Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2016
or
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¨ | 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)
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Delaware | | 20-3594554 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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601 West Riverside, Suite 1100 Spokane, Washington | | 99201 |
(Address of principal executive offices) | | (Zip Code) |
(509) 344-5900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The number of shares of common stock of the registrant outstanding as of October 21, 2016 was 16,723,173.
CLEARWATER PAPER CORPORATION
Index to Form 10-Q
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PART I. | | |
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ITEM 1. | | |
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Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 | |
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Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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PART II. | | |
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ITEM 1. | | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 6. | | |
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Part I
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ITEM 1. | |
Consolidated Financial Statements |
Clearwater Paper Corporation
Consolidated Statements of Operations
Unaudited (Dollars in thousands - except per-share amounts)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Net sales | $ | 435,320 |
| | $ | 442,222 |
| | $ | 1,309,195 |
| | $ | 1,320,806 |
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Costs and expenses: | | | | | | | |
Cost of sales | (396,605 | ) | | (373,892 | ) | | (1,127,103 | ) | | (1,148,071 | ) |
Selling, general and administrative expenses | (29,435 | ) | | (28,284 | ) | | (94,885 | ) | | (85,379 | ) |
Total operating costs and expenses | (426,040 | ) | | (402,176 | ) | | (1,221,988 | ) | | (1,233,450 | ) |
Income from operations | 9,280 |
| | 40,046 |
| | 87,207 |
| | 87,356 |
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Interest expense, net | (7,520 | ) | | (7,882 | ) | | (22,559 | ) | | (23,438 | ) |
Earnings before income taxes | 1,760 |
| | 32,164 |
| | 64,648 |
| | 63,918 |
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Income tax provision | (859 | ) | | (9,100 | ) | | (24,437 | ) | | (19,500 | ) |
Net earnings | $ | 901 |
| | $ | 23,064 |
| | $ | 40,211 |
| | $ | 44,418 |
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Net earnings per common share: | | | | | | | |
Basic | $ | 0.05 |
| | $ | 1.22 |
| | $ | 2.35 |
| | $ | 2.33 |
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Diluted | 0.05 |
| | 1.21 |
| | 2.33 |
| | 2.30 |
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The accompanying condensed notes are an integral part of these consolidated financial statements.
Clearwater Paper Corporation
Consolidated Statements of Comprehensive Income
Unaudited (Dollars in thousands)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Net earnings | $ | 901 |
| | $ | 23,064 |
| | $ | 40,211 |
| | $ | 44,418 |
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Other comprehensive income: | | | | | | | |
Defined benefit pension and other postretirement employee benefits: | | | | | | | |
Amortization of actuarial loss included in net periodic cost, net of tax of $248, $1,233, $1,113, and $3,700 | 384 |
| | 1,922 |
| | 1,723 |
| | 5,764 |
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Amortization of prior service credit included in net periodic cost, net of tax of $(165), $(206), $(497), and $(617) | (257 | ) | | (321 | ) | | (770 | ) | | (962 | ) |
Settlement, net of tax of $1,054, $ -, $1,054 and $ - | 1,632 |
| | — |
| | 1,632 |
| | — |
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Other comprehensive income, net of tax | 1,759 |
| | 1,601 |
| | 2,585 |
| | 4,802 |
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Comprehensive income | $ | 2,660 |
| | $ | 24,665 |
| | $ | 42,796 |
| | $ | 49,220 |
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The accompanying condensed notes are an integral part of these consolidated financial statements.
Clearwater Paper Corporation
Consolidated Balance Sheets
Unaudited (Dollars in thousands – except per-share amounts)
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| September 30, 2016 | | December 31, 2015 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 331 |
| | $ | 5,610 |
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Restricted cash | — |
| | 2,270 |
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Short-term investments | — |
| | 250 |
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Receivables, net | 134,384 |
| | 139,052 |
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Taxes receivable | 7,634 |
| | 14,851 |
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Inventories | 252,126 |
| | 255,573 |
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Other current assets | 5,414 |
| | 9,331 |
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Total current assets | 399,889 |
| | 426,937 |
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Property, plant and equipment, net | 914,945 |
| | 866,538 |
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Goodwill | 209,087 |
| | 209,087 |
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Intangible assets, net | 16,280 |
| | 19,990 |
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Pension assets | 2,035 |
| | 596 |
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Other assets, net | 5,578 |
| | 4,221 |
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TOTAL ASSETS | $ | 1,547,814 |
| | $ | 1,527,369 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Revolving credit facility borrowings | $ | 13,012 |
| | $ | — |
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Accounts payable and accrued liabilities | 223,803 |
| | 220,368 |
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Current liability for pensions and other postretirement employee benefits | 7,559 |
| | 7,559 |
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Total current liabilities | 244,374 |
| | 227,927 |
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Long-term debt | 569,563 |
| | 568,987 |
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Liability for pensions and other postretirement employee benefits | 85,991 |
| | 89,057 |
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Other long-term obligations | 42,310 |
| | 46,738 |
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Accrued taxes | 1,523 |
| | 1,676 |
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Deferred tax liabilities | 132,850 |
| | 118,118 |
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Stockholders’ equity: | | | |
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares issued | — |
| | — |
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Common stock, par value $0.0001 per share, 100,000,000 authorized shares-24,209,150 and 24,193,098 shares issued | 2 |
| | 2 |
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Additional paid-in capital | 345,164 |
| | 340,095 |
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Retained earnings | 560,518 |
| | 520,307 |
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Treasury stock, at cost, common shares-7,478,877 and 6,380,309 shares repurchased | (381,518 | ) | | (329,990 | ) |
Accumulated other comprehensive loss, net of tax | (52,963 | ) | | (55,548 | ) |
Total stockholders’ equity | 471,203 |
| | 474,866 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,547,814 |
| | $ | 1,527,369 |
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The accompanying condensed notes are an integral part of these consolidated financial statements.
Clearwater Paper Corporation
Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
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| Nine Months Ended |
| September 30, |
| 2016 | | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net earnings | $ | 40,211 |
| | $ | 44,418 |
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Adjustments to reconcile net earnings to net cash flows from operating activities: | | | |
Depreciation and amortization | 65,921 |
| | 62,844 |
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Equity-based compensation expense | 9,826 |
| | 2,495 |
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Deferred tax provision (benefit) | 12,329 |
| | (12,403 | ) |
Employee benefit plans | (500 | ) | | 2,122 |
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Deferred issuance costs on long-term debt | 637 |
| | 714 |
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Disposal of plant and equipment, net | 30 |
| | 1,109 |
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Non-cash adjustments to unrecognized taxes | (153 | ) | | (1,123 | ) |
Changes in working capital, net | 4,045 |
| | 15,471 |
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Changes in taxes receivable, net | 7,217 |
| | 1,255 |
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Excess tax benefits from equity-based payment arrangements | (157 | ) | | (3,848 | ) |
Funding of qualified pension plans | — |
| | (3,179 | ) |
Other, net | (523 | ) | | (2,320 | ) |
Net cash flows from operating activities | 138,883 |
| | 107,555 |
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CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Changes in short-term investments, net | 250 |
| | 40,000 |
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Additions to plant and equipment | (105,514 | ) | | (78,461 | ) |
Proceeds from sale of assets | — |
| | 587 |
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Net cash flows from investing activities | (105,264 | ) | | (37,874 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Purchase of treasury stock | (51,528 | ) | | (84,305 | ) |
Borrowings on revolving credit facility | 944,844 |
| | — |
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Repayments of revolving credit facility borrowings | (931,832 | ) | | — |
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Payment of tax withholdings on equity-based payment arrangements | (488 | ) | | (3,129 | ) |
Excess tax benefits from equity-based payment arrangements | 157 |
| | 3,848 |
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Other, net | (51 | ) | | (9 | ) |
Net cash flows from financing activities | (38,898 | ) | | (83,595 | ) |
Decrease in cash and cash equivalents | (5,279 | ) | | (13,914 | ) |
Cash and cash equivalents at beginning of period | 5,610 |
| | 27,331 |
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Cash and cash equivalents at end of period | $ | 331 |
| | $ | 13,417 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
Cash paid for interest, net of amounts capitalized | $ | 27,240 |
| | $ | 28,429 |
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Cash paid for income taxes | 16,050 |
| | 18,886 |
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Cash received from income tax refunds | 10,543 |
| | 2,104 |
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SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES | | | |
Changes in accrued plant and equipment | $ | 3,834 |
| | $ | 5,165 |
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Unsettled repurchases of common stock | — |
| | 9,527 |
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The accompanying condensed notes are an integral part of these consolidated financial statements.
Clearwater Paper Corporation
Condensed Notes to Consolidated Financial Statements
Unaudited
NOTE 1 Nature of Operations and Basis of Presentation
GENERAL
Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, bleached paperboard and pulp at manufacturing facilities across the nation. The Company is a premier supplier of private label tissue to major retailers and wholesale distributors, including grocery, drug, mass merchants and discount stores. In addition, the Company produces bleached paperboard used by quality-conscious printers and packaging converters.
In the third quarter of 2016, an indemnity escrow account established in connection with the December 2014 sale of our former specialty business and mills was settled, resulting in the release of $2.3 million from a restricted cash escrow account. We recorded a net $1.8 million gain in "Selling, general and administrative expenses" in our Consolidated Statement of Operations for the three and nine months ended September 30, 2016, which included the release of the escrow account less $0.5 million of other settlement related costs.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The accompanying Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, the related Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. We believe that all adjustments necessary for a fair statement of the results of the interim periods presented have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission, or SEC, on February 22, 2016.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant areas requiring the use of estimates and measurement of uncertainty include determination of net realizable value for deferred tax assets, uncertain tax positions, assessment of impairment of long-lived assets, goodwill and intangibles, assessment of environmental matters, equity-based compensation and pension and postretirement obligation assumptions. Actual results could differ from those estimates and assumptions.
CASH AND CASH EQUIVALENTS
We consider all highly liquid instruments with maturities of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS AND RESTRICTED CASH
Our short-term investments are invested primarily in demand deposits, which have very short maturity periods, and therefore earn an interest rate commensurate with low-risk instruments. Our restricted cash in which the underlying instrument has a term of greater than twelve months from the balance sheet date is classified as non-current and is included in “Other assets, net” on our Consolidated Balance Sheet. As discussed above, the indemnity escrow related to the sale of our former specialty business and mills was settled during the three months ended September 30, 2016. Consequently, the $2.3 million restricted cash escrow account, reflected in "Restricted cash" on our Consolidated Balance Sheet at December 31, 2015, was released during the third quarter of 2016, and we had no restricted cash on our Consolidated Balance Sheet at September 30, 2016.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of our customers to make required payments. We generally determine the allowance based on a combination of actual historical write-off experience and an analysis of specific customer accounts. As of September 30, 2016 and December 31, 2015, we had allowances for doubtful accounts of $1.3 million and $1.4 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including any interest costs capitalized, less accumulated depreciation. Depreciation of buildings, equipment and other depreciable assets is determined using the straight-line method. Assets we acquire through business combinations have estimated lives that are typically shorter than the assets we construct or buy new. Accumulated depreciation totaled $1,571.9 million and $1,512.1 million at September 30, 2016 and December 31, 2015, respectively.
For the three and nine months ended September 30, 2016, we capitalized $0.7 million and $1.6 million, respectively, of interest expense associated with the construction of a continuous pulp digester at our Lewiston, Idaho pulp and paperboard facility. For the three and nine months ended September 30, 2015, we capitalized $0.1 million and $0.2 million, respectively, of interest expense associated with this project.
Consistent with authoritative guidance, we assess the carrying amount of long-lived assets with definite lives that are held-for-use and evaluate them for recoverability whenever events or changes in circumstances indicate that we may be unable to recover the carrying amount of the assets.
STOCKHOLDERS’ EQUITY
On December 15, 2015, we announced that our Board of Directors had approved a new stock repurchase program authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. We have no obligation to repurchase stock under this program and may suspend or terminate the program at any time. In total, we have repurchased 1,098,568 shares of our outstanding common stock as of September 30, 2016, pursuant to this repurchase program, of which 263,537 shares were repurchased during the third quarter of 2016 at an average price of $62.08 per share. As of September 30, 2016, we had up to $48.5 million of authorization remaining pursuant to this stock repurchase program.
On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. We completed that program during the fourth quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock under that program at an average price of $53.13 per share.
DERIVATIVES
We had no activity during the nine months ended September 30, 2016 and 2015 that required hedge or derivative accounting treatment. However, 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 requirements for our manufacturing facilities. As of September 30, 2016, these contracts covered approximately 21% of our expected average monthly natural gas requirements for the remainder of 2016. Historically, these contracts have qualified for treatment as “normal purchases or normal sales” under authoritative guidance and thus required no mark-to-market adjustment.
NOTE 2 Recently Adopted and New Accounting Standards
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update amends the guidance in Accounting Standards Codification 230, Statement of Cash Flows, and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted; however, we currently anticipate adopting the standard on its effective date. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which establishes guidance on the measurement and recognition of credit losses on most financial assets. For trade receivables, loans, and held-to-maturity debt securities, the current probable loss recognition methodology is being replaced by an expected credit loss model. The guidance will become effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance is consistent with our current methodology for calculating the allowance on trade receivables, and therefore, we do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The standard requires all excess tax benefits and deficiencies to be recognized discretely as income tax expenses or benefits in the reporting period in which they occur. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We will adopt ASU 2016-09 in the first quarter of 2017 and, based on our preliminary assessment, currently believe the most significant impact of our adoption of ASU 2016-09 to our consolidated financial statements will be to recognize in our provision for income taxes line on our Consolidated Statement of Operations, instead of to consolidated equity, certain tax benefits or tax shortfalls upon a restricted stock award vesting, performance share award settlement, or stock option exercise relative to the deferred tax asset position established.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Based on our preliminary assessment, we determined the adoption will increase both our assets and liabilities presented on our Consolidated Balance Sheets to reflect the ROU assets and corresponding lease liabilities, as well as increase our leasing disclosures. We are continuing our assessment, which may identify other impacts, and we are addressing necessary policy and process changes in preparation for adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is for companies to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, such as service revenue and contract modifications, and clarify guidance for multiple-element arrangements. This standard was originally issued as effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption prohibited. However, in July 2015, the FASB approved deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. In its approval, the FASB also permitted the early adoption of the standard, but not before the original effective date of fiscal years beginning after December 15, 2016. The standard may be applied under either a retrospective or cumulative effect adoption method. We plan on adopting the standard on the deferred effective date under the cumulative effect adoption method. Additionally, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. Based on our preliminary assessment, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial statements. We anticipate enhancing our disclosures upon the adoption of this standard. We are continuing our assessment, which may identify other impacts.
We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable to our business.
NOTE 3 Inventories
Inventories at the balance sheet dates consist of:
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(In thousands) | September 30, 2016 | | December 31, 2015 |
Pulp, paperboard and tissue products | $ | 151,184 |
| | $ | 156,055 |
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Materials and supplies | 80,111 |
| | 80,020 |
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Logs, pulpwood, chips and sawdust | 20,831 |
| | 19,498 |
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| $ | 252,126 |
| | $ | 255,573 |
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NOTE 4 Intangible Assets
Intangible assets at the balance sheet dates are comprised of the following:
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| September 30, 2016 |
(Dollars in thousands, lives in years) | Useful Life | | Historical Cost | | Accumulated Amortization | | Net Balance |
Customer relationships | 9.0 | | $ | 41,001 |
| | $ | (26,195 | ) | | $ | 14,806 |
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Trade names and trademarks | 10.0 | | 3,286 |
| | (1,889 | ) | | 1,397 |
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Non-compete agreements | 5.0 | | 574 |
| | (497 | ) | | 77 |
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| | | $ | 44,861 |
| | $ | (28,581 | ) | | $ | 16,280 |
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| | | | | | | |
| December 31, 2015 |
(Dollars in thousands, lives in years) | Useful Life | | Historical Cost | | Accumulated Amortization | | Net Balance |
Customer relationships | 9.0 | | $ | 41,001 |
| | $ | (22,778 | ) | | $ | 18,223 |
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Trade names and trademarks | 10.0 | | 3,286 |
| | (1,643 | ) | | 1,643 |
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Non-compete agreements | 5.0 | | 574 |
| | (450 | ) | | 124 |
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| | | $ | 44,861 |
| | $ | (24,871 | ) | | $ | 19,990 |
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For the three months ended September 30, 2016 and 2015, intangible assets amortization expense was $1.1 million and $1.0 million, respectively. For the nine months ended September 30, 2016 and 2015, intangible assets amortization expense was $3.2 million and $3.0 million, respectively.
NOTE 5 Income Taxes
Consistent with authoritative guidance, our estimated annual effective tax rate is used to allocate our expected annual income tax provision to interim periods. The rate is the ratio of our estimated annual income tax provision to estimated pre-tax ordinary income and excludes "discrete items," which are significant, unusual or infrequent items reported separately, net of their related tax effect. The estimated annual effective tax rate is applied to the current interim period’s ordinary income to determine the income tax provision allocated to the interim period. The income tax effects of discrete items are then determined separately and recognized in the interim period in which the income or expense items arise.
Our quarterly tax provision and our quarterly estimate of our annual effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and taxable income. During the quarter, we recorded the year-to-date impact of a 0.4% increase to the estimated annual effective tax rate. For the three months ended September 30, 2016, low pre-tax income due primarily to our major maintenance in the period, coupled with immaterial adjustments to permanent items in the period arising from the change in the estimated annual effective rate, resulted in a quarterly tax rate of 48.8%. Our estimated annual effective tax rate for 2016 is approximately 36%.
NOTE 6 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at the balance sheet dates consist of:
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(In thousands) | September 30, 2016 | | December 31, 2015 |
Trade accounts payable | $ | 145,475 |
| | $ | 128,045 |
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Accrued wages, salaries and employee benefits | 40,368 |
| | 43,997 |
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Accrued discounts and allowances | 11,848 |
| | 8,954 |
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Accrued utilities | 6,576 |
| | 7,536 |
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Accrued taxes other than income taxes payable | 6,312 |
| | 5,112 |
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Accrued interest | 4,874 |
| | 11,981 |
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Other | 8,350 |
| | 14,743 |
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| $ | 223,803 |
| | $ | 220,368 |
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NOTE 7 Debt
REVOLVING CREDIT FACILITY
As of September 30, 2016 there were $13.0 million in borrowings outstanding under the credit facility. As of December 31, 2015, there were no borrowings outstanding under the credit facility. As of September 30, 2016, $4.8 million of the credit facility was being used to support outstanding standby letters of credit. Loans under the credit facility bear interest (i) for LIBOR loans, at LIBOR plus between 1.25% and 1.75% and (ii) for base rate loans, a per annum rate equal to the greater of the following rates plus between 0.25% and 0.75%: (a) the rate of interest announced by Bank of America from time to time as its prime rate for such day; (b) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers for such day, plus 0.50%; or (c) LIBOR for a 30-day interest period as determined on such day, plus 1.00%. The percentage margin on all loans is based on our fixed charge coverage ratio for the most recent four quarters. As of September 30, 2016, we would have been permitted to draw an additional $107.1 million under the credit facility at LIBOR plus 1.25%, or base rate plus 0.25%.
NOTE 8 Other Long-Term Obligations
Other long-term obligations at the balance sheet dates consist of:
|
| | | | | | | |
(In thousands) | September 30, 2016 | | December 31, 2015 |
Long-term lease obligations, net of current portion | $ | 23,395 |
| | $ | 24,054 |
|
Deferred compensation | 8,724 |
| | 10,755 |
|
Deferred proceeds | 7,687 |
| | 9,386 |
|
Other | 2,504 |
| | 2,543 |
|
| $ | 42,310 |
| | $ | 46,738 |
|
NOTE 9 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, is comprised of the following:
|
| | | | | | | |
(In thousands) | Pension and Other Post Retirement Employee Benefit Plan Adjustments | | Total |
Balance at December 31, 2015 | $ | (55,548 | ) | | $ | (55,548 | ) |
Other comprehensive income, before reclassifications1 | 953 |
| | 953 |
|
Amounts reclassified from accumulated other comprehensive loss2 | 1,632 |
| | 1,632 |
|
Other comprehensive income, net of tax | 2,585 |
| | 2,585 |
|
Balance at September 30, 2016 | $ | (52,963 | ) | | $ | (52,963 | ) |
| | | |
| Pension and Other Post Retirement Employee Benefit Plan Adjustments | | Total |
Balance at December 31, 2014 | $ | (70,863 | ) | | $ | (70,863 | ) |
Other comprehensive income, net of tax1 | 4,802 |
| | 4,802 |
|
Balance at September 30, 2015 | $ | (66,061 | ) | | $ | (66,061 | ) |
| |
1 | For the nine months ended September 30, 2016 and 2015, net periodic costs associated with our pension and other postretirement employee benefit, or OPEB, plans included in other comprehensive income and reclassified from accumulated other comprehensive loss included $2.8 million and $9.5 million, respectively, of actuarial loss amortization, as well as $1.3 million and $1.6 million, respectively, of prior service credit amortization, all net of tax totaling $0.6 million and $3.1 million, respectively. These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs in Note 10, “Pension and Other Postretirement Employee Benefit Plans.” |
| |
2 | Included in "Amounts reclassified from accumulated other comprehensive loss" above for the nine months ended September 30, 2016 is settlement expense of $3.5 million associated with the remeasurement of our salaried pension plan, which is discussed further in Note 10, “Pension and Other Postretirement Employee Benefit Plans.” The remeasurement resulted in a settlement loss of $0.8 million recorded to the pension liability and reclassified from accumulated other comprehensive loss. The settlement expense and corresponding remeasurement are net of tax totaling $1.1 million. |
NOTE 10 Pension and Other Postretirement Employee Benefit Plans
The following table details the components of net periodic cost of our company-sponsored pension and OPEB plans for the periods presented:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(In thousands) | 2016 | | 2015 | | 2016 | | 2015 |
| Pension Benefit Plans | | Other Postretirement Employee Benefit Plans |
Service cost | $ | 391 |
| | $ | 311 |
| | $ | 62 |
| | $ | 91 |
|
Interest cost | 3,518 |
| | 3,483 |
| | 730 |
| | 970 |
|
Expected return on plan assets | (4,847 | ) | | (5,029 | ) | | — |
| | — |
|
Amortization of prior service cost (credit) | 6 |
| | 18 |
| | (428 | ) | | (545 | ) |
Amortization of actuarial loss (gain) | 2,865 |
| | 3,155 |
| | (2,233 | ) | | — |
|
Settlement | 3,482 |
| | — |
| | — |
| | — |
|
Net periodic cost | $ | 5,415 |
| | $ | 1,938 |
| | $ | (1,869 | ) | | $ | 516 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(In thousands) | 2016 | | 2015 | | 2016 | | 2015 |
| Pension Benefit Plans | | Other Postretirement Employee Benefit Plans |
Service cost | $ | 1,171 |
| | $ | 934 |
| | $ | 187 |
| | $ | 272 |
|
Interest cost | 10,779 |
| | 10,448 |
| | 2,306 |
| | 2,910 |
|
Expected return on plan assets | (14,608 | ) | | (15,087 | ) | | (1 | ) | | — |
|
Amortization of prior service cost (credit) | 17 |
| | 54 |
| | (1,284 | ) | | (1,633 | ) |
Amortization of actuarial loss (gain) | 8,510 |
| | 9,464 |
| | (5,674 | ) | | — |
|
Settlement | 3,482 |
| | — |
| | — |
| | — |
|
Net periodic cost | $ | 9,351 |
| | $ | 5,813 |
| | $ | (4,466 | ) | | $ | 1,549 |
|
During the nine months ended September 30, 2016, we made no contributions to our qualified pension plans. During the nine months ended September 30, 2015, we made contributions of $3.2 million to our qualified pension plans. We do not expect, nor are we required, to make contributions in 2016.
During the nine months ended September 30, 2016, we made contributions of $0.3 million to our company-sponsored non-qualified pension plan. We estimate contributions will total $0.4 million in 2016. We do not anticipate funding our OPEB plans in 2016 except to pay benefit costs as incurred during the year by plan participants.
During the three and nine months ended September 30, 2016, less than $0.1 million and $0.8 million, respectively, of net periodic pension and OPEB costs were charged to "Cost of sales," and $0.1 million and $0.6 million, respectively, were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations, excluding the settlement charge discussed below. During the three and nine months ended September 30, 2015, $1.7 million and $5.1 million, respectively, of net periodic pension and OPEB costs were charged to "Cost of sales" and $0.8 million and $2.3 million, respectively, were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations.
We announced a voluntary, limited-time opportunity for former employees who are vested participants in certain of our qualified pension plans to request early payment of their entire pension plan benefit in the form of a single lump sum payment. The amount of total payments under this program totaled approximately $10.6 million for salaried employees and $4.8 million for hourly employees and were made from the applicable plan's trust assets during the third quarter of 2016. Based on the level of payments made, settlement accounting rules applied to our salaried plan and resulted in a remeasurement of that plan as of August 31, 2016.
As a result of the plan remeasurement, the net salaried plan liability, included in the "Liabilities for pensions and other postretirement employee benefits" balance in our accompanying Consolidated Balance Sheet, increased $0.8 million primarily due to a decrease in the discount rate. The discount rate used in the salaried plan remeasurement was 3.80%, compared to 4.70% at December 31, 2015. The increase in the net salaried plan liability was offset by asset returns and other year to date activity for the salaried pension plan.
Additionally, as a result of settlement accounting, we recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $3.5 million non-cash charge to our earnings in the third quarter of 2016. This settlement charge was recorded to "Cost of sales" and "Selling, general and administrative expenses" for $1.9 million and $1.6 million, respectively, in our Consolidated Statement of Operations for the three and nine months ended September 30, 2016.
NOTE 11 Earnings per Common Share
Basic earnings per share are based on the weighted average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted average number of shares of common stock outstanding plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method.
The following table reconciles the number of common shares used in calculating the basic and diluted net earnings per share:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Basic average common shares outstanding1 | 16,844,920 |
| | 18,860,017 |
| | 17,141,329 |
| | 19,088,348 |
|
Incremental shares due to: | | | | | | | |
Restricted stock units | 54,796 |
| | 89,727 |
| | 35,853 |
| | 78,147 |
|
Performance shares | 104,476 |
| | 140,851 |
| | 74,604 |
| | 117,543 |
|
Stock options | 55,466 |
| | — |
| | 1,148 |
| | 54 |
|
Diluted average common shares outstanding | 17,059,658 |
| | 19,090,595 |
| | 17,252,934 |
| | 19,284,092 |
|
| | | | | | | |
Basic net earnings per common share | $ | 0.05 |
| | $ | 1.22 |
| | $ | 2.35 |
| | $ | 2.33 |
|
Diluted net earnings per common share | 0.05 |
| | 1.21 |
| | 2.33 |
| | 2.30 |
|
| | | | | | | |
Anti-dilutive shares excluded from calculation | 5,783 |
| | 282,769 |
| | 502,293 |
| | 309,018 |
|
| |
1 | Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance. |
NOTE 12 Equity-Based Compensation
We recognize equity-based compensation expense for all equity-based payment awards made to employees and directors, including restricted stock units, or RSUs, performance shares and stock options, based on estimated fair values.
EMPLOYEE AWARDS
Employee equity-based compensation expense was recognized as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Restricted stock units | $ | 352 |
| | $ | 572 |
| | $ | 1,012 |
| | $ | 1,535 |
|
Performance shares | 877 |
| | 1,182 |
| | 2,313 |
| | 3,225 |
|
Stock options | 792 |
| | 636 |
| | 2,076 |
| | 1,577 |
|
Total employee equity-based compensation | $ | 2,021 |
| | $ | 2,390 |
| | $ | 5,401 |
| | $ | 6,337 |
|
During the first nine months of 2016, 3,000 RSUs were settled and distributed in the first quarter, 20,000 were settled and distributed in the second quarter, and 1,250 were settled and distributed in the third quarter. After adjusting for minimum tax withholdings, a net 1,892 shares, 13,252 shares, and 908 shares were issued during each respective period. For the nine months ended September 30, 2016, the minimum tax withholding payments made totaled $0.5 million.
The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2008 Stock Incentive Plan during the nine months ended September 30, 2016 and the grant-date fair value of the awards:
|
| | | | | | |
| Nine Months Ended |
| September 30, 2016 |
| Number of Shares Subject to Award | | Average Fair Value of Award Per Share |
Restricted stock units | 44,627 |
| | $ | 39.10 |
|
Performance shares | 93,397 |
| | 39.70 |
|
Stock options | 280,191 |
| | 14.42 |
|
DIRECTOR AWARDS
Annually, each outside member of our Board of Directors receives deferred equity-based awards that are measured in units of our common stock and ultimately settled in cash at the time of payment. Accordingly, the compensation expense associated with these awards is subject to fluctuations each quarter based on mark-to-market adjustments at each reporting period in line with changes in the market price of our common stock. As a result of the mark-to-market adjustment, we recorded director equity-based compensation expense of $0.1 million and a benefit of $1.9 million for the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, we recorded director equity-based compensation expense of $4.4 million and a benefit of $3.8 million, respectively.
As of September 30, 2016, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" on the accompanying Consolidated Balance Sheet were $7.6 million and $3.2 million, respectively. At December 31, 2015, all liability amounts associated with director equity-based compensation were included in "Other long-term obligations" totaled $9.4 million.
NOTE 13 Fair Value Measurements
The estimated fair values of our financial instruments at the dates presented below are as follows:
|
| | | | | | | | | | | | | | | |
| September 30, | | December 31, |
| 2016 | | 2015 |
| Carrying | | Fair | | Carrying | | Fair |
(In thousands) | Amount | | Value | | Amount | | Value |
Cash and cash equivalents, restricted cash and short-term investments (Level 1) | $ | 331 |
| | $ | 331 |
| | $ | 8,130 |
| | $ | 8,130 |
|
Revolving credit facility borrowings (Level 1) | 13,012 |
| | 13,012 |
| | — |
| | — |
|
Long-term debt (Level 1) | 575,000 |
| | 580,875 |
| | 575,000 |
| | 558,250 |
|
Accounting guidance establishes a framework for measuring the fair value of financial instruments, providing a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities, or “Level 1” measurements, followed by quoted prices of similar assets or observable market data, or “Level 2” measurements, and the lowest priority to unobservable inputs, or “Level 3” measurements.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should seek to maximize the use of observable inputs and minimize the use of unobservable inputs.
NOTE 14 Business Interruption and Insurance Recovery
On July 6, 2016, our Lewiston, Idaho facility experienced an electrical incident that caused a complete plant-wide power outage. Power was restored in approximately 18 hours. However, damage to certain equipment limited pulping operations throughout the remainder of July. In addition to repair costs, we incurred other various costs, including incremental pulp replacement costs, incremental natural gas costs, lost electrical generation and increased labor, chemical and wood costs. We maintain property and business interruption insurance and filed a claim with our insurance provider to recover the cost of repairs to the equipment and estimated lost profits due to the disruption of the operations during the repair period. All associated costs and insurance recoveries were recorded in "Cost of sales" in our Consolidated Statement of Operations and included in the "Net earnings" line in our Consolidated Statement of Cash Flows. The insurance claim for this event totaled $8.5 million.
The claim was settled in its entirety in September 2016, and, net of the policy deductible and certain exclusions totaling $3.5 million, we received $5.0 million from our property insurance provider as final payment of the claim.
NOTE 15 Segment Information
The table below presents information about our reportable segments:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Segment net sales: | | | | | | | |
Consumer Products | $ | 253,319 |
| | $ | 247,039 |
| | $ | 746,249 |
| | $ | 721,606 |
|
Pulp and Paperboard | 182,001 |
| | 195,183 |
| | 562,946 |
| | 599,200 |
|
Total segment net sales | $ | 435,320 |
| | $ | 442,222 |
| | $ | 1,309,195 |
| | $ | 1,320,806 |
|
| | | | | | | |
Operating income (loss): | | | | | | | |
Consumer Products | $ | 17,201 |
| | $ | 15,521 |
| | $ | 54,135 |
| | $ | 44,948 |
|
Pulp and Paperboard | 9,956 |
| | 37,446 |
| | 85,151 |
| | 81,394 |
|
| 27,157 |
| | 52,967 |
| | 139,286 |
| | 126,342 |
|
Corporate1 | (17,877 | ) | | (12,921 | ) | | (52,079 | ) | | (38,986 | ) |
Income from operations | $ | 9,280 |
| | $ | 40,046 |
| | $ | 87,207 |
| | $ | 87,356 |
|
| | | | | | | |
Depreciation and amortization: | | | | | | | |
Consumer Products | $ | 15,022 |
| | $ | 14,048 |
| | $ | 42,984 |
| | $ | 40,463 |
|
Pulp and Paperboard | 6,530 |
| | 6,535 |
| | 19,346 |
| | 20,583 |
|
Corporate | 1,195 |
| | 621 |
| | 3,591 |
| | 1,798 |
|
Total depreciation and amortization | $ | 22,747 |
| | $ | 21,204 |
| | $ | 65,921 |
| | $ | 62,844 |
|
| |
1 | For the three and nine months ended September 30, 2016, corporate expenses include $3.5 million of settlement expense associated with a lump sum buyout for term-vested participants of our salaried plan, which is discussed further in Note 10, "Pension and Other Postretirement Employee Benefit Plans." |
NOTE 16 Supplemental Guarantor Financial Information
All of our direct and indirect subsidiaries guarantee our $275 million aggregate principal amount of 4.5% senior notes issued in January 2013 and due 2023, which we refer to as the 2013 Notes, on a joint and several basis. There are no significant restrictions on the ability of the guarantor subsidiaries to make distributions to Clearwater Paper, the issuer of the 2013 Notes. The following tables present the results of operations, financial position and cash flows of Clearwater Paper and its subsidiaries, the guarantor and non-guarantor entities, and the eliminations necessary to arrive at the information for Clearwater Paper on a consolidated basis.
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | Guarantor | | | | |
(In thousands) | Issuer | | Subsidiaries | | Eliminations | | Total |
Net sales | $ | 421,617 |
| | $ | 70,912 |
| | $ | (57,209 | ) | | $ | 435,320 |
|
Cost and expenses: | | | | | | | |
Cost of sales | (388,817 | ) | | (64,997 | ) | | 57,209 |
| | (396,605 | ) |
Selling, general and administrative expenses | (27,453 | ) | | (1,982 | ) | | — |
| | (29,435 | ) |
Total operating costs and expenses | (416,270 | ) | | (66,979 | ) | | 57,209 |
| | (426,040 | ) |
Income from operations | 5,347 |
| | 3,933 |
| | — |
| | 9,280 |
|
Interest expense, net | (7,411 | ) | | (109 | ) | | — |
| | (7,520 | ) |
(Loss) earnings before income taxes | (2,064 | ) | | 3,824 |
| | — |
| | 1,760 |
|
Income tax benefit (provision) | 661 |
| | (1,520 | ) | | — |
| | (859 | ) |
Equity in income of subsidiary | 2,304 |
| | — |
| | (2,304 | ) | | — |
|
Net earnings | $ | 901 |
| | $ | 2,304 |
| | $ | (2,304 | ) | | $ | 901 |
|
Other comprehensive income, net of tax | 1,759 |
| | — |
| | — |
| | 1,759 |
|
Comprehensive income | $ | 2,660 |
| | $ | 2,304 |
| | $ | (2,304 | ) | | $ | 2,660 |
|
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | Guarantor | | | | |
(In thousands) | Issuer | | Subsidiaries | | Eliminations | | Total |
Net sales | $ | 1,266,300 |
| | $ | 216,361 |
| | $ | (173,466 | ) | | $ | 1,309,195 |
|
Cost and expenses: | | | | | | | |
Cost of sales | (1,102,229 | ) | | (198,340 | ) | | 173,466 |
| | (1,127,103 | ) |
Selling, general and administrative expenses | (85,107 | ) | | (9,778 | ) | | — |
| | (94,885 | ) |
Total operating costs and expenses | (1,187,336 | ) | | (208,118 | ) | | 173,466 |
| | (1,221,988 | ) |
Income from operations | 78,964 |
| | 8,243 |
| | — |
| | 87,207 |
|
Interest expense, net | (22,427 | ) | | (132 | ) | | — |
| | (22,559 | ) |
Earnings before income taxes | 56,537 |
| | 8,111 |
| | — |
| | 64,648 |
|
Income tax provision | (20,933 | ) | | (3,504 | ) | | — |
| | (24,437 | ) |
Equity in income of subsidiary | 4,607 |
| | — |
| | (4,607 | ) | | — |
|
Net earnings | $ | 40,211 |
| | $ | 4,607 |
| | $ | (4,607 | ) | | $ | 40,211 |
|
Other comprehensive income, net of tax | 2,585 |
| | — |
| | — |
| | 2,585 |
|
Comprehensive income | $ | 42,796 |
| | $ | 4,607 |
| | $ | (4,607 | ) | | $ | 42,796 |
|
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended September 30, 2015
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | Guarantor | | | | |
(In thousands) | Issuer | | Subsidiaries | | Eliminations | | Total |
Net sales | $ | 450,055 |
| | $ | 77,261 |
| | $ | (85,094 | ) | | $ | 442,222 |
|
Cost and expenses: | | | | | | | |
Cost of sales | (393,237 | ) | | (65,749 | ) | | 85,094 |
| | (373,892 | ) |
Selling, general and administrative expenses | (25,130 | ) | | (3,154 | ) | | — |
| | (28,284 | ) |
Total operating costs and expenses | (418,367 | ) | | (68,903 | ) | | 85,094 |
| | (402,176 | ) |
Income from operations | 31,688 |
| | 8,358 |
| | — |
| | 40,046 |
|
Interest expense, net | (7,847 | ) | | (35 | ) | | — |
| | (7,882 | ) |
Earnings before income taxes | 23,841 |
| | 8,323 |
| | — |
| | 32,164 |
|
Income tax (provision) benefit | (4,616 | ) | | 153 |
| | (4,637 | ) | | (9,100 | ) |
Equity in income of subsidiary | 8,476 |
| | — |
| | (8,476 | ) | | — |
|
Net earnings | $ | 27,701 |
| | $ | 8,476 |
| | $ | (13,113 | ) | | $ | 23,064 |
|
Other comprehensive income, net of tax | 1,601 |
| | — |
| | — |
| | 1,601 |
|
Comprehensive income | $ | 29,302 |
| | $ | 8,476 |
| | $ | (13,113 | ) | | $ | 24,665 |
|
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2015
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | Guarantor | | | | |
(In thousands) | Issuer | | Subsidiaries | | Eliminations | | Total |
Net sales | $ | 1,246,886 |
| | $ | 220,860 |
| | $ | (146,940 | ) | | $ | 1,320,806 |
|
Cost and expenses: | | | | | | | |
Cost of sales | (1,086,997 | ) | | (208,014 | ) | | 146,940 |
| | (1,148,071 | ) |
Selling, general and administrative expenses | (75,349 | ) | | (10,030 | ) | | — |
| | (85,379 | ) |
Total operating costs and expenses | (1,162,346 | ) | | (218,044 | ) | | 146,940 |
| | (1,233,450 | ) |
Income from operations | 84,540 |
| | 2,816 |
| | — |
| | 87,356 |
|
Interest expense, net | (23,329 | ) | | (109 | ) | | — |
| | (23,438 | ) |
Earnings before income taxes | 61,211 |
| | 2,707 |
| | — |
| | 63,918 |
|
Income tax provision | (17,525 | ) | | (1,030 | ) | | (945 | ) | | (19,500 | ) |
Equity in income of subsidiary | 1,677 |
| | — |
| | (1,677 | ) | | — |
|
Net earnings | $ | 45,363 |
| | $ | 1,677 |
| | $ | (2,622 | ) | | $ | 44,418 |
|
Other comprehensive income, net of tax | 4,802 |
| | — |
| | — |
| | 4,802 |
|
Comprehensive income | $ | 50,165 |
| | $ | 1,677 |
| | $ | (2,622 | ) | | $ | 49,220 |
|
Clearwater Paper Corporation
Consolidating Balance Sheet
At September 30, 2016 |
| | | | | | | | | | | | | | | |
| | | | | | | |
(In thousands) | Issuer | | Guarantor Subsidiaries | | Eliminations | | Total |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 331 |
| | $ | — |
| | $ | — |
| | $ | 331 |
|
Receivables, net | 119,848 |
| | 14,536 |
| | — |
| | 134,384 |
|
Taxes receivable | 10,043 |
| | 38 |
| | (2,447 | ) | | 7,634 |
|
Inventories | 216,702 |
| | 35,424 |
| | — |
| | 252,126 |
|
Other current assets | 4,912 |
| | 502 |
| | — |
| | 5,414 |
|
Total current assets | 351,836 |
| | 50,500 |
| | (2,447 | ) | | 399,889 |
|
Property, plant and equipment, net | 777,014 |
| | 137,931 |
| | — |
| | 914,945 |
|
Goodwill | 209,087 |
| | — |
| | — |
| | 209,087 |
|
Intangible assets, net | 3,396 |
| | 12,884 |
| | — |
| | 16,280 |
|
Intercompany (payable) receivable | (5,026 | ) | | 5,026 |
| | — |
| | — |
|
Investment in subsidiary | 144,365 |
| | — |
| | (144,365 | ) | | — |
|
Pension assets | 2,035 |
| | — |
| | — |
| | 2,035 |
|
Other assets, net | 5,781 |
| | 1,154 |
| | (1,357 | ) | | 5,578 |
|
TOTAL ASSETS | $ | 1,488,488 |
| | $ | 207,495 |
| | $ | (148,169 | ) | | $ | 1,547,814 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Revolving credit facility borrowings | $ | 13,012 |
| | $ | — |
| | $ | — |
| | $ | 13,012 |
|
Accounts payable and accrued liabilities | 201,752 |
| | 24,498 |
| | (2,447 | ) | | 223,803 |
|
Current liability for pensions and other postretirement employee benefits | 7,559 |
| | — |
| | — |
| | 7,559 |
|
Total current liabilities | 222,323 |
| | 24,498 |
| | (2,447 | ) | | 244,374 |
|
Long-term debt | 569,563 |
| | — |
| | — |
| | 569,563 |
|
Liability for pensions and other postretirement employee benefits | 85,991 |
| | — |
| | — |
| | 85,991 |
|
Other long-term obligations | 41,961 |
| | 349 |
| | — |
| | 42,310 |
|
Accrued taxes | 708 |
| | 815 |
| | — |
| | 1,523 |
|
Deferred tax liabilities | 96,739 |
| | 37,468 |
| | (1,357 | ) | | 132,850 |
|
Stockholders' equity excluding accumulated other comprehensive loss | 524,166 |
| | 144,365 |
| | (144,365 | ) | | 524,166 |
|
Accumulated other comprehensive loss, net of tax | (52,963 | ) | | — |
| | — |
| | (52,963 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,488,488 |
| | $ | 207,495 |
| | $ | (148,169 | ) | | $ | 1,547,814 |
|
Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2015
|
| | | | | | | | | | | | | | | |
(In thousands) | Issuer | | Guarantor Subsidiaries | | Eliminations | | Total |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash | $ | 5,610 |
| | $ | — |
| | $ | — |
| | $ | 5,610 |
|
Restricted cash | 2,270 |
| | — |
| | — |
| | 2,270 |
|
Short-term investments | 250 |
| | — |
| | — |
| | 250 |
|
Receivables, net | 123,131 |
| | 15,921 |
| | — |
| | 139,052 |
|
Taxes receivable | 16,221 |
| | (1,370 | ) | | — |
| | 14,851 |
|
Inventories | 219,130 |
| | 36,443 |
| | — |
| | 255,573 |
|
Other current assets | 8,838 |
| | 493 |
| | — |
| | 9,331 |
|
Total current assets | 375,450 |
| | 51,487 |
| | — |
| | 426,937 |
|
Property, plant and equipment, net | 719,436 |
| | 147,102 |
| | — |
| | 866,538 |
|
Goodwill | 209,087 |
| | — |
| | — |
| | 209,087 |
|
Intangible assets, net | 4,180 |
| | 15,810 |
| | — |
| | 19,990 |
|
Intercompany receivable (payable) | 14,013 |
| | (15,151 | ) | | 1,138 |
| | — |
|
Investment in subsidiary | 139,758 |
| | — |
| | (139,758 | ) | | — |
|
Pension assets | 596 |
| | — |
| | — |
| | 596 |
|
Other assets, net | 4,142 |
| | 79 |
| | — |
| | 4,221 |
|
TOTAL ASSETS | $ | 1,466,662 |
| | $ | 199,327 |
| | $ | (138,620 | ) | | $ | 1,527,369 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | $ | 196,891 |
| | $ | 23,477 |
| | $ | — |
| | $ | 220,368 |
|
Current liability for pensions and other postretirement employee benefits | 7,559 |
| | — |
| | — |
| | 7,559 |
|
Total current liabilities | 204,450 |
| | 23,477 |
| | — |
| | 227,927 |
|
Long-term debt | 568,987 |
| | — |
| | — |
| | 568,987 |
|
Liability for pensions and other postretirement employee benefits | 89,057 |
| | — |
| | — |
| | 89,057 |
|
Other long-term obligations | 46,182 |
| | 556 |
| | — |
| | 46,738 |
|
Accrued taxes | 874 |
| | 802 |
| | — |
| | 1,676 |
|
Deferred tax liabilities | 82,246 |
| | 34,734 |
| | 1,138 |
| | 118,118 |
|
Stockholders’ equity excluding accumulated other comprehensive loss | 530,414 |
| | 139,758 |
| | (139,758 | ) | | 530,414 |
|
Accumulated other comprehensive loss, net of tax | (55,548 | ) | | — |
| | — |
| | (55,548 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,466,662 |
| | $ | 199,327 |
| | $ | (138,620 | ) | | $ | 1,527,369 |
|
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
| | | | | | | |
(In thousands) | Issuer | | Guarantor Subsidiaries | | Eliminations | | Total |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Net earnings | $ | 40,211 |
| | $ | 4,607 |
| | $ | (4,607 | ) | | $ | 40,211 |
|
Adjustments to reconcile net earnings to net cash flows from operating activities: | | | | | | | |
Depreciation and amortization | 50,214 |
| | 15,707 |
| | — |
| | 65,921 |
|
Equity-based compensation expense | 9,826 |
| | — |
| | — |
| | 9,826 |
|
Deferred tax provision (benefit) | 11,641 |
| | 1,826 |
| | (1,138 | ) | | 12,329 |
|
Employee benefit plans | (500 | ) | | — |
| | — |
| | (500 | ) |
Deferred issuance costs on long-term debt | 637 |
| | — |
| | — |
| | 637 |
|
Disposal of plant and equipment, net | 30 |
| | — |
| | — |
| | 30 |
|
Non-cash adjustments to unrecognized taxes | (166 | ) | | 13 |
| | — |
| | (153 | ) |
Changes in working capital, net | 1,961 |
| | 4,531 |
| | (2,447 | ) | | 4,045 |
|
Changes in taxes receivable, net | 6,178 |
| | (1,408 | ) | | 2,447 |
| | 7,217 |
|
Excess tax benefits from equity-based payment arrangements | (157 | ) | | — |
| | — |
| | (157 | ) |
Other, net | (1,048 | ) | | (613 | ) | | 1,138 |
| | (523 | ) |
Net cash flows from operating activities | 118,827 |
| | 24,663 |
| | (4,607 | ) | | 138,883 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
Changes in short-term investments, net | 250 |
| | — |
| | — |
| | 250 |
|
Additions to plant and equipment | (99,912 | ) | | (5,602 | ) | | — |
| | (105,514 | ) |
Net cash flows from investing activities | (99,662 | ) | | (5,602 | ) | | — |
| | (105,264 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
| | | | | | | |
Purchase of treasury stock | (51,528 | ) | | — |
| | — |
| | (51,528 | ) |
Investment from (to) parent | 14,454 |
| | (19,061 | ) | | 4,607 |
| | — |
|
Borrowings on revolving credit facility | 944,844 |
| | — |
| | — |
| | 944,844 |
|
Repayments of revolving credit facility borrowings | (931,832 | ) | | — |
| | — |
| | (931,832 | ) |
Payment of tax withholdings on equity-based payment arrangements | (488 | ) | | — |
| | — |
| | (488 | ) |
Excess tax benefits from equity-based payment arrangements | 157 |
| | — |
| | — |
| | 157 |
|
Other, net | (51 | ) | | — |
| | — |
| | (51 | ) |
Net cash flows from financing activities | (24,444 | ) | | (19,061 | ) | | 4,607 |
| | (38,898 | ) |
Decrease in cash and cash equivalents | (5,279 | ) | | — |
| | — |
| | (5,279 | ) |
Cash and cash equivalents at beginning of period | 5,610 |
| | — |
| | — |
| | 5,610 |
|
Cash and cash equivalents at end of period | $ | 331 |
| | $ | — |
| | $ | — |
| | $ | 331 |
|
Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2015
|
| | | | | | | | | | | | | | | |
| | | | | | | |
(In thousands) | Issuer | | Guarantor Subsidiaries | | Eliminations | | Total |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Net earnings | $ | 45,363 |
| | $ | 1,677 |
| | $ | (2,622 | ) | | $ | 44,418 |
|
Adjustments to reconcile net earnings to net cash flows from operating activities: | | | | | | | |
Depreciation and amortization | 47,854 |
| | 14,990 |
| | — |
| | 62,844 |
|
Equity-based compensation expense | 2,495 |
| | — |
| | — |
| | 2,495 |
|
Deferred tax (benefit) provision | (14,631 | ) | | 150 |
| | 2,078 |
| | (12,403 | ) |
|