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Item 2 — Management's Discussion and Analysis
Mercer International Inc. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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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 June 30, 2026, 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 and six months ended June 30, 2026 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, 2025 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 second quarter of 2026, our NBSK pulp sales realizations were relatively steady compared to the first quarter of 2026. In Europe, third-party list prices held flat as weak demand was offset by scheduled maintenance and curtailments. Similarly, North American third-party published list prices remained flat, with excess regional supply offsetting improving demand. The Chinese market continued to be pressured by an oversupplied paper sector and weak demand linked to prevailing economic and trade uncertainties. Conversely, our NBHK pulp sales realizations increased. This was driven by higher prices in North America, which benefited from global supply constraints, lower inventory levels, and steady demand. However, prices in China were flat as continued regional overcapacity offset the impact of global supply constraints.
In the second quarter of 2026, our lumber sales realizations modestly increased compared to the first quarter of 2026, primarily due to low customer inventory levels and sawmill curtailments in the U.S. While supply also contracted in Europe, continued weak regional demand limited the positive impact on pricing in the market.
As of June 30, 2026, the third-party industry quoted NBSK pulp list prices in Europe and North America were approximately $1,655 per ADMT and $1,570 per ADMT, respectively, and the third-party industry quoted NBSK
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pulp net price in China was approximately $645 per ADMT. Prices for China are net of discounts, allowances and rebates.
In the third quarter of 2026, we currently expect NBSK pulp prices to modestly decrease in all our markets as reduced supply is offset by lower seasonal demand. Conversely, we currently expect NBHK pulp prices to modestly decrease as global supply constraints ease.
In the third quarter of 2026, we currently expect lumber prices to remain stable in Europe as weak demand is offset by reduced supply, and modestly increase in the U.S. due to lower customer inventory levels and capacity curtailments. During the same period, we anticipate pallet prices to remain flat due to continued weak economic conditions in Europe and mass timber prices to remain relatively steady.
Per unit fiber costs for the pulp and solid wood segments increased in the second quarter of 2026 compared to the first quarter of 2026, driven by supply constraints and strong demand in Germany. For the third quarter of 2026, per unit fiber costs are expected to remain elevated at our German mills with a slight increase at our pulp mills. This increase is driven by continued strong demand for wood as an energy source as a result of ongoing geopolitical conflicts. For our sawmills and Canadian pulp mills, per unit fiber costs are expected to modestly decrease as regional curtailments improve their fiber supply.
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Summary Financial Highlights
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(in thousands, other than per share amounts)
Statement of Operations Data
Revenues from external customers
Pulp segment $ 325,074 $ 332,308 $ 670,057 $ 713,388
Solid wood segment 134,203 117,268 265,945 239,988
Corporate and other 1,001 3,948 13,580 7,122
Total revenues $ 460,278 $ 453,524 $ 949,582 $ 960,498
Pulp Segment Operating EBITDA(1) $ (12,651 ) $ (10,262 ) $ (5,754 ) $ 39,610
Solid wood Segment Operating EBITDA(1) (8,238 ) (4,861 ) (13,869 ) (5,153 )
Corporate and other (104 ) (5,758 ) 6,478 (8,250 )
Operating EBITDA(2) $ (20,993 ) $ (20,881 ) $ (13,145 ) $ 26,207
Net loss $ (75,978 ) $ (86,071 ) $ (127,974 ) $ (108,410 )
Net loss per common share
Basic $ (1.13 ) $ (1.29 ) $ (1.91 ) $ (1.62 )
Diluted $ (1.13 ) $ (1.29 ) $ (1.91 ) $ (1.62 )
Common shares outstanding at period end 67,019 66,983 67,019 66,983
(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, limitations and why we consider it to be a useful measure. The following table provides a reconciliation of net loss to operating loss and Operating EBITDA for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(in thousands)
Net loss $ (75,978 ) $ (86,071 ) $ (127,974 ) $ (108,410 )
Income tax recovery (13,413 ) (1,864 ) (21,590 ) (1,132 )
Interest expense 30,920 28,411 60,021 56,566
Other expenses (income) (503 ) 1,120 (2,323 ) 1,305
Operating loss (58,974 ) (58,404 ) (91,866 ) (51,671 )
Add: Depreciation and amortization 37,981 37,523 78,721 77,878
Operating EBITDA $ (20,993 ) $ (20,881 ) $ (13,145 ) $ 26,207
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Selected Production, Sales and Other Data
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Pulp Segment
Pulp production ('000 ADMTs)
NBSK 390.0 403.2 752.5 773.6
NBHK 65.8 53.9 169.0 142.4
Annual maintenance downtime ('000 ADMTs) — 33.2 — 62.9
Annual maintenance downtime (days) — 23 — 45
Pulp sales ('000 ADMTs)
NBSK 368.8 361.4 753.8 749.5
NBHK 81.6 65.3 167.2 155.1
Average NBSK pulp prices ($/ADMT)(1)
Europe 1,655 1,553 1,637 1,552
China 658 734 672 764
North America 1,577 1,820 1,570 1,787
Average NBHK pulp prices ($/ADMT)(1)
China 602 533 598 556
North America 1,495 1,310 1,417 1,289
Average pulp sales realizations ($/ADMT)(2)
NBSK 682 758 689 771
NBHK 607 575 585 572
Energy production ('000 MWh) 483.0 511.1 1,027.6 1,038.1
Energy sales ('000 MWh) 162.3 183.1 341.6 381.8
Average energy sales realizations ($/MWh) 109 83 117 96
Solid Wood Segment
Lumber
Production (MMfbm) 123.8 120.2 239.8 248.2
Sales (MMfbm) 100.3 120.6 212.5 251.5
Average sales realizations ($/Mfbm) 565 550 549 524
Energy
Production and sales ('000 MWh) 43.3 32.7 81.3 68.8
Average sales realizations ($/MWh) 145 130 146 132
Manufactured products(3)
Production ('000 m3) 11.0 7.8 18.9 14.9
Sales ('000 m3) 11.0 8.1 21.7 14.0
Average sales realizations ($/m3) 2,206 1,318 2,007 1,955
Pallets
Production ('000 units) 2,314.8 2,132.9 4,748.1 4,229.3
Sales ('000 units) 2,418.3 2,248.0 4,799.6 4,376.8
Average sales realizations ($/unit) 13 12 13 11
Biofuels(4)
Production ('000 tonnes) 37.3 25.2 72.7 69.7
Sales ('000 tonnes) 34.6 19.6 72.6 59.9
Average sales realizations ($/tonne) 310 260 315 239
Average Spot Currency Exchange Rates
$ / €(5) 1.1632 1.1342 1.1666 1.0943
$ / C$(5) 0.7229 0.7225 0.7260 0.7099
(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)Manufactured products primarily include CLT and glulam.
(4)Biofuels include pellets and briquettes.
(5)Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.
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Consolidated – Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Total revenues for the second quarter of 2026 remained relatively steady at $460.3 million compared to $453.5 million in the same period of 2025, as higher sales realizations for our solid wood products and higher pulp sales volumes were mostly offset by lower pulp sales realizations.
Costs and expenses in the second quarter of 2026 were generally flat at $519.3 million compared to $511.9 million in the same period of 2025. In the second quarter of 2026, higher per unit fiber costs were mostly offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the second quarter of 2026, costs and expenses included a non-cash impairment of $29.0 million primarily against pulp and fiber inventory as a result of low pulp prices and high fiber costs. In the same period of 2025, costs and expenses included a non-cash impairment of $11.0 million against hardwood inventory at our Peace River mill.
In the second quarter of 2026, cost of sales depreciation and amortization was relatively flat at $37.9 million compared to $37.5 million in the same period of 2025.
Selling, general and administrative expenses were relatively steady at $31.6 million in the second quarter of 2026 compared to $30.4 million in the same period of 2025.
In the second quarter of 2026, we had a positive foreign exchange impact of approximately $6.4 million on our operating loss compared to the same period of 2025. This positive impact was primarily due to the effect of a stronger dollar compared to the euro and Canadian dollar on the revaluation of dollar-denominated accounts receivable held at our operations as of June 30, 2026.
In the second quarter of 2026, our operating loss was $59.0 million compared to an operating loss of $58.4 million in the same period of 2025. In the second quarter of 2026, higher per unit fiber costs and lower pulp sales realizations were mostly offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the second quarter of 2026, our operating loss included a non-cash inventory impairment of $29.0 million compared to $11.0 million in the same period of 2025.
Interest expense increased by approximately 9% to $30.9 million in the second quarter of 2026 from $28.4 million in the same period of 2025. This increase was primarily driven by higher interest rates on borrowings under the German joint revolving credit facility (the “German Facility”), pursuant to the terms of the waiver obtained in the second quarter of 2026.
In the second quarter of 2026, other income was $0.5 million compared to other expenses of $1.1 million in the same period of 2025. Other income in the second quarter of 2026 primarily consisted of interest earned on cash. In the same period of 2025, other expenses primarily consisted of foreign exchange losses on the revaluation of 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 second quarter of 2026, we had an income tax recovery of $13.4 million, or an effective tax rate of 15%, and in the same period of 2025, we had an income tax recovery of $1.9 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 from which we do not expect to realize a tax benefit.
In the second quarter of 2026, our net loss was $76.0 million, or $1.13 per share, compared to $86.1 million, or $1.29 per share, in the same period of 2025.
In the second quarter of 2026, Operating EBITDA was negative $21.0 million compared to negative $20.9 million in the same period of 2025. In the second quarter of 2026, higher per unit fiber costs and lower pulp sales realizations were mostly offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the second quarter of 2026, Operating EBITDA included a non-cash inventory impairment of $29.0 million compared to $11.0 million in the same period of 2025.
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Strategic Initiatives
In July 2026, it was announced that the Torgau facility would be undertaking strategic actions designed to align its capacity and operational profile to current market conditions, which involve initiatives to streamline its organization and processes, along with adjustments to its product portfolio. These actions include an initial reduction of approximately 100 contractor positions in July 2026 and overall workforce reduction of approximately 350 positions to be completed in stages, and completing in or about the second quarter of 2027.
Pulp Segment – Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Selected Financial Information
Three Months Ended June 30,
2026 2025
(in thousands)
Pulp revenues $ 303,340 $ 313,705
Energy and chemical revenues $ 21,734 $ 18,603
Segment Operating EBITDA(1) $ (12,651 ) $ (10,262 )
(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 second quarter of 2026 modestly decreased to $325.1 million from $332.3 million in the same period of 2025 due to lower pulp revenues.
Pulp revenues in the second quarter of 2026 modestly decreased to $303.3 million from $313.7 million in the same period of 2025 as a result of lower sales realizations, partially offset by higher sales volume.
Energy and chemical revenues in the second quarter of 2026 increased by approximately 17% to $21.7 million from $18.6 million in the same period of 2025. This increase was primarily due to higher sales realizations, partially offset by lower sales volumes.
Total pulp production in the second quarter of 2026 was relatively flat at 455,769 ADMTs compared to 457,117 ADMTs in the same period of 2025. Our German pulp mills reduced production during the quarter in response to high fiber prices, but this was offset by there being no planned maintenance downtime in the second quarter of 2026 compared to 23 days (approximately 33,200 ADMTs) at our pulp mills in the same period of 2025. Pulp production at our German mills is expected to remain at reduced levels in the third quarter of 2026 due to ongoing high fiber costs.
In the third quarter of 2026, we currently expect a total of 40 days of planned annual maintenance downtime (approximately 42,600 ADMTs) at our pulp mills.
Total pulp sales volumes in the second quarter of 2026 increased by approximately 6% to 450,329 ADMTs from 426,731 ADMTs in the same period of 2025 driven by the timing of sales.
In the second quarter of 2026, the third-party industry quoted average list price for NBSK pulp in Europe increased from the same period of 2025 primarily due to supply constraints. In the second quarter of 2026, the third-party industry quoted average list price in North America and net price in China for NBSK pulp both decreased compared to the same period of 2025. The decrease was primarily due to weak demand driven by the current economic climate and, in China, an oversupplied paper market. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,655 per ADMT and $1,577 per ADMT, respectively, in the second quarter of 2026, compared to approximately $1,553 per ADMT and $1,820 per ADMT, respectively, in the same period of 2025. The third-party industry quoted average net price for NBSK pulp in China was approximately $658 per ADMT in the second quarter of 2026 compared to approximately $734 per ADMT in the same period of 2025. 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.
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In the second quarter of 2026, the third-party industry quoted average list price in North America and net price in China for NBHK pulp both increased from the same period of 2025, primarily due to global supply constraints. The third-party industry quoted average list price for NBHK pulp in North America was approximately $1,495 per ADMT in the second quarter of 2026 compared to approximately $1,310 per ADMT in the same period of 2025. The third-party industry quoted average net price for NBHK pulp in China was approximately $602 per ADMT in the second quarter of 2026 compared to approximately $533 per ADMT in the same period of 2025.
Our average NBSK pulp sales realizations in the second quarter of 2026 decreased by approximately 10% to $682 per ADMT from $758 per ADMT in the same period of 2025. This decrease was primarily due to lower pricing in North America and China, while higher list prices in Europe were offset by increased customer discounts. In the second quarter of 2026, average NBHK pulp sales realizations increased by approximately 6% to $607 per ADMT from $575 per ADMT in the same period of 2025, driven by higher prices in all our markets.
In the second quarter of 2026, we had a positive foreign exchange impact of approximately $7.8 million on Segment Operating EBITDA compared to the same period of 2025. This positive impact was primarily due to the effect of a stronger dollar compared to the euro and Canadian dollar on the revaluation of dollar-denominated accounts receivable held at our operations as of June 30, 2026.
In the second quarter of 2026, we recorded a non-cash inventory impairment of $26.0 million primarily as a result of low pulp prices and high fiber costs.
In the second quarter of 2026, costs and expenses modestly decreased to $362.9 million from $368.7 million in the same period of 2025. This decrease was primarily due to lower planned maintenance downtime, our cost reduction initiatives and the positive foreign exchange impact from a stronger dollar. These decreases were partially offset by higher per unit fiber costs and higher pulp sales volumes. In the second quarter of 2026, costs and expenses included a non-cash inventory impairment of $26.0 million compared to $11.0 million in the same period of 2025.
Overall average per unit fiber costs in the second quarter of 2026 increased by approximately 14% compared to the same period of 2025 primarily due to higher costs in Germany. These higher costs were driven by reduced supply, and strong demand for wood as an energy source as a result of ongoing geopolitical conflicts. For the third quarter of 2026, per unit fiber costs for our German pulp mills are expected to slightly increase due to continued strong demand. For our Canadian pulp mills, per unit fiber costs are expected to modestly decrease as supply improves.
Transportation costs for our pulp segment in the second quarter of 2026 increased by approximately 14% to $37.4 million from $32.9 million in the same period of 2025, driven by higher sales volumes.
In the second quarter of 2026, Segment Operating EBITDA for our pulp segment was negative $12.7 million compared to negative $10.3 million in the same period of 2025. This decrease primarily resulted from lower pulp sales realizations and higher per unit fiber costs. These adverse effects were partially offset by the impact of lower planned maintenance downtime, the benefits of our cost reduction initiatives, and the positive foreign exchange impact from a stronger dollar. In the second quarter of 2026, Segment Operating EBITDA included a non-cash inventory impairment of $26.0 million compared to $11.0 million in the same period of 2025.
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Solid Wood Segment – Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Selected Financial Information
Three Months Ended June 30,
2026 2025
(in thousands)
Lumber revenues $ 56,643 $ 66,332
Manufactured products revenues(1) $ 25,821 $ 12,418
Pallet revenues $ 31,908 $ 26,586
Biofuels revenues(2) $ 10,724 $ 5,095
Energy revenues $ 6,296 $ 4,242
Wood residuals revenues $ 2,811 $ 2,595
Segment Operating EBITDA(3) $ (8,238 ) $ (4,861 )
(1)Manufactured products primarily include CLT and glulam.
(2)Biofuels include 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 second quarter of 2026 increased by approximately 14% to $134.2 million from $117.3 million in the same period of 2025 as a result of higher revenue from all product categories except for lumber.
In the second quarter of 2026, lumber revenues decreased by approximately 15% to $56.6 million from $66.3 million in the same period of 2025 as a result of lower sales volumes.
In the second quarter of 2026, manufactured products revenues were $25.8 million compared to $12.4 million in the same period of 2025. This increase was primarily driven by higher sales volumes and realizations.
Pallet revenues in the second quarter of 2026 increased by approximately 20% to $31.9 million from $26.6 million in the same period of 2025 due to higher sales realizations and volumes.
Biofuels, energy and wood residuals revenues in the second quarter of 2026 increased by approximately 66% to $19.8 million from $11.9 million in the same period of 2025 due to higher sales realizations and higher sales volumes.
Lumber production in the second quarter of 2026 was relatively stable at 123.8 MMfbm compared to 120.2 MMfbm in the same period of 2025.
Lumber sales volumes in the second quarter of 2026 decreased by approximately 17% to 100.3 MMfbm from 120.6 MMfbm in the same period of 2025 driven by the timing of sales.
Average lumber sales realizations in the second quarter of 2026 modestly increased to $565 per Mfbm from $550 per Mfbm in the same period of 2025. This increase was primarily due to lower customer inventory levels in the U.S. The U.S. market accounted for approximately 49% of our lumber revenues and approximately 43% of our lumber sales volumes in the second quarter of 2026. The balance of our lumber sales were mainly to Europe.
Manufactured products sales realizations increased by approximately 67% to $2,206 per m3 in the second quarter of 2026 from $1,318 per m3 in the same period of 2025 driven by a shift in mass timber construction activity toward higher-value projects.
In the second quarter of 2026, we recorded a non-cash inventory impairment of $3.0 million as a result of high fiber costs in Germany.
Fiber costs were approximately 85% of our lumber cash production costs in the second quarter of 2026. In the second quarter of 2026, per unit fiber costs for lumber production increased by approximately 28% compared to the same period of 2025 due to reduced supply and strong demand. For the third quarter of 2026, we currently expect per unit
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fiber costs to modestly decrease as sawlog availability improves.
Transportation costs for our solid wood segment in the second quarter of 2026 increased by approximately 21% to $16.2 million from $13.4 million in the same period of 2025 primarily as a result of higher freight rates.
In the second quarter of 2026, Segment Operating EBITDA for the solid wood segment was negative $8.2 million compared to negative $4.9 million in the same period of 2025. This decrease primarily resulted from higher per unit fiber costs partially offset by higher sales realizations for all our products.
Consolidated – Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Total revenues for the first half of 2026 were relatively flat at $949.6 million compared to $960.5 million in the same period of 2025.
Costs and expenses in the first half of 2026 modestly increased to $1,041.4 million from $1,012.2 million in the same period of 2025. This increase was primarily due to the higher per unit fiber costs and the negative foreign exchange impact from a weaker dollar on our euro and Canadian dollar-denominated costs and expenses. These adverse impacts were partially offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the first half of 2026, costs and expenses included inventory impairment charges of $51.0 million primarily against pulp and fiber inventory as a result of low pulp prices and high fiber costs. In the same period of 2025, costs and expenses included inventory impairment charges of $11.0 million against hardwood inventory at our Peace River mill.
In the first half of 2026, cost of sales depreciation and amortization was relatively steady at $78.6 million compared to $77.7 million in the same period of 2025.
Selling, general and administrative expenses were flat at $60.1 million in the first half of 2026 and the same period of 2025.
In the first half of 2026, we had a negative foreign exchange impact of approximately $15.7 million on our operating loss compared to the same period of 2025. This negative impact was primarily due to the effect of a weaker dollar on our euro and Canadian dollar-denominated costs and expenses.
In the first half of 2026, our operating loss was $91.9 million compared to $51.7 million in the same period of 2025. This increase in operating loss was primarily due to lower pulp sales realizations and higher per unit fiber costs, partially offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the first half of 2026, our operating loss also included inventory impairment charges of $51.0 million compared to $11.0 million in the same period of 2025.
Interest expense in the first half of 2026 increased by approximately 6% to $60.0 million from $56.6 million in the same period of 2025. This increase was primarily driven by higher borrowings under our revolving credit facilities and higher interest rates on borrowings under the German Facility, pursuant to the terms of the waiver obtained in the second quarter of 2026.
In the first half of 2026, other income was $2.3 million compared to other expenses of $1.3 million in the same period of 2025. Other income in the first half of 2026 primarily consisted of interest earned on cash. In the same period of 2025, other expenses 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.
During the first half of 2026, we had an income tax recovery of $21.6 million, or an effective tax rate of 14%, and in the same period of 2025, we had an income tax recovery of $1.1 million, or an effective tax rate of 1%. 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 from which we do not expect to realize a tax benefit.
In the first half of 2026, our net loss was $128.0 million, or $1.91 per share, compared to $108.4 million, or $1.62 per share, in the same period of 2025.
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In the first half of 2026, Operating EBITDA decreased to negative $13.1 million from positive $26.2 million in the same period of 2025. This decrease primarily resulted from lower pulp sales realizations and higher per unit fiber costs, partially offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the first half of 2026, Operating EBITDA also included inventory impairment charges of $51.0 million compared to $11.0 million in the same period of 2025.
Pulp Segment – Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Selected Financial Information
Six Months Ended June 30,
2026 2025
(in thousands)
Pulp revenues $ 622,510 $ 670,669
Energy and chemical revenues $ 47,547 $ 42,719
Segment Operating EBITDA(1) $ (5,754 ) $ 39,610
(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 half of 2026 decreased by approximately 6% to $670.1 million from $713.4 million in the same period of 2025 due to lower pulp revenues.
Pulp revenues in the first half of 2026 decreased by approximately 7% to $622.5 million from $670.7 million in the same period of 2025, primarily as a result of lower sales realizations.
Energy and chemical revenues in the first half of 2026 increased by approximately 11% to $47.5 million from $42.7 million in the same period of 2025, primarily due to higher sales realizations.
Total pulp production in the first half of 2026 was relatively flat at 921,486 ADMTs compared to 916,026 ADMTs in the same period of 2025. Our German pulp mills reduced production in the first half of 2026 in response to high fiber prices, but this was mostly offset by there being no planned maintenance downtime in the first half of 2026 compared to 45 days (approximately 62,900 ADMTs) at our pulp mills in the same period of 2025.
Total pulp sales volumes in the first half of 2026 modestly increased to 921,029 ADMTs from 904,610 ADMTs in the same period of 2025, due to the timing of sales.
In the first half of 2026, the third-party industry quoted average list price for NBSK pulp in Europe increased compared to the same period of 2025 primarily due to supply constraints. In the first half of 2026, the third-party industry quoted average list price in North America and net price in China for NBSK pulp both decreased compared to the same period of 2025. The decrease was primarily due to weak demand driven by the current economic climate and, in China, an oversupplied paper market. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,637 per ADMT and $1,570 per ADMT, respectively, in the first half of 2026 compared to approximately $1,552 per ADMT and $1,787 per ADMT, respectively, in the same period of 2025. The third-party industry quoted average net price for NBSK pulp in China was approximately $672 per ADMT in the first half of 2026 compared to approximately $764 per ADMT in the same period of 2025. 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 half of 2026, the third-party industry quoted average list price in North America and net price in China for NBHK pulp both increased from the same period of 2025, primarily due to global supply constraints. The third-party industry quoted average list price for NBHK pulp in North America was approximately $1,417 per ADMT in the first half of 2026 compared to approximately $1,289 per ADMT in the same period of 2025. The third-party industry quoted average net price for NBHK pulp in China was approximately $598 per ADMT in the first half of 2026 compared to approximately $556 per ADMT in the same period of 2025.
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Our average NBSK pulp sales realizations in the first half of 2026 decreased by approximately 11% to $689 per ADMT from $771 per ADMT in the same period of 2025 due to lower prices in North America and China, and higher discounts in Europe. In the first half of 2026, average NBHK pulp sales realizations were relatively flat at $585 per ADMT compared to $572 per ADMT in the same period of 2025.
In the first half of 2026, we had a negative foreign exchange impact of approximately $8.6 million on Segment Operating EBITDA compared to the same period of 2025, primarily due to the effect of a weaker dollar on our euro- and Canadian-dollar-denominated costs and expenses.
In the first half of 2026, we recorded inventory impairment charges of $48.0 million primarily as a result of low pulp prices and high fiber costs. In the first half of 2025, we recorded inventory impairment charges of $11.0 million primarily as a result of low hardwood pulp prices.
Costs and expenses in the first half of 2026 remained flat at $729.8 million compared to $729.6 million in the same period of 2025 as higher per unit fiber costs, the negative foreign exchange impact from a weaker dollar, and higher pulp sales volumes were mostly offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the first half of 2026, costs and expenses included an inventory impairment charge of $48.0 million compared to $11.0 million in the same period of 2025.
Overall average per unit fiber costs in the first half of 2026 increased by approximately 18% compared to the same period of 2025, primarily due to reduced supply in Germany and Canada, as well as strong demand for wood as an energy source in Germany.
Transportation costs for our pulp segment in the first half of 2026 increased by approximately 9% to $74.3 million from $68.3 million in the same period of 2025 primarily due to higher sales volume.
In the first half of 2026, Segment Operating EBITDA for the pulp segment decreased to negative $5.8 million from positive $39.6 million in the same period of 2025. This decrease primarily resulted from lower pulp sales realizations, higher per unit fiber costs and the negative foreign exchange impact from a weaker dollar. These adverse effects were partially offset by the impact of lower planned maintenance downtime and the benefits of our cost reduction initiatives. In the first half of 2026, Segment Operating EBITDA also included inventory impairment charges of $48.0 million compared to $11.0 million in the same period of 2025.
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Solid Wood Segment – Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Selected Financial Information
Six Months Ended June 30,
2026 2025
(in thousands)
Lumber revenues $ 116,734 $ 131,718
Manufactured products revenues(1) $ 46,862 $ 31,242
Pallet revenues $ 61,768 $ 49,763
Biofuels revenues(2) $ 22,904 $ 14,319
Energy revenues $ 11,894 $ 9,108
Wood residuals revenues $ 5,783 $ 3,838
Segment Operating EBITDA(3) $ (13,869 ) $ (5,153 )
(1)Manufactured products primarily include CLT and glulam.
(2)Biofuels include 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 half of 2026 increased by approximately 11% to $265.9 million from $240.0 million in the same period of 2025 as a result of higher revenue from all product categories except for lumber.
Lumber revenues in the first half of 2026 decreased by approximately 11% to $116.7 million from $131.7 million in the same period of 2025 due to lower sales volumes.
In the first half of 2026, manufactured products revenues increased by approximately 50% to $46.9 million from $31.2 million in the same period of 2025 due to higher sales volumes.
Pallet revenues in the first half of 2026 increased by approximately 24% to $61.8 million from $49.8 million in the same period of 2025 driven by higher sales volumes and realizations.
Biofuels, energy and wood residuals revenues in the first half of 2026 increased by approximately 49% to $40.6 million from $27.3 million in the same period of 2025 as a result of higher sales realizations and volumes.
Lumber production in the first half of 2026 modestly decreased to 239.8 MMfbm from 248.2 MMfbm in the same period of 2025 due to fiber supply constraints.
Lumber sales volumes in the first half of 2026 decreased by approximately 16% to 212.5 MMfbm from 251.5 MMfbm in the same period of 2025, as a result of timing of sales and lower production.
Average lumber sales realizations in the first half of 2026 increased by approximately 5% to $549 per Mfbm from $524 per Mfbm in the same period of 2025. This increase was primarily due to higher prices in Germany in response to higher fiber costs. Prices in the U.S. market were flat. The U.S. market accounted for approximately 47% of our lumber revenues and approximately 42% of our lumber sales volumes in the first half of 2026. The balance of our lumber sales was mainly to Europe.
Manufactured products sales realizations modestly increased to $2,007 per m3 in the first half of 2026 from $1,955 per m3 in the same period of 2025, driven by a shift in mass timber construction activity toward higher-value projects.
In the first half of 2026, we recorded inventory impairment charges of $3.0 million as a result of high fiber costs in Germany.
Fiber costs were approximately 85% of our lumber cash production costs in the first half of 2026. During this period, per unit fiber costs for lumber production increased by approximately 32% compared to the same period of 2025 due to reduced supply and strong demand.
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Transportation costs for our solid wood segment in the first half of 2026 increased by approximately 16% to $31.1 million from $26.7 million in the same period of 2025 as a result of higher freight rates.
In the first half of 2026, Segment Operating EBITDA for the solid wood segment was negative $13.9 million compared to negative $5.2 million in the same period of 2025. This decrease primarily resulted from higher per unit fiber costs partially offset by higher sales realizations for all our products and the benefits of our cost savings initiatives.
Liquidity and Capital Resources
As a result of ongoing economic uncertainty and market conditions, to address our overall liquidity going forward, we have engaged advisors to review strategic alternatives and broader financing initiatives. As part of this process, we are engaged in discussions with holders of our 2028 and 2029 senior notes, as well as other stakeholders across our capital structure, regarding potential financing and other liquidity-enhancing transactions. These discussions remain ongoing and we continue to evaluate a range of alternatives with the objective of achieving a comprehensive solution that supports our long-term business plan. No agreement has been reached with any stakeholder group, and there can be no assurance these discussions will result in any particular transaction or that any transaction, if pursued, will be completed.
For additional details regarding our liquidity position and the factors raising substantial doubt about our ability to continue as a going concern for the one-year period from the date of this report, see Note 1 to our consolidated financial statements and “Sources and Uses of Funds – Going Concern”.
Summary of Cash Flows
Six Months Ended June 30,
2026 2025
(in thousands)
Net cash used in operating activities $ (100,782 ) $ (7,515 )
Net cash used in investing activities (19,343 ) (42,633 )
Net cash from financing activities 17,607 15,978
Effect of exchange rate changes on cash, cash equivalents and restricted cash (512 ) (4,256 )
Net decrease in cash, cash equivalents and restricted cash $ (103,030 ) $ (38,426 )
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. However, ongoing market pressures continue to impact our liquidity. For additional details, see Note 1 to our consolidated financial statements and “Sources and Uses of Funds – Going Concern”.
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 six months ended June 30, 2026, cash used in operating activities was $100.8 million compared to $7.5 million in the same period of 2025. An increase in accounts receivable used cash of $13.5 million in the six months ended June 30, 2026, and a decrease in accounts receivable provided cash of $14.8 million in the same period of 2025. Adjusting for inventory impairments of $51.0 million, an increase in inventories used cash of $81.7 million in the six months ended June 30, 2026. Adjusting for inventory impairments of $11.0 million, an increase in inventories used cash of $24.1 million in the same period of 2025. An increase in accounts payable and accrued expenses provided cash of $12.6 million in the six months ended June 30, 2026 and $16.4 million in the same period of 2025. A decrease in prepaid expenses and other provided cash of $4.6 million in the six months ended June 30, 2026. An increase in prepaid expenses and other used cash of $8.8 million in the same period of 2025.
Cash Flows from (used in) Investing Activities. In the six months ended June 30, 2026, investing activities used cash of $19.3 million. In the six months ended June 30, 2026, we incurred $25.3 million of capital expenditures primarily related to lime kiln improvement and other strategic projects at our Stendal mill, upgrades to the digester evaporator
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at our Rosenthal mill, and maintenance projects across all mills and facilities. In the six months ended June 30, 2026, we received $4.8 million in government grants for capital projects at our Stendal mill.
In the six months ended June 30, 2025, investing activities used cash of $42.6 million. In the six months ended June 30, 2025, we incurred $44.4 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, sorting line upgrades, and other strategic projects at our mass timber facilities, and maintenance projects across all mills and facilities. In the six months ended June 30, 2025, we received $3.1 million in government grants for capital projects at our mass timber facilities.
Cash Flows from (used in) Financing Activities. In the six months ended June 30, 2026, financing activities provided cash of $17.6 million. In the six months ended June 30, 2026, we borrowed approximately $30.0 million under our revolving credit facilities.
In the six months ended June 30, 2025, financing activities provided cash of $16.0 million. In the six months ended June 30, 2025, we borrowed approximately $25.4 million under our revolving credit facilities, and we paid dividends of $5.0 million.
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
June 30, 2026 December 31, 2025
(in thousands)
Cash and cash equivalents $ 78,775 $ 186,805
Working capital(1) $ 182,474 $ 582,176
Total assets $ 1,869,907 $ 2,041,420
Current liabilities(1) $ 600,876 $ 283,626
Long-term liabilities(1) $ 1,367,005 $ 1,689,734
Total shareholders’ equity (deficit) $ (97,974 ) $ 68,060
(1)As of June 30, 2026, the Canadian joint revolving credit facility (the “Canadian Facility”) and German Facility were classified as current liabilities. The Canadian Facility’s classification reflects its January 2027 maturity, while the German Facility was reclassified due to a probable covenant breach in the fourth quarter of 2026. Refer to the debt note in our consolidated financial statements for more information.
Sources and Uses of Funds
Our principal sources of funds are cash flows from operations, cash and cash equivalents on hand and available capital from financing activities. 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:
Six Months Ended June 30,
2026 2025
(in thousands)
Capital expenditures $ 25,330 $ 44,413
Cash paid for interest expense(1) $ 54,230 $ 53,415
Interest expense(2) $ 60,021 $ 56,566
(1)Amounts differ from interest expense, which includes non-cash items. See supplemental disclosure of cash flow information in 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. The interest rate margin under the German Facility was modified based on specified leverage ratio levels pursuant to the terms of the waiver obtained on May 4, 2026 (see “Debt Covenants”).
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As of June 30, 2026, we had cash and cash equivalents of $78.8 million. After taking into account the waiver obtained on May 4, 2026 and the €70 million reduction in borrowing capacity thereunder (see “Debt Covenants”), we had approximately $112.9 million available under our revolving credit facilities, bringing aggregate liquidity to approximately $191.7 million as of June 30, 2026.
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.
Going Concern
The January 2027 maturity of the Canadian Facility represents our primary liquidity requirement over the next 12 months. Absent a refinancing, this is projected to result in a liquidity shortfall that raises substantial doubt about our ability to continue as a going concern for the one-year period from the date of this report. Additionally, while the German Facility matures in September 2027, it has been classified as current due to a probable covenant breach in the fourth quarter of 2026 and is subject to potential acceleration if unwaived. For additional details regarding the factors raising substantial doubt about our ability to continue as a going concern, see Note 1 to our consolidated financial statements.
Management currently anticipates renegotiating or replacing the Canadian Facility ahead of its maturity and is concurrently evaluating strategic alternatives and broader financing initiatives (for further information, see “Liquidity and Capital Resources” in Part I, Item 2 of this report). While management currently believes we will reach a resolution prior to the maturity or potential acceleration of current debt, there can be no assurance that we will successfully renegotiate or amend the facilities, or complete any such financing, refinancing or strategic transactions on acceptable terms, or at all. If we are unable to resolve these liquidity shortfalls prior to maturity or potential acceleration, we will not have sufficient cash to settle these obligations, which would have a material adverse effect on our business, financial condition, and ability to continue as a going concern.
Subject to and assuming we successfully address the near-term liquidity requirements described above, we believe that our cash flow from operations and available cash, together with access to capital markets, will otherwise be adequate to finance the capital requirements of our ongoing business for the next 12 months. Over the longer term, we may make commitments to additional capital projects or acquisitions to achieve our long-term goals, which will require substantial capital resources. We expect to generate these necessary resources through a combination of future cash flow from operations, cash on hand, asset dispositions, or the issuance of debt and equity securities. However, our ability to meet these long-term business goals and manage our maturing debt remains highly dependent on our ability to continually access and secure outside sources of capital.
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, 2025.
As of March 31, 2026, our leverage ratio exceeded the 3.50:1.00 maximum permitted under our German Facility, under which $201.2 million was drawn. We secured a waiver dated May 4, 2026 with respect to this financial covenant for the first three quarters of 2026 (the “Waiver”). Management has determined it is probable that the Company will not meet the required leverage ratio with respect to the fourth quarter of 2026. Consequently, in accordance with GAAP, the outstanding balance under the German Facility has been classified as a current liability as of June 30, 2026. However, it has not been declared in default, and the outstanding borrowings are not currently callable by the lender or subject to acceleration.
Pursuant to the Waiver, the lenders under our German Facility waived the requirement to comply with the leverage ratio financial covenant for the first three fiscal quarters of 2026. The Waiver also modified certain covenants, including limiting utilization of the German Facility to €300 million while the leverage ratio exceeds 2.00:1.00, limiting drawdown requests for incremental borrowings to €20 million (until certain liquidity forecasts are provided),
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requiring average liquidity of the Company and its subsidiaries of US$30 million (tested monthly and measured over a rolling 13-week period), restricting capital expenditures of the German borrowers and their subsidiaries to €60 million for fiscal year 2026 without agent consent, and restricting distributions by the German borrowers to the Company until September 30, 2026 (subject to limited exceptions). The interest rate margin under the German Facility was modified to a range of 2.50% to 4.25% based on specified leverage ratio levels. The Waiver also provides, among other things, for a grant of security over certain assets of the German borrowers and guarantors, includes certain reporting requirements and creates additional events of default such as cross-defaults to certain of our other indebtedness, including our outstanding senior notes and Canadian Facility. Further information regarding the Waiver is set forth in our Current Report on Form 8-K dated May 7, 2026, and the Waiver is included as an exhibit to this report.
The Waiver gives us the opportunity to pursue and implement measures and solutions to enhance our liquidity and financial condition in the current economic environment and to assist our positioning for an eventual market recovery. To this end, we are also evaluating strategic alternatives and financing options to address our liquidity needs and goals. Our board of directors has appointed a special committee of independent directors to oversee, review and evaluate the development and implementation of potential liquidity management strategies and other transactions to improve our capital structure. Our other debt agreements remain in compliance and this Waiver does not trigger any cross-default provisions under those agreements. While non-compliance with the leverage ratio financial covenant addressed pursuant to the Waiver did not and does not trigger any cross-default provisions under the Company’s senior notes or Canadian Facility, an unwaived breach with respect to the quarter ending December 31, 2026 could lead to a default and subsequent cross-defaults if the lenders under the German Facility exercise their acceleration rights.
Any further covenant waivers may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as may be agreed with our lenders. There can be no assurance that we would be able to obtain additional waivers in a timely manner, or on acceptable terms. Any inability to secure additional relief could lead to an event of default and the acceleration of amounts due thereunder. Subject to our ability to successfully address the upcoming Canadian Facility maturity and resolve the going concern uncertainties described under “Sources and Uses of Funds – Going Concern”, we intend to meet any resulting liquidity needs through a combination of internal cash generation and continued access to the debt and equity capital markets.
Contractual Obligations and Commitments
There were no material changes outside the ordinary course to any of our material contractual obligations during the six months ended June 30, 2026.
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 recorded in other comprehensive income (loss) and do not affect our net earnings.
As a result of a stronger dollar versus the euro and Canadian dollar as of June 30, 2026, during the six months ended June 30, 2026, we recorded a non-cash decrease of $37.0 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 decrease does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as a decrease to our total equity. As a result, our accumulated other comprehensive loss increased to $125.1 million.
Based upon the exchange rate as of June 30, 2026, the dollar was approximately 4% stronger against the Canadian dollar and 3% stronger against the euro since December 31, 2025. See “Quantitative and Qualitative Disclosures about Market Risk”.
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Credit Ratings of Senior Notes
We and our senior notes are rated by Standard & Poor’s Ratings 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. 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 February 2026, S&P downgraded its rating on our senior notes to CCC+, followed by a further downgrade to CCC by Fitch in May 2026. In July 2026, Moody’s also downgraded our senior notes from Caa2 to Ca and confirmed its outlook as stable.
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 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, 2025. 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, the Company’s ability to continue as a going concern, future cash flows associated with the Company’s debt covenant compliance and related debt classification and 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, 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, 2025.
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;
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•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 in the Middle East and Ukraine;
•the impacts of changes in international trade policies, including tariffs, duties 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;
•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;
•acquisitions may result in additional risks and uncertainties in our business;
•evolving sustainability reporting and environmental, social and governance preferences of customers, investors and other stakeholders may impact our business;
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Risks Related to our Debt
•our level of indebtedness could negatively impact our financial condition, results of operations and liquidity;
•we have obtained a temporary Waiver under our German Facility, and any failure to comply with the terms of the Waiver, return to compliance by the end of the waiver period or obtain additional relief could materially adversely affect our liquidity and financial condition;
•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 have determined that there is substantial doubt about our ability to continue as a going concern for the one-year period from the date of this report;
•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.
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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, 2025 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 2017 and 2026 have fluctuated between a low of $810 per ADMT in 2017 to a high of $1,655 per ADMT in 2026. In the same period, third-party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $830 per ADMT in 2017 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 2017 and 2026 have fluctuated between a low of $310 per Mfbm in 2017 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
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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.
FORM 10-Q
QUARTERLY REPORT - PAGE 47