Mercer International Inc.: Form 10-Q for the period ended Mar 31, 2025

In this document: (i) unless the context otherwise requires, references to “we”, “our”, “us”, the “Company” or “Mercer” mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer Inc.” mean the Company excluding its subsidiaries; (iii) information is provided as of March 31, 2025, unless otherwise stated; (iv) our reporting currency is dollars and references to “€” mean euros and “C$” mean Canadian dollars; (v) “ADMTs” mean air-dried metric tonnes; (vi) “CLT” mean cross-laminated timber; (vii) “glulam” mean glue-laminated timber; (viii) “m3” mean cubic meters; (ix) “NBSK” mean northern bleached softwood kraft; (x) “NBHK” mean northern bleached hardwood kraft; (xi) “MW” mean megawatts and “MWh” mean megawatt hours; (xii) “Mfbm” mean thousand board feet of lumber and “MMfbm” mean million board feet of lumber; and (xiii) our lumber metrics are converted from m3 to Mfbm using a conversion ratio of 1.6 m3 of lumber equaling one Mfbm, which is the ratio commonly used in the industry.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.

The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, 2025 should be read in conjunction with our Interim Consolidated Financial Statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-K for the fiscal year ended December 31, 2024 filed with the Securities and Exchange Commission, referred to as the “SEC”.

Results of Operations

General

We have two reportable operating segments:

• Pulp – consists of the manufacture, sale and distribution of pulp, electricity and chemicals at our pulp mills.
• Solid Wood – consists of the manufacture, sale and distribution of lumber, manufactured products (including CLT, glulam and finger joint lumber), wood pallets, electricity, biofuels and wood residuals at our sawmills and other facilities in Germany and our mass timber facilities in North America.

Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.

Current Market Environment

In the first quarter of 2025, our NBSK pulp sales realizations remained strong in all of our key markets, driven by continued stable demand and ongoing supply constraints, compared to the fourth quarter of 2024. In the first quarter of 2025, our lumber sales realizations increased in both the U.S. and European markets compared to the fourth quarter of 2024 as a result of reduced supply and steady demand.

As of March 31, 2025, the third-party industry quoted NBSK pulp list price in Europe and North America were approximately $1,595 per ADMT and $1,805 per ADMT, respectively, and the third-party industry quoted NBSK pulp net price in China was approximately $798 per ADMT. Prices for China are net of discounts, allowances and rebates.

We currently expect pulp prices in Europe and North America to modestly increase in the second quarter of 2025 due to continued stable demand and ongoing supply constraints. In China, we currently expect lower pulp prices, particularly for NBHK pulp, in the second quarter of 2025 as a result of the weakened economic environment.

In the second quarter of 2025, we currently expect lumber prices to modestly decrease in the U.S. as a result of the impact of the current economic environment on customer demand. In Europe, we currently expect lumber prices to slightly increase in the second quarter of 2025 due to higher per unit fiber costs. In the second quarter of 2025, we currently expect pallet prices to remain flat due to continued weak economic conditions in Europe and mass timber prices to remain relatively stable.

Per unit fiber costs for the pulp segment were relatively steady in the first quarter of 2025 compared to the fourth quarter of 2024. For the second quarter of 2025, we currently expect per unit fiber costs for our German pulp mills to be higher due to strong demand and reduced supply and for our Canadian pulp mills to be relatively stable.

Per unit fiber costs for the solid wood segment increased in the first quarter of 2025 compared to the fourth quarter of 2024 due to strong demand in Germany. For the second quarter of 2025, we currently expect higher per unit fiber costs for our solid wood segment due to continued strong demand.

Demand and pricing for our products may be further impacted by ongoing developments in international trade policies, including tariffs proposed or imposed by the United States on goods originating from Canada, the European Union and other countries, and related countermeasures. During the first quarter of 2025, there was no material impact from tariffs on our costs and revenues. See Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2024 for further information.

Summary Financial Highlights

(in thousands, other than per share amounts)

(1) Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

(2) Operating EBITDA is a non-GAAP measure. See “Non-GAAP Financial Measures” for its description, limitation and why we consider it to be a useful measure. The following table provides a reconciliation of net loss to operating income (loss) and Operating EBITDA for the periods indicated:

(in thousands)

FORM 10-Q

Selected Production, Sales and Other Data

(1) Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates.

(2) Sales realizations after customer discounts, rebates and other selling concessions.

(3) Does not include our 50% joint venture interest in the Cariboo Pulp & Paper Company mill (“CPP”), which was accounted for using the equity method. In the first quarter of 2024, we disposed of this interest.

(4) Manufactured products primarily includes CLT and glulam.

(5) Biofuels includes pellets and briquettes.

(6) Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.

Consolidated – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Total revenues for the first quarter of 2025 decreased by approximately 8% to $507.0 million from $553.4 million in the same quarter of 2024 primarily due to lower pulp sales volumes partially offset by higher pulp and lumber sales realizations.

Costs and expenses in the first quarter of 2025 decreased by approximately 10% to $500.2 million from $553.9 million in the same quarter of 2024 primarily as a result of lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime at our Celgar mill and higher per unit fiber costs. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.

In the first quarter of 2025, cost of sales depreciation and amortization was relatively flat at $40.3 million compared to $40.4 million in the same quarter of 2024.

Selling, general and administrative expenses decreased by approximately 6% to $29.7 million in the first quarter of 2025 from $31.7 million in the same quarter of 2024 primarily as a result of decreased selling costs due to lower pulp sales volumes.

In the first quarter of 2025, we had a positive foreign exchange impact of approximately $9.7 million on operating income compared to the same quarter of 2024 primarily as a result of the effect of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

In the first quarter of 2025, our operating income was $6.7 million compared to an operating loss of $0.4 million in the same quarter of 2024. The increase was primarily due to higher pulp and lumber sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime and higher per unit fiber costs. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.

Interest expense in the first quarter of 2025 was relatively flat at $28.2 million compared to $27.6 million in the same quarter of 2024.

In the first quarter of 2025, other expenses was $0.2 million compared to other income of $4.9 million in the same quarter of 2024. Other expenses in the first quarter of 2025 primarily consisted of foreign exchange losses on dollar denominated cash held at our operations as the dollar weakened against the euro at the end of the period mostly offset by interest earned on cash in the quarter. In the same quarter of 2024, other income primarily consisted of interest earned on cash and foreign exchange gains on dollar denominated cash held at our operations.

During the first quarter of 2025, we had an income tax provision of $0.7 million on a loss before income tax of $21.6 million as we do not recognize a tax recovery for certain entities which we do not expect to realize a tax benefit. In the same quarter of 2024, we had an income tax recovery of $6.4 million, or an effective tax rate of 28%.

In the first quarter of 2025, our net loss was $22.3 million, or $0.33 per share, compared to $16.7 million, or $0.25 per share in the same quarter of 2024. The net loss in the first quarter of 2024 included the non-cash loss of $23.6 million, or $0.35 per share, recognized in connection with the dissolution of the CPP joint venture.

In the first quarter of 2025, Operating EBITDA decreased by approximately 26% to $47.1 million from $63.6 million in the same quarter of 2024 primarily as a result of higher planned maintenance downtime and higher per unit fiber costs partially offset by higher pulp and lumber sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

Pulp Segment – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Selected Financial Information

(in thousands)

(1) Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

Pulp segment revenues, comprised of pulp, energy and chemical revenues, in the first quarter of 2025 decreased by approximately 12% to $381.1 million from $432.4 million in the same quarter of 2024 primarily due to lower pulp revenues.

Pulp revenues in the first quarter of 2025 decreased by approximately 13% to $357.0 million from $408.3 million in the same quarter of 2024 as a result of lower sales volumes partially offset by higher sales realizations.

Energy and chemical revenues in the first quarter of 2025 and 2024 were flat at $24.1 million.

Total pulp production in the first quarter of 2025 decreased by approximately 15% to 458,909 ADMTs from 538,907 ADMTs in the same quarter of 2024 primarily as a result of the dissolution of the CPP joint venture in the first quarter of 2024 and the 22 days of planned annual maintenance downtime (approximately 29,700 ADMTs) at our Celgar mill in the first quarter of 2025. In the first quarter of 2024, we had no planned annual maintenance downtime.

We estimate that annual maintenance downtime in the first quarter of 2025 adversely impacted our Segment Operating EBITDA by approximately $29.5 million, comprised of approximately $21.5 million in direct out-of-pocket expenses and the balance in reduced production.

In the second quarter of 2025, we currently expect a total of 21 days of annual maintenance downtime (approximately 30,100 ADMTs) at our pulp mills.

Total pulp sales volumes in the first quarter of 2025 decreased by approximately 16% to 477,879 ADMTs from 565,664 ADMTs in the same quarter of 2024 primarily due to lower production.

In the first quarter of 2025, third-party industry quoted average list prices for NBSK pulp in Europe and North America and third-party industry quoted average net prices for NBSK pulp in China increased from the same quarter of 2024 primarily due to stable demand and supply constraints. Average list prices for NBSK pulp in Europe and North America were approximately $1,550 per ADMT and $1,753 per ADMT, respectively, in the first quarter of 2025 compared to approximately $1,400 per ADMT and $1,440 per ADMT, respectively, in the same quarter of 2024. Average NBSK net prices in China were approximately $793 per ADMT in the first quarter of 2025 compared to approximately $745 per ADMT in the same quarter of 2024. Prices quoted for China are net of discounts, allowances and rebates whereas quoted prices for Europe and North America are before applicable discounts, allowances and rebates.

In the first quarter of 2025, third-party industry quoted average list prices for NBHK pulp increased in North America from the same quarter of 2024 due to stronger demand. Third-party industry quoted average net prices for NBHK pulp decreased in China in the first quarter of 2025 from the same quarter of 2024 as the market absorbed increased hardwood capacity. Third-party industry quoted average list prices for NBHK pulp in North America were approximately $1,268 per ADMT in the first quarter of 2025 compared to approximately $1,223 per ADMT in the same quarter of 2024. Third-party industry quoted average net prices for NBHK pulp in China were approximately $578 per ADMT in the first quarter of 2025 compared to approximately $662 per ADMT in the same quarter of 2024.

Our average NBSK pulp sales realizations in the first quarter of 2025 increased by approximately 7% to $783 per ADMT from $732 per ADMT in the same quarter of 2024 due to higher list prices in all of our key markets. In the first quarter of 2025, average NBHK pulp sales realizations decreased by approximately 10% to $570 per ADMT from $631 per ADMT in the same quarter of 2024 due to lower net prices in China.

In the first quarter of 2025, we had a positive foreign exchange impact of approximately $7.3 million on Segment Operating EBITDA compared to the same quarter of 2024 primarily as a result of the effect of a stronger dollar on our Canadian dollar and euro denominated costs and expenses compared to the same quarter of 2024.

Costs and expenses in the first quarter of 2025 decreased by approximately 13% to $360.9 million from $416.5 million in the same quarter of 2024 primarily as a result of lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.

Overall average per unit fiber costs in the first quarter of 2025 were relatively steady compared to the same quarter of 2024. We completed a wood room upgrade at our Celgar mill during the first quarter of 2025. The project was designed to reduce our dependence on sawmill residuals and lower our per unit fiber costs. For the second quarter of 2025, we currently expect per unit fiber costs for our German pulp mills to be higher due to strong demand and reduced supply and for our Canadian pulp mills to be relatively stable.

Transportation costs for our pulp segment in the first quarter of 2025 decreased by approximately 19% to $35.4 million from $43.7 million in the same quarter of 2024 driven by lower pulp sales volumes partially offset by higher freight rates.

In the first quarter of 2025, Segment Operating EBITDA for the pulp segment decreased by approximately 27% to $49.9 million from $68.5 million in the same quarter of 2024 primarily as a result of higher planned maintenance downtime partially offset by higher pulp sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

Solid Wood Segment – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Selected Financial Information

(in thousands)

(1) Manufactured products primarily includes CLT and glulam.

(2) Biofuels includes pellets and briquettes.

(3) Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

Solid wood segment revenues in the first quarter of 2025 modestly increased to $122.7 million from $119.0 million in the same quarter of 2024 as a result of higher lumber and manufactured products revenues partially offset by lower revenues from our other products.

Lumber revenues in the first quarter of 2025 increased by approximately 17% to $65.4 million from $55.9 million in the same quarter of 2024 primarily due to higher sales realizations and sales volumes.

Energy, biofuels and wood residuals revenues in the first quarter of 2025 decreased by approximately 17% to $15.3 million from $18.4 million in the same quarter of 2024 primarily as a result of lower sales volumes.

In the first quarter of 2025, manufactured products revenues increased by approximately 13% to $18.8 million from $16.7 million in the same quarter of 2024 primarily due to timing of mass timber projects in progress.

Pallet revenues in the first quarter of 2025 decreased by approximately 17% to $23.2 million from $28.0 million in the same quarter of 2024 primarily due to lower sales volumes as weak economic conditions in Europe continue to negatively impact demand.

Lumber production in the first quarter of 2025 was relatively flat at 128.0 MMfbm compared to 127.0 MMfbm in the same quarter of 2024.

Lumber sales volumes in the first quarter of 2025 increased by approximately 8% to 130.9 MMfbm from 121.4 MMfbm in the same quarter of 2024 primarily due to timing of sales.

Average lumber sales realizations in the first quarter of 2025 increased by approximately 8% to $499 per Mfbm from $460 per Mfbm in the same quarter of 2024 driven by lower supply and stronger demand in both the U.S. and European markets. The U.S. market accounted for approximately 47% of our lumber revenues and approximately 39% of our lumber sales volumes in the first quarter of 2025. The majority of the balance of our lumber sales were to Europe.

Manufactured products sales realizations decreased by approximately 22% to $2,832 per m3 in the first quarter of 2025 from $3,644 per m3 in the same quarter of 2024 as the high-interest rate environment negatively impacted demand.

Fiber costs were approximately 80% of our lumber cash production costs in the first quarter of 2025. In the first quarter of 2025, per unit fiber costs for lumber production increased by approximately 12% compared to the same quarter of 2024 driven by strong demand. For the second quarter of 2025, we currently expect higher per unit fiber costs due to continued strong demand.

Transportation costs for our solid wood segment in the first quarter of 2025 were flat at $13.3 million compared to $13.4 million in the same quarter of 2024.

In the first quarter of 2025, Segment Operating EBITDA for the solid wood segment was negative $0.3 million compared to negative $0.9 million in the same quarter of 2024 primarily due to higher lumber sales realizations partially offset by higher per unit fiber costs.

Liquidity and Capital Resources

Summary of Cash Flows

(in thousands)

We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for production costs, such as fiber, chemicals and energy costs, and other material operating costs for maintenance, freight and labor. Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and sales and the payment of payables and expenses.

Cash Flows from (used in) Operating Activities. In the three months ended March 31, 2025, cash used in operating activities was $3.0 million compared to $29.2 million in the same quarter of 2024. An increase in accounts receivable used cash of $16.8 million in the three months ended March 31, 2025 and $63.7 million in the same quarter of 2024. An increase in inventories used cash of $6.9 million in the three months ended March 31, 2025 and a decrease in inventories provided cash of $0.1 million in the same quarter of 2024. An increase in accounts payable and accrued expenses provided cash of $28.4 million in the three months ended March 31, 2025 and $2.4 million in the same quarter of 2024. An increase in prepaid expenses and other used cash of $27.5 million in the three months ended March 31, 2025, primarily related to prepaid interest payments on our senior notes due 2028, and $1.1 million in the same quarter of 2024.

Cash Flows from (used in) Investing Activities. In the three months ended March 31, 2025, investing activities used cash of $19.9 million. In the three months ended March 31, 2025, we incurred $20.1 million of capital expenditures primarily related to completion of the wood room project at our Celgar mill, log yard upgrades and other strategic projects at our Torgau facility and maintenance projects across all mills and facilities.

In the three months ended March 31, 2024, investing activities used cash of $17.5 million. In the three months ended March 31, 2024 we incurred $18.5 million of capital expenditures primarily related to optimization projects at our Mercer Spokane facility and maintenance projects across all mills and facilities.

Cash Flows from (used in) Financing Activities. In the three months ended March 31, 2025, financing activities provided cash of $19.2 million. In the three months ended March 31, 2025, we borrowed approximately $21.8 million under our revolving credit facilities.

In the three months ended March 31, 2024, financing activities provided cash of $6.8 million. In the three months ended March 31, 2025 we borrowed approximately $9.1 million under our revolving credit facilities.

Balance Sheet Data

The following table is a summary of selected financial information as of the dates indicated:

(in thousands)

Sources and Uses of Funds

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand. Our principal uses of funds consist of operating expenditures, capital expenditures and interest payments on our senior notes.

The following table sets out our total capital expenditures and interest expense for the periods indicated:

(in thousands)

(1) Amounts differ from interest expense, which includes non-cash items. See supplemental disclosure of cash flow information from our Interim Consolidated Statements of Cash Flows included in this report.

(2) Interest on our senior notes due 2028 is paid semi-annually in April and October of each year. Interest on our senior notes due 2029 is paid semi-annually in February and August of each year. Prior to their redemption in October 2024, interest on our senior notes due 2026 was paid semi-annually in January and July of each year.

As of March 31, 2025, we had cash and cash equivalents of $181.5 million, approximately $289.2 million available under our revolving credit facilities and aggregate liquidity of about $470.7 million.

We have reduced our planned capital expenditures for fiscal 2025 and currently expect them to be between $90.0 million to $100.0 million.

We currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income tax has been provided on such earnings. However, if we were required to repatriate funds to the U.S., we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and U.S. tax reform. However, it is currently not practical to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the U.S.

Based upon the current level of operations and our current expectations for future periods in light of the current economic environment, and in particular, current and expected pulp and lumber pricing and foreign exchange rates, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facilities, will be adequate to finance the capital requirements for our business including the payment of our quarterly dividend during the next 12 months.

In the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets or the issuance of securities.

Debt Covenants

Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements. See our annual report on Form 10-K for the fiscal year ended December 31, 2024.

As of March 31, 2025, we were in full compliance with all of the covenants of our indebtedness.

Contractual Obligations and Commitments

There were no material changes outside the ordinary course to any of our material contractual obligations during the three months ended March 31, 2025.

Foreign Currency

As a majority of our assets, liabilities and expenditures are held or denominated in euros or Canadian dollars, our consolidated financial results are subject to foreign currency exchange rate fluctuations.

We translate foreign denominated assets and liabilities into dollars at the rate of exchange on the balance sheet date.

Equity accounts are translated using historical exchange rates. Unrealized gains or losses from these translations are recorded in other comprehensive income (loss) and do not affect our net earnings.

As a result of a weaker dollar versus the euro as of March 31, 2025, we recorded a non-cash increase of $34.3 million in the carrying value of our net assets denominated in euros, consisting primarily of our property, plant and equipment. This non-cash increase does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as an increase to our total equity. As a result, our accumulated other comprehensive loss decreased to $196.7 million.

Based upon the exchange rate as of March 31, 2025, the dollar was relatively flat against the Canadian dollar and weakened by approximately 4% against the euro since December 31, 2024. See “Quantitative and Qualitative Disclosures about Market Risk”.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of the recording of assets, liabilities, revenues, and expenses in the consolidated financial statements and accompanying note disclosures. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increases, these judgments become even more subjective and complex.

Our significant accounting policies are disclosed in Note 1 to our audited annual financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2024. While all of the significant accounting policies are important to the consolidated financial statements, some of these policies may be viewed as having a high degree of judgment. On an ongoing basis using currently available information, management reviews its estimates, including those related to accounting for, among other things, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.

For information about our significant and critical accounting policies, see our annual report on Form 10-K for the fiscal year ended December 31, 2024.

Cautionary Statement Regarding Forward-Looking Information

The statements in this report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.

Generally, forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, or words of similar meaning, or future or conditional verbs, such as “will”, “should”, “could”, or “may”, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties and other factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, the following:

Risks Related to our Business

• Our business is highly cyclical in nature;
• cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business;
• inflation or a sustained increase in our key production and other costs would lead to higher manufacturing costs which could reduce our margins;
• our business, financial condition and results of operations could be adversely affected by disruptions in the global and European economies caused by geopolitical conflicts, including Russia's invasion of Ukraine and conflicts in the Middle East;
• the impacts of changes in international trade policies, including tariffs or other trade barriers by the United States, or other nations, may adversely impact our business, financial condition and results of operations;
• we face intense competition in the forest products industry;
• our business is subject to risks associated with climate change and social and government responses thereto;
• fluctuations in prices and demand for lumber and mass timber products could adversely affect our business;
• our solid wood segment lumber products are vulnerable to declines in demand due to competing technologies or materials;
• we may experience material disruptions to our production;
• acquisitions may result in additional risks and uncertainties in our business;
• our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements;
• trends in non-print media and changes in consumer habits regarding the use of paper have and are expected to continue to adversely affect the demand for market pulp;
• we are subject to risks related to our employees;
• we are dependent on key personnel;
• if our long-lived assets become impaired, we may be required to record non-cash impairment charges that could have a material impact on our results of operations;
• our insurance coverage may not be adequate;
• we rely on third parties for transportation services;
• if we are unable to offer products certified to globally recognized forestry management and chain of custody standards or meet customers’ product or project specifications, it could adversely affect our ability to compete;
• failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business;
• evolving sustainability reporting and environmental, social and governance preferences of customers, investors and other stakeholders may impact our business.

Risks Related to our Debt

• our level of indebtedness could negatively impact our financial condition, results of operations and liquidity;
• changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect our cost of financing and have an adverse effect on the market price of our securities;
• we are exposed to interest rate fluctuations;

Risks Related to Macroeconomic Conditions

• a weakening of the global economy, including capital and credit markets, could adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources;
• political uncertainty, an increase in trade protectionism or geopolitical conflict could have a material adverse effect on global macroeconomic activities and trade and adversely affect our business, results of operations and financial condition;
• we are exposed to currency exchange rate fluctuations;
• globally, various central banks raised interest rates in 2022 and 2023 in response to high inflation rates, leading to a relatively high-interest rate environment, which could dampen macroeconomic conditions and business activity and reduce demand for our products;
• health epidemics or pandemics could adversely affect our business and financial results;
• we may incur losses as a result of unforeseen or catastrophic events, including terrorist attacks or natural disasters;

Legal and Regulatory Risks

• we are subject to extensive environmental regulation and we could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations;
• we sell surplus green energy in Germany and are subject to changing energy legislation in response to high prices and energy shortages;
• our international sales and operations are subject to applicable laws relating to trade, export controls, foreign corrupt practices and competition laws, the violation of which could adversely affect our operations;
• product liability claims could adversely affect our operating results;

Risks Related to Ownership of our Shares

• the price of our common stock may be volatile; and
• a small number of our shareholders could significantly influence our business.

Given these uncertainties, you should not place undue reliance on our forward-looking statements. The foregoing review of important factors is not exhaustive or necessarily in order of importance and should be read in conjunction with the risks and assumptions including those set forth under “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024 and in the other reports and documents we have filed with or furnished to the SEC. We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.

Cyclical Nature of Business

Revenues

The pulp and lumber businesses are highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can materially affect prices. Pulp and lumber markets are sensitive to cyclical changes in the global economy, industry capacity and foreign exchange rates, all of which can have a significant influence on selling prices and our operating results. The length and magnitude of industry cycles have varied over time but generally reflect changes in macroeconomic conditions and levels of industry capacity. Pulp and lumber are commodities that are generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is primarily determined by supply relative to demand.

Industry capacity can fluctuate as changing industry conditions can influence producers to idle production capacity or permanently close mills. In addition, to avoid substantial cash costs in idling or closing a mill, some producers will choose to operate at a loss, sometimes even a cash loss, which can prolong weak pricing environments due to oversupply. Oversupply of our products can also result from producers introducing new capacity in response to favorable pricing trends. Certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their pulp production on the market, if market conditions, prices and trends warrant such actions.

Demand for each of pulp and lumber has historically been determined primarily by general global macroeconomic conditions and has been closely tied to overall business activity. Pulp and lumber prices have been and are likely to continue to be volatile and can fluctuate widely over time.

The third-party industry quoted average European list prices for NBSK pulp between 2016 and 2025 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,635 per ADMT in 2024. In the same period, third-party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $820 per ADMT in 2016 to a high of $1,620 per ADMT in 2022.

As a key construction material, the pricing and demand for lumber is also significantly influenced by the number of housing starts, especially in the U.S. In the U.S., third-party industry quoted monthly average western spruce/pine/fir (WSPF) 2 x 4 #2&Btr prices between 2016 and 2025 have fluctuated between a low of $259 per Mfbm in 2016 to a high of $1,604 per Mfbm in 2021. Similarly, the demand for CLT and glulam is primarily driven by the wood construction market and increased government policies focused on a low-carbon economy.

Our mills and operations voluntarily subject themselves to third-party certifications in compliance with internationally recognized, sustainable management standards because end use paper and lumber customers have shown an increased interest in understanding the origin of products they purchase. Demand for our products could be adversely affected if we, or our suppliers, are unable to achieve compliance, or are perceived by the public as failing to comply, with these standards or if our customers require compliance with alternate standards for which our operations are not certified.

A pulp producer's actual sales price realizations are net of customer discounts, rebates and other selling concessions. Accordingly, prices for pulp and lumber are driven by many factors outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond our control determine the prices for pulp and lumber, prices may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our mills. Therefore, our profitability depends on managing our cost structure, particularly raw materials which represent a significant component of our operating costs and can fluctuate based upon factors beyond our control. If the prices of our products decline, or if prices for our raw materials increase, or both, our results of operations and cash flows could be materially adversely affected.

Costs

Our production costs are influenced by the availability and cost of raw materials, energy and labor, and our plant efficiencies and productivity. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber. Wood chip, pulp log and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber prices could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy.

Currency

We have manufacturing operations in Germany, Canada and the U.S. Most of the operating costs and expenses of our German mills are incurred in euros and those of our Canadian mills in Canadian dollars. However, the majority of our sales are in products quoted in dollars. Our results of operations and financial condition are reported in dollars. As a result, our costs generally benefit from a strengthening dollar but are adversely affected by a decrease in the value of the dollar relative to the euro and to the Canadian dollar. Such declines in the dollar relative to the euro and the Canadian dollar reduce our operating margins and the cash flow available to fund our operations and to service our debt. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are exposed to market risks from changes in interest rates and foreign currency exchange rates, particularly the exchange rates between the dollar and the euro and Canadian dollar. Changes in these rates may affect our results of operations and financial condition and, consequently, our fair value. We seek to manage these risks through internal risk management policies as well as the periodic use of derivatives.

For additional information, please refer to "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in our annual report on Form 10-K for the fiscal year ended December 31, 2024.

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act”), as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness and there can be no assurance that any design will succeed in achieving its stated goals.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the factors disclosed in “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024.