ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of our operations for the years ended December 31, 2025 and 2024 is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of our results of operations for 2023 and financial position as of December 31, 2023. This Annual Report contains forward-looking statements that involve risks and uncertainties, including statements respecting our plans, estimates and beliefs and outlook on the markets in which we operate. Our actual results may differ materially from those indicated in forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. “Risk Factors”.
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.
Markets for kraft pulp are global, cyclical and commodity-based. Our financial performance depends on a number of variables that impact sales and production costs. Sales and production results for kraft pulp are influenced largely by the market price for kraft pulp, fiber costs and foreign currency exchange rates. Kraft pulp prices are highly cyclical and primarily determined by the balance between supply and demand. Pricing and demand are influenced by global macroeconomic conditions, changes in consumption and industry capacity, the level of customer and producer inventories and fluctuations in exchange rates. 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.
Our pulp sales realizations are based on third-party industry quoted list prices, net of customer discounts, rebates and other selling concessions. Our sales to China and Asia are generally based closer to third-party industry quoted prices, which are quoted on a net basis, inclusive of discounts, allowances, rebates and other selling concessions.
The market for lumber is cyclical and generally driven by macroeconomic conditions, producer inventories and fluctuations in exchange rates. As a key construction material, the pricing and demand for lumber is 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 is primarily driven by the wood construction market and government policies focused on a low-carbon economy.
European and U.S. lumber markets differ. In the European market, lumber is generally customized in terms
of dimensions and finishing, whereas the U.S. market is driven primarily by demand from new housing starts and home renovation activities and dimensions and finishing are generally standardized and competition is primarily price driven.
Energy and chemical production and sales are revenue sources for us. Further initiatives to increase our generation and sales of renewable energy, chemicals and other by-products will continue to be a focus for us. Such further initiatives may require additional capital spending.
Energy and chemicals are by-products of our pulp and lumber production and the volumes generated and sold are primarily related to the rate of production. Prices for our energy and chemical sales are generally stable and unrelated to cyclical changes in pulp or lumber prices.
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. Fiber costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber costs could affect producer profit margins if they are unable to pass along price increases to pulp, lumber, pallet and biofuel customers or purchasers of surplus energy.
Our financial performance is also impacted by changes in the dollar to euro and Canadian dollar exchange rates. Changes in currency rates affect our operating results because most of our operating costs at our German mills are incurred in euros and those at our Canadian mills are in Canadian dollars. These costs do not fluctuate with the dollar to euro or Canadian dollar exchange rates. Thus, an increase in the strength of the dollar versus the euro and the Canadian dollar decreases our operating costs and increases our operating margins and income from operations. Conversely, a weakening of the dollar against the euro and the Canadian dollar tends to increase our operating costs and decrease our operating margins and income from operations. Our energy, chemical, pallet, biofuel, wood residual and European lumber sales are made in local currencies and, as a result, decline in dollar terms when the dollar strengthens and increase when the dollar weakens.
As a corollary to changes in exchange rates between the dollar and the euro and Canadian dollar, a stronger dollar generally increases costs to our customers and results in downward pressure on pulp prices. Conversely, a weakening dollar generally supports higher pulp pricing. However, there is invariably a time lag between changes in currency exchange rates and prices. This lag can vary and is not predictable with any precision.
Production costs also depend on the total volume of production. High operating rates and production efficiencies permit us to lower our average per unit cost by spreading fixed costs over more units. Higher operating rates also permit us to increase our generation and sales of surplus renewable energy, chemicals and biofuels. Our production levels are also dependent on, among other things, the number of days of maintenance downtime at our mills.
Unexpected maintenance downtime can be particularly disruptive in our industry.
Selected 2025 Highlights
realized approximately $30.0 million in cost savings and operational reliability improvements towards our “One Goal One Hundred” program. This core initiative targets $100.0 million in total profitability improvement actions by the end of 2026, using 2024 as a baseline;
continued to grow the order book for our mass timber products, with mass timber production expected to ramp up in 2026;
commissioned a pilot program for the operation of a carbon capture demonstration unit at the Peace River mill. See Item 1. “Business - Innovation”.
Non-Cash Impairments of Long-Lived Assets
In 2025, we recognized an aggregate of $215.7 million in non-cash impairments of long-lived assets. This comprised $203.5 million against long-lived assets at our Peace River mill and $12.2 million against certain non-core equipment that was identified as obsolete in our solid wood segment. Given the sustained weakness in hardwood pulp prices, we conducted a recoverability test for the Peace River assets. Due to this down-cycle pricing environment, we recognized the non-cash impairment, representing the difference between the carrying value and our estimated fair value.
Please see Note 7 to our consolidated financial statements included in Item 15 and our critical accounting policies regarding long-lived assets in Item 7 of this Annual Report on Form 10-K.
Current Market Environment
We currently expect pulp prices to modestly increase in all our markets in the first half of 2026 due to stable demand and global supply constraints.
In our solid wood segment, we currently expect U.S. and European lumber prices to modestly increase in the first half of 2026. In the U.S., the increase is driven by reduced overall supply, resulting from lower production from Canadian producers. In Europe, the increase is due to rising fiber costs. We currently expect mass timber prices to remain under pressure in the first half of 2026 primarily due to overall market weakness linked to the relatively high interest rate environment. Pallet prices are expected to be generally stable in the first half of 2026.
Summary Financial Highlights
Year Ended December 31,
(in thousands, other than percent and per share amounts)
Statement of Operations Data
Revenues from external customers
Pulp segment
Solid wood segment
Corporate and other
Total revenues
Pulp Segment Operating EBITDA (1)
Solid wood Segment Operating EBITDA (1)
Corporate and other
Operating EBITDA (2)
Operating EBITDA margin (2)
Net loss
Net loss per common share
Basic
Diluted
Common shares outstanding at period end
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.
Operating EBITDA and Operating EBITDA margin are non-GAAP measures. See “Non-GAAP Financial Measures” for their descriptions, limitations and why we consider them to be useful measures. The following table provides a reconciliation of net loss to operating income (loss) and Operating EBITDA for the years indicated:
Year Ended December 31,
(in thousands)
Net loss
Income tax recovery
Interest expense
Other income
Operating income (loss)
Add: Depreciation and amortization
Add: Impairments of long-lived assets
Add: Loss on disposal of investment in joint venture
Add: Goodwill impairment
Operating EBITDA
Selected Production, Sales and Other Data
Year Ended December 31,
Pulp Segment
Pulp production ('000 ADMTs)
NBSK
NBHK
Annual maintenance downtime ('000 ADMTs)
Annual maintenance downtime (days)
Pulp sales ('000 ADMTs)
NBSK
NBHK
Average NBSK pulp prices ($/ADMT) (1)
Europe
China
North America
Average NBHK pulp prices ($/ADMT) (1)
China
North America
Average pulp sales realizations ($/ADMT) (2)
NBSK
NBHK
Energy production ('000 MWh) (3)
Energy sales ('000 MWh) (3)
Average energy sales realizations ($/MWh) (3)
Solid Wood Segment
Lumber
Production (MMfbm)
Sales (MMfbm)
Average sales realizations ($/Mfbm)
Energy
Production and sales ('000 MWh)
Average sales realizations ($/MWh)
Manufactured products (4)
Production ('000 m 3 )
Sales ('000 m 3 )
Average sales realizations ($/m 3 )
Pallets
Production ('000 units)
Sales ('000 units)
Average sales realizations ($/unit)
Biofuels (5)
Production ('000 tonnes)
Sales ('000 tonnes)
Average sales realizations ($/tonne)
Average Spot Currency Exchange Rates
Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates.
Sales realizations after customer discounts, rebates and other selling concessions.
Does not include our 50% joint venture interest in CPP, which was accounted for using the equity method. In 2024, we disposed of this interest.
Manufactured products primarily includes CLT and glulam.
Biofuels includes pellets and briquettes.
Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Consolidated – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Total revenues in 2025 decreased by approximately 9% to $1,868.1 million from $2,043.4 million in 2024. This decrease was primarily due to lower pulp and manufactured products sales volumes and realizations partially offset by higher lumber sales realizations.
Costs and expenses in 2025 modestly increased to $2,265.8 million from $2,028.4 million in 2024. This increase was primarily due to higher per unit fiber costs, negative foreign exchange impacts from a weaker dollar and higher planned maintenance costs for our pulp mills partially offset by lower pulp and pallet sales volumes and lower per unit energy costs.
In 2025, costs and expenses included an aggregate of non-cash impairments of $215.7 million recognized against long-lived assets at our Peace River mill and obsolete equipment. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets ”. In 2025, costs and expenses also included inventory impairment charges of $54.4 million primarily recorded against pulp inventory as a result of low pricing and high fiber costs. In 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture and a non-cash goodwill impairment of $34.3 million related to the Torgau facility, which was recognized as a result of ongoing weakness in lumber, pallet and biofuels markets in Europe stemming from high interest rates and other economic conditions.
In 2025, cost of sales depreciation and amortization decreased by approximately 6% to $159.8 million from $170.5 million in 2024 as certain property, plant and equipment at our Rosenthal mill became fully depreciated in 2024.
Selling, general and administrative expenses were relatively steady at $114.4 million in 2025 compared to $116.4 million in 2024.
In 2025, we had a negative foreign exchange impact of approximately $53.8 million on our operating loss compared to 2024. This negative impact was primarily due to the effect of a weaker dollar on our euro denominated costs and expenses and on the revaluation of dollar denominated accounts receivable held at our foreign operations.
Our operating loss decreased to $397.7 million in 2025 from operating income of $15.0 million in 2024. This decrease was primarily due to the non-cash impairments on long-lived assets, lower pulp sales realizations, higher per unit fiber costs, the negative foreign exchange impacts from a weaker dollar, higher planned maintenance costs for our pulp mills and lower manufactured products sales realizations and volumes. In 2025, our operating loss also included inventory impairment charges of $54.4 million. These adverse impacts were partially offset by higher lumber sales realizations and lower per unit energy costs. In 2024, our operating loss included a non-cash goodwill impairment of $34.3 million related to the Torgau facility and a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
Interest expense in 2025 increased by approximately 5% to $114.8 million from $109.2 million in 2024. This increase primarily resulted from the replacement of maturing senior notes in October 2024 with higher interest senior notes with extended maturities.
Other income was $1.4 million in 2025 compared to $7.2 million in 2024. Other income in 2025 primarily consisted of interest earned on cash mostly offset by foreign exchange losses on the revaluation of dollar denominated cash held at our operations due to the weakening of dollar. Other income in 2024 primarily consisted of interest earned on cash.
In 2025, we had an income tax recovery of $13.3 million, or an effective tax rate of approximately 3%, and in 2024, we had an income tax recovery of $1.8 million, or an effective tax rate of 2%. Our effective tax rates were different from the statutory rates of the jurisdictions in which we operate as we do not recognize tax recoveries for certain entities which we do not expect to realize a tax benefit. In 2024, the effective tax rate was also impacted by the non-deductibility of the non-cash goodwill impairment.
In 2025, our net loss was $497.9 million, or $7.44 per share, compared to $85.1 million, or $1.27 per share in 2024. The net loss in 2025 included an aggregate of $215.7 million related to the non-cash impairments of long-lived assets. The net loss in 2024 included a total of $57.9 million related to the non-cash goodwill impairment and the non-cash loss recognized on disposal of our CPP joint venture investment.
In 2025, Operating EBITDA decreased to negative $22.0 million from positive $243.7 million in 2024. This decrease primarily resulted from lower pulp sales realizations, higher per unit fiber costs, the negative foreign exchange impacts from a weaker dollar, higher planned maintenance costs for our pulp mills, the inventory impairment and lower manufactured products sales realizations and volumes. These adverse impacts were partially offset by higher lumber sales realizations and lower per unit energy costs.
Pulp Segment – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Selected Financial Information
Year Ended December 31,
(in thousands)
Pulp revenues
Energy and chemical revenues
Segment Operating EBITDA (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, decreased by approximately 10% to $1,386.7 million in 2025 from $1,548.6 million in 2024 driven by lower revenues from all our products.
Pulp revenues decreased by approximately 11% to $1,304.8 million in 2025 from $1,460.5 million in 2024 as a result of lower sales realizations and volumes.
Energy and chemical revenues decreased by approximately 7% to $81.9 million in 2025 from $88.1 million in 2024 primarily as a result of lower chemical sales realizations.
Total pulp production was relatively flat at 1,834,736 ADMTs in 2025 compared to 1,843,071 ADMTs in 2024. In 2025, our pulp mills had 112 days of downtime (approximately 159,400 ADMTs) which included 86 days of planned annual maintenance, 20 days of unplanned downtime at our Celgar mill due to mechanical failures and six additional days due to slower than expected start-up. In 2024, our pulp mills had 117 days of downtime (approximately 180,400 ADMTs) which included 57 days of planned annual maintenance, 53 days of unplanned downtime at our Peace River and Celgar mills due to mechanical failures and seven additional days due to slower than expected start-up.
We estimate that planned annual maintenance downtime in 2025 adversely impacted our Segment Operating EBITDA by approximately $120.8 million, comprised of approximately $85.5 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using International Financial Reporting Standards capitalize their direct costs of maintenance downtime.
In 2026, we currently have planned maintenance downtime for our pulp mills of an aggregate of 44 days, or approximately 53,400 ADMTs, which is expected to be comprised of 24 days in the third quarter and 20 days in the fourth quarter.
Pulp sales volumes decreased by approximately 4% to 1,829,888 ADMTs in 2025 from 1,899,754 ADMTs in 2024 driven by weaker demand and the timing of sales.
In 2025, the third-party industry quoted average list price for NBSK pulp in Europe was relatively stable, while the North American list price increased compared to 2024. The increase in North America was primarily due to stable demand and supply constraints. In 2025, the third-party industry quoted average net price for NBSK pulp in China decreased compared to 2024 as a result of an oversupplied paper market and
weaker demand driven by the current economic climate and global trade policy uncertainty. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,525 per ADMT and $1,710 per ADMT, respectively, in 2025 compared to approximately $1,519 per ADMT and $1,646 per ADMT, respectively, in 2024. The third-party industry quoted average NBSK net price in China was approximately $722 per ADMT in 2025 compared to approximately $774 per ADMT in 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 2025, the third-party industry quoted average list price for NBHK pulp in North America decreased compared to 2024 as a result of downward price pressure from other markets. The third-party industry quoted average net price for NBHK pulp in China decreased compared to 2024 due to weaker demand driven by the current economic climate and global trade policy uncertainty and the impact of additional hardwood capacity that came online in 2024. The third-party industry quoted average list price for NBHK pulp in North America was approximately $1,245 per ADMT in 2025 compared to approximately $1,356 per ADMT in 2024. The third-party industry quoted average net price for NBHK pulp in China was approximately $539 per ADMT in 2025 compared to approximately $645 per ADMT in 2024.
Our average NBSK pulp sales realizations in 2025 decreased by approximately 5% to $743 per ADMT from $784 per ADMT in 2024 as lower prices in China were partially offset by higher prices in North America. In 2025, average NBHK pulp sales realizations decreased by approximately 14% to $549 per ADMT from $637 per ADMT in 2024 driven by lower prices in North America and China.
In 2025, we had a negative foreign exchange impact of approximately $43.8 million on Segment Operating EBITDA compared to 2024. This negative impact was primarily due to the effect of a weaker dollar on our euro denominated costs and expenses and on the revaluation of dollar denominated accounts receivables held at our foreign operations.
Costs and expenses in 2025 increased by approximately 17% to $1,685.3 million from $1,436.1 million in 2024 driven by the negative foreign exchange impact from a weaker dollar, higher per unit fiber costs and higher planned maintenance downtime. This increase was partially offset by lower pulp sales volume and lower per unit energy costs. Costs and expenses in 2025 included a non-cash impairment of $203.5 million recognized against long-lived assets at our Peace River mill due to the protracted down-cycle in hardwood pulp pricing. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets ”. Costs and expenses in 2025 also included an inventory impairment of $52.9 million recognized as a result of low pulp prices and high fiber costs. In 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 2025, overall average per unit fiber costs increased by approximately 9% from 2024 primarily as a result of reduced supply in Germany and Canada. In 2026, per unit fiber costs are expected to increase due to continued supply constraints stemming from reduced sawmill activity in Canada and low harvesting levels in Germany.
Transportation costs for our pulp segment remained relatively flat at $142.4 million in 2025 compared to $145.7 million in 2024.
In 2025, Segment Operating EBITDA decreased to $15.6 million from $260.9 million in 2024. This decrease primarily resulted from lower pulp sales realizations, the negative foreign exchange impact from a weaker dollar, higher per unit fiber costs, higher planned maintenance downtime, the inventory impairment and lower chemical sales realizations partially offset by lower per unit energy costs.
Solid Wood Segment – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Selected Financial Information
Year Ended December 31,
(in thousands)
Lumber revenues
Manufactured products revenues (1)
Pallet revenues
Biofuels revenues (2)
Energy revenues
Wood residuals revenues
Segment Operating EBITDA (3)
Manufactured products primarily includes CLT and glulam.
Biofuels includes pellets and briquettes.
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 decreased by approximately 4% to $467.4 million in 2025 from $486.0 million in 2024 as higher lumber revenues were more than offset by lower revenues from manufactured products.
Lumber revenues in 2025 increased by approximately 14% to $247.6 million from $217.5 million in 2024 primarily due to higher sales realizations partially offset by lower sales volumes.
In 2025, manufactured products revenues decreased by approximately 43% to $57.5 million from $100.6 million in 2024 due to lower sales realizations and volumes as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Pallet revenues in 2025 decreased by approximately 4% to $100.1 million from $104.4 million in 2024 as a result of lower sales volumes, as weak economic conditions in Europe continue to negatively impact demand. This decrease was partially offset by modestly higher sales realizations.
Biofuels, energy and wood residuals revenues in 2025 were flat at $62.3 million compared to $63.6 million in 2024.
Lumber production and sales volumes remained steady in 2025 at 472.2 MMfbm and 464.8 MMfbm, respectively, compared to production and sales volumes of 475.6 MMfbm and 470.4 MMfbm, respectively, in 2024.
Average lumber sales realizations increased by approximately 15% to $533 per Mfbm in 2025 from $462 per Mfbm in 2024 as a result of lower supply and improved demand in both the U.S. and European markets. The U.S. market accounted for approximately 46% of our lumber revenues and approximately 41% of our lumber sales volumes in 2025. The majority of the balance of our lumber sales were to Europe.
Manufactured products sales realizations decreased to $1,834 per m 3 in 2025 from $3,006 per m 3 in 2024 as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Fiber costs were approximately 75% of our lumber cash production costs in 2025. In 2025, per unit fiber costs for lumber increased by approximately 26% compared to 2024 primarily due to reduced supply. In 2026, we currently expect per unit fiber costs to increase due to continued supply constraints.
Transportation costs remained relatively flat at $52.4 million in 2025 compared to $52.9 million in 2024.
In 2025, we recognized a non-cash impairment of $12.2 million against obsolete equipment in our solid wood segment. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets ”.
In 2025, Segment Operating EBITDA was negative $25.2 million compared to negative $4.4 million in 2024. This primarily resulted from higher per unit fiber costs and lower manufactured products sales realizations and volumes partially offset by higher lumber sales realizations.
Sensitivities
The following sensitivity analysis provides only a limited point-in-time view of the pulp price, lumber price, fiber costs, foreign exchange rates and inflation discussed. The actual impact of the underlying price, rate and inflation changes may differ materially from that shown in the sensitivity analysis.
Our earnings are sensitive to, among other things, fluctuations in:
Pulp Price. Pulp is a global commodity that is priced in dollars, whose markets are highly competitive and cyclical in nature. As a result, our earnings are sensitive to pulp price changes. Based upon our 2025 sales volume and assuming all other factors remained constant, each $10.00 per tonne change in pulp third-party industry quoted list prices yields a change in pulp revenues of approximately $12.6 million.
Lumber Price. Lumber markets are highly competitive and cyclical in nature. As a result, our earnings are sensitive to lumber price changes. Based upon our 2025 sales volume and assuming all other factors remain constant, each $10.00 per Mfbm change in lumber price yields a change in lumber revenues of approximately $4.6 million.
Fiber Costs. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber. Fiber is a commodity and both prices and supply are cyclical. As a result, our operating costs are sensitive to fiber cost changes. For our pulp segment, based upon our 2025 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $6.4 million. For our solid wood segment, based upon our 2025 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $2.7 million.
Foreign Exchange. Our operating costs are primarily in euros for our German mills and Canadian dollars for our Canadian mills. As a result, our operating costs will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in annual operating costs of approximately $11.0 million. Based on our 2025 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in annual operating costs of approximately $8.6 million.
Our energy, chemical, pallet, biofuel, wood residual and European lumber sales are made in local currencies and, as a result, will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 energy, chemical, pallet, biofuel, wood residual and European lumber revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in revenues of approximately $2.7 million. Based on our 2025 energy and chemical revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in energy and chemical revenues of approximately $0.1 million.
Our interest expense is primarily in euros for our German mills and Canadian dollars for our Canadian mills. As a result, our interest expense will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 interest expense and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in annual interest expense of approximately $0.1 million. Based on our 2025 interest expense and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in interest expense of approximately $0.1 million.
Inflation. Our key production input costs are for fiber, chemicals and energy. Other material costs in our business include maintenance, freight and labor costs. As a result, our operating costs are sensitive to
inflation. For our pulp segment, based upon our 2025 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $11.8 million. For our solid wood segment, based upon our 2025 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $4.5 million.
Seasonal Influences. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These factors are common in the pulp and lumber industries. We generally have weaker pulp demand in Europe during the summer holiday months and in China in the period relating to the Lunar New Year. We typically have a seasonal build-up in raw material inventories in the early winter months as the mills build up their fiber supply for the winter when there is reduced availability.
Liquidity and Capital Resources
Summary of Cash Flows
Year Ended December 31,
(in thousands)
Net cash from operating activities
Net cash used in investing activities
Net cash from (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
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. Historically, we have met our liquidity needs principally from cash on hand, cash flow from operations, and, if needed, external borrowings, including borrowings under revolving credit facilities and issuances of debt securities.
Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and the payment of payables and expenses. Generally, finished goods inventories are increased prior to scheduled maintenance downtime to maintain sales volume while production is stopped. Our fiber inventories exhibit seasonal swings as we increase pulp log, sawlog and wood chip inventories to ensure adequate supply of fiber to our mills during the winter months. Changes in sales volume can affect the level of receivables and influence overall working capital levels. We believe our management practices with respect to working capital conform to common business practices.
Cash Flows from Operating Activities
Cash from (used in) operations includes:
cash received from customers;
cash paid to employees and suppliers;
cash paid for interest on our debt; and
cash paid or received for taxes.
In 2025, operating activities provided cash of $8.6 million compared to $90.2 million in 2024. A decrease in accounts receivable provided cash of $52.6 million in 2025 and an increase in accounts receivable used cash of $32.1 million in 2024. Adjusting for inventory impairments of $54.4 million, a decrease in inventories provided cash of $0.5 million in 2025 and adjusting for inventory impairments of $9.0 million, a decrease in inventories provided cash of $23.9 million in 2024. An increase in accounts payable and accrued expenses provided cash of $7.2 million in 2025 and a decrease in accounts payable and accrued expenses used cash of $17.7 million in 2024.
Cash Flows from Investing Activities
Cash from (used in) investing activities includes:
acquisitions of property, plant and equipment and businesses;
proceeds from the sale of assets; and
purchases and sales of short-term investments.
In 2025, investing activities used cash of $81.3 million. In 2025, we incurred $88.6 million of capital expenditures primarily related to completion of the wood room project at our Celgar mill, log yard upgrades at our Torgau facility and Friesau mill, upgrades to the digester evaporator and a new turbine generator at our Rosenthal mill, lime kiln improvements at our Stendal mill, sorting line upgrades and other strategic projects at our mass timber facilities, and maintenance projects across our operating segments. In 2025, we received $3.4 million in government grants for capital projects at our Celgar mill and mass timber facilities and $6.4 million of proceeds from sale of non-core property, plant and equipment primarily related to the sale of land from our sandalwood business.
In 2024, investing activities used cash of $67.0 million. In 2024, we incurred $84.3 million of capital expenditures primarily related to log yard upgrades and other strategic projects at our Torgau facility,
optimization projects at our Peace River mill and mass timber facilities and maintenance projects across all
mills and facilities. In 2024, we received $19.9 million of proceeds from sale of property, plant and equipment primarily related to the sale of land from our sandalwood business.
Cash Flows from Financing Activities
Cash from (used in) financing activities includes:
issuances and payments of debt;
borrowings and payments under revolving lines of credit; and
payments of cash dividends and repurchases of stock.
In 2025, financing activities provided cash of $79.8 million. In 2025, we borrowed approximately $102.9 million under our revolving credit facilities and paid dividends of $10.0 million.
In 2024, financing activities used cash of $152.8 million. In 2024, we redeemed the $300 million 2026 Senior Notes using cash on hand and the proceeds from the issuance of $200.0 million of additional 2028 Senior Notes at a 103.0% premium. In 2024, we repaid approximately $25.1 million under our revolving credit facilities, paid dividends of $20.1 million and incurred aggregate debt issuance costs of $4.5 million related to the issuance of the 2028 Senior Notes.
Balance Sheet Data
The following table is a summary of selected financial information for the dates indicated:
As of December 31,
(in thousands)
Cash and cash equivalents
Working capital
Total assets
Long-term liabilities
Total shareholders' equity
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:
Year Ended December 31,
(in thousands)
Capital expenditures
Cash paid for interest expense (1)
Interest expense (2)
Amounts differ from interest expense which includes non-cash items. See supplemental disclosure of cash flow information from our Consolidated Statements of Cash Flows included in this report.
Interest on our 2028 Senior Notes is paid semi-annually in April and October of each year. Interest on our 2029 Senior Notes is paid semi-annually in February and August of each year. Prior to their redemption in October 2024, interest on our 2026 Senior Notes was paid semi-annually in January and July of each year.
As of December 31, 2025, we had cash and cash equivalents of $186.8 million and approximately $243.6 million available under our revolving credit facilities providing us with aggregate liquidity of approximately $430.4 million.
As of December 31, 2025, we had no material commitments to acquire assets or operating businesses.
On July 31, 2025, we announced that our board of directors had suspended our quarterly dividend. In making this determination, the change was considered prudent from a capital allocation standpoint in light of ongoing market and global trade environment uncertainties. Our capital allocation priorities are currently primarily focused on reducing our debt profile and capital expenditures relating to maintenance. At the same time, we may consider strategic capital expenditures that are accretive.
In 2026, excluding amounts being financed through government grants, we currently expect capital expenditures to be approximately $60.0 million to $80.0 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 United States, 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 United States. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the United States.
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 and access to capital markets, will be adequate to finance the capital requirements for our business during the next 12 months.
In the future we may make commitments to additional capital projects or make acquisitions to achieve our long-term goals, including expanding our assets and earnings, which may require capital resources. Capital resources may also be required to repay or refinance our maturing debt over the longer term. Such capital resources may be substantial. The necessary capital resources are expected to be generated from cash flow from operations, cash on hand, borrowings against assets, asset dispositions, the issuance of securities or other financing arrangements. We continually monitor potential capital sources, including debt and equity financings, to, among other things, meet our targeted liquidity requirements and balance sheet goals. Our
future success and ability to meet our business goals will be highly dependent on our ability to continue to access outside sources of capital.
Credit Facilities and Debt Covenants
We had the following principal amounts outstanding under our credit facilities and Senior Notes as of the dates indicated:
As of December 31,
(in thousands)
German Revolving Facility
Rosenthal €2.6 million loan
Canadian Revolving Facility
Standby Letters of Credit Facility (1)
2028 Senior Notes
2029 Senior Notes
In October 2025, our Celgar mill and Peace River mill entered into a C$20.0 million revolving credit facility that matures in August 2027. This facility is available through letters of credit denominated in Canadian dollars and dollars and is guaranteed by Export Development Canada until August 2026.
For a description of such indebtedness, see Item 1. “Business – Description of Certain Indebtedness”.
Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements.
Under the German Revolving Facility, the obligors must not exceed a ratio of net debt to EBITDA of 3.50:1.00 in any 12-month period and maintain defined capital of not less than €500.0 million.
The Canadian Revolving Facility includes a covenant which requires the borrowers to comply, on a combined basis, with a 1.00:1.00 fixed charge coverage ratio as long as the excess amount under the facility is less than the greater of 10% of the line cap thereunder and C$14.0 million, in either case, for five consecutive days or less than the greater of 7.5% of the line cap and C$10.0 million, at any time.
The German Revolving Facility is provided by a syndicate of six financial institutions and the Canadian Revolving Facility is provided by three financial institutions. To date, we have not experienced any reductions in credit availability with respect to these credit facilities. However, if any of these financial institutions were to default on their commitment to fund, we could be adversely affected.
The indentures governing the Senior Notes do not contain any financial maintenance covenants and there are no scheduled principal payments until maturity. Interest on our 2028 Senior Notes is payable semi-annually in arrears on April 1 and October 1, at the rate of 12.875% and they mature in October 2028. Interest on our 2029 Senior Notes is payable semi-annually in arrears on February 1 and August 1, at the rate of 5.125% and they mature in February 2029.
As of December 31, 2025, we were in full compliance with all of the covenants of our indebtedness.
Foreign Currency
Our reporting currency is the dollar. However, we hold certain assets and liabilities in euros and Canadian dollars and the majority of our expenditures are denominated in euros or Canadian dollars. Accordingly, 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 recognized in our other comprehensive income (loss) and do not affect our net earnings.
As a result of the weakening of the dollar versus the euro and Canadian dollar as of December 31, 2025, we recorded a non-cash increase of $133.4 million in the carrying value of our net assets denominated in euros and Canadian dollars, 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 $87.2 million.
Based upon the exchange rate as of December 31, 2025, the dollar was approximately 13% weaker against the euro and 5% weaker against the Canadian dollar since December 31, 2024. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”.
Credit Ratings of Senior Notes
The Company and its Senior Notes are rated by Standard & Poor’s Rating Services, referred to as “S&P”, Moody’s Investors Service, Inc., referred to as “Moody’s” and Fitch Ratings, referred to as “Fitch”.
S&P, Moody’s and Fitch base their assessment of the credit risk on our Senior Notes on the business and financial profile of Mercer Inc. and our restricted subsidiaries under the indentures governing the Senior Notes. As of December 31, 2025, all of our subsidiaries were restricted subsidiaries. Factors that may affect our credit rating include changes in our operating performance and liquidity. Credit rating downgrades can adversely impact, among other things, future borrowing costs and access to capital markets.
In November 2025, Moody’s downgraded its rating on our Senior Notes to Caa2 from B3 and changed its outlook to stable from negative. In October 2025, S&P downgraded its rating on our Senior Notes from B to B- and revised its outlook to stable from negative. In January 2026, Fitch downgraded its rating on our Senior Notes from B+ to B- and maintained its outlook as negative.
Credit ratings are not recommendations to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.
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 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 increase, these judgments become even more subjective and complex.
Our significant accounting policies are disclosed in Note 1 to our audited annual consolidated financial statements included in Part IV of this Annual Report on Form 10-K. 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 long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), 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.
The following accounting policies require management’s most difficult, subjective and complex judgments, and are subject to a fair degree of measurement uncertainty.
Long-Lived Assets
As of December 31, 2025, we had long-lived assets recorded in our Consolidated Balance Sheet of $1,141.6
million. These long-lived assets include property, plant and equipment, net and amortizable intangible assets, net. In 2025, we recorded depreciation and amortization of $160.0 million and impairment charges of $215.7 million against long-lived assets at our Peace River mill and obsolete equipment. Depreciation, amortization and impairment charges are based on accounting estimates.
The calculation of depreciation and amortization of long-lived assets requires us to apply judgment in selecting the remaining useful lives of the assets. The remaining useful life of an asset must address both physical and economic considerations. The remaining economic life of a long-lived asset may be shorter than its physical life. The pulp industry has historically been characterized by considerable uncertainty in business conditions. Estimates of future economic conditions for our long-lived assets and therefore, their remaining useful economic life, require considerable judgment.
If our estimate of the remaining useful life changes, such a change is accounted for prospectively in our determination of depreciation and amortization. Actual depreciation and amortization charges for an individual asset may therefore be significantly accelerated if the outlook for its remaining useful life is shortened considerably.
The unit of accounting for impairment testing for long-lived assets is its “Asset Group”, which includes property, plant and equipment and amortizable intangible assets, and liabilities directly related to those assets. We evaluate an Asset Group for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as continuing operating losses. When an indicator that the carrying value of an Asset Group may not be recoverable is triggered, we compare the carrying value of the Asset Group to its forecasted undiscounted future cash flows. If the carrying value of the Asset Group is greater than the undiscounted future cash flows, an impairment charge is recorded based on the excess of the Asset Group’s carrying value over its fair value.
Impairment testing for long-lived assets requires us to apply judgment in estimating the future cash flows of the Asset Group. The significant estimates in the future cash flows include periods of operation, future production and sales volumes, selling prices, fiber costs, and long-term growth and discount rates. When performing impairment tests, we estimate the fair values of the assets using management’s best assumptions, which we believe are consistent with the assumptions that a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated each period an impairment indicator is triggered.
In 2025, the fair value measurement of the Peace River mill's Asset Group was sensitive to the key assumptions noted above. Changes in these assumptions would impact the fair value as follows:
Key assumptions
Change
Estimated impact on fair value
(In thousands)
Estimated future cash flows
5% increase
Discount rate
100 basis point increase
Terminal growth rate
100 basis point increase
Actual asset impairment losses could vary considerably from estimated impairment losses if actual results are not consistent with the assumptions and judgments used in estimating future cash flows.
Pension and Other Post-Retirement Benefit Obligations
We maintain defined benefit pension plans and an other post-retirement benefit plan for certain employees of our Peace River mill and our Celgar mill which are funded based on actuarial estimates and requirements and are non-contributory. We recognize the net funded status of the plans and we record net periodic benefit costs associated with these net obligations. As of December 31, 2025, we had pension and other post-retirement benefit obligations aggregating $93.0 million and accumulated pension plan assets with a fair value of $94.8 million. Our 2025 net periodic pension and other post-retirement benefit cost was $0.7 million. The amounts recorded for the net pension and other post-retirement obligations include various judgments and uncertainties.
Judgment is required for the following inputs which are used to determine our net obligations and our net periodic benefit costs each year:
discount rate – used to determine the net present value of our pension and other post-retirement benefit obligations and to determine the interest cost component of our net periodic pension and other post-retirement benefit costs;
return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension obligations and to determine the expected return on the plan assets component of our net periodic pension costs;
mortality rate – used to estimate the impact of mortality on pension and other post-retirement benefit obligations;
rate of compensation increase – used to calculate the impact future pay increases will have on pension benefit obligations; and
health care cost trend rate – used to calculate the impact of future health care costs on other post-retirement benefit obligations.
For the discount rate, we use the rates available on high-quality corporate bonds with a duration that is expected to match the timing of expected pension and other post-retirement benefit obligations. High-quality corporate bonds are those with a rating of “AA” or better.
In determining the expected return on assets, we consider the historical long-term returns, expected asset mix and the active management premium.
For the mortality rate we use actuarially-determined mortality tables that are consistent with our historical mortality experience and future expectations for mortality of the employees who participate in our pension and other post-retirement benefit plans.
In determining the rate of compensation increase, we review historical compensation increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with employees and the outlook for the industry.
For the health care cost trend rate, we consider historical trends for these costs, as well as recently enacted health care legislation. We also compare our health care rate to those of our industry.
Variations in assumptions described above could have a significant effect on the pension and other post-retirement benefits, net periodic benefit cost and obligation reported in our consolidated financial statements. For example, a one-percentage point change in any one of the following assumptions would have increased (decreased) our 2025 net periodic benefit cost and our accrued benefit obligation as follows:
Net periodic benefit cost
Accrued benefit obligation
increase
decrease
increase
decrease
(in thousands)
Assumptions
Discount rate
Return on assets
Rate of compensation
Health care cost trend rate
Deferred Income Taxes
As of December 31, 2025, we had a deferred income tax liability of $58.3 million and a deferred income tax asset of $7.8 million, resulting in a net deferred income tax liability of $50.5 million. Our deferred income tax assets are net of a $198.8 million valuation allowance. Our deferred income tax assets are comprised primarily of income tax loss and interest carryforwards and deductible temporary differences, all of which will reduce taxable income in the future. We assess the realization of these deferred income tax assets at each
reporting period to determine whether it is more likely than not that the deferred income tax assets will be realized. Our assessment includes a review of all available positive and negative evidence, including, but not limited to, the following:
the history of the income tax loss carryforwards and their expiry dates;
future reversals of temporary differences;
our historical and projected earnings; and
tax planning opportunities.
Significant judgment is required when evaluating the positive and negative evidence, specifically our estimates of future earnings. The weight given to negative and positive evidence is commensurate with the extent to which it can be objectively verified. Operating results during the most recent three-year period are generally given more weight than expectations of future profitability, which are inherently uncertain. A cumulative loss position during the most recent three-year period is considered significant negative evidence in assessing the realizability of deferred income tax assets that is difficult to overcome.
Once our evaluation of the evidence is complete, if we believe that it is more likely than not that some of the deferred income tax assets will not be realized, based on currently available information, a valuation allowance is recorded against the deferred income tax assets.
If market conditions improve or tax planning opportunities arise in the future, we may reduce our valuation allowance, resulting in future income tax benefits. If market conditions deteriorate in the future, we may increase our valuation allowance, resulting in future income tax expenses. Any change in tax laws may change the valuation allowances in future periods.
Revenues Under Long-Term Contracts
We have revenues from long-term contracts which are recognized over the contract term as the work progresses towards completion. The timing of revenue recognition involves a judgmental process of estimating costs and profit for the performance obligation. Cost of sales is recognized as incurred. The amount we report as revenues is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales. We recognize revenue as costs are incurred as this provides an objective measure of progress and thereby best depicts the extent of transfer of control to the customer. Estimating cost to complete requires us to apply judgment and is largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Factors that influence these estimates may include inflationary trends, internal and supplier performance, asset utilization, amongst others. Actual costs to complete could vary considerably from the estimated costs to complete and have a significant impact on the revenue we recognize.
Revenue and cost estimates for all significant long-term contract performance obligations are reviewed quarterly. Changes in estimated revenues, cost of sales and the related effect on our earnings are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on the contract’s percentage-of-completion.
Inventories
Inventories of raw materials, finished goods and work in progress are valued at the lower of cost, using the weighted-average cost method, or net realizable value and are released from inventory on the same basis. Estimating net realizable value requires us to apply judgment and is based on current and expected selling prices in the ordinary course of business, less reasonably predictable costs of completion.
Contingent Liabilities
We are subject to lawsuits, investigations and other claims related to environmental, product and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. We disclose contingent liabilities when there is a reasonable
possibility that an ultimate loss may occur and we record contingent liabilities when it becomes probable that we will have to make payments and the amount of loss can be reasonably estimated.
Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including, but not limited to, the following:
historical experience;
judgments about the potential actions of third-party claimants and courts; and
recommendations of legal counsel.
Contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges. These exposures and proceedings can be significant and the ultimate negative outcomes could be material to our operating results or liquidity in any given quarter or year.
New Accounting Standards
See Note 1 to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.
