# Clearwater Paper Corp (CLW) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Clearwater Paper Corp's 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1441236/000144123626000007/clw-20251231.htm
Accession: 0001441236-26-000007
Filing date: 2026-02-18
Report date: 2025-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CLW/
All MD&A years: /company/CLW/mda/
Previous year: /company/CLW/mda/fy2024/ (FY 2024)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this report. A discussion of the earliest year may be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed on February 24, 2025.

Overview of Business

We are a premier manufacturer and supplier of Solid Bleached Sulfate (SBS) paperboard packaging products to independent converters. We believe we are well positioned to capitalize on sustainability trends toward renewable and recyclable materials. We focus on food service and folding carton markets and provide limited distribution and sheeting services. Additionally, we sell minor amounts of pulp to outside customers. We believe our status as an independent, non-integrated supplier is core to our value proposition. We strive to develop new products and innovative solutions to expand and diversify our paperboard portfolio. In 2024, we completed the acquisition of a paperboard manufacturing facility and associated business in Augusta, Georgia.

Significant Factors That Impact Our Business and Results of Operations

The paperboard industry is affected by macro-economic conditions around the world and has historically experienced cyclical market conditions. As a result, prices for products and sales volumes have historically been volatile. Product pricing is significantly affected by the relationship between supply and demand for our products. Product supply in the industry is influenced primarily by fluctuations in available manufacturing production, which tends to increase during periods when prices remain strong. During 2025, the paperboard industry saw significant weakness due to increasing supply.

Our operating costs include raw materials, labor and selling, general and administrative expenses. We manage these costs through cost saving and productivity initiatives, sourcing programs, and pricing actions. Additionally, our operations, as do all pulp and paperboard manufacturing operations, require regular annual planned maintenance outages.

Critical Accounting Policies and Significant Estimates

A discussion of our significant accounting policies and significant accounting estimates and judgments is presented in Note 1, "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 of this report. Throughout the preparation of the financial statements, we employ significant judgments in the application of accounting principles and methods. We believe that the accounting estimates discussed below represent the accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results. We reviewed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board of Directors. For 2025, the significant accounting estimate and judgment includes:

Retirement Plans and Postretirement Benefits

We have a number of defined benefit pension plans in the United States covering many of our employees. Benefit accruals under most of our defined benefit pension plans in the United States were frozen prior to January 2014.

We account for the consequences of our sponsorship of these plans using assumptions to calculate the related assets, liabilities and expenses recorded in our financial statements. Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value defined benefit plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of the measurement date and the differences between expected and actual returns on pension plan assets. This accounting method results in the potential for volatile and difficult to forecast gains and losses.

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We record amounts relating to these defined benefit plans based on various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and life expectancy. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends. We believe that the assumptions utilized in recording our obligations under our plans are reasonable based on our experience and on advice from our independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations.

The following table illustrates the estimated impact on hypothetical pension obligations and expenses that would have resulted from a 25-basis point reduction in two key assumptions for the year ended December 31, 2025:

[[GREPCENT_TABLE]]
[["(In millions)","Statements of Operations","Balance Sheets"],["Discount rate","$","0.4","","$","4.4"],["Expected long term rate of return","$","0.6","","$","\u2014"]]
[[/GREPCENT_TABLE]]

It is not possible to forecast or predict whether there will be actuarial gains and losses in future periods, and if required, the magnitude of any such adjustment. These gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control, such as changes in interest rates and the actual return on pension plan assets.

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Non-GAAP Financial 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-K, we disclose income (loss) from continuing operations before interest expense, net, non-operating pension and other post employment benefit costs, income tax expense, depreciation and amortization, other operating charges, net, debt retirement costs, and goodwill impairment 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 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 provides our Adjusted EBITDA from continuing operations for the periods presented and a reconciliation to net income.

[[GREPCENT_TABLE]]
[["","For The Years Ended December 31,"],["(In millions)","2025","2024","2023"],["Net income (loss)","$","(18.6)","","$","196.3","","$","107.7"],["Less: income from discontinued operations, net of tax","34.4","","270.3","","59.0"],["Income (loss) from continuing operations","(53.0)","","(74.0)","","48.7"],["Add (deduct):"],["Income tax provision (benefit)","(7.1)","","(27.1)","","16.9"],["Interest expense, net","16.8","","29.2","","9.5"],["Goodwill impairment","48.0","","\u2014","","\u2014"],["Depreciation and amortization expense","92.4","","69.8","","40.7"],["Inventory revaluation on acquired business","\u2014","","6.8","","\u2014"],["Other operating charges, net","8.9","","24.0","","3.2"],["Other non-operating (income) expense","1.2","","(1.8)","","(0.1)"],["Debt retirement costs","\u2014","","9.1","","3.1"],["Adjusted EBITDA from continuing operations","$","107.2","","$","36.0","","$","122.0"]]
[[/GREPCENT_TABLE]]

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OPERATING RESULTS FROM CONTINUING OPERATIONS

[[GREPCENT_TABLE]]
[["","For The Years Ended December 31,","","Increase (decrease)"],["","2025","2024","2023","","2025-2024","2024-2023"],["Net sales","$","1,555.4","","$","1,383.6","","$","1,136.0","","","12","%","22","%"],["Cost of sales","1,439.8","","1,307.5","","935.3","","","10","%","40","%"],["Gross profit","115.6","","76.1","","200.7","","","52","%","(62)","%"],["Gross profit as % of sales","7.4","%","5.5","%","17.7","%"],["Selling, general and administrative expenses","100.8","","116.7","","119.4","","","(14)","%","(2)","%"],["Selling, general and administrative as % of sales","6.5","%","8.4","%","10.5","%"],["Other operating charges, net (1)","8.9","","24.0","","3.2","","","nm","nm"],["Goodwill impairment(1)","48.0","","\u2014","","\u2014","","","nm","nm"],["Income (loss) from continuing operations","$","(42.1)","","$","(64.5)","","$","78.1","","","35","%","(183)","%"],["Adjusted EBITDA from continuing operations","$","107.2","","$","36.0","","$","122.0","","","198","%","(70)","%"],["Adjusted EBITDA margin","6.9","%","2.6","%","10.7","%","","165","%","(76)","%"]]
[[/GREPCENT_TABLE]]

(1) See Note 7, "Goodwill and Intangible Assets" and Note 10, "Other operating charges," of the Notes to the Consolidated Financial Statements included in Item 8 of this report for additional information.

Net Sales

For the year ended December 31, 2025, net sales increased compared to the prior year primarily due to the inclusion of the Augusta operations (see Note 3, "Business Acquisition" of the Notes to the Consolidated Financial Statements included in Item 8 of this report for additional information). The addition of Augusta operations was offset by declines in market prices and changes in our product mix.

[[GREPCENT_TABLE]]
[["","For The Years Ended December 31,","","Increase (decrease)"],["","2025","2024","2023","","2025-2024","2024-2023"],["Paperboard shipments (short tons)","1,236,114","","1,080,898","","751,520","","","14.4","%","43.8","%"],["Paperboard sales price (per short ton)","$","1,167","","$","1,210","","$","1,375","","","(3.6)","%","(12.0)","%"],["Pulp shipments (short tons)","148,487","","101,429","","140,284","","","46.4","%","(27.7)","%"],["Pulp sales price (short tons)","$","652","","$","581","","$","607","","","12.2","%","(4.3)","%"]]
[[/GREPCENT_TABLE]]

Cost of sales

Costs included in our cost of sales include input costs (principally raw materials and energy), labor and overhead, supply chain costs (principally freight and outside warehousing). The table below provides the details of our cost of sales for the years ended December 31, 2025, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","For The Years Ended December 31,","","Increase (decrease)"],["","2025","2024","2023","","2025-2024","2024-2023"],["Input costs","$","688.5","","$","615.0","","$","494.5","","","12.0","%","24.4","%"],["Labor and overhead","517.7","","482.2","","302.7","","","7.4","%","59.3","%"],["Supply chain costs","153.3","","140.1","","105.3","","","9.4","%","33.0","%"],["Other","(8.1)","","4.4","","(3.3)","","","nm","nm"],["Depreciation and amortization","88.3","","65.9","","36.1","","","34.0","%","82.7","%"],["Cost of Sales","$","1,439.8","","$","1,307.5","","$","935.3","","","10.1","%","39.8","%"]]
[[/GREPCENT_TABLE]]

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For the year ended December 31, 2025, cost of sales increased compared to the prior year, primarily due to the inclusion of the Augusta operations offset by cost reduction activities. Input costs increased due to higher production volume with increases on a per ton basis across energy and chemicals offset by reductions on a per ton basis in fiber. Our labor and overhead increased due to the inclusion of the Augusta operations offset by implementation of our cost reduction plan. Depreciation increased due to inclusion of Augusta operations. Supply chain costs increased due to higher volumes offset by lower freight costs per ton due to improved freight optimization related to our revised facility footprint. Other costs decreased due to inventory increases related to the additional absorption of labor and overhead as of the year ended December 31, 2025 as compared to inventory decreases for the year ended December 31, 2024.

Gross profit

For the year ended December 31, 2025, gross profit increased due to improved operating performance, higher sales volume and our planned cost reduction activities, offset by lower sales prices.

Selling, general and administrative

For the year ended December 31, 2025 compared to the year ended December 31, 2024, selling, general and administrative expenses decreased due our planned cost reductions and reductions in incentive compensation linked to reduced operational results, partially offset by increased sales cost resulting from the Augusta acquisition.

Other operating charges

See Note 10, "Other Operating Charges, net" of the Notes to the Consolidated Financial Statements included in Item 8 of this report for additional information.

Overall income (loss) from continuing operations and Adjusted EBITDA

For the year ended December 31, 2025, operating income (loss) from continuing operations increased as compared to the prior year due to lower input costs and our planned cost reduction activities, offset by lower sales pricing, goodwill and other impairment charges, integration cost associated with the acquisition of the Augusta facility and severance. For the year ended December 31, 2025, Adjusted EBITDA from continuing operations increased as compared to the prior year due to lower input costs and our planned cost reduction activities, offset by lower sales pricing.

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.

2026 OPERATIONS

In early 2026, the company experienced production disruptions and higher operating costs due to severe weather affecting its Augusta and Cypress Bend facilities. Through the date of filing, these events have resulted in an estimated $20 million reduction in Adjusted EBITDA.

For the full year of 2026, we expect to generate revenue between $1.45 billion and $1.55 billion, with higher volumes being more than offset by lower carry over pricing from 2025. New productivity initiatives and carry over from 2025 productivity are expected to offset input cost inflation of roughly 2% to 3%. We expect direct costs from our three planned major maintenance outages in 2026 to be similar to 2025, or roughly $50 million. We intend to execute our Lewiston, Idaho planned major maintenance outage in June of 2026, and the Augusta, Georgia outage in October of 2026. In addition, we will target $20 million of working capital improvements versus 2025, primarily by reducing our finished goods inventories. While we expect this reduction to generate incremental cash flows, it may have a negative impact on our fixed cost absorption and Adjusted EBITDA.

AUGUSTA ACQUISITION - REPRESENTATION AND WARRANTY INSURANCE CLAIM

On February 20, 2024, we and Graphic Packaging International, LLC (“GPK”), a wholly owned subsidiary of

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Graphic Packaging Holding Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which we acquired a paperboard manufacturing facility and associated business, located in Augusta, Georgia (Augusta). The acquisition was completed on May 1, 2024 and the purchase price was $700 million, subject to adjustments for inventory and other assets. The amount paid totaled approximately $710.6 million. Our consolidated statement of operations includes the operation of these assets from May 1, 2024 through December 31, 2025.

GPK made customary representations and warranties in the Purchase Agreement for a transaction of this nature relating to periods prior to, and as of, the closing of the acquisition. 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. We have notified the insurance carriers of alleged breaches of certain representations and warranties contained in the Purchase Agreement. In July and November 2025, we submitted our claims to the insurance carriers for losses arising of the alleged breaches. During 2025, we received a partial settlement of $23.0 million related to these claims, of which $6.0 million was related to reimbursable costs and recorded within "Cost of sales" and $17.0 million related to other breaches and reported within "Other operating charges, net" in our Consolidated Statements of Operations . Although we believe that our claims are meritorious, no assurance can be given as to whether we will recover additional proceeds related to these claims.

LIQUIDITY AND CAPITAL RESOURCES

Overview

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 prepayments, repurchases or acquisitions may be commenced, suspended, discontinued, or resumed, and the method or methods of effecting any such prepayments or repurchases may be changed at any time or from time to time without prior notice.

Operating Activities

During 2025, we generated $12.3 million of cash from operations, as compared to $61.4 million in 2024. This decrease was driven by lower operating performance due to the divestiture of our tissue operations which are included in discontinued operations for the year ended December 31, 2024. Additionally, we paid $57 million related to our 2024 income tax liability primarily related to the divestiture of our tissue operations in 2024 and received $23.0 million in insurance proceeds. Accounts receivable and accounts payable agings have remained relatively consistent with balances as of December 31, 2024.

Investing Activities

During 2025, we used $100.4 million in cash from investing activities, as compared to generating $167.7 million in 2024. During the year ended December 31, 2025, we paid $88.8 million related to capital expenditures and paid $11.6 million associated with the working capital adjustment related to our business divestiture that occurred during 2024. Included in accounts payable and accrued liabilities was $7.4 million in related to capital expenditures that had not yet been paid at December 31, 2025.

In 2026, we expect cash paid for capital expenditures to be approximately $65 million to $75 million.

Financing Activities

Net cash flows provided by financing activities were $39.3 million for 2025. We borrowed $82.0 million and repaid $18.6 million under our Credit Agreements. We used $17.2 million to repurchase stock and $2.3 million

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in connection with income tax withholding requirements associated with our employee stock-based compensation plans during the year ended December 31, 2025.

Commitments

Significant contractual obligations as of December 31, 2025 include our long term debt obligations, lease obligations and retirement plans and post retirement benefits. Refer to Note 9 "Debt," Note 6 "Leases" and Note 12 "Retirement plans and postretirement benefits" included in Item 8 of this report for further information. Other purchase obligations include purchase commitments of $122.1 million, of which $67.9 million is payable within 12 months, related to contracts for raw materials (including natural gas, electricity, chemicals and pulp), capital expenditures, and various IT services.

Credit Agreements

We are party to an amended and restated credit agreement (which may be amended from time to time, the “PCA Credit Agreement”) that consists of a term revolver commitment in the amount of $264.6 million. We may also increase term revolver commitments under the PCA Credit Agreement in an aggregate amount of up to $60 million, subject to obtaining commitments from any participating lenders and certain other conditions. The obligations under the PCA Credit Agreement are secured by liens on substantially all of our personal property assets and each of our domestic subsidiaries that are guarantors of the PCA Credit Agreement. Borrowings under the PCA Credit Agreement are subject to mandatory prepayment in certain circumstances. We may, at our option, 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). The PCA Credit Agreement matures on May 1, 2029, subject to a springing maturity beginning on the date that is 91 days prior to the maturity of the Company’s 2020 Notes if the outstanding principal amount of the 2020 Notes plus $50 million is at any time during such 91 day period greater than the sum of our available borrowing liquidity and unrestricted cash.

We are also party to an asset-based loan credit agreement (which may be amended from time to time, the “ABL Credit Agreement,” and together with the PCA Credit Agreement, the “Credit Agreements”) that consists of a $375 million revolving loan commitment, subject to borrowing base limitations. Borrowings under the ABL Credit Agreement are subject to mandatory prepayment 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. The obligations under the ABL Credit Agreement are secured by liens on substantially all of our personal property assets and each of our domestic subsidiaries that are guarantors of the ABL Credit Agreement. We may, at our option, prepay and reborrow 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). The ABL Credit Agreement matures on November 7, 2027. As of December 31, 2025, we had borrowings of $64.0 million outstanding under this facility and $3.5 million drawn to support our letters of credit.

Both Credit Agreements contain customary representations, warranties, and affirmative and negative covenants. The ABL Credit Agreement also contains a financial covenant, which requires us to maintain a consolidated fixed charge coverage ratio of not less than 1.10x to 1.00x, provided that the financial covenant under the ABL Credit Agreement is only applicable during an event of default or if availability, as calculated under the ABL Credit Agreement, is at any time less than or equal to the greater of (i) 10.0% the Line Cap (as defined above) and (ii) $25 million.

At December 31, 2025, we were in compliance with the covenants in the Credit Agreements, and based on our current financial projections, we expect to remain in compliance. 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 Agreements. See Note 9, "Debt," to the Notes to Consolidated Financial Statements included in Item 8 of this report for additional information.

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