Edgar Filing: Clearwater Paper Corp

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

(Mark One)



ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 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)		(IRS Employer Identification No.)

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

Registrant’s telephone number, including area code: (509) 344-5900

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



TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock ($0.0001 par value per share)		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ý No

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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 Act). ¨ Yes ý No

As of June 30, 2015 (the last business day of the registrant’s most recently completed second quarter), the aggregate market value of the common stock held by non-affiliates of the registrant was $1.08 billion. Shares of common stock beneficially held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 17, 2016, 17,447,155 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed on or about March 22, 2016, with the Securities and Exchange Commission in connection with the registrant’s 2016 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

CLEARWATER PAPER CORPORATION

Index to 2015 Form 10-K



		PAGE NUMBER
	PART I
ITEM 1.	Business	2-7
ITEM 1A.	Risk Factors	8-15
ITEM 1B.	Unresolved Staff Comments	15
ITEM 2.	Properties	16
ITEM 3.	Legal Proceedings	17
ITEM 4.	Mine Safety Disclosures	17
	PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18-19
ITEM 6.	Selected Financial Data	19
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-38
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risks	38
ITEM 8.	Financial Statements and Supplementary Data	39-83
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	83
ITEM 9A.	Controls and Procedures	83
ITEM 9B.	Other Information	83
	PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	84
ITEM 11.	Executive Compensation	84
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	85
ITEM 14.	Principal Accounting Fees and Services	85
	PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	86
SIGNATURES		87
EXHIBIT INDEX		88-93

Part I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Our disclosure and analysis in this report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our strategy, raw materials and input usage and costs, including energy costs and usage, strategic capital projects and related costs, energy conservation, cash flows, capital expenditures, return on investment from capital projects, tax rates, operating costs, selling, general and administrative expenses, timing of and costs related to major maintenance and repairs, liquidity, benefit plan funding levels, capitalized interest and interest expenses. Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “believe,” “schedule,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences in operating results include those risks discussed in Item 1A of this report, as well as the following:


▪	competitive pricing pressures for our products, including as a result of increased capacity as additional manufacturing facilities are operated by our competitors in North America and abroad;


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


▪	customer acceptance, timing and quantity of purchases of our tissue products;


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


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


▪	announced price increases for our products may not be accepted in whole or part;


▪	changes in transportation costs and disruptions in transportation services;


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


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


▪	cyclical industry conditions;


▪	labor disruptions;


▪	changes in the cost and availability of packaging supplies, chemicals, energy and maintenance and repairs;


▪	environmental liabilities or expenditures;


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


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


▪	inability to successfully implement our operational efficiencies and 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. You are advised, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities and Exchange Commission, or SEC.



ITEM 1.
Business

GENERAL

Clearwater Paper manufactures quality consumer tissue, away-from-home, or AFH, 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. Clearwater Paper's employees build shareholder value by developing strong customer partnerships through quality and service.

On December 30, 2014, we sold our specialty business and mills to a private buyer. The specialty mill’s production consisted predominantly of machine-glazed tissue and also included parent rolls and other specialty tissue products such as absorbent materials and dark-hued napkins. The sale included five Clearwater Paper subsidiaries with facilities located at East Hartford, Connecticut; Menominee, Michigan; Gouverneur, New York; St. Catharines, Ontario; and Wiggins, Mississippi.

Company Strengths

Leading private label tissue manufacturer with a broad U.S. footprint. Our consumer products business is a premier private label tissue manufacturer. We have production facilities, including through-air-dried, or TAD, tissue manufacturing facilities in Shelby, North Carolina and Las Vegas, Nevada, and tissue manufacturing facilities in Ladysmith, Wisconsin, Lewiston, Idaho, and Neenah, Wisconsin, as well as converting operations strategically located across the United States. We believe we were the sixth largest manufacturer in the North American tissue market as of December 31, 2015, based on tissue parent roll capacity. Our broad manufacturing footprint allows us to better and more cost effectively service a diverse customer base, including major grocery store chains and retailers across the entire U.S.

High quality brand-equivalent tissue and other products to meet retailers' private label strategies. Our consumer products business produces high-quality products that match the quality of the leading national brands. We focus on high value tissue products across a wide variety of categories and retail channels. We also manufacture a broad range of cost-competitive consumer products, as well as recycled tissue and tissue parent rolls.

High quality premium bleached paperboard products. Our pulp and paperboard business produces premium paperboard products with ultra-smooth print surfaces, superior cleanliness, and excellent forming and sealing ability. Products are available in several thicknesses to provide the rigidity and strength needed for a wide range of applications. The high quality of our paperboard allows buyers to use our products for packaging where branding and quality are critical, such as ice cream containers, health and beauty packaging, pharmaceutical packaging, and point of purchase displays.

Long-standing customer relationships. Our consumer products business supplies private label tissue products to several of the largest national retail chains. Our top 10 consumer products customers in 2015 accounted for approximately 70% of our total consumer products net sales. The average tenure of these customers was approximately 13 years. In addition to these long-standing customer relationships, throughout the year we maintained a diverse base of 108 customers across a broad geographic area. We also have long-standing customer relationships with our paperboard customers. Our top 10 paperboard customers in 2015 accounted for approximately 50% of our total paperboard net sales. The average tenure of these customers was approximately 31 years.

Strategically positioned pulp and paperboard facilities. Our pulp and paperboard mill in Lewiston, Idaho is one of only two solid bleach sulfate, or SBS, paperboard mills, and the only coated SBS paperboard mill, in the Western U.S. to offer a full range of specialized products to meet the needs of customers for traditional folding carton, plates, cup and liquid packaging. This facility's geographic location reduces transportation costs to customers in the Western U.S. as well as Asia, which allows us to compete on a cost-advantaged basis relative to East Coast competitors. Our Cypress Bend, Arkansas mill is centrally located, which reduces transportation costs to the Midwestern and Eastern U.S. and complements the Lewiston mill in shipping to customers nationwide.

Largely integrated pulp and tissue operations. Our consumer products business sources a significant portion of its pulp supply internally from our pulp and paperboard operations in Idaho. This relationship provides our consumer products business with a secure pulp supply as well as significant transportation and drying cost savings, provides our pulp and paperboard business with a steady demand source and helps mitigate input cost volatility associated with purchasing external pulp.

Strategy

Our long-term strategy is to grow the size and scope of our business and optimize the profitability of both our consumer products business and our paperboard business. In the near-term, our focus is on optimizing the operating efficiencies and cost effectiveness of both segments of our company.

ORGANIZATION

Our businesses are organized into two operating segments: Consumer Products and Pulp and Paperboard. Additional information relating to the amounts of net sales, operating income, depreciation and amortization, identifiable assets and capital expenditures attributable to each of our operating segments for 2013-2015, as well as geographic information regarding our net sales, is set forth in Note 18 to our consolidated financial statements included under Part II, Item 8 of this report.

Consumer Products Segment

Our Consumer Products segment manufactures and sells a complete line of at-home tissue products as well as AFH products. Our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our customers. In 2015, our Consumer Products segment had net sales of $959.9 million. A listing of our Consumer Products segment facilities is included under Part I, Item 2 of this report.

Tissue Industry Overview

Consumer Tissue Products. The U.S. tissue market can be divided into two market segments: the at-home or consumer retail purchase segment, which represents approximately two-thirds of U.S. tissue sales; and the AFH segment, which represents the remaining one-third of U.S. tissue market sales and includes locations such as airports, restaurants, hotels and office buildings.

The U.S. at-home tissue segment consists of bath, paper towels, facial and napkin products categories. Each category is further distinguished according to quality segments: ultra, premium, value and economy. As a result of process improvements and consumer preferences, the majority of at-home tissue sold in the U.S. is ultra and premium quality.

At-home tissue producers are comprised of companies that manufacture branded tissue products, private label tissue products, or both. Branded tissue suppliers manufacture, market and sell tissue products under their own nationally branded labels. Private label tissue producers sell tissue products to retailers to sell as their store brand.

In the U.S., at-home tissue is primarily sold through grocery stores, mass merchants, warehouse clubs, drug stores and discount dollar stores. Tissue has historically been one of the strongest segments of the paper industry due to its steady demand growth and the relative absence of severe supply imbalances that occur in a number of other paper industry segments. In addition to economic and demographic drivers, tissue demand is affected by product innovations and shifts in distribution channels.

Our Consumer Products Business

We believe that we are the only U.S. consumer tissue manufacturer that solely produces a full line of quality private label tissue products for large retail trade channels. Most U.S. tissue producers manufacture only branded products, or both branded and private label products, or in the case of certain smaller or midsize manufacturers, only produce a limited range of tissue products or quality segments. Branded producers generally manufacture their private label products at a quality grade or two below their branded products so as not to impair sales of the branded products. Because we do not produce and market branded tissue products, we believe we are able to offer products that match the quality of leading national brands, but generally at lower prices. We utilize independent companies to routinely test our product quality.

In bathroom tissue, the majority of our sales are high quality two-ply ultra and premium products, including TAD tissue products. In paper towels, we produce and sell ultra quality TAD towels as well as premium and value towels. In the facial category, we sell ultra-lotion three-ply and a complete line of two-ply premium products as well as value facial tissue. In napkins, we manufacture ultra two- and three-ply dinner napkins, as well as premium and value one-ply luncheon napkins. Recycled fiber value grade products are also available to customers who wish to further diversify their product portfolio. We compete primarily in the at-home portion of the U.S. tissue market, which made up approximately 90% of our Consumer Products segment sales in 2015.

We manufacture and sell a line of AFH products to customers with commercial and industrial tissue needs. Products include conventional one- and two-ply bath tissue, two-ply paper towels, hard wound towels and dispenser napkins.

During 2015, our consumer products were manufactured on 12 paper machines in facilities located throughout the U.S. Parent rolls from our paper machines are then converted and packaged at our converting facilities located across the U.S. Two of our paper machines, located in Nevada and North Carolina, produce TAD tissue that we convert into national brand comparable, ultra quality towels and bath tissue.

In 2015 and 2014, through multi-outlet channels, which include grocery, drug, dollar, super and club stores, as well as military purchasing, we sold approximately 26% and 25%, respectively, of the total private label tissue products in the U.S.

We had one customer in the Consumer Products segment, the Kroger Company, that accounted for approximately $215 million, or 12.3%, of our total company net sales in 2015 and approximately $204 million, or 10.8%, of our total company net sales in 2013. In 2014, we did not have any single customer that accounted for 10% or more of our total net sales.

We sell private label tissue products through our own sales force and compete based on product quality, customer service and price. We deliver customer-focused business solutions by assisting in managing product assortment, category management, and pricing and promotion optimization.

Pulp and Paperboard Segment

Our Pulp and Paperboard segment manufactures and markets bleached paperboard for the high-end segment of the packaging industry and is a leading producer of SBS paperboard. This segment also produces hardwood and softwood pulp, which is primarily used as the basis for our paperboard products, and slush pulp, which it supplies to our Consumer Products segment. In 2015, our Pulp and Paperboard segment had net sales of $792.5 million. A listing of our Pulp and Paperboard segment facilities is included under Part I, Item 2 of this report.

Pulp and Paperboard Industry Overview

SBS paperboard is a premium paperboard grade that is most frequently used to produce folding cartons, liquid packaging, cups and plates as well as commercial printing items. SBS paperboard is used for such products because it is manufactured using virgin fiber combined with the kraft bleaching process, which results in superior cleanliness, brightness and consistency. SBS paperboard is often manufactured with a clay coating to provide superior surface printing qualities. SBS paperboard can also be extrusion coated with a plastic film to provide a moisture barrier for some uses.

In general, the process of making paperboard begins by chemically cooking wood fibers to make pulp. The pulp is bleached to provide a white, bright pulp, which is formed into paperboard. Bleached pulp that is to be used as market pulp is dried and baled on a pulp drying machine, bypassing the paperboard machines. The various grades of paperboard are wound into rolls for shipment to customers for converting to final end uses. Liquid packaging and cup stock grades are often coated with polyethylene, a plastic coating, in a separate operation to create a resistant and durable liquid barrier.

Folding Carton Segment. Folding carton is the largest portion of the SBS category of the U.S. paperboard industry, comprising approximately 39% of the category in 2015. Within the folding carton segment there are varying qualities of SBS paperboard. The high end of the folding carton category in general requires a premium print surface and includes uses such as packaging for pharmaceuticals, cosmetics and other premium retail goods. SBS paperboard is also used in the packaging of frozen foods, beverages and baked goods.

Liquid Packaging and Cup Segment. SBS liquid packaging paperboard is primarily used in the U.S. for the packaging of juices. In Japan and other Asian countries, SBS liquid packaging paperboard is primarily used for the packaging of milk and other consumable liquids. The cup segment of the market consists primarily of hot and cold drink cups and food packaging. The hot and cold cups are primarily used to serve beverages in quick-service restaurants, while round food containers are often used for packaging premium ice-cream and dry food products.

Commercial Printing Segment. Commercial printing applications use bleached bristols, which are heavyweight paper grades, to produce postcards, signage and sales literature. Bristols can be clay coated on one side or both sides for applications such as brochures, presentation folders and paperback book covers. Customers in this segment are accustomed to high-quality paper grades, which possess superior printability and brightness compared to most paperboard packaging grades. Suppliers to this segment must be able to deliver small volumes, often within 24 hours.

Market Pulp. The majority of the pulp manufactured worldwide is used in paper and paperboard production, usually at the same mill. In those cases where a paper mill does not produce its own pulp or requires pulp with different production qualities, it must purchase pulp on the open market. Market pulp is defined as pulp produced for sale to these customers and it excludes tonnage consumed by the producing mill or shipped to any of its affiliated mills within the same company.

Our Pulp and Paperboard Business

Our Pulp and Paperboard segment operates facilities in Idaho, which has two paperboard machines, and Arkansas, which has one paperboard machine. As of December 31, 2015, we were one of the five largest producers of bleached paperboard in North America with approximately 11% of the available production capacity.

Our overall pulp and paperboard production consists primarily of folding carton, liquid packaging, cup, plate, commercial printing grades and hardwood and softwood pulp.

Folding carton board used in pharmaceuticals, cosmetics and other premium packaging, such as those that incorporate foil and holographic lamination, accounts for the largest portion of our total paperboard sales. We focus on high-end folding carton applications where the heightened product quality requirements provide for differentiation among suppliers, resulting in margins that are more attractive than less critical packaging applications.

Our liquid packaging paperboard is known for its cleanliness and printability, and is engineered for long-lived performance due to its three-ply, softwood construction. Our reputation for producing liquid packaging meeting the most demanding standards for paperboard quality and cleanliness has resulted in meaningful sales in Japan, where consumers have a particular tendency to associate blemish-free, vibrant packaging with the cleanliness, quality and freshness of the liquids contained inside.

We also sell cup stock and plate stock grades for use in food service products. A majority of our sales in this area consist of premium clay coated cup stock grades used for high-end food packaging, such as premium ice cream.

We do not produce converted paperboard end-products, so we are not simultaneously a supplier of and a competitor to our customers. Of the five largest SBS paperboard producers in the U.S., we are the only producer that does not also convert SBS paperboard into end products. We believe our position as a non-integrated supplier has resulted in a diverse group of loyal customers because when there is decreased market supply of paperboard, we do not divert our production to internal uses.

At our Idaho facility we produce bleached softwood pulp primarily for internal use, including in our Consumer Products segment.

Our pulp mills are currently capable of producing approximately 856,000 tons of pulp on an annual basis. In 2015, we produced approximately 802,000 tons of pulp in the aggregate and utilized approximately 81% of that production, or approximately 650,000 tons, to produce approximately 773,000 tons of paperboard. The increase in tonnage from pulp to paperboard production is due to the addition of coatings and other manufacturing processes. We also used approximately 19% of our pulp production, or approximately 150,000 tons, in our Consumer Products segment to produce tissue products. The remaining pulp production of less than 1%, or approximately 2,000 tons, was sold externally by our Consumer Products segment.

We utilize various methods for the sale and distribution of our paperboard and softwood pulp. The majority of our paperboard is sold to packaging converters domestically through sales offices located throughout the U.S., with a smaller percentage channeled through distribution to commercial printers. The majority of our international paperboard sales are conducted through sales agents and are primarily denominated in U.S. dollars. Our principal methods of competing are product quality, customer service and price.

RAW MATERIALS AND INPUT COSTS

For our manufacturing operations, the principal raw material used is wood fiber, which consists of purchased pulp and chips, sawdust and logs. During 2015, our purchased pulp costs were 12.3% of our cost of sales, while chips, sawdust and logs accounted for 9.7%. In 2015, our Consumer Products segment sourced approximately 44% of its total pulp supply from our Pulp and Paperboard segment, with the remainder purchased from external suppliers. In 2016 we expect that our Consumer Products segment will source approximately 44% of its total pulp supply from our Pulp and Paperboard segment. We own and operate a wood chipping facility located in Clarkston, Washington, near our Lewiston, Idaho, facility, which we believe bolsters our wood fiber position and provides short-term and long-term cost savings.

We utilize a significant amount of chemicals in the production of pulp and paper, including caustic, polyethylene, starch, sodium chlorate, latex and specialty process paper chemicals. A portion of the chemicals used in our manufacturing processes, particularly in the pulp-making process, are petroleum-based or are impacted by petroleum prices. During 2015, chemical costs accounted for 11.9% of our cost of sales.

Transportation is a significant cost input for our business. Fuel prices impact our transportation costs for delivery of raw materials to our manufacturing facilities and delivery of our finished products to customers. Our total transportation costs were 12.2% of our cost of sales in 2015.

We consume substantial amounts of energy, such as electricity, hog fuel, steam and natural gas. During 2015, energy costs accounted for 7.0% of our cost of sales. We purchase a significant portion of our natural gas and electricity under supply contracts, most of which are between a specific facility and a specific local provider. Under most of these contracts, the providers have agreed to provide us with our requirements for a particular type of energy at a specific facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. In addition, we use firm-price contracts to mitigate price risk for certain of our energy requirements.

As a significant producer of private label consumer tissue products, we also incur expenses related to packaging supplies used for retail chains, wholesalers and cooperative buying organizations. Our total packaging costs for 2015 were 6.0% of our cost of sales.

Our maintenance and repairs represented 6.0% of our cost of sales for 2015 and are expensed as incurred. We perform routine maintenance on our machines and equipment and periodically replace a variety of parts such as motors, pumps, pipes and electrical parts.

We also record depreciation expense associated with our plant and equipment. Depreciation expense was 5.0% of our cost of sales for 2015.

SEASONALITY

Our Consumer Products segment experiences a decrease in shipments during the fourth quarter generally as a result of decreased consumer demand, retail brand holiday promotions, and end of year inventory management by non-retail customers. In addition, customer buying patterns for our paperboard generally result in lower sales for our Pulp and Paperboard segment during the first and fourth quarters, when compared to the second and third quarters of a given year.

ENVIRONMENTAL

Information regarding environmental matters is included under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, and is incorporated herein by reference.

WEBSITE

Interested parties may access our periodic and current reports filed with the SEC, at no charge, by visiting our website, www.clearwaterpaper.com. In the menu select “Investor Relations,” then select “Financial Information & SEC Filings.” Information on our website is not part of this report.

EMPLOYEES

As of December 31, 2015, we had approximately 3,300 employees, of which approximately 2,040 were employed by our Consumer Products segment, approximately 1,110 were employed by our Pulp and Paperboard segment and approximately 150 were corporate administration employees. This workforce consisted of approximately 720 salaried employees and approximately 2,580 hourly and fixed rate employees. As of December 31, 2015, approximately 52% of our workforce was covered under collective bargaining agreements.

Unions represent hourly employees at three of our manufacturing sites. There are three hourly union labor contracts that expire in 2016:



CONTRACT EXPIRATION DATE	DIVISION AND LOCATION	UNION	APPROXIMATE NUMBER OF HOURLY EMPLOYEES
May 31, 2016	Pulp & Paperboard Division-Lewiston, Idaho, No. 4 Power Boiler Unit	International Association of Machinists (IAM)	40
May 31, 2016	Consumer Products Division-Neenah, Wisconsin	United Steel Workers (USW)	365
July 31, 2016	Pulp & Paperboard Division-Cypress Bend, Arkansas	United Steel Workers (USW)	250

EXECUTIVE OFFICERS OF THE REGISTRANT

The following individuals are deemed our “executive officers” under the Securities Exchange Act of 1934 as of December 31, 2015. Executive officers of the company are generally appointed as such at the annual meeting of our board, and each officer holds office until the officer’s successor is duly elected and qualified or until the earlier of the officer’s death, resignation, retirement, removal by the board or as otherwise provided in our bylaws. There are no arrangements or understandings between any of our executive officers and any other persons pursuant to which they were selected as officers. No family relationships exist among any of our executive officers.

Linda K. Massman (age 49), has served as President and Chief Executive Officer, as well as a director, since January 2013. Ms. Massman served as President and COO from November 2011 to December 2012. She served as CFO and Senior Vice President, Finance from May 2011 to November 2011, and as CFO and Vice President, Finance from December 2008 to May 2011. From September 2008 to December 2008, Ms. Massman served as Vice President of Potlatch Corporation pending completion of the spin-off of Clearwater Paper Corporation. From May 2002 to August 2008, Ms. Massman was Group Vice President, Finance and Corporate Planning, for SUPERVALU Inc., a grocery retail company. Ms. Massman also serves as a director of Black Hills Corporation, an energy company, and as a member of Black Hills Corporation's Compensation Committee.

John D. Hertz (age 49) joined the company in June 2012 as Senior Vice President, and has served as Senior Vice President, Finance and Chief Financial Officer since August 2012. From June 2010 to June 2012, Mr. Hertz was the Vice President and Chief Financial Officer of Novellus Systems, Inc. From October 2007 to June 2010, he served as Novellus' Vice President of Corporate Finance and Principal Accounting Officer and as Vice President and Corporate Controller from June 2007 to October 2007. From 2000 to 2007, Mr. Hertz worked for Intel Corporation where he held a number of positions, including Central Finance Controller of the Digital Enterprise Group, Finance Controller of the Enterprise Platform Services Division and Accounting Policy Controller. Prior to that, Mr. Hertz was a Senior Manager with KPMG.

Patrick T. Burke (age 55) has served as Senior Vice President, Group President since October 2015, and served as Senior Vice President and President, Consumer Products Division from April 2015 to October 2015. From May 2014 to April 2015, he served as Vice President, Supply Chain. From March 2011 to April 2014, Mr. Burke served as the Director of West for Pepsi Beverage Company, and from January 2008 to February 2011, as the Director of the Western Region for Gatorade, for Pepsi America Beverages.

Michael S. Gadd (age 51) has served as Senior Vice President since May 2011 and General Counsel and Corporate Secretary since December 2008. He served as Vice President from December 2008 to May 2011. From March 2006 to December 2008, Mr. Gadd served as Associate General Counsel of Potlatch Corporation, and served as Corporate Secretary of Potlatch from July 2007 to December 2008. From January 2001 to January 2006, Mr. Gadd was an attorney with Perkins Coie, LLP in Portland, Oregon.

Danny G. Johansen (age 65) has served as Senior Vice President since January 2013 and served as President of Pulp and Paperboard from January 2013 to October 2015. From December 2008 through December 2012, he served as Vice President, Sales and Marketing, for Pulp and Paperboard. Prior to December 2008, Mr. Johansen was employed by Potlatch Corporation for nearly 36 years. From 2002 to December 2008, he served as the Director of Sales, Idaho Pulp and Paperboard division, for Potlatch.

Kari G. Moyes (age 48) has served as Senior Vice President, Human Resources since February 2015, and served as Vice President, Labor Relations from July 2013 through January 2015. From November 2010 through June 2013, Ms. Moyes served as National Director of Human Resources for Nestlé, a food manufacturer. Prior to her tenure with Nestle, Ms. Moyes spent 10 years with Pepsico in various capacities.



ITEM 1A.
Risk Factors

Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties, including those described below, and as a result, the trading price of our common stock could decline.

Increases in tissue supply could adversely affect our operating results and financial condition.

Over the past few years, several new or refurbished TAD paper machines have been completed or announced by our competitors, including private label competitors, that will result in a substantial increase in the supply of TAD tissue in the North American market. Additionally, several new or refurbished conventional tissue machines have been installed or announced, including as a result of foreign competitors increasing their presence and operations in North America. The increase in supply of TAD products, as well as the effects of that increased supply in displacing existing conventional tissue product sales, and the increase in conventional tissue production could each have a material adverse effect on the price of TAD tissue products and on the market demand and price for conventional tissue products, which will continue to represent a majority of our total production for the foreseeable future.

United States and global economic conditions could have adverse effects on the demand for our products and financial results.

U.S. and global economic conditions have negatively affected and may continue to negatively affect our business and financial results. Recessed global economic conditions and a strong U.S. dollar can affect our business in a number of ways, including causing declines in global demand for consumer tissue and paperboard, which increases the likelihood or the pace of foreign manufacturers entering into or increasing sales into the U.S. market.

Increased competition and supply from foreign manufacturers could have adverse effects on the demand for our products and financial results.

Foreign manufacturers in Asia and Europe are currently increasing, and are expected to continue to increase, their paper production capabilities, particularly with respect to paperboard. This, in turn, may result in increased competition in the North American paper markets from direct sales by foreign competitors into these markets and/or increased competition in the U.S. as domestic manufacturers seek increased U.S. sales to offset displaced overseas sales caused by increased sales by foreign suppliers into Asia and European markets. An increased supply of foreign paper products could cause us to lower our prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Competitors' branded products and private label products could have an adverse effect on our financial results.

Our consumer products compete with well-known, branded products, as well as other private label products. Inherent risks include new product offerings by competitors, the effects of consolidation within retailer and distribution channels price competition from companies that may have greater financial resources than we do, and whether our products will receive direct and retail customer acceptance. If we are unable to offer our existing customers, or new customers, tissue products comparable to branded products or private label products in terms of quality and/or price, we may lose business or we may not be able to grow our existing business and be forced to sell lower-margin products, all of which could negatively affect our financial condition and results of operations.

The loss of, or a significant reduction in, orders from, or changes in prices in regards to, any of our large customers could adversely affect our operating results and financial condition.

We derive a substantial amount of revenues from a concentrated group of customers. For example, our top 10 consumer products customers in 2015 accounted for approximately 70% of our total consumer products net sales. Our top 10 paperboard customers in 2015 accounted for approximately 50% of our total paperboard net sales. If we lose any of these customers or a substantial portion of their business or if the terms of our relationship with any of them becomes less favorable to us, our net sales would decline, which would harm our business, results of operations and financial condition. We have experienced increased price and promotion competition for our consumer products customers, particularly in regards to TAD products, and this competition has decreased our gross margins and adversely affected our financial condition. Some of our customers have the capability to produce the parent rolls or products that they purchase from us. While our Pulp and Paperboard segment sells its products to a large number of customers, our top 10 paperboard customers have historically accounted for approximately half of our sales.

We do not have long-term contracts with many of our customers, including some of our largest customers, that ensure a continuing level of business from them. In addition, our agreements with our customers are not exclusive and generally do not contain minimum volume purchase commitments. Our relationship with our large customers will depend on our

ability to continue to meet their needs for quality products and services at competitive prices. If we lose one or more of these customers or if we experience a significant decline in the level of purchases by any of them, we may not be able to quickly replace the lost business volume and our operating results and business could be harmed. In addition, our focus on these large accounts could affect our ability to serve our smaller accounts, particularly when product supply is tight and we are not able to fully satisfy orders for these smaller accounts.

We have in the past announced and implemented price increases. These or other price increases may not be accepted in whole or part and could result in a loss of customers or a reduction in sales.

Disruptions in our transportation services or increases in our transportation costs could have a material adverse effect on our business.

Shipments of products and raw materials may be delayed or disrupted due to weather conditions, labor shortages or strikes, regulatory actions or other events. If any transportation providers are unavailable or fail to deliver our products in a timely manner, we may incur increased costs. If any transportation providers are unavailable or fail to deliver raw materials to us in a timely manner, we may be unable to manufacture products on a timely basis.

Our business, particularly our consumer products business, is dependent on transportation services to deliver our products to our customers and to deliver raw materials to us. In 2015, our transportation costs were 12.2% of our cost of sales. The costs of these transportation services are influenced by the factors described above as well as fuel prices, which are affected by geopolitical and economic events. We have not been in the past, and may not be in the future, able to pass along part or all of any fuel price increases to customers. If we are unable to increase our prices as a result of increased fuel or transportation costs, our gross margins may be materially adversely affected.

We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities may harm our operating performance.

We regularly incur significant expenses to maintain our manufacturing equipment and facilities. The machines and equipment that we use to produce our products are complex, have many parts and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our pulp and paperboard facilities require periodic shutdowns to perform major maintenance. These scheduled shutdowns of facilities result in decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future periods as a result of changes to equipment and operational and mechanical processes made during the shutdown period. We had two scheduled major maintenance shutdowns in 2015 - one during the first quarter at our Lewiston, Idaho pulp and paperboard facility and one during the second quarter at our Cypress Bend, Arkansas facility.

Unexpected production disruptions could cause us to shut down or curtail operations at any of our facilities. For example, we experienced ongoing operational issues through the first quarter of 2015 with the recovery furnace at our Cypress Bend, Arkansas facility associated with a 2013 upgrade project and certain of our facilities have had to curtail operations as the result of an electrical malfunction and a fire in previous years. Disruptions could occur due to any number of circumstances, including prolonged power outages, mechanical or process failures, shortages of raw materials, natural catastrophes, disruptions in the availability of transportation, labor disputes, terrorism, changes in or non-compliance with environmental or safety laws and the lack of availability of services from any of our facilities' key suppliers. Any facility shutdowns may be followed by prolonged startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to several weeks, depending on the reason for the shutdown and other factors. Any prolonged disruption in operations at any of our facilities could cause significant lost production, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

We rely on information technology in critical areas of our operations, and a disruption relating to such technology could harm our financial condition.

We use information technology, or IT, systems in various aspects of our operations, including enterprise resource planning, or ERP, management of inventories and customer sales. Some of these systems have been in place for long periods of time. We have different legacy IT systems that we are continuing to integrate, including the implementation of a single company-wide ERP system. If one of these systems or the ERP implementation was to fail or cause operational or reporting interruptions, or if we decide to change these systems or hire outside parties to provide these systems, we may suffer disruptions, which could have a material adverse effect on our results of operations and financial condition. In addition, we may underestimate the costs and expenses of developing and implementing new systems.

We depend on external sources of wood pulp and wood fiber, which subjects our business and results of operations to potentially significant fluctuations in the price of market pulp and wood fiber.

Our Consumer Products segment sources a significant portion of its wood pulp requirements from external suppliers, which exposes us to price fluctuation. In 2015, it sourced approximately 56% of its pulp requirements externally, comprising approximately 12.3% of our cost of sales.

Pulp prices can, and have, changed significantly from one period to the next. The volatility of pulp prices can adversely affect our earnings if we are unable to pass cost increases on to our customers or if the timing of any price increases for our products significantly trails the increases in pulp prices. We have not hedged these risks.

Wood fiber is the principal raw material used to create wood pulp, which in turn is used to manufacture our pulp and paperboard products and consumer products. In 2015, our wood fiber costs were 9.7% of our cost of sales. Much of the wood fiber we use in our pulp manufacturing process in Lewiston, Idaho, is the by-product of sawmill operations. As a result, the price of these residual wood fibers is affected by operating levels in the lumber industry. The significant reduction in home building over the past several years resulted in the closure or curtailment of operations at many sawmills. The price of wood fiber is expected to remain volatile until the housing market recovers and sawmill operations increase. Additionally, the supply and price of wood fiber can also be negatively affected by weather and other events. For example, our Arkansas pulp and paperboard facility relies on whole log chips for a significant portion of its wood fiber, and in 2015 this facility experienced increases in the costs for that wood fiber due to extremely wet weather conditions in the Southeastern U.S. that limited accessibility and availability.

The effects on market prices for wood fiber resulting from various governmental programs involving tax credits or payments related to biomass and other renewable energy projects are uncertain and could result in a reduction in the supply of wood fiber available for our pulp and paperboard manufacturing operations. Additionally, wood pellet facilities or fluff pulp facilities, such as a fluff pulp facility recently announced in Arkansas, can increase demand and prices for wood fiber. If we and our pulp suppliers are unable to obtain wood fiber at favorable prices or at all, our costs will increase and financial results, operations and cash flows may be materially adversely affected.

Cyclical industry conditions have in the past affected and may continue to adversely affect the operating results and cash flows of our pulp and paperboard business.

Our pulp and paperboard business has historically been affected by cyclical market conditions. We may be unable to sustain pricing in the face of weaker demand, and weaker demand may in turn cause us to take production downtime. In addition to lost revenue from lower shipment volumes, production downtime causes unabsorbed fixed manufacturing costs due to lower production levels. Our results of operations and cash flows may be materially adversely affected in a period of prolonged and significant market weakness. We are not able to predict market conditions or our ability to sustain pricing and production levels during periods of weak demand.

Our business and financial performance may be harmed by future labor disruptions.

As of December 31, 2015, 52% of our full-time employees are represented by unions under collective bargaining agreements. As these agreements expire, we may not be able to negotiate extensions or replacement agreements on terms acceptable to us. In 2016, three collective bargaining agreements are scheduled to expire and will be subject to negotiation. Any failure to reach an agreement with one of the unions may result in strikes, lockouts, work slowdowns, stoppages or other labor actions, any of which could have a material adverse effect on our operations and financial results.

The cost of chemicals and energy needed for our manufacturing processes significantly affects our results of operations and cash flows.

We use a variety of chemicals in our manufacturing processes, including petroleum-based polyethylene and certain petroleum-based latex chemicals. In 2015, our chemical costs were 11.9% of our cost of sales. Prices for these chemicals have been and are expected to remain volatile. In addition, chemical suppliers that use petroleum-based products in the manufacture of their chemicals may, due to supply shortages and cost increases, ration the amount of chemicals available to us, and therefore we may not be able to obtain at favorable prices the chemicals we need to operate our business, if we are able to obtain them at all.

Our manufacturing operations utilize large amounts of electricity and natural gas and our energy requirements, particularly natural gas, have increased significantly as a result of operations at our North Carolina facility. In 2015, our energy costs were 7.0% of our cost of sales. Energy prices have fluctuated widely over the past decade, which in turn affects our cost of sales. We purchase on the open market a substantial portion of the natural gas necessary to produce our products, and, as a result, the price and other terms of those purchases are subject to change based on factors such as worldwide supply and demand, geopolitical events, government regulation, and natural disasters. Our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally, on changes in market prices for natural gas and on reducing energy usage.

Any significant energy shortage or significant increase in our energy costs in circumstances where we cannot raise the price of our products could have a material adverse effect on our business, financial condition, results of operations and cash flows. Any disruption in the supply of energy could also affect our ability to meet customer demand in a timely manner and could harm our reputation.

We are subject to significant environmental regulation and environmental compliance expenditures, which could increase our costs and subject us to liabilities.

We are subject to various federal, state and foreign environmental laws and regulations concerning, among other things, water discharges, air emissions, hazardous material and waste management and environmental cleanup. Environmental laws and regulations continue to evolve and we may become subject to increasingly stringent environmental standards in the future, particularly under air quality and water quality laws and standards related to climate change issues, such as reporting of greenhouse gas emissions. Increased regulatory activity at the state, federal and international level is possible regarding climate change as well as other emerging environmental issues associated with our manufacturing sites, such as water quality standards based on elevated fish consumption rates. Compliance with regulations that implement new public policy in these areas might require significant expenditures on our part or even the curtailment of certain of our manufacturing operations.

We are required to comply with environmental laws and the terms and conditions of multiple environmental permits. In particular, the pulp and paper industry in the United States is subject to several performance based rules associated with effluent and air emissions as a result of certain of its manufacturing processes. Federal, state and local laws and regulations require us to routinely obtain authorizations from and comply with the evolving standards of the appropriate governmental authorities, which have considerable discretion over the terms of permits. Failure to comply with environmental laws and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing our operations or requiring us to take corrective measures, install pollution control equipment, or take other remedial actions, such as product recalls or labeling changes. We also may be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis.

We own properties, conduct or have conducted operations at properties, and have assumed indemnity obligations for properties or operations where hazardous materials have been or were used for many years, including during periods before careful management of these materials was required or generally believed to be necessary. Consequently, we will continue to be subject to risks under environmental laws that impose liability for historical releases of hazardous substances and to liability for other potential violations of environmental laws or permits at existing sites or ones for which we have indemnity obligations.

There can be no assurance that future environmental permits will be granted or that we will be able to maintain and renew existing permits, and the failure to do so could have a material adverse effect on our results of operations, financial condition and cash flows.

Larger competitors have operational and other advantages over our operations.

The markets for our products are highly competitive, and companies that have substantially greater financial resources compete with us in each market. Some of our competitors have advantages over us, including lower raw material and labor costs and better access to the inputs of our products.

Our consumer products business faces competition from companies that produce the same type of products that we produce or that produce alternative products that customers may use instead of our products. Our consumer products business competes with the branded tissue products producers, such as Procter & Gamble, and branded label producers who manufacture branded and private label products, such as Georgia-Pacific and Kimberly-Clark. These companies are far larger than us, have more sales, marketing and research and development resources than we do, and enjoy significant cost advantages due to economies of scale. For example, in 2015 the net sales of our Consumer Products' segment was negatively impacted in part as a result of increased promotional activity for branded tissue

products. In addition, because of their size and resources, these companies may foresee market trends more accurately than we do and develop new technologies that render our products less attractive or obsolete.

Our ability to successfully compete in the pulp and paperboard industry is influenced by a number of factors, including manufacturing capacity, general economic conditions and the availability and demand for paperboard substitutes. Our pulp and paperboard business competes with International Paper, WestRock, Georgia-Pacific, and international producers, most of whom are much larger than us. Any increase in manufacturing capacity by any of these or other producers could result in overcapacity in the pulp and paperboard industry, which could cause downward pressure on pricing. For example, several newer facilities in China have large paperboard manufacturing capacities, the output of which is expected to increase paperboard supplies on the international market. Also a large European manufacturer is expected to begin paperboard production at a new facility with products intended for the North American market. Furthermore, customers could choose to use types of paperboard that we do not produce or could rely on alternative materials, such as plastic, for their products. An increased supply of any of these products could cause us to lower our prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The consolidation of paperboard converting businesses, including through the acquisition and integration of such converting business by larger competitors of ours, could result in a loss of customers and sales on the part of our pulp and paperboard business, which does not include paperboard converting facilities or capabilities. A loss of paperboard customers or sales as a result of consolidations and integrations could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our company-sponsored pension plans are currently underfunded, and we are required to make cash payments to the plans, reducing cash available for our business.

We have company-sponsored pension plans covering certain of our salaried and hourly employees. The volatility in the value of equity and fixed income investments held by these plans, coupled with a low interest rate environment resulting in higher liability valuations, has caused these plans to be underfunded as the projected benefit obligation has exceeded the aggregate fair value of plan assets by varying year-end amounts since 2008. At December 31, 2015, and 2014, our company sponsored pension plans were underfunded in the aggregate by $24.4 million and $16.9 million, respectively. As a result of underfunding, we may be required to make contributions to our qualified pension plans. In 2015, we contributed $3.2 million to these pension plans. We may be required to make increased annual contributions to our pension plans in future years, which would reduce the cash available for business and other needs.

We may be required to pay material amounts under multiemployer pension plans.

We contribute to two multiemployer pension plans. The amount of our annual contributions to each of these plans is negotiated with the plan and the bargaining unit representing our employees covered by the plan. In 2015, we contributed approximately $6 million to these plans, and in future years we may be required to make increased annual contributions, which would reduce the cash available for business and other needs. In addition, in the event of a partial or complete withdrawal by us from any multiemployer plan that is underfunded, we would be liable for a proportionate share of such multiemployer plan's unfunded vested benefits, referred to as a withdrawal liability. A withdrawal liability is considered a contingent liability. In the event that any other contributing employer withdraws from any multiemployer plan that is underfunded, and such employer cannot satisfy its obligations under the multiemployer plan at the time of withdrawal, then the proportionate share of the plan’s unfunded vested benefits that would be allocable to us and to the other remaining contributing employers, would increase and there could be an increase to our required annual contributions. In renegotiations of collective bargaining agreements with labor unions that participate in these multiemployer plans, we may decide to discontinue participation in these plans.

One of the multiemployer pension plans to which we contribute, the PACE Industry Union-Management Pension Fund, or PIUMPF, was certified to be in “critical status” for the plan year beginning January 1, 2010, and continued to be in critical status through the plan year beginning January 1, 2014. For the plan year beginning January 1, 2015, PIUMPF was certified to be in "critical and declining status" under the Multiemployer Pension Plan Reform Act of 2014. In 2013, two large employers withdrew from PIUMPF and subsequent to December 31, 2015, we learned that the largest employer in PIUMPF has also withdrawn. Further withdrawals by contributing employers could cause a “mass withdrawal” from, or effectively a termination of, PIUMPF or alternatively we could elect to withdraw. Although we have no current intention to withdraw from PIUMPF, if we were to withdraw, either completely or partially, we would incur a withdrawal liability based on our share of PIUMPF’s unfunded vested benefits. Based on information as of December 31, 2014 provided by PIUMPF and reviewed by our actuarial consultant, we estimate that, as of December 31, 2015, the payments that we would be required to make to PIUMPF in the event of our complete withdrawal would be approximately $5.7 million per year on a pre-tax basis. These payments would continue for 20 years, unless we were deemed to be included in a “mass withdrawal” from PIUMPF, in which case these payments would continue in perpetuity.

However, we are not able to determine the exact amount of our withdrawal liability because the amount could be higher or lower depending on the nature and timing of any triggering event, the funded status of the plan and our level of contributions to the plan prior to the triggering event. These withdrawal liability payments would be in addition to pension contributions to any new pension plan adopted or contributed to by us to replace PIUMPF, all of which would reduce the cash available for business and other needs. Adverse changes to pension laws and regulations could increase the likelihood and amount of our liabilities arising under PIUMPF.

Our pension and health care costs are subject to numerous factors that could cause these costs to change.

In addition to our pension plans, we provide health care benefits to certain of our current and former U.S. salaried and hourly employees. There is a risk of increased costs due to the Affordable Care Act’s individual mandate and required coverage. Our health care costs vary with changes in health care costs generally, which have significantly exceeded general economic inflation rates for many years. Our pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions about future investment returns. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns as well as changes in general interest rates may result in increased pension costs in future periods. Likewise, changes in assumptions regarding current discount rates, expected rates of return on plan assets and mortality rates could also increase pension costs. Significant changes in any of these factors may adversely impact our cash flows, financial condition and results of operations.

We face cyber-security risks.

Our business operations rely upon secure information technology systems for data capture, processing, storage and reporting. Despite careful security and controls design, implementation and updating, our information technology systems could become subject to cyber-attacks. Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could result in lost sales, business delays, negative publicity and could have a material adverse effect on our business, results of operations and financial condition.

We rely on a limited number of third-party suppliers for certain raw materials required for the production of our products.

Our dependence on a limited number of third-party suppliers, and the challenges we may face in obtaining adequate supplies of raw materials, involve several risks, including limited control over pricing, availability, quality, and delivery schedules. We cannot be certain that our current suppliers will continue to provide us with the quantities of these raw materials that we require or will continue to satisfy our anticipated specifications and quality requirements. Any supply interruption in limited raw materials could materially harm our ability to manufacture our products until a new source of supply, if any, could be identified and qualified. Although we believe there are other suppliers of these raw materials, we may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could interrupt production of our products, which would have a material adverse effect on our business.

Our efforts to increase operational efficiencies may not be fully achieved.

Our near term strategy of increasing operational efficiencies and cost effectiveness may not be fully achieved. The capital projects we invest in may not achieve expected operational or financial results in the timeframes we anticipate, or at all. Such delays or failures could materially affect our business, cash flows and financial condition.

Additional expansion of our business through construction of new facilities or acquisitions may not proceed as anticipated.

In the future, we may build other converting and papermaking facilities, pursue acquisitions of existing facilities, or both. We may be unable to identify future suitable building locations or acquisition targets. In addition, we may be unable to achieve anticipated benefits or cost savings from construction projects or acquisitions in the timeframe we anticipate, or at all. Any inability by us to integrate and manage any new or acquired facilities or businesses in a timely and efficient manner, any inability to achieve anticipated cost savings or other anticipated benefits from these projects or acquisitions in the time frame we anticipate or any unanticipated required increases in promotional or capital spending could adversely affect our business, financial condition, results of operations or liquidity. Large construction projects or acquisitions can result in a decrease in our cash and short-term investments, an increase in our indebtedness, or both, and also may limit our ability to access additional capital when needed and divert management's attention from other business concerns.

To service our substantial indebtedness, we must generate significant cash flows. Our ability to generate cash depends on many factors beyond our control.

As of December 31, 2015, we had $569 million of outstanding indebtedness, and we could incur substantial additional indebtedness in the future. Our ability to make payments on and to refinance our indebtedness, including our outstanding notes, and to fund planned capital expenditures, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured revolving credit facility and our existing notes, on commercially reasonable terms or at all.

The indentures for our outstanding notes that we issued in 2013 and the credit agreement governing our senior secured revolving credit facility, contain various covenants that limit our discretion in the operation of our business.

The indentures governing our outstanding notes that we issued in 2013 and the credit agreement governing our senior secured revolving credit facility, contain various provisions that limit our discretion in the operation of our business by restricting our ability to:


▪	undergo a change in control;


▪	sell assets;


▪	pay dividends and make other distributions;


▪	make investments and other restricted payments;


▪	redeem or repurchase our capital stock;


▪	incur additional debt and issue preferred stock;


▪	create liens;


▪	consolidate, merge, or sell substantially all of our assets;


▪	enter into certain transactions with our affiliates;


▪	engage in new lines of business; and


▪	enter into sale and lease-back transactions.

These restrictions on our ability to operate our business at our discretion could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. In addition, our senior secured revolving credit facility requires, among other things, that we maintain a minimum fixed charge coverage ratio of at least 1.0-to-1.0 when availability falls below $50 million or an event of default exists. Events beyond our control could affect our ability to meet this financial test, and we cannot assure you that we will meet it.

Our failure to comply with the covenants contained in our senior secured revolving credit facility or the indentures governing our outstanding notes, including as a result of events beyond our control, could result in an event of default that could cause repayment of the debt to be accelerated.

If we are not able to comply with the covenants and other requirements contained in the indentures governing our outstanding notes, our senior secured revolving credit facility or our other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under our other debt instruments, prohibit us from accessing additional borrowings, and permit the holders of the defaulted debt to declare amounts outstanding with respect to that debt to be immediately due and payable. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments. In addition, we may not be able to refinance or restructure the payments on the applicable debt. Even if we were able to secure additional financing, it may not be available on favorable terms.

Certain provisions of our certificate of incorporation and bylaws and Delaware law may make it difficult for stockholders to change the composition of our Board of Directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.

Certain provisions of our certificate of incorporation and bylaws and Delaware law may have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in the best interests of the company and our stockholders. The provisions in our certificate of incorporation and bylaws include, among other things, the following:


▪	a classified Board of Directors with three-year staggered terms;


▪	the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;


▪	stockholder action can only be taken at a special or regular meeting and not by written consent;


▪	advance notice procedures for nominating candidates to our Board of Directors or presenting matters at stockholder meetings;


▪	removal of directors only for cause;


▪	allowing only our Board of Directors to fill vacancies on our Board of Directors; and


▪	supermajority voting requirements to amend our bylaws and certain provisions of our certificate of incorporation.

While these provisions have the effect of encouraging persons seeking to acquire control of the company to negotiate with our Board of Directors, they could enable the Board of Directors to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. We are also subject to Delaware laws that could have similar effects. One of these laws prohibits us from engaging in a business combination with a significant stockholder unless specific conditions are met.



ITEM 1B.
Unresolved Staff Comments

None.



ITEM 2.
Properties

FACILITIES

We own and operate facilities located throughout the United States. The following table lists each of our facilities and its location, use, and 2015 capacity and production:

USE

LEASED OR OWNED

CAPACITY

PRODUCTION¹

CONSUMER PRODUCTS

Tissue manufacturing facilities:

Ladysmith, Wisconsin

Tissue

Owned

56,000

tons

51,000

tons

Las Vegas, Nevada

TAD tissue

Owned

38,000

tons

35,000

tons

Lewiston, Idaho

Tissue

Owned

185,000

tons

182,000

tons

Neenah, Wisconsin

Tissue

Owned

84,000

tons

80,000

tons

Shelby, North Carolina²

TAD tissue

Owned/Leased

75,000

tons

67,000

tons

438,000

tons

415,000

tons

Tissue converting facilities:

Elwood, Illinois²

Tissue converting

Owned/Leased

76,000

tons

55,000

tons

Las Vegas, Nevada

Tissue converting

Owned

61,000

tons

52,000

tons

Lewiston, Idaho

Tissue converting

Owned

90,000

tons

70,000

tons

Neenah, Wisconsin

Tissue converting

Owned

106,000

tons

63,000

tons

Oklahoma City, Oklahoma²

Tissue converting

Owned/Leased

29,000

tons

22,000

tons

Shelby, North Carolina²

Tissue converting

Owned/Leased

73,000

tons

63,000

tons

435,000

tons

325,000

tons

PULP AND PAPERBOARD

Pulp Mills:

Cypress Bend, Arkansas

Pulp

Owned

316,000

tons

290,000

tons

Lewiston, Idaho

Pulp

Owned

540,000

tons

512,000

tons

856,000

tons

802,000

tons

Bleached Paperboard Mills:

Cypress Bend, Arkansas

Paperboard

Owned

353,000

tons

326,000

tons

Lewiston, Idaho

Paperboard

Owned

465,000

tons

447,000

tons

818,000

tons

773,000

tons

CORPORATE

Alpharetta, Georgia

Operations and administration

Owned/Leased

N/A

Spokane, Washington

Corporate headquarters

Leased

N/A


¹	Production amounts are approximations for full year 2015.


²	The buildings located at these facilities are leased by Clearwater Paper or a subsidiary, and the operating equipment located within the building is owned by Clearwater Paper or a subsidiary.

In addition to the manufacturing facilities listed in this table, we lease a chip shipment facility in Columbia City, Oregon and own a wood chipping facility in Clarkston, Washington.



ITEM 3.
Legal Proceedings

On August 13, 2012, we were notified that the U.S. Environmental Protection Agency, or EPA, submitted a civil referral to the U.S. Department of Justice, or DOJ, alleging violations of the Clean Air Act stemming from an EPA investigation that included an inspection of our Lewiston, Idaho pulp facility in July 2009 and a subsequent information request dated February 24, 2011. We reached an agreement with the DOJ and EPA in connection with this matter and paid a fine in the amount of $0.3 million in the third quarter of 2015.

In addition to the matters discussed above, we may from time to time be involved in claims, proceedings and litigation arising from our business and property ownership. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, results of operations and cash flows.



ITEM 4.
Mine Safety Disclosures

Not applicable.

Part II



ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET FOR OUR COMMON STOCK

Our common stock is traded on the New York Stock Exchange. The following table sets forth, for each period indicated, the high and low sales prices of our common stock during our two most recent years.



	Common Stock Price
	High		Low
Year Ended December 31, 2015:
Fourth Quarter	$	51.79	$	42.63
Third Quarter	59.70		42.64
Second Quarter	67.99		55.93
First Quarter	75.69		58.43
Year Ended December 31, 2014:
Fourth Quarter	$	71.58	$	60.20
Third Quarter	72.94		59.48
Second Quarter	67.20		59.07
First Quarter	68.30		49.88

HOLDERS

On February 17, 2016, the last reported sale price for our common stock on the New York Stock Exchange was $37.49 per share. As of February 17, 2016, there were approximately 910 registered holders of our common stock.

DIVIDENDS

We have not paid any cash dividends and do not anticipate paying a cash dividend in 2016. We will continue to review whether payment of a cash dividend on our common stock in the future best serves the company and our stockholders. The declaration and amount of any dividends, however, would be determined by our Board of Directors and would depend on our earnings, our compliance with the terms of our notes and revolving credit facility that contain certain restrictions on our ability to pay dividends, and any other factors that our Board of Directors believes are relevant.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Please see Part III, Item 12 of this report for information relating to our equity compensation plans.

ISSUER PURCHASES OF EQUITY SECURITIES

On December 15, 2015, we announced that our Board of Directors had approved a 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.

On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. We completed this program in the fourth quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock at an average price of $53.13 per share under this program.

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

The following table provides information about share repurchases that we made during the three months ended December 31, 2015 (in thousands, except share and per share amounts):



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
October 1, 2015 to October 31, 2015	131,113	$	46.97	131,113	$	10
November 1, 2015 to November 30, 2015	—	$	—	—	$	10
December 1, 2015 to December 31, 2015	—	$	—	—	$	10
Total	131,113	$	46.97	131,113



ITEM 6.
Selected Financial Data

All of the data listed below has been derived from our audited financial statements. Our historical financial and other data is not necessarily indicative of our future performance. In addition, all amounts for 2011 forward are reflective of the sale of our Lewiston, Idaho sawmill in November 2011. Amounts for 2014 forward reflect the sale of our specialty business and mills on December 30, 2014.



(In thousands, except net earnings (loss) per share amounts)	2015		2014			2013		2012		2011
Net sales	$	1,752,401	$	1,967,139		$	1,889,830	$	1,874,304	$	1,927,973
Income from operations	123,670		79,811			99,328		145,387		115,445
Net earnings (loss)¹	55,983		(2,315		)	106,955		64,131		39,674
Working capital^2,4	199,010		302,069			374,416		292,047		389,153
Long-term debt, net of current portion⁴	568,987		568,221			640,410		515,570		513,646
Stockholders’ equity	474,866		497,537			605,094		540,894		484,904
Capital expenditures³	134,104		99,600			86,508		207,115		137,743
Property, plant and equipment, net	866,538		810,987			884,698		877,377		735,566
Total assets⁴	1,527,369		1,579,149			1,735,235		1,625,093		1,561,270
Net earnings (loss) per basic common share	$	2.98	$	(0.11	)	$	4.84	$	2.75	$	1.73
Average basic common shares outstanding	18,762		20,130			22,081		23,299		22,914
Net earnings (loss) per diluted common share	$	2.97	$	(0.11	)	$	4.80	$	2.72	$	1.66
Average diluted common shares outstanding	18,820		20,130			22,264		23,614		23,952


¹	Income from operations for the year ended December 31, 2013, includes the reversal of uncertain tax positions. For additional discussion, see Note 8, "Income Taxes," in the notes to the consolidated financial statements.


²	Working capital is defined as our current assets less our current liabilities, as presented on our Consolidated Balance Sheets.


³	Capital expenditures in 2012 and 2011 primarily include expenditures related to our through-air-dried tissue expansion project at our Shelby, North Carolina and Las Vegas, Nevada manufacturing and converting facilities.


⁴	Certain 2011-2014 amounts were reclassified to conform with the 2015 presentation. See Note 3, "Recently Adopted and Prospective Accounting Standards," in the notes to the consolidated financial statements.



ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto that appear elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this report.

Unless the context otherwise requires or unless otherwise indicates, references in this report to “Clearwater Paper Corporation,” “we,” “our,” “the company” and “us” refer to Clearwater Paper Corporation and its subsidiaries.

OVERVIEW

Recent Events

Strategic Capital Projects

As part of our focus on strategic capital spending on projects that we expect to provide a positive return on investments, we announced on September 8, 2015, the construction of a continuous pulp digester project at our Lewiston, Idaho, pulp and paperboard facility. We estimate that the total cost for this pulp optimization project will be approximately $150-$160 million, excluding estimated capitalized interest. We spent $29.3 million on this project in 2015, and expect to spend approximately $60 million in 2016 and the remaining balance thereafter. The project construction began in 2015, and is expected to be completed in the second half of 2017. 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.

Mill Divestitures and Facility Closures

On December 30, 2014, we sold our specialty business and mills to a private buyer for $113.5 million, before related expenses and adjustments. The specialty business and mills sold 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 facilities located at East Hartford, Connecticut; Menominee, Michigan; Gouverneur, New York; St. Catharines, Ontario; and Wiggins, Mississippi. Included in the sale related expenses and adjustments was the impact of certain indemnity and working capital escrow clauses in the sales agreement. These escrowed amounts totaled $3.8 million of restricted cash on our December 31, 2014 Consolidated Balance Sheet. During the second quarter of 2015, the working capital escrow account established in connection with the sale of the specialty business and mills was settled, resulting in the release of $1.5 million from the restricted cash escrow account and the recognition of a corresponding gain recorded in "Gain (loss) on divested assets" within our Consolidated Statement of Operations.

On February 17, 2014, we announced the permanent and immediate closure of our Long Island, New York, tissue converting and distribution facility. As of December 31, 2015, we have incurred $21.3 million of costs associated with the closure and the relocation of related converting lines to other of our converting facilities, of which $2.5 million was incurred in 2015 and was primarily related to a facility lease that expires in 2017.

On March 6, 2013, we announced the permanent closure of our Thomaston, Georgia converting and distribution facility. The shutdown occurred gradually as converting lines were relocated and installed at our other facilities, with all operations at Thomaston ceasing at the end of 2013 and the closure being finalized in 2014. We incurred a total of $7.2 million of costs in 2013 and 2014 associated with this closure.

Capital Allocation

On December 15, 2014, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. We completed this program during the fourth quarter of 2015. In total, we repurchased 1,881,921 shares of our outstanding common stock at an average price of $53.13 per share under this program.

On 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.

Business

We are a leading producer of private label tissue and premium bleached paperboard products. Our products are primarily wood pulp based and manufactured in the U.S.

Our business is organized into two reporting segments:

•

Our Consumer Products segment manufactures and sells a complete line of at-home tissue products in each tissue category, including bathroom tissue, paper towels, napkins and facial tissue. We also manufacture away-from-home tissue, or AFH, and parent rolls for external sales. Our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our consumer products customers. In 2015, our Consumer Products segment had net sales of $959.9 million, representing approximately 55% of our total net sales.

•

Our Pulp and Paperboard segment manufactures and markets bleached paperboard for the high-end segment of the packaging industry and is a leading producer of solid bleach sulfate paperboard. This segment also produces hardwood and softwood pulp, which is primarily used as the basis for our paperboard products, and slush pulp, which it supplies to our Consumer Products segment. In 2015, our Pulp and Paperboard segment had net sales of $792.5 million, representing approximately 45% of our total net sales.

Developments and Trends in our Business

Net Sales

Prices for our consumer tissue products are affected by competitive conditions and the prices of branded tissue products. Tissue has historically been one of the strongest segments of the paper and forest products industry due to its steady demand growth. In recent years, the industry has seen an increase in TAD tissue products as industry participants have added or improved TAD production capacity. Our Consumer Products segment competes based on product quality, customer service and price. We deliver customer-focused business solutions by assisting in managing product assortment, category management, and pricing and promotion optimization.

Our pulp and paperboard business is affected by macro-economic conditions around the world and has historically experienced cyclical market conditions. As a result, historical prices for our products and sales volumes have been volatile. Product pricing is significantly affected by the relationship between supply and demand for our products. Product supply in the industry is influenced primarily by fluctuations in available manufacturing production, which tends to increase during periods when prices remain strong. In addition, currency exchange rates affect U.S. supplies of paperboard, as non-U.S. manufacturers are attracted to the U.S. market when the dollar is relatively strong. Paperboard pricing decreased in 2015 compared to 2014.

The markets for our products are highly competitive. Our business is capital intensive, which leads to high fixed costs and large capital outlays and generally results in continued production as long as prices are sufficient to cover variable costs. These conditions have contributed to substantial price competition, particularly during periods of reduced demand. Some of our competitors have lower production costs and greater buying power and, as a result, may be less adversely affected than we are by price decreases.

Net sales consist of sales of consumer tissue and paperboard, net of discounts, returns and allowances and any sales taxes collected.

Operating Costs

Prices for our principal operating cost items are variable and directly affect our results of operations. For example, as economic conditions improve, we normally would expect at least some upward pressure on these operating costs. Competitive market conditions can limit our ability to pass cost increases through to our customers.



	Years Ended December 31,
	2015				2014 ³				2013³
(Dollars in thousands)	Cost		Percentage of Cost of Sales		Cost		Percentage of Cost of Sales		Cost		Percentage of Cost of Sales
Purchased pulp	$	186,065	12.3	%	$	295,889	17.3	%	$	294,911	17.6	%
Transportation¹	184,824		12.2		191,774		11.2		180,188		10.8
Chemicals	179,812		11.9		206,054		12.1		191,473		11.5
Chips, sawdust and logs	147,498		9.7		151,331		8.9		139,456		8.3
Energy	105,984		7.0		139,756		8.2		126,687		7.6
Maintenance and repairs²	90,709		6.0		84,309		4.9		97,006		5.8
Packaging supplies	90,696		6.0		103,769		6.1		103,286		6.2
Depreciation	76,379		5.0		80,094		4.6		80,758		4.8
	$	1,061,967	70.1	%	$	1,252,976	73.3	%	$	1,213,765	72.6	%


¹	Includes internal and external transportation costs.


²	Excluding related labor costs.


³	Results include the specialty business and mills, which were sold in December 2014.

Purchased pulp. We purchase a significant amount of the pulp needed to manufacture our consumer products, and to a lesser extent our paperboard, from external suppliers. For 2015, total purchased pulp costs decreased by $109.8 million, compared to 2014, as a direct result of the sale of our former specialty business and mills in December 2014. Excluding pulp costs associated with the specialty business and mills, purchased pulp costs increased $3.1 million during 2015. The increase for 2015 was primarily due to an increase in pulp purchased during the first half of 2015 resulting from the scheduled major maintenance outages taken at our Idaho and Arkansas pulp and paperboard facilities. This increase was partially offset by favorable external pulp pricing and a higher utilization of internally sourced pulp compared to 2014.

Transportation. Fuel prices, mileage driven and line-haul rates largely impact transportation costs for the delivery of raw materials to our manufacturing facilities, internal inventory transfers and delivery of our finished products to customers. Changing fuel prices particularly affect our margins for consumer products because we supply customers throughout the U.S. and transport unconverted parent rolls from our tissue mills to our tissue converting facilities. Our transportation costs for 2015 decreased $7.0 million compared to 2014 primarily due to the sale of our specialty business and mills, as discussed above. Excluding transportation costs associated with the specialty business and mills, transportation costs during 2015 were slightly lower compared to 2014. In the first quarter of 2015, we improved inventory levels and implemented network optimization measures, which resulted in fewer internal transfers and miles per shipment and lower overall transportation costs. In addition, milder weather conditions in 2015 favorably affected transportation costs as extreme cold weather conditions in the Midwest and Northeast negatively affected carrier costs in the first quarter of 2014 by limiting vendor availability. These improvements more than offset higher line-haul rates and increases in carrier costs during 2015 primarily attributable to tighter carrier supply.

Chemicals. We consume a substantial amount of chemicals in the production of pulp and paperboard, as well as in the production of TAD tissue. The chemicals we use include polyethylene, caustic, starch, sodium chlorate, latex and paper processing chemicals. A portion of the chemicals used in our manufacturing processes, particularly in the paperboard extrusion process, are petroleum-based and are impacted by petroleum prices.

Our chemical costs decreased $26.2 million during 2015, primarily due to lower usage resulting from the sale of our specialty business and mills. Excluding chemical costs associated with the specialty mills, chemical costs for 2015 decreased $9.9 million compared to 2014. This favorable comparison was primarily due to decreased pricing for polyethylene and other paper making chemicals, as well as lower consumption for the year due to the scheduled major maintenance downtime at our pulp and paperboard facilities in the first half of 2015. In addition, the comparable 2014 period had higher chemical costs due to operational issues at our Arkansas pulp and paperboard facility that caused both the pulp mill and paper machine to consume elevated levels of chemicals.

Chips, sawdust and logs. We purchase chips, sawdust and logs that we use to manufacture pulp. We source residual wood fibers under both long-term and short-term supply agreements, as well as in the spot market. Overall costs decreased by $3.8 million for chips, sawdust and logs for 2015 compared to 2014. The decreases were due to lower pulp and paperboard production as a result of major maintenance activities in 2015 that did not occur in 2014.

Energy. We use energy in the form of electricity, hog fuel, steam and natural gas to operate our mills. Energy prices have fluctuated widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates. We generally strive to reduce our exposure to volatile energy prices through conservation. In addition, a cogeneration facility that produces steam and electricity at our Lewiston, Idaho manufacturing site helps to lower our energy costs. TAD tissue production involves increased natural gas usage compared to conventional tissue manufacturing and, as a result, our natural gas requirements have increased in connection with the increase of production from our North Carolina TAD paper machine.

Energy costs for 2015 were $33.8 million lower than those for 2014 due largely to lower usage resulting from the sale of our specialty business and mills. Excluding costs associated with the specialty mills, energy costs decreased $8.4 million during 2015. The decrease for the year was primarily the result of lower natural gas pricing and lower usage at many of our facilities due primarily to the absence of the extremely cold weather conditions in the Midwest and Northeast that occurred in 2014, as well as the absence of operational issues at our Arkansas facility that occurred during 2014.

To help mitigate our exposure to changes in natural gas prices, we use firm-price contracts to supply a portion of our natural gas requirements. As of December 31, 2015, these contracts covered approximately 44% of our expected average monthly natural gas requirements for 2016, which includes approximately 59% of the expected average monthly requirements for the first quarter. Our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally, on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation.

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 months 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 first quarter of 2015, we had eleven days of paper machine downtime at our Idaho facility at a cost of approximately $15 million. During the second quarter of 2015, we had four days of paper machine downtime at our Arkansas facility at a cost of approximately $7 million. We did not have any major maintenance outages during the third and fourth quarters of 2015, nor did we have any major maintenance outages during 2014. We expect our 2016 planned major maintenance costs to be approximately $15 million at our Idaho facility during the third quarter of 2016. This planned major maintenance is expected to result in five days of paper machine downtime.

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. For example, in 2015 we initiated a strategic capital spending project at our Lewiston, Idaho pulp and paperboard facility with an estimated $150-$160 million cost, excluding capitalized interest. During 2015, excluding capitalized interest, we spent $133.7 million on capital expenditures, which includes $73.2 million of strategic capital spending on projects designed to reduce future manufacturing costs and provide a positive return on investment. During 2014, we spent $99.6 million on capital expenditures. We expect our total estimated capital expenditures to be approximately $155 million in 2016.

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 2015, packaging costs decreased $13.1 million compared to 2014 due largely to lower production resulting from the sale of our specialty business and mills. Excluding packaging costs associated with the specialty mills, packaging costs for 2015 decreased $8.8 million compared to 2014 due to lower case sales and favorable pricing for packaging supplies.

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 2015 decreased $3.7 million, compared to 2014, primarily as a result of the sale of our specialty business and mills, partially offset by increased depreciation related to capital spending during recent periods.

Other. Other costs not included in the above table primarily consist of wage and benefit expenses and miscellaneous operating costs. Although period cut-offs can impact cost of sales amounts, we would expect this impact to be relatively steady as a percentage of costs on a period-over-period basis. We experienced lower benefit expenses in 2015, compared to 2014, due to the sale of our specialty business and mills and the closure of our Long Island facility, partially offset by costs associated with a new collective bargaining agreement at our consumer products and pulp and paperboard facilities in Lewiston, Idaho.

Selling, general and administrative expenses

Selling, general and administrative expenses primarily consist of compensation and associated costs for sales and administrative personnel, as well as commission expenses related to sales of our products. Our total selling, general and administrative expenses were $117.1 million in 2015, compared to $130.1 million in 2014. The lower expense was primarily a result of a $4.1 million mark-to-market benefit in 2015 related to our directors' common stock units, which will ultimately be settled in cash, compared to $4.6 million of mark-to-market expense in 2014, and reduced headcount and administrative costs related to the sale of the specialty business and mills and the closure of our Long Island facility. These were partially offset by $2.0 million of non-routine legal expenses and settlement costs, including those related to a dispute involving one of our closed facilities, as well as $1.4 million of reorganization related expenses.

Interest expense

Interest expense is primarily comprised of interest on our 2013 Notes and 2014 Notes and short-term borrowings from our revolving credit facility. In 2014, we also incurred interest expense through a portion of the third quarter on our 2010 notes that were paid off in that quarter. Interest expense also includes amortization of deferred issuance costs associated with all of our notes and our revolving credit facility. As a result of the issuance of the 2014 Notes at an interest rate lower than that of our 2010 Notes, interest expense was lower in 2015 than 2014.

Income taxes

Income taxes are based on reported earnings and tax rates in jurisdictions in which our operations occur and offices are located, adjusted for available credits, changes in valuation allowances and differences in reported earnings and taxable income using current law and enacted tax rates.

The following table details our tax provision and effective tax rates for the years ended December 31, 2015, 2014 and 2013:



(Dollars in thousands)	2015			2014			2013
Income tax provision (benefit)	$	36,505		$	18,556		$	(68,721	)
Effective tax rate	39.5		%	114.3		%	(179.7		)%

Our provision for income taxes for 2014 was unfavorably impacted primarily by a non-recurring tax provision of 65.0% related to losses on divested assets recorded in our Consolidated Statement of Operations that did not have a corresponding tax benefit. Additionally, the rate was unfavorably impacted by changes in valuation allowances of 14.4%. In 2013, our provision for income taxes was favorably impacted primarily by non-recurring tax benefits of 180.9% related to the release of an uncertain tax position and 32.7% related to federal credits and net operating losses.

The estimated annual effective tax rate for 2016 is expected to be approximately 37%.

RESULTS OF OPERATIONS

Our business is organized into two reporting segments: Consumer Products and Pulp and Paperboard. Intersegment costs for pulp transferred from our Pulp and Paperboard segment to our Consumer Products segment are recorded at cost, and thus no intersegment sales or cost of sales for these transfers are included in our segments' results. Our financial and other data are not necessarily indicative of our future performance.

YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014

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



	Years Ended December 31,
(Dollars in thousands)	2015					2014
Net sales	$	1,752,401		100.0	%	$	1,967,139		100.0	%
Costs and expenses:
Cost of sales	(1,512,849		)	86.3		(1,708,840		)	86.9
Selling, general and administrative expenses	(117,149		)	6.7		(130,102		)	6.6
Gain (loss) on divested assets	1,267			0.1		(40,159		)	2.0
Impairment of assets	—			—		(8,227		)	0.4
Total operating costs and expenses	(1,628,731		)	92.9		(1,887,328		)	95.9
Income from operations	123,670			7.1		79,811			4.1
Interest expense, net	(31,182		)	1.8		(39,150		)	2.0
Debt retirement costs	—			—		(24,420		)	1.2
Earnings before income taxes	92,488			5.3		16,241			0.8
Income tax provision	(36,505		)	2.1		(18,556		)	0.9
Net earnings (loss)	$	55,983		3.2	%	$	(2,315	)	0.1	%

Net sales—Net sales for 2015 decreased by $214.7 million, or 10.9%, compared to 2014, primarily due to a decline in non-retail tissue shipments as a result of the sale of our specialty business and mills in December 2014, as well as decreases in tissue converted product cases sold and lower pricing for commodity grade paperboard. These items are discussed below under “Discussion of Business Segments.”

Cost of sales—Cost of sales was 86.3% of net sales for 2015 and 86.9% of net sales for 2014. Our overall cost of sales was 11.5% lower compared to 2014 primarily due to the absence of operating costs in 2015 associated with our former specialty business and mills, incremental costs in the same period of 2014 associated with the extreme cold weather conditions in the Midwest and Northeast and operational issues at our Arkansas pulp and paperboard facility. In addition, cost of sales for 2014 included $14.8 million of costs related to the closure of our Thomaston, Georgia and Long Island, New York facilities, compared to $2.5 million of Long Island closure costs in 2015. These favorable comparisons were partially offset by approximately $22 million of planned major maintenance costs that were incurred at our pulp and paperboard facilities in 2015.

Selling, general and administrative expenses—Selling, general and administrative expenses decreased $13.0 million during 2015 compared to 2014, due primarily to a $4.1 million mark-to-market benefit in 2015, compared to $4.6 million of mark-to-market expense in 2014, related to our directors' common stock units, which will ultimately be settled in cash, as well as reduced headcount and administrative costs related to the sale of the specialty business and mills and the closure of our Long Island facility. These were partially offset by $2.0 million of non-routine legal expenses and settlement costs, including those related to a dispute involving one of our closed facilities, as well as $1.4 million of reorganization related expenses.

Gain (loss) on divested assets— During 2015, we recognized a $1.3 million gain primarily related to the release of restricted cash balances pertaining to the settlement of a working capital escrow account established in connection with the December 30, 2014 sale of our specialty business and mills. We received approximately $108 million of net proceeds in 2014 from the sale of the mills. In total, $40.2 million was recorded as a loss on divested assets in 2014, which included losses on $105.7 million of net assets sold, write-offs of $20.4 million and $4.9 million, respectively, of goodwill and intangible assets associated with the specialty business and mills, and other expenses related to the sale, net of proceeds received.

Impairment of assets—During 2014, as a result of the permanent closure of our Long Island facility, we assessed both our intangible and long-lived assets for recoverability. As a result of this assessment, we recorded non-cash impairment

losses during 2014 for intangible and long-lived assets in the amounts of $5.1 million. In addition, we determined during the fourth quarter of 2014 that a customer relationship intangible asset associated with the Pulp and Paperboard segment's wood chipping facility was fully impaired, and as a result we recorded an additional $3.1 million non-cash impairment loss.

Interest expense—Interest expense decreased $8.0 million during 2015, compared to 2014. The decrease was largely attributable to reduced interest rates on our debt as a result of the third quarter 2014 redemption of the 2010 Notes and the issuance of the lower interest bearing 2014 Notes.

Debt retirement costs—Debt retirement costs for 2014 consist of a one-time $24.4 million charge in connection with the redemption of the 2010 Notes on August 28, 2014. These costs were comprised of cash charges of $19.8 million, which consisted of a "make-whole" premium of $17.6 million plus unpaid interest of $2.2 million, and a non-cash charge of $4.6 million related to the write-off of deferred issuance costs.

Income tax provision—We recorded an income tax provision of $36.5 million in 2015, compared to $18.6 million in 2014. The effective tax rate determined under generally accepted accounting principles, or GAAP, for 2015 was approximately 39.5%, compared to 114.3% for 2014. The higher rate in 2014 was primarily the result of adjustments for losses on divested assets. During 2015 and 2014, there were a number of items that were included in the calculation of our income tax provision that we do not believe were indicative of our core operating performance. Excluding these items, the adjusted tax rate for 2015 would have been approximately 38%, compared to approximately 36% in 2014. The following table details these items:



Non-GAAP Adjusted Income Tax Provision	Years Ended December 31,
(In thousands)	2015			2014
Income tax (provision) benefit	$	(36,505	)	$	(18,556	)
Special items, tax impact:
Debt retirement costs	—			(8,643		)
Costs associated with Long Island facility closure	(780		)	(6,677		)
Gain (loss) associated with optimization and sale of the specialty mills	395			(3,774		)
Directors' equity-based compensation benefit (expense)	1,288			(1,625		)
Loss on impairment of Clearwater Fiber intangible asset	—			(1,054		)
Discrete tax item related to state tax rate changes	—			1,388
Costs associated with Thomaston facility closure	—			(448		)
Discrete tax items related to foreign tax credits	1,309			—
Legal expenses and settlement costs	(626		)	—
Costs associated with labor agreement	(533		)	—
Reorganization related expenses	(470		)	—
Adjusted income tax provision	$	(35,922	)	$	(39,389	)

DISCUSSION OF BUSINESS SEGMENTS

Consumer Products



	Years Ended December 31,
(Dollars in thousands - except per ton amounts)	2015			2014
Net sales	$	959,894		$	1,183,385
Operating income (loss)	55,704			(6,028		)
Percent of net sales	5.8		%	(0.5		)%

Shipments (short tons)
Non-retail	90,178			233,943
Retail	292,438			293,907
Total tissue tons	382,616			527,850
Converted products cases (in thousands)	52,149			55,501

Sales price (per short ton)
Non-retail	$	1,469		$	1,504
Retail	2,825			2,822
Total tissue	$	2,505		$	2,238

Net sales for our Consumer Products segment decreased by $223.5 million, or 18.9%, in 2015 compared to 2014, due to a decline in non-retail shipments resulting from the sale of our specialty business and mills. The segment's net sales were also lower due to a decrease of 2.3% in non-retail average net selling prices.

The segment reported $55.7 million in operating income for 2015, compared to an operating loss of $6.0 million in 2014. The increase was primarily driven by a $40.2 million loss on the sale of our specialty business and mills in 2014. In addition, the segment incurred $2.5 million of costs related to the closure of our Long Island facility during 2015, compared to $20.1 million of costs related to the closure of our Thomaston and Long Island facilities incurred during the same period of 2014. Operating costs for 2014 also included incremental costs associated with the extreme cold weather conditions in the Midwest and Northeast. The favorable comparisons in 2015 were partially offset by slightly higher purchased pulp and the absence of income generated by our specialty business and mills.

Pulp and Paperboard



	Years Ended December 31,
(Dollars in thousands - except per ton amounts)	2015			2014
Net sales	$	792,507		$	783,754
Operating income	120,861			144,171
Percent of net sales	15.3		%	18.4		%

Paperboard shipments (short tons)	796,733			774,665
Paperboard sales price (per short ton)	$	990		$	1,009

Net sales for our Pulp and Paperboard segment increased by $8.8 million for 2015 compared to 2014. This increase was primarily attributable to a 2.8% increase in shipments, partially offset by a 1.9% decrease in average net selling prices.

Operating income for the segment decreased $23.3 million, or 16.2%, during 2015 compared to 2014, primarily due to approximately $22 million in planned major maintenance costs incurred at our Idaho and Arkansas facilities during the first half of 2015. These unfavorable comparisons were partially offset by lower chemical consumption related to the resolution of operational issues at our Arkansas facility experienced during 2014 and lower energy costs due primarily to favorable natural gas pricing throughout the segment.

YEAR ENDED DECEMBER 31, 2014 COMPARED TO YEAR ENDED DECEMBER 31, 2013

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



	Years Ended December 31,
(Dollars in thousands)	2014					2013
Net sales	$	1,967,139		100.0	%	$	1,889,830		100.0	%
Costs and expenses:
Cost of sales	(1,708,840		)	86.9		(1,671,371		)	88.4
Selling, general and administrative expenses	(130,102		)	6.6		(119,131		)	6.3
Loss on divested assets	(40,159		)	2.0		—			—
Impairment of assets	(8,227		)	0.4		—			—
Total operating costs and expenses	(1,887,328		)	95.9		(1,790,502		)	94.7
Income from operations	79,811			4.1		99,328			5.3
Interest expense, net	(39,150		)	2.0		(44,036		)	2.3
Debt retirement costs	(24,420		)	1.2		(17,058		)	0.9
Earnings before income taxes	16,241			0.8		38,234			2.0
Income tax (provision) benefit	(18,556		)	0.9		68,721			3.6
Net (loss) earnings	$	(2,315	)	0.1	%	$	106,955		5.7	%

Net sales—Net sales for 2014 increased by $77.3 million, or 4.1%, compared to 2013, due primarily to higher average net selling prices and shipments for paperboard, increased sales of higher priced TAD tissue products and increased average net selling prices and shipments for non-retail tissue. These items are discussed below under “Discussion of Business Segments.”

Cost of sales—Cost of sales was 86.9% of net sales for 2014 and 88.4% of net sales for 2013. The decrease as a percentage of net sales was primarily a result of higher net sales, including sales of higher margin products, during 2014. Our overall cost of sales during 2014 increased $37.5 million, or 2.2%, when compared to 2013, due primarily to $14.8 million of costs recorded in 2014 related to the closure of our Thomaston and Long Island facilities, compared to $6.0 million of costs related to the closure of our Thomaston facility in 2013, higher incremental costs in 2014 associated with the extreme cold weather conditions in the Midwest and Northeast during the first quarter, and higher costs related to operational issues during 2014 at our Arkansas pulp and paperboard facility. These unfavorable comparisons were partially offset by the absence of $22.5 million of total major maintenance costs that were incurred at our pulp and paperboard facilities in 2013.

Selling, general and administrative expenses—Selling, general and administrative expenses increased $11.0 million during 2014 compared to 2013, primarily due to higher information technology systems and incentive-based compensation expenses in 2014.

Loss on divested assets—Due to the sale of our specialty business and mills in 2014, $40.2 million was recorded as a loss on divested assets. This included losses on $105.7 million of net assets sold, write-offs of $20.4 million and $4.9 million, respectively, of goodwill and intangible assets associated with the specialty business and mills, and other expenses related to the sale, net of proceeds received.

Impairment of assets—During 2014, as a result of the permanent closure of our Long Island facility, based on our recoverability assessment, we recorded non-cash impairment losses totaling $5.1 million for intangible and long-lived assets. In addition, we determined during the fourth quarter of 2014 that a customer relationship intangible asset associated with the Pulp and Paperboard segment's wood chipping facility was fully impaired, and as a result we recorded an additional $3.1 million non-cash impairment loss.

Interest expense—Interest expense decreased $4.9 million during 2014, compared to 2013. The decrease was primarily attributable to reduced interest rates on our debt as a result of the third quarter 2014 refinancing of the 2010 Notes and the issuance of the lower interest bearing 2014 Notes, partially offset by short-term borrowings from our credit facility.

Debt retirement costs—Debt retirement costs for 2014 consist of the one-time $24.4 million charge in connection with the redemption of the 2010 Notes on August 28, 2014. These costs were comprised of cash charges of $19.8 million, which consisted of a "make-whole" premium of $17.6 million plus unpaid interest of $2.2 million, and a non-cash charge of $4.6 million related to the write-off of deferred issuance costs. Debt retirement costs of $17.1 million for 2013 include a one-time charge in connection with the redemption of the 2009 Notes on February 22, 2013, consisting of an approximate $14 million “make whole” premium plus accrued and unpaid interest and a non-cash charge of approximately $3 million related to the write-off of deferred issuance costs and unamortized discounts.

Income tax provision—We recorded an income tax provision of $18.6 million in 2014, compared to a benefit of $68.7 million in 2013. The effective tax rate determined under GAAP for 2014 was a provision of 114.3%, compared to a benefit of 179.7% for 2013. The increase in the rate in 2014 was primarily the result of adjustments for losses on divested assets. The lower rate in 2013 was the result of the net impact of reporting discrete items, primarily relating to an additional benefit realized from a release of uncertain tax positions. During 2014 and 2013, there were a number of items that were included in the calculation of our income tax provision that we do not believe were indicative of our core operating performance. Excluding these items, the adjusted tax rate for 2014 would have been approximately 36%, compared to an adjusted approximately 33% in 2013. The following table details these items:



Non-GAAP Adjusted Income Tax Provision	Years Ended December 31,
(In thousands)	2014			2013
Income tax (provision) benefit	$	(18,556	)	$	68,721
Special items, tax impact:
Debt retirement costs	(8,643		)	(6,277		)
Costs associated with Long Island facility closure	(6,677		)	—
Loss associated with optimization and sale of the specialty mills	(3,774		)	—
Directors' equity-based compensation expense	(1,625		)	(1,399		)
Loss on impairment of Clearwater Fiber intangible asset	(1,054		)	—
Discrete tax item related to state tax rate changes	1,388			—
Costs associated with Thomaston facility closure	(448		)	(2,033		)
Discrete tax items related to settlement of uncertain tax positions	—			(67,457		)
Discrete tax items related to tax credit conversions	—			(9,832		)
Discrete tax items related to additional Cellulosic Biofuel Producer Credits	—			(3,495		)
Adjusted income tax provision	$	(39,389	)	$	(21,772	)

DISCUSSION OF BUSINESS SEGMENTS

Consumer Products



	Years Ended December 31,
(Dollars in thousands - except per ton amounts)	2014			2013
Net sales	$	1,183,385		$	1,149,692
Operating (loss) income	(6,028		)	52,799
Percent of net sales	(0.5		)%	4.6		%

Shipments (short tons)
Non-retail	233,943			231,243
Retail	293,907			295,529
Total tissue tons	527,850			526,772
Converted products cases (in thousands)	55,501			55,135

Sales price (per short ton)
Non-retail	$	1,504		$	1,470
Retail	2,822			2,740
Total tissue	$	2,238		$	2,183

Net sales for our Consumer Products segment increased by $33.7 million, or 2.9%, for 2014, compared to 2013. The higher net sales were due to increases of 3.0% and 2.3%, respectively, in retail and non-retail average net selling prices, as well as an increase in non-retail tissue shipments. The higher average net selling prices for retail tissue were driven primarily by increased sales of higher-priced TAD tissue products. These increases were partially offset by a decrease in conventional tissue shipments and lower pricing for conventional retail tissue.

The segment reported a $6.0 million operating loss for 2014, compared to operating income of $52.8 million in 2013. The decline was primarily driven by a $40.2 million loss on the sale of our specialty business and mills. In addition, the segment's operating income was impacted by $20.1 million of costs related to the closure of our Thomaston and Long Island facilities, compared to $6.0 million of costs related to the closure of our Thomaston facility in 2013, as well as other incremental costs associated with extreme cold weather conditions in the Midwest and Northeast during the first quarter of 2014, which negatively impacted our energy and transportation costs. These impacts were partially offset by lower depreciation and wage and benefit expenses due to the facility closures.

Pulp and Paperboard



	Years Ended December 31,
(Dollars in thousands - except per ton amounts)	2014			2013
Net sales	$	783,754		$	740,138
Operating income	144,171			95,781
Percent of net sales	18.4		%	12.9		%

Paperboard shipments (short tons)	774,665			765,052
Paperboard sales price (per short ton)	$	1,009		$	958

Net sales for our Pulp and Paperboard segment increased by $43.6 million, or 5.9%, for 2014, compared to 2013. This increase was primarily attributable to a 5.3% increase in average net selling prices for paperboard due to increased demand resulting from positive market conditions and an improved sales mix. In addition, paperboard shipments increased 1.3%, as a result of higher market demand and backlogs during 2014.

Operating income for the segment increased $48.4 million, or 50.5%, during 2014 compared to 2013, primarily due to the improved paperboard pricing and volume, the absence of $22.5 million of major maintenance costs incurred in the 2013 period and lower overall benefit expenses. These improvements were partially offset by increased energy and transportation costs associated with extreme cold weather conditions in the Midwest and Northeast during the first quarter of 2014, as well as operational issues at our Arkansas facility that caused elevated levels of energy and chemicals and lower throughputs.

EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (EBITDA) AND ADJUSTED EBITDA

We use earnings before interest (including debt retirement costs), tax, depreciation and amortization, or EBITDA, and EBITDA adjusted for certain items, or Adjusted EBITDA, as supplemental performance measures that are not required by, or presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives to net earnings, operating income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flows from operating activities or a measure of our liquidity or profitability. In addition, our calculation of EBITDA and Adjusted EBITDA may or may not be comparable to similarly titled measures used by other companies.

EBITDA and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation, or as a substitute for any of our results as reported under GAAP. Some of these limitations are:


▪	EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital assets;


▪	EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;


▪	EBITDA and Adjusted EBITDA do not include cash pension payments;


▪	EBITDA and Adjusted EBITDA exclude certain tax payments that may represent a reduction in cash available to us;


▪	EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;


▪	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and


▪	other companies, including other companies in our industry, may calculate these measures differently than we do, limiting their usefulness as a comparative measure.

We present EBITDA, Adjusted EBITDA and Adjusted income tax provisions because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use EBITDA and Adjusted EBITDA: (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit agreement and the indentures governing the 2013 Notes and 2014 Notes use metrics similar to EBITDA to measure our compliance with certain covenants.

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



	Years Ended December 31,
(In thousands)	2015			2014			2013
Net earnings (loss)	$	55,983		$	(2,315	)	$	106,955
Interest expense, net ¹	31,182			63,570			61,094
Income tax provision (benefit)	36,505			18,556			(68,721		)
Depreciation and amortization expense	84,732			90,145			90,272
EBITDA	$	208,402		$	169,956		$	189,600
Directors' equity-based compensation (benefit) expense	(4,073		)	4,606			4,084
Legal expenses and settlement costs	1,972			—			—
Reorganization related expenses	1,470			—			—
Costs associated with Long Island facility closure	2,463			18,813			—
(Gain) loss associated with optimization and sale of the specialty mills	(1,267		)	40,801			—
Costs associated with labor agreement	1,730			—			—
Loss on impairment of Clearwater Fiber intangible asset	—			3,078			—
Costs associated with Thomaston facility closure	—			1,257			5,977
Adjusted EBITDA	$	210,697		$	238,511		$	199,661


¹	Interest expense, net for the years ended December 31, 2014 and 2013 includes debt retirement costs of $24.4 million and $17.1 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents information regarding our cash flows for the years ended December 31, 2015, 2014 and 2013.

Cash Flows Summary



	Years Ended December 31,
(In thousands)	2015			2014			2013
Net cash flows from operating activities	$	159,675		$	139,100		$	136,357
Net cash flows from investing activities	(78,548		)	35,687			(140,593		)
Net cash flows from financing activities	(102,848		)	(171,131		)	15,332

Operating Activities—Net cash flows from operating activities for 2015 increased by $20.6 million compared to 2014. The increase in operating cash flows was largely due to a $27.1 million increase in cash flows generated from working capital and a $13.8 million decrease in contributions to our qualified pension plans compared to 2014, partially offset by a net $13.6 million increase in taxes receivable in 2015 compared to $9.2 million of cash from taxes receivable in 2014. The cash flows generated from working capital were primarily the result of a decrease in inventories and higher accounts payable and accrued liabilities, partially offset by higher accounts receivable, and prepaid expense balances in 2015 compared to 2014.

Net cash flows from operating activities for 2014 increased by $2.7 million compared to 2013. The slight improvement was largely due to higher earnings, after adjusting for noncash related items, which increased $5.9 million compared to 2013, as well as a $2.8 million decrease in cash flows used for working capital. The decrease in cash flows used for working capital were driven primarily by a year-end increase in inventories beyond our normal cyclical amounts, which resulted from labor slowdowns at West Coast shipping ports, partially offset by a decrease in accounts receivable due primarily to the timing of sales collections, and slightly higher accounts payable and accrued liabilities driven by process improvements to our capital management. These improvements were partially offset by a $1.9 million increase in contributions to our qualified pension plans in 2014 compared to 2013.

Investing Activities—Net cash flows from investing activities decreased $114.2 million in 2015, compared to 2014. The decrease in cash flows from investing activities was largely due to $107.7 million of net cash proceeds received in 2014 from divested assets, which related to the sale of our specialty business and mills. In addition, cash spent for plant and equipment increased $35.9 million compared to 2014. These decreases were partially offset by a $29.8 million increase in cash provided by the conversion of short-term investments into cash during 2015 compared to 2014.

Net cash flows from investing activities increased $176.3 million in 2014, compared to 2013. The primary increase in cash flows from investing activities was largely due to the $107.7 million of net cash proceeds from divested assets. Investing cash flows also increased due to $20.0 million of cash provided by the conversion of short-term investments into cash during 2014, as compared to $50.0 million of cash converted into short-term investments in 2013. Cash spent for plant and equipment was $93.0 million in 2014, compared to $90.6 million in 2013.

Financing Activities—Net cash flows used for financing activities were $102.8 million for 2015, and were largely driven by the completion of our 2015 $100 million stock repurchase program.

Net cash flows used for financing activities were $171.1 million for 2014, and were largely driven by the completion of our 2014 $100 million stock repurchase program, as well as a $75.0 million decrease in long-term debt associated with the issuance of the 2014 Notes and retirement of the 2010 Notes.

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, cash on hand, short-term investments and available borrowing capacity under our credit facility will be adequate to fund debt service requirements and provide cash required to support our ongoing operations, capital expenditures, stock repurchase program and working capital needs for the next twelve months.

We may choose to refinance all or a portion of our indebtedness on or before maturity. We cannot be certain that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. As of December 31, 2015, our short-term investments were not restricted and were largely invested in demand deposits.

At December 31, 2015 and 2014, our financial position included gross debt of $575.0 million. Stockholders’ equity at December 31, 2015 was $474.9 million, compared to the December 31, 2014 balance of $497.5 million. Our total debt

to total capitalization, excluding accumulated other comprehensive loss, was 52.0% at December 31, 2015, compared to 50.3% at December 31, 2014.

Debt Arrangements

$300 Million Senior Notes Due 2025

On July 29, 2014, we issued the 2014 Notes, which mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face value. The issuance of these notes generated net proceeds of approximately $298 million after deducting offering expenses. We redeemed all of our 2010 Notes using the net proceeds from the 2014 Notes along with company funds and a draw from our senior secured revolving credit facility during the third quarter of 2014.

The 2010 Notes had a maturity date of November 1, 2018, and an interest rate of 7.125%. On August 28, 2014, we redeemed all of the 2010 Notes at a redemption price equal to 100% of the principal amount of $375 million and a “make whole” premium of $17.6 million plus accrued and unpaid interest of $8.7 million, for an aggregate amount of $401.3 million.

The 2014 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2014 Notes will also be guaranteed by each of our future direct and indirect domestic subsidiaries that do not constitute an immaterial subsidiary under the indenture governing the 2014 Notes. The 2014 Notes are equal in right of payment with all other existing and future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. The 2014 Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit 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.

We may, on any one or more occasions, redeem all or a part of the 2014 Notes, upon not less than 30 days nor more than 60 days notice, at a redemption price equal to 100% of the principal amount of the 2014 Notes redeemed, plus the applicable premium as of, and accrued and unpaid interest, if any, to the date of redemption. Unless we default in the payment of the redemption price, interest will cease to accrue on the 2014 Notes or portions thereof called for redemption on the applicable redemption date. In addition, we may be required to make an offer to purchase the 2014 Notes upon the sale of certain assets and upon a change of control.

Our 2016 expected debt service obligation related to the 2014 Notes, consisting of cash payments for interest, is $16.1 million.

$275 Million Senior Notes Due 2023

In June 2009, we issued the 2009 Notes, in the aggregate principal amount of $150 million. The 2009 Notes, which were due on June 15, 2016 and had an interest rate of 10.625%, were issued at a price equal to 98.792% of their face value.

On February 22, 2013, we exercised our option to redeem all of the 2009 Notes at a redemption price equal to approximately $166 million, which consisted of 100% of the principal amount, plus an approximate $13 million “make whole” premium and accrued and unpaid interest of approximately $3 million. Proceeds to fund the redemption of our 2009 Notes were made available through the sale of 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 our existing and future direct and indirect domestic subsidiaries, are equal in right of payment with all other existing and future unsecured senior indebtedness, and are senior in right of payment to any future subordinated indebtedness. The 2013 Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit facility, which is secured by certain of our accounts receivable, inventory and cash. The terms of the 2013 Notes limit our ability and the ability of any restricted subsidiaries to borrow money; pay dividends; redeem or repurchase capital stock; make investments; sell assets; create restrictions on the payment of dividends or other amounts to us from any restricted subsidiaries; enter into transactions with affiliates; enter into sale and lease back transactions; create liens; and consolidate, merge or sell all or substantially all of our assets.

At any time prior to February 1, 2018, we may on any one or more occasions redeem all or a part of the 2013 Notes, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount, plus the applicable premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption. In addition, we may be required to make an offer to purchase the 2013 Notes upon the sale of certain assets and upon a change of control.

On or after February 1, 2018, we may redeem all or a portion of the 2013 Notes at specified redemption prices plus accrued and unpaid interest. In addition, we may be required to make an offer to purchase the 2013 Notes upon the sale of certain assets and upon a change of control.

Our 2016 expected debt service obligation related to the 2013 Notes, consisting of cash payments for interest, is $12.4 million.

Revolving Credit Facility

In November 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, which was subsequently amended on September 28, 2015, expires on September 30, 2020.

As of December 31, 2015, there were no borrowings outstanding under the credit facility, but $6.1 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 1.25% and 1.75% and (ii) for base rate loans, a per annum rate equal to the greater of the following rates plus between 0.25% and 0.75%: (a) the rate of interest announced by Bank of America from time to time as its prime rate for such day; (b) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers for such day, plus 0.50%; or (c) LIBOR for a 30-day interest period as determined on such day, plus 1.00%. The percentage margin on all loans is based on our fixed charge coverage ratio for the most recent four quarters. As of December 31, 2015, we would have been permitted to draw an additional $118.9 million under the credit facility at LIBOR plus 1.25%, or base rate plus 0.25%.

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 December 31, 2015, the fixed charge coverage ratio for the most recent four quarters was 1.3-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.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of December 31, 2015. Portions of the amounts shown are reflected in our financial statements and accompanying notes, as required by GAAP. See the footnotes following the table for information regarding the amounts presented and for references to relevant financial statement notes that include a detailed discussion of the item.



	Payments Due by Period
(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt¹	$	575,000	$	—	$	—	$	—	$	575,000
Interest on long-term debt¹	246,001		28,500		57,000		57,000		103,501
Capital leases²	42,759		2,576		5,293		5,358		29,532
Operating leases²	39,946		12,990		15,187		5,669		6,100
Purchase obligations³	285,304		262,174		20,757		2,373		—
Other obligations^4,5	183,875		106,610		15,114		13,888		48,263
Total	$	1,372,885	$	412,850	$	113,351	$	84,288	$	762,396


¹	Included above are the principal and interest payments that were due on our 2013 and 2014 Notes, which were outstanding as of December 31, 2015. For more information regarding specific terms of our long-term debt, see the discussion under the heading “Debt Arrangements,” and Note 10, “Debt,” in the notes to the consolidated financial statements.


²	These amounts represent our minimum capital lease payments, including amounts representing interest, and our minimum operating lease payments. See Note 17, “Commitments and Contingencies,” in the notes to the consolidated financial statements.


³	Purchase obligations consist primarily of contracts for the purchase of raw materials (primarily pulp) from third parties, trade accounts payable as of December 31, 2015, and contracts with natural gas and electricity providers.


⁴	Included in other obligations are accrued liabilities and accounts payable (other than trade accounts payable) as of December 31, 2015, liabilities associated with supplemental pension and deferred compensation arrangements, and estimated payments on postretirement employee benefit plans.


⁵	Total excludes $1.7 million of unrecognized tax benefits due to the uncertainty of timing of payment. See Note 8, “Income Taxes,” in the notes to the consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our financial conditions or consolidated financial statements.

ENVIRONMENTAL

Our operating facilities are subject to rigorous federal and state environmental regulation governing air emissions, wastewater discharges, and solid and hazardous waste management. Our goal is continuous compliance with all environmental regulations and we regularly monitor our activities to ensure compliance with all pertinent rules and requirements. Compliance with environmental regulations is a significant factor in our business and requires periodic capital expenditures as well as additional operating costs as rules change.

The new federal standard for hazardous air pollutants from boiler and process heaters was finalized by the U.S. Environmental Protection Agency, or EPA, and became effective in 2013 with a compliance date of January 2016. Our Lewiston, Idaho facility was granted a compliance extension and will be in compliance by January 2017. This project will require a significant capital expenditure to comply with this rule. Total cost estimates for the required compliance expenditure is expected to be approximately $6 million, with approximately $1 million spent in 2015 and the remainder expected to be spent in 2016. We expect no technical issues with meeting the new rule.

Concern over climate change, including the impact of global warming, may lead to future regulations. We believe there are no U.S. rules currently proposed that would have a material impact on our operations.

In 2012, we received notification of alleged Clean Air Act violations at our Lewiston facility. We reached an agreement with the U.S. Department of Justice and EPA in connection with this matter and paid a fine in the amount of $0.3 million in the third quarter of 2015.

Our facilities are currently in substantial compliance with applicable environmental laws and regulations. We cannot be certain, however, that situations that may give rise to material environmental liabilities will not be discovered or that the enactment of new environmental laws or regulations or changes in existing laws or regulations will not require significant expenditures by us.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

See Note 3, “Recently Adopted and Prospective Accounting Standards” to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding recently adopted and new accounting pronouncements.

Goodwill. Our acquisitions are accounted for using the purchase method of accounting as prescribed by applicable accounting guidance. In accordance with the accounting guidance, we revalued the assets and liabilities acquired at their respective fair values on the acquisition date. Changes in assumptions and estimates during the allocation period affecting the acquisition date fair value of acquired assets and liabilities would result in changes to the recorded values, resulting in an offsetting change to the goodwill balance associated with the business acquired. Significant changes in assumptions and estimates subsequent to completing the allocation of purchase price to the assets and liabilities acquired, as well as differences in actual results versus estimates, could have a material impact on our earnings.

Goodwill from an acquisition represents the excess of the cost of a business acquired over the net of the amounts assigned to assets acquired, including identifiable intangible assets and liabilities assumed. As a result of our acquisition of Cellu Tissue Holdings, Inc., or Cellu Tissue, on December 27, 2010, we recorded $229.5 million of goodwill on our Consolidated Balance Sheet as of December 31, 2010, which was all assigned to our Consumer Products reporting unit. As a result of our December 30, 2014 sale of our specialty business and mills, a portion of goodwill was allocated to the divested mills and included in our loss on divested assets on our Consolidated Statement of Operations. As of December 31, 2015, we had $209.1 million of goodwill included on our Consolidated Balance Sheet. Goodwill is not amortized but tested for impairment annually each November 1^st and at any time when events suggest impairment may have occurred. When required, our goodwill impairment test is performed by comparing the fair value of the Consumer Products reporting unit to its carrying value. We incorporate assumptions involving future growth rates, discount rates and tax rates in projecting the future cash flows. In the event the carrying value exceeds the fair value of the reporting unit, an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value.

Long-lived assets. A significant portion of our total assets are invested in our manufacturing facilities. Also, the cyclical patterns of our businesses cause cash flows to fluctuate by varying degrees from period to period. As a result, long-lived assets are a material component of our financial position, with the potential for material change in valuation if assets are determined to be impaired. Accounting guidance requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, as measured by its undiscounted estimated future cash flows.

We use our operational budgets to estimate future cash flows. Budgets are inherently uncertain estimates of future performance due to the fact that all inputs, including net sales, costs and capital spending, are subject to frequent change for many different reasons. Because of the number of variables involved, the interrelationship between the variables and the long-term nature of the impairment measurement, sensitivity analysis of individual variables is not practical. Budget estimates are adjusted periodically to reflect changing business conditions, and operations are reviewed, as appropriate, for impairment using the most current data available.

We believe we have adequate support for the carrying value of all of our long-lived assets based on anticipated cash flows that will result from our estimates of future demand, pricing, and production costs, assuming certain levels of capital expenditures.

Pension and postretirement employee benefits. The determination of pension plan expense and the requirements for funding our pension plans are based on a number of actuarial assumptions. Three critical assumptions are the discount rate applied to pension plan obligations, the rate of return on plan assets and mortality rates. For other postretirement employee benefit, or OPEB, plans, which provide certain health care and life insurance benefits to qualified retired employees, critical assumptions in determining OPEB expense are the discount rate applied to benefit obligations, the assumed health care cost trend rates used in the calculation of benefit obligations and mortality rates.

Note 13, "Savings, Pension and Other Postretirement Employee Benefit Plans," to our consolidated financial statements includes information for the three years ended December 31, 2015, 2014 and 2013, on the components of pension

and OPEB expense and the underlying actuarial assumptions used to calculate periodic expense, as well as the funded status for our pension and OPEB plans as of December 31, 2015 and 2014.

The discount rate used in the determination of pension benefit obligations and pension expense is determined based on a review of long-term high-grade bonds and management’s expectations. At December 31, 2015, we calculated obligations using a 4.70% discount rate. The discount rates used at December 31, 2014 and 2013 were 4.25% and 5.20%, respectively. To determine the expected long-term rate of return on pension assets, we employ a process that analyzes historical long-term returns for various investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our determination of a composite expected return. The long-term rates of return used for the years ended December 31, 2015, 2014 and 2013 were 7.00%, 7.50% and 7.50%, respectively.

Total periodic pension plan expense in 2015 was $7.8 million. An increase in the discount rate or the rate of expected return on plan assets, all other assumptions remaining the same, would decrease pension plan expense, and conversely, a decrease in either of these measures would increase plan expense. As an indication of the sensitivity that pension expense has to the discount rate assumption, a 25 basis point change in the discount rate would affect annual plan expense by approximately $0.7 million. A 25 basis point change in the assumption for expected return on plan assets would affect annual plan expense by approximately $0.7 million. The actual rates of return on plan assets may vary significantly from the assumptions used because of unanticipated changes in financial markets.

Our company-sponsored pension plans were underfunded by a net $24.4 million at December 31, 2015 and $16.9 million at December 31, 2014. As a result of being underfunded, we may be required to make contributions to our qualified pension plans. In 2015, we contributed $3.2 million to these pension plans. We also contributed $0.4 million to our non-qualified pension plan in 2015. We do not expect to make any cash contribution to our qualified pension plans in 2016.

For our OPEB plans, expense for 2015 was $2.1 million. We do not anticipate funding our OPEB plans in 2016 except to pay benefit costs as incurred during the year by plan participants. The discount rates used to calculate OPEB obligations, which was determined using the same methodology we used for our pension plans, were 4.50%, 4.15% and 5.05% at December 31, 2015, 2014 and 2013, respectively. The assumed health care cost trend rate used to calculate 2015 OPEB expense was 7.60%, grading to a range of 4.30% to 4.50% over approximately 70 years. The health care cost trend rate used to calculate December 31, 2015 OPEB obligations was 7.00% in 2016, grading to 4.50% over approximately 70 years, for participants whose benefits are not provided through Health Reimbursement Accounts (HRAs), and 2.50% annually for participants whose benefits are provided through HRAs.

As an indication of the sensitivity that OPEB expense has to the discount rate assumption, a 25 basis point change in the discount rate would affect plan expense by approximately $0.4 million. A 1% change in the assumption for health care cost trend rates would have affected 2015 plan expense by approximately $0.3 million to $0.4 million and the total postretirement employee obligation by approximately $4.3 million to $4.9 million. The actual rates of health care cost increases may vary significantly from the assumption used because of unanticipated changes in health care costs.

Periodic pension and OPEB expenses are included in “Cost of sales” and “Selling, general and administrative expenses” in the Consolidated Statements of Operations. The expense is allocated to all business segments. In accordance with current accounting guidance governing defined benefit pension and other postretirement plans, at December 31, 2015 and 2014, long-term assets are recorded for overfunded plans and liabilities are recorded for underfunded plans. The funded status of a benefit plan is measured as the difference between plan assets at fair value and the projected benefit obligation. For underfunded plans, the estimated liability to be payable in the next twelve months is recorded as a current liability, with the remaining portion recorded as a long-term liability.

Effective December 15, 2010, the salaried pension plan was closed to new entrants and after December 31, 2011, it was frozen and ceased accruing further benefits.

Income taxes. The conclusion that deferred tax assets are realizable is subject to certain assessments, projections and judgments made by management. In assessing whether deferred tax assets are realizable, the standard we use is whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the impact of available carryforward periods), projected taxable income, and amounts of taxable income we would have generated historically. In order to fully realize the deferred tax asset, we will need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code.

Based on existing deferred tax liabilities and projected taxable income over the periods for which the deferred tax assets are deductible, we believe that it is more likely than not that we will realize the benefits of these future deductible

differences, excluding items for which we have already recorded a valuation allowance. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

We operate in tax jurisdictions located in many areas of the United States and are subject to audit in these jurisdictions. Tax audits by their nature are often complex and can require several years to resolve. In the preparation of our consolidated financial statements, management exercises judgment in estimating the potential exposure to unresolved tax matters and applies the guidance pursuant to uncertain tax positions which employs a more likely than not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, in management's judgment, we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters.



ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

Our exposure to market risks on financial instruments includes interest rate risk on our secured revolving credit facility. As of December 31, 2015, there were no borrowings outstanding under our revolving credit facility. The interest rates applied to borrowings under the credit facility are adjusted often and therefore react quickly to any movement in the general trend of market interest rates. For example, a one percentage point increase or decrease in interest rates, based on assumed outstanding credit facility borrowings of $10.0 million, would have a $0.1 million annual effect on interest expense. We currently do not attempt to mitigate the effects of short-term interest rate fluctuations on our credit facility borrowings through the use of derivative financial instruments.

Commodity Risk

We are exposed to market risk for changes in natural gas commodity pricing, which we partially mitigate through the use of firm price contracts for a portion of the natural gas requirements of our manufacturing facilities. As of December 31, 2015, these contracts covered approximately 44% of the expected average monthly requirements for 2016, including approximately 59% of the expected average monthly requirements for the first quarter.

Foreign Currency Risk

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

Quantitative Information about Market Risks



	Expected Maturity Date
(Dollars in thousands)	2016			2017			2018			2019			2020			Thereafter			Total
Long-term debt:
Fixed rate	$	—		$	—		$	—		$	—		$	—		$	575,000		$	575,000
Average interest rate	—		%	—		%	—		%	—		%	—		%	4.957		%	4.957		%
Fair value at December 31, 2015																			$	558,250



ITEM 8.
Financial Statements and Supplementary Data

Index to Consolidated Financial Statements




	PAGE NUMBER
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013	40
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013	41
Consolidated Balance Sheets at December 31, 2015 and 2014	42
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	43
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013	44
Notes to Consolidated Financial Statements	45-80
Reports of Independent Registered Public Accounting Firm	81-83

Financial Statement Schedules:
All schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the notes thereto.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Operations

(Dollars in thousands – except per-share amounts)



	For The Years Ended December 31,
	2015			2014			2013
Net sales	$	1,752,401		$	1,967,139		$	1,889,830
Costs and expenses:
Cost of sales	(1,512,849		)	(1,708,840		)	(1,671,371		)
Selling, general and administrative expenses	(117,149		)	(130,102		)	(119,131		)
Gain (loss) on divested assets	1,267			(40,159		)	—
Impairment of assets	—			(8,227		)	—
Total operating costs and expenses	(1,628,731		)	(1,887,328		)	(1,790,502		)
Income from operations	123,670			79,811			99,328
Interest expense, net	(31,182		)	(39,150		)	(44,036		)
Debt retirement costs	—			(24,420		)	(17,058		)
Earnings before income taxes	92,488			16,241			38,234
Income tax (provision) benefit	(36,505		)	(18,556		)	68,721
Net earnings (loss)	$	55,983		$	(2,315	)	$	106,955
Net earnings (loss) per common share:
Basic	$	2.98		$	(0.11	)	$	4.84
Diluted	2.97			(0.11		)	4.80

The accompanying notes are an integral part of these consolidated financial statements.

CLEARWATER PAPER CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)



	For The Years Ended December 31,
	2015			2014			2013
Net earnings (loss)	$	55,983		$	(2,315	)	$	106,955
Other comprehensive income (loss), net of tax:
Defined benefit pension and other postretirement employee benefits:
Net gain (loss) arising during the period, net of tax of $5,814, $(15,103), and $32,346	8,944			(23,523		)	51,262
Curtailments, net of tax of $ -, $ - , and $298	—			—			471
Prior service credit (cost) arising during the period, net of tax of $ -, $3,278, and $(1,976)	—			5,106			(3,130		)
Amortization of actuarial loss included in net periodic cost, net of tax of $4,972, $3,836, and $5,742	7,647			5,975			9,098
Amortization of prior service credit included in net periodic cost, net of tax of $(829), $(772), and $(64)	(1,276		)	(1,202		)	(101		)
Foreign currency translation amounts reclassified from accumulated other comprehensive loss	—			874			—
Other comprehensive income (loss), net of tax	15,315			(12,770		)	57,600
Comprehensive income (loss)	$	71,298		$	(15,085	)	$	164,555

The accompanying notes are an integral part of these consolidated financial statements.

CLEARWATER PAPER CORPORATION

Consolidated Balance Sheets

(Dollars in thousands – except share data)



	At December 31,
	2015			2014
ASSETS
Current assets:
Cash	$	5,610		$	27,331
Restricted cash	2,270			1,500
Short-term investments	250			50,000
Receivables, net	139,052			133,914
Taxes receivable	14,851			1,255
Inventories	255,573			286,626
Deferred tax assets¹	—			21,760
Other current assets²	9,331			3,424
Total current assets	426,937			525,810
Property, plant and equipment, net	866,538			810,987
Goodwill	209,087			209,087
Intangible assets, net	19,990			24,956
Pension assets	596			4,738
Other assets, net²	4,221			3,571
TOTAL ASSETS	$	1,527,369		$	1,579,149
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	220,368		$	215,826
Current liability for pensions and other postretirement employee benefits	7,559			7,915
Total current liabilities	227,927			223,741
Long-term debt²	568,987			568,221
Liability for pensions and other postretirement employee benefits	89,057			118,464
Other long-term obligations	46,738			56,856
Accrued taxes	1,676			2,696
Deferred tax liabilities	118,118			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-24,193,098 and 24,056,057 shares issued	2			2
Additional paid-in capital	340,095			334,074
Retained earnings	520,307			464,324
Treasury stock, at cost, common shares–6,380,309 and 4,498,388 shares repurchased	(329,990		)	(230,000		)
Accumulated other comprehensive loss, net of tax	(55,548		)	(70,863		)
Total stockholders’ equity	474,866			497,537
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,527,369		$	1,579,149

The accompanying notes are an integral part of these consolidated financial statements.


1	Current deferred tax assets were classified as non-current in 2015 due to the prospective adoption of ASU 2015-17. See Note 3, "Recently Adopted and Prospective Accounting Standards."


2	Due to the retrospective adoption of ASU 2015-03, debt issuance costs in 2014 were reclassified to conform with the 2015 presentation. See Note 3, "Recently Adopted and Prospective Accounting Standards."

CLEARWATER PAPER CORPORATION

Consolidated Statements of Cash Flows

(In thousands)



	For The Years Ended December 31,
	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	55,983		$	(2,315	)	$	106,955
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization	84,732			90,145			90,272
Equity-based compensation expense	4,557			12,790			10,960
Impairment of assets	—			8,227			—
Deferred tax provision	16,081			13,813			5,629
Employee benefit plans	3,011			2,115			10,131
Deferred issuance costs and discounts on long-term debt	928			6,141			4,964
Loss on divestiture of assets	—			29,059			—
Disposal of plant and equipment, net	1,492			959			1,493
Non-cash adjustments to unrecognized taxes	(1,020		)	328			(74,739		)
Changes in working capital, net	14,841			(12,248		)	(15,022		)
Change in taxes receivable, net	(13,596		)