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.

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, 2025. 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 May 2026, the Financial Accounting Standards Board (FASB) issued ASU 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818), which introduces an accounting model for the recognition, measurement, presentation, and disclosure of environmental credits and related compliance obligations settled by using environmental credits. This ASU is effective for fiscal years beginning after December 15, 2027, and interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact this ASU will have on our consolidated financial position, results of operations and cash flows.

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”) which establishes the accounting for government grants received by business entities, including guidance for (1) a grant related to an asset and (2) a grant related to income. This ASU is effective for fiscal years beginning after December 15, 2028, and interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact this ASU will have on our consolidated financial position, results of operations and cash flows.

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.

NOTE 3: 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. For the quarter ended September 30, 2025, we recognized $0.6 million of income from discontinued operations, net of tax. For the nine months ended September 30, 2025, we recognized a loss of $0.7 million from discontinued operations, net of tax. Cash used in operating activities of discontinued operations was $1.4 million.

NOTE 4: SUPPLEMENTAL CASH FLOW INFORMATION

The following table provides supplemental cash flow information for the nine months ended September 30, 2026 and 2025.

The table below reconciles the cash, cash equivalents and restricted cash balances from our consolidated balance sheets to the amounts reported on the consolidated statements of cash flows:

Our restricted cash for redemption of debt consists of cash irrevocably deposited with the indenture trustee to satisfy the redemption of our 2020 Notes including associated accrued unpaid interest through the date of redemption (see Note 11). Additionally, we maintain restricted cash, included in other current assets, in accordance with the terms of our corporate credit card arrangement.

NOTE 5: FAIR VALUE MEASUREMENTS

Carrying amounts reported on the consolidated balance sheets for cash, cash equivalents and restricted cash, 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: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:

Included in "Accounts payable and accrued liabilities" are $13.5 million and $7.4 million related to capital expenditures that had not yet been paid as of September 30, 2026 and December 31, 2025.

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, 2026 and December 31, 2025, $2.7 million and $3.3 million of outstanding obligations under this program were included in "Other" in the table above.

NOTE 10: 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, 2026 and 2025, we recognized an income tax benefit of $15.2 million and $6.3 million on loss from continuing operations. Our effective tax rate for the nine months ended September 30, 2026 varied from the U.S. federal statutory tax rate of 21% primarily due to the effects of changes in state taxes, interest received on tax refunds, federal return to provision adjustments and nondeductible compensation. 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 11: DEBT

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

CREDIT AGREEMENT

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. As of September 30, 2026, we were in compliance with all covenants.

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.

2020 NOTES

Concurrently with our entry into the Credit Agreement described above, we notified the holders of our 2020 Notes of our election to redeem in full the outstanding $275 million aggregate principal amount on October 3, 2026, in accordance with that certain Indenture dated as of August 18, 2020, by and among us, the guarantors party thereto and U.S. Bank National Association, as indenture trustee, governing the 2020 Notes. Using the proceeds from the Credit Agreement, we irrevocably deposited with the indenture trustee sufficient funds to fund the redemption of the 2020 Notes. As a result, our obligations under the 2020 Notes Indenture have been discharged in accordance with its terms and the 2020 Notes were fully redeemed on October 3, 2026 (see Note 21 (Subsequent Event) for further information).

NOTE 12: OTHER OPERATING CHARGES, NET

The major components of “Other operating charges, net” in the Consolidated Statements of Operations for the quarter and nine months ended September 30, 2026 and 2025 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 2026, we recorded $1.4 million of income in "Other Operating Charges, Net." The main components include:

•expense of $1.8 million associated with our cost reduction plan;

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

•proceeds of $8.0 million related to claims made on our representations and warranties insurance policy;

•expense of $1.4 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price; and

•expense of $1.3 million related to costs incurred in connection with refinancing activities that were not consummated.

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 $1.0 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, 2026, we recorded $20.1 million of income in "Other operating charges, net." The main components include:

•expense of $3.7 million associated with our cost reduction plan (primarily severance cost);

•expense of $1.6 million associated with union settlement retroactive wage payments incurred for the year ended December 31, 2025;

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

•proceeds of $31.3 million related to claims made on our representations and warranties insurance policy; and

•expense of $1.1 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 restructuring and integration activities (primarily professional services);

•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.

NOTE 13: NON-OPERATING EXPENSE

The components of “Non-operating expense” in the Consolidated Statements of Operations for the quarter and nine months ended September 30, 2026 and 2025 are reflected in the table below:

During the nine months ended September 30, 2026, we recognized $0.9 million in interest income on tax refunds received which was recorded within "Income tax benefit" on our Consolidated Statement of Operations.

Additionally, we recorded $1.1 million loss on extinguishment of debt associated with the termination of our ABL credit agreement. See Note 11, "Debt," for more information.

NOTE 14: 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 expense" on our Consolidated Statements of Operations. For the quarter and nine months ended September 30, 2026, we recorded $0.6 million and $1.8 million to "Cost of sales" and $0.1 million and $0.3 million to "Selling, general, and administrative expenses." 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."

During the nine months ended September 30, 2026, we contributed $3.2 million to our qualified pension plans, which is included in "defined benefit pension and other postretirement employee benefits" on the statement of cash flows. We expect to contribute an additional $0.2 million to fund our pension benefit plans in 2026.

NOTE 15: ACCUMULATED OTHER COMPREHENSIVE LOSS

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

NOTE 16: 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, 2026, approximately 2.0 million shares were available for future issuance under our current plan.

As of September 30, 2026, there was $8.1 million of total unrecognized compensation costs related to outstanding restricted stock unit awards.

During the nine months ended September 30, 2026, we granted 328,558 restricted stock units (time vesting) at an average grant date fair value of $14.74 per share and 169,753 restricted stock units (performance vesting) at an average grant date fair value of $14.69 per share.

NOTE 17: 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 0.4 million for the quarter and nine months ended September 30, 2026 and 0.3 million for the quarter and nine months ended September 30, 2025 as they were either antidilutive (not in-the-money) or the required performance conditions were not met.

NOTE 18: COST REDUCTION PLAN

During 2025, we announced a plan to reduce our cost structure across operations and selling, general and administrative expenses as we right-size our operations. During 2026, we announced further restructuring actions to reduce personnel at certain manufacturing facilities, incurring additional severance expense of $3.4 million which was recorded in "Other operating charges, net" in the Consolidated Statements of Operations.

Changes in our severance liability (included in accounts payable and accrued liabilities on the consolidated balance sheets) for the nine months ended September 30, 2026 and 2025 are as follows:

NOTE 19: 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 (loss) from continuing operations is as follows:

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

NOTE 20: INSURANCE RECOVERY

In connection with the acquisition of a paperboard manufacturing facility and associated business, 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 representations and warranties in the Asset Purchase Agreement made by Graphic Packaging International, LLC, a wholly owned subsidiary of Graphic Packaging Holding Company. We have notified the insurance carriers of alleged breaches of certain representations and warranties contained in the Asset Purchase Agreement. In July and November 2025, we submitted claims to the insurance carriers for losses arising from the alleged breaches. During the quarter and nine months ended September 30, 2026, we received total settlement proceeds of $17.5 million and $50.0 million related to these claims, of which $9.5 million and $18.7 million were related to reimbursable costs and recorded within "Cost of sales" and $8.0 million and $31.3 million related to other breaches and recorded within "Other operating charges, net" in our Consolidated Statements of Operations. This recovery is in addition to the recovery of $23.0 million received in the fourth quarter of 2025.

NOTE 21: SUBSEQUENT EVENT

On October 3, 2026, we completed the previously announced redemption of the outstanding 4.75% 2020 Notes at the redemption price of 100% plus accrued and unpaid interest to, but excluding, the redemption date. This resulted in our releasing $276.7 million held as restricted cash for redemption of long-term debt. We will record $1.0 million in loss on early debt extinguishment associated with this redemption related to deferred debt costs on the Notes during the fourth quarter.