Clearwater Paper Corp

Clearwater Paper Corporation

Notes to Consolidated Financial Statements

Note 1 Description of Business and Basis of Presentation

Description of Business

We are a premier manufacturer and supplier of bleached paperboard focused on servicing independent converters in North America. We also offer services that include custom sheeting, slitting, and cutting.

During the year ended December 31, 2024, we sold our tissue (consumer products) operations. Accordingly, the results of our previously-owned tissue operations have been presented as discontinued operations in our Consolidated Statements of Operations for all periods presented. See Note 4, "Discontinued operations."

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. These consolidated financial statements and related Notes should be read in conjunction with our annual report on Form 10-K for the fiscal year ended December 31, 2024. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. All dollar amounts are shown in millions, except per share amounts.

Note 2 Recently Issued Accounting Standards

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting entities to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable. This ASU is effective or annual reporting periods beginning after December 15, 2025, and for interim periods within those annual reporting periods, with early adoption permitted. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires disaggregated disclosure of certain types of expenses, such as inventory purchases, employee compensation, depreciation, and amortization in commonly presented expense captions such as cost of revenue and selling, general and administrative expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but it will not impact our consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which requires enhanced disclosures primarily related to the rate reconciliation and disaggregation of income taxes paid. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We will adopt this ASU prospectively and it will result in additional disclosure, but it will not impact our consolidated financial position, results of operations or cash flows.

Note 3 Business Acquisition

On May 1, 2024, we completed the acquisition of a paperboard manufacturing facility and associated business, located in Augusta, Georgia (Augusta). The purchase price of the Augusta acquisition was allocated to assets acquired and liabilities based on the fair values as of the date of acquisition. The purchase price allocation was final as of May 1, 2025.

The purchase price allocation as of May 1, 2025 is as follows:

The following unaudited pro forma consolidated financial information combines our results and the unaudited results of the Augusta operations had the transaction been completed on January 1, 2024. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Augusta acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that we may achieve as a result of the Augusta acquisition.

Note 4 Discontinued Operations

In November 2024, we sold our tissue operations. The results of our tissue operations were classified as discontinued operations in our Consolidated Statements of Operations for all periods presented. Amounts included below, for the quarter and nine months ended September 30, 2025, consist of the settlement of contractual and employment related obligations that are directly related to the disposal. The following table presents the financial results of the tissue segment for the quarter and nine months ended September 30, 2025 and 2024:

The major components of “Other operating charges, net” included in discontinued operations for the quarter and nine months ended September 30, 2025 and 2024 are reflected in the table below.

During the quarter ended September 30, 2025, we finalized the working capital adjustment associated with the business divestiture, resulting in a $1.1 million gain due to the reversal of a portion of the previously accrued settlement amount. The final cash payment totaled $12.1 million.

Operating and investing cash flows of the discontinued operation are presented in the following table:

Note 5 Fair Value Measurements

Carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. The fair value of our debt is included in the following table:

Note 6 Receivables

Receivables consist of:

Note 7 Inventories

Inventories are stated at the lower of net realizable value or current cost using the average cost method and consist of:

Note 8 Property, Plant and Equipment

Property, plant and equipment consist of:

Note 9 Goodwill and Intangibles

Changes in the carrying amounts of goodwill and intangible assets are as follows:

During the third quarter of 2025, we concluded that the sustained decline in our stock price (market capitalization) was a triggering event requiring an interim goodwill impairment assessment. We accumulated $35.1 million of goodwill through the acquisition of Manchester Industries in 2016 and $12.9 million of goodwill through the acquisition of the Augusta paperboard facility in 2024. Based on our interim goodwill impairment assessment, we concluded that our carrying value exceeded the estimated fair value. As a result, we have recorded a non-cash goodwill impairment charge of $48.0 million in the third quarter of 2025 which represents a full impairment of the goodwill. The decline in the estimated fair value and the resulting impairment was primarily driven by continued paperboard market softness and additional market capacity coming online which drove a sustained decline in our market capitalization. This was coupled with the increase in our carrying value related to the divestiture of our tissue business in late 2024. The fair market value considered both the market and income approach. As a result of the triggering event, we conducted a recoverability analysis on other long-term assets, including fixed assets and intangible assets subject to amortization. The results indicated that there was no need for any further impairment charges.

Note 10 Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of:

Included in "Accounts payable and accrued liabilities" are $11.8 million and $25.8 million related to capital expenditures that had not yet been paid as of September 30, 2025 and December 31, 2024.

We maintain a program with a financial institution to provide our vendors with an option to receive payment earlier than our standard payment terms. As of September 30, 2025 and December 31, 2024, $6.3 million and $12.7 million of outstanding obligations under this program were included in "Other" in the table above.

Note 11 Income Taxes

For interim periods, accounting standards require that income tax expense be determined by applying the estimated annual effective income tax rate to year-to-date results, unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is adjusted to the current quarter.

For the nine months ended September 30, 2025 and 2024, we recognized an income tax benefit of $6.3 million and $17.4 million on loss from continuing operations. Our effective tax rate for the nine months ended September 30, 2025 varied from the U.S. federal statutory tax rate of 21% primarily due to the effects of state taxes, effects of the tax basis of our goodwill impairment and a change in the state valuation allowance.

Note 12 Debt

Long-term debt at the balance sheet dates consisted of:

PCA CREDIT AGREEMENT

On May 1, 2024, we entered into the PCA Credit Agreement with the lenders party thereto and AgWest Farm Credit, PCA, as administrative agent. The PCA Credit Agreement amended and restated our prior credit agreement dated as of October 27, 2023 with the lenders party thereto and AgWest Farm Credit, PCA as administrative agent. The term revolver commitment under the PCA Credit Agreement is subject to an annual reduction of 2% of the commitments then in effect and is currently $264.6 million. As of September 30, 2025, no balance was outstanding on the term revolver commitment. We may increase term revolver commitments under the PCA Credit Agreement in an aggregate amount of up to $60.0 million, subject to obtaining commitments from any participating lenders and certain other conditions. The PCA Credit Agreement matures on May 1, 2029, subject to a springing maturity 91 days prior to the maturity of the Company’s 2020 Notes if the outstanding principal of the 2020 Notes plus $50.0 million at any time during such 91 day period is greater than the sum of our available borrowing liquidity and unrestricted cash.

We may prepay and reborrow any borrowings under the PCA Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances). In addition, we must make mandatory prepayments of principal under the PCA Credit Agreement upon the occurrence of certain asset sales.

ABL CREDIT AGREEMENT

Our ABL Credit Agreement matures on November 7, 2027. The revolving loan commitment under the ABL Credit Agreement is $375.0 million, subject to borrowing base limitations based on a percentage of applicable eligible receivables and eligible inventory. As of September 30, 2025, our eligible receivables and inventory supported up to $213.9 million availability under the line, of which we utilized $57.7 million, consisting of $54.0 million borrowings outstanding and $3.7 million to issue letters of credit.

We may, at our option, prepay any borrowings under the ABL Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances). We may also increase the revolving commitments under the ABL Credit Agreement in an aggregate amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other conditions.

Note 13 Other Operating Charges

The major components of “Other operating charges, net” in the Consolidated Statements of Operations for the quarter and nine months ended September 30, 2025 and 2024 are reflected in the table below and described in the paragraphs following the table. These items are considered outside of our core operations.

During the third quarter of 2025, we recorded $1.5 million of expense in "Other operating charges, net." The main components of the expense include:

•expense of $0.5 million associated with integration activities related to the Augusta operations;

•loss of $1.9 million associated with impairment of assets; and

•reversal of expense of $1 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.

During the third quarter of 2024, we recorded $0.3 million of income in "Other operating charges, net." The components of the income include:

•expense of $0.5 million associated with acquisition activities (primarily legal and professional services);

•expense of $2.3 million associated with integration activities (primarily professional services);

•loss of $0.4 million associated with the impairment of property, plant and equipment; and

•reversal of expense of $3.5 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.

During the nine months ended September 30, 2025, we recorded $20.4 million of expense in "Other operating charges, net." The main components of the expense include:

•expense of $5.2 million associated with integration activities related to the Augusta operations;

•expense of $6.1 million associated with our cost reduction plan (primarily severance cost);

•loss of $5.1 million associated with impairment of assets; and

•reversal of expense of $0.5 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.

During the nine months ended September 30, 2024, we recorded $20.3 million of expense in "Other operating charges, net." The main components of the expense include:

•expense of $13.9 million associated with integration activities related to the Augusta operations;

•expense of $5.7 million associated with restructuring and integration activities (primarily professional services);

•loss of $1.1 million associated with impairment of assets; and

•reversal of expense of $0.4 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.

Note 14 Non-Operating Expense

The components of “Non-operating expense” in the Consolidated Statements of Operations for the quarter and nine months ended September 30, 2025 and 2024 are reflected in the table below:

Note 15 Retirement Plans and Postretirement Benefits

The following table details the components of net periodic cost of our company-sponsored pension and other postretirement employee benefit plans for the periods presented:

We record the service component of net periodic cost as part of "Cost of sales" and "Selling, general, and administrative expenses," while the non-service component of net periodic cost is recorded in "Other non-operating income (expense)" on our Consolidated Statements of Operations. For the quarter and nine months ended September 30, 2025, we recorded $0.6 million and $2.0 million to "Cost of sales" and $0.2 million and $0.4 million to "Selling, general, and administrative expenses". For the quarter and nine months ended September 30, 2024, we recorded $0.6 million and $1.7 million to "Cost of sales", $0.1 million and $0.4 million to "Selling, general, and administrative expenses", and $0.1 million and $0.2 million to Discontinued Operations.

Note 16 Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax, is comprised of the following:

Note 17 Stockholders' Equity

Common Stock Plans

We have stock-based compensation plans under which restricted stock awards and stock options are outstanding or granted subject to time or performance vesting requirements. At September 30, 2025, approximately 0.6 million shares were available for future issuance under our current plan.

As of September 30, 2025, there was $10.8 million of total unrecognized compensation costs related to outstanding restricted stock unit awards.

During the nine months ended September 30, 2025, we granted 198,887 restricted stock units (time vesting) at an average grant date fair value of $28.36 per share and 194,378 restricted stock units (performance vesting) at an average grant date fair value of $31.04 per share.

During the quarter and nine months ended September 30, 2024, stock-based compensation income of $1.3 million and expense of $6.0 million was charged to continuing operations, and expense of $0.4 million and $1.2 million was charged to discontinued operations.

Note 18 Earnings (Loss) per Share

Basic income (loss) per share is based on the weighted-average number of shares of common stock outstanding. Diluted income (loss) per share is based upon the weighted-average number of shares of common stock outstanding plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method. This method requires the effect of potentially dilutive common stock equivalents be excluded from the calculation of diluted earnings per share for the periods in which net losses from continuing operations are reported because the effect is anti-dilutive.

Shares excluded from the computation of diluted earnings (loss) per share were 0.3 million for the quarter and nine months ended September 30, 2025 and 0.3 million and 0.4 million for the quarter and nine months ended September 30, 2024 due to our loss position on continuing operations in both periods presented.

Note 19 Cost Reduction Plan

In early 2025, we announced a plan to reduce our cost structure across operations and selling, general and administrative expenses as we right-size our operations after the sale of our tissue operations (discussed at Note 4). In connection with these activities, we expect to record employee severance costs of $5 to $7 million by the end of 2025. During the quarter, we recorded a reversal of severance expense of $0.1 million and during the nine months ended September 30, 2025, we recorded expense of $5.0 million associated with this plan. The remaining severance will be recognized from the date of notification until it is earned.

Changes in our severance liability (included in accounts payable and accrued liabilities on the consolidated balance sheet) for the nine months ended September 30, 2025 are as follows:

Note 20 Segment Disclosure

Our Chief Operating Decision Maker (CODM) evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. Since our CODM evaluates financial performance on a consolidated basis, we have determined that we have a single operating segment composed of the consolidated financial results of Clearwater Paper.

Our CODM also reviews total assets, as reported on our consolidated balance sheets, and purchases of property and equipment, as reported on our consolidated statements of cash flows.

Our CODM utilizes other key operating metrics, including disaggregated measures of net sales by product line, disaggregation of significant segment expenses and Adjusted EBITDA in order to assess our financial performance.

Net sales classified by major product lines and a reconciliation of significant expenses to consolidated income from continuing operations is as follows:

Non-significant expenses is primarily made up of other operating charges, net and changes in inventory.

Note 21 Insurance Recovery

During the first quarter of 2024, we experienced a natural gas disruption due to an extreme weather event that resulted in damage at our Lewiston, Idaho facility. During the quarter ended June 30, 2024, we received $10.5 million in insurance proceeds, of which $4.7 million was related to business interruption insurance and $5.8 million was related to reimbursable costs. We allocated proceeds of $0.9 million to discontinued operations and $9.3 million to continuing operations, and they are recorded within "Cost of sales" in the Consolidated Statement of Operations. Proceeds of $0.3 million were related to property, plant and equipment.