Edgar Filing: Clearwater Paper Corp

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¨ (Do not check if a smaller reporting company)

Smaller reporting company

CLW-2015.03.31-10Q

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 March 31, 2015



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

For the transition period from to

Commission File Number: 001-34146

CLEARWATER PAPER CORPORATION

(Exact name of registrant as specified in its charter)




Delaware		20-3594554
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

601 West Riverside, Suite 1100 Spokane, Washington		99201
(Address of principal executive offices)		(Zip Code)

(509) 344-5900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 April 30, 2015 was 19,056,095.

CLEARWATER PAPER CORPORATION

Index to Form 10-Q




		Page Number

PART I.	FINANCIAL INFORMATION

ITEM 1.	Consolidated Financial Statements

Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014		2

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014		3

Consolidated Balance Sheets at March 31, 2015 and December 31, 2014		4

Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014		5

Condensed Notes to Consolidated Financial Statements		6 - 19

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 - 29

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	30

ITEM 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	31

ITEM 1A.	Risk Factors	31

ITEM 2.	Unregistered Sales of Equity Securities and Uses of Proceeds	31

ITEM 6.	Exhibits	31

SIGNATURES		32

EXHIBIT INDEX		33

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
	March 31,
	2015			2014
Net sales	$	434,026		$	484,920
Costs and expenses:
Cost of sales	(389,832		)	(426,629		)
Selling, general and administrative expenses	(28,957		)	(33,514		)
Impairment of assets	—			(4,259		)
Total operating costs and expenses	(418,789		)	(464,402		)
Income from operations	15,237			20,518
Interest expense, net	(7,782		)	(10,734		)
Earnings before income taxes	7,455			9,784
Income tax provision	(1,698		)	(3,558		)
Net earnings	$	5,757		$	6,226
Net earnings per common share:
Basic	$	0.30		$	0.30
Diluted	0.30			0.29

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
	March 31,
	2015			2014
Net earnings	$	5,757		$	6,226
Other comprehensive income:
Defined benefit pension and other postretirement employee benefits:
Amortization of actuarial loss included in net periodic cost, net of tax of $1,206 and $965	1,877			1,529
Amortization of prior service credit included in net periodic cost, net of tax of $(207) and $(29)	(320		)	(45		)
Other comprehensive income, net of tax	1,557			1,484
Comprehensive income	$	7,314		$	7,710

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)



	March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash	$	29,796		$	27,331
Restricted cash	1,500			1,500
Short-term investments	11,000			50,000
Receivables, net	133,949			133,914
Taxes receivable	—			1,255
Inventories	270,670			286,626
Deferred tax assets	21,682			21,760
Prepaid expenses	10,736			4,191
Total current assets	479,333			526,577
Property, plant and equipment, net	812,770			810,987
Goodwill	209,087			209,087
Intangible assets, net	23,715			24,956
Pension assets	6,333			4,738
Other assets, net	9,883			9,583
TOTAL ASSETS	$	1,541,121		$	1,585,928
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	206,465		$	215,826
Current liability for pensions and other postretirement employee benefits	7,915			7,915
Total current liabilities	214,380			223,741
Long-term debt	575,000			575,000
Liability for pensions and other postretirement employee benefits	116,719			118,464
Other long-term obligations	55,452			56,856
Accrued taxes	1,706			2,696
Deferred tax liabilities	111,226			111,634
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares issued	—			—
Common stock, par value $0.0001 per share, 100,000,000 authorized shares-24,153,978 and 24,056,057 shares issued	2			2
Additional paid-in capital	333,009			334,074
Retained earnings	470,081			464,324
Treasury stock, at cost, common shares-5,097,883 and 4,498,388 shares repurchased	(267,148		)	(230,000		)
Accumulated other comprehensive loss, net of tax	(69,306		)	(70,863		)
Total stockholders’ equity	466,638			497,537
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,541,121		$	1,585,928

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)



	Three Months Ended
	March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	5,757		$	6,226
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	21,008			22,231
Equity-based compensation expense	1,169			4,479
Impairment of assets	—			4,259
Deferred tax (benefit) provision	(1,330		)	1,173
Employee benefit plans	809			888
Deferred issuance costs and discounts on long-term debt	178			475
Disposal of plant and equipment, net	(30		)	429
Non-cash adjustments to unrecognized taxes	(990		)	—
Changes in working capital, net	3,457			(5,656		)
Changes in taxes receivable, net	1,255			5,523
Excess tax benefits from equity-based payment arrangements	(343		)	—
Funding of qualified pension plans	(1,561		)	(4,314		)
Other, net	(1,327		)	(443		)
Net cash flows from operating activities	28,052			35,270
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in short-term investments, net	39,000			11,000
Additions to plant and equipment	(25,240		)	(16,239		)
Proceeds from sale of assets	506			460
Net cash flows from investing activities	14,266			(4,779		)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock	(37,148		)	(29,332		)
Payment of tax withholdings on equity-based payment arrangements	(3,048		)	(792		)
Excess tax benefits from equity-based payment arrangements	343			—
Net cash flows from financing activities	(39,853		)	(30,124		)
Increase in cash	2,465			367
Cash at beginning of period	27,331			23,675
Cash at end of period	$	29,796		$	24,042

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	14,340		$	6,188
Cash paid for income taxes	2,518			1,009
Cash received from income tax refunds	479			4,133
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
Changes in accrued plant and equipment	$	(4,434	)	$	(1,489	)

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.

On December 30, 2014, we sold our specialty business and mills to a private buyer for $108 million in cash, net of sale related expenses and adjustments. The specialty business and mills' production consisted predominantly of machine-glazed tissue and also included parent rolls and other specialty tissue products such as absorbent materials and dark-hued napkins. The sale included five of our former subsidiaries with facilities located at East Hartford, Connecticut; Menominee, Michigan; Gouverneur, New York; St. Catharines, Ontario; and Wiggins, Mississippi.

FINANCIAL STATEMENT PREPARATION AND PRESENTATION

The accompanying Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, the related Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2015 and 2014, and the Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014, 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, 2014, as filed with the Securities and Exchange Commission, or SEC, on February 26, 2015.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant areas requiring the use of estimates and measurement of uncertainty include determination of net realizable value for deferred tax assets, uncertain tax positions, assessment of impairment of long-lived assets, goodwill and intangibles, assessment of environmental matters, equity-based compensation and pension and postretirement obligation assumptions. Actual results could differ from those estimates and assumptions.

SHORT-TERM INVESTMENTS AND RESTRICTED CASH

Our short-term investments are invested primarily in demand deposits, which have very short maturity periods, and therefore earn an interest rate commensurate with low-risk instruments. We do not attempt to hedge our exposure to interest rate risk for our short-term investments. Our restricted cash in which the underlying instrument has a term of greater than twelve months from the balance sheet date is classified as non-current and is included in “Other assets, net” on our Consolidated Balance Sheet. As of both March 31, 2015 and December 31, 2014, we had $1.5 million of restricted cash classified as current and $2.3 million of restricted cash classified as non-current and included in "Other assets, net" on our Consolidated Balance Sheets.

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 March 31, 2015 and December 31, 2014, we had allowances for doubtful accounts of $1.4 million.

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 $1,469.8 million and $1,450.1 million at March 31, 2015 and December 31, 2014, respectively.

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. During the first quarter of 2014, we permanently closed our Long Island tissue converting and distribution facility. As a result of this closure, we considered an outside third party's appraisal in assessing the recoverability of the facility's long-lived plant and equipment based on available market data for comparable assets sold through private party transactions. Based on this assessment, we determined the carrying amounts of certain long-lived plant and equipment related to the Long Island facility exceeded their fair value. As a result, we recorded a $3.0 million non-cash impairment charge to our accompanying Consolidated Statement of Operations for the three months ended March 31, 2014. There were no other such events or changes in circumstances that impacted our remaining long-lived assets.

STOCKHOLDERS’ EQUITY

On December 15, 2014, we announced that our Board of Directors had approved a new stock repurchase program authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. We have no obligation to repurchase stock under this program and may suspend or terminate the program at any time. During the first quarter of 2015, we repurchased 599,495 shares of our outstanding common stock at an average price of $61.97 per share. As of March 31, 2015, we had up to $62.9 million of authorization remaining pursuant to this stock repurchase program.

On February 5, 2014, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. We completed that program during the third quarter of 2014. In total, we repurchased 1,574,748 shares of our outstanding common stock at an average price of $63.50 per share under that program.

DERIVATIVES

We had no activity during the three months ended March 31, 2015 and 2014 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 March 31, 2015, these contracts covered approximately 53% of our expected average monthly natural gas requirements for the remainder of 2015. Historically, these contracts have qualified for treatment as “normal purchases or normal sales” under authoritative guidance and thus required no mark-to-market adjustment.

EMPLOYEES

Unions represent hourly employees at six of our manufacturing sites. There are no collective bargaining agreements due to expire in 2015. The hourly union labor contracts that had expired as set forth on page 6 of our Annual Report on Form 10-K for the year ended December 31, 2014 were ratified during the first quarter of 2015.

NOTE 2 Recently Adopted and New Accounting Standards

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2014-09, Revenue from Contracts with Customers. 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 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption prohibited. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The standard may be applied under either a retrospective or cumulative effect adoption method. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred asset. It is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.

We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable to our business.

NOTE 3 Inventories

Inventories at the balance sheet dates consist of:



(In thousands)	March 31, 2015		December 31, 2014
Pulp, paperboard and tissue products	$	177,495	$	188,760
Materials and supplies	75,686		74,916
Logs, pulpwood, chips and sawdust	17,489		22,950
	$	270,670	$	286,626

NOTE 4 Intangible Assets

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



	March 31, 2015
(Dollars in thousands, lives in years)	Useful Life	Historical Cost		Accumulated Amortization			Net Balance
Customer relationships	9.0	$	41,001	$	(19,362	)	$	21,639
Trade names and trademarks	10.0	3,286		(1,396		)	1,890
Non-compete agreements	5.0	1,189		(1,003		)	186
		$	45,476	$	(21,761	)	$	23,715

	December 31, 2014
(Dollars in thousands, lives in years)	Useful Life	Historical Cost		Accumulated Amortization			Net Balance
Customer relationships	9.0	$	41,001	$	(18,223	)	$	22,778
Trade names and trademarks	10.0	3,286		(1,314		)	1,972
Non-compete agreements	5.0	1,189		(983		)	206
		$	45,476	$	(20,520	)	$	24,956

As a result of the closure of our Long Island tissue converting and distribution facility, we performed an assessment of the recoverability of our intangible assets by utilizing the income approach, which discounts projected future cash flows based on management’s expectations of the current and future operating environment. It was determined that the carrying amounts of certain trade names and trademarks related to the Long Island facility were exceeding their fair value. As a result, in the first quarter of 2014 we recorded a $1.3 million non-cash impairment charge in our accompanying Consolidated Statement of Operations. There were no other such events or changes in circumstances that impacted our remaining definite-lived intangible assets.

NOTE 5 Income Taxes

Consistent with authoritative guidance, our estimated annual effective tax rate is used to allocate our expected annual income tax provision to interim periods. The rate is the ratio of our estimated annual income tax provision to estimated pre-tax ordinary income and excludes "discrete items," which are significant, unusual or infrequent items reported separately, net of their related tax effect. The estimated annual effective tax rate is applied to the current interim period’s ordinary income to determine the income tax provision allocated to the interim period. The income tax effects of discrete items are then determined separately and recognized in the interim period in which the income or expense items arise.

For the three months ended March 31, 2015 and 2014, the effective tax rates attributable to continuing operations were as follows:



	Three Months Ended March 31,
	2015		2014
Statutory federal income tax rate	35.0	%	35.0	%
State taxes, net of credits	2.3		2.0
Change in valuation allowances	1.0		4.2
Federal manufacturing deduction	(3.3	)	(2.0	)
Change in uncertain tax positions	(13.4	)	—
Interest accrued on uncertain tax positions	0.1		0.2
Federal credits and audit adjustments	(0.4	)	(4.4	)
State rate adjustments	—		(0.2	)
Return to provision adjustments	1.4		0.9
Other	0.1		0.7
Effective tax rate	22.8	%	36.4	%

Our estimated annual effective tax rate for the first quarter of 2015 is approximately 35%, compared with approximately 36% during the comparable interim period in 2014. The reduced rate is a result of an additional benefit from the federal manufacturing deduction and state income tax rates.

During the quarter ended March 31, 2015, the company reduced the reserve for uncertain tax positions due to statute expirations related to certain federal tax credits of $1.0 million. Overall, the reserve for uncertain tax positions decreased from approximately $2.7 million to $1.7 million.

NOTE 6 Accounts Payable and Accrued Liabilities

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



(In thousands)	March 31, 2015		December 31, 2014
Trade accounts payable	$	129,971	$	122,856
Accrued wages, salaries and employee benefits	36,855		41,880
Accrued discounts and allowances	8,249		10,026
Accrued taxes other than income taxes payable	8,105		5,622
Accrued utilities	6,511		6,959
Accrued interest	4,810		12,173
Other	11,964		16,310
	$	206,465	$	215,826

NOTE 7 Debt

SENIOR NOTES

On July 29, 2014, we issued $300 million aggregate principal amount of senior notes, which we refer to as the 2014 Notes. The 2014 Notes mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face value.

The 2014 Notes are guaranteed by all of our direct and indirect subsidiaries. The 2014 Notes will also be guaranteed by each of our future direct and indirect subsidiaries that do not constitute an immaterial subsidiary under the indenture governing the 2014 Notes. The 2014 Notes are equal in right of payment with all other existing and future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. The 2014 Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit facility, which is secured by certain of our accounts receivable, inventory and cash. The terms of the 2014 Notes limit our ability and the ability of any restricted subsidiaries to incur certain liens, engage in sale and leaseback transactions and consolidate, merge with, or convey, transfer or lease substantially all of our or their assets to another person.

On January 23, 2013, we issued $275 million aggregate principal amount of senior notes, which we refer to as the 2013 Notes. The 2013 Notes mature on February 1, 2023, have an interest rate of 4.5% and were issued at their face value.

The 2013 Notes are guaranteed by all of our direct and indirect subsidiaries, and will also be guaranteed by each of our future direct and indirect subsidiaries that we do not designate as an unrestricted subsidiary under the indenture governing these notes. The 2013 Notes are equal in right of payment with all other existing and future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. In addition, they are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit facility, which is secured by certain of our accounts receivable, inventory and cash. The terms of the 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 or their assets.

REVOLVING CREDIT FACILITY

On November 26, 2008, we entered into a $125 million senior secured revolving credit facility with certain financial institutions. The amount available to us under the revolving credit facility is based on the lesser of 85% of our eligible accounts receivable plus approximately 65% of our eligible inventory, or $125 million. The revolving credit facility has been subsequently amended and expires on September 30, 2016.

As of March 31, 2015, there were no borrowings outstanding under the credit facility, but $7.2 million of the credit facility was being used to support outstanding standby letters of credit. Loans under the credit facility bear interest (i) for LIBOR loans, LIBOR plus between 1.75% and 2.25% and (ii) for base rate loans, a per annum rate equal to the greater of (a) the prime rate for such day; (b) the federal funds effective rate for such day, plus 0.50%; or (c) LIBOR for a 30-day interest period as determined on such day, plus between 1.25% and 1.75%. The percentage margin on all loans is based on our fixed charge coverage ratio for the most recent four quarters. As of March 31, 2015, we would have been permitted to draw an additional $117.8 million under the credit facility at LIBOR plus 1.75%, or base rate plus 1.25%.

A minimum fixed charge coverage ratio is the only financial covenant requirement under our credit facility and is triggered when there are any commitments or obligations outstanding and availability falls below 12.5% or an event of default exists, at which time the minimum fixed charge coverage ratio must be at least 1.0-to-1.0. As of March 31, 2015, the fixed charge coverage ratio for the most recent four quarters was 1.1-to-1.0.

Our obligations under the revolving credit facility are secured by certain of our accounts receivable, inventory and cash. The terms of the credit facility contain various provisions that limit our discretion in the operations of our business by restricting our ability to, among other things, pay dividends; redeem or repurchase capital stock; create, incur or guarantee certain debt; incur liens on certain properties; make capital expenditures; enter into certain affiliate transactions; enter into certain hedging arrangements; and consolidate with or merge with another entity. The revolving credit facility contains usual and customary affirmative and negative covenants and usual and customary events of default.

NOTE 8 Other Long-Term Obligations

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



(In thousands)	March 31, 2015		December 31, 2014
Long-term lease obligations, net of current portion	$	24,595	$	24,805
Deferred compensation	14,370		14,609
Deferred proceeds	11,605		12,360
Other	4,882		5,082
	$	55,452	$	56,856

NOTE 9 Accumulated Other Comprehensive Loss

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



(In thousands)	Foreign Currency Translation Adjustments¹			Pension and Other Post Retirement Employee Benefit Plans Adjustments			Total
Balance at December 31, 2014	$	—		$	(70,863	)	$	(70,863	)
Other comprehensive income, net of tax²	—			1,557			1,557
Balance at March 31, 2015	$	—		$	(69,306	)	$	(69,306	)

(In thousands)	Foreign Currency Translation Adjustments¹			Pension and Other Post Retirement Employee Benefit Plans Adjustments			Total
Balance at December 31, 2013	$	(874	)	$	(57,219	)	$	(58,093	)
Other comprehensive income, net of tax²	—			1,484			1,484
Balance at March 31, 2014	$	(874	)	$	(55,735	)	$	(56,609	)


¹	This balance consists of unrealized foreign currency translation adjustments related to the operations of our Canadian subsidiary before its functional currency was changed from Canadian dollars to U.S. dollars in 2012. As a result of the divestiture of the specialty business and mills, this balance was written off in the fourth quarter of 2014.

For the three months ended March 31, 2015 and 2014, net periodic costs associated with our pension and other postretirement employee benefit, or OPEB, plans included in other comprehensive income and reclassified from accumulated other comprehensive loss included $3.1 million and $2.5 million, respectively, of actuarial loss amortization, as well as $0.5 million and $0.1 million, respectively, of prior service credit amortization, all net of tax totaling $1.0 million and $0.9 million, respectively. These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs in Note 10, “Pension and Other Postretirement Employee Benefit Plans.”

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 March 31,
(In thousands)	2015			2014			2015			2014
	Pension Benefit Plans						Other Postretirement Employee Benefit Plans
Service cost	$	316		$	355		$	148		$	117
Interest cost	3,490			3,688			1,048			1,302
Expected return on plan assets	(4,984		)	(5,015		)	—			—
Amortization of prior service cost (credit)	18			52			(545		)	(126		)
Amortization of actuarial loss	3,083			2,494			—			—
Net periodic cost	$	1,923		$	1,574		$	651		$	1,293

During the three months ended March 31, 2015, we contributed $1.6 million to these pension plans. In April 2015, we contributed an additional $1.6 million, and we expect to make additional contributions totaling approximately $8 million in the remainder of 2015.

During the three months ended March 31, 2015, we made contributions of $0.1 million to our company-sponsored non-qualified pension plan, and we estimate contributions will total $0.4 million in 2015. We do not anticipate funding our OPEB plans in 2015 except to pay benefit costs as incurred during the year by plan participants.

During the three months ended March 31, 2015, $1.8 million of net periodic pension and OPEB costs were charged to cost of sales, and $0.8 million were charged to selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. During the three months ended March 31, 2014, $2.3 million of net periodic pension and OPEB costs were charged to "Cost of sales," and $0.6 million were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations.

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 March 31,
	2015		2014
Basic average common shares outstanding¹	19,334,729		20,984,217
Incremental shares due to:
Restricted stock units	55,734		67,358
Performance shares	74,306		167,329
Diluted average common shares outstanding	19,464,769		21,218,904

Basic net earnings per common share	$	0.30	$	0.30
Diluted net earnings per common share	0.30		0.29

Anti-dilutive shares excluded from calculation	399,452		242,244


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 March 31,
(In thousands)	2015		2014
Restricted stock units	$	411	$	445
Performance shares	879		1,081
Stock options	349		136
Total employee equity-based compensation	$	1,639	$	1,662

As provided for in the Clearwater Paper Corporation 2008 Stock Incentive Plan, the performance measure used to determine the number of performance shares ultimately issued is a comparison of the percentile ranking of our total stockholder return compared to the total stockholder return of a selected peer group. 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, 2014, the service and performance period for 137,775 outstanding performance shares granted in 2012 ended. Those performance shares were settled and distributed in the first quarter of 2015. The number of shares actually settled, as a percentage of the outstanding amount, was 106.9%. After adjusting for the related minimum tax withholdings, a net 97,921 shares were issued in the first quarter of 2015. The related minimum tax withholdings payment made in the first quarter of 2015 in connection with issued shares was $3.0 million. No restricted stock units vested or were settled during the first quarter of 2015.

The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2008 Stock Incentive Plan during the three months ended March 31, 2015 and the grant-date fair value of the awards:



	Three Months Ended
	March 31, 2015
	Number of Shares Subject to Award	Average Fair Value of Award Per Share
Restricted stock units	21,790	$	61.75
Performance shares	45,627	62.05
Stock options	136,884	20.82

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 a benefit from director equity-based compensation of $0.5 million and compensation expense of $2.8 million for the three months ended March 31, 2015 and 2014, respectively.

As of March 31, 2015, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" on the accompanying Consolidated Balance Sheet were $13.0 million. At December 31, 2014, liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" totaled $13.5 million and $1.4 million, respectively.

NOTE 13 Fair Value Measurements

The estimated fair values of our financial instruments at the dates presented below are as follows:



	March 31,				December 31,
	2015				2014
	Carrying		Fair		Carrying		Fair
(In thousands)	Amount		Value		Amount		Value
Cash, restricted cash and short-term investments (Level 1)	$	44,566	$	44,566	$	81,101	$	81,101
Long-term debt (Level 1)	575,000		556,625		575,000		558,000

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 Segment Information

The table below presents information about our reportable segments:



	Three Months Ended March 31,
(In thousands)	2015			2014
Segment net sales:
Consumer Products	$	235,176		$	286,508
Pulp and Paperboard	198,850			198,412
Total segment net sales	$	434,026		$	484,920

Operating income (loss):
Consumer Products	$	12,395		$	(523	)
Pulp and Paperboard	16,194			36,776
	28,589			36,253
Corporate	(13,352		)	(15,735		)
Income from operations	$	15,237		$	20,518

Depreciation and amortization:
Consumer Products	$	12,977		$	15,490
Pulp and Paperboard	7,311			6,270
Corporate	720			471
Total depreciation and amortization	$	21,008		$	22,231

NOTE 15 Supplemental Guarantor Financial Information

All of our directly and indirectly owned, subsidiaries guarantee the 2014 Notes and the 2013 Notes on a joint and several basis. There are no significant restrictions on the ability of the guarantor subsidiaries to make distributions to Clearwater Paper, the issuer of the 2014 Notes and 2013 Notes. The following tables present the results of operations, financial position and cash flows of Clearwater Paper and its subsidiaries, the guarantor and non-guarantor entities, and the eliminations necessary to arrive at the information for Clearwater Paper on a consolidated basis.

Clearwater Paper Corporation

Consolidating Statement of Operations and Comprehensive Income (Loss)

Three Months Ended March 31, 2015



				Guarantor			Non-Guarantor
(In thousands)	Issuer			Subsidiaries			Subsidiary		Eliminations			Total
Net sales	$	395,387		$	73,328		$	—	$	(34,689	)	$	434,026
Cost and expenses:
Cost of sales	(351,046		)	(73,475		)	—		34,689			(389,832		)
Selling, general and administrative expenses	(24,788		)	(4,169		)	—		—			(28,957		)
Total operating costs and expenses	(375,834		)	(77,644		)	—		34,689			(418,789		)
Income (loss) from operations	19,553			(4,316		)	—		—			15,237
Interest expense, net	(7,767		)	(15		)	—		—			(7,782		)
Earnings (loss) before income taxes	11,786			(4,331		)	—		—			7,455
Income tax provision	(3,228		)	(342		)	—		1,872			(1,698		)
Equity in loss of subsidiary	(4,673		)	—			—		4,673			—
Net earnings (loss)	$	3,885		$	(4,673	)	$	—	$	6,545		$	5,757
Other comprehensive income, net of tax	1,557			—			—		—			1,557
Comprehensive income (loss)	$	5,442		$	(4,673	)	$	—	$	6,545		$	7,314

Clearwater Paper Corporation

Consolidating Statement of Operations and Comprehensive Income (Loss)

Three Months Ended March 31, 2014



				Guarantor			Non-Guarantor
(In thousands)	Issuer			Subsidiaries			Subsidiary			Eliminations			Total
Net sales	$	384,621		$	138,673		$	12,884		$	(51,258	)	$	484,920
Cost and expenses:
Cost of sales	(318,392		)	(146,089		)	(13,406		)	51,258			(426,629		)
Selling, general and administrative expenses	(27,659		)	(5,517		)	(338		)	—			(33,514		)
Impairment of assets	—			(4,259		)	—			—			(4,259		)
Total operating costs and expenses	(346,051		)	(155,865		)	(13,744		)	51,258			(464,402		)
Income (loss) from operations	38,570			(17,192		)	(860		)	—			20,518
Interest expense, net	(10,723		)	(11		)	—			—			(10,734		)
Earnings (loss) before income taxes	27,847			(17,203		)	(860		)	—			9,784
Income tax (provision) benefit	(13,477		)	9,372			206			341			(3,558		)
Equity in loss of subsidiary	(8,485		)	(654		)	—			9,139			—
Net earnings (loss)	$	5,885		$	(8,485	)	$	(654	)	$	9,480		$	6,226
Other comprehensive income, net of tax	1,484			—			—			—			1,484
Comprehensive income (loss)	$	7,369		$	(8,485	)	$	(654	)	$	9,480		$	7,710

Clearwater Paper Corporation

Consolidating Balance Sheet

At March 31, 2015



(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiary		Eliminations			Total
ASSETS
Current assets:
Cash	$	29,796		$	—		$	—	$	—		$	29,796
Restricted cash	1,500			—			—		—			1,500
Short-term investments	11,000			—			—		—			11,000
Receivables, net	117,785			16,246			—		(82		)	133,949
Inventories	232,295			38,375			—		—			270,670
Deferred tax assets	18,343			3,375			—		(36		)	21,682
Prepaid expenses	10,220			516			—		—			10,736
Total current assets	420,939			58,512			—		(118		)	479,333
Property, plant and equipment, net	662,108			150,662			—		—			812,770
Goodwill	209,087			—			—		—			209,087
Intangible assets, net	4,963			18,752			—		—			23,715
Intercompany receivable (payable)	42,271			(42,307		)	—		36			—
Investment in subsidiary	127,562			—			—		(127,562		)	—
Pension assets	6,333			—			—		—			6,333
Other assets, net	8,805			1,078			—		—			9,883
TOTAL ASSETS	$	1,482,068		$	186,697		$	—	$	(127,644	)	$	1,541,121
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	184,844		$	21,703		$	—	$	(82	)	$	206,465
Current liability for pensions and other postretirement employee benefits	7,915			—			—		—			7,915
Total current liabilities	192,759			21,703			—		(82		)	214,380
Long-term debt	575,000			—			—		—			575,000
Liability for pensions and other postretirement employee benefits	116,719			—			—		—			116,719
Other long-term obligations	54,690			762			—		—			55,452
Accrued taxes	919			787			—		—			1,706
Deferred tax liabilities	75,343			35,883			—		—			111,226
Accumulated other comprehensive loss, net of tax	(69,306		)	—			—		—			(69,306		)
Stockholders’ equity excluding accumulated other comprehensive loss	535,944			127,562			—		(127,562		)	535,944
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,482,068		$	186,697		$	—	$	(127,644	)	$	1,541,121

Clearwater Paper Corporation

Consolidating Balance Sheet

At December 31, 2014



(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiary		Eliminations			Total
ASSETS
Current assets:
Cash	$	27,331		$	—		$	—	$	—		$	27,331
Restricted cash	1,500			—			—		—			1,500
Short-term investments	50,000			—			—		—			50,000
Receivables, net	117,970			16,557			—		(613		)	133,914
Taxes receivable	6,760			(15,758		)	—		10,253			1,255
Inventories	246,210			40,416			—		—			286,626
Deferred tax assets	14,733			5,206			—		1,821			21,760
Prepaid expenses	3,734			457			—		—			4,191
Total current assets	468,238			46,878			—		11,461			526,577
Property, plant and equipment, net	657,369			153,618			—		—			810,987
Goodwill	209,087			—			—		—			209,087
Intangible assets, net	5,224			19,732			—		—			24,956
Intercompany receivable (payable)	33,703			(21,629		)	—		(12,074		)	—
Investment in subsidiary	137,282			—			—		(137,282		)	—
Pension assets	4,738			—			—		—			4,738
Other assets, net	8,496			1,087			—		—			9,583
TOTAL ASSETS	$	1,524,137		$	199,686		$	—	$	(137,895	)	$	1,585,928
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	193,326		$	23,113		$	—	$	(613	)	$	215,826
Current liability for pensions and other postretirement employee benefits	7,915			—			—		—			7,915
Total current liabilities	201,241			23,113			—		(613		)	223,741
Long-term debt	575,000			—			—		—			575,000
Liability for pensions and other postretirement employee benefits	118,464			—			—		—			118,464
Other long-term obligations	56,029			827			—		—			56,856
Accrued taxes	1,902			794			—		—			2,696
Deferred tax liabilities	73,964			37,670			—		—			111,634
Accumulated other comprehensive loss, net of tax	(70,863		)	—			—		—			(70,863		)
Stockholders’ equity excluding accumulated other comprehensive loss	568,400			137,282			—		(137,282		)	568,400
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,524,137		$	199,686		$	—	$	(137,895	)	$	1,585,928

Clearwater Paper Corporation

Consolidating Statement of Cash Flows

Three Months Ended March 31, 2015



(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiary		Eliminations			Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	3,885		$	(4,673	)	$	—	$	6,545		$	5,757
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization	16,114			4,894			—		—			21,008
Equity-based compensation expense	1,169			—			—		—			1,169
Deferred tax (benefit) provision	(3,231		)	44			—		1,857			(1,330		)
Employee benefit plans	809			—			—		—			809
Deferred issuance costs and discounts on long-term debt	178			—			—		—			178
Disposal of plant and equipment, net	—			(30		)	—		—			(30		)
Non-cash adjustments to unrecognized taxes	(983		)	(7		)	—		—			(990		)
Changes in working capital, net	1,537			1,920			—		—			3,457
Changes in taxes receivable, net	6,760			(15,758		)	—		10,253			1,255
Excess tax benefits from equity-based payment arrangements	(343		)	—			—		—			(343		)
Funding of qualified pension plans	(1,561		)	—			—		—			(1,561		)
Other, net	(1,261		)	(66		)	—		—			(1,327		)
Net cash flows from operating activities	23,073			(13,676		)	—		18,655			28,052
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in short-term investments, net	39,000			—			—		—			39,000
Additions to plant and equipment	(23,262		)	(1,978		)	—		—			(25,240		)
Proceeds from the sale of assets	—			506			—		—			506
Net cash flows from investing activities	15,738			(1,472		)	—		—			14,266
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock	(37,148		)	—			—		—			(37,148		)
Investment from parent	3,507			15,148			—		(18,655		)	—
Payment of tax withholdings on equity- based payment arrangements	(3,048		)	—			—		—			(3,048		)
Excess tax benefits from equity-based payment arrangements	343			—			—		—			343
Net cash flows from financing activities	(36,346		)	15,148			—		(18,655		)	(39,853		)
Increase in cash	2,465			—			—		—			2,465
Cash at beginning of period	27,331			—			—		—			27,331
Cash at end of period	$	29,796		$	—		$	—	$	—		$	29,796

Clearwater Paper Corporation

Consolidating Statement of Cash Flows

Three Months Ended March 31, 2014



(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	5,885		$	(8,485	)	$	(654	)	$	9,480		$	6,226
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization	14,121			7,529			581			—			22,231
Equity-based compensation expense	4,479			—			—			—			4,479
Impairment of assets	—			4,259			—			—			4,259
Deferred tax provision (benefit)	23,679			(11,492		)	22			(11,036		)	1,173
Employee benefit plans	888			—			—			—			888
Deferred issuance costs and discounts on long-term debt	475			—			—			—			475
Disposal of plant and equipment, net	139			290			—			—			429
Changes in working capital, net	(1,059		)	(3,062		)	(1,535		)	—			(5,656		)
Changes in taxes receivable, net	(1,965		)	(14,629		)	(79		)	22,196			5,523
Funding of qualified pension plans	(4,314		)	—			—			—			(4,314		)
Other, net	(351		)	(93		)	1			—			(443		)
Net cash flows from operating activities	41,977			(25,683		)	(1,664		)	20,640			35,270
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in short-term investments, net	11,000			—			—			—			11,000
Additions to plant and equipment	(12,017		)	(4,168		)	(54		)	—			(16,239		)
Proceeds from sale of assets	4			456			—			—			460
Net cash flows from investing activities	(1,013		)	(3,712		)	(54		)	—			(4,779		)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock	(29,332		)	—			—			—			(29,332		)
Investment (to) from parent	(7,846		)	29,395			(909		)	(20,640		)	—
Payment of tax withholdings on equity- based payment arrangements	(792		)	—			—			—			(792		)
Net cash flows from financing activities	(37,970		)	29,395			(909		)	(20,640		)	(30,124		)
Increase (decrease) in cash	2,994			—			(2,627		)	—			367
Cash at beginning of period	18,273			—			5,402			—			23,675
Cash at end of period	$	21,267		$	—		$	2,775		$	—		$	24,042



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

FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding benefit plan funding, the costs and benefits associated with the closure of our Long Island, New York facility, costs and timing of major maintenance in general and at our Cypress Bend, Arkansas facility, tax rates, cash flows, energy costs, liquidity, and interest expenses. Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “believe,” “schedule,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include those risks discussed in the section entitled “Risk Factors” in our 2014 Form 10-K, as well as the following:


•	customer acceptance, timing and quantity of purchases of our new through-air-dried, or TAD, products;


•	competitive pricing pressures for our products, including as a result of increased capacity as additional manufacturing facilities are operated by our competitors;


•	difficulties with the optimization and realization of the benefits expected from our new TAD paper machine and converting lines in Shelby, North Carolina;


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


•	manufacturing or operating disruptions, including increased energy and chemical consumption, equipment malfunction and damage to our manufacturing facilities caused by fire or weather-related events and IT system failures;


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


•	changes in transportation costs and disruptions in transportation services;


•	labor disruptions;


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


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


•	changes in expenses and required contributions associated with our pension plans;


•	environmental liabilities or expenditures;


•	changes in the U.S. and international economies and in general economic conditions in the regions and industries in which we operate;


•	increased supply and pricing pressures resulting from increasing Asian paper production capabilities;


•	cyclical industry conditions;


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


•	inability to successfully implement our expansion strategies;


•	inability to fund our debt obligations;


•	restrictions on our business from debt covenants and terms; 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.

OVERVIEW

Background

Recent Developments

Mill Divestitures and Facility Closures

On February 17, 2014, we announced the permanent and immediate closure of our Long Island, New York, tissue converting and distribution facility. As of March 31, 2015, we have incurred $19.4 million of costs associated with the closure, of which $0.6 million was incurred during the quarter ended March 31, 2015. We expect costs associated with this closure to be approximately $2 million in 2015. The cost savings benefits resulting from the Long Island facility consolidation and optimization are expected to be approximately $12 million on an annual basis.

Capital Allocation

On December 15, 2014, we announced that our Board of Directors had approved a new stock repurchase program authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. During the first quarter of 2015, we repurchased 599,495 shares of our outstanding common stock at an average price of $61.97 per share. As of March 31, 2015, we had up to $62.9 million of authorization remaining pursuant to this stock repurchase program.

On July 29, 2014, we issued $300 million of aggregate principal amount senior notes, which we refer to as the 2014 Notes. The 2014 Notes mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face value. All of the net proceeds from the issuance, as well as company funds and short-term borrowings from our senior secured revolving credit facility, were used to redeem all of our $375 million aggregate principal amount of 7.125% senior notes due 2018, which we refer to as the 2010 Notes.

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 value of our products to our customers, and are generally priced relative to the prices of branded tissue products. Demand and pricing for our pulp and paperboard products are largely determined by general global market conditions and the demand for high quality paperboard.



Operating costs
	Three Months Ended March 31,
(Dollars in thousands)	2015				2014
	Cost		Percentage of Cost of Sales		Cost		Percentage of Cost of Sales
Purchased pulp	$	47,728	12.2	%	$	73,072	17.1	%
Transportation¹	43,803		11.2		45,936