Clearwater Paper Corp (CLW) FY 2022 MD&A

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 15, 2022.

Overview of Business

We are a premier manufacturer and supplier of bleached paperboard and consumer and parent roll tissue. We operate in two business segments, pulp and paperboard and consumer products. These business segments are described in greater detail in Item 8, Note 15, "Segment Information" of to the consolidated financial statements.

In operating our business, we seek to:

•grow our portfolio of products through innovation, category development and commercial execution,

•leverage our cost and financial discipline to fund growth and improve margins, and

•allocate capital in value-creating ways.

Overview of 2022 Results

•Net sales of $2.1 billion, an increase of 17.3% from 2021 with Pulp and Paperboard net sales increasing 20.1% and Consumer Products net sales increasing 13.8%.

•Net income was $46.0 million in 2022 or $2.68 per diluted share compared to a net loss of $28.1 million or $1.67 per diluted share in 2021. Results in 2021 include net charges of $50 million ($39.2 million after tax) associated with the closure of our Neenah, Wisconsin tissue operations.

•Adjusted EBITDA was $226.9 million in 2022 compared to $174.6 million in 2021.

Business Environment and Trends

Pulp and paperboard sales

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. Starting in 2021, changes in global supply of paperboard and increases in demand due to COVID-19 pandemic, contributed to increased prices for paperboard products.

Tissue sales

The U.S. tissue industry is affected by macro-economic factors in the U.S. The U.S. tissue industry has experienced an increase in ultra and premium tissue products as industry participants have added or improved through-air-dried, or TAD, or equivalent production capacity as well as added conventional tissue capacity. Many consumers have returned to pre-COVID-19 away from home activities in 2022 which has stabilized demand for tissue. As reported by RISI, US Tissue Monthly Data (December 2022), parent roll sales prices have increased 7- 8% industry wide in 2022 over the prior year.

Operating Costs

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. To remain competitive on our operating structure, we continue to work on programs to expand our profitability. In 2022, our results were impacted by a significant increase in our costs, particularly for pulp, chemicals and freight. While we have seen some lessening effects in the latter portion of 2022, we expect the higher cost environment will continue in 2023.

23

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 2022, these significant accounting estimates and judgments include:

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.

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, 2022:

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.

24

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 overall and segment earnings (loss) from operations before interest expense, net, non-operating pension and other post employment benefit costs, income tax (benefit) expense, depreciation and amortization, other operating charges, net, and debt retirement costs as Adjusted EBITDA which is a non-GAAP financial measure. Adjusted EBITDA 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 on a consolidated and business segment basis in this report because we use it as important supplemental measures 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 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 measures may not be comparable to Adjusted EBITDA reported by other companies. Our Adjusted EBITDA measures have material limitations as performance measures because they exclude interest expense, 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.

25

The following table provides our Adjusted EBITDA reconciliation for the last three years:

26

OUR OPERATING RESULTS

Pulp and Paperboard Segment

Our Pulp and Paperboard segment markets and produces bleached paperboard to quality-conscious printers and packaging converters, and offers services that include custom sheeting, slitting and cutting.

Segment sales, operating income and Adjusted EBITDA for the Pulp and Paperboard segment were as follows:

Sales volumes in our Pulp and Paperboard segment for the year ended December 31, 2022 were down slightly compared to 2021 primarily due to reduced volumes in the fourth quarter resulting from operations and a weather event at our Cypress Bend facility. Sales prices for the year ended December 31, 2022 compared to the prior year increased significantly due to the impacts of our previously announced price increases.

During the fourth quarter of 2022, we completed our planned major maintenance at our Lewiston facilities whereas in 2021, this outage occurred in the second quarter.

Overall, the increase in operating income and Adjusted EBITDA for the year ended December 31, 2022 as compared to the prior year was driven by higher sales prices, partially offset by inflation and higher outage costs.

27

Consumer Products Segment

Our Consumer Products segment sells and manufactures a complete line of at-home tissue products and sold minor amounts of AFH products prior to the closure of our Neenah, Wisconsin facility in July 2021. Our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our customers.

Segment sales, operating income and Adjusted EBITDA for the Consumer Products segment were as follows:

1 In the third quarter of 2021, we exited our away-from-home business with the shutdown of our Neenah, Wisconsin site.

Retail sales volumes increased in our Consumer Products segment for the year ended December 31, 2022 compared to the prior year as consumer demand stabilized due to consumer buying patterns returning to pre-COVID levels as well as several new customer programs. Retail sales prices increased in our Consumer Products segment for the year ended December 31, 2022 compared to the prior year due primarily to our previously announced price increases.

Overall, operating income and Adjusted EBITDA for the year ended December 31, 2022 compared to the prior year increased due to higher sales volume and pricing partially offset by higher input costs, primarily in pulp and packaging costs.

Corporate expenses

Corporate expenses were $71.1 million in 2022 as compared to $60.1 million in 2021. The increase between years is

primarily related to higher incentive compensation based upon higher than expected operating results. Corporate expenses primarily consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate functions including certain executive officers, public company costs, information technology, financial services, environmental and safety, legal, supply management, human resources and other corporate functions not directly associated with the business operations.

Other operating charges

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

28

Interest expense, net

Interest expense for the year ended December 31, 2022 was $34.6 million compared to $36.4 million for the period ended December 31, 2021. The decrease is due to lower debt outstanding, partially offset by a one-time increase of $2.2 million associated with our finance leases. See Note 9, "Non-Operating Expense" of the Notes to the Consolidated Financial Statements included in Item 8 of this report for additional information.

Inflation Reduction Act of 2022

On August 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

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.

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

Operating Activities

During 2022, we generated $150.2 million of cash from operations, as compared to $96.4 million in 2021. This increase was driven by improved operating performance offset by higher net cash tax payments and changes in working capital. Accounts receivable and accounts payable agings have remained relatively consistent with balances as of December 31, 2021.

Investing Activities

During 2022 we used $33.5 million in cash for investing activities, as compared to $38.4 million for capital expenditures partially offset by $13.3 million of proceeds from divested assets during 2021. Included in 2022 is a $2.4 million refund associated with a capital project placed in service in prior years. Included in accounts payable and accrued liabilities was $15.7 million related to capital expenditures that had not yet been paid at December 31, 2022.

In 2023, we expect cash paid for capital expenditures to be approximately $70 million to $80 million.

Financing Activities

Net cash flows used in financing activities were $88.6 million for 2022 as compared to $82.0 million for 2021. The increase was due to $50.0 million to prepay our term loan credit agreement in full, $30.0 million in open market purchases of our 2014 Notes, and $5.0 million used for common stock repurchases under our stock repurchase program during the year ended December 31, 2022.

29

Commitments

As of December 31, 2022, we have purchase commitments of $129.0 million, of which $107.1 million is payable within 12 months, related to contracts with natural gas and electricity providers, contracts for the purchase of chemicals and pulp, and contracts associated with IT services that are legally binding on us and specify fixed or minimum quantities. Additionally, we have $26.5 million, all of which is payable within 12 months, in purchase commitments associated with capital expenditures.

Credit Agreements

During the year ended December 31, 2022, we fully prepaid all amounts outstanding under our term loan credit agreement that was originally incurred in 2019.

The ABL Credit Agreement includes a $275 million 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 commitments under the ABL Credit Agreement in an aggregate principal amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other conditions. This agreement contains certain customary representations, warranties, and affirmative and negative covenants. The 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 Credit Agreement, is at any time less than or equal to the greater of (i) 10% of the Line Cap and (ii) $19 million.

At December 31, 2022, we were in compliance with the ABL Credit Agreement, 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 our ABL Credit Agreement. See Note 7, "Debt" to the Notes to Consolidated Financial Statements included in this report for additional information.

30