Welcome to the Clearwater Paper Corporation Fourth Quarter 2015 Earnings Conference Call. As a reminder, this call is being recorded today, February 10, 2016. 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, Cindy. Good afternoon and thank you for joining Clearwater Paper’s fourth quarter and fiscal year 2015 earnings conference call. Joining me on the call today in Spokane is John Hertz, Chief Financial Officer. Linda Massman, President and Chief Executive Officer, is traveling this week and she is joining us remotely. Financial results for the fourth quarter were released shortly after today’s market close. Posted on the Investor Relations page of our website at clearwaterpaper.com, you will find both the earnings press release and the presentation of supplemental information, including outlook slides providing the company’s current expectations and estimates as to net sales, operating margins, and adjusted EBITDA range for the first quarter of 2016 and certain costs, pricing, shipment, production, maintenance and repair, and other factors for the first quarter and full year of 2016. 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 materials provided on our website. 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, 2014, 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 2015, and Linda Massman will provide an overview of the business environment and our outlook for the year and the first quarter of 2016. And then we’ll open up the call for the question-and-answer session. Now I’ll turn the call over to John.

Thank you, Robin. Here at Clearwater Paper, our 2015 focus was on our cost structure and realizing operating efficiencies, particularly in the Consumer Products division as well as the company overall. We started with the sale of our specialty mills at the end of 2014 with a plan to reinvest the proceeds of that sale into strategic capital investments that we believe will generate a 400 to 600 basis point improvement in CPD’s adjusted EBITDA margins as we leave 2017. We also addressed complexity in our operation through better logistics planning and we’re able to reduce miles traveled per customer shipment by 2% in 2015. We also were able to eliminate an additional 16% of SKUs in our retail tissue business. In addition, we streamlined the company with a reorganization. Finally, we began the total productive maintenance journey that will, among other things, allow us to significantly increase the operating uptime of our tissue converting lines, and we’ve began to see benefit of those initiatives and efforts with CPD’s adjusted EBITDA margin improving by 200 basis points in 2015 versus 2014. On the Paperboard side, we achieved our target model EBITDA margin of 19%, despite absorbing $22 million of major maintenance costs and 15 days of related lost production as well as the pricing pressure on commodity grade paperboard that we began to see in the third quarter. On the balance sheet side of the equation, working capital improvement led to a 12-day improvement in the cash conversion cycle as days inventory outstanding improved by 8 days and days payable outstanding improved by 4 days. We saw cash flow from operations to increase nearly 15% versus 2014 to $160 million. We completed our $100 million stock repurchase authorization in October. Since the inception of our stock buyback program, we have…

Thank you, John. Hello, everyone, and thanks for joining us today. First, I’ll start with 2015 highlights and then discuss our high level outlook for fiscal 2016 and more specifically for the first quarter of 2016. 2015 was a transformative year for Clearwater Paper as we continued to build a solid foundation for Clearwater Paper’s long-term success. We’re focused on the things we can control to create shareholder value, such as operating results and working capital management that generate strong free cash flow and returns on invested capital that exceed our weighted average cost of capital; a balanced capital allocation that returns excess cash to shareholders, while investing in the business to grow free cash flow in future years; and maintaining an optimal capital structure that minimizes our cost of capital. And I believe we executed well on those items in 2015. Discretionary free cash flow for 2015 was $100 million, which at our current market value equates to a discretionary free cash flow yield of 15%. Our return on invested capital of 10.6% is well above our cost of capital. We returned $100 million of cash to shareholders in 2015; $330 million over the last four years; and as of December 2015, we have reduced the share count by 28%; and we completed the first year of our three-year strategic capital plan and expanded our Consumer Products division’s adjusted EBITDA margin by 200 basis points of the targeted 400 to 600 basis points as we leave 2017. We consolidated the management of both the Consumer Products and Pulp and Paperboard businesses under one Group President, Pat Burke, and established cross-divisional management for sales and manufacturing. This has proven to be beneficial to running the business from a holistic approach and driving decisions for the benefit of the entire company.…

[Operator Instructions] Our first question comes from the line of Paul Quinn of RBC Capital Markets.

Just a couple of questions on the 2016 outlook, it sounded like you expected private label to gain share in the Consumer Products side, just wondering how that reconciles with the loss of share in 2015 and why did private label lose market share in 2015 and why is it going to turn around in 2016?

Paul, I think the market share was fourth quarter, and it was primarily because the brands promoted more than private label. We don’t see it as a long-term trend against private label. And so, we think it just grows again with population like we’ve seen in the past many, many years.

And then just on the paperboards side, we’ve got the Metsä Board machines started up in February, it sounds like you expect pricing to hold flat for the first half and then see some decrease, I think it was 2.5% down in the second half. What gives you that level of confidence that you’re not going to see higher imports?

Paul, I think it’s based off of what we saw this particular year, in 2015, we saw some addition of imports, but I think more of the market was impacted by the lack of exports. So, I think RISI does a lot of research. We are not taking a counter position to what they have to say about import/export changes, and I think we produce good high quality paperboard, and we’re doing it at a more effective and efficient way every year. So I think we’ll be able to compete pretty effectively.

Just following up on the paperboards side, it sounds like the import pressure is coming on in the commodity side and it sounded like from your remarks that in Q4, you had more of a mix to the commodity. Can you actually shift your mix more to the specialty side to get away from the import pressure?

Yes, and that’s something that we’re actively working on and started working on during 2015, and I think we’ve already started seeing progress in that, and I expect to see more progress in 2016.

Our next question comes from Steve Chercover of D. A. Davidson.

I really just had one question since some of mine have already been answered, which is I appreciate the conservative presentation, but would it make sense to call out the high tax rate in your operating earnings because EBITDA was in line, but the EPS missed and poor optics can get you punished in this market?

So I guess when we go through our decision-making process with what we would adjust out or not, in particular as it relates to taxes, there’s things that really are unique and more similar to asset write off kind of things in that foreign tax credit that we adjusted out, kind of fell into that category. But there is other things around valuation allowance increases that are really more ordinary course things that happen quarter in, quarter out within the tax line, and that’s really what the remainder of it was and for that reason didn’t feel that met our criteria to adjust that stuff out.

I just think that you might get punished for the $0.65 number versus the consensus of $0.95, or $0.99, but really if you had a normal tax rate you probably would have beat on that line. So I don’t mind you being conservative, you might want to be explicit. Thanks.

And our next question comes from James Armstrong of Vertical Research Partners.

[Briefly] it looks like they were reading over my questions on the previous analysts. But diving into the Metsä Board a little bit, as the dollar remains strong, have you seen any bleached board entering the market in the US yet? And in Europe, is there any confidence or lack of confidence that that board will find its way into the US market? And what do you think the puts and takes are there?

I think we saw some import increase in 2015, although I wouldn’t call it overly material, but it’s enough to have an impact on market pricing. And I would also say that in combination with the lower exports, I think RISI expects imports to be relatively flat. I agree with them. I mean, there is some risk; there is no doubt that that board can make its way into the US. But like I said, we’ve been very focused on improving our productivity with our two paperboard machines and ensuring that we are driving good value with our particular customer base and ensuring we have the right quality and customer service to protect ourselves. So that’s how we’re going to compete in 2016. I’m fairly confident we’re going to be successful.

And then switching to the tissue side and the pricing versus the market share in the fourth quarter, are you seeing any direct pricing competition heat up or does this remain more of an ad spending and promotional activity basis with the branded players?

I’d say it’s more of the ads and the number of ads being run. We definitely saw in the fourth quarter, the brands promoted more than private label, but that would be generally typical for fourth quarter anyway. Not seeing a lot of change on the price side, as you know, we implemented our price increase in our 2016 outlook, said that we intend to maintain that price increase. So I think definitely more of the ads driving it.

And then lastly just on the tissue market as a whole, besides de-sheeting, which has always happened, you’ve also seen tissue get smaller in sizing change. Has private label been able to match what the branded players have been doing or are there contracts that prevent you from sizing your product in a similar fashion as the brands do?

We have done some of the de-sheeting, I wouldn’t say we have matched it one for one. We’ll continue to work towards that. That’s always a function of discussing that with our retailers, ensuring that they are comfortable with our product design and attributes and ensuring that it meets their needs for what they want to have on the shelf for their private label program. So we tend to try to follow as quickly as we can, but it is definitely good dialog we have with our customers first before we follow up.

But not necessarily the de-sheeting, it’s the size changes. For instance, in toilet paper where a square is getting smaller than a square 10 years ago or is private label following that or there are different dimensions on the private label side versus the branded side?

I don’t know if I have the specifics on that so much, but we can follow back up with you on that. It’s not overly material [indiscernible].

I would say we use the term de-sheeting it’s a broader term, which would include things like shrinking in the actual square size because at the end of the day that’s just less fiber on the roll. Think about that.

[Operator Instructions] And our next question comes from Roger Spitz of Banc of America Merrill Lynch.

What was driving the mix shift towards more parent rolls and less retail tons?

Parent rolls can fluctuate quarter-to-quarter and it happened to be in this quarter where we saw less in the way of retail shipments, because of what Linda had just prior talked about and then we saw more opportunity to sell parent rolls. So those two things converged in the quarter and that’s why the mix shift the way it is.

Maybe you’ve talked about this and I missed in the commentary, but the $10 million to $15 million margin pressure in 2016, which segment was that in, if not both? And what was the main thing driving that expectation?

That’s across the board and it’s wage pressure, certain commodity cost pressures, could be some price reductions on conventional tissue paper, for example. The derivation of that was last year at this time we talked about some investments we’re going to make in strategic capital and we laid out what those benefits were going to be. In total in and how they layered into the P&L over the 2017 timeframe, we included or caveat it in that that as we move through time, we will face some inflationary pressure and we estimated that to be $10 million to $15 million per year. And like I said, that’s across the whole spectrum, not specific to any particular division or product line.

And then perhaps you gave, but do you have a 2016 CapEx guidance? I didn’t necessarily see that in the...

Yes, we did. I think it was $155 million; it was in Linda’s comments.

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

Great, thank you. I appreciate it. We look forward to another year of solid progress toward attaining out target cross-cycle margin model. We’re excited, energized and ready to take on the challenges for 2016. We thank our customers who make us better every day and for the support of our shareholders. Thank you for joining us and for your continued interest in Clearwater Paper.