10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

Or

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

For the transition period from              to             

Commission File Number: 001-34146

CLEARWATER PAPER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-3594554
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
601 West Riverside, Suite 1100 Spokane, Washington	99201
(Address of principal executive offices)	(Zip Code)

(509) 344-5900

Registrant’s telephone number, including area code

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

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

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

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

The number of shares of common stock of the registrant outstanding as of April 30, 2010 was 11,477,884.

CLEARWATER PAPER CORPORATION

Index to Form 10-Q

		Page Number
PART I.	FINANCIAL INFORMATION
ITEM 1.	Condensed Financial Statements
Condensed Statements of Operations for the three months ended March 31, 2010 and 2009		2
Condensed Balance Sheets at March 31, 2010 and December 31, 2009		3
Condensed Statements of Cash Flows for the three months ended March 31, 2010 and 2009		4
Condensed Statements of Comprehensive Income for the three months ended March  31, 2010 and 2009		5
Notes to Condensed Financial Statements		6-12
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	21
ITEM 1A.	Risk Factors	21
ITEM 6.	Exhibits	21
SIGNATURES		22
EXHIBIT INDEX		23

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Part I

ITEM 1. Condensed Financial Statements

Clearwater Paper Corporation

Condensed Statements of Operations

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

	Three Months Ended March 31,
	2010			2009
Net sales	$	330,621		$	286,700
Costs and expenses:
Cost of sales		301,964			245,645
Selling, general and administrative expenses		18,093			15,830
		320,057			261,475
Earnings before interest and income taxes		10,564			25,225
Interest expense, net		(4,285	)		(3,563	)
Earnings before income taxes		6,279			21,662
Income tax provision		5,821			8,015
Net earnings	$	458		$	13,647
Net earnings per common share:
Basic	$	0.04		$	1.20
Diluted	$	0.04		$	1.19

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

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Clearwater Paper Corporation

Condensed Balance Sheets

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

	March 31, 2010			December 31, 2009
ASSETS
Current assets:
Cash	$	17,261		$	2,824
Short-term investments		233,000			187,926
Receivables, net		105,157			94,458
Taxes receivable		61,990			101,343
Inventories		158,000			169,761
Deferred tax assets		13,601			12,926
Prepaid expenses		6,513			3,053
Total current assets		595,522			572,291
Land		4,729			4,729
Plant and equipment, net		353,451			359,295
Deferred tax assets		7,805			4,205
Other assets		6,761			6,943
	$	968,268		$	947,463
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		121,366			109,775
Current liability for pensions and other postretirement employee benefits		9,933			9,933
Total current liabilities		131,299			119,708
Long-term debt		148,332			148,285
Liability for pensions and other postretirement employee benefits		237,705			236,422
Other long-term obligations		6,241			5,825
Accrued taxes		73,632			73,487
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, 11,476,797 and 11,366,129 shares issued		1			1
Additional paid-in capital		308,559			308,618
Retained earnings		182,537			182,079
Accumulated other comprehensive loss, net of tax		(120,038	)		(126,962	)
Total stockholders’ equity		371,059			363,736
	$	968,268		$	947,463

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

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Clearwater Paper Corporation

Condensed Statements of Cash Flows

Unaudited (Dollars in thousands)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATIONS
Net earnings	$	458		$	13,647
Adjustments to reconcile net earnings to net operating cash flows:
Depreciation and amortization		11,866			11,721
Deferred taxes		794			4,475
Equity-based compensation expense		1,043			767
Employee benefit plans		3,309			3,162
Change in taxes receivable		39,353			—
Working capital changes		14,123			1,400
Excess tax benefit from equity-based payment arrangements		(2,569	)		—
Other, net		2,583			(401	)
Net cash provided by operating activities		70,960			34,771
CASH FLOWS FROM INVESTING
Change in short-term investments		(45,074	)		(2,177	)
Additions to plant and equipment		(5,257	)		(3,559	)
Net cash used for investing activities		(50,331	)		(5,736	)
CASH FLOWS FROM FINANCING
Change in book overdrafts		(5,324	)		(2,781	)
Repayment of notes payable		—			(10,000	)
Repayment of payable to Potlatch		—			(16,529	)
Excess tax benefit from equity-based payment arrangements		2,569			—
Payment of employee restricted stock tax withholdings		(3,420	)		—
Other, net		(17	)		(91	)
Net cash used for financing activities		(6,192	)		(29,401	)
Increase (decrease) in cash		14,437			(366	)
Balance at beginning of period		2,824			3,218
Balance at end of period	$	17,261		$	2,852

Cash payments for income taxes for the three months ended March 31, 2010 and 2009 were $0.4 million and $0.2 million, respectively. Cash received from income tax refunds for the three months ended March 31, 2010 was $37.2 million. There were no interest payments made during the three months ended March 31, 2010. Net interest payments for the three months ended March 31, 2009 were $0.5 million.

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

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Clearwater Paper Corporation

Condensed Statements of Comprehensive Income

Unaudited (Dollars in thousands)

	Three Months Ended March 31,
	2010			2009
Net earnings	$	458		$	13,647
Other comprehensive income, net of tax:
Defined benefit pension and other postretirement employee benefits:
Amortization of actuarial loss included in net periodic cost, net of tax expense of $1,242 and $835		1,944			1,306
Amortization of prior service credit included in net periodic cost, net of tax benefit of $58 and $67		(90	)		(106	)
Recognition of deferred taxes related to actuarial gain on other postretirement employee benefit obligations		5,070			—
Other comprehensive income, net of tax		6,924			1,200
Comprehensive income	$	7,382		$	14,847

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

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Clearwater Paper Corporation

Notes to Condensed Financial Statements

Unaudited

NOTE 1 Nature of Operations and Basis of Presentation

GENERAL

Clearwater Paper is principally engaged in the manufacturing and selling of pulp-based products. We are a leading producer of private label tissue products sold in grocery stores in the United States, and we manufacture and market bleached paperboard for the high-end segment of the packaging industry. We also manufacture and market bleached pulp and wood products, including appearance grade cedar and dimensional framing lumber products. Our businesses were owned by, and we were a subsidiary of, Potlatch Corporation, to which we refer to in this report as Potlatch, until our spin-off on December 16, 2008.

FINANCIAL STATEMENT PREPARATION AND PRESENTATION

The accompanying Condensed Balance Sheets at March 31, 2010 and December 31, 2009, and the related Condensed Statements of Operations, Cash Flows, and Comprehensive Income for the three months ended March 31, 2010 and 2009 have been prepared in conformity with accounting principles generally accepted in the United States of America. We believe that all adjustments necessary for a fair statement of the results of the interim periods presented have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission, or SEC, on February 26, 2010.

We evaluated all subsequent events through the date these financial statements are being filed with the SEC. Except as described in notes 3, 8 and 10, there were no events or transactions occurring during this subsequent event reporting period that require disclosure in the notes to condensed financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, which we refer to in this report as GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Significant areas requiring the use of estimates and measurement of uncertainty include the allocations of assets, determination of net realizable value for deferred tax assets, environmental matters, and pension and postretirement obligation assumptions. Actual results could differ from those estimates and assumptions.

TRADE ACCOUNTS RECEIVABLE

As of March 31, 2010 and December 31, 2009, we had an allowance of $1.0 million for doubtful accounts based on our estimates of the collectability of outstanding receivables as of those dates.

INVENTORIES

Inventories are stated at the lower of current average cost or market, except that the last-in, first-out (LIFO) method is used to determine cost of logs, chips, sawdust and the majority of our lumber. The average cost method is used to determine the cost of all other inventories.

PROPERTIES

Land, plant and equipment are stated at cost, including any interest costs capitalized, less accumulated depreciation. Depreciation of buildings, equipment and other depreciable assets is determined using the straight-line method. Estimated useful lives range from 30 to 40 years for buildings and structures and 2 to 25 years for equipment. Accumulated depreciation totaled $1,262.6 million and $1,251.3 million at March 31, 2010 and December 31, 2009, respectively.

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NOTE 2 Recently Adopted and New Accounting Standards

There were no new accounting standards adopted during the three months ended March 31, 2010. We reviewed all new accounting pronouncements issued in the period and concluded that they are not applicable to our business.

NOTE 3 Taxes

The effective income tax rate was 92.7% for the three months ended March 31, 2010, compared to an effective income tax rate of 37.0% for the same period of 2009. The higher effective tax rate for the three months ended March 31, 2010, is due to two discrete items: the passage of the Patient Protection and Affordable Care Act of 2010, as discussed below, which had an unfavorable impact of 70.2%; and an increase in the reserve for uncertain tax positions due to accrued interest, which had an unfavorable impact of 2.3%. These unfavorable items were partially offset by a 13.9% decrease in the rate due to a prior year return to provision reconciling item. Excluding these items, the annual effective tax rate for the year is estimated to be 34.1%.

As a result of the March 2010 enactment of the Patient Protection and Affordable Care Act of 2010, as modified by the Health Care and Education Reconciliation Act of 2010, we were required to reverse deferred tax assets of $4.4 million through the tax provision as a result of the elimination of the income tax deduction related to prescription drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy beginning in January 2013.

In the first quarter of 2010, we did not record any income in connection with alternative fuel mixture tax credits related to black liquor due to the termination of the tax credit for such use at the end of 2009. During the three months ended March 31, 2010, we received $37.2 million from the Federal Government, of which $19.4 million related to the alternative fuel mixture tax credits earned in 2009. In April 2010, we received the balance due to us for the alternative fuel mixture tax credits we claimed in 2009.

NOTE 4 Inventories

Inventories at the balance sheet dates consist of:

(Dollars in thousands)	March 31, 2010		December 31, 2009
Logs, pulpwood, chips and sawdust	$	16,574	$	24,120
Lumber		14,805		12,068
Pulp, paperboard and tissue products		85,400		92,293
Materials and supplies		41,221		41,280
	$	158,000	$	169,761

NOTE 5 Debt

In June 2009, we issued senior unsecured notes, or Senior Notes, in aggregate principal amount of $150.0 million. The notes are due on June 15, 2016 and have an interest rate of 10.625%. The notes were issued at a price equal to 98.92% of their face value. The issuance of these notes generated net proceeds of $144.0 million, which were used to fully repay credit sensitive debentures of $100.0 million originally issued by an affiliate of Potlatch and subsequently assumed by us.

The Senior Notes are general unsecured obligations and are therefore not secured by our assets and are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit facility, which is secured by all accounts receivable, inventory and cash. The terms of the notes limit our ability and the ability of any restricted subsidiaries to borrow money; pay dividends; redeem or repurchase capital stock; make investments; sell assets; create restrictions on the payment of dividends or other amounts to us from any restricted subsidiaries; enter into transactions with affiliates; enter into sale and lease back transactions; create liens; and consolidate, merge or sell all or substantially all of our assets.

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NOTE 6 Equity-Based Compensation

We record equity-based compensation expense for awards of restricted stock units, or RSUs, and performance shares. We expense equity-based compensation using the straight-line method, generally over the vesting requirement period. We are authorized to issue up to approximately 1.7 million shares. At March 31, 2010, approximately 0.7 million shares were available for future issuance under the Clearwater Paper Corporation 2008 Stock Incentive Plan, or Stock Plan.

Employee equity-based compensation expense was recognized as follows:

	Three Months Ended March  31,
(Dollars in thousands)	2010		2009
Restricted stock units	$	322	$	633
Performance shares		471		56
Total employee equity-based compensation	$	793	$	689
Related tax benefit	$	270	$	255

RESTRICTED STOCK UNITS

RSUs granted under our Stock Plan are generally subject to a vesting period. RSU awards will accrue dividend equivalents based on dividends paid, if any, during the RSU vesting period. The dividend equivalents will be converted into additional RSUs that will vest in the same manner as the underlying RSUs to which they relate. The vesting period for our RSU awards is generally one to three years.

A summary of the status of outstanding RSU awards as of March 31, 2010, and changes during the first three months of 2010, is presented below:

	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (In  thousands)
Unvested shares outstanding at January 1, 2010	424,756		$	14.07
Granted	16,098			48.38
Vested	(206,791	)		16.21
Forfeited	(7,671	)		14.26
Unvested shares outstanding at March 31, 2010	226,392		$	14.54	$	11,150

For RSU awards granted during 2010, the fair value of each share was estimated on the date of grant using the grant date market price of our common stock. The total fair value of share awards that vested during the first three months of 2010 was $3.4 million.

As of March 31, 2010, there was $2.2 million of total unrecognized compensation cost related to outstanding RSU awards. The cost is expected to be recognized over a weighted average period of 1.5 years.

PERFORMANCE SHARES

Performance share awards granted under our Stock Plan have a three-year performance period, and shares are issued after the end of the period if the performance measure is met. The performance measure is a comparison of the percentile ranking of our total shareholder return compared to the total shareholder return performance of a selected peer group. The number of shares actually issued, as a percentage of the amount subject to the performance share award, could range from 0%—200%. Performance share awards granted under our Stock Plan do not represent common stock, and therefore the holders do not have voting rights unless and until shares are issued upon settlement. During the performance period, dividend equivalents accrue based on dividends paid, if any, and are converted into additional performance shares, which vest or are forfeited in the same manner as the underlying performance shares to which they relate.

8

The fair value of performance share awards is estimated using a Monte Carlo simulation model. For performance shares granted in 2010, the following assumptions were used in our Monte Carlo model:

Closing price of stock on date of grant	$	48.32
Risk free rate		1.30	%
Measurement period		3 years
Volatility		105	%

In addition to the above assumptions, the dividend yields for all companies were assumed to be zero since dividends are included in the definition of total shareholder return.

A summary of the status of outstanding performance share awards as of March 31, 2010, and changes during the first three months of 2010 is presented below:

	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (In  thousands)
Unvested shares outstanding at January 1, 2010	262,294		$	11.27
Granted	70,412			78.71
Vested	—			—
Forfeited	(9,393	)		14.56
Unvested shares outstanding at March 31, 2010	323,313		$	25.86	$	15,923

As of March 31, 2010 there was $6.7 million of unrecognized compensation cost related to outstanding performance share awards. The cost is expected to be recognized over a weighted average period of 1.9 years.

DIRECTOR AWARDS

In connection with joining our board of directors, in January 2009 our outside directors were granted an award of phantom common stock units, which were credited to an account established on behalf of each director and will vest ratably over a three-year period. In May 2009, our outside directors were granted equity awards in the form of common stock units as part of their annual compensation, which were credited to their accounts. Certain of the awards granted will vest ratably over one year. These accounts will be credited with additional common stock units equal in value to dividends paid, if any, on the same amount of common stock. Upon separation from service as a director, the vested portion of the common stock units held by the director in a stock unit account will be converted to cash based upon the then market price of the common stock and paid to the director. Due to the cash-settlement feature of the awards, we recognize equity-based compensation expense or income at the end of each reporting period based on the portion of the award that is vested and the increase or decrease in the value of our common stock. We recorded director equity-based compensation expense totaling $0.3 million and $0.1 million for the three months ended March 31, 2010 and 2009, respectively.

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NOTE 7 Earnings per Common Share

Earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding in accordance with accounting guidance related to earnings per share. The following table reconciles the number of common shares used in calculating the basic and diluted net earnings per share:

	Three Months Ended March 31,
	2010		2009
Basic average common shares outstanding		11,458,655		11,354,542
Incremental shares due to:
Restricted stock units		155,169		159,155
Performance shares		153,666		—
Diluted average common shares outstanding		11,767,490		11,513,697
Basic net earnings per common share	$	0.04	$	1.20
Diluted net earnings per common share	$	0.04	$	1.19
Anti-dilutive shares excluded from calculation		86,509		405,129

NOTE 8 Pension and Other Postretirement Employee Benefit Plans

The following table details the components of net periodic cost of our pension and other postretirement employee benefit, or OPEB, plans for the three months ended March 31:

	Pension Benefit Plans						Other Postretirement Employee Benefit Plans
(Dollars in thousands)	2010			2009			2010			2009
Service cost	$	1,964		$	1,733		$	270		$	303
Interest cost		3,895			3,741			2,093			2,076
Expected return on plan assets		(4,788	)		(4,879	)		—			—
Amortization of prior service cost (credit)		301			355			(449	)		(528	)
Amortization of actuarial loss		2,219			1,565			967			576
Net periodic cost	$	3,591		$	2,515		$	2,881		$	2,427

As discussed in the notes to our financial statements as of and for the year ended December 31, 2009, our company-sponsored pension plans were underfunded by $95.9 million at December 31, 2009. As a result, we are required to make contributions to our qualified pension plans. During the three months ended March 31, 2010, we made no contributions to our qualified pension plans. However, in April 2010, we contributed $9.0 million to these pension plans, which covered all of the 2009 tax year requirements and a portion of our expected required contributions for the 2010 tax year. We now expect our remaining required contributions to be approximately $5.9 million (plus interest) to our qualified pension plans for the 2010 tax year, payable by September 2011.

During the three months ended March 31, 2010, we made less than $0.1 million of contributions to our non-qualified pension plan and we estimate contributions will total approximately $0.2 million in 2010. We do not anticipate funding our OPEB plans in 2010 except to pay benefit costs as incurred during the year by plan participants.

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NOTE 9 Fair Value Measurements

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

	March 31, 2010				December 31, 2009
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and short-term investments (Level 1)	$	250,261	$	250,261	$	190,750	$	190,750
Long-term debt (Level 1)		148,332		167,625		148,285		166,500

The fair value accounting guidance establishes a framework for measuring fair value, which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities, or “Level 1” measurements, and the lowest priority to unobservable inputs, or “Level 3” measurements.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Cash and short-term investments are the only assets measured at fair value on a recurring basis. The carrying amount of our short-term investments approximates fair value due to their very short maturity periods.

NOTE 10 Business Interruption and Insurance Recovery

Following the scheduled routine maintenance at our Idaho pulp and paperboard mill, on March 22, 2010, a fiberline blow tank collapsed causing a portion of this mill to cease operations for a period of 14 days. We maintain business interruption insurance coverage and are in the process of filing a claim with our insurance provider to recover costs on damaged plant and equipment and estimated lost profits due to the disruption of operations during the repair period. In addition to repair and asset replacement costs, we also incurred various other costs, including incremental pulp replacement costs associated with the shipment of pulp purchased from external suppliers, lost electrical generation, incremental natural gas costs, and incremental chip storage and handling costs with our external chip suppliers. Our results of operations for the three months ended March 31, 2010 include $2.2 million in incremental costs associated with the blow tank incident, offset by a claim for insurance proceeds of $1.2 million, reflecting the $1.0 million claim deductible. These amounts are included within the cost of sales line item in our results of operations. Subsequent to March 31, 2010, we received $3.7 million from our property insurance provider as a partial cash prepayment of the final total settlement.

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NOTE 11 Segment Information

As of December 31, 2009, we were organized into three reportable operating segments: Consumer Products, Pulp and Paperboard and Wood Products. Commencing on January 1, 2010, the Wood Products operating results have been consolidated into the Pulp and Paperboard segment in order to conform to our new management structure beginning in 2010. We have reclassified applicable segment data of the prior period to reflect this segment change.

	Three Months Ended March 31,
(Dollars in thousands)	2010			2009
Segment net sales:
Consumer Products	$	137,850		$	136,152
Pulp and Paperboard		208,018			164,551
		345,868			300,703
Elimination of intersegment net sales		(15,247	)		(14,003	)
Total segment net sales	$	330,621		$	286,700
Intersegment net sales or transfers:
Consumer Products	$	27		$	18
Pulp and Paperboard		15,220			13,985
Total intersegment net sales or transfers	$	15,247		$	14,003
Operating income (loss):
Consumer Products	$	24,839		$	29,136
Pulp and Paperboard		(6,769	)		2,209
		18,070			31,345
Corporate and eliminations		(7,506	)		(6,120	)
Earnings before interest and income taxes	$	10,564		$	25,225
Depreciation and amortization:
Consumer Products	$	4,088		$	3,900
Pulp and Paperboard		7,324			7,566
Corporate		454			255
Total depreciation and amortization	$	11,866		$	11,721

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

FORWARD-LOOKING STATEMENTS

This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including without limitation, statements regarding our plans to build additional converting and paper making capacity, the cost and timing to complete new facilities, liquidity and future growth opportunities, future revenues, cash flows, energy costs, wood fiber costs, manufacturing output, benefit plan funding levels, the effect of recent accounting standards on our financial condition and results of operations, our expectation that we will be entitled to retain substantial cash payments previously received in connection with alternative fuel mixture tax credits and the tax treatment of the credits, our expectation as to the receipt of additional proceeds from our business interruption insurance claim, our expectation regarding the need to periodically draw upon our credit facility to meet cash requirements and capital expenditures. Words such as “anticipate,” “expect,” “will,” “intend,” “plan,” “target,” “project,” “believe,” “seek,” “schedule,” “estimate,” “could,” “can,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include the risk factors described in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2009, as well as the following:

• our ability to implement our growth strategies;

• changes in raw material costs and energy availability and costs;

• changes in the United States and international economies;

• changes in customer product preferences;

• cyclical industry conditions;

• our qualification to retain alternative fuel mixture tax credits and the tax treatment associated with receipt of such credits;

• unanticipated manufacturing disruptions, including equipment malfunction and damage to our manufacturing facilities caused by fire or weather related events;

• the loss of business from any of our three largest Consumer Products segment customers or a large Pulp and Paperboard segment customer;

• competitive pricing pressures for our products;

• changes in the relationship between supply and demand in the forest products industry, including the amount of available manufacturing capacity and wood fiber used in manufacturing products;

• changes in freight costs and disruptions in transportation services;

• unforeseen environmental liabilities or expenditures;

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

• changes in laws, regulations or industry standards affecting our business;

• labor disruptions;

• changes in the level of construction activity; and

• changes in exchange rates between the U.S. dollar and other currencies.

Forward-looking statements contained in this report present management’s views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of management’s views to reflect events or circumstances occurring after the date of this report.

OVERVIEW

Background

Clearwater Paper is principally engaged in the manufacturing and selling of pulp-based products. We are a leading producer of private label tissue products sold in grocery stores in the United States, and we manufacture and market bleached paperboard for the high-end segment of the packaging industry. We also manufacture and market bleached pulp and wood products, including appearance grade cedar and dimensional framing lumber products.

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Our businesses were owned by, and we were a subsidiary of, Potlatch Corporation until our spin-off on December 16, 2008.

Recent Developments

Announced Expansion Plans

The company announced on February 18, 2010, our intention to build a tissue converting facility in the Southeastern United States as part of our plans to expand our Consumer Products segment business. This site is expected to have two initial converting lines, producing both conventional and through-air-dried, or TAD, tissue products, and is expected to cost approximately $30 million to build. Our expectation is that approximately 40% of the project cost will be incurred in 2010 and the remainder in the first half of 2011.

We also continue to evaluate the potential construction of a TAD paper machine and additional converting lines at the same facility site. The paper machine under consideration would be a high capacity machine that is able to produce approximately 70,000 tons annually, or the equivalent of approximately 10 million cases. This type of machine typically takes about two years to build. Associated with the paper machine, we would plan to add five additional converting lines. As part of our evaluation of a paper machine, we continue to evaluate the total costs of a paper machine, building and land, additional converting lines and related costs for construction.

Elimination of Medicare Part D Subsidy Tax Deduction

As a result of the recently enacted Patient Protection and Affordable Care Act of 2010, beginning in 2013 we will no longer be able to claim an income tax deduction related to prescription drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy. Although this tax change does not take effect until 2013, accounting standards require that we record the effect of the changes to the tax law in the current period, resulting in a $4.4 million increase to income tax expense in the first quarter of 2010. Cash impacts of this charge will be realized over many years beginning in 2013.

Maintenance Outage at Idaho Pulp and Paperboard Mill

In March 2010, a scheduled eight day major maintenance downtime at our Lewiston, Idaho pulp and paperboard mill was completed as planned at the expected cost of approximately $16.9 million. This quarter’s major maintenance spending represents an increase of $15.4 million over the first quarter of 2009. We expect to spend an additional $5 million to $6 million on major maintenance in the third and fourth quarters of 2010.

Components and Trends in our Business

Net sales

Net sales consist of sales of consumer tissue, pulp and paperboard and wood products, net of discounts, returns and allowances and any sales taxes collected. Prices for our consumer tissue products primarily tend to follow the prices of branded tissue products. Demand and pricing for our pulp and paperboard products is largely determined by general global market conditions. Pricing for pulp in the first quarter of 2010 increased 37.1% compared to the first quarter of 2009 due to a pulp shortage partly attributable to the decrease in South American pulp production following the earthquake in Chile. Markets continue to appear relatively stable for consumer products and paperboard in 2010.

Operating costs

Wood fiber. Our most significant operating cost is the cost of wood fiber, including pulp, needed to supply our manufacturing facilities. Fiber and pulp costs totaled $74.7 million, or 24.7% of our cost of sales for the quarter ended March 31, 2010. Overall lumber production in Idaho increased in the first quarter of 2010 compared to the same period in 2009, creating more residual chips and sawdust and decreasing our need for higher priced whole log chips.

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. During the first quarter of 2010, equipment maintenance and repair costs, including labor and the major maintenance costs discussed below, were $4.1 million in our Consumer Products segment and $26.7 million in our Pulp and Paperboard segment for a total of $30.8 million, or 10.2% of our cost of sales.

Major equipment maintenance and repair in our Pulp and Paperboard segment also requires maintenance shutdowns generally lasting up to one week per year at our Idaho facility and up to one week approximately every 18 months at our Arkansas facility, which increases costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur. Major maintenance and repair costs for 2010 are expected to be approximately $20-25 million. As discussed above, in March 2010 we had machine downtime of eight days at our Idaho pulp and paperboard mill due to scheduled major maintenance costing $16.9 million. We expect to spend an additional $5 million to $6 million on major maintenance in the third and fourth quarters of 2010.

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In addition to ongoing maintenance and repair costs, we make capital expenditures to increase our operating efficiency, improve our safety and to comply with environmental laws. During the three months ended March 31, 2010, we spent $5.3 million on capital expenditures compared to $3.6 million in the same period in 2009. Our estimated capital expenditures for 2010 are expected to be between $40 million and $45 million, including an estimated $12 million for our new converting facility expected to be located in the Southeastern United States.

Energy. We use energy in the form of electricity, hog fuel, steam and natural gas. Our costs for energy used in our manufacturing processes were $24.2 million, or 8.0% of our cost of sales for the first quarter of 2010. Energy prices have fluctuated widely over the past decade. We have taken steps to reduce our exposure to volatile energy prices through conservation and by increasing our internal electrical production at our cogeneration facility that produces steam and electricity in Idaho. In addition, to help mitigate our exposure to changes in natural gas prices, we have used firm-price contracts to supply a portion of our natural gas requirements. As of March 31, 2010, these contracts covered approximately 16% of our expected average monthly natural gas requirements for the Pulp and Paperboard and Consumer Products segments for the remainder of 2010. 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.

Chemicals. We consume a significant amount of chemicals in the production of pulp and paperboard including polyethylene, starch, sodium chlorate, caustic, latex and specialty process paper chemicals. Our chemical costs totaled $30.0 million in the first quarter of 2010, or 9.9% of our cost of sales. Many of our chemicals are purchased under long-term contracts, which provide more stability than open-market purchases. However, many of these contracts have pricing mechanisms that adjust with published price indices.

Transportation. Petroleum prices also impact our operating results. For example, high fuel prices result in increased transportation costs related to delivery of raw materials to our manufacturing facilities and for the delivery of our finished products to customers. Our total transportation costs were $27.8 million or 9.2% of our cost of sales for the first quarter of 2010. In addition, many of the chemicals used in our manufacturing processes, particularly in the pulp-making process, are petroleum-based and are indirectly impacted by petroleum prices.

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. Selling, general and administrative expenses were $18.1 million in the first quarter of 2010. We expect our selling, general and administrative expenses to fluctuate as we continue to properly staff our administrative functions and implement additional cost controls and procedures.

Interest expense

Interest expense is the interest related to the $150.0 million aggregate principal amount of our unsecured senior notes, or Senior Notes, issued by us in June 2009 and with our revolving credit facility. Interest expense also includes amortization of deferred finance costs associated with the Senior Notes and credit facility. We expect future quarterly interest expense to remain relatively consistent with the amounts recorded for the quarter ended March 31, 2010.

Income taxes

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

In the first quarter of 2010, we did not record any income in connection with alternative fuel mixture tax credits related to black liquor due to the termination of the tax credit for such use at the end of 2009. During the three months ended March 31, 2010, we received $37.2 million from the Federal Government, of which $19.4 million related to the alternative fuel mixture tax credits earned in 2009. In April 2010, we received the balance due to us for the alternative fuel mixture tax credits we claimed in 2009.

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RESULTS OF OPERATIONS

As of December 31, 2009, we were organized into three reportable operating segments: Consumer Products, Pulp and Paperboard and Wood Products. Commencing on January 1, 2010, the Wood Products operating results have been consolidated into the Pulp and Paperboard segment in order to conform to our new management structure beginning in 2010. We have reclassified applicable segment data of the prior period to reflect this segment change. Sales or transfers between segments are recorded as intersegment net sales based on prevailing market prices.

Quarter Ended March 31, 2010 Compared to Quarter Ended March 31, 2009

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

	Three Months Ended March 31,
(Dollars in thousands)	2010					2009
Net sales	$	330,621		100.0	%	$	286,700		100.0	%
Costs and expenses:
Cost of sales		301,964		91.3			245,645		85.7
Selling, general and administrative expenses		18,093		5.5			15,830		5.5
Total operating costs and expenses		320,057		96.8			261,475		91.2
Earnings before interest and income taxes		10,564		3.2			25,225		8.8
Interest expense, net		(4,285	)	1.3			(3,563	)	1.2
Earnings before income taxes		6,279		1.9			21,662		7.6
Income tax provision		5,821		1.8			8,015		2.8
Net earnings	$	458		0.1		$	13,647		4.8

Net sales—We experienced increased shipments of our consumer products, paperboard, and pulp, as well as higher net selling prices for our pulp in the first quarter of 2010, compared to the same period in 2009. These improvements were partially offset by lower net selling prices for paperboard and consumer products. These items are discussed further below under “Business Segment Discussion.”

Cost of sales—Cost of sales was 91.3% of net sales for the quarter ended March 31, 2010, and 85.7% of net sales for the same period in 2009. The increase of $56.3 million, or 22.9%, in the 2010 period compared to 2009 was primarily due to costs of the scheduled major maintenance performed at the Idaho pulp and paperboard mill and higher pulp costs, as well as higher overall costs associated with increased shipments in all our businesses.

Selling, general and administrative expenses—Selling, general and administrative expenses increased 14.3% for the quarter ended March 31, 2010, compared to the same period in 2009. The increase was primarily due to costs associated with additional administrative headcount, additional payroll burden due to higher pension expense and higher professional related fees.

Interest expense—Interest expense increased $0.7 million in the first quarter of 2010 compared to the first quarter of 2009. The increase was due to a higher interest rate on our long-term debt outstanding in the first quarter of 2010 compared to the average interest rate on our credit facility and long-term debt outstanding during the first quarter of 2009, as well as amortization of deferred finance fees in the first quarter of 2010 associated with our long-term debt issued in June 2009.

Income tax expense—The effective tax rates were 92.7% and 37.0% for the quarters ended March 31, 2010 and 2009, respectively. The significant increase in the effective tax rate as compared with the prior year was primarily due to an income tax charge of $4.4 million as a result of the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act of 2010. As a result of this legislation, beginning in 2013, we will no longer be able to claim an income tax deduction related to prescription drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy.

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BUSINESS SEGMENT DISCUSSION

Consumer Products

	Three Months Ended March 31,
(Dollars in thousands)	2010			2009
Net sales (before intersegment net sales eliminations)	$	137,850		$	136,152
Operating income		24,839			29,136
Percent of net sales		18.0	%		21.4	%

The Consumer Products segment reported a $1.7 million, or 1.2%, increase in net sales and a $4.3 million decrease in operating income for the first quarter of 2010 compared to the first quarter of 2009. The slight increase in net sales was due to a 3.8% increase in shipment volumes, which were mostly offset by 2.5% lower net selling prices resulting primarily from increased promotional activity. The decrease in operating income was due to a significant increase in pulp costs and higher purchased paper costs.

Pulp and Paperboard

	Three Months Ended March 31,
(Dollars in thousands)	2010			2009
Net sales (before intersegment net sales eliminations)	$	208,018		$	164,551
Operating income (loss)		(6,769	)		2,209
Percent of net sales		N/A			1.3	%

Net sales for the Pulp and Paperboard segment were $43.5 million or 26.4% higher in the first quarter of 2010 compared to the first quarter of 2009. The increase in net sales over 2009 was largely due to a 24.9% increase in paperboard shipments, a 37.1% increase in pulp prices and a significant increase in pulp shipments. These increases were slightly offset by a 3.0% decrease in paperboard prices and the downtime associated with the maintenance shutdown of the Idaho pulp and paperboard mill during the first quarter of 2010.

Operating income decreased $9.0 million in the first quarter of 2010 compared to the first quarter of 2009. The decrease in operating income for the segment was due to (i) the scheduled major maintenance at our Idaho pulp and paperboard mill performed during the first quarter of 2010, at a cost of $16.9 million compared to major maintenance costs of $1.5 million in the first quarter of 2009; and (ii) higher freight costs associated with increased shipments compared to the first quarter of 2009.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents information regarding our cash flows for the quarters ended March 31, 2010 and 2009.

Cash Flows Summary

(Dollars in thousands)	2010			2009
Net cash provided by operating activities	$	70,960		$	34,771
Net cash used for investing activities		(50,331	)		(5,736	)
Net cash used for financing activities		(6,192	)		(29,401	)
Increase (decrease) in cash	$	14,437		$	(366	)

Net cash provided by operating activities increased 104.1% for the first three months of 2010 compared with the same period in 2009. The significant increase was mostly attributable to the receipt of cash from the Federal Government during the first quarter of 2010 related to the alternative fuel mixture tax credits claimed in 2009, as well as a reduction in inventory levels and higher accounts payable and accrued liabilities. These increases were partially offset by higher trade receivables during the period.

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For the three months ended March 31, 2010, net cash used for investing activities was $50.3 million, compared to $5.7 million for the first three months of 2009. The increase from 2009 to 2010 was due to an increase of $45.1 million in short-term investments reflecting the investment of our cash assets, including cash generated from operations and alternative fuel mixture tax credits. Capital expenditures were $5.3 million during the first quarter of 2010, compared to $3.6 million in the same period of 2009.

Net cash used for financing activities was $6.2 million for the three months ended March 31, 2010, compared with $29.4 million of cash used for financing activities during the same period in 2009. Cash used for financing activities in the first three months of 2010 primarily consisted of the change in book overdrafts and cash used to pay employee minimum withholding requirements associated with shares issued in settlement of vested restricted stock units during the quarter, partially offset by the excess tax benefits from the share based payment issuance. Cash used for financing activities in the first three months of 2009 primarily consisted of a decrease in payables to Potlatch and the repayment of $10 million in borrowings under our revolving credit facility.

Capital Resources

Against the backdrop of an uncertain economy, as well as 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 12 months. However, we believe that our cash flows from operations, including cash received in connection with the alternative fuel mixture tax credits earned in 2009, as well as our 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, and working capital needs for the next 12 months.

We cannot be certain, however, that our business will generate sufficient cash flow from operations or that future borrowing will be available to us under the revolving credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we make substantial capital expenditures or consummate an acquisition, our debt service requirements could increase. We may be required to refinance all or a portion of our indebtedness on or before maturity. We cannot be certain that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Debt Arrangements

Our expected debt service obligation, consisting of cash payments for interest related to our Senior Notes, is estimated to be approximately $15.9 million for each of 2010 and 2011.

The terms of our 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.

Credit Arrangements

As of March 31, 2010, there were no borrowings outstanding under our revolving credit facility, but approximately $1.7 million of the credit facility was being used to support outstanding standby letters of credit. Loans under the credit facility bear interest at LIBOR plus between 2.75% and 3.50% for LIBOR loans, and a base rate effectively equal to the agent bank’s prime rate plus between 1.00% and 1.75% for other loans. The percentage margin on all loans is based on our fixed charge coverage ratio for the last twelve months, which is recalculated on a quarterly basis. As of March 31, 2010, we would have been permitted to draw $106.8 million under the credit facility. As of March 31, 2010, we were eligible to borrow under the credit facility at LIBOR plus 2.75%.

CONTRACTUAL OBLIGATIONS

There have been no significant changes to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

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, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

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As of March 31, 2010, there have been no significant changes with regard to the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

See Note 2 “Recently Adopted and New Accounting Standards” to the condensed financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding recently adopted and new accounting pronouncements.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risks on financial instruments includes interest rate risk on our revolving credit facility. As of March 31, 2010, there were no borrowings outstanding under that 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 1% 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 our natural gas requirements for our manufacturing facilities. As of March 31, 2010, these contracts covered approximately 16% of our expected average monthly natural gas requirements for the Pulp and Paperboard and Consumer Products segments for the remainder of 2010.

Foreign Currency Risk

Virtually all of our non-U.S. sales are denominated in U.S. dollars and accordingly we are not subject to currency exchange risks associated with the receipt of payments in foreign currencies.

ITEM 4. Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Subject to the limitations noted above, our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the first quarter of 2010. Based on that evaluation, the CEO and CFO have concluded that, as of March 31, 2010, our disclosure controls and procedures were effective to meet the objective for which they were designed and operated at the reasonable assurance level.

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009. See Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009, entitled “Risk Factors.”

ITEM 6. Exhibits

The exhibit index is located on page 23 of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CLEARWATER PAPER CORPORATION                     (Registrant)
Date: May 6, 2010	By	/s/ Linda K. Massman
		Linda K. Massman Vice President, Finance and Chief Financial Officer (Duly Authorized; Principal Financial Officer)
Date: May 6, 2010	By	/s/ Johnathan D. Hunter
		Johnathan D. Hunter Corporate Controller (Duly Authorized; Principal Accounting Officer)

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CLEARWATER PAPER CORPORATION

EXHIBIT INDEX

EXHIBIT NUMBER	DESCRIPTION
10.15(i)1	Amendment to Clearwater Paper Corporation Management Deferred Compensation Plan, dated April 27, 2010.
(31)	Rule 13a-14(a)/15d-14(a) Certifications.
(32)	Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C. Section 1350.

¹ Management contract or compensatory plan, contract or arrangement.

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EX-10.15(I)

Exhibit 10.15(i)

CLEARWATER PAPER CORPORATION

MANAGEMENT DEFERRED COMPENSATION PLAN

Effective December 16, 2008

Amended and Restated as of January 1, 2010

1. ESTABLISHMENT AND PURPOSE

(a) The Clearwater Paper Corporation Management Deferred Compensation Plan was adopted effective as of December 16, 2008, by the Board of Directors of Clearwater Paper Corporation to provide an opportunity for selected senior management of Clearwater Paper Corporation to elect to defer additional compensation and to invest and accumulate such compensation on a tax-deferred basis. This January 1, 2010 restatement incorporates various changes intended to facilitate the operation of the Plan.

(b) This Plan is also intended to provide the rules and regulations for deferral of awards under the Clearwater Paper Corporation Annual Incentive Plan (the “AIP”) beginning with the 2009 performance period.

(c) Pursuant to the Employee Matters Agreement by and between Potlatch Corporation and Clearwater Paper Corporation (the “EMA”), all deferred compensation liabilities under the Potlatch Corporation Management Performance Award Plan, the Potlatch Corporation Management Performance Award Plan II and the Potlatch Corporation Management Deferred Compensation Plan (collectively, the “Prior Plans”) with respect to “Clearwater Employees” (as defined in the EMA) have been transferred to and assumed by this Plan.

(d) Deferral and payment elections made by Clearwater Employees under the Potlatch Corporation Management Performance Award Plan II and the Potlatch Corporation Management Deferred Compensation Plan shall be given effect under this Plan. Certain provisions applicable to the payment of deferred compensation amounts transferred from the Potlatch Corporation Management Performance Award Plan, which are not subject to Section 409A of the Code, are set forth in Addendum A to this Plan.

(e) The provisions of this Plan for elections to defer base salary are effective for base salary earned on or after January 1, 2009.

(f) The Plan is intended to comply with the requirements of Section 409A of the Code. The Plan is intended to constitute an unfunded program for the benefit of a select group of management or highly compensated employees and, as such, to be exempt from all of the provisions of Parts 2, 3, and 4 of Title I of ERISA.

2. DEFINITIONS

(a) “Affiliate” means any other entity which would be treated as a single employer with the Corporation under Section 414(b) or (c) of the Code, provided that in applying such Sections and in accordance with the rules of Treasury Regulations Section 1.409A-1(h)(3), the language “at least 50 percent” shall be used instead of “at least 80 percent.”

(b) “AIP” means the Clearwater Paper Corporation Annual Incentive Plan and any successor plan thereto.

(c) “Beneficiary” means the person or persons designated by the Participant to receive payment of the Participant’s Deferred Compensation Account in the event of the death of the Participant.

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(d) “Board” and “Board of Directors” means the board of directors of the Corporation.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Committee” means the Compensation Committee of the Board.

(g) “Compensation” means the amount of compensation due by the Corporation to an Employee for his or her services as an Employee as either (i) annual base salary or (ii) an award under the AIP.

(h) “Corporation” means Clearwater Paper Corporation, a Delaware corporation.

(i) “Deferred Compensation Account” means the bookkeeping account established pursuant to Section 6 on behalf of each Employee who elects to participate in the Plan, including any account transferred to this Plan from a Prior Plan. Within a Participant’s Deferred Compensation Account, a Directed Investment Account, Stock Unit Account, Holding Account, and appropriate sub-accounts shall be maintained as are necessary for the proper administration of a Participant’s Deferred Compensation Account. An Employee who has made a deferral under a Prior Plan shall be deemed to have elected to participate in this Plan. A separate Deferred Compensation Account shall be maintained on behalf of each Participant with respect to any deferred compensation amounts transferred to this Plan from the MPAP, as described in Addendum A.

(j) “Disabled” means an Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months.

(k) “Distribution” means the distribution by Potlatch Corporation to its stockholders of all of the outstanding shares of the common stock of Clearwater Paper Corporation then owned by Potlatch Corporation, pursuant to the Separation and Distribution Agreement between Potlatch Corporation and Clearwater Paper Corporation.

(l) “Dividend Equivalent” means an amount equal to the cash distribution paid on an outstanding share of the Corporation’s common stock. Dividend Equivalents shall be credited with respect to Stock Units as if each Stock Unit were an outstanding share of the Corporation’s common stock, except that Dividend Equivalents shall also be credited with respect to fractional Stock Units.

(m) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(n) “Employee” means a full-time salaried employee of the Corporation or any subsidiary thereof.

(o) “401(k) Plan” means the Clearwater Salaried 401(k) Plan, as amended.

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(p) “Holding Account” means the bookkeeping account established pursuant to Section 6 on behalf of an Employee who elects to have Compensation deferred under the Plan deemed to be invested in Stock Units. Such deferrals shall be temporarily credited to the Holding Account until the date they are converted to Stock Units.

(q) “MPAP” means the Potlatch Corporation Management Performance Award Plan.

(r) “MPAP II” means the Potlatch Corporation Management Performance Award Plan II.

(s) “Participant” means an Employee who has deferred Compensation credited to a Deferred Compensation Account under the Plan.

(t) “Performance-Based Compensation” means compensation the amount of which, or the entitlement to which, is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least twelve (12) consecutive months. Organizational or individual performance criteria are considered preestablished if established in writing by not later than ninety (90) days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. Performance-Based Compensation does not include any amount or portion of any amount that will be paid either regardless of performance, or based upon a level of performance that is substantially certain to be met at the time the criteria is established. Compensation may be Performance-Based Compensation where the amount will be paid regardless of satisfaction of the performance criteria due to the Employee’s death, disability, or a Change in Control Event (as defined in Treasury Regulation Section l.409A-3(i)(5)), provided that a payment made under such circumstances without regard to the satisfaction of the performance criteria will not constitute performance-based compensation. For this purpose, a disability refers to any medically determinable physical or mental impairment resulting in the Employee’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months. Performance-Based Compensation may include payments based upon subjective performance criteria, provided that: (i) the subjective performance criteria are bona fide and relate to the performance of the Employee, a group of service providers that includes the Employee, or a business unit for which the Employee provides services (which may include the entire organization); and (ii) the determination that any subjective performance criteria have been met is not made by the Employee or a family member of the Employee (as defined in Code Section 267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Employee or such a family member, and no amount of the compensation of the person making such determination is effectively controlled in whole or in part by the Employee or such a family member.

(u) “Plan” means the Clearwater Paper Corporation Management Deferred Compensation Plan.

(v) “Plan Year” means the 12-month period beginning January 1 and ending December 31.

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(w) “Prior Plan” means the Potlatch Corporation Management Performance Award Plan, the Potlatch Corporation Management Performance Award Plan II or the Potlatch Corporation Management Deferred Compensation Plan.

(x) “Separation from Service” means termination of an Employee’s service as an Employee consistent with Section 409A of the Code and the regulations promulgated thereunder. For purposes of the Plan, “Separation from Service” generally means termination of an Employee’s employment as a common-law employee of the Corporation and each Affiliate of the Corporation. A Separation from Service will not be deemed to have occurred if an Employee continues to provide services to the Corporation or an Affiliate in a capacity other than as an employee and if the former employee is providing a level of bona fide services that is fifty percent (50%) or more of the average level of services rendered, during the immediately preceding thirty-six (36) months of employment with the Corporation or Affiliate; provided, however, that a Separation from Service will be deemed to have occurred if it is reasonably anticipated that an Employee’s service with the Corporation and its Affiliates will terminate after a certain date or the level of bona fide services that the Employee will perform after such date (whether as an employee or another capacity) will permanently reduce to a rate that is less than twenty percent (20%) of the bona fide level of services rendered, on average, during the immediately preceding thirty-six (36) months (or if employed by the Corporation and its Affiliates less than thirty-six (36) months, such lesser period). However, the employment relationship is treated as continuing intact while the individual is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the individual’s right to reemployment with the service recipient is provided either by statute or by contract. If the period of leave exceeds six months and the individual’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.

(y) “Stock Units” means the deferred portion of Compensation, which is converted into a unit denominated in shares of the Corporation’s common stock.

(z) “Value” means the closing price of the Corporation’s common stock as reported in the New York Stock Exchange, Inc., composite transactions reports for the relevant date.

(aa) “Variable Fractions Method” is a distribution method for amounts payable in installments. The amount of the first installment is determined by dividing the Participant’s account balance by the total number of installments due. Each subsequent annual installment is equal to the Participant’s account balance as adjusted for earnings or losses since the last distribution date divided by a denominator equal to the total number of installments due minus the number of installments previously paid.

(bb) “Year” shall mean the calendar year.

3. ELIGIBILITY TO MAKE DEFERRALS

(a) Each Employee who is in a position that is eligible for Long-Term Incentive awards (an “Eligible Employee”) shall be eligible to elect to defer base salary under the Plan.

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(b) Each Eligible Employee who is eligible to receive an award under the AIP shall be eligible to defer such award under the Plan; provided that, an Employee who is required to defer his or her award shall automatically become a participant in this Plan.

4. PARTICIPATION

(a) Each Employee who is eligible to participate in the Plan pursuant to Section 3 above shall, prior to the beginning of each Year and in accordance with the applicable deadline established by the Committee, have the option to make an irrevocable election to defer a percentage of his or her Compensation earned during the following Year before the beginning of each such Year. Compensation paid after December 31 of a Plan Year for services performed by the Employee during the final payroll period of the calendar year and which payroll period includes the last day of such calendar year shall be treated as earned for services performed in the year paid.

(b) Notwithstanding the foregoing, an Employee may make an irrevocable election to participate during a Year with respect to Compensation earned during that Year and subsequent to the filing of such election, provided such election is made within thirty (30) days of the Employee’s initial eligibility to participate in this Plan and any other nonqualified deferred compensation plans treated as a single plan with this Plan under Section 409A of the Code. Any such initial election shall apply only to Compensation earned for services performed after the date of the election. If compensation is due for services performed over a period of time which includes the period both before and the period after the date of the election, the election will apply to an amount equal to the total amount of the compensation paid for such performance period multiplied by the ratio of the number of days remaining in the performance period after the election over the total number of days in the performance period.

(c) Notwithstanding the preceding rules, a deferral election for an award of Compensation under the AIP, which constitutes Performance-Based Compensation, may be made no later than six months before the end of such performance period. This special election rule is available only if (i) the Employee performs services for the Company or its Affiliate continuously from the later of the beginning of the performance period or the date the performance criteria are established through the date an election is made with respect to such payment, (ii) the election is made before the amount of the Performance-Based Compensation to be received becomes reasonably ascertainable or, if the Performance-Based Compensation is a specified or calculable amount, when the amount is substantially certain to be paid, and (iii) the performance period is at least twelve (12) months in duration.

(d) The Committee may also adopt such additional or alternative election rules provided that such rules comply with the rules of Section 409A of the Code and applicable regulatory authority.

5. DEFERRAL ELECTIONS

(a) An Employee who elects to participate in the Plan with respect to annual base salary or an award under the AIP for a Year shall file a deferral election with respect to each type of Compensation on such form as the Committee shall prescribe, which shall indicate:

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(i) The amount or percentage of each type of Compensation that such Employee elects to defer pursuant to the terms of the Plan. The percentage must be in increments of ten percent (10%) and may not exceed fifty percent (50%) in the case of annual base salary. An election to voluntarily defer an award under the AIP must be in increments of ten percent (10%) and shall be for not less than fifty percent (50%) of such award. Notwithstanding the foregoing, an election to defer Compensation may not reduce the Employee’s remaining compensation below the amount necessary to satisfy applicable employment tax withholding, income tax withholding, and benefit plan withholding. This election shall be irrevocable with respect to each type of Compensation for that Year to which it applies after the applicable deadline for making such election as provided in Section 4 for that Year.

(ii) The percentage of the Compensation deferred pursuant to the election that is to be converted into Stock Units or deemed invested in any other investment account available under Section 7.

(b) An Employee who elects to participate in the Plan shall have only one form of payment election in effect for all amounts deferred under the Plan. At the time of an Employee’s initial election to defer base salary or an award under the AIP, the Employee shall file an election and shall indicate whether the deferred Compensation shall be paid in a lump sum or paid in annual installments over a period of fifteen (15) or fewer years. Installment payments under the Plan shall be treated as a single distribution for purposes of Section 409A of the Code. Deferred Compensation shall be distributed in a single lump sum payment unless the Employee elects otherwise.

(c) Subject to Section 5(d), below, an Employee’s election as to the time and form of payment of deferred Compensation shall be irrevocable and binding on all deferred Compensation under the Plan. For avoidance of doubt it is intended that a Participant shall have only one method of payment in effect.

(d) If an Employee has a payment election in effect in connection with amounts previously deferred under this Plan or under the MPAP, MPAP II or the Potlatch Corporation Management Deferred Compensation Plan (provided the obligations related to such deferred amounts were assumed by this Plan), such existing payment election shall remain in effect for all existing and future deferrals under the Plan.

6. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS

(a) For each Employee who has deferred compensation under the AIP or who has elected to defer base salary, the Corporation shall establish a Deferred Compensation Account to which shall be credited an amount equal to that portion of the Compensation which would have been payable currently to the Employee but for the terms of the deferral election.

(b) If the deferral election includes an election to convert a percentage of the Compensation deferred into Stock Units, the number of full and fractional Stock Units shall be determined as follows: The amount of deferred base salary or AIP award that an Employee has elected to convert into Stock Units shall be accumulated in a Holding Account. The balance of the Holding Account shall be converted into full and fractional Stock Units and transferred to a Stock Unit Account on a quarterly basis as of the last trading day of each calendar quarter by dividing the balance of the Holding Account by the Value of the Corporation’s common stock on such crediting date.

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(c) Deferred Compensation Accounts shall be established for any Participant for whom deferred compensation amounts have been transferred to this Plan from a Prior Plan. A separate Deferred Compensation Account shall be maintained on behalf of each Participant with respect to any deferred compensation amounts transferred to this Plan from the MPAP, as described in Addendum A.

(d) Amounts credited to a Participant’s Deferred Compensation Account shall be fully vested at all times.

7. TREATMENT OF DEFERRED COMPENSATION ACCOUNT AND STOCK UNITS DURING DEFERRAL PERIOD

(a) Directed Investment Account. The balance of each Participant’s Directed Investment Account shall be adjusted for earnings and losses commencing with the date as of which any amount is credited to the Directed Investment Account. Such earnings or losses during the deferral period for amounts credited to a Participant’s Directed Investment Account shall be computed by reference to the rate of return on one or more of the investment alternatives that are available under the 401(k) Plan and which are designated by the Committee as available under this Plan, which shall include a stable value fixed income fund (the “Stable Value Fund”). Each participating Employee may select (in ten percent (10%) increments) which investment alternative(s) will be used for this purpose with respect to his or her deferred Compensation, and the alternative(s) selected need not be the same as the Employee has selected under the 401(k) Plan, but any such selection will apply only prospectively. The Committee shall determine how frequently such selections may be changed.

(b) Stock Unit Account. Amounts deemed invested in the Stock Unit Account may not be transferred to any other investment and must remain in the Stock Unit Account until distributed to the Participant. On each dividend payment date, Dividend Equivalents shall be credited to each full and fractional Stock Unit to the extent such Stock Unit was in the Participant’s Stock Unit Account on the dividend record date immediately preceding the applicable dividend payment date. Such Dividend Equivalents shall be converted into Stock Units as of the dividend payment date by dividing the amount of the Dividend Equivalents by the Value of the Corporation’s common stock on the dividend payment date.

(c) Holding Account. The Holding Account shall be available only for the temporary holding of amounts pending conversion into Stock Units in accordance with Section 6, and during such temporary holding period shall be deemed invested in the Stable Value Fund. Participants shall not be permitted to select the Holding Account as a deemed investment for their deferrals.

(d) Effect of Certain Transactions. In the event that there occurs a dividend or other distribution of shares of the Corporation’s common stock (“Shares”), a dividend in the form of cash or other property that materially affects the fair market value of the Shares, a stock split, a reverse stock split, a split-up, a split-off, a spin-off, a combination or subdivision of Shares or other securities of the Corporation, an exchange of Shares for other securities of the Corporation, or a similar transaction or event that materially affects the fair market value of the Shares, the Committee, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, shall make appropriate adjustments in the number of each Participant’s Stock Units determined as of the date of such occurrence.

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8. FORM AND TIME OF PAYMENT OF DEFERRED COMPENSATION ACCOUNT

Subject to Section 8(b), payment of a Participant’s Deferred Compensation Account shall commence within the 60-day period that begins on the March 15^th of the year following the year in which Separation from Service occurs. A Participant may request an earlier distribution of an amount credited to his or her Deferred Compensation Account upon the occurrence of an unforeseeable emergency within the meaning of Section 409A and the regulations thereunder as determined by the Committee, but only to the extent necessary to alleviate the emergency. Payment of a Participant’s Stock Units shall also be made at such time except that, within the six-month period beginning on the last date on which Compensation has been converted into Stock Units on behalf of the Participant, to the extent that Committee reasonably determines that earlier payment would result in a violation of Federal securities laws, payment of the Participant’s Stock Units shall be made within the 60-day period that begins on the last day of the month in which such six-month period expires. Notwithstanding the previous sentence, Stock Unit payments shall be made following the Participant’s death, Disability or the date of the Participant’s Separation from Service, without regard to whether such six-month period has expired. For the purpose of payment, Stock Units shall be converted to cash based on the Value of the Corporation’s common stock on the last trading day of the month preceding the month during which the distribution is due to be made.

The amount of each installment due for a Deferred Compensation Account shall be determined by application of the Variable Fractions Method. Each annual installment for Years subsequent to the Year in which payment commences shall be made within the 60-day period that begins on March 15^th.

In the case of a Participant who has both Stock Units and other deemed investment accounts available under Section 7, if a partial distribution of a deferred portion of Compensation is to be made and if the Participant’s Stock Units are immediately payable in accordance with the first paragraph of this Section, payment shall be made partially from the Participant’s Stock Units and partially from such other deemed investment accounts, in proportion to the relative value of the Participant’s Stock Units and such other accounts. If the Participant’s Stock Units are not immediately payable in accordance with the previous paragraph, the partial payment shall be made entirely from such other deemed investment accounts, in proportion to the relative value of such accounts.

Notwithstanding any other provision of the Plan to the contrary:

(a) No distribution shall be made from the Plan that would constitute an impermissible acceleration of payment as defined in Section 409A(a)(3) of the Code and regulations promulgated thereunder; and

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(b) A distribution made to a Participant who is identified as a Key Employee at the time of his or her Separation from Service will be delayed for a minimum of six (6) months if the Participant’s distribution is triggered by his or her Separation from Service. Any payment that otherwise would have been made except for the application of this subsection (b) during such six (6)-month period will be made in one (1) lump sum payment no later than the last day of the second month following the month that is six (6) months from the date of the Participant’s Separation from Service. The Participant’s Deferred Compensation Account shall continue to be adjusted for earnings and losses and Dividend Equivalents during the delay. The determination of which Participants are Key Employees will be made by the Corporation in its sole discretion in accordance with this subsection (b) and Sections 416(i) and 409A of the Code and the regulations promulgated thereunder.

(i) “Identification Date” means each December 31.

(ii) “Key Employee” means an Employee who, on an Identification Date, is:

(A) An officer of the Corporation having annual compensation greater than the compensation limit in Section 416(i)(1)(A) (i) of the Code, provided that no more than fifty (50) officers of the Corporation shall be determined to be Key Employees as of any Identification Date;

(B) A five percent (5%) owner of the Corporation; or

(C) A one percent (1%) owner of the Corporation having annual compensation from the Corporation of more than $150,000.

If an Employee is identified as a Key Employee on an Identification Date, then such Employee shall be considered a Key Employee for purposes of the Plan during the period beginning on the first April 1 following the Identification Date and ending on the next March 31.

(c) Notwithstanding the foregoing, a lump sum distribution shall be made in the Committee’s discretion to clear out a small balance held for the benefit of the Participant (or his or her Beneficiary) provided that the Committee’s decision is evidenced in writing prior to the date of the distribution, the distribution is not greater than the applicable dollar amount under Section 402(g)(1)(B) of the Code and the payment results in the termination of all benefits due under the plan and all other “account balance plans” treated as a single nonqualified deferred compensation plan with this Plan under Treasury Regulation Section 1.409A-1(c)(2).

(d) If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of property, the Committee may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Administrator may require proof of incompetency, minority, incapability or guardianship as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Committee, the trustees of any trusts, and the Corporation from all liability with respect to such benefit.

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9. EFFECT OF DEATH OF PARTICIPANT

Upon the death of a Participant, all amounts, if any, remaining in his or her Deferred Compensation Account shall be distributed to the Beneficiary designated by the Participant. Such distribution shall be made at the time or times specified in the Participant’s deferral election. If the designated Beneficiary does not survive the Participant or dies before receiving payment in full of the Participant’s Deferred Compensation Account, payment shall be made to the estate of the last to die of the Participant or the designated Beneficiary.

10. CLAIMS AND REVIEW PROCEDURE

(a) Informal Resolution of Questions. Any participant who has questions or concerns about his or her deferred compensation under the Plan is encouraged to communicate with the Vice President, Human Resources. If this discussion does not give the participant satisfactory results, a formal claim for benefits may be made within one (1) year of the event giving rise to the claim in accordance with the procedures of this Section 10.

(b) Formal Benefits Claim - Review by Appeals Committee. A participant may make a written request for review of any matter concerning his or her deferred Compensation under the Plan. The claim must be addressed to the Appeals Committee, Management Deferred Compensation Plan, Clearwater Paper Corporation, 601 W. Riverside Avenue, Suite 1100, Spokane, Washington 99201. The Corporation’s Appeals Committee shall decide the action to be taken with respect to any such request and may require additional information, if necessary, to process the request. The Appeals Committee shall review the request and shall issue its decision, in writing, no later than ninety (90) days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial ninety (90)-day period, and the notice shall state the circumstances requiring the extension and the date by which the Appeals Committee expects to reach a decision on the request. In no event shall the extension exceed a period of ninety (90) days from the end of the initial period.

(c) Notice of Denied Request. If the Appeals Committee denies a request in whole or in part, it shall provide the person making the request with written notice of the denial within the period specified in Subsection (b) above. The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

(d) Appeal to Appeals Committee.

(i) A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Appeals Committee within sixty (60) days of receipt of the notification of denial. The appeal must be addressed to: Appeals Committee, Management Deferred Compensation Plan, Clearwater Paper Corporation, 601 W. Riverside Avenue, Suite 1100, Spokane, Washington 99201. The Appeals Committee, for good cause shown, may extend the period during which the appeal may be filed for another sixty (60) days. The appellant and his or her authorized representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the appellant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

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(ii) The Appeals Committee’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Appeals Committee’s review shall not be restricted to those provisions of the Plan cited in the original denial of the claim.

(iii) The Appeals Committee shall issue a written decision within a reasonable period of time but not later than sixty (60) days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than one-hundred twenty (120) days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial sixty (60)-day period. This notice shall state the circumstances requiring the extension and the date by which the Appeals Committee expects to reach a decision on the appeal.

(iv) If the decision on the appeal denies the claim in whole or in part written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.

(v) The decision of the Appeals Committee on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

(e) Exhaustion of Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section 10(a) above, has been notified that the claim is denied in accordance with Section 10(c) above, has filed a written request for a review of the claim in accordance with Section 10(d) above, and has been notified in writing that the Appeals Committee has affirmed the denial of the claim in accordance with Section 10(d) above; provided, however, that an action for benefits may be brought after the Appeals Committee has failed to act on the claim within the time prescribed in Section 10(b) and Section 10(d), respectively.

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11. PARTICIPANT’S RIGHTS UNSECURED

The interest under the Plan of any Employee and such Employee’s right to receive a distribution from the Plan shall be an unsecured claim against the general assets of the Corporation. The Deferred Compensation Account and all deemed investment accounts available under Section 7 shall be bookkeeping entries only and no Employee shall have an interest in or claim against any specific asset of the Corporation pursuant to the Plan. Notwithstanding the foregoing, the Corporation may, in its discretion, choose to contribute to the Clearwater Paper Corporation Benefits Protection Trust Agreement to assist with the payment of benefits under the Plan.

12. STATEMENT OF DEFERRED COMPENSATION ACCOUNT AND STOCK UNITS

The Committee shall provide a quarterly statement of each Participant’s Deferred Compensation Account.

13. NONASSIGNABILITY OF INTERESTS

The interest and property rights of any Employee under the Plan shall not be subject to option nor be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any act in violation of this Section 13 shall be void.

14. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Committee. In addition to the powers and duties otherwise set forth in the Plan, the Committee shall have full power and authority to administer and interpret the Plan, to establish procedures for administering the Plan and to take any and all necessary action in connection therewith, including retaining outside managers to assist with the administration of the Plan. The Committee’s interpretation and construction of the Plan shall be conclusive and binding on all persons. In its discretion, the Committee may delegate to the Vice President, Human Resources the authority for the effective administration of the Plan and for assigning responsibility to designated managers to carry out such duties.

Within thirty (30) days after a Change of Control (as defined in Section 17), the Committee shall appoint an independent committee consisting of at least three (3) current (as of the effective date of the Change of Control) or former Corporation officers and directors, which shall thereafter administer all claims for benefits under the Plan. Upon such appointment the Committee shall cease to have any responsibility for claims administration under the Plan.

15. AMENDMENT OR TERMINATION OF THE PLAN

(a) The Board or the Committee may amend, suspend or terminate the Plan at any time. The foregoing notwithstanding, the Plan may not be amended (including any amendment to this Section 15) or terminated by the Board or the Committee if such amendment or termination would or adversely affect or impair the Employee’s right to receive amounts credited to his or her Deferred Compensation Account.

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(b) Except as provided in Section 15(c) or as otherwise permitted under Section 409A of the Code, in the event of termination of the Plan, the Participants’ Deferred Compensation Accounts may, in the Board’s or the Committee’s discretion, be distributed within the period beginning twelve months after the date the Plan was terminated and ending twenty-four months after the date the Plan was terminated, or pursuant to Section 8, if earlier. If the Plan is terminated and Deferred Compensation Accounts are distributed, the Board or the Committee shall terminate all account balance non-qualified deferred compensation plans with respect to all Employees and shall not adopt a new account balance non-qualified deferred compensation plan for at least three (3) years after the date the Plan was terminated. A termination and liquidation of the Plan under this Section 15(b) shall be made only in compliance with Treasury Regulation Section 1.409A-3(j)(4)(ix)(c).

(c) The Board or the Committee may terminate the Plan upon a corporate dissolution of the Corporation that is taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), provided that the Participants’ Deferred Compensation Accounts are distributed and included in the gross income of the Participants by the latest of (i) the Year in which the Plan terminates or (ii) the first Year in which payment of the Deferred Compensation Accounts is administratively practicable.

(d) Notwithstanding the foregoing, the Vice President, Human Resources of the Corporation shall have the power and authority to amend the Plan with respect to any amendment that (i) does not materially increase the cost of the Plan to the Corporation or (ii) is intended to comply with new or changed legal requirements applicable to the Plan, including, but not limited to, Section 409A of the Code.

16. SUCCESSORS AND ASSIGNS

The Plan shall be binding upon the Corporation, its successors and assigns, and any parent corporation of the Corporation’s successors or assigns. Notwithstanding that the Plan may be binding upon a successor or assign by operation of law, the Corporation shall require any successor or assign to expressly assume and agree to be bound by the Plan in the same manner and to the same extent that the Corporation would be if no succession or assignment had taken place.

17. CHANGE IN CONTROL

For purposes of the Plan, “Change of Control” shall mean

(a) Upon consummation of a merger or consolidation involving the Corporation (a “Business Combination”), in each case, unless, following such Business Combination,

(i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Corporation (the “Outstanding Common Stock”) and the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Voting Securities”) immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity which as a result of such transaction owns the Corporation either directly or through one or more subsidiaries),

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(ii) no individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act)) (a “Person”) (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its subsidiaries or such other corporation or other entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock or common equity of the corporation or other entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation or other entity except to the extent that such ownership is based on the beneficial ownership, directly or indirectly, of Outstanding Common Stock or Outstanding Voting Securities immediately prior to the Business Combination, and

(iii) at least a majority of the members of the board of directors or similar governing body of the corporation or other entity resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(b) On the date that individuals who, as of 11:59 p.m. (Pacific) on the date of the Distribution, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual who becomes a member of the Board on or subsequent to the day immediately following the date of the Distribution whose election, or nomination for election by the Corporation’s stockholders, was approved by a vote of at least a majority of the members of the Board then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this proviso, any such individual whose appointment to the Board occurs as a result of an actual or threatened election contest with respect to the election or removal of a member or members of the Board, an actual or threatened solicitation of proxies or consents or any other actual or threatened action by, or on behalf of, any Person other than the Incumbent Board; or

(c) Upon the acquisition on or after the date of the Distribution by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either

(i) the then Outstanding Common Stock, or

(ii) the combined voting power of the Outstanding Voting Securities;

provided, however, that the following acquisitions shall not be deemed to be covered by this paragraph (c):

(A) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by the Corporation,

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(B) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any employee benefit plan (or related trust) sponsored or maintained by the Corporation, or

(C) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (a) of this Section; or

(d) Upon the consummation of the sale, lease or exchange of all or substantially all of the assets of the Corporation; or

(e) Upon the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation.

18. EXECUTION

Pursuant to the authority granted under Section 15(d) of the Plan, the Corporation’s Vice President, Human Resources hereby adopts this amendment and restatement of the Plan as of this 27th day of April, 2010.

CLEARWATER PAPER CORPORATION
By:	/s/ Thomas H. Carter
Name:	Thomas H. Carter
Title:	Vice President, Human Resources

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ADDENDUM A

SPECIAL PROVISIONS APPLICABLE TO BENEFITS TRANSFERRED FROM

THE POTLATCH CORPORATION MANAGEMENT PERFORMANCE AWARD PLAN

(THE “MPAP”)

The following provisions shall apply solely with respect to certain benefits transferred from the MPAP and assumed by this Plan pursuant to the Employee Matters Agreement by and between Potlatch Corporation and Clearwater Paper Corporation. This Addendum is intended to apply solely to compensation that was both deferred and vested prior to January 1, 2005, and earnings on such amounts, which compensation and earnings are “grandfathered” from the application of section 409A of the Code (collectively, the “Grandfathered Benefits”). Accordingly, this Addendum shall not apply to any compensation originally deferred under this Plan, or originally deferred under the MPAP II or Potlatch Corporation Management Deferred Compensation Plan and transferred to this Plan, or to any earnings on such amounts.

The Committee shall cause separate Deferred Compensation Accounts to be established under this Plan to account for such Grandfathered Benefits separately from other benefits accrued under this Plan. The following provisions, which are based on Section 9 of the MPAP, shall apply solely to such Grandfathered Benefits in lieu of the provisions of Sections 7 and 8 of this Plan (except as specifically provided below). Defined terms not otherwise defined in this Plan shall have the meaning given such terms under the MPAP.

DEFERRAL OF AWARDS; FORM AND TIME OF PAYMENT

(a) A participant may elect to defer receipt of payment of a single Award or all future Awards under the MPAP until after termination of employment pursuant to rules and regulations adopted by the Committee. In addition, in the absence of such an election, if the payment of an Award would cause the participant’s annual compensation to exceed the amount deductible under the Internal Revenue Code, the participant will be required to defer receipt of the portion of the Award that would be non-deductible in the Award Year until after termination of employment. Such rules and regulations shall establish procedures for the Committee, at its discretion, to accelerate the schedule of payments of deferred Awards.

(b) The Award, the payment of which is deferred under (a) above, shall be converted at the participant’s election into cash and/or full and fractional stock units equal to the number of shares the participant would have received if the Award had not been deferred.

On each dividend payment date, dividend equivalents shall be credited to each full and fractional stock unit to the extent such stock unit was in the participant’s deferred account on the dividend record date immediately preceding the applicable dividend payment date. Such dividend equivalents shall be converted into stock units as of the dividend payment date by dividing the amount of the dividend equivalents by the closing price of Potlatch Corporation’s common stock on the dividend payment date.

17

Stock units shall be subject to adjustment as provided in Section 7(d) of the Plan.

(c) The cash portion of an Award, the payment of which was deferred under (a) above, shall be credited with earnings during the period of deferral through December 31 of the Plan Year preceding the Plan Year in which payment of the amounts deferred hereunder is made. The earnings credited shall be based on the following:

(i) For periods prior to January 1, 2009, earnings shall be calculated using an interest rate equal to 70% of the higher of the following averages, compounded annually: (i) the prime rate charged by the major commercial banks as of the first business day of each month (as reported in an official publication of the Federal Reserve System) or (ii) the average monthly long-term rate of A-rated corporate bonds (as published in Moody’s Bond Record).

(ii) For periods on and after January 1, 2009, earnings shall be calculated using an interest rate equal to 120% of the long-term applicable federal rate, with quarterly compounding, as published under Section 1274(d) of the Code for the first month of each calendar quarter.

18

EX-31

Exhibit (31)

CERTIFICATIONS

I, Gordon L. Jones, certify that:

1. I have reviewed this report on Form 10-Q of Clearwater Paper Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	/S/    GORDON L. JONES
	Gordon L. Jones
	Chief Executive Officer

CERTIFICATIONS

I, Linda K. Massman, certify that:

1. I have reviewed this report on Form 10-Q of Clearwater Paper Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	/S/    LINDA K. MASSMAN
	Linda K. Massman
	Vice President, Finance and Chief
	Financial Officer

EX-32

Exhibit (32)

STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350

I, Gordon L. Jones, President and Chief Executive Officer of Clearwater Paper Corporation (the “Company”), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge:

(1) the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    GORDON L. JONES

Gordon L. Jones

President and

Chief Executive Officer

May 6, 2010

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

I, Linda K. Massman, Vice President, Finance and Chief Financial Officer of Clearwater Paper Corporation (the “Company”), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge:

(1) the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    LINDA K. MASSMAN

Linda K. Massman

Vice President, Finance and

Chief Financial Officer

May 6, 2010

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.