Mercer(MERC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The company's unaudited interim consolidated financial statements reflect a net loss for the period with key changes in revenues, costs, and comprehensive income Interim Consolidated Statements of Operations The company reported increased net losses compared to the prior year, driven by lower revenues and higher operating losses Operations Data | Metric (in thousands of U.S. dollars, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenues | $453,524 | $499,384 | $960,498 | $1,052,814 | | Operating loss | $(58,404) | $(43,779) | $(51,671) | $(44,227) | | Net loss | $(86,071) | $(67,586) | $(108,410) | $(84,289) | | Net loss per common share (Basic) | $(1.29) | $(1.01) | $(1.62) | $(1.26) | | Dividends declared per common share | $0.075 | $0.075 | $0.150 | $0.150 | Interim Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income improved significantly from prior year losses, primarily due to positive foreign currency translation adjustments Comprehensive Income (Loss) | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(86,071) | $(67,586) | $(108,410) | $(84,289) | | Foreign currency translation adjustments | $99,249 | $(14,611) | $133,586 | $(52,080) | | Total comprehensive income (loss) | $12,909 | $(82,381) | $24,645 | $(136,726) | Interim Consolidated Balance Sheets Total assets and shareholders' equity increased from year-end 2024, driven by higher property, plant, equipment, and inventories Balance Sheet Data | Metric (in thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Total current assets | $937,603 | $910,004 | | Total assets | $2,378,376 | $2,262,932 | | Total current liabilities | $302,118 | $256,538 | | Long-term debt | $1,526,743 | $1,473,986 | | Total liabilities | $1,931,885 | $1,833,157 | | Total shareholders' equity | $446,491 | $429,775 | Interim Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from year-end 2024 due to other comprehensive income, partially offset by net loss and dividends Changes in Shareholders' Equity | Metric (in thousands of U.S. dollars, except number of shares) | Balance as of December 31, 2024 | Six Months Ended June 30, 2025 | | :------------------------------------------------------------- | :------------------------------ | :----------------------------- | | Number of shares (thousands) | 66,871 | 66,983 | | Common shares at Par Value | $66,850 | $66,871 | | Additional Paid-in Capital | $362,782 | $364,871 | | Retained Earnings | $230,912 | $112,463 | | Accumulated Other Comprehensive Loss | $(230,769) | $(97,714) | | Total Shareholders' Equity | $429,775 | $446,491 | | Net loss (six months) | N/A | $(108,410) | | Dividends declared (six months) | N/A | $(10,039) | | Other comprehensive income (six months) | N/A | $133,055 | Interim Consolidated Statements of Cash Flows The company experienced a net decrease in cash, with cash used in operating and investing activities partially offset by financing activities Cash Flow Data | Metric (in thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash from (used in) operating activities | $(7,515) | $32,991 | | Net cash from (used in) investing activities | $(42,633) | $(37,638) | | Net cash from (used in) financing activities | $15,978 | $(46,459) | | Net decrease in cash and cash equivalents | $(38,426) | $(50,819) | | Cash and cash equivalents, end of period | $146,499 | $263,173 | Notes to the Interim Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, financial statement items, segment performance, and other relevant information Note 1. The Company and Summary of Significant Accounting Policies This note outlines the company's operations, basis of presentation, use of estimates, and assessment of new accounting pronouncements - The company's interim consolidated financial statements are prepared in accordance with GAAP and SEC rules, and should be read in conjunction with the latest annual report on Form 10-K[20] - Management makes significant judgments and estimates for various accounting areas, including impairment testing, depreciation, pension obligations, deferred income taxes, and inventory impairment[22] - The company is assessing the impact of new accounting pronouncements ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses), effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively[23][26] Note 2. Assets and Liabilities Classified as Held for Sale The company continues to actively market its sandalwood business, classifying its assets and liabilities as held for sale - The sandalwood business is actively marketed and expected to be sold within 12 months, with assets and liabilities classified as held for sale[27] Assets and Liabilities Held for Sale | Category | June 30, 2025 (in thousands) | | :---------------------------------------- | :--------------------------- | | Assets classified as held for sale | $18,805 | | Liabilities associated with assets held for sale | $7,398 | Note 3. Inventories Inventories increased as of June 30, 2025, with significant impairment charges recorded against raw materials and finished goods Inventory Balances | Inventory Category (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Raw materials | $145,352 | $131,396 | | Finished goods | $124,361 | $101,121 | | Spare parts and other | $145,731 | $129,165 | | Total Inventories | $415,444 | $361,682 | - For the three months ended June 30, 2025, the Company recorded $11.0 million in inventory impairment charges ($10.0 million for raw materials and $1.0 million for finished goods) due to low hardwood pulp prices, recorded in 'Cost of sales, excluding depreciation and amortization'[30] Note 4. Accounts Payable and Other Accounts payable and other liabilities increased significantly, primarily driven by increases in trade payables and accrued expenses Accounts Payable and Other Liabilities | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Trade payables | $78,742 | $53,610 | | Accrued expenses | $97,132 | $73,755 | | Income tax payable | $14,616 | $30,459 | | Total | $293,948 | $248,661 | Note 5. Debt Total debt increased due to higher borrowings under revolving credit facilities and finance lease liabilities Debt Structure | Debt Instrument (in thousands) | Maturity | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------- | :------------ | :---------------- | | 12.875% senior notes | 2028 | $400,000 | $400,000 | | 5.125% senior notes | 2029 | $875,000 | $875,000 | | €370.1M German joint revolving credit facility | 2027 | $196,310 | $168,822 | | C$160.0M Canadian joint revolving credit facility | 2027 | $20,891 | $347 | | Finance lease liability | N/A | $54,364 | $48,214 | | Total Debt | N/A | $1,526,743 | $1,473,986 | - As of June 30, 2025, the Company was in compliance with the terms of its debt agreements[34] - The German revolving credit facility had approximately €167.5 million ($196,310) drawn at an interest rate of 3.446% as of June 30, 2025, with €175.2 million ($205,412) available[38] - The Canadian revolving credit facility had approximately C$28.5 million ($20,891) drawn at an interest rate of 4.481% as of June 30, 2025, with C$117.6 million ($86,152) available[38] Note 6. Pension and Other Post-Retirement Benefit Obligations Net benefit costs for defined benefit pension plans decreased compared to the prior year, primarily due to higher expected returns Pension and Benefit Costs | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Pension Net benefit costs (gains) | $215 | $489 | $423 | $757 | | Other Post Retirement Benefits Net benefit costs (gains) | $(40) | $(58) | $(79) | $(116) | | Defined contribution plan contributions | $402 | $318 | $613 | $638 | | Multiemployer plan contributions | $683 | $613 | $1,389 | $1,134 | Note 7. Income Taxes The company reported an income tax recovery, with effective tax rates differing significantly from the U.S. Federal statutory rate Income Tax Details | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | U.S. Federal statutory rate | 21% | 21% | 21% | 21% | | Income tax recovery (provision) | $1,864 | $(1,263) | $1,132 | $5,102 | | Current income tax recovery (provision) | $232 | $6,059 | $(10,006) | $(1,002) | | Deferred income tax recovery (provision) | $1,632 | $(7,322) | $11,138 | $6,104 | - Effective tax rates differed from statutory rates due to non-recognition of tax recoveries for certain entities and the non-deductibility of goodwill impairment in 2024[45] Note 8. Shareholders' Equity The company declared quarterly dividends and reported stock-based compensation activity, with shares remaining available for grant Dividend Declarations | Dividend Declaration | Date Declared | Dividend Per Common Share | Amount (in thousands) | | :------------------- | :--------------- | :------------------------ | :-------------------- | | Q1 2025 | February 20, 2025 | $0.075 | $5,015 | | Q2 2025 | May 1, 2025 | $0.075 | $5,024 | | Total (Six Months) | N/A | $0.150 | $10,039 | - As of June 30, 2025, approximately 2.6 million common shares were available for grant under the stock incentive plan[47] Stock-Based Awards Activity | Stock-Based Awards Activity (Number of units) | Balance as of January 1, 2025 | Granted | Forfeited | Vested | Balance as of June 30, 2025 | | :-------------------------------------------- | :---------------------------- | :-------- | :---------- | :-------- | :-------------------------- | | PSUs | 4,379,461 | 2,241,640 | (1,452,061) | N/A | 5,169,040 | | Restricted Shares | 21,054 | 111,732 | N/A | (21,054) | 111,732 | | Equity DSUs | 50,397 | 101,956 | N/A | (50,397) | 101,956 | | Cash Only DSUs | 31,581 | 55,866 | N/A | (31,581) | 55,866 | Note 9. Net Loss Per Common Share Basic and diluted net loss per common share increased compared to the prior year periods Net Loss Per Share Calculation | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss (in thousands) | $(86,071) | $(67,586) | $(108,410) | $(84,289) | | Basic Net loss per common share | $(1.29) | $(1.01) | $(1.62) | $(1.26) | | Diluted Net loss per common share | $(1.29) | $(1.01) | $(1.62) | $(1.26) | | Weighted average common shares outstanding (Basic) | 66,914,282 | 66,816,843 | 66,903,741 | 66,729,416 | - Non-vested instruments excluded from diluted net loss per common share calculation due to anti-dilutive effect for the six months ended June 30, 2025, included 5,169,040 PSUs, 111,732 restricted shares, and 101,956 Equity DSUs[54] Note 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased significantly, driven by positive foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss | Component (in thousands of U.S. dollars) | Balance as of December 31, 2024 | Six Months Ended June 30, 2025 | | :--------------------------------------- | :------------------------------ | :----------------------------- | | Foreign Currency Translation Adjustments | $(249,997) | $(116,411) | | Defined Benefit Pension and Other Post Retirement Benefit Items | $19,228 | $18,697 | | Total Accumulated Other Comprehensive Loss | $(230,769) | $(97,714) | | Other comprehensive income (six months) | N/A | $133,055 | Note 11. Related Party Transactions The company engaged in transactions with its partially owned logging, chipping, and wood purchasing operations Related Party Transactions | Related Party Transaction (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Services from 20% owned logging/chipping operation | $805 | $1,071 | $3,774 | $4,195 | | Payable balance to logging/chipping operation (June 30, 2025) | $158 | N/A | N/A | N/A | | Services from 26% owned wood purchasing operation | $3,434 | $1,367 | $5,662 | $2,315 | | Payable balance to wood purchasing operation (June 30, 2025) | $100 | N/A | N/A | N/A | Note 12. Segment Information The company operates in two reportable segments, Pulp and Solid Wood, both of which experienced revenue declines - The company's two reportable segments are Pulp (manufacture, sale, and distribution of pulp, electricity, and chemicals) and Solid Wood (manufacture, sale, and distribution of lumber, manufactured products, wood pallets, electricity, biofuels, and wood residuals)[59] - In 2024, the company changed its segment measure from operating income (loss) to net income (loss) before interest, tax, depreciation and amortization and impairments of long-lived assets ('Segment Operating EBITDA')[61] Segment Financials | Segment Financials (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Pulp Revenues | $332,308 | $367,371 | $713,388 | $799,775 | | Solid Wood Revenues | $117,268 | $130,238 | $239,988 | $249,261 | | Pulp Segment Operating EBITDA | $(10,262) | $31,674 | $39,610 | $100,139 | | Solid Wood Segment Operating EBITDA | $(4,861) | $3,124 | $(5,153) | $2,229 | Revenues by Major Products | Revenues by Major Products (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Pulp | $313,705 | $346,808 | $670,669 | $755,103 | | Lumber | $66,332 | $53,910 | $131,718 | $109,792 | | Manufactured products | $12,418 | $35,381 | $31,242 | $52,094 | | Pallets | $26,586 | $26,741 | $49,763 | $54,761 | Note 13. Financial Instruments and Fair Value Measurement The company's financial instruments are primarily valued using Level 2 inputs, with carrying amounts approximating fair value Fair Value of Financial Instruments | Description (in thousands) | Fair value as of June 30, 2025 (Level 2) | Fair value as of December 31, 2024 (Level 2) | | :------------------------- | :--------------------------------------- | :------------------------------------------- | | Revolving credit facilities | $217,201 | $169,169 | | Senior notes | $1,119,442 | $1,186,921 | | Total | $1,336,643 | $1,356,090 | - The carrying value of revolving credit facilities approximates fair value due to variable interest rates reflecting current market conditions[88] - The company's maximum exposure to credit risk as of June 30, 2025, was $146.5 million for cash and cash equivalents and $335.4 million for accounts receivable[93] Note 14. Commitments and Contingencies The company is involved in routine legal actions and has a conditional asset retirement obligation for asbestos removal - Management believes the outcome of pending or threatened legal actions and claims will not have a material adverse effect on the company's consolidated financial condition, results of operations, or liquidity[95] - The company has a conditional asset retirement obligation for asbestos removal, but the timing is indeterminate, making it currently impossible to reasonably estimate its fair value[95] NON-GAAP FINANCIAL MEASURES The company uses the non-GAAP measure 'Operating EBITDA' as a benchmark for operating results and competitor comparison - Operating EBITDA is defined as operating loss plus depreciation and amortization and long-lived asset impairment charges[98] - Operating EBITDA is used as a benchmark for operating results and relative to competitors, as depreciation and impairment charges are non-cash and vary widely[98] - Operating EBITDA has limitations as it does not reflect cash expenditures, working capital changes, interest expense, derivative impacts, or investment impairment charges, and should be considered a supplemental measure[100] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial condition and results of operations, covering market environment, segment performance, and liquidity Current Market Environment Pulp sales realizations were strong in North America and Europe but decreased in China, while lumber sales realizations increased - NBSK pulp sales realizations were strong in North America and Europe in Q2 2025, but decreased in China due to weak demand and global trade policy uncertainty[107][114] - Lumber sales realizations increased in the U.S. and Europe in Q2 2025 due to stable demand and reduced supply[108] - Expected Q3 2025 outlook: NBSK pulp prices to decrease, NBHK pulp prices to remain steady, lumber prices to modestly increase in Europe and the U.S., and pallet prices to remain flat[110][111] - Per unit fiber costs for the pulp segment increased in Q2 2025 due to strong demand and steady supply, with expectations for lower costs at German mills and stable costs at Canadian mills in Q3 2025[112] Summary Financial Highlights The company reported decreased revenues and a shift to negative Operating EBITDA for the three and six months ended June 30, 2025 Key Financial Metrics | Metric (in thousands, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total revenues | $453,524 | $499,384 | $960,498 | $1,052,814 | | Pulp Segment Operating EBITDA | $(10,262) | $31,674 | $39,610 | $100,139 | | Solid wood Segment Operating EBITDA | $(4,861) | $3,124 | $(5,153) | $2,229 | | Operating EBITDA | $(20,881) | $30,439 | $26,207 | $94,040 | | Net loss | $(86,071) | $(67,586) | $(108,410) | $(84,289) | | Net loss per common share (Basic) | $(1.29) | $(1.01) | $(1.62) | $(1.26) | Reconciliation to Operating EBITDA | Reconciliation to Operating EBITDA (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(86,071) | $(67,586) | $(108,410) | $(84,289) | | Operating loss | $(58,404) | $(43,779) | $(51,671) | $(44,227) | | Add: Depreciation and amortization | $37,523 | $39,941 | $77,878 | $80,345 | | Add: Goodwill impairment | — | $34,277 | — | $34,277 | | Operating EBITDA | $(20,881) | $30,439 | $26,207 | $94,040 | Consolidated – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Consolidated revenues decreased by 9% in Q2 2025, leading to an increased operating loss and a net loss of $86.1 million - Total revenues decreased by approximately 9% to $453.5 million in Q2 2025, primarily due to lower pulp and manufactured products sales realizations and volumes[120] - Operating loss was $58.4 million in Q2 2025, compared to $43.8 million in Q2 2024, driven by lower pulp and manufactured products sales, negative foreign exchange impacts ($21.1 million), higher per unit fiber costs, and an $11.0 million hardwood inventory impairment[123][124] - Net loss was $86.1 million ($1.29 per share) in Q2 2025, compared to $67.6 million ($1.01 per share) in Q2 2024, which included a $34.3 million goodwill impairment[128] - Operating EBITDA decreased to negative $20.9 million in Q2 2025 from positive $30.4 million in Q2 2024[128] Pulp Segment – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 The Pulp segment's revenues decreased by 10% in Q2 2025, and Segment Operating EBITDA turned negative Pulp Segment Performance | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Pulp revenues | $313,705 | $346,808 | | Energy and chemical revenues | $18,603 | $20,563 | | Segment Operating EBITDA | $(10,262) | $31,674 | - Total pulp production increased by 8% to 457,117 ADMTs in Q2 2025 due to fewer planned annual maintenance downtime days (23 days in 2025 vs 37 days in 2024)[133] - Average NBSK pulp sales realizations decreased by 7% to $758 per ADMT, and average NBHK pulp sales realizations decreased by 18% to $575 per ADMT in Q2 2025, primarily due to lower net prices in China[139] - A negative foreign exchange impact of approximately $17.7 million on Segment Operating EBITDA was recorded in Q2 2025[140] - An $11.0 million non-cash impairment was recorded against hardwood inventory at the Peace River mill due to low hardwood pulp prices[141] - Overall average per unit fiber costs increased by approximately 11% in Q2 2025 due to reduced supply at German mills[143] Solid Wood Segment – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 The Solid Wood segment's revenues decreased by 10% in Q2 2025, and Segment Operating EBITDA turned negative Solid Wood Segment Performance | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Lumber revenues | $66,332 | $53,910 | | Manufactured products revenues | $12,418 | $35,381 | | Pallet revenues | $26,586 | $26,741 | | Segment Operating EBITDA | $(4,861) | $3,124 | - Lumber revenues increased by approximately 23% to $66.3 million in Q2 2025, driven by higher sales realizations[149] - Manufactured products revenues decreased by approximately 65% to $12.4 million in Q2 2025 due to lower sales realizations and volumes, impacted by elevated interest rates in the U.S[150] - Average lumber sales realizations increased by approximately 19% to $550 per Mfbm in Q2 2025 due to lower supply and improved demand[153] - Per unit fiber costs for lumber production increased by approximately 25% in Q2 2025 due to strong demand[154] Consolidated – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Consolidated revenues decreased by 9% for the first half of 2025, resulting in an increased operating loss and a net loss of $108.4 million - Total revenues decreased by approximately 9% to $960.5 million in the first half of 2025, driven by lower sales volumes and realizations from pulp and manufactured products[157] - Operating loss was $51.7 million in the first half of 2025, compared to $44.2 million in the first half of 2024, impacted by higher per unit fiber costs, lower pulp and manufactured products sales, negative foreign exchange ($12.0 million), and an $11.0 million hardwood inventory impairment[160][161] - Net loss was $108.4 million ($1.62 per share) in the first half of 2025, compared to $84.3 million ($1.26 per share) in the first half of 2024, which included a $34.3 million goodwill impairment and a $23.6 million loss from the CPP joint venture dissolution[166] - Operating EBITDA decreased to $26.2 million in the first half of 2025 from $94.0 million in the first half of 2024[167] Pulp Segment – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 The Pulp segment's revenues decreased by 11% for the first half of 2025, with a significant decline in Segment Operating EBITDA Pulp Segment Performance (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Pulp revenues | $670,669 | $755,103 | | Energy and chemical revenues | $42,719 | $44,672 | | Segment Operating EBITDA | $39,610 | $100,139 | - Total pulp production decreased by 5% to 916,026 ADMTs in the first half of 2025, primarily due to the dissolution of the CPP joint venture in March 2024[171] - Total pulp sales volumes decreased by 9% to 904,610 ADMTs in the first half of 2025[173] - Average NBSK pulp sales realizations were relatively flat at $771 per ADMT, while average NBHK pulp sales realizations decreased by 13% to $572 per ADMT in the first half of 2025[177] - Overall average per unit fiber costs increased by approximately 5% in the first half of 2025 due to higher costs at German mills[181] Solid Wood Segment – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 The Solid Wood segment's revenues modestly decreased for the first half of 2025, and Segment Operating EBITDA turned negative Solid Wood Segment Performance (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Lumber revenues | $131,718 | $109,792 | | Manufactured products revenues | $31,242 | $52,094 | | Pallet revenues | $49,763 | $54,761 | | Segment Operating EBITDA | $(5,153) | $2,229 | - Lumber revenues increased by approximately 20% to $131.7 million in the first half of 2025, driven by higher sales realizations and volumes[187] - Manufactured products revenues decreased by approximately 40% to $31.2 million in the first half of 2025 due to lower sales realizations and volumes, impacted by elevated interest rates[188] - Average lumber sales realizations increased by approximately 14% to $524 per Mfbm in the first half of 2025[191] - Per unit fiber costs for lumber production increased by approximately 18% in the first half of 2025 due to strong demand[192] Liquidity and Capital Resources The company's liquidity was impacted by cash used in operations and investing, leading to the suspension of its quarterly dividend Summary of Cash Flows The company used cash in operating activities, a shift from the prior year, and continued to use cash in investing activities Cash Flow Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash from (used in) operating activities | $(7,515) | $32,991 | | Net cash used in investing activities | $(42,633) | $(37,638) | | Net cash from (used in) financing activities | $15,978 | $(46,459) | | Net decrease in cash and cash equivalents | $(38,426) | $(50,819) | - On August 1, 2025, the board of directors suspended the quarterly dividend due to ongoing market and global trade environment uncertainties[196] - Capital expenditures for the first half of 2025 were $44.4 million, primarily for mill upgrades and strategic projects[198] Sources and Uses of Funds The company's primary funding sources are cash from operations and cash on hand, with total liquidity at $438.1 million Key Expenditures | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Capital expenditures | $44,413 | $36,344 | | Cash paid for interest expense | $53,415 | $51,529 | | Interest expense | $56,566 | $54,402 | - As of June 30, 2025, the company had cash and cash equivalents of $146.5 million and approximately $291.6 million available under revolving credit facilities, totaling $438.1 million in aggregate liquidity[205] - Planned capital expenditures for fiscal 2025 are expected to be between $90.0 million to $100.0 million, a reduction from previous plans[205] Debt Covenants As of June 30, 2025, the company was in full compliance with all covenants of its indebtedness - The company was in full compliance with all debt covenants as of June 30, 2025[210] Contractual Obligations and Commitments There were no material changes outside the ordinary course of business to the company's contractual obligations - No material changes to contractual obligations occurred during the six months ended June 30, 2025[211] Foreign Currency The company's results are exposed to foreign currency fluctuations, particularly between the U.S. dollar, Euro, and Canadian dollar - A weaker U.S. dollar against the Euro and Canadian dollar as of June 30, 2025, led to a non-cash increase of $133.6 million in the carrying value of net assets denominated in these currencies[214] - This non-cash increase improved accumulated other comprehensive loss to $97.7 million and increased total equity, without affecting net loss, Operating EBITDA, or cash[214] Critical Accounting Policies The preparation of financial statements requires management to make significant estimates and assumptions in key areas - Significant management judgment is required for estimates in areas such as impairment testing for goodwill and long-lived assets, depreciation, pension obligations, deferred income taxes, and inventory impairment[217] Cautionary Statement Regarding Forward-Looking Information The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on management's expectations and involve risks and uncertainties that could cause actual conditions, events, or results to differ significantly[221] - Key risks include the cyclical nature of the business, fluctuations in raw material prices (especially fiber), inflation, geopolitical conflicts, international trade policies, intense competition, climate change, and potential production disruptions[223] - Additional risks relate to the company's debt levels, macroeconomic conditions (e.g., global economy, interest rates, currency exchange rates), and legal/regulatory compliance[224][225][226] Cyclical Nature of Business The pulp and lumber industries are highly cyclical, with prices and demand sensitive to global economic and industry conditions Revenues Pulp and lumber markets are highly cyclical, with prices and demand influenced by global macroeconomic conditions and industry capacity - Pulp and lumber markets are highly cyclical, sensitive to global economic conditions, industry capacity, and foreign exchange rates, leading to volatile prices[229][231] - Competition is generally based on price, which is determined by supply relative to demand, and prices may fall below cash production costs[236] - Demand for lumber is significantly influenced by housing starts, especially in the U.S., and demand for CLT and glulam is driven by the wood construction market and low-carbon economy policies[233] Costs Production costs are heavily influenced by the availability and cost of raw materials, particularly fiber - Production costs are influenced by raw material availability and cost (fiber, energy, labor), with fiber costs primarily affected by lumber and pulp supply and demand[237] - Higher fiber prices can reduce profit margins if price increases cannot be passed to customers[237] Currency The company is exposed to currency exchange rate fluctuations as most operating costs are in foreign currencies while sales are U.S. dollar-quoted - The company's operating costs are primarily in Euros and Canadian dollars, while most sales are U.S. dollar-quoted, exposing it to currency exchange rate fluctuations[238] - A strengthening U.S. dollar benefits costs, but a weakening U.S. dollar relative to the Euro and Canadian dollar adversely affects operating margins and cash flow[238] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to market risks from changes in interest rates and foreign currency exchange rates - The company is exposed to market risks from changes in interest rates and foreign currency exchange rates (U.S. dollar vs Euro and Canadian dollar)[240] - These market risks are managed through internal risk management policies and the periodic use of derivatives[240] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025 - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, by management, including the principal executive and financial officers[242] Changes in Internal Controls No material changes were made to the company's internal control over financial reporting during the period - No material changes in internal control over financial reporting occurred during the reporting period[244] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is involved in routine litigation not expected to have a material adverse effect on its business - The company is subject to routine litigation, but management believes the outcome will not materially adversely affect its business or financial condition[246] ITEM 1A. RISK FACTORS No material changes to risk factors were reported since the company's 2024 annual report on Form 10-K - No material changes to risk factors were reported since the last annual report on Form 10-K[247] ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report for the period ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report for the period ITEM 4. MINE SAFETY DISCLOSURES There were no mine safety disclosures to report for the period ITEM 5. OTHER INFORMATION There was no other information to report for the period ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including certifications and iXBRL data - Exhibits include Section 302 and 906 Certifications of the Chief Executive Officer and Chief Financial Officer, and financial information formatted in iXBRL[252] SIGNATURES The report was duly signed by the Chief Financial Officer on behalf of the company on July 31, 2025 - The report was signed by Richard Short, Chief Financial Officer and Authorized Officer, on July 31, 2025[256]