Clearwater Paper Corp (CLW) 2014 Q4 法說會逐字稿

Welcome to Clearwater Paper Corporation's fourth quarter and fiscal year 2014 earnings conference call. As a reminder this call is being recorded today, February 4, 2015. I would now like to turn the conference over to Ms. Robin Yim, Vice President, Investor Relations of Clearwater Paper. Please go ahead.

Thank you, Amanda. Good afternoon and thank you for joining Clearwater Paper's fourth quarter and fiscal year 2014 earnings conference call. Joining me on the call today are Linda Massman, President and Chief Executive Officer and John Hertz, Chief Financial Officer.

Financial results for the fourth quarter were released shortly after today's market close. Posted on the Investor Relations page of our Web site at Clearwaterpaper.com, you will find both the earnings press release and the presentation of supplemental information including outlook slide providing the Company's current expectations and estimates as to net sales, operating margin and adjusted EBIDTA for the first quarter of 2015 and certain costs, pricing, shipment, production, maintenance and repairs and other factors for the first quarter and full year 2015.

Additionally we will be providing certain non-GAAP information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release or in the supplemental material provided on our Web site.

I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2013 and our quarterly filings on Form 10-Q. Any forward-looking statements are made only as of this date and the company assumes no obligation to update any forward-looking statements.

John Hertz will begin today's call with a review of the financial results for the fourth quarter and fiscal year 2014 and Linda Massman will provide an overview of the business environment and our outlook for the year and the first quarter of 2015 and then we will open up the call for the question-and-answer session.

Now I'll turn the call over to John.

Thank you Robin. 2014 was a year of achievements and challenges or Clearwater Paper. We delivered records and net sales at $2 billion and adjusted EBITDA at $239 million and adjusted EPS at $3.47 per share. Our Pulp and Paperboard Division delivered record adjusted EBITDA of $173 million or 22% of net sales which is well above the paperboard divisions cross-cycle model of 19%.

On the consumer products side net sales increased 3% to a record $1.2 billion but adjusted EBITDA margin of $116 million or 10% of net sales was down from 11% in 2013 and well below the consumer division's cross-cycle model of 17% due to a combination of pricing pressure on conventional tissue and input cost inflation on pulp, energy and transportation.

From a capital structure and allocation perspective, we further reduced our weighted average cost to capital with the issuance of $300 million and 5.38% ten-year senior notes in exchange for $375 million and 7.18% senior notes. If you combine the impact of the 2014 refinancing with that of the 2013 refinancing we have reduced annual cash interest payments from $56 million to $29 million and we have reduced our cost of debt from 8.6% to 5%. We also returned $100 million to shareholders through our share buyback program at an average price of $63.50 per share.

Since the 2012 inception of our stock buyback program we have repurchased 4.5 million shares for $230 million, an average price of $51.13 and we reduced shares outstanding by 20%.

And on December 15 we announced another $100 million stock repurchase authorization which should enable us to return at least 50% of discretionary free cash flow to shareholders in 2015.

Operationally we took actions on three fronts to address the marketplace pressures and to improve the cost structure of our tissue business. First, we accelerated approximately $10 million of capital expenditures into 2014 in order to standardize the backend of our converting lines and convert our warehouses from slip sheets to pallets.

Those investments are expected to significantly improve production planning flexibility and decrease transportation and warehousing costs. Second, on December 30 we announced the sale of our specialty products mills for approximately $114 million. The estimated net proceeds of $107 million will be reinvested into capital projects for the benefit of the consumer products division which Linda will discuss in more detail and are expected to significantly improve CPD, EBITDA margins.

And finally, we are taking actions to reduce the number of product SKU's particularly at the low volume, low margin end of the spectrum. In 2014 we reduced the number of tissue product SKU's by 13% and we'll continue those efforts in 2015 and beyond.

We believe that the combination of those three options will yield a 400 to 600 basis point improvement in CPD, EBITDA margins over the next two to three years and provide the roadmap to achieving the consumer product division 17% cross-cycle EBITDA margin model.

Before I get into our fiscal year and fourth quarter 2014 results I'd like to preface my comments by stating that throughout the rest of my remarks I will be distinguishing between GAAP and non-GAAP or adjusted results. The adjusted results exclude certain charges and benefits that we believe are not indicative of our core operating performance.

The reconciliation from GAAP to adjusted results is provided in the supplemental slides posted on our Web site. For the full year those charges totaled $93 million and includes $41 million of goodwill and intangible write-offs and other non-recurring deal specific charges related to the sale of our specialty products mills; $20 million due to the closure of both the Long Island, New York and Thomaston, Georgia converting facilities, $24 million in early retirement charges to refinance high interest rate bonds, a write-off of $3 million ascribed to Clearwater Fiber, customer relationship and $5 million for mark-to-market impact associated with directors cash settled stock units.

For the fourth quarter of 2014 there was a charge of $49 million which includes $40 million related to the sale of our specialty products mills, $4 million of cost associated with the closure of our Long Island converting facility, the $3 million Clearwater Fiber Related write-off and lastly $2 million from the mark-to-market impact associated with Director's cash settled stock units.

Starting with full-year 2015 results, excuse me, 2014 results. As I previously mentioned, we achieved record net sales, adjusted EBITDA and adjusted EPS for the year. The $239 million in adjusted EBITDA is a 19% increase over 2013 and a 12.1% adjusted EBITDA margin is a 150 basis point improvement over 2013.

The improvement was attributable to higher paperboard pricing and volumes, a higher mix of TAD tissue shipments and the benefit of no major maintenance downtime in 2014. Those benefits were partially offset by lower conventional tissue pricing, higher operating costs for natural gas, transportation, chemicals, wood fiber and externally purchased pulp as well as higher SG&A expenses from increased IT spend, higher profit-dependent accruals and equity-based compensation.

Now turning to the fourth quarter; net sales were $472 million down 7.6% from the third quarter and just below the low end of the consolidated outlook range we provided in our Q3 earnings call, down 4% to 7% as paperboard net sales were down 12% compared to Q3 and well below our outlook of down 4% to 8% as the typical fourth quarter seasonal decline was exacerbated by labor related slowdowns at West Coast shipping ports.

Compared to Q4 2013, net sales were up 46 basis points. Consolidated price mix was down 34 basis points versus the stable to slightly up outlook as CPD product mix was weaker than expected due to retailers sponsoring fewer than expected private labor ultra grade tissue promotions while the brands turned up the pressure on promotions.

Fourth quarter adjusted gross margin up 13.2% was down 260 basis points from a comparable 15.8% in Q3 due to the weaker product mix and incremental maintenance within paperboard, compared to Q4 2013 adjusted gross margin of 15.3%, transportation and higher plan maintenance for both divisions contributed to the year-over-year difference.

Adjusted SG&A expense was $32 million in the fourth quarter compared to $31 million in Q3 and $29 million in Q4 2013. The year-over-year increase in SG&A was due to higher IT spend and incentive-based compensation; adjusted corporate expense with $14 million of total SG&A in the fourth quarter and flat with Q3. Adjusted operating income of $31 million or 6.5% margin came in just under the low end of our fourth quarter outlook of 7% to 8.5% and down from 9.7% in Q3.

The adjusted operating margin was impacted by weaker product mix and higher maintenance in the quarter. Compared to Q4 2013 adjusted operating margin was 9.1%. As a result of all of that adjusted EBITDA was $55 million or 11.5% of net sales which was just under the low end of our outlook provided in our Q3 earnings call of $56 million to $64 million.

Net interest expense of $8 million was down from $10 million in the third quarter as expected with the full benefit of the 2014 refinancing effect. Compared with the fourth quarter of 2013, net interest expense decreased $3 million.

Turning to taxes; on an adjusted basis our Q4 effective tax rate was 34.2%. At the low end of our outlook of 36%, plus or minus 2%, and down from 36% in the third quarter. The Q4 GAAP tax rate was a negative 5.1% as a result of the divestiture of the specialty products mills. The Q4 GAAP net loss included a loss on the sale of approximately $40 million but for tax purposes the sale resulted in a gain of approximately $42.6 million due to stock and asset basis differences.

Fourth quarter 2014 adjusted net earnings came in at $15 million or $0.77 per diluted share. That compares to adjusted net earnings of $26 million or $1.28 per diluted share in the third quarter and $23 million or $1.09 per diluted share in the fourth quarter of 2013. On a GAAP basis, Q4 2014 was a net loss of $1.39 per share primarily due to the after tax impact of the specialty products sale.

Non-cash expenses in the fourth quarter of 2014 included $24 million of depreciation and amortization. Twenty-nine million dollars related to the specialty products sale, $4 million in equity-based compensation and a $3 million Clearwater Fiber charge. Employee headcount at the end of the fourth quarter was approximately 3,300.

Now I will discuss the segment results. Consumer products net sales were $292 million for the fourth quarter of 2014 down 4.7% versus the third quarter. Volumes were down 3.6% and within our outlook of sequentially down 3% to 6%. However, we saw a 100 basis point price mix decrease versus a stable outlook because of an approximately 30% decline in customer sponsored private label tissue-based promotions while branded promotions appeared to have increased 20%.

Consumer products adjusted operating income for the fourth quarter of 2014 with $13 million or 5% of net sales versus $18 million or 6% in the third quarter. Operating margin percentage was primarily impacted by the weaker price mix. Consumer products Q4 adjusted EBITDA margin decreased $4 million to $29 million or 10% of net sales from $33 million or 11% in the third quarter and remains below our CPD model of 17%. As previously stated, we have taken a number of actions that we believe will improve CPD margins over the next two to three years.

Now turning to the Pulp and Paperboard Division. Pulp and Paperboard net sales of $181 million for the fourth quarter of 2014 decreased 12% versus the third quarter. Q4 net sales came in well below the seasonal outlook as previously mentioned due to labor related slowdowns at West Coast Shipping ports and some year-end inventory management by certain customers. However, average pricing of $1017 per ton was marginally better compared to Q3.

Pulp and Paperboards Q4 adjusted operating income was $31 million or 17% of net sales as compared to $46 million or 22% of net sales in the third quarter. The decline in margin percentage versus Q3 was mostly due to higher plan maintenance and higher external energy usage while a co-generation turbine was being repaired. Pulp and Paperboards Q4 adjusted EBITDA margin of 21% remains above the 19% divisional objective inherent in our cross-cycle financial model.

Now turning to the balance sheet; capital expenditures were $42 million in the fourth quarter and $100 million for the full year. Long-term debt outstanding at year-end was $575 million. As of the most recent measurement date of December 31, 2014 our company sponsored pension plans were under funded by approximately $17 million, an increase of $10 million from 12/31/2013 due to several factors.

Lower discount rates due to the drop in long-term interest rates and adjustments to actuarial tables to reflect longer-life expectancy caused an increase to this liability that was partially offset by strong portfolio performance reflective of the 2014 market returns and $17 million of plan contributions. We expect to contribute approximately $12 million in 2015.

With regard to our liquidity, we ended the fourth quarter with $77 million of unrestricted cash and short-term investments and $117 million available under our revolver. During the fourth quarter we generated $37 million of cash from operating activities or 8% of net sales up from $7 million or 1% in Q3 but still below our cash flow model of 11% to 13%.

Operating cash flow in the fourth quarter was negatively impacted by a $24 million increase in inventory. Regarding master limited partnerships, we continue to examine the potential applicability to our business. To-date we have had initial discussions with the IRS to better understand their views on the applicability of an MLP structure to Clearwater Papers operations which did not yield any definitive conclusions at this point and as of today the IRS moratorium on private letter rulings remains.

With that I will now turn the call over to Linda Massman who will discuss the Company's outlook.

Thank you John. Hello everyone and thanks for joining us today. First I'll start with 2014 highlights and then discuss our high level outlook for Fiscal 2015 and more specifically for the first quarter of 2015.

Our Pulp and Paperboard Division turned in a great year. The group exhibited excellent operational execution in all aspects of the business and fully leveraged the benefits of strong market. As a result, we set new records in production, adjusted EBITDA dollars and margin percentage.

The consumer product side remained a challenge due to tough market conditions. In 2014 we were faced with ongoing competitive pressure from increased brand promotional activity and also went through a competitive bidding process with each of our largest customers. Those things together with higher input costs and a limited ability to pass through cost inflation led to margin compression but despite that challenging environment our CPD team had a great year. They achieved record net sales, retained all of our major customers with longer term arrangements, reached our full pad shipment run rate in the third quarter and shipped a record number of retail tissue cases in 2014.

As we progress through 2014 and it became clear that the elevated competitive pressures and cost input inflation within the consumer business would not likely abate, we determined that some significant and swift actions needed to be taken to reduce the consumer divisions cost structure to put us in the best position to achieve the 17% EBITDA margin model. Doing so has become our number one strategic priority.

We're addressing that now in how we are organized, reducing the complexity of our supply chain, trimming the breadth of our product offerings, improving the cost competitiveness of our mill network focusing on capital investments that we believe can really move the needle on cost reduction and efficiency and moving our cost reduction focus culture to the next level.

To that end, we have taken the following actions. We established a cross-divisional supply chain function to improve and streamline our purchasing and supply management to help drive out costs system-wide, achieve operational efficiencies and improve customer service performance.

We have started conversations with customers on the rationalization of low volume SKU's and partnering with them in the transition to SKU's highly favored by the consumer and we have reached a 13% SKU reduction to-date.

We closed our Long Island distribution and converting plant and redeployed the converting equipment to more strategic locations. As John mentioned, we sold the specialty products group and we'll reallocate that capital back to the benefit of our consumer products business which we believe can yield significant operating margin improvement.

In 2015 we plan to spend approximately $85 million funded by the proceeds from the sale of our specialty products business on strategic ROI positive capital projects. The investments include projects to explore the improvement of pulp optimization at our Lewiston pulp mill. We believe the result in increase and output and quality would enable the tissue side of the business to be fully integrated from a softwood pulp standpoint which will lower our pulp costs and eliminate input costs volatility associated with buying external softwood pulp. Other investments include robotics for warehouse automation, high speed bath and towel converting equipment and paper machine upgrades.

We deployed the incremental 2014 capital investments that John discussed and we are taking the next steps from lean manufacturing to total productive maintenance or TPM that we expect will increase our capacity to grow while continuing to grow and develop our skilled and highly engaged work force.

The team will be focused on improving unit cost through high-yield stable manufacturing processes. These actions are all roadmapped to achieving our model cross-cycle consolidated EBITDA margin of 15% within the next two to three years.

Turning to our view of the market environment for each of our businesses and starting with the North American tissue market, in 2014 U.S. tissue cases shipped as reported by IRI were flat compared to 2013 due to weather related issues in the first quarter of 2014. Private labels were one point of share while the national brands lost a point. Private label is now approximately 27% of the total retail tissue market.

At Clearwater Paper we grew our market share to 8.1% of the U.S. tissue market in 2014 from 7.3% in 2013 with the addition of our TAD tissue facility in Shelby. Looking to 2015 we expect the U.S. tissue market to grow from 1% to 2% in-line with the long-term trends and believe that private label will continue to gain share.

RISI recently released the 2015 forecast for net new retail tissue capacity that is expected to come online and they reduced their prior estimates by 54% or 230,000 tons due to a push out of three machines to 2016. Based on its new forecast, approximately 198,000 tons of retail tissue is now scheduled to come online with more than two-thirds of that capacity expected in the fourth quarter.

RISI's revised forecast supports a balanced supply and demand environment in 2015. Turning to North American paperboard, the outlook for 2015 remains positive supported by a stronger U.S. economy and the secular trend replaced foam cups and containers with eco-friendly alternatives continues with New York City being the latest to adopt the ban on the use of expandable polystyrene in 2015.

We continue to monitor China's potential impact on [SDS] but the broader risk appears to be the impact of the strong U.S. dollar which will make the U.S. market much more attractive to all global [SDS] producers.

Turning to Clearwater Paper's 2015 outlook I'd like to start with the broader impact of oil and pulp prices on our business for 2015 as compared to 2014. Lower oil prices should provide a net cost benefit ranging from $6 to $8 million in petroleum based chemical and packaging. All of the expected benefits from lower diesel prices are offset by the expected increase in line-haul rates due to a continued tight transportation market which should result in a stable transportation cost year-over-year.

Based on RISI's outlook for lower forecasted pulp prices and discounts we anticipate savings in the range of $7 to $8 million a year. I would also point your attention to an input cost sensitivity chart that we've provided on Page 19 of our supplemental which outlines the various cost inputs and their impact on EBITDA due to a change in unit price based on 2014 volumes.

Moving to our divisional outlook, which is outlined on Page 16 of our supplemental earnings presentation, starting with CPD; with the sale of the specialty products operations we expect the consumer products net sales and adjusted EBITDA will be down in 2015 on an overall basis. When you think about the impact of the sale to our P&L note that 2014 specialty products, net sales and adjusted EBITDA for the last 12 months ending November 2014 was $218 million and $18 million respectively. We expect that we're moving specialty products, we'll have a favorable year-over-year impact on price mix, external pulp and chemical costs on a nominal and per ton basis and maintenance and SG&A costs on a nominal basis. However, it will negatively impact packaging and transportation on a per ton basis.

There is approximately $7 million of stranded overhead that remains from the specialty product sale that will be rationalized and subject to further corporate action over the first half of 2015. To give you a baseline of CPD results excluding specialty products, CPD 2014 results without specialty is included on Page 15 of the supplemental slides.

Focusing now on the continuing retail tissue business, our 2015 outlook is for 1% to 2% higher shipment volumes and its slightly improved price mix is TAD shipments will be at a full run rate for the entire year. On the cost side we expect to see lower pulp prices and higher chemical costs as the chemicals used at CPD are not petroleum based.

Transportation costs should remain stable as an expected increase in line-haul rates will likely offset any benefits from lower diesel prices. And energy costs are expected to remain stable as lower natural gas prices will be offset by higher electricity rates and increased TAD production.

Our 2015 paperboard outlook is for a 1% to 3% increase in shipment volumes and for price mix that is stable to up 1%. On the cost side, wood fiber costs in the Southeast continue to be elevated and we will have higher plan maintenance ranging from $20 to $30 million. We expect to see $13 to $15 million in Q1 associated with Lewiston and a remainder in Q2 at Arkansas.

Please note that we will have 11 days of paper machine downtime in Q1 and five days in Q2 related to the major maintenance work. On the positive side we expect cost for chemicals and energy to be heading lower due to falling oil prices and we expect a stable outlook or transportation and operating supplies.

For 2015 capital expenditures, the pursuit of the CPD cost structure improvements will require more capital investment then our recent capital spending levels so our outlook for capital investment in 2015 is $155 million. The plan includes a previously mentioned $85 million of strategic capital plus $70 million in base maintenance capex. The maintenance capex spend is $20 million above our historical $20 million level as we will use the major maintenance downtime to opportunistically install capital additions that would otherwise disrupt operations. And at the corporate level we have one more year of further investments in upgrades and enhancements to our ERP system.

Now to our Q1 outlook for consumer products business excluding specialty products from Q4, we're expecting fairly stable shipment volumes and pricing mix compared to the fourth quarter of flat to up 1% for both variables.

The outlook is for stable pulp cost as we don't expect to see prices for our outlook pulp turning down in the quarter. Transportation operating and packaging supplies are expected to be down. All other variables such as chemicals, energy maintenance and repairs and SG&A are expected to remain stable.

Turning to the first quarter outlook for our Pulp and Paperboard Division we expect to see a 1% to 5% improvement in shipment volumes and the price mix to remain stable to up 1%. Input costs are expected to remain stable except for chemical costs which should trend low in the quarter and maintenance spending will increase by $13 to $15 million for major maintenance in Idaho versus Q4.

Looking at the consolidated business for Q1 versus Q4 excluding the sale of the specialty products we expect net sales to increase 1% to 3%, our consolidated operating margin to be in the range of 3% to 5%, adjusted SG&A to be flat with Q4, adjusted corporate spending to be $13 to $14 million, net interest expect to be about $8 million and an adjusted tax rate of 36% plus or minus two percentage points.

All of these variables combined are expected to result in a Q1 EBITDA range of $37 million to $43 million; remembering it is lower than Q4 due to $13 to $15 million for maintenance and the loss of EBITDA due to the specialty products business.

The key variables we see determining where we land in that range are, first pulp and wood fiber prices, second, brand promotional activities, third, any changes in customer and consumer demand, fourth, actual maintenance expenditures and, fifth, the timing of resolution to labor issues at the West Coast shipping ports.

In conclusion, 2015 will be a year of continuous improvement to our operating platform as we set the stage for margin improvement particularly in our consumer business. While market conditions are more challenging than ever, we believe we are well positioned in pulp and paperboard and consumer products both of which are poised for growth and we're excited about the prospects ahead of us.

And finally, I'd like to think our employees for another solid year of hard work and for their loyalty and commitment to Clearwater Paper's success. Thank you for listening to our prepared remarks and we will now take your questions.

Thank you. (Operator instructions.) Our first question comes from Paul Quinn with RBC Capital Markets. Your line is open.

Yeah, thanks very much. Just a couple of questions; one versus your previous outlook versus exactly what you did year actuals, it looks like shipment volumes were down significantly in paperboard. Just wondering what happened there and whether you built -- is that the reason for the inventory build on the working capital side?

Yeah, hi Paul, this is John. Yeah, it's on the paperboard side. A lot of it had to do with the, call it, labor slowdown in West Coast shipping ports and that relates to shipments that we are liquid packaging that we have going to Japan.

There was kind of in the last two weeks of December a fairly significant slowdown in shipments and it was more kind of aberration than a comment on what's going on in the paperboard market. Some of that came from consignment customers and we think there's probably some inventory management going on, on the part of some of our customers.

So -- and that did contribute to the working capital increase as it relates to inventory and in addition to that, within paperboard, we've been fighting to get log supply down in Arkansas all year long with the wet winter and supplies kind of freed up in the fourth quarter and they opportunistically kind of built up their log supplies as we look into the 2015 year.

Okay, so we shouldn't read into the 12% lower shipments in paperboard as indicative of a weaker market, it's more of the shipping related issues that you encountered?

Yeah, I think so. I mean, I think when we look at the paperboard market the backlogs industry-wide are, you know, not as strong as they were last year but last year was, you know, unseasonably strong but as you look over a period of time their backlogs are very healthy and there continues to be, you know, positive data points with, for example, the New York City, you know, ban on foam going to hopefully all paperboard but alternatives anyway by July of this year.

Okay and then just flipping over to the tissue side, looks like congratulations on the sale of the specialty side, I know that as causing you some grief and expect margins to pick up there. You mentioned a number of operational things that you're working on, one of them was reducing SKU's, which you've seen it at 13% reduction, I think. What is your goal there and where are you at in terms of the number SKU's in that product line?

I'd say, Paul, this is rough numbers because I mean we're going to look for opportunities continually, but I'd say we probably have about 70% to 80% of it captured already, I mean, at least identified not executed, okay, and we're still working with some of the customers to get that through and we'll see that impact as we move into 2015.

But you know, we'll continue to look at that because as we have those low volume SKU's it increases complexity which increases our cost of manufacturing and we need to ring that back in.

Okay, and then just on the mentioned brand, branded, promotional activity, have we seen any sort of back off in that or has that been consistent all the way through 2014 and what's your outlook for 2015 here?

In total, the promotions have actually tipped up a little bit in Q4 I would say and it's kind of across the board. We thought it might stabilize before we got into the back half of the year but it hasn't, it actually increased in some key areas in the fourth quarter and obviously had impact on our results. So it very likely might be the new normal, it's hard to say. I tell you I think what we're doing internally is just focusing on what we control and that is servicing our customers well and I think we've done a great job of that through the year with regard to retaining businesses that have been out to bid or the accounts that have been out to bid and then setting the stage for a really strong 2015 for customer service.

Okay, and the last question I had you mentioned your cross-cycle margin goal is two to three years away, what are the big levers there that would allow you to accelerate that, bring that forward?

Okay so -- so a lot of those projects there's a big variety of projects in there. If there were any one project we probably would have done it long before now. I'd say supply chain is one area where we have some flexibility in how we deploy this. That would include some of the warehouse robotics. I would say some of the paper machine upgrades depending on how we deploy that capital. We've already moved forward some of the capital associated with the backend of our converting equipment with regard to [beggars] and wrappers so those are probably, I would say, the biggest levers we have in moving us forward and being able to finagle how quickly that happens.

All right, that's all I had. Best of luck, thanks.

Thanks Paul.

Our next question comes from Steve Chercover with D.A. Davidson. Your line is open.

Good afternoon and thanks for providing the slides about an hour earlier than normal.

Welcome Steve.

My first question is I wanted to verify the volume that was sold, by calculations about 192,000 tons, does that drive with you?

Which business are we talking about?

I'm talking about the tissue and machine glazed paper that you sold to Dunn.

Okay. I thought you meant sold in the quarter.

No, I mean divested operationally.

Got it, got it. About 180,000 tons I would say, give or take.

Okay, had there been something that had been shut in any of those facilities earlier?

No.

No.

Oh, okay. So obviously given almost 200,000 tons and about $200 million in sales, you're only getting just over $1000 a ton on that stuff, so we should see the ASP's move up pretty substantially going forward?

Price mix will definitely improve, yes.

Great, and then could -- I might have just missed it but can you clarify how your pulp balance will change having sold those tons? As I recall you were short of about 400,000 tons of market pulp a year so is that almost cut in half?

Yeah, I would say I think on the consumer side of our external purchases, about 40% presale was softwood pulp. We can now, I guess, repurpose what we are sending to some of those mills to make on a retained retail mills. And probably bring the percentage of external purchases down to 20%.

And Steve, on a total basis we should probably be buying a little over, close to and around, 230,000 tons externally and that would make up about 20% for the total company, 45% for CPD.

Great, thank you for that. Now, this is a loaded question because I actually like this position but considering that you're selling, you know, almost more than half of what comprised Cellu Tissue, do you rethink how you might have even approached that whole business or the assets that remain are sufficiently compelling that you are glad you did it?

I think Steve, it's always a little challenging when you go back in and play I'm sure quarterback after the fact. But given the market dynamics we were faced with at the time of the Cellu Tissue acquisition, I think we were able to bring onboard a broader mix of customers and channels that we didn't previously have. And we have, despite selling off these mills, retained all of that business and have it managed across a smaller network of mills. So I would argue its optimized our productivity and brought us a much broader customer base than they otherwise would have had.

Great, okay. And then why would the SG&A be higher post divestiture? I mean you got rid of five facilities plus Long Island, is this part of the IT spend?

Yeah, IT is a big contributor and we started on this journey kind of at the end of -- or mid 2013 or end of 2012 I guess it was. And this is kind of our, I guess, the end of the line and there's some fairly decent IT spend that's happening to kind of the complete the IT roadmap that we started on. I think you're also probably seeing some incremental equity related expense associated with higher stock price and what that does to the stock comp number and profit dependent expenses.

Okay and then you made a great effort to explain the maintenance impact and I just want to make sure that I am smart enough to understand what you're telling us. So we are $13 million to $15 million more expenditures than Q4 and the full year is $20 million to $23 million higher than 2014 with the remainder of that coming in Q2?

Correct.

That's right.

All right, very good. I'll get back in the queue, thank you.

Thank you. (Operator Instructions). Our next question comes from James Armstrong with Vertical Research. Your line is open.

Good afternoon. My first question is really around the Lewiston pulp capacity, you mentioned in the call that you expect to debottleneck that mill, could you give us a range of how much debottlenecking you can do and the timing around it?

James, I don't think we're ready to do that right now. I would just say that it is part of the 300 to 400 basis point expansion that we think we can get, part of it contributed to the CPD business. As we move along, I mean, right now we're studying the effectiveness of some of the different options we have and until we finalize that, I think it's premature to make those estimates.

Okay.

There is capital expenditures that need to happen over a two to three year timeframe. So as it relates specifically to that, that's more backend loaded versus frontend loaded.

Okay, that helps. And then in the tissue business how much of your tissue is now sold as TAD and how much can of your tissue can you sell as TAD at -- going forward?

Well we have about a 100,000 tons of TAD currently and so that's our full capacity. We're running -- this will be our first full year at full run rate for TAD so this will be the year that we get to see how much we can convert into to sold cases.

Okay and then just following up on the corporate expense line, how -- as we go into 2016 and beyond, how much should corporate expense fall after the ERP system gets implemented?

Hold on a second, I want to make sure that I don't mess up the capital side versus the expense side, but I think you should look for $1 million to $2 million reduction, all else being equal related to IT.

Okay, that helps. Thank you very much.

And that was for the quarter.

Okay.

Our next question comes from Steven Chercover with D. A. Davidson. Your line is open.

I'm back. Two little follow ups please, so you said in Pulp and Paperboard where your EBITDA margins are 21%, that's about 200 basis points above the cycle expectation and I am just wondering why that is, is this because the costs are currently running below trend or the maintenance is below normal; hopefully it's not because prices are too high?

Well it is the strongest pricing environment we've had, I think, ever, definitely since I've been around. And so the market just has been very, very strong for the last year to nine months or so. So that obviously helps. We did not have any major maintenance downtime in 2014 so that obviously helps. And then just from a production standpoint, recall when we [spend out a] -- to focus at Paperboard was to really focus on operations and efficiency and that's what we've done and we continue to. You know, if you look at the slide in terms of our production output, overtime you can see that continue to creep up. So I think it's all those things.

Okay and then just finally to calibrate the EBITDA potential of the enterprise now. You know, years ago $300 million was the target you came close to a run rate, obviously you've divested just under $20 million of EBITDA and this year we've got $20 million more so, I know you don't want to give full-year guidance, but should we be thinking in the vicinity of $260 million in EBITDA for 2015 and despite the divestiture when everything's said and done, you're still at a $300 million full-year target once you're getting your cross-cycle targets?

I don't want to give a full-year EBITDA dollar target at this point. I think as you probably noticed, our focus now is kind of more on the margin percentage side of the equation. You highlighted some things that you do need to take into account obviously, the lack of the specialty products EBITDA dollars, the fact we are going to have $20 million to $23 million more in maintenance. I don't know if there's other major items I would point out as you think about full year 2015.

Okay but once upon a time we had visibility that there was runway beyond $300 million. So if we take away the $20 million, that $300 million target is still very much in place?

Yeah, you know, I think we are, from Linda's comments on the consumer side from a input cost inflation standpoint and the pricing pressures that we saw last year from a competitive standpoint in the conventional space. And then when you just think about overall cost inflation since the 2011 timeframe that we had previously talked about going back to the time when we set the $300 million goal, that basically everything has kind of gone against us. So if everything stays like that, that makes it kind of harder to like stretch what we have into $300 million. To the extent that turns and we start to get some wind at our back, then that helps that.

Great, well let's hope for some wind. All right, thank you.

All right, thanks Steve.

Ladies and gentlemen that does conclude our question and answer session. At this time I will turn the call over to Ms. Massman for any closing or additional remarks.

Great, thank you. As you can hear we are very excited about the prospects of our business, the opportunities to increase operating efficiency across the company, and to continually improve and provide excellent service support and high quality products to our customers. Thank you for joining us today and for your continued interest in Clearwater Paper.

On a final note, we will be presenting at the Bank of America Merrill Lynch Conference in March and we hope to see you there. Thank you.

Ladies and gentlemen, that does conclude the Clearwater Paper fourth quarter and fiscal year 2014 earnings conference call. We do appreciate your participation.