UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



ý			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2020



¨			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)

20-3594554

~~Delaware~~

~~20-3594554~~

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

601 West Riverside,

Suite 1100

~~Spokane, Washington~~

99201

Spokane,

(Address of principal executive offices)

(Zip Code)

(509) 344-5900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	CLW	New York Stock Exchange

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. Yesý 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, 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

Accelerated filer

¨ý

Non-accelerated filer

¨~~(Do not check if a smaller reporting company)~~

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 Exchange Act). Yes ¨ No ý

The number of shares of common stock of the registrant outstanding as of ~~October 27, 2017~~August 4, 2020 was ~~16,433,415.~~

~~CLEARWATER PAPER CORPORATION~~

~~Index to Form 10-Q~~

16,571,798.




		~~Page Number~~

~~PART I.~~	~~FINANCIAL INFORMATION~~

~~ITEM 1.~~	~~Consolidated Financial Statements~~

~~Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016~~		2

~~Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016~~		3

~~Consolidated Balance Sheets at September 30, 2017 and December 31, 2016~~		4

~~Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016~~		5

~~Condensed Notes to Consolidated Financial Statements~~		6 - 21

~~ITEM 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	22 - 33

~~ITEM 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	33

~~ITEM 4.~~	~~Controls and Procedures~~	34

~~PART II.~~	~~OTHER INFORMATION~~

~~ITEM 1.~~	~~Legal Proceedings~~	35

~~ITEM 1A.~~	~~Risk Factors~~	35

~~ITEM 2.~~	~~Unregistered Sales of Equity Securities and Uses of Proceeds~~	35

~~ITEM 6.~~	~~Exhibits~~	35

~~SIGNATURES~~		36

~~Part I~~



~~ITEM 1.~~
~~Consolidated Financial Statements~~

~~Clearwater Paper Corporation~~

~~Consolidated Statements of Operations~~

~~Unaudited (Dollars in thousands - except per-share amounts)~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net sales $ 426,504
$ 435,320
$ 1,293,692
$ 1,309,195
Costs and expenses:
Cost of sales (386,581 ) (396,605 ) (1,154,344 ) (1,127,103 )
Selling, general and administrative expenses (34,472 ) (29,435 ) (93,674 ) (94,885 )
Total operating costs and expenses (421,053 ) (426,040 ) (1,248,018 ) (1,221,988 )
Income from operations 5,451
9,280
45,674
87,207
Interest expense, net (7,683 ) (7,520 ) (23,399 ) (22,559 )
(Loss) earnings before income taxes (2,232 ) 1,760
22,275
64,648
Income tax benefit (provision) 3,095
(859 ) (5,860 ) (24,437 )
Net earnings $ 863
$ 901
$ 16,415
$ 40,211
Net earnings per common share:
Basic $ 0.05
$ 0.05
$ 1.00
$ 2.35
Diluted 0.05
0.05
0.99
2.33

~~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)~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net earnings $ 863
$ 901
$ 16,415
$ 40,211
Other comprehensive income:
Defined benefit pension and other postretirement employee benefits:
Amortization of actuarial loss included in net periodic cost, net of tax of $319, $248, $967 and $1,113 487
384
1,475
1,723
Amortization of prior service credit included in net periodic cost, net of tax of $(152), $(165), $(454) and $(497) (230 ) (257 ) (691 ) (770 )
Settlement, net of tax of $ -, $1,054, $ - and $1,054 —
1,632
—
1,632
Other comprehensive income, net of tax 257
1,759
784
2,585
Comprehensive income $ 1,120
$ 2,660
$ 17,199
$ 42,796

~~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)~~

September 30,
2017 December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 8,478
$ 23,001
Receivables, net 135,946
147,074
Taxes receivable 14,578
9,709
Inventories 257,833
258,029
Other current assets 6,450
8,682
Total current assets 423,285
446,495
Property, plant and equipment, net 1,014,835
945,328
Goodwill 244,283
244,283
Intangible assets, net 34,528
40,485
Other assets, net 12,080
7,751
TOTAL ASSETS $ 1,729,011
$ 1,684,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities $ 110,000
$ 135,000
Accounts payable and accrued liabilities 263,148
223,699
Current liability for pensions and other postretirement employee benefits 7,821
7,821
Total current liabilities 380,969
366,520
Long-term debt 570,331
569,755
Liability for pensions and other postretirement employee benefits 78,440
81,812
Other long-term obligations 40,942
41,776
Accrued taxes 2,557
2,434
Deferred tax liabilities 169,410
152,172
TOTAL LIABILITIES 1,242,649
1,214,469
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares
issued
—
—
Common stock, par value $0.0001 per share, 100,000,000 authorized
shares-16,433,415 and 24,223,191 shares issued
2
2
Additional paid-in capital —
347,080
Retained earnings 537,329
569,861
Treasury stock, at cost, common shares-0 and 7,736,255 shares —
(395,317 )
Accumulated other comprehensive loss, net of tax (50,969 ) (51,753 )
TOTAL STOCKHOLDERS' EQUITY 486,362
469,873
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,729,011
$ 1,684,342

~~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)~~

Nine Months Ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 16,415
$ 40,211
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 79,468
65,921
Equity-based compensation expense 2,523
9,826
Deferred tax provision 14,602
12,329
Employee benefit plans (2,999 ) (500 )
Disposal of plant and equipment, net 3,755
30
Other, net 874
484
Changes in working capital, net 43,846
4,045
Changes in taxes receivable, net (4,869 ) 7,217
Other, net (1,439 ) (680 )
Net cash flows from operating activities 152,176
138,883
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (136,650 ) (105,514 )
Other, net 753
250
Net cash flows from investing activities (135,897 ) (105,264 )
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,875 ) (51,528 )
Borrowings on revolving credit facilities 185,000
944,844
Repayments of borrowings on revolving credit facilities (210,000 ) (931,832 )
Other, net (927 ) (382 )
Net cash flows from financing activities (30,802 ) (38,898 )
Decrease in cash and cash equivalents (14,523 ) (5,279 )
Cash and cash equivalents at beginning of period 23,001
5,610
Cash and cash equivalents at end of period $ 8,478
$ 331

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized $ 27,867
$ 27,240
Cash paid for income taxes 2,367
16,050
Cash received from income tax refunds 5,988
10,543
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES

Changes in accrued property, plant and equipment $ 2,173
$ 3,834
Other changes to property, plant and equipment 4,500
—

~~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, and offers services that include custom sheeting, slitting and cutting. Clearwater Paper's employees build shareholder value by developing strong customer relationships through quality and service.

On December 16, 2016, we acquired Manchester Industries, an independently-owned paperboard sales, sheeting and distribution supplier to the packaging and commercial print industries, for total consideration of $71.7 million. The addition of Manchester Industries' customers to our paperboard business extends our reach and service platform to small and mid-sized folding carton plants, by offering a range of converting services that include custom sheeting, slitting, and cutting. These converting operations include five strategically located facilities in Virginia, Pennsylvania, Indiana, Texas, and Michigan. Goodwill was recorded in the acquisition of Manchester Industries based on the preliminary purchase price allocation. We are continuing to collect information to determine the fair values included in the purchase price in association with the final tax basis of acquired intangibles and fixed assets used in the determination of deferred tax liabilities at the acquisition date, which could affect our goodwill allocation for this transaction.

On March 31, 2017, we closed our Oklahoma City, Oklahoma converting facility. Notwithstanding the closure, we remain subject to the terms of a long-term master lease applicable to the facility. In October 2017, we transferred to a third party substantially all of the remaining fixed assets and supplies inventory located at this facility and subleased the facility to the third party for the remaining term of the master lease for the facility. In connection with the transfer of fixed assets, we recorded a loss of $4.3 million in the third quarter of 2017 related primarily to the writedown of the transferred assets totheir held for sale value. This loss is included in “Selling, general and administrative expenses” in our Consolidated Statement of Operations. We expect to record a loss of approximately $3 million in the fourth quarter of 2017 related to the execution of the sublease agreement. The sublease agreement is expected to substantially reduce our cash requirements under the master lease over the term of the sublease.

Additionally, we have incurred $0.8 million and $6.8 million of closure-related costs associated with the Oklahoma City facility for the three and nine months ended September 30, 2017, respectively, which are included in "Cost of goods sold" in our Consolidated Statement of Operations.

~~FINANCIAL STATEMENT PREPARATION AND PRESENTATION~~

The accompanying Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, the related Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, 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, 2016, as filed with the Securities and Exchange Commission, or SEC, on February 22, 2017.

~~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 that may require 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.~~

~~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, 2017 and December 31, 2016, we had allowances for doubtful accounts of $1.3 million and $1.5 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 $1,617.5 million and $1,582.0 million at September 30, 2017 and December 31, 2016, respectively.

For the nine months ended September 30, 2017, we capitalized $3.0 million of interest expense associated with the construction of a continuous pulp digester at our Lewiston, Idaho pulp and paperboard facility and $0.5 million associated with the construction of a paper machine at our Shelby, North Carolina consumer products facility. For the nine months ended September 30, 2016, we capitalized $1.6 million of interest expense associated with the continuous pulp digester project. In June 2017, we received land with a fair market value of $4.2 million from the City of Shelby, North Carolina and Cleveland County. We must fulfill certain obligations within five years or pay the value of the land or return the title to the land. This balance is included in "Property, plant, and equipment, net," with an associated amount in "Other long-term obligations" on our Consolidated Balance Sheet as of September 30, 2017.

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 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 1,440,696 shares of our outstanding common stock as of September 30, 2017, pursuant to this repurchase program, of which 84,750 shares were repurchased during the first quarter of 2017 at an average price of $57.53 per share. We did not repurchase shares during the second or third quarters of 2017. As of September 30, 2017, we had up to $29.8 million of authorization remaining pursuant to this stock repurchase program.

~~During the third quarter of 2017, we retired 7,821,005 treasury shares. The impact of this retirement was reflected within the stockholders' equity line items on our Consolidated Balance Sheet.~~

~~DERIVATIVES~~

We had no activity during the three and nine months ended September 30, 2017 and 2016 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, 2017, these contracts covered approximately 30% of our expected average monthly natural gas requirements for the remainder of 2017, and a lesser amount for 2018. 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~~

~~RECENTLY ADOPTED~~

~~In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment (Topic 350)~~. This ASU eliminates step two of the impairment test, the performance of a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. We adopted this standard on January 1, 2017 and will apply this standard during our annual impairment test as of November 1, 2017, if applicable. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. This ASU clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset is not a business. We adopted this standard on January 1, 2017. This standard did not 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),~~(ASU 2016-09), which simplifies several aspects of accounting for share-based payment transactions, including income tax consequences, award classification, cash flows reporting, and forfeiture rate application. Specifically, the update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The update also allows excess tax benefits to be classified along with other income tax cash flows as an operating activity on the statement of cash flows. In addition, when accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or to account for forfeitures as they occur. Lastly, the update requires cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity on the statement of cash flows, consistent with our historical practice. We adopted ASU 2016-09 in the first quarter of 2017. We have not changed our method of estimating forfeitures as a result of our adoption of this standard, however, we are currently evaluating the possibility of changing our tax-withholding policy to allow for more withholding of employee shares for tax purposes. As a result of adopting this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity on the statement of cash flows on a prospective basis and $1.0 million was charged to our income tax provision in the nine months ending September 30, 2017, resulting in a $0.06 earnings per share impact.

~~NEW ACCOUNTING STANDARDS~~

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~ to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU will be effective prospectively for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We plan to adopt this standard on January 1, 2018. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This ASU will be effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We plan to adopt this standard on January 1, 2018. The amendments in this update require retrospective presentation in the income statement. Changes to the capitalized portion of both service cost and the other components of net benefit cost within inventory will be applied prospectively. For the full year of 2016, net periodic pension and other postretirement employee benefit cost reported within operating income totaled $5.3 million, of which $1.8 million represented service cost.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We expect the adoption of this ASU 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 plan to adopt this standard on January 1, 2019. We are continuing our assessment and review of existing leases, which may identify other impacts, and 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 assessments to-date, which have included review of our core revenue streams and contracts with key customers under the new standard, 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 as well as certain of our internal controls and processes. We are continuing our assessment, internal control considerations and internal process analysis, 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:~~

(In thousands) September 30, 2017 December 31, 2016
Pulp, paperboard and tissue products $ 158,075
$ 154,460
Materials and supplies 85,246
82,005
Logs, pulpwood, chips and sawdust 14,512
21,564
$ 257,833
$ 258,029

~~NOTE 4 Intangible Assets~~

~~Intangible assets at the balance sheet dates are comprised of the following:~~

September 30, 2017
(Dollars in thousands, lives in years)
Weighted Average Useful
Life

Historical
Cost

Accumulated
Amortization

Net
Balance
Customer relationships 9.3 $ 62,401
$ (32,387 ) $ 30,014
Trade names and trademarks 7.4 6,786
(2,743 ) 4,043
Non-compete agreements 5.0 574
(558 ) 16
Other intangibles 6.0 572
(117 ) 455
$ 70,333
$ (35,805 ) $ 34,528

December 31, 2016
(Dollars in thousands, lives in years)
Weighted Average Useful
Life

Historical
Cost

Accumulated
Amortization

Net
Balance
Customer relationships 9.3 $ 62,401
$ (27,364 ) $ 35,037
Trade names and trademarks 7.4 6,786
(1,972 ) 4,814
Non-compete agreements 5.0 574
(512 ) 62
Other intangibles 6.0 572
—
572
$ 70,333
$ (29,848 ) $ 40,485

For the three months ended September 30, 2017 and 2016, intangible assets amortization expense was $2.0 million and $1.1 million, respectively. For the nine months ended September 30, 2017 and 2016, intangible assets amortization expense was $6.0

million and $3.2 million, respectively. The increase in the 2017 periods was due to the additional amortization expense attributable to intangible assets associated with the acquisition of Manchester Industries in December 2016.

~~NOTE 5 Income Taxes~~

Consistent with authoritative guidance, our estimated annual effective tax rate is used to allocate expected annual income tax expense to interim periods. The rate is the ratio of estimated annual income tax expense 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 expense 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 estimated annual effective tax rate applied to the third quarter of 2017 is approximately 34%, compared with approximately 36% for the same period in 2016. The decrease in the rate is due to an increase in the benefit from federal and state tax credits.

~~The tax benefit in the current quarter is comprised of a benefit driven by the pre-tax loss for the quarter increased by a benefit from federal credits of $2.4 million.~~

~~NOTE 6 Accounts Payable and Accrued Liabilities~~

~~Accounts payable and accrued liabilities at the balance sheet dates consist of:~~

(In thousands) September 30, 2017 December 31, 2016
Trade accounts payable $ 189,940
$ 128,106
Accrued wages, salaries and employee benefits 34,174
49,871
Accrued discounts and allowances 11,292
10,291
Accrued utilities 6,993
6,712
Accrued taxes other than income taxes payable 6,570
6,946
Accrued interest 5,582
12,149
Accrued transportation 2,208
1,761
Other 6,389
7,863
$ 263,148
$ 223,699

~~NOTE 7 Debt~~

~~REVOLVING CREDIT FACILITIES~~

As of September 30, 2017, there was an aggregate of $110.0 million in borrowings outstanding under the credit facilities and $6.8 million of the credit facilities was being used to support outstanding standby letters of credit. As of December 31, 2016, there was an aggregate of $135.0 million in borrowings outstanding under the credit facilities.

Our two senior secured revolving credit facilities provide in the aggregate, on a combined basis, for the extension of up to $300 million in revolving loans under: (i) a $200 million credit agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the Commercial Credit Agreement); and (ii) a $100 million credit agreement with Northwest Farm Credit Services, PCA, as administrative agent, and the lenders party thereto (the Farm Credit Agreement). We refer to both of these credit agreements collectively as the Credit Agreements. The revolving credit facilities provided under the Credit Agreements mature on October 31, 2021.

Revolving loans borrowed under the Commercial Credit Agreement bear interest, at our option, at a LIBOR rate or at a base rate, plus an applicable margin, which for LIBOR rate loans may range from 1.25% per annum to 2.00% per annum, based on the Company’s consolidated total leverage ratio. The applicable margin for base rate loans under the Commercial Credit Agreement is 1.00% per annum less than for LIBOR rate loans. Revolving Loans borrowed under the Farm Credit Agreement are calculated in substantially the same manner as under the Commercial Credit Agreement, however, the applicable margin under the Farm Credit Agreement is 0.25% per annum higher than the Commercial Credit Agreement, and the prime rate used in the calculation of base rate loans is based upon the prime rate published by the Wall Street Journal. In addition, under the Farm Credit Agreement, we have the option to elect fixed rate periods of interest which bear interest at an applicable margin equal to the LIBOR rate. We also pay commitment fees on the unused portion of the revolving loan commitments under the Credit Agreements, which range from 0.20% per annum to 0.35% per annum.

We receive patronage refunds under the Farm Credit Agreement. Patronage refunds are distributions of profits from banks in the farm credit system, which are cooperatives that are required to distribute profits to their members. Patronage refunds are accrued as earned and recorded as offsets to interest expense.

The borrowings outstanding under the revolving credit facilities as of September 30, 2017, consisted of short-term base and LIBOR rate loans and are classified as current liabilities in our Consolidated Balance Sheet. As of September 30, 2017, we would have been permitted to draw an additional $183.2 million under the credit facilities.

~~NOTE 8 Other Long-Term Obligations~~

~~Other long-term obligations at the balance sheet dates consist of:~~

(In thousands) September 30, 2017 December 31, 2016
Long-term lease obligations, net of current portion $ 23,426
$ 23,152
Deferred proceeds 5,966
9,013
Deferred compensation 5,168
7,219
Other 6,382
2,392
$ 40,942
$ 41,776

~~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
Balance at December 31, 2016 $ (51,753 )
Other comprehensive income, net of tax¹
784
Balance at September 30, 2017 $ (50,969 )

(In thousands) Pension and Other Post Retirement Employee Benefit Plan Adjustments
Balance at December 31, 2015 $ (55,548 )
Other comprehensive income before reclassifications 953
Amounts reclassified from accumulated other comprehensive loss²
$ 1,632
Other comprehensive income, net of tax¹
2,585
Balance at September 30, 2016 $ (52,963 )

Included in other comprehensive income are net periodic costs associated with our pension and other postretirement employee benefit (OPEB) plans that were reclassified from accumulated other comprehensive loss. For the nine months ended September 30, 2017 and 2016, actuarial loss amortization of $1.5 million and $1.7 million, respectively, as well as $0.7 million and $0.8 million, respectively, of prior service credit amortization were reclassified. These amounts are net of tax totaling $0.5 million and $0.6 million for each respective period. 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.”

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) 2017 2016 2017 2016
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
Service cost $ 518
$ 391
$ 41
$ 62
Interest cost 3,288
3,518
688
730
Expected return on plan assets (4,691 ) (4,847 ) —
—
Amortization of prior service cost (credit) 2
6
(384 ) (428 )
Amortization of actuarial loss (gain) 2,468
2,865
(1,662 ) (2,233 )
Settlement —
3,482
—
—
Net periodic cost $ 1,585
$ 5,415
$ (1,317 ) $ (1,869 )

Nine months ended September 30,
(In thousands) 2017 2016 2017 2016
Pension Benefit Plans
Other Postretirement
Employee Benefit Plans
Service cost $ 1,552
$ 1,171
$ 122
$ 187
Interest cost 9,862
10,779
2,059
2,306
Expected return on plan assets (14,073 ) (14,608 ) (1 ) (1 )
Amortization of prior service cost (credit) 6
17
(1,151 ) (1,284 )
Amortization of actuarial loss (gain) 7,405
8,510
(4,963 ) (5,674 )
Settlement —
3,482
—
—
Net periodic cost $ 4,752
$ 9,351
$ (3,934 ) $ (4,466 )

~~During the nine months ended~~ ~~September 30, 2017~~ ~~and 2016, we made no contributions to our qualified pension plans. We do not expect, nor are we required, to make contributions in~~ ~~2017~~.

~~During the nine months ended~~ ~~September 30, 2017, we made contributions of~~ ~~$0.2 million~~ ~~to our company-sponsored non-qualified pension plan. We estimate contributions will total $0.4 million in~~ ~~2017. We do not anticipate funding our OPEB plans in~~ ~~2017~~ ~~except to pay benefit costs as incurred during the year by plan participants.~~

~~During the three and nine months ended~~ ~~September 30, 2017~~, $0.2 million and $0.5 million, respectively, of net periodic pension and OPEB costs were charged to "Cost of sales" and $0.1 million and $0.3 million, respectively, were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations.

During the three and nine months ended September 30, 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.

In 2016, we announced a voluntary, limited-time opportunity for former employees who are vested participants in certain of our qualified pension plans to request early payment of their entire pension plan benefit in the form of a single lump sum payment. Based on the level of payments made, settlement accounting rules applied to our salaried plan and resulted in a remeasurement of that plan.

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,
2017 2016 2017 2016
Basic average common shares outstanding¹
16,457,991
16,844,920
16,466,325
17,141,329
Incremental shares due to:
Restricted stock units 42,122
54,796
37,021
35,853
Performance shares 50,506
104,476
42,914
74,604
Stock options 16,265
55,466
26,347
1,148
Diluted average common shares outstanding 16,566,884
17,059,658
16,572,607
17,252,934

Basic net earnings per common share $ 0.05
$ 0.05
$ 1.00
$ 2.35
Diluted net earnings per common share 0.05
0.05
0.99
2.33

Anti-dilutive shares excluded from calculation 468,624
5,783
525,655
502,293


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) 2017 2016 2017 2016
Restricted stock units $ 429
$ 352
$ 1,224
$ 1,012
Performance shares 567
877
1,793
2,313
Stock options 659
792
1,974
2,076
Total employee equity-based compensation expense $ 1,655
$ 2,021
$ 4,991
$ 5,401

As provided in the Clearwater Paper Corporation 2008 Stock Incentive Plan, the performance measure used to determine the number of performance shares ultimately issuable for awards granted in 2016 and 2015, and for 40% of performance shares granted in 2017, is a comparison of the percentile ranking of our total stockholder return compared to the stockholder return of a selected peer group. In 2017, for 60% of the performance share awards granted, a return on invested capital performance measure is used to determine the number of performance shares ultimately issuable. The number of shares actually issued, as a percentage of the amount subject to the performance share award, could range from 0%-200%.

On December 31, 2016, the service and performance period for 45,953 outstanding shares granted in 2014 ended. Those performance shares were settled and distributed in the first quarter of 2017. The number of shares actually settled, as a percentage of the outstanding amount, was 89.0%. After adjusting for the related minimum tax withholdings, a net 27,878 shares were issued in the first quarter of 2017.

~~During the first nine months of~~ ~~2017~~, 5,000 RSUs were settled and distributed. After adjusting for minimum tax withholdings, a net 3,351 shares were issued. In connection with the issued performance shares and RSUs, the minimum tax withholding payments made during the nine months ended September 30, 2017 totaled $0.8 million.

During the nine months ended September 30, 2017, we had 3,594 stock option awards expire with a weighted-average exercise price of $66.97. At September 30, 2017, we had 134,266 stock option awards that were exercisable with a weighted-average exercise price of $66.85.

~~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, 2017~~ ~~and the grant-date fair value of the awards:~~

Nine Months Ended
September 30, 2017
Number of
Shares Subject to Award Average Fair
Value of Award Per Share
Restricted stock units 66,774
$ 56.45
Performance shares 33,907
58.58
Stock options 158,484
18.82

~~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 $0.5 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, we recorded director equity-based compensation benefit of $2.5 million and compensation expense of $4.4 million, respectively.

As of September 30, 2017, 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 $3.8 million and $2.5 million, respectively. At December 31, 2016, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" totaled $7.9 million and ~~$3.2 million, respectively.~~

~~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,
2017 2016
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Cash and cash equivalents (Level 1) $ 8,478
$ 8,478
$ 23,001
$ 23,001
Borrowings under revolving credit facilities (Level 1) 110,000
110,000
135,000
135,000
Long-term debt (Level 2) 575,000
568,639
575,000
567,875

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 November 14, 2016, there was a fire at our Las Vegas, Nevada facility. There was minimal disruption to the converting operations at that facility. However, certain components of our paper machine were damaged, and we incurred approximately 17 days of paper machine downtime while repairs were being made. We were unable to produce through-air-dried parent rolls during this period at the Las Vegas facility. We were able to replace a portion of this lost production capacity by shipping parent rolls from our Shelby, North Carolina facility, in addition to making open market purchases. We maintain property and business interruption insurance and filed a claim with our insurance provider in the fourth quarter of 2016 to recover the cost of repairs to the equipment and estimated lost profits due to the disruption of the operations during the repair period. The total insurance claim for this event, net of policy deductible, was $3.3 million. In the fourth quarter of 2016, we recognized $1.5 million of insurance recovery associated with this claim in "Cost of sales" in our Consolidated Statement of Operations, which represented the insurance recovery for the cost of equipment repairs performed in the fourth quarter of 2016. Upon final resolution of this claim, in 2017 we recognized an additional $1.4 million in "Cost of sales" in our Consolidated Statement of Operations, which represented insurance recovery for estimated lost profits due to the disruption of operations resulting from this event.

On January 28, 2017, there was a fire at our Shelby, North Carolina facility warehouse. Although the building sustained minimal damage, the smoke and water damage to raw material and finished goods inventory was more significant. Operations were impacted during the clean-up and repair period. We filed a claim with our peril and stock insurance providers to recover the cost of repairs to the equipment and estimated lost profits and inventory due to the disruption of the operations during the repair and cleanup period. Net of policy deductibles, the insurance claim for this event totaled $2.9 million, and was settled in its entirety in the first quarter of 2017. These proceeds are included in “Cost of sales” in our consolidated Statement of Operations for the nine months ended September 30, 2017.

~~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) 2017 2016 2017 2016
Segment net sales:
Consumer Products $ 232,916
$ 253,319
$ 707,251
$ 746,249
Pulp and Paperboard 193,588
182,001
586,441
562,946
Total segment net sales $ 426,504
$ 435,320
$ 1,293,692
$ 1,309,195

Operating income (loss):
Consumer Products¹
$ 4,436
$ 17,201
$ 21,159
$ 54,135
Pulp and Paperboard 15,023
9,956
63,866
85,151
19,459
27,157
85,025
139,286
Corporate²
(14,008 ) (17,877 ) (39,351 ) (52,079 )
Income from operations $ 5,451
$ 9,280
$ 45,674
$ 87,207

Depreciation and amortization:
Consumer Products¹
$ 16,073
$ 15,022
$ 50,607
$ 42,984
Pulp and Paperboard 8,328
6,530
24,789
19,346
Corporate 1,455
1,195
4,072
3,591
Total depreciation and amortization $ 25,856
$ 22,747
$ 79,468
$ 65,921

Operating income for the Consumer Products segment for the three and nine months ended September 30, 2017 includes $5.1 million and $11.1 million, respectively, of costs associated with the closure of the Oklahoma City facility. These costs for the three and nine months ended September 30, 2017 include $4.3 million of loss on the writedown of assets to their held for sale value. Depreciation and amortization expense for the nine months ended September 30, 2017 includes $3.7 million of accelerated depreciation associated with the Oklahoma City facility closure.


²	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 subsidiaries that are 100% directly or indirectly owned by Clearwater Paper, 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 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 guarantor subsidiaries, 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~~

~~Three Months Ended~~ ~~September 30, 2017~~

Guarantor
(In thousands) Issuer Subsidiaries Eliminations Total
Net sales $ 423,712
$ 55,894
$ (53,102 ) $ 426,504
Cost and expenses:
Cost of sales (387,696 ) (51,052 ) 52,167
(386,581 )
Selling, general and administrative expenses (24,676 ) (9,796 ) —
(34,472 )
Total operating costs and expenses (412,372 ) (60,848 ) 52,167
(421,053 )
Income (loss) from operations 11,340
(4,954 ) (935 ) 5,451
Interest expense, net (7,407 ) (276 ) —
(7,683 )
Earnings (loss) before income taxes 3,933
(5,230 ) (935 ) (2,232 )
Income tax (provision) benefit (1,847 ) 4,589
353
3,095
Equity in loss of subsidiary (641 ) —
641
—
Net earnings (loss) $ 1,445
$ (641 ) $ 59
$ 863
Other comprehensive income, net of tax 257
—
—
257
Comprehensive income (loss) $ 1,702
$ (641 ) $ 59
$ 1,120

~~Clearwater Paper Corporation~~

~~Consolidating Statement of Operations and Comprehensive Income~~

~~Nine Months Ended September 30, 2017~~

Guarantor
(In thousands) Issuer Subsidiaries Eliminations Total
Net sales $ 1,263,467
$ 196,399
$ (166,174 ) $ 1,293,692
Cost and expenses:
Cost of sales (1,137,931 ) (178,732 ) 162,319
(1,154,344 )
Selling, general and administrative expenses (71,445 ) (22,229 ) —
(93,674 )
Total operating costs and expenses (1,209,376 ) (200,961 ) 162,319
(1,248,018 )
Income (loss) from operations 54,091
(4,562 ) (3,855 ) 45,674
Interest expense, net (22,981 ) (418 ) —
(23,399 )
Earnings (loss) before income taxes 31,110
(4,980 ) (3,855 ) 22,275
Income tax (provision) benefit (11,857 ) 4,582
1,415
(5,860 )
Equity in loss of subsidiary (398 ) —
398
—
Net earnings (loss) $ 18,855
$ (398 ) $ (2,042 ) $ 16,415
Other comprehensive income, net of tax 784
—
—
784
Comprehensive income (loss) $ 19,639
$ (398 ) $ (2,042 ) $ 17,199

~~Clearwater Paper Corporation~~

~~Consolidating Statement of Operations and Comprehensive Income~~

~~Three Months Ended September 30, 2016~~

(In thousands) Issuer
Guarantor
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~~

~~Nine Months Ended September 30, 2016~~

(In thousands) Issuer
Guarantor
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 Balance Sheet~~

~~At September 30, 2017~~

(In thousands) Issuer
Guarantor
Subsidiaries
Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents $ 8,478
$ —
$ —
$ 8,478
Receivables, net 116,392
19,554
—
135,946
Taxes receivable 14,543
35
—
14,578
Inventories 221,233
40,455
(3,855 ) 257,833
Other current assets 5,846
604
—
6,450
Total current assets 366,492
60,648
(3,855 ) 423,285
Property, plant and equipment, net 898,859
115,976
—
1,014,835
Goodwill 244,283
—
—
244,283
Intangible assets, net 2,351
32,177
—
34,528
Intercompany receivable (payable) (4,041 ) 186
3,855
—
Investment in subsidiary 144,691
—
(144,691 ) —
Other assets, net 11,787
3,466
(3,173 ) 12,080
TOTAL ASSETS $ 1,664,422
$ 212,453
$ (147,864 ) $ 1,729,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities $ 110,000
$ —
$ —
$ 110,000
Accounts payable and accrued liabilities 241,938
21,210
—
263,148
Current liability for pensions and
other postretirement employee benefits
7,821
—
—
7,821
Total current liabilities 359,759
21,210
—
380,969
Long-term debt 570,331
—
—
570,331
Liability for pensions and
other postretirement employee benefits
78,440
—
—
78,440
Other long-term obligations 40,800
142
—
40,942
Accrued taxes 1,721
836
—
2,557
Deferred tax liabilities 127,009
45,574
(3,173 ) 169,410
TOTAL LIABILITIES 1,178,060
67,762
(3,173 ) 1,242,649
Stockholders’ equity excluding
accumulated other comprehensive loss 537,331
144,691
(144,691 ) 537,331
Accumulated other comprehensive loss, net of tax (50,969 ) —
—
(50,969 )
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,664,422
$ 212,453
$ (147,864 ) $ 1,729,011

~~Clearwater Paper Corporation~~

~~Consolidating Balance Sheet~~

At ~~December 31, 2016~~

(In thousands) Issuer
Guarantor
Subsidiaries
Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents $ 19,586
$ 3,415
$ —
$ 23,001
Receivables, net 130,098
27,252
(10,276 ) 147,074
Taxes receivable 15,143
35
(5,469 ) 9,709
Inventories 208,472
51,432
(1,875 ) 258,029
Other current assets 8,161
521
—
8,682
Total current assets 381,460
82,655
(17,620 ) 446,495
Property, plant and equipment, net 802,064
143,264
—
945,328
Goodwill 244,283
—
—
244,283
Intangible assets, net 3,135
37,350
—
40,485
Intercompany receivable (payable) 30,034
(31,909 ) 1,875
—
Investment in subsidiary 145,089
—
(145,089 ) —
Other assets, net 8,433
2,853
(3,535 ) 7,751
TOTAL ASSETS $ 1,614,498
$ 234,213
$ (164,369 ) $ 1,684,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities $ 135,000
$ —
$ —
$ 135,000
Accounts payable and accrued liabilities 202,187
37,257
(15,745 ) 223,699
Current liability for pensions and
other postretirement employee benefits
7,821
—
—
7,821
Total current liabilities 345,008
37,257
(15,745 ) 366,520
Long-term debt 569,755
—
—
569,755
Liability for pensions and
other postretirement employee benefits
81,812
—
—
81,812
Other long-term obligations 41,424
352
—
41,776
Accrued taxes 1,614
820
—
2,434
Deferred tax liabilities 105,012
50,695
(3,535 ) 152,172
TOTAL LIABILITIES 1,144,625
89,124
(19,280 ) 1,214,469
Stockholders’ equity excluding
accumulated other comprehensive loss 521,626
145,089
(145,089 ) 521,626
Accumulated other comprehensive loss, net of tax (51,753 ) —
—
(51,753 )
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,614,498
$ 234,213
$ (164,369 ) $ 1,684,342

~~Clearwater Paper Corporation~~

~~Consolidating Statement of Cash Flows~~

~~Nine Months Ended~~ ~~September 30, 2017~~

(In thousands) Issuer
Guarantor
Subsidiaries
Eliminations Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 18,855
$ (398 ) $ (2,042 ) $ 16,415
Adjustments to reconcile net earnings (loss) to
net cash flows from operating activities:

Depreciation and amortization 56,642
22,826
—
79,468
Equity-based compensation expense 2,523
—
—
2,523
Deferred tax provision (benefit) 19,531
(4,929 ) —
14,602
Employee benefit plans (2,999 ) —
—
(2,999 )
Disposal of plant and equipment, net 481
3,274
—
3,755
Other, net 874
—
—
874
Changes in working capital, net 32,501
3,896
7,449
43,846
Changes in taxes receivable, net 600
—
(5,469 ) (4,869 )
Other, net (413 ) (1,026 ) —
(1,439 )
Net cash flows from operating activities 128,595
23,643
(62 ) 152,176
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (132,725 ) (3,925 ) —
(136,650 )
Other, net 283
470
—
753
Net cash flows from investing activities (132,442 ) (3,455 ) —
(135,897 )
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,875 ) —
—
(4,875 )
Borrowings on revolving credit facilities 185,000
—
—
185,000
Repayments of borrowings on revolving credit facilities (210,000 ) —
—
(210,000 )
Investment from (to) parent 23,541
(23,603 ) 62
—
Other, net (927 ) —
—
(927 )
Net cash flows from financing activities (7,261 ) (23,603 ) 62
(30,802 )
Decrease in cash and cash equivalents (11,108 ) (3,415 ) —
(14,523 )
Cash and cash equivalents at beginning of period 19,586
3,415
—
23,001
Cash and cash equivalents at end of period $ 8,478
$ —
$ —
$ 8,478

~~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 )
Disposal of plant and equipment, net 30
—
—
30
Other, net 471
13
—
484
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
Other, net (1,205 ) (613 ) 1,138
(680 )
Net cash flows from operating activities 118,827
24,663
(4,607 ) 138,883
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (99,912 ) (5,602 ) —
(105,514 )
Other, net 250
—
—
250
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 )
Borrowings on revolving credit facilities 944,844
—
—
944,844
Repayments of borrowings on revolving credit facilities (931,832 ) —
—
(931,832 )
Investment from (to) parent 14,454
(19,061 ) 4,607
—
Other, net (382 ) —
—
(382 )
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



~~ITEM 2.~~
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

FORWARD-LOOKING STATEMENTS

Our disclosure, discussion and analysis in this report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding ~~the benefits~~impacts of COVID-19 on our business and ~~expenses related to, the Oklahoma City closure, asset transfer~~operations; accounting standards; liquidity; capital expenditures; cash flow; borrowing and ~~sublease, the costs, timing~~credit facilities; credit agreement compliance; disclosure controls and benefits of optimization and strategic capital projects, benefits of the Manchester Industries acquisition, costs and timing associated with the Shelby, North Carolina facility expansion, operating costs, raw materials and input usage and costs, timing and costs related to major maintenance and repairs, capital expenditures, energy costs and usage, cash flows, tax rates, liquidity, and market risks.legal proceedings. 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 include those risks discussed in the section entitled “Risk Factors” in our ~~2016~~2019 Form 10-K and the "Risk Factor" included in Part II of this report, as well as the following:

~~our ability to execute~~•impact of COVID-19 on our ~~growth~~operations, our suppliers' operations and ~~expansion strategies;~~our customer demand;

~~unanticipated construction delays involving our planned new tissue manufacturing operations in Shelby, North Carolina;~~

•competitive pricing pressures for our products, including as a result of increased capacity as additional manufacturing facilities are operated by our ~~competitors;~~competitors and the impact of foreign currency fluctuations on the pricing of products globally;

•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 atby our ~~recently announced~~expanded Shelby, North Carolina ~~facility expansion when it becomes operational;~~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;

~~the loss of or changes in prices in regards to a significant customer;~~

~~our ability to successfully implement our operational efficiencies and cost savings strategies;~~

~~changes in customer product preferences and competitors' product offerings;~~

•manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment ~~malfunction~~malfunctions and damage to our manufacturing facilities;

~~changes in transportation costs and disruptions in transportation services;~~•cyber-security risks;

~~changes in the cost and availability of wood fiber and wood pulp;~~

~~labor disruptions;~~

~~cyclical industry conditions;~~

•changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs;

~~environmental liabilities or expenditures;~~•labor disruptions;

~~our ability to realize the expected benefits of our Manchester Industries acquisition;~~•cyclical industry conditions;

•changes in expenses, ~~and~~ required contributions and potential withdrawal costs associated with our pension plans;

~~cyber-security risks;~~•environmental liabilities or expenditures;

•reliance on a limited number of third-party suppliers for raw materials;

•our ~~inability~~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.

CLEARWATER PAPER CORPORATION

Index to Form 10-Q



		Page Number

PART I.	FINANCIAL INFORMATION

ITEM 1.	Consolidated Financial Statements

	Consolidated Balance Sheets	2

	Consolidated Statements of Operations	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Statements of Cash Flows	5

	Consolidated Statements of Stockholders' Equity	6

	Notes to Consolidated Financial Statements

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	22

ITEM 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	24

ITEM 1A.	Risk Factors	24





ITEM 6.	Exhibits	26

SIGNATURES			27

Part I: Financial Information


ITEM 1.			Consolidated Financial Statements

CLEARWATER PAPER CORPORATION

Consolidated Balance Sheets

(Unaudited)


(In millions, except share data)	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	48.2	$	20.0
Restricted cash	—		1.4
Receivables, net	191.9		159.4
Inventories	235.3		281.4
Other current assets	9.0		3.6
Total current assets	484.4		465.8
Property, plant and equipment, net	1,219.7		1,257.7
Operating lease right-of-use assets	68.2		73.1
Goodwill and intangible assets, net	50.4		52.0
Other assets, net	18.7		29.1
TOTAL ASSETS	$	1,841.5	$	1,877.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	1.6	$	17.9
Trade payables	137.5		158.2
Accrued compensation	47.3		45.0
Other accrued liabilities	61.1		59.3
Total current liabilities	247.5		280.4
Long-term debt	827.9		884.5
Long-term operating lease liabilities	60.1		65.6
Liability for pension and other postretirement employee benefits	74.4		76.6
Other long-term obligations	21.6		17.3
Deferred tax liabilities	139.3		121.3
TOTAL LIABILITIES	1,370.7		1,445.7
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares issued	—		—
Common stock, par value $0.0001 per share, 100,000,000 authorized shares, 16,571,000 and 16,515,813 shares issued	—		—
Additional paid-in capital	11.8		9.8
Retained earnings	514.8		481.7
Accumulated other comprehensive loss, net of tax	(55.8)		(59.5)
TOTAL STOCKHOLDERS' EQUITY	470.8		432.0
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,841.5	$	1,877.7

See accompanying Notes to the Consolidated Financial Statements.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per-share data)	2020		2019		2020		2019
Net sales	$	480.5	$	452.0	$	958.4	$	880.8
Costs and expenses:
Cost of sales	396.7		409.8		819.7		794.1
Selling, general and administrative expenses	32.6		26.5		60.1		56.9
Other operating charges, net	3.0		0.4		11.5		0.1
Total operating costs and expenses	432.4		436.7		891.4		851.1
Income from operations	48.1		15.3		67.0		29.7
Interest expense, net	(12.0)		(10.9)		(24.9)		(19.4)
Other non-operating expense	(2.0)		(1.5)		(3.8)		(2.8)
Debt retirement costs	(1.0)		—		(1.0)		—
Total non-operating expense	(14.9)		(12.4)		(29.6)		(22.2)
Income before income taxes	33.2		2.9		37.3		7.5
Income tax provision	10.4		3.3		4.2		4.0
Net income (loss)	$	22.8	$	(0.4)	$	33.1	$	3.4

Net income (loss) per common share:
Basic	$	1.37	$	(0.03)	$	2.00	$	0.21
Diluted	1.36		(0.03)		1.99		0.21

Average shares of common stock used to compute net income (loss) per share: (in thousands)
Basic	16,594		16,539		16,575		16,528
Diluted	16,686		16,539		16,644		16,552

See accompanying Notes to the Consolidated Financial Statements.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Net income (loss)	$	22.8	$	(0.4)	$	33.1	$	3.4
Other comprehensive income:
Defined benefit pension and other postretirement employee benefits:
Amortization of actuarial loss included in net periodic cost, net of tax of $0.6, $0.5, $1.3, $0.9	1.8		1.3		3.7		2.6
Other comprehensive income, net of tax	1.8		1.3		3.7		2.6
Comprehensive income	$	24.6	$	0.9	$	36.8	$	6.0

See accompanying Notes to the Consolidated Financial Statements.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	22.8	$	(0.4)	$	33.1	$	3.4
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization	27.8		28.5		55.8		54.3
Stock-based compensation expense	3.4		1.2		4.8		2.1
Deferred taxes	8.9		4.3		10.7		5.2
Pension and other post retirement employment benefits	1.2		0.3		2.0		0.3
Debt retirement costs	1.0		—		1.0		—
Gain on divested assets	—		—		(1.4)		—

Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	18.8		(2.7)		(18.5)		(25.8)
(Increase) decrease in inventory	5.1		(3.4)		46.1		(25.0)
(Increase) decrease in other current assets	3.6		3.1		(5.4)		(5.7)
Increase (decrease) in trade payables	(11.6)		3.5		(24.6)		(7.3)
Increase (decrease) in accrued compensation	16.5		7.7		5.6		(4.2)
Increase in other accrued liabilities	10.4		2.8		10.3		16.3
Other, net	1.2		(0.8)		1.6		1.2
Net cash flows provided by operating activities	109.0		44.1		121.1		14.7
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(7.3)		(36.8)		(17.8)		(108.4)
Net cash flows used in investing activities	(7.3)		(36.8)		(17.8)		(108.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of short-term debt	20.0		146.6		108.5		436.9
Repayments of short-term debt	(73.9)		(123.8)		(122.7)		(322.8)
Repayments of long-term debt	(60.4)		—		(61.5)		—
Other, net	—		(0.4)		(0.9)		(1.1)
Net cash flows provided by (used in) financing activities	(114.3)		22.4		(76.5)		113.0
Increase (decrease) in cash, cash equivalents and restricted cash	(12.6)		29.7		26.7		19.3
Cash, cash equivalents and restricted cash at beginning of period	61.8		14.6		22.4		24.9
Cash, cash equivalents and restricted cash at end of period	$	49.2	$	44.3	$	49.2	$	44.3
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized	$	4.9	$	1.3	$	24.2	$	16.4
Cash paid for income taxes, net of amounts received for refunds	$	(2.2)	$	1.9	$	(2.2)	$	1.7

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents	$	48.2	$	41.8	$	48.2	$	41.8
Restricted cash	—		1.4		—		1.4
Restricted cash included in Other assets, net	1.1		1.0		1.1		1.0
Total cash, cash equivalents and restricted cash	$	49.2	$	44.3	$	49.2	$	44.3

See accompanying Notes to the Consolidated Financial Statements.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(In millions, except share amounts which are in thousands)	Shares	Amount
Balance at December 31, 2018	16,482	$	—	$	6.4	$	487.3	$	(67.3)	$	426.4
Net income	—	—		—		3.8		—		3.8
Stock-based compensation expense	—	—		1.2		—		—		1.2
Issuance of shares under stock plans, net	33	—		(0.4)		—		—		(0.4)
Pension and other postretirement employee benefit plans, net of tax of $0.5	—	—		—		—		1.2		1.2
Balance at March 31, 2019	16,515	$	—	$	7.2	$	491.1	$	(66.1)	$	432.2
Net loss	—	—		—		(0.4)		—		(0.4)
Stock-based compensation expense	—	—		1.2		—		—		1.2
Pension and other postretirement employee benefit plans, net of tax of $0.5	—	—		—		—		1.3		1.3
Balance at June 30, 2019	16,515	$	—	$	8.4	$	490.7	$	(64.8)	$	434.3

CLEARWATER PAPER CORPORATION

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(In millions, except share amounts which are in thousands)	Shares	Amount
Balance at December 31, 2019	16,515	$	—	$	9.8	$	481.7	$	(59.5)	$	432.0
Net income	—	—		—		10.3		—		10.3
Stock-based compensation expense	—	—		1.3		—		—		1.3
Issuance of shares under stock plans, net	54	—		(0.7)		—		—		(0.7)
Pension and other postretirement employee benefit plans,  net of tax of $0.6	—	—		—		—		1.8		1.8
Balance at March 31, 2020	16,569	$	—	$	10.4	$	492.1	$	(57.7)	$	444.8
Net income	—	—		—		22.8		—		22.8
Stock-based compensation expense	—	—		1.4		—				1.4
Issuance of shares under stock plans, net	2	—		—		—		—		—
Pension and other postretirement employee benefit plans,  net of tax of $0.6	—	—		—		—		1.8		1.8
Balance at June 30, 2020	16,571	$	—	$	11.8	$	514.8	$	(55.8)	$	470.8

See accompanying Notes to the Consolidated Financial Statements.

Clearwater Paper Corporation

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position, results of operations, stockholders' equity and cash flows for us and our subsidiaries for the interim periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. All dollar amounts are shown in millions, except per share.

NOTE 2 RECENTLY ADOPTED AND NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

In March 2020, the SEC issued a final rule that amended the disclosure requirements under SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The final rule is based on the premise that the primary source of information that investors in guaranteed debt rely on is the consolidated financial statements of the parent company. The final rule replaces the previous requirement to provide separate condensed consolidating financial information of the guarantors. The final rule is effective for filings on or after January 4, 2021, and early adoption is permitted. We have elected to early adopt this rule which resulted in the removal of the supplemental guarantor financial information footnote.

New Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU is applicable to our contracts that reference LIBOR. The amendments may be applied through December 31, 2022. We will apply this guidance to transactions and modifications of these arrangements. We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable or not material to our business.

NOTE 3 FAIR VALUE MEASUREMENTS

Carrying amounts reported on the balance sheet for cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. We estimated the Senior Notes due 2023 and 2025 to have a total fair market value of $576.6 million and $574.0 million at June 30, 2020 and December 31, 2019 based upon market quotations. We estimated the fair value of the Term Loan to be $236.9 million and $300.0 million at June 30, 2020 and December 31, 2019.

NOTE 4 RECEIVABLES

Receivables consist of:


	June 30, 2020		December 31, 2019
Trade accounts receivable	$	168.8	$	157.0
Allowance for current expected credit losses	(1.7)		(1.5)
Taxes receivable	23.4		0.3
Interest receivable	—		1.0
Other	1.4		2.6
	$	191.9	$	159.4

NOTE 5 INVENTORIES

Inventories consist of:


	June 30, 2020		December 31, 2019
Logs, pulpwood, chips and sawdust	$	11.8	$	19.4
Materials and supplies	92.6		93.1
Pulp, paperboard and tissue products	130.9		168.9
	$	235.3	$	281.4

NOTE 6 LEASES

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. Our leases have remaining lease terms from less than one year to eleven years years, and some of our leases include one or more options to renew.

The tables below present financial information associated with our leases.


Lease expense	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating lease costs	$	3.9	$	3.5	$	7.8	$	7.0
Finance lease costs:
Amortization of right-of-use assets	0.4		0.5		0.9		0.9
Interest on lease liabilities	0.4		0.5		0.9		0.9
Total finance lease costs	0.9		0.9		1.8		1.8
Variable lease costs	0.4		0.3		0.8		0.6
Total lease costs	$	5.2	$	4.8	$	10.4	$	9.4


Supplemental cash flow information	Six Months Ended June 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8.8	$	8.1
Operating cash flows from finance leases	0.9		0.9
Financing cash flows from finance leases	0.7		0.6

Non-cash amounts for lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	1.7	$	0.9
Finance leases	0.3		0.5


Supplemental balance sheet information
	Classification	June 30, 2020		December 31, 2019
Lease ROU Assets
Operating lease assets	Operating lease right-of-use assets	$	68.2	$	73.1
Finance lease assets	Property, plant and equipment, net	26.7		26.5
Accumulated depreciation		(11.8)		(11.1)
Total lease ROU assets		$	83.1	$	88.5

Lease Liabilities
Current operating lease liabilities	Other accrued liabilities	$	14.5	$	13.9
Current finance lease liabilities	Short-term debt	1.6		1.4
Total current lease liabilities		16.1		15.3

Non-current operating lease liabilities	Long-term operating lease liabilities	60.1		65.6
Non-current finance lease liabilities	Long-term debt	20.0		20.6
Total non-current lease liabilities		80.1		86.2

Total operating lease liabilities		74.6		79.5
Total finance lease liabilities		21.6		22.0
Total lease liabilities		$	96.2	$	101.5

NOTE 7 DEBT

Long-term debt consists of:


		June 30, 2020										December 31, 2019
	Interest Rate at June 30, 2020	Principal		Unamortized Debt Costs		Total		Principal		Unamortized Debt Costs		Total
Term loan maturing 2026, variable interest rate	4.3%	$	239.3	$	(3.8)	$	235.4	$	300.0	$	(5.1)	$	294.9
2013 Notes, maturing 2023, fixed interest rate	4.5%	275.0		(1.2)		273.8		275.0		(1.5)		273.5
2014 Notes, maturing 2025, fixed interest rate	5.4%	300.0		(1.3)		298.7		300.0		(1.5)		298.5
ABL Credit Agreement, variable interest rate	3.3%	—		—		—		13.5		—		13.5
Finance leases		21.6		—		21.6		22.0		—		22.0
Total debt		835.9		(6.4)		829.5		910.5		(8.1)		902.4
Less: current portion		(1.6)		—		(1.6)		(17.9)		—		(17.9)
Net long-term portion		$	834.2	$	(6.4)	$	827.9	$	892.6	$	(8.1)	$	884.5

At June 30, 2020, we were in compliance with covenants in our various credit agreements. The maturities of our Term loan and our ABL Credit Agreement are subject to the refinancing of our 2013 Notes. If the 2013 Notes are not refinanced 91 days before their maturity, the ABL Credit Agreement and Term Loan Credit Agreement will become due.

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 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 the second quarter, we made a voluntary prepayment of $60 million. This prepayment was applied against our quarterly required installments through 2026.

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 0% to 50% 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 2.00x to 1.00x. At June 30, 2020 our pro forma first lien secured ratio was 0.97x. 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, the margin is 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, the margin is 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 June 30, 2020, our leverage ratio was 3.59x and therefore our applicable margin on LIBOR loans was 3.00%.

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. Based upon our Consolidated Balance Sheet as of June 30, 2020, our borrowings supported up to $220.6 million availability under the line of which we utilized $4.4 million, no borrowings outstanding and $4.4 million under letters of credit. 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.

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 unused availability falls below $25 million. As of June 30, 2020, our fixed charge coverage ratio was approximately 1.50x which included the impact of our voluntary debt prepayments. Our ability to utilize our ABL Credit Agreement could be limited in the future by our bond indentures which have limitations on liens.

NOTE 8 INCOME TAXES

For interim periods, accounting standards require that income tax expense be determined by applying the estimated annual effective income tax rate to year-to-date results, unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is adjusted to the current quarter.

For the first six months of 2020, our income tax expense reflects a rate of 11% as compared to rate of 54% in the comparable period of 2019. For the first six months of 2020, the primary differences between the U.S. federal income tax rate of 21% and the effective rate of 11% relates to the effect of tax credits and a $7.1 million benefit from the provisions of the Coronavirus Aid, Relief, and Economic Security Act. For the first six months of 2019, the primary differences between the U.S. federal income tax rate of 21% and the effective rate of 54% relates to the effect of tax credits and non-deductible compensation expense.

NOTE 9 OTHER OPERATING CHARGES

The major components of “Other operating charges, net” in the Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 are reflected in the table below and described in the paragraphs following the table:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Reorganization expenses	$	0.6	$	0.1	$	3.4	$	0.1
Union settlement	—		—		6.6		—
Gain on divested assets	—		—		(1.4)		—
Directors' equity-based compensation expense (benefit)	1.9		—		2.1		(0.3)
Other	0.5		0.3		0.8		0.4
	$	3.0	$	0.4	$	11.5	$	0.1

2020

During the second quarter of 2020, we recorded $3.0 million of expenses in "Other operating charges, net." The components of the expenses include:

•expenses of $0.6 million related to reorganization expenses (primarily related to corporate expenses), and

•expense of $1.9 million relating to directors' equity based compensation.

During the first quarter of 2020, we recorded $8.5 million of expenses in "Other operating charges, net." The components of the expenses include:

•expenses of $2.8 million related to reorganization expenses (primarily related to corporate expenses),

•expenses of $6.6 million associated with union settlement retroactive wage payments ($2.6 million associated with Consumer Products and $4.0 million associated with Paperboard segments),

•gain of $1.4 million associated with the Ladysmith Consumer Products facility sale escrow release, and

•expense of $0.2 million relating to directors' equity based compensation.

NOTE 10 NON-OPERATING INCOME (EXPENSE)

The components of “Non-operating expense” in the Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 are reflected in the table below:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Interest expense	$	(11.5)	$	(12.7)	$	(23.7)	$	(24.6)
Capitalized interest	—		2.0		—		5.4
Amortization of debt issuance costs	(0.5)		(0.4)		(1.1)		(0.9)
Interest income	—		0.3		—		0.7
Interest expense, net	(12.0)		(10.9)		(24.9)		(19.4)

Debt retirement costs	(1.0)		—		(1.0)		—
Non-operating pension and other postretirement employee benefits income (expense)	(2.0)		(1.5)		(3.8)		(2.8)
Total non-operating expense	$	(14.9)	$	(12.4)	$	(29.6)	$	(22.2)

NOTE 11 PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS

The following table details the components of net periodic cost of our company-sponsored pension and other postretirement employee benefit plans for the periods presented:


	Three Months Ended June 30,						Six Months Ended June 30,
Pension Benefit Plans	2020		2019		2020		2019
Service cost	$	0.6	$	0.7	$	1.2	$	1.2
Interest cost	2.6		3.1		5.2		6.2
Expected return on plan assets	(3.7)		(4.1)		(7.5)		(8.3)
Amortization of actuarial loss (gain)	2.5		1.8		5.0		3.7
Net periodic cost	$	2.0	$	1.4	$	3.9	$	2.9


	Three Months Ended June 30,						Six Months Ended June 30,
Other Postretirement Employee Benefit Plans	2020		2019		2020		2019
Service cost	$	—	$	—	$	—	$	—
Interest cost	$	0.6	$	0.8	$	1.1	$	1.4

Amortization of actuarial loss (gain)	—		—		—		(0.2)
Net periodic cost	$	0.6	$	0.8	$	1.2	$	1.2

We record the service component of net periodic cost (benefit) as part of "Cost of sales" and "Selling, general, and administrative expenses," while the non-service components of net periodic cost (benefit) are recorded to "Other non-operating expense" on our Consolidated Statements of Operations. For the three and six months ended June 30, 2020, we recorded $0.4 million and $0.7 million to "Cost of sales" and $0.2 million and $0.5 million to "Selling, general, and administrative expenses". For the three and six months ended June 30, 2019, we recorded $0.4 million and $0.8 million to "Cost of sales" and $0.3 million and $0.5 million to "Selling, general, and administrative expenses".

NOTE 12 ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss, net of tax, is comprised of the following:


	Pension Plan Adjustments		Other Post Retirement Employee Benefit Plan Adjustments		Total
Balance at December 31, 2018	$	(83.0)	$	15.7	$	(67.3)

Amounts reclassified from accumulated other comprehensive loss	2.7		(0.1)		2.5
Other comprehensive income, net of tax	2.7		(0.1)		2.5
Balance at June 30, 2019	$	(80.3)	$	15.6	$	(64.8)

Balance at December 31, 2019	$	(67.8)	$	8.3	$	(59.5)

Amounts reclassified from accumulated other comprehensive loss	3.7		—		3.7
Other comprehensive income, net of tax	3.7		—		3.7
Balance at June 30, 2020	$	(64.1)	$	8.3	$	(55.8)

NOTE 13 STOCKHOLDERS' EQUITY

Common Stock Plans

We have stock-based compensation plans under which restricted stock awards and stock options are granted according to time or performance vesting requirements. At June 30, 2020, approximately 1.3 million shares were available for future issuance under our current plan.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Total stock-based compensation expense (selling, general and administrative and other operating charges, net)	$	3.4	$	1.2	$	4.8	$	2.1
Income tax benefit related to stock-based compensation	$	0.9	$	0.3	$	1.3	$	0.5
Impact on cash flow due to taxes paid related to net share settlement of equity awards	$	—	$	—	$	0.7	$	0.4

At June 30, 2020, $12.2 million of compensation cost related to unvested restricted stock units, performance awards and stock options attributable to future service had not yet been recognized.

During the first six months ended June 30, 2020, we granted 371,267 restricted stock units (time vesting) at an average grant date fair value of $23.18 per share and 120,382 restricted stock units (performance vesting) at an average grant date fair value of $27.67.

NOTE 14 EARNINGS PER SHARE

Basic income (loss) per share is based on the weighted-average number of shares of common stock outstanding. Diluted income (loss) per share is 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.


	Three Months Ended June 30,			Six Months Ended June 30,
(In thousands)	2020	2019	2020	2019
Basic weighted-average common shares outstanding¹	16,594	16,539	16,575	16,528
Incremental shares due to:
Stock-based awards	92	—	70	24
Diluted weighted-average common shares outstanding	16,686	16,539	16,644	16,552

¹Basic weighted-average common shares outstanding includes restricted stock unit awards that are fully vested, but are deferred for future issuance.

Anti-dilutive shares excluded from the calculation were 0.7 million and 1.1 million for the three months ended June 30, 2020 and 2019 and 0.8 million and 1.0 million for the six months ended June 30, 2020 and 2019.

NOTE 15 SEGMENT INFORMATION

We operate in two segments: Consumer Products and Paperboard. Our business units have been aggregated into these two segments based upon the similarity of economic characteristics, customers and distribution methods. Our results of operations are summarized below for each of these segments separately. Segment information was prepared in accordance with the same accounting principles as those described in Note 1 of the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Segment net sales:
Consumer Products	$	275.1	$	224.3	$	540.8	$	447.7
Paperboard	205.4		227.7		417.6		433.1
Total segment net sales	$	480.5	$	452.0	$	958.4	$	880.8

Operating income (loss):
Consumer Products	$	36.6	$	(5.1)	$	50.9	$	(3.9)
Paperboard	32.2		33.6		58.7		63.0
Corporate	(17.6)		(12.7)		(31.1)		(29.3)
Other operating charges, net	(3.0)		(0.4)		(11.5)		(0.1)
Income from operations	$	48.1	$	15.3	$	67.0	$	29.7


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Major products:
Paperboard	$	204.1	$	226.2	$	415.1	$	429.2
Retail tissue	260.4		210.5		508.4		415.1
Non-retail tissue	10.2		12.3		24.1		30.7
Other	5.8		3.0		10.7		5.8
Total net sales	$	480.5	$	452.0	$	958.4	$	880.8


ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

~~Background~~Impact of COVID-19 on Our Business

In response to the outbreak and business disruption caused by the novel coronavirus (COVID-19) pandemic, we are focused on two priorities - the health and safety of our employees and continuing to safely operate our facilities to meet the needs of our customers. We ~~manufacture quality consumer~~have implemented important health and safety measures across our facilities, including temperature checks, social distancing guidelines, sanitation practices, remote work for those whose jobs allow them to do so, and travel and visitor restrictions.

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and may adversely affect our business. To date, our industry has been classified as essential by the Federal Government, through the Department of Homeland Security’s Cyber and Infrastructure Security Agency (CISA), and in each of the jurisdictions in which we operate, which enabled us to operate our facilities through the first six months of 2020. We do not expect there to be any changes in this designation and as a result, we do not anticipate having to curtail or cease our operations due to any governmental imposed shutdown.

Our company and our competitors have experienced a significant increase in demand for "at home" tissue ~~away-from-home~~products in the first six months of 2020 as a result of COVID-19. We expect that demand for tissue ~~parent roll tissue, bleached~~will normalize and will eventually return to pre-COVID-19 levels. Demand for paperboard products has also been affected by the COVID-19 pandemic, with increases in some end-market segments like food packaging and ~~pulp at~~decreases in food service and commercial print.

The effects of the COVID-19 pandemic may negatively impact various aspects of our business including, but are not limited to:

•the ability of our suppliers to meet delivery requirements and commitments;

•disruptions to our supply chains;

•the ability of our employees to perform their work due to illness caused by the pandemic, the complete or partial closure of one or more of our manufacturing facilities, ~~across the nation. We are a premier supplier of private label tissue~~or local, state, or federal orders requiring employees to ~~major retailers~~remain at home and wholesale distributors, including grocery, drug, mass merchant and discount stores. In addition, we produce bleached paperboard used by quality-conscious printers and packaging converters. Our employees build shareholder value by developing strong customer partnerships through quality and service.;

~~Recent Events~~

~~Acquisition of Manchester Industries~~

~~Strategic Capital Projects~~

As part of our focus on strategic capital spending on projects that we expect to provide a positive return on investments, we announced in September 2015 the construction of a continuous pulp digester at our Lewiston, Idaho, pulp and paperboard facility. Construction of the pulp digester was completed and start-up began at the end of the third quarter. As of September 30, 2017, we have incurred a total of $132.0 million in total project costs, of which $13.8 million was incurred•disruptions or delays in the third quarter of 2017. We have also capitalized $5.7 million of interest related to the project, of which $1.2 million was capitalized in the third quarter of 2017. We estimate that the total cost for this pulp optimization project will be approximately $153 million, excluding estimated capitalized interest, with the majority of the remaining capital to be spent in the fourth quarter as we ramp up the pulp digester. We anticipate that this project will significantly reduce air emissions, result in operational improvements through increased pulp quality and production, and lower our costs through the more efficient utilization of wood chips.

On February 8, 2017, we announced plans to build a new tissue machine and related converting equipment at a site adjacent to our existing facility in Shelby, North Carolina. The new tissue machine will produce a variety of high-quality private label premium and ultra-premium bath, paper towel and napkin products. At full production capacity, the new tissue machine is expected to produce approximately 70,000 tons of tissue products annually. The estimated cost for the project includes approximately $280 million for the tissue machine, converting equipment and buildings, and approximately $60 million for the purchase and expansion of an existing warehouse that will consolidate all southeastern warehousing in Shelby. We project that the construction of the new facility will be completed in early 2019 and will be fully operational in 2020. During the nine months ended September 30, 2017, we spent $42.0 million on construction related activities and the new tissue machine in Shelby, of which $15.3 million was spent in the third quarter. We have also capitalized $0.5 million of interest related to the Shelby expansion, of which $0.3 million was capitalized in the third quarter of 2017.

~~Capital Allocation~~

~~On December 15, 2015, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to~~ $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. 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 1,440,696 shares of our outstanding common stock as of September 30, 2017, pursuant to this repurchase program, of which 84,750 shares were repurchased during the first quarter of 2017 at an average price of $57.53 per share. We did not repurchase shares during the second or third quarters of 2017. As of September 30, 2017, we had up to $29.8 million of authorization remaining pursuant to this stock repurchase program.

~~Facility Closure~~

Due to expected productivity gains from cost and optimization programs across the company, we announced the permanent closure of our Oklahoma City converting facility on November 29, 2016. This facility was closed on March 31, 2017. The production from this facility is expected to be more efficiently supplied by our other facilities. For the three and nine months ended September 30, 2017, we incurred closure-related costs of $0.8 million and $6.8 million, respectively.

Notwithstanding the closure, we remain subject to the terms of a long-term master lease applicable to the facility, which expires in May 2023. In October 2017, as a means to significantly reduce our expected cash requirements under the master lease ,we transferred to a third party substantially all of the remaining fixed assets and supplies inventory located at this facility and subleased the facility to the third party for the remaining term of the master lease. In connection with the transfer of fixed assets, we recorded a loss of $4.3 million in the third quarter of 2017 related primarily to the write-down of the transferred assets to their held for sale value. We expect to record a loss of approximately $3 million in the fourth quarter of 2017 related to the execution of the sublease agreement.

~~Components and Trends in our Business~~

~~Net sales~~

Net sales predominantly consist of sales of consumer tissue and paperboard products, net of discounts, returns and allowances and any sales taxes collected. Prices for our consumer tissue products tend to be primarily driven by the valuedelivery of our products to ~~our customers, and are generally priced relative to the prices of branded tissue products. Demand and pricing~~customers;

•a decrease in demand for our ~~pulp and paperboard products are largely determined by general global market conditions and the demand for high quality paperboard.~~products;

Cost of sales
Three Months Ended September 30,
(Dollars in thousands) 2017 2016
Cost
Percentage of
Sales
Cost
Percentage of
Sales
Cost Variance
Wages and benefits $ 68,008
15.9 % $ 76,552
17.6 % $ (8,544 )
Transportation¹
50,243
11.8
46,116
10.6
4,127
Purchased pulp 53,411
12.5
57,289
13.1
(3,878 )
Chemicals 39,768
9.3
40,499
9.3
(731 )
Chips, sawdust and logs 29,801
7.0
33,440
7.7
(3,639 )
Maintenance and repairs²
29,078
6.8
36,129
8.3
(7,051 )
Depreciation 22,359
5.2
20,196
4.6
2,163
Packaging supplies 21,977
5.2
22,031
5.1
(54 )
Energy 22,408
5.3
24,346
5.6
(1,938 )

337,053
79.0
356,598
81.9
(19,545 )
Other operating costs 49,528
11.6
40,007
9.2
9,521
Total cost of sales $ 386,581
90.6 % $ 396,605
91.1 % $ (10,024 )

Nine Months Ended September 30,
(Dollars in thousands) 2017 2016
Cost Percentage of
Sales Cost Percentage of
Sales Cost Variance
Wages and benefits $ 209,181
16.2 % $ 220,627
16.9 % $ (11,446 )
Transportation¹
146,646
11.3
135,962
10.4
10,684
Purchased pulp 144,869
11.2
151,932
11.6
(7,063 )
Chemicals 122,407
9.4
123,418
9.4
(1,011 )
Chips, sawdust and logs 99,887
7.7
109,048
8.3
(9,161 )
Maintenance and repairs²
74,244
5.7
75,779
5.8
(1,535 )
Depreciation 69,266
5.4
58,256
4.5
11,010
Packaging supplies 65,867
5.1
64,396
4.9
1,471
Energy 66,710
5.2
65,529
5.0
1,181

999,077
77.2
1,004,947
76.8
(5,870 )
Other operating costs 155,267
12.0
122,156
9.3
33,111
Total cost of sales $ 1,154,344
89.2 % $ 1,127,103
86.1 % $ 27,241


¹	~~Includes internal and external transportation costs.~~


²	~~Excludes related labor costs.~~

~~Wages and benefits.~~ Costs related to our employees primarily consist of wages and related benefit costs and payroll taxes. For the three and nine months ending September 30, 2017, wage and benefit costs decreased compared to the same periods in 2016 primarily due to decreased labor costs resulting from the implementation of our warehouse automation project at several of our Consumer Products segment's facilities, the closure of our Oklahoma City, Oklahoma facility and the December 2016 shutdown of two paper machines at our Neenah, Wisconsin facility, partially offset by annual wage increases.

~~Transportation~~. Fuel prices, mileage driven and line-haul rates largely impact transportation costs for the delivery of raw materials to our manufacturing facilities, internal inventory transfers and the delivery of our finished products to customers. Changing fuel

prices particularly affect our margins for consumer products because we supply customers throughout the U.S. and transport unconverted parent rolls from our tissue mills to our tissue converting facilities. For the three and nine months ended September 30, 2017, transportation costs increased compared to the same periods in 2016 due to increased fuel prices, increased internal shipments as a result of the closure of our Oklahoma City facility, and higher transportation rates due to inclement weather caused by hurricanes in the Southeast in the third quarter of 2017.

~~Purchased pulp~~. We purchase a significant amount of the pulp needed to manufacture our consumer products, and to a lesser extent our paperboard, from external suppliers. For the three and nine months ended September 30, 2017, total purchased pulp costs decreased compared to the same periods in 2016 due primarily to reduced tissue shipments and the shutdown of two higher cost paper machines at our Neenah, Wisconsin facility, partially offset by increased purchased pulp usage at our Idaho and Arkansas pulp and paperboard facilities and elevated pulp prices resulting from robust market demand.

~~Chemicals~~. We consume a substantial amount of chemicals in the production of pulp and paperboard, as well as in the production of through-air-dried, or TAD, tissue. The chemicals we generally use include polyethylene, caustic, starch, sodium chlorate, latex and paper processing chemicals. A portion of the chemicals used•disruptions in our manufacturing ~~processes, particularly~~operations due to localized conditions;

•limitations on the ability of our customers to pay us on a timely basis; and

•negative impact on some of our customers due to challenging economic conditions.

We are evaluating and taking actions to monitor and ensure appropriate levels of available liquidity and may experience disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. 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.

As the COVID-19 pandemic continues to evolve, we will continue to actively monitor the situation and may take actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the ~~paperboard extrusion process, are petroleum based and are impacted by petroleum prices.~~

~~Chemical costs remained flat in the three and nine month periods ending September 30, 2017, compared to the same periods in 2016.~~

~~Chips, sawdust and logs~~. We purchase chips, sawdust and logs to manufacture pulp. We source residual wood fibers under both long-term and short-term supply agreements, as well as in the spot market. Chips, sawdust and log costs decreased for the three and nine months ending September 30, 2017, compared to the same period in 2016, primarily due to lower paperboard shipments and lower wood pricing in the Arkansas region.

~~Maintenance and repairs~~. We regularly incur significant costs to maintain our manufacturing equipment. We perform routine maintenance on our machines and periodically replace a variety of parts such as motors, pumps, pipes and electrical parts.

Major equipment maintenance and repairs in our Pulp and Paperboard segment also require maintenance shutdowns approximately every 18 to 24 months at both our Idaho and Arkansas facilities, which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur. During the three months ended September 30, 2017, maintenance and repair spending decreased compared to the same period in 2016 due to lower planned maintenance at severalbest interests of our ~~Consumer Products segment's facilities, the shutdown of two paper machines at our Neenah, Wisconsin facility~~employees, customers, suppliers, and the closure of our Oklahoma City facility, as well as to the timing of planned major maintenance at our Arkansas pulp and paperboard facility. All of the above were partially offset by additional incremental repairs during the scheduled major maintenance at our Lewiston, Idaho pulp and paperboard facility which led to a three day delay in the startup of the paper machines. For the nine months ended September 30, 2017 maintenance and repair spending was slightly lower than in the comparable period in 2016, as increased planned major maintenance spending at our Pulp and Paperboard segment was offset by the decreased maintenance spending in our Consumer Products segment, primarily at our Neenah, Ladysmith, Lewiston and Oklahoma City facilities.shareholders.

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. During the nine months ended September 30, 2017, excluding capitalized interest of $3.4 million, we spent $135.4 million on capital expenditures, which included $104.3 million of capital spending on strategic projects and other projects designed to reduce future manufacturing costs and provide a positive return on investment. During the three and nine months ended September 30, 2016, we spent $54.1 million and $107.8 million, respectively, on capital expenditures, excluding capitalized interest of $0.7 million and $1.6 million, respectively. These additional capital expenditures in the 2017 periods include $34.0 million and $65.9 million, respectively, of capital spending on strategic projects and other projects designed to reduce future manufacturing costs and provide a positive return on investment.Executive Summary

~~Depreciation.~~ We record substantially all of our depreciation expense associated with our plant and equipment in "Cost of sales" on our Consolidated Statements of Operations. Depreciation expense for the three and nine months ended September 30, 2017 increased compared to the same periods in 2016 due primarily to accelerating depreciation in 2017 on certain Oklahoma City assets in association with the March 2017 facility closure, increased depreciation as a result of higher capital spending and the inclusion of depreciation related to the Manchester Industries acquisition.

~~Energy~~. We use energy in the form of electricity, hog fuel, steam and natural gas to operate our mills. Energy prices may fluctuate widely from period-to-period due primarily to volatility in temperatures and electricity and natural gas rates. We generally strive to reduce our exposure to volatile energy prices through conservation. In addition, a co-generation facility that produces steam and electricity at our Lewiston, Idaho manufacturing site helps to lower our energy costs. Energy costs for the three months ended September 30, 2017, decreased compared to the same period in 2016 primarily due to decreased usage in our Consumer Products segment as a result of lower shipments, our paper machine shutdowns at Neenah, Wisconsin and our plant closure at Oklahoma City, partially offset by higher seasonal electricity rates at our Las Vegas facility. Energy costs in the nine months ended September 30, 2017 increased compared to the same period in 2016 due to increased pricing for natural gas and increased electricity usage at our Arkansas Pulp and Paperboard facility due to an extended turbine generator outage.

To help mitigate our exposure to changes in natural gas prices, we use firm-price contracts to supply a portion of our natural gas requirements. As of September 30, 2017, these contracts covered approximately 30% of our expected average monthly natural gas requirements for the remainder of 2017, and a lesser amount for 2018.

~~Packaging supplies~~. As a significant producer of private label consumer tissue products, we package to order for retail chains, wholesalers and cooperative buying organizations. Under our agreements with those customers, we are responsible for the expenses related to the unique packaging of our products for direct retail sale to their consumers. For the three months ended September 30, 2017, packaging costs remained flat compared to the same period in 2016. For the nine months ended September 30, 2017, packaging costs increased compared to the same period in 2016 due to higher poly and corrugate pricing.

~~Other~~. Other costs primarily consist of miscellaneous operating costs, which increased in the three and nine month periods ended September 30, 2017, compared to the same periods in 2016, due primarily to the inclusion of raw material costs for the operations of Manchester Industries, in addition to increases in certain other costs, most notably higher inventory costs recognized in the first quarter of 2017 resulting from planned production curtailments at the end of the fourth quarter of 2016. These increases were partially offset by $4.3 million of insurance recoveries related to claim settlements at our Las Vegas and Shelby facilities, as discussed in Note 14, “Business Interruption and Insurance Recovery,” to the consolidated financial statements included in this Report.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses primarily consist of compensation and associated expenses for sales and administrative personnel, as well as commission expenses related to sales of our products.

~~Interest expense~~

Interest expense for the three and nine months ended September 30, 2017 and 2016 includes interest on 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, and interest on our $300 million aggregate principal amount of 5.375% senior notes issued in 2014 and due 2025, which we refer to as the 2014 Notes. Interest expense also includes interest on the amount drawn under our revolving credit facilities and amortization of deferred issuance costs associated with all of our notes and revolving credit facilities.

~~Income taxes~~

Income taxes are based on reported earnings and tax rates in the jurisdictions in which our operations occur and offices are located, adjusted for available credits, changes in valuation allowances and differences between reported earnings and taxable income using current tax laws and rates. We generally expect our effective income tax rate, excluding discrete items, to remain fairly constant, although it could fluctuate due to changes in tax law.

~~RESULTS OF OPERATIONS~~

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

~~The following table sets forth data included in our Consolidated Statements of Operations as a percentage of net sales.~~

Three Months Ended September 30,
(Dollars in thousands) 2017 2016
Net sales $ 426,504
100.0 % $ 435,320
100.0 %
Costs and expenses:
Cost of sales (386,581 ) 90.6
(396,605 ) 91.1
Selling, general and administrative expenses (34,472 ) 8.1
(29,435 ) 6.8
Total operating costs and expenses (421,053 ) 98.7
(426,040 ) 97.9
Income from operations 5,451
1.3
9,280
2.1
Interest expense, net (7,683 ) 1.8
(7,520 ) 1.7
(Loss) earnings before income taxes (2,232 ) 0.5
1,760
0.4
Income tax benefit (provision) 3,095
0.7
(859 ) 0.2
Net earnings $ 863
0.2 % $ 901
0.2 %

~~Net sales~~—Third quarter 2017 net sales decreased by $8.8 million compared to the third quarter of 2016. This decrease was primarily the result of lower away-from-home and retail tissue sales, as well as lower parent roll sales due primarily to the paper machine shutdowns at our Neenah, Wisconsin facility in the fourth quarter of 2016 and weather related events in the third quarter of 2017. Partially offsetting these decreases were increased sales in our Pulp and Paperboard segment as a result of increased sales volumes resulting from the Manchester Industries acquisition and higher paperboard prices. These items are further discussed below under “Discussion of Business Segments.”

~~Cost of sales~~—Cost of sales was 90.6% of net sales for the third quarter of 2017 and 91.1% of net sales for the same period in 2016. Our overall cost of sales were $10.0 million lower than the third quarter of 2016, primarily as a result of lower wage and benefit and maintenance costs due to the shutdown of two of our paper machines at our Neenah, Wisconsin facility and the closure of our Oklahoma City, Oklahoma facility, in addition to the implementation of our warehouse automation project at several of our Consumer Products segment's facilities. These lower costs were partially offset by increased transportation costs, due to increased fuel pricing and additional internal shipments as a result of the closure of our Oklahoma City facility, the inclusion of Manchester Industries' operating costs in the third quarter of 2017, and elevated pulp prices resulting from robust market demand.

~~Selling, general and administrative expenses~~—Selling, general and administrative expenses for the third quarter of 2017 increased $5.0 million compared to the third quarter of 2016. The higher expense was primarily a result of $4.3 million of asset writedowns to held for sale value on certain Oklahoma City assets, $0.5 million of mark-to-market expense during the third quarter of 2017, compared to $0.1 million of mark-to-market expense during the third quarter of 2016, related to our directors' common stock units, which will ultimately be settled in cash, and increased amortization expense attributable to intangible assets acquired in connection with the purchase of Manchester Industries in the fourth quarter of 2016. These unfavorable impacts were partially offset by lower profit dependent accruals for the three months ended September 30, 2017, compared to the same period in 2016, and the absence of a $1.6 million pension settlement charge recorded during the third quarter of 2016.

~~Interest expense~~—Interest expense for the third quarter of 2017 increased by $0.2 million due to higher interest expense associated with higher borrowings under our revolving credit facilities, partially offset by capitalized interest of $1.5 million for the third quarter of 2017, compared to capitalized interest of $0.7 million for the third quarter of 2016.

~~Income tax provision~~—We recorded an ~~income tax benefit~~increase of ~~$3.1~~6% in sales to $480.5 million for the three months ended ~~September~~June 30, ~~2017,~~2020 compared to ~~income tax expense of $0.9~~$452.0 million ~~in the same period in 2016. The benefit in the third quarter of 2017 was primarily driven by the pre-tax loss for the quarter, increased by federal tax credits of $2.4 million.~~

During the third quarters of 2017 and 2016, there were a number of items that were included in the calculation of our income tax provision that we do not believe were indicative of our core operating performance. Excluding these items, the tax rate for the three months ended ~~September~~June 30, ~~2017 would have been approximately 18% compared to an adjusted rate of approximately 41%~~2019. We recorded net income for the three months ended ~~September~~June 30, ~~2016. See~~2020 of $22.8 million, or $1.36 per diluted share, compared to net loss of $0.4 million or $0.03 per diluted share in the ~~section entitled “Non-GAAP Measures” on page 32~~second quarter of ~~this report for a reconciliation of these adjusted income tax provision amounts to the comparable GAAP income tax provision amounts.~~

~~Discussion of Business Segments~~

~~Consumer Products~~

Three Months Ended
September 30,
(Dollars in thousands - except per ton amounts) 2017 2016
Net sales $ 232,916
$253,319
Operating income 4,436
17,201
Percent of net sales 1.9 % 6.8 %

Shipments (short tons)
Non-retail 12,958
18,384
Retail 77,544
82,216
Total tissue tons 90,502
100,600
Converted products cases (in thousands) 12,727
13,770

Sales price (per short ton)
Non-retail $ 1,468
$ 1,506
Retail 2,754
2,742
Total tissue $ 2,574
$ 2,516

~~Net sales~~2019. We recorded Adjusted EBITDA for the ~~Consumer Products segment during the third quarter~~three months ended June 30, 2020 of ~~2017 decreased $20.4~~$79.0 million compared to $44.3 million reported in the ~~third~~second quarter of ~~2016 as the result~~2019.

We recorded an increase of ~~a 10.0% reduction~~9% in sales ~~volume, driven by lower away-from-home and retail tissue sales, lower parent roll sales due primarily~~ to $958.4 million for the ~~paper machine shutdowns at our Neenah, Wisconsin facility~~six months ended June 30, 2020 compared to $880.8 million in the fourth quarter of 2016, and weather related events in the third quarter of 2017. These decreases were partially offset by a favorable mix shift due to reduced sales of lower priced parent rolls, away-from-home products and contract manufacturing and increased sales of TAD bathroom tissue and paper towels.

~~Segment operating~~six months ended June 30, 2019. We recorded net income for the ~~third quarter~~six months ended June 30, 2020 of ~~2017 decreased by $12.8~~$33.1 million, or $1.99 per diluted share, compared to net income of $3.4 million or $0.21 per diluted share in the six months

ended June 30, 2019. We recorded Adjusted EBITDA for the six months ended June 30, 2020 of $134.3 million compared to $84.1 million reported in the ~~third quarter~~first six months of ~~2016, due~~2019.

The increase in sales, net income and Adjusted EBITDA for both the three and six month periods ended June 30, 2020 was primarily ~~to the decreased~~driven by a significantly higher sales ~~higher costs~~volume for ~~transportation caused by disruption as a result of two hurricanes as well as additional internal shipments~~retail tissue as a result of the ~~closure of our Oklahoma City facility, higher pulp prices~~COVID-19 pandemic and higher packaging supply costs. Additionally, third quarter 2017 operating income for the segment included $4.3 million of asset writedowns to held for sale value on certain Oklahoma City assets. These unfavorable impacts were partially offset by lower wage and benefit and maintenance costs resulting from the shutdown of the two paper machines at our Neenah facility, the closure of our Oklahoma City facility, and reduced wage and benefit costs resulting from the implementation of our warehouse automation project at several facilities.

~~Pulp and Paperboard~~

Three Months Ended
September 30,
(Dollars in thousands - except per ton amounts) 2017 2016
Net sales $ 193,588
$ 182,001
Operating income 15,023
9,956
Percent of net sales 7.8 % 5.5 %

Paperboard shipments (short tons) 200,569
196,271
Paperboard sales price (per short ton) $ 965
$ 927

Net sales for the Pulp and Paperboard segment increased by $11.6 million during the third quarter of 2017, compared to the third quarter of 2016. The increase was due primarily to increased paperboard shipments, which included sales from Manchester Industries. In addition, overall pricing per short ton increased due to a favorable mix shift also dueincreases in ~~part to the inclusion of Manchester Industries.~~

~~Operating income for the segment increased $5.1 million during the third quarter of 2017, compared to the third quarter of 2016, primarily~~demand based upon new customer programs. Increased demand resulted in improved margins due to increased production that drove increased fixed cost absorption.

See discussion on segment level results regarding sales, operating results and ~~lower wood fiber, maintenance, and wage and benefits costs. These favorable impacts were partially offset by higher transportation and supply costs associated with Manchester Industries,~~Adjusted EBITDA in ~~addition to increased depreciation.~~“Our Operating Results” below.

~~RESULTS OF OPERATIONS~~

~~Nine Months Ended~~ ~~September 30, 2017 Compared to Nine Months Ended~~ ~~September 30, 2016~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The ~~following table sets forth data included~~preparation of financial statements in accordance with GAAP requires our management to select and apply accounting policies that best provide the framework to report our results of operations and financial position. The selection and application of those policies requires management to make difficult, subjective and complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, it is possible that materially different amounts would be reported under different conditions or using different assumptions.

As of June 30, 2020, there have been no significant changes with regard to the critical accounting policies disclosed in our ~~Consolidated Statements of Operations as a percentage of net sales.~~

Nine Months Ended September 30,
(Dollars in thousands) 2017 2016
Net sales $ 1,293,692
100.0 % $ 1,309,195
100.0 %
Costs and expenses:
Cost of sales (1,154,344 ) 89.2
(1,127,103 ) 86.1
Selling, general and administrative expenses (93,674 ) 7.2
(94,885 ) 7.2
Total operating costs and expenses (1,248,018 ) 96.5
(1,221,988 ) 93.3
Income from operations 45,674
3.5
87,207
6.7
Interest expense, net (23,399 ) 1.8
(22,559 ) 1.7
Earnings before income taxes 22,275
1.7
64,648
4.9
Income tax provision (5,860 ) 0.5
(24,437 ) 1.9
Net earnings $ 16,415
1.3
$ 40,211
3.1

~~Net sales—Net sales~~Annual Report on Form 10-K for the ~~nine months~~year ended September 30, 2017 decreased by $15.5 million, or 1.2%, compared to the same period in 2016. The decrease was primarily due to decreased shipments during the first nine months of 2017 in our Consumer Products segment and reduced overall net selling prices for paperboard, partially offset by increased shipments in our Pulp and Paperboard segment primarily due to the inclusion of Manchester Industries and a favorable sales mix in both segments. These items are further discussed below under “Discussion of Business Segments.”December 31, 2019.

~~Cost of sales~~—Cost of sales was 89.2% of net sales for the nine months ended September 30, 2017 and 86.1% of net sales for the same period in 2016. Our overall costs of sales were $27.2 million higher than the first nine months of 2016 primarily due to higher energy costs, increased transportation costs caused by disruption as a result of two hurricanes and additional internal shipments as a result of the closure of our Oklahoma City facility, higher pulp pricing, higher depreciation expense, higher costs associated with the inclusion of Manchester Industries, and higher inventory costs in the fourth quarter of 2016 that flowed through cost of sales in the first quarter of 2017. These cost increases were partially offset by lower wage and benefit costs resulting from the implementation of our warehouse automation project at several of our Consumer Products segment's facilities, the shutdown of two paper machines at our Neenah facility, the closure of our Oklahoma City facility as well as insurance recoveries recorded in the first quarter of 2017.

~~Selling, general and administrative expenses~~—Selling, general and administrative expenses for the nine months ended September 30, 2017 decreased $1.2 million primarily due to $2.5 million of mark-to-market benefit during the nine months ended September 30, 2017, compared to $4.4 million of mark-to-market expense in the same period of 2016, related to our directors' common stock units, lower profit dependent accruals, and the absence of a $1.6 million pension settlement charge for the first nine months of 2016. These favorable impacts were partially offset by $4.3 million of asset writedowns to their held for sale value on certain Oklahoma City assets and $2.2 million of increased amortization of intangibles resulting from our acquisition of Manchester Industries.

~~Interest expense~~—Interest expense for the nine months ended September 30, 2017 increased by $0.8 million compared to the same period in 2016. The increase was driven by a larger average balance on our revolving credit facilities during the nine months ended 2017 compared to the same period in 2016, partially offset by capitalized interest of $3.4 million in the first nine months of 2017 compared to $1.6 million in the same period in 2016.

~~Income tax provision~~—We recorded an income tax expense of $5.9 million in the nine months ended September 30, 2017, compared to $24.4 million in the same period of 2016. The rate determined under generally accepted accounting principles, or GAAP, for the nine months ended September 30, 2017 was approximately 26% compared to 38% for the same period of 2016. The net change to our effective tax rate in the nine months ended September 30, 2017, was primarily the result of net benefits from income tax credits.

During the nine months ended September 30, 2017 and 2016, there were a number of items that were included in the calculation of our income tax provision that we do not believe were indicative of our core operating performance. Excluding these items, the tax rates for the nine months ended September 30, 2017 would have been approximately 29% compared to an adjusted rate of approximately 38% for the nine months ended September 30, 2016. See the section entitled “Non-GAAP Measures” on page 32 of this report for a reconciliation of these adjusted income tax provision amounts to the comparable GAAP income tax provision amounts.

~~Discussion of Business Segments~~

~~Consumer Products~~

Nine Months Ended
September 30,
(Dollars in thousands - except per ton amounts) 2017 2016
Net sales $ 707,251
$ 746,249
Operating income 21,159
54,135
Percent of net sales 3.0 % 7.3 %

Shipments (short tons)
Non-retail 43,372
62,770
Retail 233,944
236,338
Total tissue tons 277,316
299,108
Converted products cases (in thousands) 38,559
39,989

Sales price (per short ton)
Non-retail $ 1,452
$ 1,492
Retail 2,750
2,757
Total tissue $ 2,547
$ 2,492

~~Net sales for our Consumer Products segment decreased $39.0 million for the nine months ended September 30, 2017,~~ compared to the same period of 2016, due to lower overall sales volumes. This decrease was driven by lower sales of both finished goods cases and parent rolls. The decreased parent roll sales are the result of our decision to discontinue selling TAD parent rolls in the first quarter of 2016 to support internal converting needs, in addition to the shutdown of two paper machines at our Neenah facility in the fourth quarter of 2016. These unfavorable comparisons were partially offset by a favorable sales mix as increased TAD bathroom tissue and paper towel sales combined with reduced parent roll sales had a favorable average price impact that partially offset the sales volume decrease.

~~Segment operating income for the nine months ended~~ ~~September 30, 2017~~ decreased by $33.0 million compared to the same period of 2016, largely due to the decreased sales volumes in addition to increased transportation caused by higher fuel prices and additional internal shipments as a result of the closure of our Oklahoma City facility, higher packaging costs and depreciation expense, higher inventory costs in the fourth quarter of 2016 that flowed through cost of sales in the first quarter of 2017, and elevated pulp prices resulting from robust market demand. These cost increases were offset by reduced wage and benefits costs, resulting from the implementation of our warehouse automation project at several facilities, the shutdown of the two paper machines at our Neenah facility in the fourth quarter of 2016, the closure of our Oklahoma City facility, and insurance recoveries recorded in the first quarter of 2017.

~~Pulp and Paperboard~~

Nine Months Ended
September 30,
(Dollars in thousands - except per ton amounts) 2017 2016
Net sales $ 586,441
$ 562,946
Operating income 63,866
85,151
Percent of net sales 10.9 % 15.1 %

Paperboard shipments (short tons) 618,103
596,743
Paperboard sales price (per short ton) $ 949
$ 942

Net sales for the Pulp and Paperboard segment increased by $23.5 million during the nine months ended September 30, 2017, compared to the same period of 2016. The increase was primarily due to the inclusion of Manchester Industries.

Operating income for the segment decreased $21.3 million during the nine months ended September 30, 2017, compared to the same period of 2016, primarily due to increased costs for purchased pulp, maintenance and energy, in addition to increased amortization expense resulting from the acquisition of Manchester Industries. These cost increases were partially offset by reduced wood fiber usage and prices at our Arkansas facility.

NON-GAAP MEASURES

~~We use~~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-Q, 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, ~~or EBITDA, EBITDA adjusted for certain items, or~~goodwill impairment, other operating charges, net, and debt retirement costs as Adjusted EBITDA ~~and Adjusted income tax provision as supplemental performance measures that are not required by, or presented in accordance with GAAP. EBITDA and~~which is a non-GAAP financial measure. Adjusted EBITDA ~~should~~is not ~~be considered as alternatives to~~a substitute for the GAAP measure of net ~~earnings, operating~~ income or for any other ~~performance measure derived~~GAAP measures of operating performance.

We have included Adjusted EBITDA on a consolidated and segment basis in ~~accordance with GAAP, or~~this report because we use them as ~~alternatives to cash flows from operating activities or a measure~~important supplemental measures of our ~~liquidity or profitability. In addition,~~performance and believe that they are frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our ~~calculation~~industry, some of ~~EBITDA and~~which present Adjusted EBITDA ~~may~~ when reporting their results. We also 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 ~~similarly titled measures used~~Adjusted EBITDA reported by other companies.

~~We present EBITDA,~~ Our Adjusted EBITDA ~~and Adjusted~~measures have material limitations as performance measures because they exclude interest expense, income tax ~~provision because~~(benefit) expense and depreciation and amortization which are necessary to operate our business or which we ~~believe they assist investors~~otherwise incur or experience in connection with the operation of our business. In addition, we exclude other income and ~~analysts in comparing our performance across reporting periods on a consistent basis by excluding~~expense items ~~that we do not believe~~which are ~~indicative~~outside of our core operating performance. In addition, we use EBITDA and Adjusted EBITDA: (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit agreement and the indenture governing the 2013 Notes use metrics similar to EBITDA to measure our compliance with certain covenants.operations.

The following table provides our ~~EBITDA and~~ Adjusted EBITDA for the periods presented, as well as a reconciliation to net ~~earnings.~~income.


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Net income (loss)	$	22.8	$	(0.4)	$	33.1	$	3.4
Income tax provision	10.4		3.3		4.2		4.0
Interest expense, net	12.0		10.9		24.9		19.4
Depreciation and amortization expense	27.8		28.5		55.8		54.3
Other operating charges, net	3.0		0.4		11.5		0.1
Other non-operating expense	2.0		1.5		3.8		2.8
Debt retirement costs	1.0		—		1.0		—
Adjusted EBITDA	$	79.0	$	44.3	$	134.3	$	84.1

Consumer Products segment income	$	36.6	$	(5.1)	$	50.9	$	(3.9)
Depreciation and amortization	17.1		17.4		34.4		32.1
Adjusted EBITDA Consumer Products segment	$	53.7	$	12.3	$	85.3	$	28.2

Paperboard segment income	$	32.2	$	33.6	$	58.7	$	63.0
Depreciation and amortization	9.2		9.5		18.5		19.0
Adjusted EBITDA Paperboard segment	$	41.4	$	43.1	$	77.2	$	82.0

Corporate and other expense	$	(17.6)	$	(12.7)	$	(31.1)	$	(29.3)
Depreciation and amortization	1.5		1.6		3.0		3.2
Adjusted EBITDA Corporate and other	$	(16.2)	$	(11.1)	$	(28.1)	$	(26.1)

Consumer Products segment	$	53.7	$	12.3	$	85.3	$	28.2
Paperboard segment	41.4		43.1		77.2		82.0
Corporate and other	(16.2)		(11.1)		(28.1)		(26.1)
Adjusted EBITDA	$	79.0	$	44.3	$	134.3	$	84.1

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2017 2016 2017 2016
Net earnings $ 863
$ 901
$ 16,415
$ 40,211
Interest expense, net 7,683
7,520
23,399
22,559
Income tax (benefit) provision (3,095 ) 859
5,860
24,437
Depreciation and amortization expense¹
25,856
22,747
79,468
65,921
EBITDA $ 31,307
$ 32,027
$ 125,142
$ 153,128
Directors' equity-based compensation expense (benefit) 463
89
(2,470 ) 4,425
Costs associated with Oklahoma City facility closure²
5,057
—
7,406
—
Costs associated with Long Island facility closure 314
466
1,145
1,431
Reorganization related expenses 480
—
480
—
Manchester Industries acquisition related expenses —
—
220
—
Write-off of assets as a result of Warehouse Automation project —
—
41
—
Pension settlement expense —
3,482
—
3,482
Gain associated with the sale of the specialty mills, net —
(1,755 ) —
(1,755 )
Adjusted EBITDA $ 37,621
$ 34,309
$ 131,964
$ 160,711

Depreciation and amortization expense for the three months ended September 30, 2017 includes accelerated depreciation of $0.1 million as a result of the warehouse automation project, as well as $0.3 million associated with the closed Long Island facility. Depreciation and amortization expense for the nine months ended September 30, 2017 includes $3.7 million of accelerated depreciation associated with the Oklahoma City facility closure, $0.4 million as a result of the warehouse automation project, and $0.6 million associated with the closed Long Island facility.


²	Costs associated with the Oklahoma City facility closure for both the three and nine months ended September 30, 2017 include $4.3 million of loss on the writedown of assets to their held for sale value.

~~The following table provides our Adjusted income tax provisions for the three and nine months ended September 30, 2017 and 2016, as well as a reconciliation to income tax provision.~~

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2017 2016 2017 2016
GAAP Income tax benefit (provision) $ 3,095
$ (859 ) $ (5,860 ) $ (24,437 )
Special items, tax impact:
Directors' equity-based compensation (expense) benefit (157 ) (32 ) 831
(1,568 )
Costs associated with Oklahoma City facility closure (1,719 ) —
(3,762 ) —
Costs associated with Long Island facility closure (208 ) (166 ) (586 ) (509 )
Reorganization related expenses (163 ) —
(163 ) —
Accelerated depreciation of assets as a result of Warehouse Automation project (41 ) —
(121 ) —
Manchester Industries acquisition related expenses —
—
(74 ) —
Write-off of assets as a result of Warehouse Automation project —
—
(14 ) —
Pension settlement expense —
(1,242 ) —
(1,242 )
Gain associated with the sale of the specialty mills, net —
626
—
626
Adjusted income tax benefit (provision) $ 807
$ (1,673 ) $ (9,749 ) $ (27,130 )

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~The following table presents information regarding our cash flows for the nine months ended September 30, 2017 and 2016:~~

(In thousands) 2017 2016
Net cash flows from operating activities $ 152,176
$ 138,883
Net cash flows from investing activities (135,897 ) (105,264 )
Net cash flows from financing activities (30,802 ) (38,898 )

~~Cash Flows Summary~~

Net cash flows provided by operating activities for the nine months ended September 30, 2017 increased by $13.3 million compared to the same period in 2016. The increase in operating cash flows was driven by cash provided by working capital of $43.8 million during the nine months ended September 30, 2017, primarily related to an increase in accounts payable and accrued liabilities, compared to cash provided by working capital of $4.0 million for the same period in 2016. These sources of cash were partially offset by a decrease in net earnings after adjusting for non-cash related items compared to the nine months ended September 30, 2016.

Net cash flows used for investing activities increased by $30.6 million primarily due to additions to plant and equipment. Capital spending for plant and equipment increased by $31.1 million compared to the same period in 2016 due to our continued focus on strategic capital projects, including our continuous pulp digester project at our Lewiston, Idaho facility and the new tissue machine at our Shelby, North Carolina facility.

Net cash flows used for financing activities were $30.8 million for the first nine months of 2017, and were largely driven by net repayments of $25.0 million on our revolving credit facilities and $4.9 million in repurchases of our outstanding common stock pursuant to our most recent $100 million stock repurchase program. Borrowings and repayments on our credit facilities are presented gross on our Consolidated Statements of Cash Flows. Net cash flows used for financing activities were $38.9 million for the first nine months of 2016, due largely to $51.5 million in repurchases of our outstanding common stock pursuant to our stock repurchase program, partially offset by net borrowings of $13.0 million on our revolving credit facilities.

~~Capital Resources~~

Due to the competitive and cyclical nature of the markets in which we operate, there is uncertainty regarding the amount of cash flows we will generate during the next twelve months. However, we believe that our cash flows from operations, our cash on hand, and our borrowing capacity under our senior secured revolving credit facilities will be adequate to fund our debt service requirements and provide cash required to support our ongoing operations, capital expenditures, stock repurchase program and working capital needs for the next twelve months.

We may choose to refinance all or a portion of our indebtedness on or before maturity. We cannot be certain that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

~~Debt Arrangements~~OUR OPERATING RESULTS

Our annual debt service obligation, consisting of cash payments for interest on the 2013 Notes and the 2014 Notes, is estimated to be $28.5 million for 2017. 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. 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.

~~Credit Arrangements~~

~~See Note 7, "Debt" to the consolidated financial statements included in this Report for a discussion of our revolving credit facilities.~~

~~CONTRACTUAL OBLIGATIONS~~

~~As of September 30, 2017, there were no significant changes to the contractual obligations table disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~We currently are not a party to off-balance sheet arrangements that would require disclosure under this section.~~

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~

~~The preparation of financial statements in accordance with GAAP requires our management to select and apply accounting policies that best provide the framework to report our~~ results of operations ~~and financial position. The selection and application~~for each of those policies requires management to make difficult, subjective and complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the dateour segments are discussed below. See Note 15 "Segment Information" of the ~~financial statements. As a result, it is possible that materially different amounts would be reported under different conditions or using different assumptions.~~

~~As of September 30, 2017, there have been no significant changes with regard to the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~See Note 2 "Recently Adopted and New Accounting Standards"~~Notes to the Consolidated Financial Statements included in Item 1 of this ~~Quarterly Report on Form 10-Q~~report for further information regarding our segments.

Consumer Products


	Three Months Ended June 30,														Six Months Ended June 30,
(Dollars in millions, except per unit)	2020			2019			Increase (decrease)		2020			2019			Increase (decrease)
Sales:
Retail tissue	$	260.4		$	210.5		23.7	%	$	508.4		$	415.1		22.5	%
Non-retail tissue	10.2			12.3			(17.2)	%	24.1			30.7			(21.6)	%
Other	4.5			1.6			n.m.		8.3			1.9			n.m.
	$	275.1		$	224.3		22.6	%	$	540.8		$	447.7		20.8	%

Operating income (loss)	$	36.6		$	(5.1)		n.m.		$	50.9		$	(3.9)		n.m.
Operating margin	13.3		%	(2.3)		%			9.4		%	(0.9)		%

Adjusted EBITDA	$	53.7		$	12.3		337.8	%	$	85.3		$	28.2		202.3	%
Adjusted EBITDA margin	19.5		%	5.5		%			15.8		%	6.3		%

Shipments (short tons)
Retail	95,432			76,175			25.3	%	186,223			149,531			24.5	%
Non-retail	5,812			6,623			(12.2)	%	14,814			16,889			(12.3)	%
	101,244			82,798			22.3	%	201,037			166,420			20.8	%

Cases (in thousands)	16,016			12,488			28.3	%	31,220			24,808			25.8	%

Sales price (per short ton)
Retail	$	2,729		$	2,764		(1.3)	%	$	2,730		$	2,776		(1.7)	%
Non-retail	1,746			1,851			(5.7)	%	1,626			1,819			(10.6)	%

n.m. - not meaningful

Sales volumes increased in our Consumer Products segment for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year due to significantly higher sales volume for retail tissue as a result of the COVID-19 pandemic and increases in demand based upon new customer programs which were implemented prior to the COVID-19 pandemic. Sales prices decreased slightly in our Consumer Products segment for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year due primarily to changes in product mix. From a product perspective, we saw the largest increases in period to period bath tissue and napkin sales with smaller increases in paper towel and facial tissue. As a percentage of our Consumer Products segment, paper towel and bath tissue represent more than 80% of our business.

Overall, the increase in operating income and Adjusted EBITDA for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year was driven by higher sales as noted above as well as improvement in margin due to increased production that drove increased fixed cost absorption. Additionally, we realized lower input costs, primarily in external pulp prices and freight costs.

Paperboard


	Three Months Ended June 30,														Six Months Ended June 30,
(Dollars in millions, except per ton amounts)	2020			2019			Increase (decrease)		2020			2019			Increase (decrease)
Sales:
Paperboard	$	204.1		$	226.2		(9.7)	%	$	415.1		$	429.2		(3.3)	%
Other	1.3			1.5			(12.4)	%	2.5			3.9			(36.8)	%
	$	205.4		$	227.7		(9.8)	%	$	417.6		$	433.1		(3.6)	%

Operating income	32.2			33.6			(4.2)	%	58.7			63.0			(6.8)	%
Operating margin	15.7		%	14.8		%			14.1		%	14.5		%

Adjusted EBITDA	$	41.4		$	43.1		(3.8)	%	$	77.2		$	82.0		(5.9)	%
Adjusted EBITDA margin	20.2		%	18.9		%			18.5		%	18.9		%

Shipments (short tons)	207,410			225,188			(7.9)	%	418,706			428,022			(2.2)	%
Sales price (per short tons)	$	984		$	1,004		(2.0)	%	$	991		$	1,003		(1.2)	%

Sales volumes decreased in our Paperboard segment for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year due to impacts of COVID-19 which lead to a reduction in our commodity food service business offset by increases in our folding carton and coated cup business. Sales prices decreased in our Paperboard segment for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year due to the impacts of price reductions reported by RISI in February 2020.

Overall, the slight decrease in operating income and Adjusted EBITDA for the three and six month periods ended June 30, 2020 as compared to the same periods in the prior year was driven by reduced sales offset by improved input costs, primarily consisting of natural gas, wood and pulp.

Corporate expenses

Corporate expenses for the three and six month periods ended June 30, 2020 were $17.6 million and $31.1 million and $12.7 million and $29.3 million in the same periods in the prior year. The increases for the three and six month periods ended June 30, 2020 compared to the same periods in the prior year were related to higher incentive pay due to improved results and increased costs associated with professional services. 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.

Other operating charges

See Note 9 "Other operating charges" of the Notes to the Consolidated Financial Statements included in Item 1 of this report for additional ~~information regarding recently adopted~~information.

Interest expense

Interest expense for the three and ~~new accounting pronouncements.~~

six month periods ended June 30, 2020 were $1.1 million and $5.5 million higher compared to the same periods in the prior year due to lower capitalized interest due to the completion of our Shelby expansion in the latter portion of 2019. See Note 10 "Non-operating income (expense)" of the Notes to the Consolidated Financial Statements included in Item 1 of this report for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are existing cash balances, cash generated by our operations and our ability to borrow under such credit facilities as we may have in effect from time to time. 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 (including by issuing new indebtedness subject to market conditions to refinance such outstanding indebtedness) or acquire assets or businesses that are complementary to our operations.

Operating Activities

Net cash flows provided by operating activities for the six months ended June 30, 2020 were $121.1 million compared to $14.7 million in the first six months of 2019. This increase was driven by increases in our net income and changes in working capital due to increased demand in our consumer products division which resulted in lower inventories. Accounts receivable and accounts payable agings have remained relatively consistent with balances as of December 31, 2019.

Investing Activities

During the six months ended June 30, 2020, net cash flows used for investing activities was $17.8 million compared to $108.4 million in the prior year period. This decrease is primarily due to the completion of our Shelby expansion as well as the Lewiston pulp optimization project in late 2019. Included in "Other accrued liabilities" on our Consolidated Balance Sheets was $4.6 million and $28.7 million related to capital expenditures that had not yet been paid at June 30, 2020 and 2019.

Throughout 2020, we expect cash paid for capital expenditures to be approximately $45 to $50 million.

Financing Activities

Net cash flows used by financing activities were $76.5 million for the six months ended June 30, 2020 as compared to provided by financing activities of $113.0 million for the same period of 2019. The change was driven by improved operating results and lower capital expenditures, resulting in additional available cash to fund debt repayments in the first six months of 2020.

Credit Agreements

We must make mandatory prepayments of principal under the Term Loan Credit Agreement upon the occurrence of certain specified events, including based upon a percentage of annual Excess Cash Flow and Senior Secured Leverage Ratio as defined by the Term Loan Credit Agreement. There is uncertainty in the amount of Excess Cash Flow that we may generate during the current fiscal year, therefore, we are unable to estimate the mandatory prepayment under the Term Loan Credit Agreement that could be required at the time such payment is due in 2021. The $60 million prepayment of debt in the first six months of 2020 can offset the mandatory Excess Cash Flow amount. 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 2.00x to 1.00. At the end of the second quarter of 2020, our first lien secured ratio was 0.97x.

The ABL Credit Agreement includes a $250 million revolving loan commitment, subject to borrowing base limitations. 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.

Both 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 1.10x to 1.00x, provided that the financial covenant under the ABL Credit Agreement is only applicable when availability falls below $25 million.

At June 30, 2020, we were in compliance with all covenants in both of our 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.



ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risks on financial instruments includes interest rate risk on our ~~secured revolving credit facilities.~~Term Loan and ABL Credit Agreement. As of ~~September~~June 30, ~~2017,~~2020, there were ~~$110.0~~$239.3 million in borrowings outstanding under our ~~revolving~~ credit ~~facilities.~~agreements. The reference interest ~~rates~~rate applied to borrowings under the ~~credit facilities are~~Credit Agreements is adjusted, ~~often and therefore react quickly to any movement~~at our option, at one, two, three, or six month intervals for LIBOR-based borrowings (or daily in the ~~general trend~~case of ~~market interest rates. For example, a~~alternative based rate borrowings). A one percentage point increase or decrease in interest rates, based on ~~assumed~~ outstanding credit facilities' borrowings of ~~$110.0~~$239.3 million, would have an approximate ~~$1.1~~$2.4 million annual effect on interest expense. During the nine months ended September 30, 2017, we reduced our short-term interest rate risk through the use of a short-term LIBOR Rate option for our outstanding credit facilities' borrowings balance of $100.0 million. We currently do not attempt to alleviate the effects of short-term interest rate fluctuations on our credit facility borrowings through the use of derivative financial instruments.

~~Commodity Risk~~

We are exposed to market risk for changes in natural gas commodity pricing, which we partially mitigate through the use of firm price contracts for a portion of our natural gas requirements for our manufacturing facilities. As of September 30, 2017, these contracts covered approximately 30% of our expected average monthly natural gas requirements for the remainder of 2017, and a lesser amount for 2018.

~~Foreign Currency Risk~~

~~We have minimal foreign currency exchange risk. Virtually all of our international sales are denominated in U.S. dollars.~~



ITEM 4.
Controls and Procedures

~~We maintain “disclosure~~As of June 30, 2020, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have carried out, with the participation of our Disclosure Committee and management, an evaluation of the effectiveness of our disclosure controls and procedures,” as ~~such term is~~ defined in Rule 13a-15(e) under the Securities ~~and~~ Exchange Act of 1934 or(the Act). Based upon this evaluation, the ~~Exchange Act,~~CEO and CFO have concluded that our disclosure controls and procedures are ~~designed~~effective to ~~ensure~~provide reasonable assurance that material 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~~the Securities and Exchange Commission rules and forms and that ~~such~~ information required to be disclosed by us in the reports we file or submit under the Act 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 ~~third~~ ~~quarter of 2017. Based on that evaluation, the CEO and CFO have concluded that, as of~~ ~~September 30, 2017, our disclosure controls and procedures were effective to meet the objective for which they were designed and operated at the reasonable assurance level.~~

Changes in Internal ~~Controls~~Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during ~~our most recent fiscal quarter~~the three months ended June 30, 2020 that has materially affected, or is ~~reasonably~~ likely to materially affect, our internal control over financial reporting.

Part II



ITEM 1.
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.



ITEM 1A.
Risk Factors

The COVID-19 pandemic may adversely affect our operations and financial condition.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

As has been widely reported in the media, companies like ours experienced a significant increase in demand for tissue and paperboard products in the first six months of 2020 as a result of the COVID-19 pandemic, particularly due to residential consumer purchasing behavior. The stocking up of tissue products by residential consumers during the pandemic will likely lead to a drop in regular purchasing as the pandemic, or concerns as to tissue shortages as a result of the pandemic, subside. We expect that residential consumer demand will flatten and that sales of tissue and paperboard products will eventually normalize in terms of annual volumes.

Nevertheless, our business, the businesses of our customers and the businesses of our suppliers could be materially and adversely affected by the impact and risks of the pandemic. Such risks include, but are not limited to, the following:

•the complete or partial closure of one or more of our manufacturing facilities;

•limitations on our ability to operate our business as a result of any federal, state or local regulations, including any changes to the designation of our business as “essential” by the US Department of Homeland Security;

•disruptions to international trade, or further restrictions or prohibitions on international travel, on which we rely to make our products (for example, an interruption in eucalyptus pulp from Brazil or lack of availability for spare parts or technical support from European suppliers of our production and converting equipment);

•a decrease in demand for our products as a result of a prolonged economic downturn or global recession (for example, during previous, extreme recessionary periods in the U.S., we experienced significant declines in demand for our paperboard used in folding carton, cup and liquid packaging applications);

•the interruption of our distribution system or delays in the delivery of our products;

•temporary or long-term disruption in our supply chains (for example, governmental restrictions on construction and the resulting decline in lumber production could result in a decline in the availability of wood residuals);

•volatility related to pension plan assets (for example, we may need to make additional contributions to address an increase in obligations and/or a loss in plan assets as a result of the combination of declining market interest rates and/or past or future plan asset investment losses);

•significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future;

•a decline in our ability to collect on accounts receivable, which could materially affect our liquidity;

•bankruptcy of customers that leads to a decrease in demand for our products;

•the loss of our management team and employee base that possess unique technical skills for the execution of our business plan; and

•an interruption in processing or an inability to process accounts payable by our third-party processor, which could result in our suppliers and vendors withholding supplies or services.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the pandemic. At this point, we cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its overall impact on our business. Moreover, many of the risk factors set forth in our Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the COVID-19 pandemic.

There are no other material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2019. See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~,2019, entitled “Risk Factors.”



ITEM 2.
Unregistered ~~Sales~~Sale of Equity Securities ~~and Uses of Proceeds~~

~~Issuer Purchases of Equity Securities~~

Refer to the "Stockholders' Equity" section of Note 1, "Nature of Operations and Basis of Presentation," to the consolidated financial statements included in this Report for discussion of issuer purchases of equity securities.

~~We did not repurchase shares during the three months ended September 30, 2017.~~

None.


ITEM 3.			Defaults Upon Senior Securities

None.


ITEM 4.			Mine Safety Disclosures

Not applicable.


ITEM 5.			Other Information

None.

ITEM 6. Exhibits


EXHIBIT NUMBER						DESCRIPTION

~~ITEM 6.~~

~~Exhibits~~



~~EXHIBIT~~ ~~NUMBER~~ 10.1						~~DESCRIPTION~~ Amendment to the Clearwater Paper Corporation 2017 Stock Incentive P lan.
~~(31)~~
10.2						Amendment to the Amended and Restated Clearwater Paper Corporation Management Deferred Compensation Plan, effective May 1, 2020.

10.3						Amendment to the Amended and Restated Clearwater Paper Corporation Salaried Supplemental Benefit Plan, effective May 1, 2020.

31						Rule 13a-14(a)/15d-14(a) Certifications.

~~(32)~~32**						Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C Section 1350.

~~101.INS~~











101.INS						XBRL Instance ~~Document.~~Document

101.SCH						XBRL Taxonomy Extension Schema.

101.CAL						XBRL Taxonomy Extension Calculation Linkbase.

101.DEF						XBRL Taxonomy Extension Definition Linkbase.

101.LAB						XBRL Taxonomy Extension Label Linkbase.

101.PRE						XBRL Taxonomy Extension Presentation Linkbase.


_*			Incorporated by reference.

_**			In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements 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)

~~October 30, 2017~~August 4, 2020

By:

/s/ ~~JOHN D. HERTZ~~ARSEN S. KITCH

~~John D. Hertz~~Arsen S. Kitch

President, Chief Executive Officer and Director (Principal Executive Officer)

August 4, 2020

By:

/s/ MICHAEL J. MURPHY

Michael J. Murphy

Senior Vice President, Finance and

Chief Financial Officer

~~(Duly Authorized Officer; Principal~~

(Principal Financial Officer)

~~October 30, 2017~~

~~/s/ ROBERT N. DAMMARELL~~

~~Robert N. Dammarell~~

~~Vice President, Corporate Controller~~

~~(Duly Authorized Officer; Principal~~

~~Accounting Officer)~~

3627



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net sales	$	426,504		$	435,320		$	1,293,692		$	1,309,195
Costs and expenses:
Cost of sales	(386,581		)	(396,605		)	(1,154,344		)	(1,127,103		)
Selling, general and administrative expenses	(34,472		)	(29,435		)	(93,674		)	(94,885		)
Total operating costs and expenses	(421,053		)	(426,040		)	(1,248,018		)	(1,221,988		)
Income from operations	5,451			9,280			45,674			87,207
Interest expense, net	(7,683		)	(7,520		)	(23,399		)	(22,559		)
(Loss) earnings before income taxes	(2,232		)	1,760			22,275			64,648
Income tax benefit (provision)	3,095			(859		)	(5,860		)	(24,437		)
Net earnings	$	863		$	901		$	16,415		$	40,211
Net earnings per common share:
Basic	$	0.05		$	0.05		$	1.00		$	2.35
Diluted	0.05			0.05			0.99			2.33



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	8,478		$	23,001
Receivables, net	135,946			147,074
Taxes receivable	14,578			9,709
Inventories	257,833			258,029
Other current assets	6,450			8,682
Total current assets	423,285			446,495
Property, plant and equipment, net	1,014,835			945,328
Goodwill	244,283			244,283
Intangible assets, net	34,528			40,485
Other assets, net	12,080			7,751
TOTAL ASSETS	$	1,729,011		$	1,684,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities	$	110,000		$	135,000
Accounts payable and accrued liabilities	263,148			223,699
Current liability for pensions and other postretirement employee benefits	7,821			7,821
Total current liabilities	380,969			366,520
Long-term debt	570,331			569,755
Liability for pensions and other postretirement employee benefits	78,440			81,812
Other long-term obligations	40,942			41,776
Accrued taxes	2,557			2,434
Deferred tax liabilities	169,410			152,172
TOTAL LIABILITIES	1,242,649			1,214,469
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares issued	—			—
Common stock, par value $0.0001 per share, 100,000,000 authorized shares-16,433,415 and 24,223,191 shares issued	2			2
Additional paid-in capital	—			347,080
Retained earnings	537,329			569,861
Treasury stock, at cost, common shares-0 and 7,736,255 shares	—			(395,317		)
Accumulated other comprehensive loss, net of tax	(50,969		)	(51,753		)
TOTAL STOCKHOLDERS' EQUITY	486,362			469,873
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,729,011		$	1,684,342



(In thousands)	September 30, 2017		December 31, 2016
Pulp, paperboard and tissue products	$	158,075	$	154,460
Materials and supplies	85,246		82,005
Logs, pulpwood, chips and sawdust	14,512		21,564
	$	257,833	$	258,029



	September 30, 2017
(Dollars in thousands, lives in years)	Weighted Average Useful Life	Historical Cost		Accumulated Amortization			Net Balance
Customer relationships	9.3	$	62,401	$	(32,387	)	$	30,014
Trade names and trademarks	7.4	6,786		(2,743		)	4,043
Non-compete agreements	5.0	574		(558		)	16
Other intangibles	6.0	572		(117		)	455
		$	70,333	$	(35,805	)	$	34,528

	December 31, 2016
(Dollars in thousands, lives in years)	Weighted Average Useful Life	Historical Cost		Accumulated Amortization			Net Balance
Customer relationships	9.3	$	62,401	$	(27,364	)	$	35,037
Trade names and trademarks	7.4	6,786		(1,972		)	4,814
Non-compete agreements	5.0	574		(512		)	62
Other intangibles	6.0	572		—			572
		$	70,333	$	(29,848	)	$	40,485



(In thousands)	Pension and Other Post Retirement Employee Benefit Plan Adjustments
Balance at December 31, 2016	$	(51,753	)
Other comprehensive income, net of tax¹	784
Balance at September 30, 2017	$	(50,969	)

(In thousands)	Pension and Other Post Retirement Employee Benefit Plan Adjustments
Balance at December 31, 2015	$	(55,548	)
Other comprehensive income before reclassifications	953
Amounts reclassified from accumulated other comprehensive loss²	$	1,632
Other comprehensive income, net of tax¹	2,585
Balance at September 30, 2016	$	(52,963	)



	Three Months Ended September 30,
(In thousands)	2017			2016			2017			2016
	Pension Benefit Plans						Other Postretirement Employee Benefit Plans
Service cost	$	518		$	391		$	41		$	62
Interest cost	3,288			3,518			688			730
Expected return on plan assets	(4,691		)	(4,847		)	—			—
Amortization of prior service cost (credit)	2			6			(384		)	(428		)
Amortization of actuarial loss (gain)	2,468			2,865			(1,662		)	(2,233		)
Settlement	—			3,482			—			—
Net periodic cost	$	1,585		$	5,415		$	(1,317	)	$	(1,869	)



	Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
	Pension Benefit Plans						Other Postretirement Employee Benefit Plans
Service cost	$	1,552		$	1,171		$	122		$	187
Interest cost	9,862			10,779			2,059			2,306
Expected return on plan assets	(14,073		)	(14,608		)	(1		)	(1		)
Amortization of prior service cost (credit)	6			17			(1,151		)	(1,284		)
Amortization of actuarial loss (gain)	7,405			8,510			(4,963		)	(5,674		)
Settlement	—			3,482			—			—
Net periodic cost	$	4,752		$	9,351		$	(3,934	)	$	(4,466	)



	Nine Months Ended
	September 30, 2017
	Number of Shares Subject to Award	Average Fair Value of Award Per Share
Restricted stock units	66,774	$	56.45
Performance shares	33,907	58.58
Stock options	158,484	18.82



	September 30,				December 31,
	2017				2016
	Carrying		Fair		Carrying		Fair
(In thousands)	Amount		Value		Amount		Value
Cash and cash equivalents (Level 1)	$	8,478	$	8,478	$	23,001	$	23,001
Borrowings under revolving credit facilities (Level 1)	110,000		110,000		135,000		135,000
Long-term debt (Level 2)	575,000		568,639		575,000		567,875




				Guarantor
(In thousands)	Issuer			Subsidiaries			Eliminations			Total
Net sales	$	423,712		$	55,894		$	(53,102	)	$	426,504
Cost and expenses:
Cost of sales	(387,696		)	(51,052		)	52,167			(386,581		)
Selling, general and administrative expenses	(24,676		)	(9,796		)	—			(34,472		)
Total operating costs and expenses	(412,372		)	(60,848		)	52,167			(421,053		)
Income (loss) from operations	11,340			(4,954		)	(935		)	5,451
Interest expense, net	(7,407		)	(276		)	—			(7,683		)
Earnings (loss) before income taxes	3,933			(5,230		)	(935		)	(2,232		)
Income tax (provision) benefit	(1,847		)	4,589			353			3,095
Equity in loss of subsidiary	(641		)	—			641			—
Net earnings (loss)	$	1,445		$	(641	)	$	59		$	863
Other comprehensive income, net of tax	257			—			—			257
Comprehensive income (loss)	$	1,702		$	(641	)	$	59		$	1,120




(In thousands)	Issuer			Guarantor 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




(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		)
Disposal of plant and equipment, net	30			—			—			30
Other, net	471			13			—			484
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
Other, net	(1,205		)	(613		)	1,138			(680		)
Net cash flows from operating activities	118,827			24,663			(4,607		)	138,883
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(99,912		)	(5,602		)	—			(105,514		)
Other, net	250			—			—			250
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		)
Borrowings on revolving credit facilities	944,844			—			—			944,844
Repayments of borrowings on revolving credit facilities	(931,832		)	—			—			(931,832		)
Investment from (to) parent	14,454			(19,061		)	4,607			—
Other, net	(382		)	—			—			(382		)
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



Cost of sales
	Three Months Ended September 30,
(Dollars in thousands)	2017				2016
	Cost		Percentage of Sales		Cost		Percentage of Sales		Cost Variance
Wages and benefits	$	68,008	15.9	%	$	76,552	17.6	%	$	(8,544	)
Transportation¹	50,243		11.8		46,116		10.6		4,127
Purchased pulp	53,411		12.5		57,289		13.1		(3,878		)
Chemicals	39,768		9.3		40,499		9.3		(731		)
Chips, sawdust and logs	29,801		7.0		33,440		7.7		(3,639		)
Maintenance and repairs²	29,078		6.8		36,129		8.3		(7,051		)
Depreciation	22,359		5.2		20,196		4.6		2,163
Packaging supplies	21,977		5.2		22,031		5.1		(54		)
Energy	22,408		5.3		24,346		5.6		(1,938		)
	337,053		79.0		356,598		81.9		(19,545		)
Other operating costs	49,528		11.6		40,007		9.2		9,521
Total cost of sales	$	386,581	90.6	%	$	396,605	91.1	%	$	(10,024	)

	Nine Months Ended September 30,
(Dollars in thousands)	2017				2016
	Cost		Percentage of Sales		Cost		Percentage of Sales		Cost Variance
Wages and benefits	$	209,181	16.2	%	$	220,627	16.9	%	$	(11,446	)
Transportation¹	146,646		11.3		135,962		10.4		10,684
Purchased pulp	144,869		11.2		151,932		11.6		(7,063		)
Chemicals	122,407		9.4		123,418		9.4		(1,011		)
Chips, sawdust and logs	99,887		7.7		109,048		8.3		(9,161		)
Maintenance and repairs²	74,244		5.7		75,779		5.8		(1,535		)
Depreciation	69,266		5.4		58,256		4.5		11,010
Packaging supplies	65,867		5.1		64,396		4.9		1,471
Energy	66,710		5.2		65,529		5.0		1,181
	999,077		77.2		1,004,947		76.8		(5,870		)
Other operating costs	155,267		12.0		122,156		9.3		33,111
Total cost of sales	$	1,154,344	89.2	%	$	1,127,103	86.1	%	$	27,241



	Three Months Ended
	September 30,
(Dollars in thousands - except per ton amounts)	2017			2016
Net sales	$	232,916		$253,319
Operating income	4,436			17,201
Percent of net sales	1.9		%	6.8		%

Shipments (short tons)
Non-retail	12,958			18,384
Retail	77,544			82,216
Total tissue tons	90,502			100,600
Converted products cases (in thousands)	12,727			13,770

Sales price (per short ton)
Non-retail	$	1,468		$	1,506
Retail	2,754			2,742
Total tissue	$	2,574		$	2,516