $22.0 million, or 2.5%, compared to 2018 due to higher average
net selling prices due to a price increase implemented in the second half of 2018 and a favorable mix shift resulting from
a higher percentage of retail sales. This change was partially offset due to decreased non-retail sales volume resulting
from the sale of our Ladysmith, Wisconsin facility in the third quarter of 2018. The segment had an operating loss of
$6.6 million for 2019 compared to income of $0.3 million in 2018. Overall, the decrease in operating results in this
segment was due to higher pulp costs and ramp-up costs, increased depreciation expense and higher wage and benefit
costs associated with the Shelby expansion project, partially offset by lower transportation costs and higher shipments.
Pulp and Paperboard Segment
Our Pulp and Paperboard segment markets and produces bleached paperboard to quality-conscious printers and
packaging converters, and offers services that include custom sheeting, slitting and cutting.
25
Segment sales, operating profit and Adjusted EBITDA for the Pulp and Paperboard segment were as follows:
(Dollars in millions, except per unit)
Increase (decrease)
Year ended December 31,
2019
2018
2017
2019 - 2018
2018 - 2017
Sales:
Paperboard
Other
Operating income
Operating margin
Adjusted EBITDA
Adjusted EBITDA Margin
Shipments (short tons)
Sales price (short tons)
$
$
$
$
$
$
$
$
848.4
6.3
854.7
115.3
13.5%
$
$
$
837.9
1.5
839.4
130.9
15.6%
788.5
—
788.5
97.5
12.4%
1.3 %
6.3%
320.0 %
nm
1.8 %
6.5%
(11.9)%
34.3%
154.7
$
168.7
$
132.0
(8.3)%
27.8%
18.1%
20.1%
16.7%
844,661
1,004
859,348
$975
828,201
$952
(1.7)%
3.0 %
3.8%
2.4%
Net sales for Pulp and Paperboard segment increased $15.3 million, or 1.8%, during 2019 as compared to 2018 due to
favorable pricing resulting from a price increase implemented in the 2018 on slightly lower volumes. Operating income
for the segment decreased compared to 2018 due to the planned major maintenance at our Idaho pulp and paperboard
facility in the third quarter of 2019 and our Arkansas facility in the fourth quarter of 2019 and as well as higher energy
costs. Partially offsetting these items was lower chemical costs and favorable pricing.
Corporate expenses
Corporate expenses were $57.0 million in 2019 as compared to $51.5 million in 2018. Corporate expenses primarily
consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate
functions including certain executive officers, public company costs, information technology, financial services,
environmental and safety, legal, supply management, human resources and other corporate functions not directly
associated with the business operations. The increase in 2019 as compared to 2018 was primarily due to higher IT related
expenses and higher incentive pay.
Other operating charges
See Note 10 "Other Operating Charges, net" included in Item 8 of this report for additional information.
Interest expense, net
Interest expense increased during 2019 as compared to 2018 due to our higher debt balances, partially offset by lower
interest rates.
Income taxes
We recorded a tax benefit of $2.3 million in 2019. For 2019, the primary differences between the U.S. statutory rate of
21% and the effective rate applied to income (loss) before income taxes relates to a federal tax benefit for tax credits
offset by increases in our valuation allowances.
The estimated annual effective tax rate for 2020 is expected to be approximately 25%.
26
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are existing cash, cash generated by our operations and our ability to borrow under
such credit facilities as we may have in effect from time to time. At times, we may also issue equity, debt or hybrid
securities or engage in other capital market transactions. 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 credit agreements will be adequate to fund debt service requirements and provide cash to support our ongoing
operations, capital expenditures and working capital needs for the next twelve months.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding
indebtedness and making capital expenditures. We may also from time to time prepay or repurchase outstanding
indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases
may be commenced, suspended, discontinued or resumed, and the method or methods of effecting any such repurchases
may be changed at any time or from time to time without prior notice.
Operating Activities
During 2019, we generated $55.6 million of cash from operations, as compared to $168.9 million in 2018. This decrease
was driven by lower net income (excluding one-time goodwill impairment in 2018) which was driven by higher cost of
sales due to increased purchased pulp prices and maintenance and energy costs, as well as higher production costs
associated with the ramp-up of our Shelby, North Carolina expansion project in 2019. We paid an additional $10.4
million in interest during 2019 due to higher debt balances. Additionally, our working capital decreased $68.5 million in
2019, compared to increasing $30.2 million in 2018, as a result of the 2019 borrowings under the Term Loan and ABL
Credit Agreements which reduced our use of certain accounts receivable and accounts payable arrangements as well as
our focusing on reducing short term debt balances.
Investing Activities
During 2019, we used $140.1 million in cash from investing activities for capital expenditures, primarily to complete the
Shelby expansion, which included a new tissue machine and related converting equipment, as well as the Lewiston pulp
optimization project. Included in accounts payable is $6.3 million related to capital expenditures that had not yet been
paid.
Financing Activities
Net cash flows from financing activities were $82.0 million for 2019 due to increased net borrowings. With the closing
of our $300 million Term Loan Credit Agreement and the borrowing of $58 million under our $250 million ABL Credit
Agreement, we repaid the $200 million outstanding credit agreement balance with Northwest Farm Credit Services and
the $135 million outstanding balance on the credit agreement with Wells Fargo.
Capital Expenditures
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. Our strategic projects are intended to
grow our business to meet customer demands and to reduce future manufacturing costs and provide a positive return on
investment. In 2020, we expect cash paid for capital expenditures to be approximately $45 to $50 million.
Credit Agreements
Commencing March 31, 2020, we are required to make quarterly installment payments of approximately $0.8 million on
the outstanding principal of our Term Loan Credit Agreement. In addition, we must make mandatory prepayments of
principal under the Term Loan Credit Agreement upon the occurrence of certain specified events, including Excess Cash
Flow as defined by the Credit Agreement. The calculation of Excess Cash Flow commences with the year ended
December 31, 2020. There is uncertainty regarding the amount of cash flow we will generate during the next twelve
months, therefore, we are unable to estimate an Excess Cash Flow payment that could be required in the first quarter of
2021. Amounts repaid or prepaid cannot be reborrowed. However, we may add one or more incremental term loan
facilities to the Term Loan Credit Agreement, subject to obtaining commitments from any participating lenders and
certain other conditions, so long as our first lien secured leverage ratio does not exceed 2.00 to 1.00.
27
The ABL Credit Agreement includes a $250 million revolving loan commitment, subject to borrowing base limitations.
As of December 31, 2019, $217 million was available under the ABL Credit Agreement. Borrowings under the ABL
Credit Agreement are subject to mandatory prepayment in certain circumstances. We may also increase commitments
under the ABL Credit Agreement in an aggregate principal amount of up to $100 million, subject to obtaining
commitments from any participating lenders and certain other conditions.
Our Credit Agreements contain certain customary representations, warranties and affirmative and negative covenants.
The ABL Credit Agreement also contains a financial covenant, which requires us to maintain a consolidated fixed charge
coverage ratio of not less than 1.10 to 1.00, provided that the financial covenant under the ABL Credit Agreement is only
applicable when availability falls below a certain threshold.
At December 31, 2019, we were in compliance with the Credit Agreements, and based on our current financial
projections, we expect to remain in compliance. However, if our financial position, results of operations or market
conditions deteriorate, we may not be able to remain in compliance. There can be no assurance that we will be able to
remain in compliance with our Credit Agreements. If we are unable to do so, it would be necessary to seek an
amendment from our lenders, which, if obtained, could require payment of additional fees, increased interest rates or
other conditions or restrictions. See Note 8, "Debt" to the Notes to Consolidated Financial Statements included in this
report for additional discussion of our Credit Agreements.
Other Financing Arrangements
To provide additional working capital, from time to time, we may enter into agreements with unrelated third-party
financial institutions to sell certain trade receivables or have supply-chain financing programs with financial
intermediaries. At December 31, 2019, we had no active supply-chain financing programs. Supply-chain financing
programs provide certain of our vendors the option to be paid by the financial intermediaries on our trade payables
earlier than the due date on the applicable invoice.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of December 31, 2019. See the footnotes following the
table for information regarding the amounts presented.
(In millions)
Short-term debt
Long-term debt1
Finance leases2
Operating leases2
Purchase obligations3
Other long-term obligations4, 5
Total
Payments due by period
Total
$
13.5
1,103.9
33.9
93.5
67.5
57.5
$ 1,369.8
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
$
13.5
46.8
3.2
17.4
65.7
7.6
154.2
$
— $
— $
93.1
6.3
32.4
0.9
11.8
144.4
$
348.7
5.7
17.0
0.9
9.8
382.2
$
$
—
615.3
18.7
26.7
—
28.3
689.0
1
2
3
Amounts presented for principal and interest payments assume that all long-term debt outstanding as of December 31, 2019 will be paid based
upon stated rates, terms and interest rates on variable rate debt in effect as of December 31, 2019 will remain in effect until maturity.
These amounts represent our minimum lease payments, including amounts representing interest.
Purchase obligations consist primarily of contracts for the purchase of chemicals and pulp from third parties and contracts with natural gas and
electricity providers that are legally binding on us and that specify fixed or minimum quantities. Purchase obligations exclude arrangements that
we can cancel without penalty.
4 Other long-term obligations consist of estimated benefit payments for postretirement employee benefit and supplemental pension plans, deferred
compensation arrangements and asset retirement obligations.
5
Other obligations exclude $3.4 million of unrecognized tax benefits due to the uncertainty of timing of payment.
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 condition or consolidated financial statements.
28
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 Term Loan and ABL Credit
Agreements. As of December 31, 2019, there were $313.5 million in borrowings outstanding under our Credit
Agreements. The interest rates applied to our Credit Agreements are adjusted often and therefore react quickly to any
movement in the general trend of market interest rates. A one percentage point increase or decrease in interest rates,
based on assumed outstanding borrowings of $313.5 million, would have a $3.1 million annual effect on interest
expense.
We currently do not attempt to alleviate the effects of short-term interest rate fluctuations on our credit facilities
borrowings through the use of derivative financial instruments. However, we may do so in the future.
Foreign Currency Risk
We have minimal foreign currency exchange risk. Nearly all of our international sales are denominated in U.S. dollars.
Quantitative Information about Market Risks
(In millions)
Long-term debt:
Fixed rate
Variable rate
Revolving credit facility
Average interest rate
Fair value at December 31, 2019
2020
2021
2022
2023
2024
Thereafter
Total
Expected Maturity Date
$ — $ — $ — $ 275.0
3.0
$
3.0
3.0
3.0
$
$
$
$ — $ 300.0
$ 285.0
$
3.0
$ 575.0
$ 300.0
$
13.5
$ — $ — $ — $ — $ — $
13.5
3.00%
5.00%
5.00%
4.50%
5.00%
5.19%
4.97%
$ 887.5
29
ITEM 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Clearwater Paper Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Clearwater Paper Corporation and subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, 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 March 6, 2020 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842 - Leases.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2007.
Seattle, Washington
March 6, 2020
30
CLEARWATER PAPER CORPORATION
Consolidated Balance Sheets
(Dollars in millions, except per share information)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Receivables, net of allowance for doubtful accounts of $1.5 at December 31, 2019 and
2018
Taxes receivable
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill and intangible assets, net
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt
Accounts payable and accrued liabilities
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Liability for pension and other postretirement employee benefits
Other long-term obligations
Deferred tax liabilities
TOTAL LIABILITIES
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 5,000,000 shares authorized,
no shares issued
Common stock, par value $0.0001 per share, 100,000,000 shares authorized,
16,515,813 and 16,482,345 shares issued
Additional paid-in capital
Retained earnings
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.
At December 31,
2019
2018
$
20.0
1.4
159.1
0.3
281.4
3.6
465.8
1,257.7
73.1
52.0
29.1
1,877.7
17.9
262.5
280.4
884.5
65.6
76.6
17.3
121.3
1,445.7
$
$
22.5
—
145.5
6.3
266.2
3.4
443.9
1,269.3
—
59.2
15.7
1,788.1
122.2
327.0
449.2
692.9
—
78.2
20.2
121.2
1,361.7
—
—
—
9.8
481.7
(59.5)
432.0
1,877.7
$
—
6.4
487.3
(67.3)
426.4
1,788.1
$
$
$
$
31
CLEARWATER PAPER CORPORATION
Consolidated Statements of Operations
For The Years Ended December 31,
2019
2018
2017
$
1,761.5
$
1,724.2
$
1,730.4
1,536.7
1,521.2
1,597.0
112.8
6.3
—
1,716.1
45.4
(44.9)
(2.7)
107.8
(17.5)
195.1
1,822.1
(97.9)
(30.7)
—
(5.7)
(7.9)
(2.3)
(5.6) $
(4.9)
(133.5)
10.3
(143.8) $
121.2
16.8
—
1,659.2
71.2
(31.4)
—
1.1
40.9
(56.4)
97.3
(0.34) $
(0.34)
(8.72) $
(8.72)
5.91
5.88
16,533
16,533
16,487
16,487
16,464
16,556
$
$
(In millions, except per-share data)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Other operating charges, net
Goodwill impairment
Total operating costs and expenses
Income (loss) from operations
Interest expense, net
Debt retirement costs
Non-operating pension and other postretirement employee
benefits income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Average shares of common stock used to compute net income
(loss) per share: (in thousands)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
32
CLEARWATER PAPER CORPORATION
Consolidated Statements of Comprehensive Income
(In millions)
Net income (loss)
Other comprehensive income (loss), net of tax:
Defined benefit pension and other post retirement employee benefits:
Net (loss) gain arising during the period, net of tax
of $0.9, $(5.7) and $2.5
Amortization of actuarial loss included in net periodic cost,
net of tax of $1.9, $2.4 and $1.3
Amortization of prior service credit included in net
periodic cost, net of tax of $-, $(0.4), and $(0.6)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
For The Years Ended December 31,
2019
2018
2017
$
(5.6) $
(143.8) $
97.3
2.7
5.1
—
7.8
2.2
(16.0)
6.8
(1.3)
(10.5)
(154.3) $
$
6.7
2.0
(0.9)
7.8
105.1
$
33
CLEARWATER PAPER CORPORATION
Consolidated Statements of Cash Flows
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Goodwill impairment
Depreciation and amortization
Equity-based compensation expense
Deferred taxes
Pension and other post employment benefits
Debt retirement costs
Gain on divested assets, net
Disposal of plant and equipment, net
Other non-cash activity
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in taxes receivable, net
Increase in inventory
(Increase) decrease in other current assets
Increase (decrease) in accounts payable and accrued liabilities
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Net proceeds from divested assets
Other, net
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock
Borrowings on short-term debt
Repayments of borrowings on short-term debt
Proceeds from long-term debt, net
Repayment of long-term debt
Payments for debt issuance costs
Other, net
Net cash flows from financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
Cash received from income tax refunds
The accompanying notes are an integral part of these consolidated financial statements.
For The Years Ended December 31,
2019
2018
2017
$
(5.6) $
(143.8) $
97.3
—
115.6
4.1
(0.3)
1.4
2.7
—
0.7
2.5
(13.6)
(4.4)
(21.2)
(0.8)
(28.5)
3.0
55.6
(140.1)
—
—
(140.1)
—
549.3
(657.7)
296.1
(103.0)
(2.3)
(0.4)
82.0
(2.5)
24.9
22.4
38.4
3.6
0.5
$
$
$
$
195.1
101.9
3.3
7.1
(0.6)
—
(25.5)
0.7
1.5
(7.3)
14.0
(8.1)
6.4
25.2
(1.0)
168.9
(295.7)
70.9
0.8
(224.0)
—
630.8
(565.0)
—
—
(2.1)
(0.4)
63.3
8.2
16.7
24.9
26.1
3.7
14.3
$
$
$
$
—
105.0
3.6
(40.6)
(5.1)
—
—
4.1
2.9
5.6
(10.6)
(14.8)
(0.3)
31.3
0.3
178.7
(199.7)
—
0.9
(198.8)
(4.9)
298.3
(278.3)
—
—
(0.1)
(1.2)
13.8
(6.3)
23.0
16.7
28.1
2.7
7.6
$
$
$
$
34
CLEARWATER PAPER CORPORATION
Consolidated Statements of Stockholders’ Equity
(In millions, except share amounts which are in thousands)
Balance at December 31, 2016
Net income
Performance share, restricted stock unit, and stock
option awards, net
Pension and OPEB, net of tax of $3.2
Purchase of treasury stock
Retirement of treasury stock
Balance at December 31, 2017
Net loss
Performance share, restricted stock unit, and stock
option awards, net
Reclassification of the income tax effects of the
Tax Cuts and Jobs Act
Pension and OPEB, net of tax of ($3.7)
Balance at December 31, 2018
Net loss
Performance share, restricted stock unit, and stock
option awards, net
Pension and OPEB, net of tax of $2.8
Balance at December 31, 2019
3
5
Common Stock
Additional
Paid-In
Capital
Amount
Shares
24,223
—
$
— $
—
347.1
—
Retained
Earnings
569.9
$
97.3
46
—
—
(7,821)
16,448
—
34
—
—
16,482
—
33
—
16,515
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
$
5.3
—
—
(351.3)
1.1
—
5.3
—
—
6.4
—
3.4
—
9.8
$
—
—
—
(48.9)
618.3
(143.8)
—
12.8
—
487.3
(5.6)
—
—
481.7
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
(7,736) $ (395.3) $
—
—
(51.8) $
—
—
—
(85)
7,821
—
—
—
—
—
—
—
—
—
(4.9)
400.2
—
—
—
—
—
—
—
—
7.8
—
—
(44.0)
—
—
(12.8)
(10.5)
(67.3)
—
—
—
— $
—
—
— $
—
7.8
(59.5) $
469.9
97.3
5.3
7.8
(4.9)
—
575.4
(143.8)
5.3
—
(10.5)
426.4
(5.6)
3.4
7.8
432.0
The accompanying notes are an integral part of these consolidated financial statements.
CLEARWATER PAPER CORPORATION
Notes to Consolidated Financial Statements
NOTE 1
NOTE 2
NOTE 3
NOTE 4
NOTE 5
NOTE 6
NOTE 7
NOTE 8
NOTE 9
NOTE 10
NOTE 11
NOTE 12
NOTE 13
NOTE 14
NOTE 15
NOTE 16
NOTE 17
NOTE 18
Summary of Significant Accounting Policies
Recently Adopted and New Accounting Policies
Fair Value Measurements
Leases
Goodwill and Intangible Assets
Income Taxes
Accounts Payable and Accrued Liabilities
Debt
Asset Divestiture
Other Operating Charges, net
Savings, Pension and Other Postretirement Employee Benefit Plans
Accumulated Other Comprehensive Income (Loss)
Earnings per Share
Stockholders' Equity
Commitments and Contingencies
Segment Information
Supplemental Guarantor Financial Information
Subsequent Events
PAGE
NUMBER
37
41
41
42
44
45
48
49
51
52
53
59
59
59
62
62
64
72
36
NOTE 1 Summary of Significant Accounting Policies
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
We are a premier supplier of quality consumer tissue, away-from-home (AFH) tissue, parent roll tissue and bleached
paperboard. We supply private label tissue to major retailers and wholesale distributors, including grocery, drug, mass
merchants and discount stores. In addition, we supply bleached paperboard to quality-conscious printers and packaging
converters, and offer services that include custom sheeting, slitting and cutting.
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
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.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
We consider all highly liquid instruments with maturities of three months or less to be cash equivalents. Cash that is held
by a third party and has restrictions on its availability to us is classified as restricted cash. The following table provides a
reconciliation of cash, cash equivalents and restricted cash reported on the balance sheet that sum to the total of those
same amounts shown in our Consolidated Statements of Cash Flows.
(In millions)
Cash and cash equivalents
Restricted cash
Restricted cash included in Other assets, net
Total cash, cash equivalents and restricted cash
INVENTORY
December 31,
2019
2018
2017
20.0
$
22.5
$
1.4
1.0
—
2.4
22.4
$
24.9
$
$
$
Our inventories are stated at the lower of net realizable value or current cost using the average cost method.
(In millions)
Logs, pulpwood, chips and sawdust
Pulp, paperboard and tissue products
Materials and supplies
December 31,
2019
2018
$
$
19.4
168.9
93.1
281.4
$
$
15.7
—
1.0
16.7
19.8
159.5
86.9
266.2
37
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including assets acquired under finance 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 and 2 to 25 years for machinery and equipment (includes
office and other equipment).
(In millions)
Land and land improvements
Buildings and improvements
Machinery and equipment
Construction in progress
Less accumulated depreciation and amortization
Property, plant and equipment, net
December 31,
2019
2018
109.9
478.7
2,441.7
9.2
3,039.5
(1,781.8)
1,257.7
$
$
95.3
381.1
2,211.3
273.3
2,961.0
(1,691.7)
1,269.3
$
$
At December 31, 2019 and 2018, included within buildings and improvements and machinery and equipment were
finance leases of $26.5 million and $26.1 million.
Depreciation expense, including amounts associated with finance leases, totaled $108.4 million, $94.4 million and $97.0
million for the years ended December 31, 2019, 2018 and 2017.
We capitalize interest on borrowed funds during construction periods. Capitalized interest is charged to and amortized
over the lives of the related assets. For the years ended December 31, 2019, 2018, and 2017, we capitalized $5.9 million,
$9.0 million and $4.6 million of interest expense associated with the construction of a paper machine at our Shelby,
North Carolina facility and the continuous pulp digester at our Lewiston, Idaho facility.
RECOVERY OF LONG-LIVED ASSETS
Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We evaluate recoverability of an asset group by comparing its
carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the
comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for
the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held
and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life. Long-lived assets
that are held for sale are written down to the estimated sales proceeds less cost to sell unless the estimated net proceeds
exceed the carrying value.
GOODWILL AND INTANGIBLE ASSETS
Goodwill from an acquisition represents the excess of the cost of a business acquired over the net amounts assigned to
assets acquired, including identifiable intangible assets and liabilities assumed. 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 fair value.
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. Definite-lived intangible assets are amortized
over their useful lives, which have historically ranged from 5 to 10 years. We assess our intangible assets for impairment
when events or changes in circumstances indicate that the carrying amount may not be recoverable.
See Note 5, "Goodwill and Intangible Assets" for further discussion.
38
PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
We are required to use actuarial methods and assumptions in the valuation of defined benefit obligations and other post
retirement obligations and the determination of expense. Differences between actual and expected results or changes in
the values of the obligations and plan assets are not recognized in earnings as they occur but, rather, systematically and
gradually over subsequent periods. See Note 11, "Savings, Pension and Other Postretirement Employee Benefit Plans"
for further information.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
The determination of our provision for income taxes requires significant judgment, the use of estimates, and the
interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts
of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax
positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability
that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances
change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate.
See Note 6, " Income Taxes" for further information.
REVENUE RECOGNITION
We enter into contracts that can include various combinations of tissue and paperboard products, which are generally
distinct and accounted for as separate performance obligations.
Revenue is recognized at a point in time upon transfer of control of promised products or services to customers in an
amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control
typically occurs when the title and risk of loss passes to the customer. Shipping terms generally indicate when title and
the risk of loss have passed, usually this is upon receipt at our customer's destination. We have elected to treat shipping
and handling costs as a fulfillment cost. We typically expense incremental direct costs of obtaining a contract (sales
commissions) when incurred because the amortization period is generally 12 months or less. We have also elected to use
the practical expedient to not disclose unsatisfied or partially satisfied performance obligations as we have no unsatisfied
contracts where the remaining portions are expected to be satisfied in a period greater than one year.
We provide for trade promotions, customer cash discounts and other deductions, which are considered variable
consideration and recorded as a reduction of net sales. Returns and credits are estimated at contract inception and
updated at the end of each reporting period as additional information becomes available. Revenue, net of returns and
credits, is only recognized to the extent that it is probable that a significant reversal of any incremental revenue will not
occur. Judgment associated with forecasted volumes is required to determine the most probable amount of variable
consideration to apply as a reduction to net sales. Revenue is recognized net of any taxes collected from customers.
Payment terms and conditions vary by contract type. Terms generally include a requirement of payment within 30 days,
and do not include a significant financing component.
Trade accounts receivable are reported within Receivables, net, and are stated at the amount we expect to collect. Trade
accounts receivable were $157.1 million and $142.8 million at December 31, 2019 and 2018. 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.
See to Note 16, "Segment Information" for further information, including the disaggregation of revenue by segment,
primary geographical market, and major product type.
39
OTHER OPERATING CHARGES, NET
We classify significant amounts unrelated to ongoing core operating activities as “Other operating charges, net” in the
Consolidated Statements of Operations. Such items include, but are not limited to, amounts related to restructuring
charges (including severance charges), charges to establish and maintain litigation or environmental reserves, product
reserves, retirement charges and gains or losses from settlements with governmental or other organizations. Due to the
nature of these items, amounts in the income statement can fluctuate from year to year. The determination of which items
are considered significant and unrelated to core operations is based upon management’s judgment. See Note 10, "Other
Operating Charges, net" for a discussion of specific amounts in 2019, 2018 and 2017.
ACCOUNTS RECEIVABLE ARRANGEMENTS
We have utilized an Account Purchase Agreement (APA) to sell, on a revolving and discounted basis, certain trade
accounts receivable balances to an unrelated third-party financial institution. The APA was terminated in the fourth
quarter of 2019. Under the APA, we retained no interest in the receivables sold, however, we did have servicing
responsibilities for the sold receivables, such as collection. The fair value of the servicing arrangement was not material
to our financial statements.
As of December 31, 2019, all amounts collected from customers under the APA had been remitted to the third-party
financial institution. At December 31, 2018, we had collected $4.9 million of cash from customers that had not yet been
remitted to the third-party financial institution.
In addition, for one of our large customers, during 2019 we entered into an uncommitted supply-chain financing program
with a global financial institution under which this customer's trade accounts receivable may be acquired, without
recourse, by the financial institution at a discounted rate. Available capacity under this program is dependent on the level
of our trade accounts receivable with this customer and the financial institution’s willingness to purchase such
receivables. We have no servicing responsibilities under this agreement.
Receivables sold are de-recognized from our Consolidated Balance Sheet. For the years ended December 31, 2019 and
2018, we sold $159.3 million and $68.8 million of receivables. The proceeds from these sales of receivables are included
within operating activities in our Consolidated Statements of Cash Flows. For the year ended December 31, 2019,
factoring expense on the sale of receivables was $1.0 million, which is included in the "Interest expense, net" line in the
Consolidated Statement of Operations. For the year ended December 31, 2018, factoring expense was $0.2 million.
ACCOUNTS PAYABLE ARRANGEMENTS
We have used supply-chain financing programs with financial intermediaries, which have provided certain of our
vendors the option to be paid by the financial intermediaries on our trade payables earlier than the due date on the
applicable invoice. We have no such active programs at December 31, 2019.
Under supply-chain financing programs, when a vendor receives an early payment from a financial intermediary on a
trade payable for which it invoiced us, we pay that financial intermediary the face amount of the invoice on the regularly
scheduled due date. If we reimburse vendors for certain fees they may incur in connection with receiving an early
payment on an invoice, the amount of such invoice that would have otherwise been included in our trade payables is
included in our short-term debt. As of December 31, 2018, $20.8 million was included in “Short-term debt” on our
Consolidated Balance Sheet related to invoices for which we had reimbursed our vendors’ fees.
ENVIRONMENTAL AND ASSET RETIREMENT OBLIGATIONS
We estimate our environmental and asset retirement obligations based on various assumptions and judgments, the
specific nature of which varies in light of the particular facts and circumstances surrounding each 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. For asset retirement obligations,
the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, we recognize a gain or loss for any difference between the settlement amount and
the liability recorded.
40
NOTE 2 Recently Adopted and New Accounting Standards
RECENTLY ADOPTED
On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842. The new
guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. The adoption of Topic 842 had a
material impact on our Consolidated Balance Sheet due to the recognition of right-of-use (ROU) assets of approximately
$85 million and lease liabilities of approximately $90 million as of January 1, 2019. The difference between these lease
assets and lease liabilities represents deferred rent balances that were reclassified on the balance sheet. The adoption of
Topic 842 did not have a material impact on our Consolidated Statement of Operations or our Consolidated Statement of
Cash Flows. We will continue to report periods prior to January 1, 2019 under prior guidance as outlined in Accounting
Standards Codification Topic 840, "Leases." See Note 4, "Leases" for further discussion.
NEW ACCOUNTING STANDARDS
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40). This ASU requires capitalization of certain implementation costs incurred in a cloud computing arrangement
that is a service contract. This ASU is effective for fiscal years beginning after December 15, 2019 and for interim
periods therein. We do not believe this ASU will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20), which modifies the disclosure requirements for defined benefit and other postretirement plans. This
ASU eliminates certain disclosures associated with accumulated other comprehensive income, plan assets, related parties
and the effects of interest rate basis point changes on assumed health care costs, with other disclosures being added to
address significant gains and losses related to changes in benefit obligations. This ASU also clarifies disclosure
requirements for projected benefit and accumulated benefit obligations. The amendments in this ASU are effective for
fiscal years ending after December 15, 2020, with early adoption permitted and adoption on a retrospective basis for all
periods presented required. We do not believe it will have a material impact on our consolidated financial statements
beyond updating footnote disclosures.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326),
which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from
an 'incurred loss' method to an 'expected loss' method. Such modification of the measurement approach for credit losses
eliminates the requirement that a credit loss be considered probable, or incurred, to impact the valuation of a financial
asset measured on an amortized cost basis. The amended guidance requires the measurement of expected credit losses to
be based on relevant information, including historical experience, current conditions, and a reasonable and supportable
forecast that affects the collectability of the related financial asset. This amendment will affect trade receivables, off-
balance sheet credit exposures and any other financial assets not excluded from the scope of this amendment that have
the contractual right to receive cash. The new standard is effective for annual and interim periods beginning after
December 15, 2019. We do not believe this ASU will have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income
Taxes, which removes certain exceptions, such as the general methodology for calculating income taxes in an interim
period when a year-to-date loss exceeds the anticipated loss for the year, and simplifies the accounting for income taxes
in areas such as franchise tax (or similar tax) that is partially based on income. The new standard is effective for annual
and interim periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim
period. We do not believe this ASU will have a material impact on our consolidated financial statements.
We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable to
our business.
NOTE 3 Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. We are required to classify these
financial assets and liabilities into two groups: recurring-measured on a periodic basis and non-recurring-measured on an
as needed basis.
41
There are three levels of inputs that may be used to measure fair value:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical
unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in inactive markets; or valuations based on models where the significant inputs are
observable or can be corroborated by observable market data.
Level 3: Valuations based on models where significant inputs are not observable. Unobservable inputs are used
when little or no market data is available and reflect the Company’s own assumptions about the assumptions
market participants would use.
Carrying amounts reported on the balance sheet for cash and cash equivalents, restricted cash, receivables and accounts
payable approximate fair value due to the short-term maturity of these instruments. See discussion on fair market values
for Long-term Debt included within Note 8, "Debt".
We review the carrying values of goodwill and long-lived assets to be held and used for impairment wherever events or
changes in circumstances indicate possible impairment. An impairment loss is recognized when a long-lived asset's
carrying value is not recoverable and exceeds estimated fair value. See discussion on fair market values for Goodwill
included within Note 5, "Goodwill and Intangible Assets".
NOTE 4 Leases
Our adoption of ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842, requires us to recognize
substantially all leases on the balance sheet as a ROU asset and a corresponding lease liability. The new guidance also
requires additional disclosures as detailed below. We adopted this standard on the effective date of January 1, 2019 and
used this effective date as the date of initial application. Under this application method, we were not required to restate
prior period financial information or provide Topic 842 disclosures for prior periods. We elected the ‘package of practical
expedients’ which permitted us to not reassess our prior conclusions related to lease identification, lease classification
and initial direct costs, as well as the practical expedient to not reassess certain land easements. We did not elect the use
of hindsight. We combine ROU asset amortization and the change in the lease liability in the same line item on the
Consolidated Statements of Cash Flows.
We have operating leases for manufacturing, office, warehouse and distribution space, paperboard sheeting and chipping
facilities, equipment and vehicles. We also have finance leases related to our North Carolina converting and
manufacturing facilities, as well as for certain office and other equipment. We determine if a contract is a lease at the
inception of the arrangement. We review all options to extend, terminate or purchase the ROU assets, and when
reasonably certain to exercise, we include the option in the determination of the lease term and lease liability. Our leases
have remaining lease terms from less than one year to twelve years , and some of our leases include one or more options
to renew.
Lease ROU assets and liabilities are recognized at the commencement date of the lease. Lease ROU assets and liabilities
are measured based on the present value of lease payments over the lease term and are reduced by any lease incentives
received. Our leases have not provided an implicit rate, therefore, we use our incremental borrowing rate, which is based
on quoted rates from our lender for the term and underlying collateral at the lease commencement date. The depreciable
life of leasehold improvements is limited to the expected lease term unless there is a transfer of title or purchase option
reasonably certain of exercise.
Short-term leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet. Lease
expense for short-term leases is recognized on a straight-line basis over the lease term. As of December 31, 2019, our
short-term lease expense was not material. Our variable lease costs, which are considered non-lease components, consist
primarily of taxes, insurance and common area maintenance. Lease and non-lease components are treated as a single
lease component. For the year ended December 31, 2019, sublease income was immaterial to the financial statements.
The tables below present financial information associated with our leases. This information is only presented as
of December 31, 2019. We adopted Topic 842 using the alternative modified retrospective transition approach that does
not require application to periods prior to adoption.
42
LEASE EXPENSE
(In millions)
Operating lease costs
Finance lease costs:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease costs
Variable lease costs
Total lease costs
SUPPLEMENTAL CASH FLOW INFORMATION
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Non-cash amounts for lease liabilities arising from obtaining right-of-use assets:
Operating leases
Finance leases
SUPPLEMENTAL BALANCE SHEET INFORMATION
Year Ended
December 31, 2019
$
15.0
1.7
1.9
3.6
1.2
$
19.8
Year Ended
December 31, 2019
$
$
16.6
1.9
1.3
2.5
0.5
(In millions)
Lease ROU Assets
Operating lease assets
Finance lease assets
Accumulated Depreciation
Total lease ROU assets
Lease Liabilities
Current operating lease liabilities
Current finance lease liabilities
Total current lease liabilities
Non-current operating lease liabilities
Non-current finance lease liabilities
Total non-current lease liabilities
Total operating lease liabilities
Total finance lease liabilities
Total lease liabilities
Classification
December 31, 2019
Operating lease right-of-use assets
Property, plant and equipment, net
Accounts payable and accrued liabilities
Short-term debt
Long-term operating lease liabilities
Long-term debt
43
$
$
$
$
73.1
26.5
(11.1)
88.5
13.9
1.4
15.3
65.6
20.6
86.2
79.5
22.0
101.5
December 31, 2019
6.6
10.7
4.9%
8.3%
3.2
3.2
3.1
2.9
2.8
18.7
33.9
(11.9)
22.0
LEASE TERM AND DISCOUNT RATE
Weighted average remaining lease term (years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
MATURITY OF LEASE LIABILITIES
As of December 31, 2019, our future maturities of lease liabilities were as follows:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less interest portion
Total
Operating
Finance
$
$
17.4
16.7
15.7
9.6
7.4
26.7
93.5
(14.0)
79.5
$
$
As of December 31, 2018, as previously disclosed in our 2018 Annual Report on Form 10-K, and under the previous
lease accounting standard, we had future minimum lease payments as follows:
(In millions)
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
Less interest portion
Present value of future minimum lease payments
$
$
Operating
Capital
12.0
11.4
10.4
9.5
7.2
24.3
74.8
$
$
3.1
3.1
3.1
3.0
2.8
21.7
36.8
(13.9)
22.9
NOTE 5 Goodwill and Intangible Assets
As of December 31, 2019 and 2018, we had $35.1 million of goodwill included on our Consolidated Balance Sheets.
Goodwill is not amortized but tested for impairment annually as of each November 1st and at any time when events
suggest impairment may have occurred.
In August 2018, we sold our Ladysmith, Wisconsin tissue manufacturing facility for net cash proceeds of approximately
$71 million. In connection with the sale, we recorded a $14.0 million write-off of goodwill of the Consumer Products
reporting unit. The goodwill was allocated to our divested assets by estimating the fair value of the Ladysmith facility
compared to the estimated fair value of the Consumer Products reporting unit, which was then used to estimate the
amount of goodwill to allocate to the sold business.
In 2018, we conducted our annual impairment test as of the November 1, 2018 measurement date and concluded, based
on a weakened market outlook, that the estimated fair value of the Consumer Products reporting unit, using a discounted
44
cash flow methodology, was below the carrying value of the reporting unit, resulting in a non-cash impairment charge of
$195.1 million. This amount represented the remaining goodwill associated with our Consumer Products reporting unit
that was originally recorded as the result of our acquisition of Cellu Tissue Holdings, Inc. in 2010.
Changes in the carrying amounts of goodwill and intangible assets by reportable segment were as follows:
(In millions)
Consumer Products
Pulp and Paperboard
Total
Balance as of December 31, 2017
$
209.1
$
10.1
$
35.1
$
22.4
$
Goodwill
Intangibles
Goodwill
Intangibles
Impairment
Write off due to Ladysmith sale
Amortization
Balance as of December 31, 2018
Amortization
(195.1)
(14.0)
—
—
—
Balance as of December 31, 2019
$
— $
—
(0.9)
(4.6)
4.6
(4.3)
0.3
—
—
—
35.1
—
$
35.1
$
—
—
(2.9)
19.5
(2.9)
16.6
$
276.7
(195.1)
(14.9)
(7.5)
59.2
(7.2)
52.0
As of December 31, 2019, intangible assets consisted of $15.0 million customer relationships, $1.7 million tradenames
and trademarks and $0.2 million other intangibles. As of December 31, 2018, intangible assets consisted of $21.0 million
customer relationships, $2.8 million tradenames and trademarks and $0.3 million other intangibles. Definite-lived
intangible assets are amortized over their useful lives, which have historically ranged from 5 to 10 years.
Accumulated amortization of definite lived intangible assets at December 31, 2019, 2018 and 2017 was $46.9 million,
$39.7 million and $37.8 million.
As of December 31, 2019, estimated future amortization expense related to intangible assets is as follows (in millions):
Years ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Amount
3.3
2.9
2.2
2.1
2.1
4.3
16.9
$
$
NOTE 6 Income Taxes
We are subject to corporate level federal and state income taxes in the United States. On December 22, 2017, H.R. 1, the
Tax Cuts and Jobs Act (the Act), was enacted. The Act contained significant changes to corporate taxation, including the
reduction of the corporate tax rate from 35% to 21% effective January 1, 2018 and interest limitation rules under IRC
Section 163(j). The Act required a remeasurement of our deferred tax assets and liabilities as of the date of enactment
due to the corporate tax rate reduction. Accordingly, the 2017 tax provision included a tax benefit of $70.1 million
resulting from a decrease in net deferred tax liabilities.
In 2019, we deferred $9.9 million of interest expense under the interest limitation rules, compared to $2.5 million in
2018. During 2018, we recorded $41.0 million of tax expense related to impairment of non-deductible goodwill.
45
The income tax provision (benefit) is comprised of the following:
(In millions)
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
Income tax provision (benefit)
For The Years Ended December 31,
2019
2018
2017
$
$
(2.1) $
0.1
(2.0)
(0.6)
0.3
(0.3)
(2.3) $
1.1
2.1
3.2
3.6
3.5
7.1
10.3
$
$
The income tax provision (benefit) differs from the amount computed by applying the statutory federal income tax rate
of 21.0% in 2019 and 2018 and 35.0% in 2017 to income (loss) before income taxes due to the following:
(In millions)
Tax at the statutory rate
Goodwill impairment
Federal rate change
State and local taxes, net of federal income tax impact
Adjustment for state deferred tax rate
Federal credits and net operating losses
Uncertain tax positions
Stock compensation
Non-deductible expenses
Change in valuation allowances
Other, net1
Income tax provision (benefit)
For The Years Ended December 31,
2019
2018
2017
(1.7) $
—
(28.0) $
41.0
—
(0.9)
(1.2)
(2.3)
0.7
0.6
0.4
2.3
(0.2)
(2.3) $
—
4.4
0.1
(10.9)
—
0.7
0.2
—
2.8
10.3
$
$
$
1
Includes $2.9 million of expense associated with the write-off of goodwill as part of our divestiture discussed in Note 10, "Other Operating
Charges, net" for the year ended December 31, 2018.
During 2019, the valuation allowance for deferred tax assets increased by $2.3 million and during 2018 the valuation
allowance for deferred tax assets remained comparable to the prior year. The increase of $2.3 million was offset by a
release of state valuation allowances of $0.8 million during the period due to the lapse of statutes.
(16.7)
0.9
(15.8)
(36.8)
(3.8)
(40.6)
(56.4)
14.3
—
(70.1)
(1.2)
(0.7)
(3.2)
0.3
2.2
0.3
0.8
0.9
(56.4)
46
The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:
(In millions)
Deferred tax assets:
Employee benefits
Postretirement employee benefits
Incentive compensation
Inventories
Pensions
Federal and state credit carryforwards
Federal and state net operating losses
Deferred interest expense
Operating leases
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant and equipment, net
Operating leases
Intangible assets, net
Total deferred tax liabilities
Net deferred tax liabilities
Net deferred tax assets (liabilities) consist of:
(In millions)
Non-current deferred tax assets1
Non-current deferred tax liabilities
Net deferred tax liabilities
2019
2018
$
3.8
$
17.1
4.4
7.6
3.2
10.3
8.8
12.4
20.5
1.6
89.7
(5.3)
84.4
4.2
15.9
4.3
6.2
7.4
10.7
2.0
2.5
—
3.0
56.2
(3.8)
52.4
(179.2)
(18.9)
(3.8)
(201.9)
(117.5) $
(161.8)
—
(5.6)
(167.4)
(115.0)
2019
2018
$
3.8
(121.3)
(117.5) $
6.2
(121.2)
(115.0)
$
$
$
1
Included in "Other assets, net" on our accompanying December 31, 2019 and 2018 Consolidated Balance Sheets.
We have tax benefits associated with state jurisdictions totaling $7.7 million which expire between 2020 and 2039.
We use the flow-through method to account for investment tax credits earned on eligible expenditures. Under this
method, the investment tax credits are recognized as a reduction to income tax expense in the year they are earned.
During 2019 and 2018, we recognized $1.3 million and $10.0 million related to energy investment tax credits.
47
The following presents a roll forward of our unrecognized tax benefits and associated interest and penalties. At
December 31, 2019 and 2018, $3.4 million and $2.8 million were included in the "Other long-term obligations" line item
in non-current liabilities in our Consolidated Balance Sheets. The remaining amount consisted of uncertain receivables
and tax benefits associated with state net operating losses, which were netted with the associated deferred tax asset.
(In millions)
Balance at December 31, 2017
Change in prior year tax positions
Reductions as a result of a lapse of the applicable statute of limitations
Change in current year tax positions
Balance at December 31, 2018
Change in prior year tax positions
Change in current year tax positions
Balance at December 31, 2019
Gross
Unrecognized
Tax Benefits,
Excluding
Interest and
Penalties
Interest
and
Penalties
Total Gross
Unrecognized
Tax Benefits
$
$
4.1
(0.6)
(0.7)
0.3
3.1
0.3
0.3
3.7
$
$
0.3
0.1
(0.1)
—
0.3
0.1
—
0.4
$
$
4.4
(0.5)
(0.8)
0.3
3.4
0.4
0.3
4.1
Unrecognized tax benefits net of related deferred tax assets at December 31, 2019, if recognized, would have favorably
impacted our effective tax rate by decreasing our tax provision by $3.5 million. For each of the years ended December
31, 2018 and 2017, if recognized, the balance of unrecognized tax benefits would have favorably impacted our effective
tax rate by $2.8 million and $3.6 million. We reflect accrued interest related to tax obligations, as well as penalties, in our
provision for income taxes. For each of the years ended December 31, 2019, 2018, and 2017, we accrued interest of less
than $0.1 million each year in our income tax provision and no penalties in our income tax provision.
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 2015. 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 $1.1 million within the next 12 months.
NOTE 7 Accounts Payable and Accrued Liabilities
(In millions)
Trade accounts payable
Accrued wages, salaries and employee benefits
Operating lease liabilities
Accrued interest
Accrued utilities
Current liability for pension and other postretirement employee benefits
Accrued taxes other than income taxes payable
Accrued discounts and allowances
Other
December 31,
2019
2018
$
149.6
$
228.1
45.0
13.9
13.3
8.6
7.4
7.1
6.6
11.0
$
262.5
$
41.4
—
14.7
6.9
7.4
6.2
8.1
14.2
327.0
Included in accounts payable is $6.3 million and $57.1 million related to capital expenditures that had not yet been paid
as of December 31, 2019 and as of December 31, 2018.
48
NOTE 8 Debt
Long-term debt at the balance sheet dates consisted of:
(In millions)
Term loan maturing
2026, variable interest
rate
2013 Notes, maturing
2023, fixed interest rate
2014 Notes, maturing
2025, fixed interest rate
Credit Agreements,
variable interest rates
Finance leases
Supply chain financing
Total debt
Less: current portion
Net long-term portion
December 31, 2019
December 31, 2018
Interest Rate at
December 31,
2019
Principal
Unamortized
Debt Costs
Total
Principal
Unamortized
Debt Costs
Total
5.0%
$
300.0
$
(5.1) $
294.9
$
— $
— $
—
4.5%
5.4%
3.0%
275.0
300.0
13.5
22.0
—
910.5
(17.9)
$
892.6
$
(1.5)
273.5
275.0
(2.0)
273.0
(1.5)
298.5
300.0
(1.7)
298.3
13.5
22.0
—
902.4
(17.9)
884.5
$
200.0
23.0
20.8
818.8
(122.2)
696.6
$
200.0
23.0
20.8
815.1
(122.2)
692.9
(3.7)
—
(3.7) $
(8.1)
—
(8.1) $
Deferred debt costs are amortized over the life of the related debt using a straight line basis which approximates the
effective interest method. These costs are a direct deduction from the carrying amount related to the debt liability. If the
debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired to
debt retirement costs. We amortized deferred debt costs of $2.0 million, $1.4 million and $1.2 million for the years ended
December 31, 2019 , 2018 and 2017. Included in these amortized amounts are deferred debt costs associated with our
current line of credit, which are recorded within "Other current assets" and "Other assets, net" on our Consolidated
Balance Sheet.
We estimated the Senior Notes due 2023 and 2025 to have a fair value of $574.0 million and $512.4 million at
December 31, 2019 and 2018 based upon market quotations. We believe the carrying amounts of the Term Loan of
$300.0 million approximates fair market value based upon current interest rates with similar maturities.
TERM LOAN AND ABL CREDIT AGREEMENTS
On July 26, 2019, we entered into credit agreements with several lenders and JPMorgan Chase Bank, N.A. (JPMorgan),
as administrative agent, which included (a) a $300 million Term Loan Credit Agreement and (b) a $250 million asset
based lending (ABL) Credit Agreement (the Term Loan Credit Agreement and ABL Credit Agreement are collectively
referred to as the Credit Agreements). At closing, the Term Loan Credit Agreement was fully advanced and $58.0 million
was drawn under the ABL Credit Agreement, proceeds of which were used to refinance and terminate our: (a) $200
million credit agreement dated October 31, 2016, as amended, with Wells Fargo Bank, National Association (Wells
Fargo), as administrative agent, and the lenders party thereto, of which $135.0 million was outstanding and (b) the $200
million credit agreement dated October 31, 2016, as amended, with Northwest Farm Credit Services, PCA, (Farm Credit)
as administrative agent, and the lenders party thereto, of which $200.0 million was outstanding (the Prior Credit
Agreements); pay fees and expenses in connection with the Credit Agreements; and for working capital purposes.
In conjunction with the termination of the Prior Credit Agreements, of which the $200 million credit agreement with
Wells Fargo was treated as a debt modification, debt extinguishment costs consisted of $1.7 million in breakage fees and
$1.0 million in unamortized debt issuance costs, which were written-off as debt retirement costs during 2019.
Unamortized debt issuance costs of $1.6 million, related to the debt modification, are being amortized over the remaining
term of the ABL Credit Agreement. We incurred additional debt issuance costs of $7.3 million, which are allocated and
amortized over the respective terms of the Credit Agreements.
The Credit Agreements contain certain customary representations, warranties, and affirmative and negative covenants of
us and our subsidiaries that restrict us and our subsidiaries’ ability to take certain actions, including, incurrence of
indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital
49
stock and certain types of indebtedness, making certain investments, entering into certain transactions with affiliates or
changing the nature of our business. At December 31, 2019, we were in compliance with the Credit Agreements.
Term Loan Credit Agreement
The Term Loan Credit Agreement matures on July 26, 2026. We are required to repay the aggregate outstanding principal
amount in quarterly installments on the last day of each March, June, September and December, commencing March 31,
2020, and ending with the last such day to occur prior to the maturity date, in an aggregate amount for each such date
equal to the aggregate principal amount of the initial loan amount (as such amount may be adjusted pursuant to the
prepayment provisions of the Term Loan Credit Agreement) multiplied by 0.25%. In addition, we must make mandatory
prepayments of principal under the Term Loan Credit Agreement upon the occurrence of certain specified events,
including certain asset sales (subject to customary reinvestment rights), debt issuances not permitted under the Term
Loan Credit Agreement, and based on a percentage, which may vary from 50% to 0% depending on our secured leverage
ratio, of annual excess cash flows in excess of certain threshold amounts, less any voluntary prepayments under the Term
Loan Credit Agreement. Any remaining outstanding principal balance under the Term Loan Credit Agreement is
repayable on the maturity date. Amounts repaid or prepaid by us with respect to the loans under the Term Loan Credit
Agreement cannot be reborrowed. We may, at our option, prepay any borrowings under the Term Loan Credit
Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain
circumstances).
We may add one or more incremental term loan facilities to the Term Loan Credit Agreement, subject to obtaining
commitments from any participating lenders and certain other conditions in an amount not to exceed (1) $100 million,
plus (2) the amount of all voluntary prepayments of the Term Loan Credit Agreement (other than prepayments funded
with long-term indebtedness), plus (3) an additional amount, so long as after giving effect to the incurrence of such
additional amount, our pro forma first lien secured leverage ratio would not exceed 2.00 to 1.00. Under the Term Loan
Credit Agreement, loans generally may bear interest based on LIBOR or an annual base rate, as applicable, plus, in each
case, an applicable margin, when our leverage ratio is (i) less than or equal to 4.25 to 1.00, of 3.00% per annum in the
case of LIBOR loans and of 2.00% per annum in the case of annual base rate loans and (ii) greater than 4.25 to 1.00, of
3.25% per annum in the case of LIBOR loans and of 2.25% per annum in the case of annual base rate loans. At
December 31, 2019, our applicable margin on LIBOR loans was 3.25%.
ABL Credit Agreement
The ABL Credit Agreement matures on July 26, 2024 and includes a $250 million revolving loan commitment, subject to
borrowing base limitations based on a percentage of applicable eligible receivables and eligible inventory. Up to $15
million of the ABL Credit Agreement is available for the issuance of letters of credit, of which $4.4 million was utilized
at December 31, 2019. As of December 31, 2019, $217 million was available under the ABL Credit Agreement. We may,
at our option, prepay any borrowings under the ABL Credit Agreement, in whole or in part, at any time and from time to
time without premium or penalty (except in certain circumstances). Borrowings under the ABL Credit Agreement are
also subject to mandatory prepayment in certain circumstances, including in the event that borrowings exceed applicable
borrowing base limits. We may also increase commitments under the ABL Credit Agreement in an aggregate principal
amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other
conditions.
Under the ABL Credit Agreement, loans may bear interest based on LIBOR or an annual base rate, as applicable, plus, in
each case, an applicable margin that is based on availability (as determined under the ABL Credit Agreement) that may
vary from 1.25% per annum to 1.75% per annum in the case of LIBOR loans and 0.25% per annum to 0.75% per annum
in the case of annual base rate loans. In addition, a commitment fee based on unused availability is also payable which
may vary from 0.25% per annum to 0.375% per annum. At December 31, 2019, our weighted average interest rate was
3.0%. At December 31, 2019, we were able to borrow with an applicable margin of 1.25% on LIBOR loans and our
unused commitment fee rate was 0.375%.
The ABL Credit Agreement also contains a financial covenant, which requires us to maintain a consolidated fixed charge
coverage ratio of not less than 1.10 to 1.00, provided that the financial covenant under the ABL Credit Agreement is only
applicable when availability falls below a certain threshold.
2013 NOTES
In 2013, we issued $275 million aggregate principal amount of senior notes (2013 Notes), due February 1, 2023, with an
interest rate of 4.5%.
50
The 2013 Notes are guaranteed by all of our direct and indirect domestic subsidiaries, as well as 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 Term Loan and ABL
Credit Agreements. 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.
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.
2014 NOTES
In 2014, we issued $300 million aggregate principal amount of senior notes (2014 Notes), due February 1, 2025, with an
interest rate of 5.375%.
The 2014 Notes are guaranteed by all of our direct and indirect domestic subsidiaries, as well as any 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 Term Loan and ABL Credit Agreements.
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, to the date of redemption. 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.
PRIOR CREDIT AGREEMENTS
As of December 31, 2018, there was an aggregate of $200 million of borrowings outstanding under our Credit
Agreements, which consisted of short-term base and LIBOR rate loans under our (i) $200 million credit agreement with
Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the Commercial Credit
Agreement); and (ii) $200 million credit agreement with Northwest Farm Credit Services, PCA, as administrative agent,
and the lenders party thereto (the Farm Credit Agreement). As of December 31, 2018, in our Consolidated Balance
Sheet, a $100 million three-year borrowing under the Farm Credit Agreement was included in "Long-term debt" and
$100 million under the Commercial Credit Agreement was included in "short-term debt." These Prior Credit Agreements
were repaid and terminated when we entered into the 2019 Credit Agreements. Scheduled principal payments for debt
and minimum finance lease obligations at the balance sheet date are as follows:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total
December 31, 2019
Debt
17.9
4.6
4.6
279.5
4.5
599.4
910.5
$
$
NOTE 9 Asset Divestiture
In 2018, we completed the sale of our Ladysmith facility for net cash proceeds of approximately $71 million, resulting in
51
a net gain of $24.0 million, which is recorded in "Other operating charges, net." The sale of the Ladysmith facility
consisted of $26.8 million of property, plant and equipment and $3.4 million of inventory and did not qualify for
discontinued operations treatment. Goodwill of $14.0 million and certain identifiable customer relationship intangibles
of $0.9 million associated with the divested mill were written-off. The goodwill and intangible asset charges are
discussed further in Note 5, “Goodwill and Intangible Assets."
As a result of this sale, we recorded an indemnity contingency of $1.4 million which is collateralized with restricted
cash. As of December 31, 2019, this $1.4 million is included in "Restricted cash" on our Consolidated Balance Sheet. As
of December 31, 2018, the $1.4 million was included in "Other assets, net" on our Consolidated Balance Sheet.
NOTE 10 Other Operating Charges, net
The major components of “Other operating charges, net” in the Consolidated Statements of Operations for the years
ended December 31 are reflected in the table below and described in the paragraphs following the table:
(In millions)
Reorganization expenses
Miscellaneous environmental accruals
Directors' equity-based compensation expense (benefit)
Gain on divested assets, net
Costs associated with facility closures
Other
Years Ended December 31,
2019
2018
2017
$
$
2.9
1.0
0.3
—
—
2.1
6.3
$
$
$
8.0
—
(2.3)
(24.0)
—
0.8
(17.5) $
2.3
—
(2.8)
—
16.7
0.6
16.8
2019
During 2019, we recorded a $6.3 million net loss in "Other operating charges, net". The components of the net loss
include:
•
•
expenses of $2.9 million on reorganization expenses, and
expenses of $1.0 million associated with certain environmental liabilities primarily related to asbestos
remediation.
2018
During 2018, we recorded a $17.5 million net gain in "Other operating charges, net". The components of the net credits
include:
•
•
•
income of $2.3 million relating to directors' equity based compensation,
a gain of $24.0 million related to the sale of the Ladysmith facility (see Note 9 "Asset Divestiture" for further
discussion), and
expenses of $8.0 million related to reorganization expenses.
2017
During 2017, we recorded a $16.8 million net loss in "Other operating charges, net". The components of the net loss
include:
•
•
•
income of $2.8 million relating to directors' equity based compensation,
expenses of $2.3 million on reorganization expenses, and
expenses of $16.7 million relating to closures of the Oklahoma facility and the Long Island facility .
52
NOTE 11 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 (OPEB) plans.
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 2019, 2018 and 2017 we made 401(k) contributions on behalf of employees of $16.6 million, $17.2
million, and $16.6 million.
Company-Sponsored Defined Benefit Pension and OPEB Plans
A majority of our salaried employees and a portion of our hourly employees are covered by company-sponsored
noncontributory defined benefit pension 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.
Pension and Other Postretirement Employee Benefit Plans
The following table shows the changes in the benefit obligation, plan assets and funded status for 2019 and 2018 for both
the pension benefit plans and the other postretirement employee benefit plans.
(In millions)
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Benefit obligation at end of year
Changes in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in Consolidated Balance Sheet:
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognized
Amounts recognized in accumulated other
comprehensive loss (pre-tax):
Net actuarial loss (gain)
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2019
2018
2019
2018
$
294.2
2.4
12.4
29.0
(21.5)
316.5
268.8
58.8
0.5
(21.5)
306.6
(9.9) $
$
7.7
(0.4)
(17.2)
(9.9) $
$
317.8
1.8
12.0
(16.3)
(21.1)
294.2
310.9
(21.5)
0.5
(21.1)
268.8
(25.4) $
— $
(0.4)
(25.0)
(25.4) $
$
60.3
0.1
2.8
9.6
(6.4)
66.4
—
—
7.0
(7.0)
—
(66.4) $
— $
(7.0)
(59.4)
(66.4) $
65.1
0.1
2.4
(0.3)
(7.0)
60.3
—
—
7.0
(7.0)
—
(60.3)
—
(7.0)
(53.3)
(60.3)
91.4
$
111.9
$
(5.1) $
(15.0)
$
$
$
$
$
53
The benefit obligation for our pension benefits is the projected benefit obligation based upon credited service as of the
measurement date.
The December 31, 2019 pension funded status was favorably affected by better than expected asset returns, partially
offset by a decrease in the discount rate. The December 31, 2019 OPEB benefit obligation increased as of December 31,
2019 due to a decrease in the discount rate partially offset by the continued payment of benefits.
Information as of December 31 for certain pension plans included above with accumulated benefit obligations in excess
of plan assets were as follows:
(In millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Net Periodic Cost
$
2019
2018
$
178.5
178.5
160.8
294.2
294.2
268.8
Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by
employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted
amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year
earnings from the investment of plan assets using an estimated long-term rate of return.
(In millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial loss (gain)
Settlement
Net periodic cost (income)
$
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2019
2018
2017
2019
2018
2017
$
2.4
$
1.8
$
2.1
$
12.4
(16.5)
—
7.3
—
5.6
12.0
(17.0)
—
10.1
—
6.9
$
$
13.1
(18.8)
—
9.9
—
6.3
$
0.1
2.8
—
—
(0.3)
—
$
2.6
$
$
0.1
2.4
—
(1.7)
(0.9)
—
(0.1) $
0.2
2.7
—
(1.5)
(6.6)
—
(5.2)
The components of net periodic pension expense other than the Service cost component are included in "Non-operating
pension and other post retirement employee benefit income (expense)" in the Consolidated Statements of Operations.
During 2019, 2018, and 2017, $1.5 million, $1.2 million and $1.3 million of net periodic pension and OPEB costs were
charged to "Cost of sales" and $1.0 million, $0.8 million and $0.9 million were charged to "Selling, general and
administrative expenses," in the accompanying Consolidated Statements of Operations.
The estimated net loss 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 is $9.9 million.
54
Assumptions:
Actuarial assumption used to determine
benefit obligation:
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
2019
2018
2017
2019
2018
2017
Discount rate
3.4 %
4.4%
3.9%
3.6 %
4.6%
4.0%
Actuarial assumption used to determine net
periodic pension cost:
Discount rate
Expected return on plan assets
4.4 %
6.0 %
3.9%
6.0%
4.5%
6.8%
4.6 %
—
4.0%
—
4.3%
—
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 2019 OPEB cost was 6.8% in 2019, grading to 3.9% over
approximately 70 years, for participants whose benefits are not provided through HRAs, and 4.5% in 2019 through
2064, then grading to 3.8% after 2064 for participants whose benefits are provided through HRAs. The health care cost
trend rate used to calculate December 31, 2019 OPEB obligations was 5.9% in 2020, grading to 3.8% over
approximately 70 years, for participants whose benefits are not provided through HRAs, and 4.5% in 2019 through 2064,
then grading to 3.8% after 2064 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 millions)
Effect on total of service and interest cost components
Effect on postretirement employee benefit obligation
$
1% Increase
0.2
4.8
$
1% Decrease
(0.2)
(4.2)
The investments of our defined benefit pension plans are held in a Master Trust.
Plan Assets
There have been no changes in the methodologies used during 2019 and 2018. Investments in common and collective
trust funds 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.
55
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 millions)
Cash and cash equivalents
Common and collective trust:
Collective investment funds
Total investments at fair value
(In millions)
Cash and cash equivalents
Common and collective trusts:
Collective investment funds
Total investments at fair value
December 31, 2019
Investments
measured at net asset
value
Level 1
2.0
$
—
2.0
$
— $
304.6
304.6
$
December 31, 2018
Investments
measured at net asset
value
Level 1
2.0
$
—
2.0
$
— $
266.8
266.8
$
$
$
$
$
Total
Total
2.0
304.6
306.6
2.0
266.8
268.8
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 ensuring 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.
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:
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/Government bonds
Liquid reserves
10%-18%
10%-18%
68%-78%
0%-5%
56
Periodically, we review the allocations within these ranges are made to determine what adjustments should be made
based on changing economic and market conditions and specific liquidity requirements.
• Assets are managed by professional investment managers and could be invested in separately managed accounts
or commingled funds.
Assets are 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, 2019, eight investment options held substantially all of the pension funds. Plan assets were
diversified among the various asset classes within the allocation ranges approved by the Benefits Committee.
In 2019, we did not make any contributions to our qualified pension plans, and we currently do not anticipate making
any cash contributions to those plans in 2020. We contributed $0.5 million to our non-qualified pension plan in 2019. We
do not anticipate funding our OPEB plans in 2020 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 millions)
2020
2021
2022
2023
2024
2025-2029
Pension Benefit
Plans
20.5
20.4
20.3
20.3
20.2
96.9
Other
Postretirement
Employee
Benefit Plans
7.0
5.7
4.9
4.5
4.2
18.7
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:
• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of
other participating employers.
•
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by
the remaining participating employers. The number of employers participating in PIUMPF fell from 135 during
2012 to 52 during 2018. We believe that we are now the employer making the largest proportion of total
contributions.
• 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, except when that plan is in "critical" or "critical and
declining" status. In certain circumstances, an employer can also be assessed a statutory withdrawal liability for
a partial withdrawal from a multiemployer pension plan. Based on information available to us as of December
31, 2019, as well as information provided by PIUMPF and IAM NPF 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 and IAM NPF in 2019 would have been in excess of $82 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 and IAM NPF at that time. A withdrawal
57
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, 2019, 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 2019 and 2018 is for a plan’s year-end
as of December 31, 2019 and 2018. 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 2019, the contribution rates for the IAM NPF plan was $4.00. Starting in June 2019, and in accordance with the
Rehabilitation Plan, we began contributing an additional contribution equal to2.5% of our contractual contribution rate.
This additional contribution is scheduled to continue and compound each year while the rehabilitation plan remains in
effect. In 2019, the contribution rates for PIUMPF was $2.79 per hour. Contribution rates for IAM NPF and 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 2018 and 2017. At the date of issuance of our consolidated financial statements, Form 5500
reports for these plans were not available for the 2019 plan year.
PPA Zone
Status
Contributions
(in millions)
Pension
Fund
IAM NPF
PIUMPF1
EIN
Plan
Number
51-6031295
11-6166763
002
001
2019
2018
Red
Red
Green
Red
FIP/
RP Status Pending/
Implemented
Implemented
Implemented
Total Contributions:
2019
2018
2017
$
$
0.3
5.3
5.6
$
$
0.3
5.4
5.7
$
$
0.3
5.8
6.1
Surcharge
Imposed
No
No
1
The associated collective bargaining agreement associated with PIUMPF was ratified in January 2020.
Expiration
Date
of Collective
Bargaining
Agreement
5/31/2023
8/31/2017
58
NOTE 12 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss at the balance sheet dates is comprised of the following:
(In millions)
Balance at December 31, 2017
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive loss, net of tax
Reclassification of the income tax effects of the
Tax Cuts and Jobs Act1
Balance at December 31, 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss), net of tax
Balance at December 31, 2019
$
$
Pension Plan
Adjustments
Other Post
Retirement
Employee Benefit
Plan Adjustments
Total
(59.0) $
(16.3)
7.3
(9.0)
(15.0)
(83.0)
9.8
5.4
15.2
(67.8) $
15.0
$
0.3
(1.8)
(1.5)
2.2
15.7
(7.1)
(0.3)
(7.4)
8.3
$
(44.0)
(16.0)
5.5
(10.5)
(12.8)
(67.3)
2.7
5.1
7.8
(59.5)
1
In February 2018, the FASB issued ASU No. 2018-2, Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained
earnings for stranded tax effects resulting from the December 22, 2017, H.R. 1, Tax Cuts and Jobs Act (the Act). During 2018, we reclassified the income
tax effects of the Act on pension and other postretirement employee benefits within accumulated other comprehensive loss to retained earnings.
NOTE 13 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.
The following table reconciles the number of common shares used in calculating the basic and diluted net earnings per
share:
(In thousands - except per share data)
Basic average common shares outstanding1
Incremental shares due to:
Restricted stock units
Performance shares
Stock options
Diluted average common shares outstanding
Basic net income (loss) per common share
Diluted net income (loss) per common share
2019
16,533
December 31,
2018
16,487
—
—
—
16,533
—
—
—
16,487
$
$
(0.34) $
(0.34) $
(8.72) $
(8.72) $
2017
16,464
22
45
25
16,556
5.91
5.88
Anti-dilutive shares excluded from the calculation were 1.0 million, 0.9 million and 0.5 million for the years ended
December 31, 2019, 2018 and 2017.
1
Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance. See Note 14
"Stockholders' Equity" for further discussion.
NOTE 14 Stockholders' Equity
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock at $0.0001 par value. At December 31, 2019, no
shares of preferred stock have been issued.
59
COMMON STOCK PLANS
We have stock-based compensation plans under which stock options and restricted units are granted. At December 31,
2019, approximately 1.0 million shares were available for future issuance under our current plan.
(In millions)
Year ended December 31,
2019
2018
2017
Total stock-based compensation expense
(selling, general and administrative and other operating charges, net)
$
Income tax benefit related to stock-based compensation
Impact on cash flow due to taxes paid related to net share settlement of
equity awards
$
4.1
1.0
0.4
$
3.3
1.5
0.4
3.6
2.1
1.1
We recognize the compensation costs on a straight-line basis over the requisite service period of the award, which is
generally the vesting term of one to three years.
Restricted Stock Units (Time and Performance Vesting)
We grant restricted awards to certain employees. The awards can either be time vested or vested based upon the
attainment of certain performance metrics over a certain time period. Performance conditions generally are tied to
attainment of certain financial targets such as return on invested capital, free cash flow or other similar measures. Awards
granted under this plan generally have a performance or vesting period of three years from the date of grant. These
awards are eligible to receive dividend equivalent shares.The market value of these grants approximates the fair value.
For awards based upon the achievement of performance goals, the award could range from 0% to 200%. A summary of
the status of outstanding restricted stock units as of December 31, 2019, and changes during the year, is presented below:
Time Vested
Performance-based
Restricted stock units, outstanding at December 31, 2018
Granted
Vested
Forfeited / Canceled1
Restricted stock units, outstanding at December 31, 2019
Deferred shares, outstanding at December 31, 2019
Total units outstanding at December 31, 2019
Weighted
Average
Grant Date
Fair Value
42.09
$
26.64
43.49
33.22
31.76
7.31
28.09
Shares
127,653
139,037
(48,164)
(28,336)
190,190
33,663
223,853
$
Weighted
Average
Grant Date
Fair Value
45.36
$
26.60
46.04
29.09
29.09
Shares
78,430
151,664
—
(53,062)
177,032
—
177,032
1 Forfeited / Canceled performance-based restricted stock units include both shares forfeited due to employees failure to meet requisite service period
and also due to failure to meet required performance measures.
The total fair value of share awards that vested during the years ended December 31, 2019, 2018 and 2017 was $2.1 million,
$2.0 million and $1.1 million.
As of December 31, 2019, there was $3.7 million of total unrecognized compensation cost related to outstanding restricted
stock unit awards. The cost is expected to be recognized over a weighted average period of 1.8 years.
60
Stock Options
Prior to January 1, 2019, we granted options to certain employees. The options are granted at market price at the date of
grant. Options become exercisable over one to three years and expire ten years after the date of grant. The following
table sets out the weighted average assumptions used to estimate the fair value of the options granted using the Black-
Scholes option-pricing model (dividend yield is ignored):
Volatility
The expected volatility is based upon Clearwater Paper's historical
stock prices.
Risk-free interest
rate
Expected life-
years
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 is the approximate mid-point between the
expected vesting time and the remaining contractual life.
2018
2017
35%
30%
2.74%
2.05%
6 years
6 years
A summary of the status of outstanding stock option awards as of December 31, 2019, and changes during the year, is
presented below:
Weighted
Average Exercise
Price
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value
Shares
Outstanding options at December 31, 2018
Granted
Forfeited
Expired
Outstanding options at December 31, 2019
Outstanding and exercisable options at
December 31, 2019
761,934
—
(26,686)
(78,874)
656,374
511,787
$
$
$
49.38
—
42.84
51.81
49.36
51.16
7.2
$
—
6.2
5.8
$
$
—
—
The weighted average grant date fair value of options granted during the years 2018 and 2017 was $14.51 and $18.82.
No options have been exercised over the last three years.
As of December 31, 2019, there was $1.0 million of unrecognized compensation cost related to non-vested stock options.
The cost is expected to be recognized over a weighted average period of 1.0 years.
Director Awards
In connection with joining our Board of Directors, in January 2009 our outside directors at that time were granted an
award of phantom common stock units, which were credited to an account established on behalf of each director and
vested ratably over a three-year period with the final vesting in January 2012. Subsequent equity awards have been
granted annually in May, or on a pro-rata basis as applicable, to our outside directors in the form of phantom common
stock units as part of their annual compensation, which are credited to their accounts. These awards vest ratably over a
one-year period. These accounts will be credited with additional phantom common stock units equal in value to
dividends paid, if any, on the same amount of common stock. Upon separation from service as a director, the vested
portion of the phantom common stock units held by the director in a stock unit account are converted to cash based upon
the then market price of the common stock and paid to the director.
Due to its cash-settlement feature, we account for these awards as liabilities rather than equity and recognize the equity-
based compensation expense or income at the end of each reporting period based on the portion of the award that is
vested and the increase or decrease in the value of our common stock.
We recorded director equity-based compensation expense totaling $0.3 million for the year ended December 31, 2019.
For the years ended December 31, 2018 and 2017, we recorded compensation benefit totaling $2.3 million and $2.8
million.
61
At December 31, 2019, the liability amounts associated with director equity-based compensation included in "Other
long-term obligations" on our Consolidated Balance Sheet was $2.4 million. At December 31, 2018, the liability
amounts associated with director equity-based compensation in "Other long-term obligations" and "Accounts payable
and accrued liabilities" on our Consolidated Balance Sheet were $0.8 million and $1.3 million.
NOTE 15 Commitments and Contingencies
SELF INSURANCE
We are primarily self-insured for workers’ compensation and employee health care liability costs. Self-insurance
liabilities for workers’ compensation are determined based upon a valuation performed by an actuarial firm. The estimate
of future workers’ compensation liabilities incorporates loss development and an estimate associated with incurred but
not yet reported claims. These claims are discounted. Self-insurance liabilities for employee health costs are determined
actuarially based upon claims filed and estimated claims incurred but not yet reported. These claims are not discounted.
PURCHASE OBLIGATIONS
To help mitigate our exposure to market risk for changes in utility commodity pricing, we use firm price contracts to
supply a portion of the natural gas and electricity requirements of our manufacturing facilities, which were reported
through "Cost of sales" on our Consolidated Statements of Operations. As of December 31, 2019, these contracts cover
approximately 43% of our expected average monthly natural gas and electricity needs at the respective manufacturing
facilities through 2020. These contracts qualify for treatment as "normal purchases or normal sales" under authoritative
guidance and thus required no mark-to-market adjustment.
We enter into third-party contracts for certain raw materials, including pulp and chemicals, which may extend beyond
one year. Such contracts are typically negotiated to ensure availability of certain product specifications at market prices
that adjust regularly within reasonable commercial terms. Such agreements may include minimum quantities, but
reductions are permitted when economic or business conditions require reduced production containing the respective raw
material.
NOTE 16 Segment Information
Our businesses are organized into two reportable operating segments: Consumer Products and Pulp and Paperboard. The
reporting segments follow the same accounting policies used for our Consolidated Financial Statements. We evaluate the
performance of our business segments based upon net sales and operating income (loss).
Consumer Products
Our Consumer Products segment manufactures and sells a complete line of at-home tissue products, or retail products,
and away-from-home tissue products, or non-retail products, and parent rolls. Retail products include bath, paper towels,
facial and napkin product categories. Non-retail products include conventional one and two-ply bath tissue, two-ply
paper towels, hard wound towels and dispenser napkins sold to customers with commercial and industrial tissue needs.
Each category is further distinguished according to quality segments: ultra, premium, value and economy.
Pulp and Paperboard
Our Pulp and Paperboard segment manufactures and markets solid bleached sulfate paperboard for the high-end segment
of the packaging industry as well as offers custom sheeting, slitting and cutting of paperboard. Our overall production
consists primarily of folding carton, liquid packaging, cup and plate products and commercial printing grades. The
majority of our Pulp and Paperboard customers are packaging converters, folding carton converters, merchants and
commercial printers.
62
The table below presents information about our reportable segments:
(In millions)
Segment net sales:
Consumer Products
Pulp and Paperboard
Total segment net sales
Operating income (loss):
Consumer Products
Pulp and Paperboard
Corporate
Goodwill impairment
Other operating charges, net
Income (loss) from operations
Depreciation and amortization:
Consumer Products
Pulp and Paperboard
Corporate
Other operating charges, net
Total depreciation and amortization
Assets:
Consumer Products
Pulp and Paperboard
Corporate
Total assets
Capital expenditures:
Consumer Products
Pulp and Paperboard
Corporate
Total capital expenditures
2019
2018
2017
906.8
854.7
1,761.5
$
$
884.8
839.4
1,724.2
$
$
941.9
788.5
1,730.4
(6.6) $
115.3
(57.0)
—
(6.3)
45.4
69.7
39.4
6.5
—
115.6
1,147.1
652.2
78.4
1,877.7
114.9
16.7
131.6
8.5
140.1
$
$
$
$
$
$
$
$
0.3
130.9
(51.5)
(195.1)
17.5
(97.9) $
57.8
37.8
6.3
—
101.9
1,094.1
638.8
55.2
1,788.1
262.7
20.9
283.6
12.1
295.7
$
$
$
$
$
$
46.2
97.5
(55.7)
—
(16.8)
71.2
60.3
34.5
5.6
4.6
105.0
1,069.9
645.4
87.0
1,802.3
107.5
80.8
188.3
11.4
199.7
$
$
$
$
$
$
$
$
$
$
63
For the year-ended December 31, 2019, there were no customers with more than 10% of our total consolidated sales. For
the years ended December 31, 2018 and 2017, one customer was 11.1% and 15.3% of our total consolidated net sales.
Our manufacturing facilities and all other assets are located within the continental United States. We sell and ship our
products to customers in several foreign countries. Net sales, classified by the major geographic areas in which our
customers are located and by major products, were as follows:
(In millions)
Primary geographical markets:
United States
Other Countries
Total Net Sales
Major products:
Retail tissue
Paperboard
Non-retail tissue
Other
Total net sales
$
$
$
2019
2018
2017
1,686.2
75.3
1,761.5
$
$
1,648.6
75.6
1,724.2
$
$
1,650.1
80.3
1,730.4
845.6
$
794.4
$
848.4
56.5
11.0
837.9
88.2
3.7
857.6
788.5
81.1
3.2
$
1,761.5
$
1,724.2
$
1,730.4
NOTE 17 Supplemental Guarantor Financial Information
All of our subsidiaries that are 100% directly and indirectly owned by Clearwater Paper guarantee our 2013 Notes on a
full and unconditional, and joint and several basis. There are no significant restrictions on the ability of the guarantor
subsidiaries to make distributions to Clearwater Paper, the issuer of the 2013 Notes. The following tables present the
results of operations, financial position and cash flows of Clearwater Paper and its subsidiaries, the guarantors
subsidiaries, and the eliminations necessary to arrive at the information for Clearwater Paper on a consolidated basis.
64
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2019
(In millions)
ASSETS
Current assets:
Issuer
Guarantor
Subsidiaries
Eliminations
Total
Cash and cash equivalents
$
20.0
$
— $
— $
Restricted cash
Receivables, net
Taxes receivable
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill and intangible assets, net
Intercompany (payable) receivable
Investment in subsidiary
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt
Accounts payable and accrued liabilities
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Liability for pension and other
postretirement employee benefits
Other long-term obligations
Deferred tax liabilities
TOTAL LIABILITIES
Accumulated other comprehensive loss, net of tax
Stockholders’ equity excluding
accumulated other comprehensive loss
1.4
140.1
0.3
244.1
3.4
409.3
1,188.4
68.2
35.1
(75.3)
179.1
28.2
—
19.0
—
40.0
0.2
59.2
69.3
4.9
16.9
72.6
—
2.6
$
1,833.0
$
225.5
$
—
—
—
(2.7)
—
(2.7)
—
—
—
2.7
(179.1)
(1.7)
(180.8) $
$
17.9
$
— $
— $
242.9
260.8
884.5
62.2
76.6
16.4
100.5
1,401.0
(59.5)
19.6
19.6
—
3.4
—
0.9
22.5
46.4
—
491.5
179.1
—
—
—
—
—
—
(1.7)
(1.7)
—
20.0
1.4
159.1
0.3
281.4
3.6
465.8
1,257.7
73.1
52.0
—
—
29.1
1,877.7
17.9
262.5
280.4
884.5
65.6
76.6
17.3
121.3
1,445.7
(59.5)
(179.1)
(180.8) $
491.5
1,877.7
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,833.0
$
225.5
$
65
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2018
(In millions)
ASSETS
Current assets:
Issuer
Guarantor
Subsidiaries
Eliminations
Total
Cash and cash equivalents
$
22.5
$
— $
— $
128.0
16.7
222.9
3.3
393.4
1,192.7
36.2
(62.9)
175.3
14.8
17.5
—
48.4
0.1
66.0
76.6
23.0
57.8
—
2.6
$
1,749.5
$
226.0
$
—
(10.4)
(5.1)
—
(15.5)
—
—
5.1
(175.3)
(1.7)
(187.4) $
$
122.2
$
— $
— $
305.7
427.9
692.9
78.2
19.3
104.8
1,323.1
(67.3)
31.7
31.7
—
—
0.9
18.1
50.7
—
(10.4)
(10.4)
—
—
—
(1.7)
(12.1)
—
22.5
145.5
6.3
266.2
3.4
443.9
1,269.3
59.2
—
—
15.7
1,788.1
122.2
327.0
449.2
692.9
78.2
20.2
121.2
1,361.7
(67.3)
493.7
1,749.5
$
175.3
226.0
$
(175.3)
(187.4) $
493.7
1,788.1
Receivables, net
Taxes receivable
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill and intangibles assets, net
Intercompany (payable) receivable
Investment in subsidiary
Other assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt
Accounts payable and accrued liabilities
Total current liabilities
Long-term debt
Liability for pension and other
postretirement employee benefits
Other long-term obligations
Deferred tax liabilities
TOTAL LIABILITIES
Accumulated other comprehensive loss, net of tax
Stockholders’ equity excluding
accumulated other comprehensive loss
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $
66
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Year Ended December 31, 2019
(In millions)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Other operating charges, net
Total operating costs and expenses
Income (loss) from operations
Interest expense, net
Debt retirement costs
Non-operating pension and other
postretirement employee benefit income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Issuer
1,653.1
$
Guarantor
Subsidiaries
268.3
$
Eliminations
$
(159.9) $
Total
1,761.5
1,510.3
93.8
6.3
1,610.4
42.7
(44.7)
(2.7)
243.9
19.0
—
262.9
5.4
(0.2)
—
(157.2)
—
—
(157.2)
(2.7)
—
—
(5.7)
(10.4)
(7.7)
3.8
1.1
7.8
8.9
$
$
—
5.2
1.4
—
3.8
—
3.8
$
—
(2.7)
4.0
(3.8)
(10.5)
—
(10.5) $
1,597.0
112.8
6.3
1,716.1
45.4
(44.9)
(2.7)
(5.7)
(7.9)
(2.3)
—
(5.6)
7.8
2.2
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Year Ended December 31, 2018
(In millions)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Other operating charges, net
Goodwill impairment
Total operating costs and expenses
Income (loss) from operations
Interest expense, net
Non-operating pension and other
postretirement employee benefit income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
$
67
Issuer
1,752.3
$
Guarantor
Subsidiaries
194.9
$
Eliminations
$
(223.0) $
Total
1,724.2
1,581.7
87.0
6.5
195.1
1,870.3
(118.0)
(30.2)
(4.9)
(153.1)
5.2
18.3
(140.0)
(10.5)
(150.5) $
173.0
20.8
(24.0)
—
169.8
25.1
(0.5)
—
24.6
6.3
—
18.3
—
18.3
$
(218.0)
—
—
—
(218.0)
(5.0)
—
—
(5.0)
(1.2)
(18.3)
(22.1)
—
(22.1) $
1,536.7
107.8
(17.5)
195.1
1,822.1
(97.9)
(30.7)
(4.9)
(133.5)
10.3
—
(143.8)
(10.5)
(154.3)
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Year Ended December 31, 2017
(In millions)
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Other operating charges, net
Total operating costs and expenses
Income (loss) from operations
Interest expense, net
Non-operating pension and other
postretirement employee benefit income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Equity in earnings of subsidiaries
Net income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Issuer
1,707.3
$
Guarantor
Subsidiaries
242.2
$
Eliminations
$
(219.1) $
Total
1,730.4
1,516.5
90.8
16.8
1,624.1
83.2
(30.8)
1.1
53.5
(34.3)
11.9
99.7
7.8
107.5
$
$
219.9
30.4
—
250.3
(8.1)
(0.6)
—
(8.7)
(20.6)
—
11.9
—
11.9
$
(215.2)
—
—
(215.2)
(3.9)
—
—
(3.9)
(1.5)
(11.9)
(14.3)
—
(14.3) $
1,521.2
121.2
16.8
1,659.2
71.2
(31.4)
1.1
40.9
(56.4)
—
97.3
7.8
105.1
68
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Year Ended December 31, 2019
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and amortization
Equity-based compensation expense
Deferred taxes
Pension and other postretirement employee benefits
Debt retirement costs
Disposal of plant and equipment, net
Other non-cash activity
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in taxes receivable, net
(Increase) decrease in inventory
(Increase) decrease in other current assets
Increase (decrease) in accounts payable and accrued
liabilities
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on short-term debt
Repayments of borrowings on short-term debt
Proceeds from long-term debt, net
Repayment of long-term debt
Investment between parent and subsidiaries
Payments for debt issuance costs
Other, net
Net cash flows from financing activities
Increase (decrease) in cash, cash equivalents
and restricted cash
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at
end of period
Issuer
Guarantor
Subsidiaries
Eliminations
Total
$
1.1
$
3.8
$
(10.5) $
(5.6)
99.5
4.1
(5.0)
1.4
2.7
0.7
2.5
(25.0)
6.0
(27.2)
(0.7)
(25.1)
2.9
37.9
(138.2)
(138.2)
549.3
(657.7)
296.1
(103.0)
15.8
(2.3)
(0.4)
97.8
(2.5)
24.9
16.1
—
4.7
—
—
—
—
11.4
—
6.2
(0.1)
(13.8)
0.1
28.4
(1.9)
(1.9)
—
—
—
—
(26.5)
—
—
(26.5)
—
—
—
—
—
—
—
—
—
—
(10.4)
(0.2)
—
10.4
—
(10.7)
—
—
—
—
—
—
10.7
—
—
10.7
—
—
115.6
4.1
(0.3)
1.4
2.7
0.7
2.5
(13.6)
(4.4)
(21.2)
(0.8)
(28.5)
3.0
55.6
(140.1)
(140.1)
549.3
(657.7)
296.1
(103.0)
—
(2.3)
(0.4)
82.0
(2.5)
24.9
$
22.4
$
— $
— $
22.4
69
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Year Ended December 31, 2018
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Goodwill impairment
Depreciation and amortization
Equity-based compensation expense
Deferred taxes
Pension and other postretirement employee benefits
Gain on divested assets
Disposal of plant and equipment, net
Other non-cash activity
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in taxes receivable, net
(Increase) decrease in inventory
(Increase) decrease in other current assets
Increase (decrease) in accounts payable and accrued
liabilities
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Net proceeds from divested assets
Other, net
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on short-term debt
Repayments of borrowings on short-term debt
Investment between parent and subsidiaries
Payments for debt issuance costs
Other, net
Net cash flows from financing activities
Increase (decrease) in cash, cash equivalents
and restricted cash
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at
end of period
Issuer
Guarantor
Subsidiaries
Eliminations
Total
$
(140.0) $
18.3
$
(22.1) $
(143.8)
195.1
81.8
3.3
15.0
(0.6)
—
0.7
1.5
(3.8)
3.6
1.0
6.4
20.9
(1.2)
183.7
(293.8)
70.9
0.8
(222.1)
630.8
(565.0)
(16.7)
(2.1)
(0.4)
46.6
8.2
16.7
—
20.1
—
(7.9)
—
(25.5)
—
—
(3.5)
—
(10.3)
—
14.7
0.2
6.1
(1.9)
—
—
(1.9)
—
—
(4.2)
—
—
(4.2)
—
—
—
—
—
—
—
—
—
—
—
10.4
1.2
—
(10.4)
—
(20.9)
—
—
—
—
—
—
20.9
—
—
20.9
—
—
195.1
101.9
3.3
7.1
(0.6)
(25.5)
0.7
1.5
(7.3)
14.0
(8.1)
6.4
25.2
(1.0)
168.9
(295.7)
70.9
0.8
(224.0)
630.8
(565.0)
—
(2.1)
(0.4)
63.3
8.2
16.7
$
24.9
$
— $
— $
24.9
70
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Year Ended December 31, 2017
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization
Equity-based compensation expense
Deferred taxes
Pension and other postretirement employee benefits
Disposal of plant and equipment, net
Other non-cash activities
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in taxes receivable, net
(Increase) decrease in inventory
(Increase) decrease in other current assets
Increase (decrease) in accounts payable and accrued
liabilities
Other, net
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Other, net
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on short-term debt
Repayments of borrowings on short-term debt
Purchase of treasury stock
Investment between parent and subsidiaries
Payments for debt issuance costs
Other, net
Net cash flows from financing activities
Increase (decrease) in cash, cash equivalents
and restricted cash
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at
end of period
Issuer
Guarantor
Subsidiaries
Eliminations
Total
$
99.7
$
11.9
$
(14.3) $
97.3
76.9
3.6
(17.0)
(5.1)
0.5
2.9
3.4
(5.1)
(25.2)
(0.6)
31.1
3.4
168.5
(193.8)
0.3
(193.5)
298.3
(278.3)
(4.9)
8.3
(0.1)
(1.2)
22.1
(2.9)
19.6
28.1
—
(23.6)
—
3.6
—
12.5
—
8.4
0.3
(15.6)
(3.1)
22.5
(5.9)
0.6
(5.3)
—
—
—
(20.6)
—
—
(20.6)
(3.4)
3.4
—
—
—
—
—
—
(10.3)
(5.5)
2.0
—
15.8
—
(12.3)
—
—
—
—
—
—
12.3
—
—
12.3
—
—
105.0
3.6
(40.6)
(5.1)
4.1
2.9
5.6
(10.6)
(14.8)
(0.3)
31.3
0.3
178.7
(199.7)
0.9
(198.8)
298.3
(278.3)
(4.9)
—
(0.1)
(1.2)
13.8
(6.3)
23.0
$
16.7
$
— $
— $
16.7
71
NOTE 18 Subsequent Events
In January 2020, the collective bargaining agreements with our employees represented by the United Steelworkers and
International Brotherhood of Electrical Workers in Lewiston were ratified, resulting in the subsequent recognition of $6.6
million retroactive wage expense, which will be recorded as "Other operating charges, net" in the first quarter of 2020.
These new agreements will continue through August 2025.
In the first quarter of 2020, the indemnity contingency associated with our sale of the LadySmith facility was settled,
resulting in the subsequent release of $1.4 million restricted cash and additional gain of $1.4 million to be recorded as
"Other operating charges, net".
72
Financial Results by Quarter (Unaudited)
(In millions —
except per-share
amounts)
Net sales
Gross profit
Income (loss) from
operations
Net income (loss)
Net income (loss) per common share
Basic
Diluted
Sales by segment
Consumer Products
Pulp and Paperboard
Total net sales
Three Months Ended
March 31,
June 30,
September 30,
December 31,
2019
2018
2019
2018
2019
2018
2019
2018
$ 428.8
$ 437.0
$ 452.0
$ 432.1
$ 445.2
$ 426.4
$ 435.5
$ 428.7
44.5
14.4
44.5
11.5
42.2
15.3
44.9
18.4
26.5
(2.4)
3.8
$
2.6
$
(0.4) $
7.0
$
(11.0) $
50.3
46.9
34.3
$
0.23
0.23
0.16
0.16
$
(0.03) $
(0.03)
0.42
0.42
$
(0.66) $
(0.66)
2.09
2.08
51.2
47.9
18.1
(174.7)
2.0
$ (187.7)
0.12
0.12
$ (11.39)
(11.39)
$
$
$
$
$ 223.4
$ 238.9
$ 224.3
$ 221.6
$ 228.5
$ 211.6
$ 230.6
$ 212.7
205.4
198.1
227.7
210.5
216.7
214.8
204.9
216.0
$ 428.8
$ 437.0
$ 452.0
$ 432.1
$ 445.2
$ 426.4
$ 435.5
$ 428.7
Income (loss) from operations by segment
Consumer Products
Pulp and Paperboard
Corporate
Goodwill impairment
Other operating charges, net
Total income (loss) from
operations
Adjusted EBITDA by segment
Consumer Products
Pulp and Paperboard
Corporate
Total EBITDA
$
1.3
$
3.1
$
(5.1) $
(2.6) $
(4.4) $
(1.0) $
1.6
$
29.4
(16.6)
—
0.3
26.4
(13.6)
—
(4.4)
33.5
(12.7)
—
(0.4)
34.3
(13.1)
—
(0.2)
17.1
(13.2)
—
(1.9)
38.4
(12.6)
—
22.1
35.3
(14.5)
—
(4.3)
0.8
31.8
(12.2)
(195.1)
—
$
14.4
$
11.5
$
15.3
$
18.4
$
(2.4) $
46.9
$
18.1
$ (174.7)
$
$
16.0
38.9
$
17.4
35.9
$
12.3
43.0
$
11.6
43.7
$
14.6
28.3
$
13.4
47.6
$
20.2
44.5
15.7
41.5
(15.0)
(12.1)
(11.1)
(11.6)
(11.4)
(11.0)
(13.0)
(10.5)
$
39.9
$
41.2
$
44.2
$
43.7
$
31.5
$
50.0
$
51.7
$
46.7
73
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
74
ITEM 9A. Controls and Procedures
Evaluation of disclosure 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our
management, including our CEO and CFO and with the oversight of the Audit Committee of the Board of Directors, our
management conducted an assessment of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework). Based on our evaluation under the 2013 Framework, our management
concluded that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on
Form 10-K.
Changes in internal control over financial reporting
We periodically review and make changes to our system of internal control over financial reporting, such as
implementing new applications and processes, to make improvements and increase efficiency while ensuring that we
maintain an effective internal control environment. We intend to continue to upgrade our financial applications and
processes periodically, which we believe will allow us to be more efficient and further enhance our internal control over
financial reporting.
Except for these changes and the remediation of the prior year material weaknesses noted below, there was no change in
our internal control over financial reporting during the three months ended December 31, 2019 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Remediation of prior year material weaknesses in internal control over financial reporting
As disclosed in Item 9A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and for each
interim period in Item 4 of our Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 2019, our disclosure controls and procedures were not effective to meet the objectives for which they
were designed, specifically relating to the following material weaknesses in our internal control over financial reporting:
(i) With respect to events and transactions outside the ordinary course of business:
75
a. we did not maintain a sufficient complement of personnel with the appropriate knowledge and experience in
generally accepted accounting principles and their application to our financial reporting processes and related
internal controls; and
b. we did not conduct effective risk assessment that adequately identified, assessed and addressed risks of material
misstatement in the financial statements, including fraud risks and risks from changes in our operations and
organizational structure.
(ii) As a consequence, we did not design and maintain effective process-level controls over the identification and
accounting implications of changes made to payment arrangements with vendors.
During the first nine months of 2019, our management implemented processes and controls to enhance our internal
control over financial reporting. During the fourth quarter of 2019, we completed testing over the operating
effectiveness of those internal controls and concluded that the material weaknesses have been remediated as of
December 31, 2019.
This remediation included the following:
•
Implementing enhanced controls governing our sub-certifications
• Hiring additional accounting personnel and providing enhanced training to increase the depth and experience
within our accounting organization
•
Formalizing a process to identify, document and review complex accounting matters
• Developing and implementing enhanced controls governing our risk management committee and our disclosure
committee, including a formal enterprise risk assessment process
• Designing additional controls over the documentation and application of technical accounting guidance with
particular emphasis on events outside the ordinary course of business, including changes to payment
arrangements with vendors
• Enhancing the communication and coordination among our treasury, financial reporting and supply chain
management organizations with expanded cross-functional involvement and input into period-end disclosures.
76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Clearwater Paper Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Clearwater Paper Corporation and subsidiaries’ (the Company) internal control over financial reporting
as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related
consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial
statements), and our report dated March 6, 2020 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
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’s
Annual 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 are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
77
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.
/s/ KPMG LLP
Seattle, Washington
March 6, 2020
78
ITEM 9B.
Other Information
None.
79
Part III
ITEM 10.
Directors, Executive Officers and Corporate Governance
The following table details the executive officers of the Company as of December 31, 2019:
Name
Age
Title / Position Held
Linda K. Massman
Robert G. Hrivnak
Steve M. Bowden
Michael S. Gadd
Arsen S. Kitch
Kari G. Moyes
53
59
56
55
38
52
President and Chief Executive Officer
Senior Vice President, Finance and Chief Financial Officer
Senior Vice President, General Manager, Pulp and Paperboard Division
Senior Vice President and General Counsel and Corporate Secretary
Senior Vice President, General Manager, Consumer Products Division
Senior Vice President, Human Resources
Linda K. Massman has served as President and Chief Executive Officer, as well as a director, since January 2013. In
2017, Ms. Massman served in the position of board chair for the American Forest & Paper Association (AF&PA), the
national trade association of the forest products industry. Ms. Massman has served as a director of TreeHouse Foods, Inc.
(NYSE:THS) since July 2016 and as a member of its Audit Committee and as Chair of the Audit Committee since 2019.
She served as a member of its Nominating and Governance Committee from 2016 to 2018. Ms. Massman also served as
a director of Black Hills Corporation (NYSE: BKH), an energy company, from January 2015 to July 2018 and was a
member of its Compensation Committee.
Robert G. Hrivnak joined the company in April 2019 as Senior Vice President, Finance and Chief Financial Officer.
From October 2014 to April 2019 Mr. Hrivnak was the Chief Accounting Executive, Vice President and Corporate
Controller for Itron, Inc (NASDAQ: ITRI).
Steve M. Bowden has served as Senior Vice President, General Manager, Pulp and Paperboard Division since October 1,
2018. Prior to joining the company, from September 2016 to November 2017, Mr. Bowden was the North American
Region Vice President - Labels for Constantia Flexibles, which was subsequently acquired by the Multi-Color
Corporation at which he served as President, North America Food and Beverage Division from November 2017 to
September 2018. From March 2013 to September 2016, Mr. Bowden was President and COO of Quality Associates, a
contract packager.
Michael S. Gadd has served as Senior Vice President since May 2011 and General Counsel and Corporate Secretary
since December 2008.
Arsen S. Kitch has served as Senior Vice President, General Manager, Consumer Products Division since May 2018 and
served as Vice President, General Manager, Consumer Products Division from January 2018 to May 2018. He served as
Vice President, Finance and Vice President Financial Planning and Analysis from January 2015 through December 2017,
and served as Senior Director, Strategy and Planning from August 2013 through December 2014.
Kari G. Moyes has served as Senior Vice President, Human Resources since February 2015, and served as Vice
President, Labor Relations from July 2013 through January 2015.
Information regarding our directors is set forth under the heading “Board of Directors” in our definitive proxy statement
for the 2020 Annual Meeting of Stockholders to be held on May 13, 2020, referred to in this report as the 2020 Proxy
Statement, which information is incorporated herein by reference. 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 2020 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 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 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.
80
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.
ITEM 11.
Executive Compensation
Information required by Item 11 of Part III is included under the heading “Executive Compensation Discussion and Analysis”
in our 2020 Proxy Statement relating to our 2020 Annual Meeting of Stockholders to be held on May 13, 2020 and is
incorporated herein by reference.
81
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 2020 Proxy Statement relating to our 2020 Annual Meeting
of Stockholders to be held on May 13, 2020 and is incorporated herein by reference.
The following table provides certain information as of December 31, 2019, 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
1,234,293
$
—
1,234,293
$
49.36
—
49.36
1,032,427
—
1,032,427
1
2
Includes 354,064 performance shares, 656,374 stock options, and 223,855 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 2019, 97,155 stock option awards vested with a weighted average exercise price
of $45.10.
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 2020
Proxy Statement relating to our 2020 Annual Meeting of Stockholders to be held on May 13, 2020 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 2020 Proxy Statement relating to our 2020 Annual Meeting of Stockholders to be held on May 13,
2020 and is incorporated herein by reference.
82
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules
FINANCIAL STATEMENTS
The following financial statements of Clearwater Paper are included in this report:
Consolidated Balance Sheets-December 31, 2019, and 2018.
Consolidated Statements of Operations-years ended December 31, 2019, 2018, and 2017.
Consolidated Statements of Comprehensive Income-years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Cash Flows-years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Stockholders’ Equity-years ended December 31, 2019, 2018 and 2017.
Notes to the Financial Statements.
Report of Independent Registered Public Accounting Firm.
Interim Financial Results (unaudited).
No other financial statement schedules are required to be filed.
83
EXHIBIT
NUMBER
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*
10.1*
10.1(i)*
10.1(ii)*
10.1(iii)*
10.1(iv)*
DESCRIPTION
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 as Exhibit A to Exhibit 4.1
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).
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).
Amendment to Commercial Bank Agreement, effective as of December 31, 2017, 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 January 11, 2018).
Amendment No. 2 to the Credit Agreement and Amendment to the Collateral Agreement,
effective as of June 27, 2018, by and among the financial institutions signatory thereto, Wells
Fargo Bank, National Association and Clearwater Paper Corporation (incorporated by
reference to Exhibit 10(ii) to the Company’s Quarterly Report on Form 10-Q filed with the
Commission on August 7, 2018).
Amendment No. 3 to the Credit Agreement, effective as of August 21, 2018, by and among the
financial institutions signatory thereto, Wells Fargo Bank, National Association and Clearwater
Paper Corporation (incorporated by reference to Exhibit 10(i) to the Company’s Quarterly
Report on Form 10-Q filed with the Commission on November 9, 2018).
Amendment No. 4 to the Credit Agreement, effective as of November 8, 2018, by and among
the financial institutions signatory thereto, Wells Fargo Bank, National Association and
Clearwater Paper Corporation (incorporated by reference to Exhibit 10.1 (iv) to the Company's
Annual Report on Form 10-K filed with the Commission on March 18, 2019).
84
10.1(v)*
10.2*
10.2(i)*
10.2(ii)*
10.2(iii)*
10.2(iv)*
10.2(v)*
10.3*1
10.4*1
10.5*1
10.5(i)*1
10.5(ii)*1
Amendment No. 5 to the Credit Agreement, effective as of June 10, 2019, 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 10-Q filed with the Commission on August 9, 2019).
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).
Amendment to Farm Credit Agreement, effective as of December 31, 2017, 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 January 11, 2018).
Amendment No. 2 to Credit Agreement and Amendment to the Collateral Agreement, effective
as of June 27, 2018, by and among the financial institutions signatory thereto, Northwest Farm
Credit Services, PCA, and Clearwater Paper Corporation (incorporated by reference to Exhibit
10(iii) to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August
7, 2018).
Amendment No. 3 to the Credit Agreement, effective as of August 21, 2018, by and among the
financial institutions signatory thereto, Northwest Farm Credit Services, PCA, and Clearwater
Paper Corporation (incorporated by reference to Exhibit 10(ii) to the Company’s Quarterly
Report on Form 10-Q filed with the Commission on November 9, 2018).
Amendment No. 4 to the Credit Agreement, effective as of November 8, 2018, by and among
the financial institutions signatory thereto, Northwest Farm Credit Services, PCA, and
Clearwater Paper Corporation (incorporated by reference to Exhibit 10.2(iv) to the Company's
Annual Report on Form 10-K filed with the Commission on March 18, 2019).
Amendment No. 5 to the Credit Agreement, effective as of June 10, 2019, by and among the
financial institutions signatory thereto, Northwest Farm Credit Services, PCA, Clearwater
Paper Corporation. (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 10-Q filed with the Commission on August 9, 2019).
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, 2019 (incorporated by reference to Exhibit 10.1(i) to the Company's Quarterly
Report on Form 10-Q filed with the Commission May 8, 2019).
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 (incorporated by reference to Exhibit 10.5(i) to the Company's
Annual Report on Form 10-K filed with the Commission on February 22, 2017).
Clearwater Paper Corporation 2017 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 11,
2017).
85
10.6*1
10.6(i)*1
10.6(ii)*1
10.7*1
10.7(i)*1
10.7(ii)*1
10.7(iii)*1
10.7(iv)*1
10.8*1
10.8(i)*1
10.8(ii)*1
10.8(iii)*1
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 on 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-Form of Performance Share Agreement, as amended and
restated, to be used for annual performance share awards approved subsequent to December
31, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed with the Commission on February 14, 2019).
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 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).
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, 2017
(incorporated by reference to Exhibit 10.7(x) to the Company’s Annual Report on Form 10-K
filed with the Commission on February 21, 2018).
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—Letter of Amendment to
Outstanding 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).
86
10.8(iv)*1
10.8(v)*1
10.9*1
10.9(i)*1
10.10*1
10.11*1
10.11(i)*1
10.12*1
10.13*1
10.13(i)*1
10.14*1
10.14(i)*1
10.15*1
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- Form of Stock Option Agreement, as amended and restated, to
be used for annual restricted stock unit awards approved subsequent to December 31, 2017
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, 2017
(incorporated by reference to Exhibit 10.8(v) to the Company’s Annual Report on Form 10-K
filed with the Commission on February 21, 2018).
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 Quarterly Report
on Form 10-Q filed with the Commission on July 27, 2016).
Amended and Restated Clearwater Paper Corporation Management Deferred Compensation
Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-
K filed with the Commission on February 22, 2017).
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).
Clearwater Paper Amended Executive Severance Plan (incorporated by reference to Exhibit
10(i) to the Company’s Current Report on Form 8-K filed with the Commission on March 9,
2018).
Amended and Restated Clearwater Paper Corporation Salaried Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K
filed with the Commission on February 22, 2017).
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 on
March 18, 2009).
Amendment to the Clearwater Paper Corporation Benefits Protection Trust 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 on October 31, 2013).
Amended and Restated Clearwater Paper Corporation Deferred Compensation Plan for
Directors, (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
Form 8-K filed with the Commission on December 7, 2017).
Amended and Restated Clearwater Paper Corporation Deferred Compensation Plan for
Directors, (incorporated by reference to Exhibit 10(i) to the Company’s Quarterly Report on
Form 10-Q filed with the Commission on August 7, 2018).
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).
87
10.16*1
10.17*
10.18*
10.19*1
10.20*1
(21)
(23)
(24)
(31)
(32)
101
Offer Letter, dated March 18, 2019, with Robert G. Hrivnak. (incorporated by reference to
Exhibit 10.1(ii) to the Company's Quarterly Report on Form 10-Q filed with the Commission
May 8, 2019).
Term Loan Agreement, dated as of July 26, 2019, by and among JPMorgan Chase Bank, N.A.,
as administrative agent, and the lenders party thereto, 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 July 31, 2019).
ABL Credit Agreement, dated as of July 26, 2019 by and among JPMorgan Chase Bank, N.A.,
as administrative agent, and the lenders party thereto, 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 July 31, 2019).
Employment Agreement between Arsen S. Kitch and the Company, dated effective April 1,
2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed with the Commission on January 31, 2020).
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, 2019
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, 2019, is formatted
in XBRL interactive data files: (i) Consolidated Statements of Operations for the years ended
December 31, 2019, 2018 and 2017; (ii) Consolidated Statements of Comprehensive Income
(Loss) for the years ended December 31, 2019, 2018 and 2017; (iii) Consolidated Balance
Sheets at December 31, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the
years ended December 31, 2019, 2018 and 2017, (v) Consolidated Statements of Stockholders’
Equity for the years ended December 31, 2019, 2018 and 2017 and (vi) Notes to Consolidated
Financial Statements.
* Incorporated by reference.
1 Management contract or compensatory plan, contract or arrangement.
88
ITEM 16.
Form 10-K Summary
Not applicable.
89
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: March 6, 2020
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/ Robert G. Hrivnak
Robert G. Hrivnak
Senior Vice President, Finance and Chief
Financial Officer (Principal Financial
Officer)
/s/ Rebecca A. Barckley
Rebecca A Barckley
Vice President, Corporate Controller
(Principal Accounting Officer)
Date
March 6, 2020
March 6, 2020
March 6, 2020
*
Alexander Toeldte
*
Kevin J. Hunt
*
John J. Corkrean
*
John W. Laymon
*
William D. Larsson
*
John P. O'Donnell
Director and Chair of the Board
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
*By
/s/ Michael S. Gadd
Michael S. Gadd
(Attorney-in-fact)
Director
Director
Director
Director
Director
90
Performance Graph
The below graph compares the cumulative total stockholder return of our common stock for the period beginning
December 31, 2014 and ending December 31, 2019, 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, 2014, 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.
Comparison of Cumulative Five Year Total Return*
$200
$150
$100
$50
$0
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
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, 2014, in our common stock and in the indices
and assumes dividends were reinvested.
[THIS PAGE INTENTIONALLY LEFT BLANK]
Corporate Information
MANAGEMENT
Arsen S. Kitch
President and Chief Executive Officer
(Effective April 1, 2020)
STOCK LISTING
Clearwater Paper common stock is listed under the
symbol CLW on the New York Stock Exchange.
Robert G. Hrivnak
Senior Vice President, Finance and Chief Financial Officer
ANNUAL MEETING
Steve M. Bowden
Senior Vice President, General Manager,
Pulp and Paperboard Division
Michael S. Gadd
Senior Vice President, General Counsel
and Corporate Secretary
Kari G. Moyes
Senior Vice President, Human Resources
BOARD OF DIRECTORS
John J. Corkrean
Director since 2019
Kevin J. Hunt
Director since 2013
Arsen S. Kitch
Director since April 1, 2020
William D. Larsson
Director since 2008
Joe W. Laymon
Director since 2019
Linda K. Massman
Director Since 2013
John P. O’Donnell
Director since 2016
Alexander Toeldte
Chair of the Board, Director since 2016
EXECUTIVE OFFICES
601 West Riverside Avenue
Suite 1100
Spokane, WA 9920
Phone: (509) 344-5900
FORWARD-LOOKING STATEMENTS
The 2020 Annual Meeting of Stockholders will be held on
Wednesday, May 13, 2020, at 9:00 a.m. (Pacific Time). The meeting
will be held at 601 W. Riverside Ave., Spokane, WA 99201.
TRANSFER AGENT
MAILING ADDRESSES
Stockholder correspondence should be mailed to:
Computershare
P.O. BOX 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street Suite 1600
Louisville, KY 40202
STOCKHOLDER WEBSITE
www.computershare.com/investor
Stockholder online inquiries
https://www-us.computershare.com/investor/Contact
Toll Free Number
Outside the U.S.
Hearing Impaired
TDD International
866-205-6799
201-680-6578
800-490-1493
781-575-4592
ADDITIONAL INFORMATION
Copies of the company’s filings with the Securities and Exchange
Commission, the company’s Corporate Governance Guidelines, Code
of Business Conduct and Ethics, and Charters of the Committees of
the Board of Directors are available free of charge at the company’s
website, www.clearwaterpaper.com.
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements regarding production from the company’s Shelby, N.C. expansion, innovation and product development,
benefits of debt refinancing including cash flow generation and balance sheet metrics, and sustainability goals, commitment and performance. These
forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our
actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important
factors that could cause or contribute to such differences include those discussed in the “Risk Factors” and “Developments and Trends in Our
Business” sections contained in our Annual Report on Form 10-K for the year ended December 31 2019, which is in this report. Forward-looking
statements contained in this report present management’s views only as of the date of this report. We undertake no obligation to publicly update
forward-looking statements, whether as a result of new information, future events or otherwise.
FSC®-CERTIFIED PAPER
Clearwater Paper Corporation’s Annual Report was printed by Donnelley Financial Solutions entirely on FSC-certified paper. Chain-of-Custody
certificate TT-COC-005939. The Annual Report was printed on Donnelley Financial Opaque Text manufactured from FSC-recycled content.
Clearwater Paper Corporation
601 West Riverside Avenue, Suite 1100
Spokane, WA 99201
www.clearwaterpaper.com