Clearwater Paper Corp: Form 10-Q for the period ended Sep 30, 2026

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2025, as well as the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are part of our Annual Report on Form 10-K for the year ended December 31, 2025.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

For a discussion of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There have been no material changes to the critical accounting policies and estimates disclosed in our Annual Report.

NON-GAAP MEASURES

In evaluating our business, we utilize several non-GAAP financial measures. A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so excluded or included under applicable GAAP guidance. In this report on Form 10-Q, we disclose overall earnings from operations before interest expense, net, non-operating pension and other postretirement benefit costs, income tax expense (benefit), depreciation and amortization, other operating charges, net, and debt retirement costs as Adjusted EBITDA from continuing operations which is a non-GAAP financial measure. Adjusted EBITDA from continuing operations is not a substitute for the GAAP measure of net income or for any other GAAP measures of operating performance.

We have included Adjusted EBITDA from continuing operations on a consolidated basis in this report because we use it as an important supplemental measure of our performance and believe that it is frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our industry, some of which present Adjusted EBITDA when reporting their results. We use Adjusted EBITDA from continuing operations to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. It should be noted that companies calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA from continuing operations measure may not be comparable to Adjusted EBITDA reported by other companies. Our Adjusted EBITDA from continuing operations measure has material limitations as a performance measure because it excludes interest expense, net, income tax (benefit) expense and depreciation and amortization which are necessary to operate our business or which we otherwise incur or experience in connection with the operation of our business. In addition, we exclude other income and expense items which are outside of our core operations.

The following table reconciles our Net loss to Adjusted EBITDA from continuing operations for the periods presented.

(In millions)

OPERATING RESULTS FROM CONTINUING OPERATIONS

NET SALES

Net sales decreased 4% for the quarter and nine months ended September 30, 2026 compared to the quarter and nine months ended September 30, 2025. These decreases primarily resulted from market driven price decreases. For the quarter ended September 30, 2026 as compared to the same period in the prior year, we saw a slight decline in sales volume due to production upsets at our Augusta facility. For the nine months ended September 30, 2026 compared to the same period in 2025, we saw an increase in sales volume associated with sales to existing customers. Additionally, pulp sales increased for the quarter ended September 30, 2026 compared to the same period in 2025 due to the timing of the planned major maintenance outage at our Lewiston facility which limited our pulp production capability. Pulp sales prices declined for the quarter and nine months ended September 30, 2026 due to market driven price decreases.

COST OF SALES

Costs included in our cost of sales include input costs (principally raw materials and energy), labor and overhead and supply chain costs (principally freight and outside warehousing). The table below provides the details of our cost of sales for the quarters and nine months ended September 30, 2026 and 2025.

In 2025, planned major maintenance outage occurred at our Cypress Bend, Arkansas facility in the second quarter, our Lewiston, Idaho facility in the third quarter and our Augusta, Georgia facility in the fourth quarter. We completed the planned major maintenance outage at our Lewiston, Idaho facility in the second quarter of 2026. We anticipate completing the planned major maintenance outage at our Cypress Bend, Arkansas facility in the fourth quarter of 2026. We anticipate completing our planned major maintenance outage at our Augusta, Georgia location in the first quarter of 2027.

Cost of sales decreased 4% for the quarter ended September 30, 2026 compared to the quarter ended September 30, 2025 due to the timing of the planned major maintenance outage. During the later portion of the third quarter of 2026, we experienced operational disruptions at our Augusta facility which were largely offset by a portion of our RWI settlements. Input costs decreased slightly due to lower production and lower energy costs offset by increases in chemicals. Our labor and overhead decreased due to the absence of a planned major maintenance outage and cost reimbursements associated with operational disruption at our Augusta facility. Supply chain costs increased due to higher freight costs per ton due to inflation. Other costs increased due to inventory reductions driven by lower production at our Augusta facility.

Cost of sales increased 4% for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Input costs decreased due to the weather event in the first quarter of 2026 and operational upsets at our Augusta facility which reduced production offset by per unit increases in chemicals and other petroleum based products due to inflation. Our labor and overhead decreased due to restructuring completed in 2026 and cost reimbursements associated with operational upsets at our Augusta facility. Supply chain costs increased due to higher sales volumes and higher freight costs per ton due to inflation. Other costs increased due to inventory reductions driven by lower production caused by the weather events and operational upsets at our Augusta facility.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased 19% and 23% for the quarter and nine months ended September 30, 2026 primarily as a result of our planned cost reduction efforts and lower incentive pay due to financial performance.

OTHER OPERATING CHARGES

See Note 12, "Other operating charges," of the Notes to the Consolidated Financial Statements included in Item 1 of this report for additional information.

OVERALL INCOME FROM CONTINUING OPERATIONS AND ADJUSTED EBITDA

Operating income from continuing operations increased for the quarter ended September 30, 2026 as compared to the quarter ended September 30, 2025 due to timing of the planned major maintenance outage at our Lewiston, Idaho facility, absence of goodwill impairment that occurred in the third quarter of 2025 and insurance recoveries offset by lower sales prices. For the quarter ended September 30, 2026, Adjusted EBITDA from continuing operations increased as compared to the quarter ended September 30, 2025 due to the timing of our planned major maintenance outage at our Lewiston, Idaho facility offset by lower sales prices.

Operating income from continuing operations decreased for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025 due to the weather event in the first quarter of 2026 and lower sales prices, offset by higher sales volumes, absence of goodwill impairment and insurance recoveries. For the nine months ended September 30, 2026, Adjusted EBITDA from continuing operations decreased as compared to the nine months ended September 30, 2025 due to the weather event and lower sales prices, offset by higher sales volumes.

POTENTIAL IMPAIRMENTS

We review from time to time possible dispositions or reorganization of various assets in light of current and anticipated economic and industry conditions, our strategic plan and other relevant factors. Because a determination to dispose or reorganize particular assets may require management to make assumptions regarding the transaction structure of the disposition or reorganization and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.

OUTLOOK

Looking forward to the fourth quarter of fiscal 2026, we expect seasonally lower shipments with higher sales prices due to market driven price increases and lower production as a result of continued operational disruption at Augusta in the early fourth quarter. We expect our operating cost to be lower due to lower major maintenance at our Cypress Bend facility versus our Augusta outage which occurred in the fourth quarter of 2025. These reduced costs are expected to be partially offset by expected increases in petroleum based input costs, including chemicals and transportation related costs.

AUGUSTA ACQUISITION - REPRESENTATION AND WARRANTY INSURANCE CLAIM

In connection with our acquisition of our Augusta, Georgia mill from Graphic Packaging International, LLC, a wholly owned subsidiary of Graphic Packaging Holding Company, we obtained representation and warranty insurance, subject to exclusions, a policy limit of $105 million, and certain other terms and conditions, to cover losses resulting from a breach of these representations and warranties. During 2025, we notified the insurance carriers of alleged breaches of certain representations and warranties contained in the Purchase Agreement. During the nine months ended September 30, 2026 we received proceeds of $50.0 million, which represents the final payments under the policy, of which $18.7 million was related to reimbursable costs and recorded within "Cost of sales" and $31.3 million related to other breaches and reported within "Other operating charges, net" in our Consolidated Statements of Operations. The total recovery under this policy was $73 million, including the recovery of $23.0 million received in the fourth quarter of 2025.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are existing cash, cash generated by our operations and our ability to borrow under such credit facilities as we may have in effect from time to time. At times, we may also issue equity, debt or hybrid securities or engage in other capital market transactions. Due to the competitive and cyclical nature of the markets in which we operate, there is uncertainty regarding the amount of cash flows we will generate during the next twelve months. However, we believe that our cash flows from operations, our cash on hand and our borrowing capacity under our credit agreements will be adequate to fund debt service requirements and provide cash to support our ongoing operations, capital expenditures and working capital needs for the next twelve months.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness and making capital expenditures. We may also from time to time prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued or resumed, and the method or methods of affecting any such repurchases may be changed at any time or from time to time without prior notice.

Operating Activities

Net cash flows provided by operating activities for the nine months ended September 30, 2026 were $100.1 million compared to cash provided by operating activities of $7.3 million for the nine months ended September 30, 2025. This increase was driven by insurance recoveries of $50.0 million, income tax refunds of $29 million and targeted inventory reductions offset by lower operating performance. Additionally, we used $3.9 million of cash to collateralize outstanding letters of credit previously issued under our ABL Credit Agreement. Accounts receivable and accounts payable agings as of September 30, 2026 have remained relatively consistent with balances as of December 31, 2025.

Investing Activities

Net cash flows used in investing activities for the nine months ended September 30, 2026 were $33.4 million compared to $86.0 million in the same period of the prior year related to capital expenditures. Included in "Accounts payable and accrued liabilities" on our Consolidated Balance Sheets were $13.5 million and $11.8 million related to unpaid capital expenditures at September 30, 2026 and 2025.

During 2026, we expect cash paid for capital expenditures to be approximately $55 million to $60 million.

Financing Activities

During the nine months ended September 30, 2026, net cash provided by financing activities was $222.3 million. We borrowed $305.0 million under our credit agreements and repaid $79.4 million under our ABL Credit agreement. We used $0.7 million in connection with income tax withholding requirements associated with our employee stock-based compensation plans and paid $2.6 million in debt issuance costs associated with the entry into our Credit Agreement and related refinancing transactions.

During the third quarter ended September 30, 2026, we irrevocably deposited $276.7 million with the indenture trustee for the redemption of our 4.75% 2020 Notes in the fourth quarter of 2026. This cash is shown as restricted cash for redemption of long-term debt on our Consolidated Balance Sheet as of September 30, 2026.

During the nine months ended September 30, 2025, net cash provided by financing activities was $33.5 million. We borrowed $72.0 million and repaid $18.0 million under our ABL Credit Agreement. We used $17.2 million to repurchase stock and $2.3 million in connection with income tax withholding requirements associated with our employee stock-based plans.

Credit Agreements

During the third quarter of 2026, we entered into a Second Amended and Restated Credit Agreement with AgWest Farm Credit, PCA, as administrative agent (the "Agent"), and the lenders party thereto (the Credit Agreement). The Credit Agreement amends and restates our Amended and Restated Credit Agreement dated May 1, 2024 with the Agent and the lenders party thereto that included a term revolver facility. The credit facilities provided under the Credit Agreement consist of (i) a revolving loan (Revolving Loan) commitment in the maximum principal amount (subject to borrowing base limitations based on a percentage of applicable eligible receivables and eligible inventory) of $200 million, of which $15 million was outstanding as of September 30, 2026 and (ii) a term loan (Term Loan) commitment in the aggregate principal amount of $275 million, which was fully drawn and is outstanding. A portion of the Revolving Loan of up to $10 million is available for the issuance of letters of credit. Upon our delivery of financial statements for the fiscal year ending December 31, 2027, we may increase commitments under the Revolving Loan by an aggregate principal amount of up to $100 million, in accordance with the requirements of the

Credit Agreement and subject to obtaining commitments for such increase from participating lenders and certain other conditions.

The Credit Agreement matures and the lending obligations under the Revolving Loan terminate on September 18, 2031. The obligations under the Credit Agreement are secured by liens on substantially all of our personal property assets and, upon satisfaction of certain post-closing conditions, will be secured by all of our material real property assets (including our facilities in Georgia, Arkansas, and Idaho).

We may, at our option, prepay and reborrow any borrowings under the Revolving Loan, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances). Borrowings under the Revolving Loan are also subject to mandatory prepayment in the event that borrowings exceed applicable borrowing base limits. We may, at our option, prepay any borrowings under the Term Loan, in whole or in part, at any time and from time to time without premium or penalty. We are required to repay the aggregate outstanding principal amount of the borrowings under the Term Loan in annual installments of $5.5 million on December 1 of each year, commencing on December 1, 2027. Furthermore, mandatory prepayments of principal under the Term Loan are required upon the occurrence of certain specified events, including certain asset sales (subject to customary reinvestment rights), receipt of proceeds from settlements of or payments in respect of any property or casualty insurance claim or any condemnation proceeding (subject to customary reinvestment rights), and debt issuances not otherwise permitted under the Credit Agreement. Any remaining outstanding principal balance under the Credit Agreement is repayable on the maturity date.

Loans under the Credit Agreement generally bear interest based on the one-month or three-month term rates for the secured overnight financing rate ("SOFR"), a SOFR monthly variable base rate, or the Agent's fixed rate, as applicable, plus, in each case, an applicable margin between 2.50% per annum and 4.75% per annum based on our consolidated leverage ratio (as defined under and calculated in accordance with the Credit Agreement). We elected one year fixed rate plus applicable margin on the initial draw. We may receive patronage dividends under the Credit Agreement. Patronage dividends represent distributions of profits from banks in the farm credit system and are generally made in cash. Such dividends are accrued as earned and recorded as a reduction to interest expense.

The Credit Agreement contains certain customary representations, warranties, and affirmative and negative covenants and events of default applicable to the Company and its subsidiaries that, among other things, restrict the Company’s and its subsidiaries’ ability to take certain actions, including, incurrence of indebtedness, creation of liens, mergers or consolidations, making capital expenditures in excess of specified amounts, dispositions of assets, repurchase or redemption of capital stock and certain types of indebtedness, making certain investments and acquisitions, entering into certain transactions with affiliates or changing the nature of the Company’s business. In addition, the Credit Agreement contains financial covenants which require the Company to maintain (i) a Debt Service Coverage Ratio (as defined in the Credit Agreement) as of the end of any fiscal quarter of not less than: (a) through and including the fiscal quarter ending June 30, 2027, 2.65 to 1.00, (b) with respect to the fiscal quarter ending September 30, 2027, 2.75 to 1.00, and (c) for any fiscal quarter ending thereafter, 3.00 to 1.00 and (ii) a “current ratio” of current assets to current liability of not less than 1.75 to 1.00 as of the end of any fiscal quarter.

At September 30, 2026, we were in compliance with the covenants in our Credit Agreement. However, if our financial position, results of operations or market conditions deteriorate, we may not be able to remain in compliance. There can be no assurance that we will be able to remain in compliance with the Credit Agreement.

ABL Credit Agreement

Concurrently with our entry into the Credit Agreement described above, we paid in full and terminated the ABL Credit Agreement. As a result, our obligations under the ABL Credit Agreement have been discharged.

There have been no significant developments with regard to our exposure to market risk for the quarter ended September 30, 2026. For a discussion of certain market risks to which we may be exposed, see Part II, “Item 7A, Quantitative and Qualitative Disclosures about Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2025.

As of September 30, 2026, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have carried out, with the participation of our Disclosure Committee and management, an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Act). Based upon this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that material information required to be disclosed by us in reports we file under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that information required to be disclosed by us in the reports we file or submit under the Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2026 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, entitled “Risk Factors.”