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What changed in MERCER INTERNATIONAL INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MERCER INTERNATIONAL INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+289 added−270 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in MERCER INTERNATIONAL INC.'s 2023 10-K

289 paragraphs added · 270 removed · 211 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeBUSINESS 3 Mercer 3 Corporate S trategy 7 The Pulp Industry 8 Solid Wood Industry 11 Generation and Sales of Green Energy and Chemicals 12 Production Costs 14 Sales, Marketing and Distribution 17 Transportation 19 Capital Expenditures 19 Innovation 21 Environmental 21 Climate Change 23 Human Capital 24 Community Involvement 27 Commitment to Sustainability 27 Description of Certain Indebtedness 28 ITEM 1A.
Biggest changeBUSINESS 3 Mercer 3 Corporate S trategy 8 Pulp Industry 9 Solid Wood Industry 12 Generation and Sales of Green Energy and Chemicals 14 Production Costs 16 Sales, Marketing and Distribution 19 Transportation 21 Capital Expenditures 22 Innovation 22 Environmental 23 Climate Change 24 Human Capital 26 Community Involvement 28 Commitment to Sustainability 29 Description of Certain Indebtedness 30 ITEM 1A.
RISK FACTORS 30 Risks Related to our Business 30 Risks Related to our Debt 39 Risks Related to Macro-economic Conditions 40 Legal and Regulatory Risks 42 Risks Related to Ownership of our Shares 44
RISK FACTORS 32 Risks Related to our Business 33 Risks Related to our Debt 42 Risks Related to Macro-economic Conditions 43 Legal and Regulatory Risks 45 Risks Related to Ownership of our Shares 47

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

66 edited+15 added−14 removed123 unchanged
Biggest changeThe adverse and uncertain economic conditions resulting therefrom have and may further negatively impact global demand, cause supply chain disruptions and increase costs for transportation, energy and other raw materials. Furthermore, governments in the United States, the European Union, the United Kingdom, Canada and others have imposed financial and economic sanctions on certain industry segments and various parties in Russia.
Biggest changeFurthermore, governments in the United States, the European Union, the United Kingdom, Canada and others have imposed financial and economic sanctions on certain industry segments and various parties in Russia. We are monitoring the conflict including the potential impact of financial and economic sanctions on the global economy and particularly the economies of Europe.
To the extent we or a third party were to ( 38 ) experience a material breach of our or such third party's information technology systems that results in the unauthorized access, theft, use, destruction or other compromises of our customers’ or personnel’s data or confidential information stored in such systems, including through cyberattacks or other external or internal methods, it could result in a violation of applicable privacy and other laws, and subject us to litigation and governmental investigations and proceedings, any of which could result in our exposure to material liability.
To the extent we or a third party were to experience a material breach of our or such third party's information technology systems that results in the unauthorized access, theft, use, destruction or other compromises of our customers’ or personnel’s data or confidential information stored in such systems, including through cyberattacks or other external or internal methods, it could result in a violation of applicable privacy and other laws, and subject us to litigation and governmental investigations and proceedings, any of which could result in our exposure to material liability.
( 40 ) Further, while a strengthening dollar generally lowers our costs and expenses in Germany and Canada, it increases the cost of pulp to our customers and generally puts downward pressure on pulp prices and reduces our energy, chemical, pallet, biofuel, wood residual and European lumber sales revenues as they are sold in euros and Canadian dollars.
Further, while a strengthening dollar generally lowers our costs and expenses in Germany and Canada, it increases the cost of pulp to our customers and generally puts downward pressure on pulp prices and reduces our energy, chemical, pallet, biofuel, wood residual and European lumber sales revenues as they are sold in euros and Canadian dollars.
Although we have not experienced any material work stoppages in the past, there can be no assurance that we will be able to negotiate acceptable collective agreements or other satisfactory arrangements with our employees upon the expiration of our collective agreements. This could result in a strike or work stoppage by the affected workers.
Although we have not experienced any material work stoppages in the past, there can be no assurance that we will be able to negotiate acceptable collective agreements or other satisfactory ( 39 ) arrangements with our employees upon the expiration of our collective agreements. This could result in a strike or work stoppage by the affected workers.
As a result of higher than acceptable rates of inflation, many central banks globally have raised interest rates through 2022 and may continue to do so in the future to reduce the rate of inflation. Such interest rate increases can, among other things, dampen macro-economic conditions and business activity and lead to a recession.
As a result of higher than acceptable rates of inflation, many central banks globally have raised interest rates through 2022 and 2023 and may continue to do so in the future to reduce the rate of inflation. Such interest rate increases can, among other things, dampen macro-economic conditions and business activity and lead to a recession.
( 37 ) 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. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
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. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Also, if any of our transportation providers were to cease operations, we may be unable to replace them at a reasonable cost. The occurrence of any of the foregoing events could materially adversely affect our results of operations. Failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business.
Also, if any of our transportation providers were to cease operations, we may be unable to replace them at a reasonable cost. The occurrence of any of the foregoing events could materially adversely affect our results of operations. ( 40 ) Failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business.
Any non-performance by our joint venture partner or other actions taken by the joint venture partner in connection with the day-to-day operation of the Cariboo mill may adversely affect our results of operations and financial condition. Risks Related to ou r Debt Our level of indebtedness could negatively impact our financial condition, results of operations and liquidity.
Any non-performance by our joint venture partner or other ( 41 ) actions taken by the joint venture partner in connection with the day-to-day operation of the Cariboo mill may adversely affect our results of operations and financial condition. Risks Related to ou r Debt Our level of indebtedness could negatively impact our financial condition, results of operations and liquidity.
The fixed price tariff for our Stendal mill expires in 2024, for our Friesau mill expires in 2029 and for our Torgau facility's four cogeneration power plants range from 2029 to 2034. In October 2022, the Council of the European Union formally adopted emergency measures to address high energy prices resulting from the war in Ukraine.
The fixed price tariff for our Stendal mill expires in December 2024, for our Friesau mill expires in 2029 and for our Torgau facility's four cogeneration power plants range from 2029 to 2034. In October 2022, the Council of the European Union formally adopted emergency measures to address high energy prices resulting from the war in Ukraine.
An insufficient supply of fiber or reduction in the quality of fiber we receive would materially adversely affect our business, financial condition, results of operations and cash flows. In addition to the supply of fiber, we are, to a lesser extent, dependent on the supply of certain chemicals and other inputs used in our production facilities.
An insufficient supply of fiber or reduction in the quality of fiber we receive would materially adversely affect our business, financial condition, results of operations and cash flows. ( 34 ) In addition to the supply of fiber, we are, to a lesser extent, dependent on the supply of certain chemicals and other inputs used in our production facilities.
Further, the possibility that one or more of these significant shareholders may sell all or a large portion of their common stock in a short period of time could adversely affect the trading price of our common stock. Also, the interests of these few shareholders may not be in the best interests of all shareholders. ITEM 1B.
Further, the possibility that one or more of these significant shareholders may sell all or a large portion of their common stock in a short period of time could adversely affect the trading price of our common stock. Also, the interests of these few shareholders may not be in the best interests of all shareholders. ( 47 ) ITEM 1B.
Unrealized gains or losses from these translations are recognized in other comprehensive income (loss) and do not affect our net earnings, operating income or Operating EBITDA. Certain intercompany dollar advances between Mercer Inc. and its foreign subsidiaries are held in euros and Canadian dollars.
Unrealized gains or losses from these translations are recognized in other comprehensive income (loss) and do not affect our net earnings, operating income (loss) or Operating EBITDA. ( 43 ) Certain intercompany dollar advances between Mercer Inc. and its foreign subsidiaries are held in euros and Canadian dollars.
Such material disruptions to the natural gas supply of Germany could adversely affect its availability to industry and ( 32 ) our ability to operate our German pulp and lumber mills in the ordinary course which could adversely affect our business, results of operations and financial condition.
Such material disruptions to the natural gas supply of Germany could adversely affect its availability to industry and our ability to operate our German pulp and lumber mills in the ordinary course which could adversely affect our business, results of operations and financial condition.
Risks Rela ted to our Business Our business is highly cyclical in nature. The forest products industry is highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can cause material fluctuations in prices.
( 32 ) Risks Rela ted to our Business Our business is highly cyclical in nature. The forest products industry is highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can cause material fluctuations in prices.
The terms of our indebtedness also restrict our ability to sell certain assets, apply the proceeds of such sales and reinvest in our business. ( 39 ) Certain of the agreements governing our indebtedness have covenants that require us to maintain prescribed financial ratios and tests.
The terms of our indebtedness also restrict our ability to sell certain assets, apply the proceeds of such sales and reinvest in our business. Certain of the agreements governing our indebtedness have covenants that require us to maintain prescribed financial ratios and tests.
Additionally, while NBHK pulp is not ( 30 ) a direct competitor to NBSK pulp, if any future increases in pulp supply are not absorbed by demand growth, such supply could put downward pressure on NBSK pulp prices as well.
Additionally, while NBHK pulp is not a direct competitor to NBSK pulp, if any future increases in pulp supply are not absorbed by demand growth, such supply could put downward pressure on NBSK pulp prices as well.
The effects of global, regional, and local weather conditions, and climate change, including ( 34 ) the costs of complying with evolving climate change regulations and transition costs relating to a low carbon economy could also adversely impact our results of operations.
The effects of global, regional, and local weather conditions, and climate change, including the costs of complying with evolving climate change regulations and transition costs relating to a low carbon economy could also adversely impact our results of operations.
If we are unable to offer products certified to globally recognized forestry management and chain of custody standards or meet customers ’ product specifications, it could adversely affect our ability to compete.
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.
Furthermore, the costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other ( 36 ) acquisition costs, such as accounting fees, legal fees and investment banking fees) could significantly impact our operating results.
Furthermore, the costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other acquisition costs, such as accounting fees, legal fees and investment banking fees) could significantly impact our operating results.
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.
( 42 ) 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.
Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures.
( 38 ) Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures.
The registration or renewal of the collective agreements or the outcome of our wage negotiations could result in higher wages or benefits paid to union members. Many of the employment positions in our operations require technical or other operating training and/or experience. Changing demographics may make it more difficult for us to recruit skilled employees in the future.
The registration or renewal of the collective agreements or the outcome of our wage negotiations could result in higher wages or benefits paid. Many of the employment positions in our operations require technical or other operating training and/or experience. Changing demographics may make it more difficult for us to recruit skilled employees in the future.
Other risks to our business from climate change include: • a greater susceptibility of northern forests to disease, fire and insect infestation, which could diminish fiber availability; • the disruption of transportation systems and power supply lines due to more severe storms; • the loss of fresh water transportation for logs and pulp due to lower water levels; • decreases in the quantity and quality of processed water for our mill operations; • the loss of northern forests in areas in sufficient proximity to our mills to competitively acquire fiber; and • lower harvest levels decreasing the supply of harvestable timber and, as a consequence, wood residuals.
Other risks to our business from climate change include: • a greater susceptibility of northern forests to disease, fire and insect infestation, which could diminish fiber availability; • the disruption of transportation systems and power supply lines due to more severe storms; • the loss of fresh water transportation for logs and pulp due to lower water levels; • decreases in the quantity and quality of processed water for our mills’ operations; • the loss of northern forests in areas in sufficient proximity to our mills to competitively acquire fiber; and ( 36 ) • lower harvest levels decreasing the supply of harvestable timber and, as a consequence, wood residuals.
Fiber is a commodity and both prices and supply are cyclical. Fiber pricing is subject to regional market influences and our costs of fiber may increase in a region as a result of local market shifts. The cost of wood chips, pulp logs and sawlogs is primarily affected by the supply and demand for lumber.
Fiber is a commodity and both prices and supply are cyclical. Fiber pricing is subject to regional ( 33 ) market influences and our costs of fiber may increase in a region as a result of local market shifts. The costs of wood chips, pulp logs and sawlogs are primarily affected by the supply and demand for lumber.
We have incurred, and we expect to continue to incur, significant capital, operating and other expenditures as a result of complying with applicable environmental laws and regulations. ( 42 ) Further, enactment of new environmental laws or regulations, changes in existing laws or regulations or the interpretation of these laws and regulations might require significant capital expenditures.
( 45 ) We have incurred, and we expect to continue to incur, significant capital, operating and other expenditures as a result of complying with applicable environmental laws and regulations. Further, enactment of new environmental laws or regulations, changes in existing laws or regulations or the interpretation of these laws and regulations might require significant capital expenditures.
Joint venture partnerships generally involve special risks, including that the business and strategic interests of the joint venture partner and ourselves may not coincide or that the joint venture partner may be unable to meet its economic or other obligations thereunder.
Joint venture partnerships generally involve special risks, including that the business and strategic interests of the joint venture partner and us may not coincide or that the joint venture partner may be unable to meet its economic or other obligations thereunder.
Demand for CLT products is primarily driven by commercial and industrial construction demand and customers’ desire to take advantage of the characteristics and environmental attributes of CLT products. A pulp producer's actual sales realizations are third party industry quoted list prices net of customer discounts, rebates and other selling concessions.
Demand for CLT and other mass timber products is primarily driven by commercial and industrial construction demand and customers’ desire to take advantage of the characteristics and environmental attributes of such products. A pulp producer's actual sales realizations are third party industry quoted list prices net of customer discounts, rebates and other selling concessions.
International Trade Commission requesting an investigation into alleged subsidies provided to Canadian lumber producers. Since then, the U.S. Department of Commerce announced various countervailing and anti-dumping duty rates on Canadian softwood lumber and the United States and Canada have engaged in proceedings under the North American Free Trade Agreement and through the World Trade Organization. In August 2022, the U.S.
International Trade Commission requesting an investigation into alleged subsidies provided to Canadian lumber producers. Since then, the U.S. Department of Commerce announced various countervailing and anti-dumping duty rates on Canadian softwood lumber and the United States and Canada have engaged in proceedings under the North American Free Trade Agreement and through the World Trade Organization. In July 2023, the U.S.
Our ability to pursue selective and accretive acquisitions, including the Torgau facility, is dependent on management's ability to identify, acquire and develop suitable acquisition targets in both new and existing markets. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth strategies, many of which may have substantially greater resources than us.
Our ability to pursue selective and accretive acquisitions is dependent on management's ability to identify, acquire and develop suitable acquisition targets in both new and existing markets. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth strategies, many of which may have substantially greater resources than us.
We may experience material disruptions to our production. A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our pulp, lumber and energy sales and/or negatively impact our results of operations.
We may experience material disruptions to our production. A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our results of operations.
Any of our mills could cease operations unexpectedly due to a number of events, including: • unscheduled maintenance outages; • prolonged power failures; • equipment failures; • employee errors or failures; • design error or contractor error; • chemical spill or release or industrial fire; • explosion of a boiler; • disruptions in the transportation infrastructure, including roads, bridges, railway tracks, tunnels, canals and ports; • fires, floods, earthquakes, windstorms, pest infestations, severe weather conditions or other natural catastrophes affecting our production of goods or the supply of raw materials like fiber; • prolonged supply disruption of major inputs; • labor difficulties; • capital projects that require temporary cost increases or curtailment of production; and • other operational problems.
Any of our mills could cease operations unexpectedly due to a number of events, including: • unscheduled maintenance outages; • prolonged power failures; • equipment failures; • employee errors or failures; • design error or contractor error; • chemical spill or release or industrial fire; • explosion of a boiler; • disruptions in the transportation infrastructure, including roads, bridges, railway tracks, tunnels, canals and ports; • fires, floods, earthquakes, windstorms, pest infestations, severe weather conditions or other natural catastrophes affecting our production of goods or the supply of raw materials like fiber; • prolonged supply disruption of major inputs; • labor difficulties; • capital projects that require temporary cost increases or curtailment of production; • health pandemics and related restrictions, including the lingering impacts of the COVID-19 pandemic; and • other operational problems.
Cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business. Our main raw material is fiber in the form of wood chips, pulp logs and sawlogs. Fiber represented approximately 50% of our pulp cash production costs and approximately 75% of our lumber cash production costs in 2022.
Cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber. Fiber represented approximately 55% of our pulp cash production costs and approximately 75% of our lumber cash production costs in 2023.
Since 2016 and the expiry of a softwood lumber trade agreement, the United States and Canada have renewed a long standing trade dispute regarding lumber exports from Canada to the United States. In November 2016, a petition was filed by a coalition of U.S. lumber producers to the U.S. Department of Commerce and the U.S.
Following the expiration of a softwood lumber trade agreement in 2016, the United States and Canada have renewed a long-standing trade dispute regarding lumber exports from Canada to the United States. In November 2016, a petition was filed by a coalition of U.S. lumber producers to the U.S. Department of Commerce and the U.S.
We may be unable to generate sufficient funds or access other sources of capital to fund unforeseen environmental liabilities or expenditures. We sell surplus green energy in Germany and are subject to changing energy legislation in response to high prices and energy shortages resulting from the war in Ukraine.
We may be unable to generate sufficient funds or access other sources of capital to fund unforeseen environmental liabilities or expenditures. We sell surplus green energy in Germany and are subject to changing energy legislation in response to high prices and energy shortages.
Violations of these laws or regulations could result in sanctions including fines, loss of authorizations needed to conduct our international business, the imposition of tariffs or duties and other penalties, which could adversely impact our business, operating results and financial condition.
Violations of these laws or regulations could result in sanctions including fines, loss of authorizations needed to conduct our international business, the imposition of tariffs or duties and other penalties, which could adversely impact our business, operating results and financial condition. ( 46 ) Product liability claims could adversely affect our operating results.
However, the lumber industry is highly cyclical and the slowdown in sawmilling activities in the last fiscal year has reduced the availability of both wood chips and pulp logs and put upward pressure on fiber costs. There is no assurance that sawmill activity will stabilize or not decline further or that fiber prices will not increase in the future.
The lumber industry is highly cyclical and the slowdown in sawmilling activities in 2022 and 2023 reduced the availability of both wood chips and pulp logs and put upward pressure on fiber costs. There is no assurance that sawmill activity will stabilize or not decline further or that fiber prices will not increase in the future.
In addition, the quantity, quality and price of fiber we receive could be affected by man-made causes such as those resulting from industrial disputes, material curtailments or shut-down of operations by suppliers, government orders and legislation (including new taxes or tariffs). Any or a combination of these can affect fiber prices in a region.
In addition, the quantity, quality and price of fiber we receive could be affected by man-made causes such as those resulting from industrial disputes, material curtailments or shut down of operations by suppliers, government orders and legislation (including new taxes or tariffs).
The demand for such paper products has weakened significantly over the last several years and has accelerated since the COVID-19 pandemic as confinement and work from home has altered consumer habits, which could become permanent and further negatively impact the demand for market pulp. Fluctuations in prices and demand for lumber could adversely affect our business.
The demand for such paper products has weakened significantly over the last several years ( 37 ) and has accelerated since the COVID-19 pandemic as confinement and work from home has altered consumer habits, which could become permanent and further negatively impact the demand for market pulp.
As of December 31, 2022, we had approximately $1,346.5 million of indebtedness outstanding. We may also incur additional indebtedness in the future.
As of December 31, 2023, we had approximately $1,609.4 million of indebtedness outstanding. We may also incur additional indebtedness in the future.
The occurrence of unforeseen or catastrophic events, including the emergence of a new pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions and could lead to operational difficulties (including travel limitations) that could impair our ability to manage or operate our business and adversely affect our results of operations.
The occurrence of unforeseen or catastrophic events, terrorist attacks or natural disasters, could create economic and financial disruptions and could lead to operational difficulties (including travel limitations) that could impair our ability to manage or operate our business and adversely affect our results of operations.
In order to grow our business, we may seek to acquire additional assets or companies. For example, on September 30, 2022, we acquired the Torgau facility for approximately $263.2 million.
In order to grow our business, we may seek to acquire additional assets or companies. For example, in September 2022, we acquired the Torgau facility for approximately $263.2 million and, in June 2023, we acquired the Mercer Conway facility and Mercer Okanagan facility for approximately $82.1 million.
Although we have no operations in Russia or Ukraine, the destabilizing effects of Russia's invasion of Ukraine could have other adverse effects on our business, including transportation, logistics, fiber supply and energy availability.
Increased trade barriers, sanctions and other restrictions on global or regional trade could adversely affect our business, financial condition and results of operations. Although we have no operations in Russia or Ukraine, the destabilizing effects of Russia's invasion of Ukraine could have other adverse effects on our business, including transportation, logistics, fiber supply and energy availability.
International security issues and adverse developments in respect thereof such as the current Russian invasion of Ukraine and potentially western security alliances could materially adversely affect global trade and economic activity.
International security issues and adverse developments in respect thereof such as the war in Ukraine and potentially western security alliances could materially adversely affect global trade and economic activity and cause logistics disruptions or delays.
The financial performance of the Friesau mill and Torgau facility depends on the demand for and selling price of lumber, which is subject to significant fluctuations.
Fluctuations in prices and demand for lumber and mass timber products could adversely affect our business. The financial performance of the Friesau mill and Torgau facility depends on the demand for and selling price of lumber, which is subject to significant fluctuations.
The majority of our employees are unionized and we have collective agreements in place with our employees at all of our mills, other than the Peace River mill, Mercer Mass Timber facility and Torgau facility, which are non-union.
The majority of our employees are part of a union or are represented by a works council and we have collective agreements in place with our employees at all of our mills, other than the Peace River mill, Mercer Spokane facility, Torgau facility and Mercer Conway facility, which are non-union and not represented by a works council.
We have limited control over the operations of the Cariboo mill. Our 50% ownership interest in the Cariboo mill is through an unincorporated joint venture partnership. The ownership and operation of such mill is subject to an underlying agreement and its day-to-day operations are principally conducted by our joint venture partner.
The ownership and operation of such mill is subject to an underlying agreement and its day-to-day operations are principally conducted by our joint venture partner.
The Council implemented a Regulation containing temporary measures including a mandatory cap on market revenues at €180 per MWh hour for inframarginal generators such as renewables, nuclear and lignite producers. This cap applies to both electricity traded in a centralized marketplace, as well as electricity traded bilaterally.
The Council implemented a Regulation containing temporary measures including a mandatory cap on market revenues at €180 per MWh hour for inframarginal generators such as renewables, nuclear and lignite producers, which came into force in February 2023.
While we believe this may be partially offset by increased wood chip supply from U.S. sawmills and pulp log availability, we cannot currently predict the effect on our Canadian mills' overall fiber costs.
While we believe this may be partially offset by increased wood chip supply from U.S. sawmills and pulp log availability, we cannot currently predict the effect on our Canadian mills' overall fiber costs. Availability of fiber may be further limited by adverse responses to and prevention of wildfires, weather, insect infestation, disease, ice storms, windstorms, flooding and other natural causes.
In Germany, our mills sell surplus green energy at market prices or certain of our mills have the option to sell at fixed prices or tariffs pursuant to the Renewable Energy Act. However, in our last fiscal year all of our German mills primarily sold their surplus green energy at market prices in order to realize upon favorable market pricing.
In Germany, our mills sell surplus green energy at market prices or certain of our mills have the option to sell at fixed prices or tariffs pursuant to the Renewable Energy Act.
Failure to compete effectively could have a material adverse effect on our business, financial condition or results of operations. Our business is subject to risks associated with climate change and social and government responses thereto.
Failure to compete effectively could have a material adverse effect on our business, financial condition or results of operations.
If we are unable to pass along such operating costs increases to our customers, it could reduce our margins, contribute to earnings volatility and adversely affect our results of operations. The ongoing COVID-19 pandemic could materially adversely affect our business, financial position and results of operations.
If we are unable to pass along such operating costs increases to our customers, it could reduce our margins, contribute to earnings volatility and adversely affect our results of operations. Our business, financial condition and results of operations could be adversely affected by disruptions in the global and European economies caused by Russia's invasion of Ukraine.
Additionally, both the European Union and Germany have adopted or proposed legislation in response to energy supply shortages and high energy prices, including price caps and "windfall" taxes on energy sales resulting from the war in Ukraine. In addition, the effects of such military conflict could heighten and increase many of the other risks described in this Item 1A.
Additionally, both the European Union and Germany have adopted or proposed legislation in response to energy supply shortages and high energy prices, including price caps and "windfall" taxes on energy sales resulting from the war in Ukraine. Such price caps have been extended to January 2025 and the windfall taxes expired in June 2023.
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. Currently, we are aware of 2.7 million ADMTs of announced net pulp production capacity increases, primarily of hardwood kraft pulp in 2023.
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.
Further, we cannot predict if either Germany or the European Union will adopt further legal measures in response to the energy shortages and high prices resulting from the Ukraine conflict in the future.
The windfall profits tax was equivalent to 90% of the revenue above a "baseline" threshold for energy producers. We cannot predict if either Germany or the European Union will adopt new legal measures if there are further energy shortages and high prices resulting from the Ukraine conflict or otherwise in the future.
In addition, we may be held legally responsible for liabilities as a successor owner of businesses that we acquire or have acquired. Except for Stendal and the Mercer Mass Timber facility, our facilities have been operating for decades and we have not done invasive testing to determine whether or to what extent any such environmental contamination exists.
Except for the Stendal mill, the Mercer Spokane facility and Mercer Conway facility, our facilities have been operating for decades and we have not done invasive testing to determine whether or to what extent any such environmental contamination exists.
( 33 ) We face intense competition in the forest products industry. We compete with numerous forest products companies, some of which have greater financial resources.
In addition, the effects of the war in Ukraine and other conflicts could heighten and increase many of the other risks described in this Item 1A. ( 35 ) We face intense competition in the forest products industry. We compete with numerous forest products companies, some of which have greater financial resources.
Department of Commerce announced the results of its third administrative review, lowering the countervailing duty to 3.83% and the anti-dumping rate to 4.76%, for combined final duty rates of 8.59% for "all other" Canadian lumber producers. In January 2023, the U.S.
Department of Commerce announced the results of its fourth administrative review, setting the countervailing duty at 1.79% and the anti-dumping rate at 6.20%, for combined final duty rates of 7.99% for "all other" Canadian lumber producers. In November 2023, as part of its five-year sunset reviews, the U.S.
Additionally, interest rates have a significant impact on residential construction and renovation activity, which in turn influence the demand for and price of lumber. ( 35 ) Our solid wood segment lumber products are vulnerable to declines in demand due to competing technologies or materials. Our lumber products may compete with alternative products.
Interest rates also have a significant impact on residential construction and renovation activity, which in turn influence the demand and price of lumber. Additionally, demand for mass timber products is driven, in part, by commercial and industrial construction demand.
However, we cannot predict whether new capacity will be announced or will come online in the future.
Currently, we are aware of 3.5 million ADMTs of announced net pulp production capacity increases, primarily of hardwood kraft pulp scheduled to come online in 2024. However, we cannot predict whether additional new capacity will be announced or will come online in the future.
The magnitude and duration of the disruption and resulting decline in business activity that may result from the ongoing pandemic, new variants and/or resurgences is currently uncertain. The extent to which the pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict.
The extent that an epidemic or pandemic may impact our business, operations and financial results will depend on numerous factors, which may be evolving and not subject to accurate prediction.
Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements.
Underestimates in the bidding process, changes in the timing of deliveries, design errors or other project delays caused by us, customers or others may adversely impact our operating results. Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements.
Department of Commerce released the preliminary results of its fourth administrative review which ( 31 ) indicated a further marginal reduction in the duty rate for "all other" Canadian lumber producers. It is uncertain when or if the United States and Canada may settle a new agreement and what terms or restrictions it may contain.
International Trade Commission voted to maintain its countervailing and anti-dumping duties on Canadian softwood lumber. It is uncertain when or if the United States and Canada may settle a new agreement and what terms or restrictions it may contain.
The windfall profits tax was approved by the European Union on December 21, 2022 and was published in Germany's Federal Law Gazette on December 23, 2022. The effect of the foregoing legislation will reduce our revenues and after tax income for surplus green energy sales during the applicable periods.
The effect of the foregoing and any similar legislation may negatively impact our revenues and after tax income from surplus green energy sales during applicable periods.
Risks Related to Ownership of our Shares The price of our common stock may be volatile.
No assurance can be given that coverage under insurance policies, to the extent applicable, will be adequate to cover any such claims if they arise in the future. Risks Related to Ownership of our Shares The price of our common stock may be volatile.
These developments could have a material adverse effect on our business, results of operations and financial condition. ( 41 ) We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a new pandemic, terrorist attacks or natural disasters.
These developments could have a material adverse effect on our business, results of operations and financial condition. Health epidemics or pandemics could adversely affect our business and financial results. Health epidemics or pandemics have in the past and may in the future impact macroeconomic conditions, supply chains and other global economic activities.
Our business, financial condition and results of operations could be adversely affected by disruptions in the global and European economies caused by Russia's invasion of Ukraine. The global economy has been negatively impacted by increasing tension, uncertainty and tragedy resulting from Russia's invasion of Ukraine.
The global economy has been negatively impacted by increasing tension, uncertainty and tragedy resulting from Russia's invasion of Ukraine. The adverse and uncertain economic conditions resulting therefrom have and may further negatively impact global demand, cause supply chain disruptions and increase costs for transportation, energy and other raw materials.
Removed
Strong lumber markets in North America and particularly in the United States resulting from a recovery in U.S. housing starts and a robust home renovations market over the last few years resulted in increased sawmilling activity. This increased the supply of wood chips which are generally a lower cost than pulp logs.
Added
In our Western Canadian operations, fiber supply may also be impacted by unsettled land and title claims by, and government relations and actions relating to, Indigenous Nations. Any or a combination of these can affect fiber prices in a region.
Removed
Availability of fiber may be further limited by adverse responses to and prevention of wildfires, weather, insect infestation, disease, ice storms, wind storms, flooding and other natural causes.
Added
Additionally, in our wood products segment, demand for our CLT and other wood products may be impacted by the entry of new competitors or improved product capabilities, innovation or production capacity by existing competitors, which may adversely affect our market share for such products. Our business is subject to risks associated with climate change and social and government responses thereto.
Removed
We are monitoring the conflict including the potential impact of financial and economic sanctions on the global economy and particularly the economies of Europe. Increased trade barriers, sanctions and other restrictions on global or regional trade could adversely affect our business, financial condition and results of operations.
Added
Our solid wood segment includes the manufacture, sale and distribution of CLT and other mass timber products that may be based on project-specific customer requirements. Some of these sales are based upon fixed-price contracts.
Removed
Since its initial outbreak in late 2019, the COVID-19 pandemic has resulted in significant and widespread global infections and fatalities. During the pandemic, various levels of governments globally have from time to time taken emergency and other measures to attempt to contain the virus, including travel restrictions, quarantines, business closures, shelter in place orders and other shutdowns and restrictions.
Added
As such, periods of volatility or decreases in demand for our lumber and other wood products could adversely affect our business and results of operations. Our solid wood segment lumber products are vulnerable to declines in demand due to competing technologies or materials. Our lumber products may compete with alternative products.
Removed
The impact of the pandemic and the global response thereto has, among other things, significantly disrupted global economic activity, negatively impacted gross domestic product, disrupted supply chains and caused volatility in financial markets. Various countries have suffered declines in gross domestic product growth, business activity and increases in unemployment.
Added
There is increased focus on sustainability reporting and the importance of environmental, social and governance scores from customers, investors and other stakeholders, which may impact our business. Sustainability/environmental, social and governance reporting frameworks are numerous and evolving rapidly.
Removed
The widespread roll-out of vaccines to aid in the prevention and spread of the COVID-19 virus has generally resulted in a reopening of most economies and a general discussion of whether to treat the COVID-19 virus as endemic and learn to live with it.
Added
Sustainability governance, performance and disclosures are reviewed and monitored by investors, customers, other stakeholders and environmental, social and governance scoring service providers using different methodologies, which may impact how they perceive, justifiably or not, us and our business.
Removed
However, certain countries, including China in particular have continued to impose selected quarantines and closures to try to stop the spread of the virus. The effect of such measures has been reduced economic activity both in China and globally as a result of the size of China's economy. Further, China is also an important market for pulp producers, including ourselves.
Added
In the event we were unable to achieve our stated sustainability targets, goals and commitments or if our sustainability statements were challenged as erroneous, inaccurate or incomplete, whether justifiably or not, our reputation and customer and other relationships may be adversely affected and we may also be exposed to potential litigation and liability.

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Item 2. Properties

Properties — owned and leased real estate

11 edited+4 added−2 removed12 unchanged
Biggest changeWe also acquired as of September 30, 2022, a timber processing and value-add pallet production facility in Torgau, Germany and a wood processing facility in Dahlen, Germany that produces garden products. ( 44 ) Stendal Mill.
Biggest changeWe also own the Friesau mill, Mercer Spokane facility, the Torgau facility, a timber processing and value-add pallet production facility in Torgau, Germany and a wood processing facility in Dahlen, Germany that produces garden products. We also acquired in June 2023, the Mercer Conway facility and Mercer Okanagan facility, which produce mass timber. Stendal Mill.
The facilities at the Friesau mill include: • an approximately 1,000,000 square feet roundwood storage area; • three log debarking and two sorting lines; • two Linck sawlines; • 42 lumber kilns capable of matching sawmill production; • two continuous kilns; • three planer lines; • an approximately 663,800 square feet finished goods storage area; and • a biomass fueled cogeneration power plant capable of producing 13 MW of electrical power.
The facilities at the Friesau mill include: • an approximately 1,000,000 square feet roundwood storage area; • three log debarking and two sorting lines; • two Linck sawlines; • 42 lumber kilns capable of matching sawmill production; • three continuous kilns; • two planer lines; • an approximately 663,800 square feet finished goods storage area; and • a biomass fueled cogeneration power plant capable of producing 13 MW of electrical power.
The facilities at the Torgau mill include: • five logyards totaling approximately 1,000,000 square feet with log debarking and sorting lines; • four sawlines (one Linck, one EWD and two Hew sawlines with Kallfass sorting lines) and one milling line; • EPAL pallet production with eight Coralli and one Storti line; • two progressive kilns and nine drying kilns capable of matching pallet and sawmill production; • one planer line; • pellet production with six Münch presses as well as two Salmatec presses; • briquette production with 12 lines (Nielsen); • two storage silos for pellets with a total capacity of 5,000 cubic tonnes; and • four biomass fueled cogeneration power plants capable of producing 15 MW of electrical power.
The facilities at the Torgau mill include: • four logyards totaling approximately 1,000,000 square feet with log debarking and sorting lines; • four sawlines (one Linck, one EWD and two Hew sawlines with Kallfass sorting lines) and one milling line; • EPAL pallet production with eight Coralli and one Storti line; • two progressive kilns and nine drying kilns capable of matching pallet and sawmill production; • one planer line; • pellet production with six Münch presses as well as two Salmatec presses; • briquette production with 12 lines (Nielsen); • two storage silos for pellets with a total capacity of 5,000 cubic tonnes; and • four biomass fueled cogeneration power plants capable of producing 15 MW of electrical power.
Friesau Mill. The Friesau mill is situated on a 150 acre site in the town of Saalburg-Ebersdorf, Germany, approximately 185 miles south of Berlin and only 10 miles from the Rosenthal mill. It is a two line sawmill with an annual production capacity of approximately 550 MMfbm of lumber on a continuously operating basis.
Friesau Mill. The Friesau mill is situated on a 150 acre site in the town of Saalburg-Ebersdorf, Germany, approximately 185 miles south of Berlin and only 10 miles from the Rosenthal mill. It is a two line sawmill with an annual production capacity of approximately 550 MMfbm of lumber on a continuously operating ( 50 ) basis.
The facilities at the Peace River mill include: • an approximately 1,130,000 square feet fiber storage area and approximately 2,700,000 square feet log storage; • an approximately 189 railcar siding/storage capacity; • a fiber line which includes a dual vessel hydraulic digester, a single stage oxygen delignification system and a four stage bleach plant; • a pulp machine which includes a dryer, cutter and two baling lines; • an approximately 56,000 square feet on-site finished goods storage area; • a chemical recovery line which includes a recovery boiler, evaporation plant, recausticizing plant and a lime kiln; • a fresh water treatment plant; • a wastewater treatment system; and • two turbines capable of producing approximately 70 MW of electrical power.
The facilities at the Peace River mill include: • an approximately 1,130,000 square feet fiber storage area and approximately 2,700,000 square feet log storage; • an approximately 189 railcar siding/storage capacity; • a fiber line which includes a dual vessel hydraulic digester, a single stage oxygen delignification system and a four stage bleach plant; • a pulp machine which includes a dryer, cutter and two baling lines; • an approximately 56,000 square feet on-site finished goods storage area; • a chemical recovery line which includes a recovery boiler, evaporation plant, recausticizing plant and a lime kiln; • a fresh water treatment plant; • a wastewater treatment system; and • two turbines capable of producing approximately 65 MW of electrical power.
The facilities at the mill include: • an approximately 425,000 square feet fiber storage area; • debarking and chipping facilities for pulp logs; • an approximately 700,000 square feet roundwood yard; • a fiber line, which includes a Kamyr continuous digester and bleaching facilities; • a pulp machine, which includes a dryer, a cutter and a baling line; • an approximately 60,000 square feet finished goods storage area; • a chemical recovery line, which includes a recovery boiler, evaporation plant, recausticizing plant and lime kiln; • a fresh water plant; • a wastewater treatment plant; and • a power station with a turbine capable of producing 57 MW of electrical power from steam produced by the recovery boiler and a power boiler.
The facilities at the mill include: • an approximately 425,000 square feet fiber storage area; • debarking and chipping facilities for pulp logs; • an approximately 625,000 square feet roundwood yard; • a fiber line, which includes a Kamyr continuous digester and bleaching facilities; • a pulp machine, which includes a dryer, a cutter and a baling line; • an approximately 60,000 square feet finished goods storage area; • a chemical recovery line, which includes a recovery boiler, evaporation plant, recausticizing plant and lime kiln; • a fresh water plant; ( 49 ) • a wastewater treatment plant; and • a power station with a turbine capable of producing 57 MW of electrical power from steam produced by the recovery boiler and a power boiler.
The facilities at the Celgar mill include: • an approximately 450,000 square feet fiber storage area and approximately 440,000 square feet log storage; ( 45 ) • a woodroom containing debarking and chipping facilities for pulp logs; • a fiber line, which includes a dual vessel hydraulic digester, a two stage oxygen delignification system and a four stage bleach plant; • two pulp machines, which each include a dryer, a cutter and a baling line; • an approximately 28,000 square feet on-site finished goods storage area and an approximately 29,000 square feet off-site finished goods storage area; • a chemical recovery line, which includes a recovery boiler, evaporation plant, recausticizing plant and lime kiln; • a wastewater treatment system; and • a power station with two turbines capable of producing approximately 100 MW of electrical power.
The facilities at the Celgar mill include: • an approximately 450,000 square feet fiber storage area and approximately 440,000 square feet log storage; • a wood room containing debarking and chipping facilities for pulp logs; • a fiber line, which includes a dual vessel hydraulic digester, a two stage oxygen delignification system and a four stage bleach plant; • two pulp machines, which each include a dryer, a cutter and a baling line; • an approximately 28,000 square feet on-site finished goods storage area and an approximately 29,000 square feet off-site finished goods storage area; • a chemical recovery line, which includes a recovery boiler, evaporation plant, recausticizing plant and lime kiln; • a wastewater treatment system; and • a power station with two turbines capable of producing approximately 100 MW of electrical power.
Mercer Torgau also owns a wood processing facility in Dahlen, Germany that produces garden products. Mercer Mass Timber Facility. The Mercer Mass Timber facility is situated on 54 acres of land near Spokane, Washington. Mercer Mass Timber has an annual production capacity of approximately 140,000 m 3 or 13 million square feet of 5-ply panels annually.
Mercer Torgau also owns a wood processing facility in Dahlen, Germany that produces garden products. Mercer Spokane Facility. The Mercer Spokane facility is situated on approximately 54 acres of land near Spokane, Washington. The Mercer Spokane facility has an annual production capacity of approximately 140,000 m 3 or 13 million square feet of 5-ply CLT panels.
Its facilities include: • a Transverse High Grader sorting line; • a Lineal High Grader Sorting Line; • a finger joining line; • a continuous kiln; • a pneumatic CLT press; • three CNC machines; and • three Gilbert planers. Santanol.
Its facilities include: • a Transverse High Grader sorting line; • a Lineal High Grader Sorting Line; • a finger jointing line; • a continuous kiln; • a pneumatic CLT press; • three CNC machines; and • three Gilbert planers. ( 51 ) Mercer Conway Facility.
It is an integrated ( 46 ) production site with two sawmills (with two lines each) with an annual lumber capacity of approximately 410 MMfbm and a pallet production capacity of 17 million pallets and two biofuel plants (wood pellets and briquettes) with a total capacity of 230,000 metric tons.
It is an integrated production site with two sawmills (with two lines each) with an annual lumber capacity of approximately 410 MMfbm and a pallet production capacity of 17 million pallets and two biofuel plants (wood pellets and briquettes) with a total capacity of 230,000 tonnes. The mill also sells electrical power to the regional power grid.
ITEM 2. P ROPERTIES We own the Stendal, Rosenthal, Celgar, Peace River pulp mills, the Friesau sawmill and their underlying properties and have a 50% joint venture interest in the Cariboo pulp mill. We also own the Mercer Mass Timber facility and its underlying property near Spokane, Washington and sandalwood plantations in Western Australia.
ITEM 2. P ROPERTIES We own the Stendal, Rosenthal, Celgar, Peace River pulp mills, and their underlying properties and have a 50% joint venture interest in the Cariboo pulp mill.
Removed
The mill also sells electrical power to the regional power grid. The mill is self-sufficient in thermal power.
Added
The Mercer Conway facility is situated on approximately 124 acres of land near Conway, Arkansas. The Mercer Conway facility has an annual production capacity of approximately 75,000 m 3 of CLT and glulam.
Removed
Santanol owns and leases approximately 2,500 hectares of Indian sandalwood plantations and a processing and extraction plant in Western Australia.
Added
Its facilities include: • a Transverse High Grader sorting line; • an industry-first glulam press; • a Lineal High Grader Sorting Line; • a finger jointing line; • a hydraulic CLT press; • three CNC machines; and • one planer. Mercer Okanagan Facility.
Added
The Mercer Okanagan facility is located in Okanagan Falls, British Columbia, and is situated on approximately 20 acres of land. The Mercer Okanagan facility has an annual production capacity of approximately 40,000 m 3 of CLT and glulam.
Added
Its facilities include: • large portal glulam CNC machine; • glulam jigs, including an arch-line; • a glulam beam planer and sander; • two finger jointing lines; and • a hydraulic CLT press.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−2 removed0 unchanged
Biggest changeWe do not believe that the outcome of such litigation will have a material adverse effect on our business or financial condition. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. ( 47 ) PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS We are subject to routine litigation incidental to our business. We do not believe that the outcome of such litigation will have a material adverse effect on our business or financial condition. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. ( 52 ) PART II
Removed
ITEM 3. LEGAL PROCEEDINGS In 2021, the European Commission opened a cartel investigation into the wood pulp sector in Europe to investigate if there was an infringement of European Union competition law. In October 2021, the Commission conducted inspections of major European pulp producers including our German operations. We are cooperating with the investigation.
Removed
As the matter is currently in the investigation stage, we cannot predict the timing of the same and what further actions, if any, the European Commission may pursue or what the outcome of any such actions may be. We are also subject to routine litigation incidental to our business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

13 edited+1 added−1 removed13 unchanged
Biggest changeComparison of Cumulative Total Return Assumes $100 Invested December 31, 2017 Assumes Dividends Reinvested Fiscal Year Ending December 31, 2022 2017 2018 2019 2020 2021 2022 Mercer International Inc. $ 100.00 $ 75.64 $ 92.80 $ 80.95 $ 96.68 $ 96.08 S&P SmallCap 600 Index $ 100.00 $ 91.52 $ 112.37 $ 125.05 $ 158.59 $ 133.06 Peer Group (1) $ 100.00 $ 81.84 $ 101.01 $ 116.25 $ 123.16 $ 111.28 SIC Code Index $ 100.00 $ 63.57 $ 54.17 $ 57.59 $ 61.81 $ 74.87 (1) The Peer Group is comprised of Borregard ASA, Canfor Pulp Products Inc., ENCE Energia y Cellulosa SA, Resolute Forest Products Inc., Rottneros RROS, Stora Enso Oyj, UPM-Kymmene Oyj, West Fraser Timber Co.
Biggest changeComparison of Cumulative Total Return Assumes $100 Invested December 31, 2018 Assumes Dividends Reinvested Fiscal Year Ending December 31, 2023 2018 2019 2020 2021 2022 2023 Mercer International Inc. $ 100.00 $ 122.69 $ 107.03 $ 127.82 $ 127.03 $ 107.09 S&P SmallCap 600 Index $ 100.00 $ 122.78 $ 136.64 $ 173.29 $ 145.39 $ 168.73 SIC Code Index $ 100.00 $ 85.22 $ 90.59 $ 97.24 $ 117.68 $ 74.74 Peer Group (1) $ 100.00 $ 121.07 $ 141.18 $ 138.45 $ 120.15 $ 138.31 Prior Peer Group (1) $ 100.00 $ 123.43 $ 142.05 $ 150.49 $ 135.98 $ 150.59 (1) The Peer Group is comprised of Borregaard ASA, Canfor Pulp Products Inc., Empresas CMPC S.A., ENCE Energía y Celulosa S.A., International Paper, Klabin S.A., Metsä Board Oyj, Rayonier Advanced Materials Inc., Rottneros AB, Stora Enso Oyj, Suzano S.A., Svenska Cellulosa AB SCA, UPM-Kymmene Oyj, and West Fraser Timber Co.
Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income as a measure of performance, or as an alternative to net cash from (used in) operating activities as a measure of liquidity.
Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income (loss) as a measure of performance, or as an alternative to net cash from (used in) operating activities as a measure of liquidity.
We consider them to be meaningful supplements to operating income as performance measures primarily because depreciation expense and non-recurring capital asset impairment charges are not actual cash costs and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities.
We consider them to be meaningful supplements to operating income (loss) as performance measures primarily because depreciation expense and non-recurring capital asset impairment charges are not actual cash costs and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities.
( 49 ) NON-GAAP FINA NCIAL MEASURES This annual report on Form 10-K contains “non-GAAP financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as “GAAP”.
( 54 ) NON-GAAP FINA NCIAL MEASURES This Annual Report on Form 10-K contains “non-GAAP financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as “GAAP”.
The following graph shows a five-year comparison of cumulative total shareholder return, calculated on an assumed dividend reinvested basis, for our common stock, the S&P SmallCap 600 Index, a group of peer companies, referred to as the “Peer Group”, and Standard Industrial Classification Code Index or “SIC” (SIC Code 2611 - pulp mills), referred to as the “SIC Code Index”.
The following graph shows a five-year comparison of cumulative total shareholder return, calculated on an assumed dividend reinvested basis, for our common stock, the S&P SmallCap 600 Index, a group of peer companies, referred to as the “Peer Group”, a group of peer companies previously used by us, referred to as the "Prior Peer Group", and Standard Industrial Classification Code Index or “SIC” (SIC Code 2611 - pulp mills), referred to as the “SIC Code Index”.
The graph assumes $100 was invested in each of our common stock, the S&P SmallCap 600 Index, the Peer Group and the SIC Code Index on December 31, 2017. Data points on the graph are annual.
The graph assumes $100 was invested in each of our common stock, the S&P SmallCap 600 Index, the Peer Group, the Prior Peer Group and the SIC Code Index on December 31, 2018. Data points on the graph are annual.
The following table sets forth information as of December 31, 2022 with respect to the shares of our common stock that may be issued under our existing equity compensation plans: Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Plan Category Equity compensation plans approved by shareholders — (1) — 2,762,934 (2) Equity compensation plans not approved by shareholders — — — (1) Excludes 34,699 outstanding restricted shares, 50,000 restricted stock units, and 11,554 deferred stock units all of which vest in 2023 and 3,484,154 outstanding performance share units, 1,085,404 of which had vested as of December 31, 2022.
The following table sets forth information as of December 31, 2023 with respect to the shares of our common stock that may be issued under our existing equity compensation plans: Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Plan Category Equity compensation plans approved by shareholders (1)(2) — — 2,238,320 Equity compensation plans not approved by shareholders — — — (1) Excludes 54,227 outstanding restricted shares and 27,591 deferred stock units, all of which vest in 2024 and 3,672,227 outstanding performance share units, 1,073,184 of which had vested as of December 31, 2023.
The Company may grant up to a maximum of 2.5 million common shares under the 2022 Stock Incentive Plan, plus the number of common shares remaining available for grant pursuant to the 2010 Stock Incentive Plan. ( 48 ) (e) Performance Graph.
The Company may grant up to a maximum of 2.5 million common shares under the 2022 Stock Incentive Plan. ( 53 ) (e) Performance Graph.
On February 16, 2023, our board of directors declared a quarterly dividend of $0.075 per share to be paid to holders of our common stock on April 5, 2023 to shareholders of record on March 29, 2023.
On February 15, 2024, we announced that our board of directors declared a quarterly dividend of $0.075 per share to be paid to holders of our common stock on April 4, 2024 to shareholders of record on March 27, 2024.
In 2022, our board of directors approved four quarterly dividend payments of $0.075 per share each, the first being paid on April 6, 2022, the second being paid on July 7, 2022, the third being paid on October 5, 2022 and the fourth being paid on December 29, 2022.
In 2023, our board of directors approved four quarterly dividend payments of $0.075 per share each, paid on April 5, July 6, October 4 and December 28, 2023.
(2) Represents the number of shares of our common stock remaining available for issuance under the 2022 Stock Incentive Plan, which replaced the 2010 Stock Incentive Plan, and the remaining shares available to be issued under the 2010 Stock Incentive Plan, which replaced two previous plans, as of December 31, 2022.
(2) Represents the number of shares of our common stock remaining available for issuance under the 2022 Stock Incentive Plan as of December 31, 2023.
As of February 14, 2023, there were approximately 170 holders of record of our shares and a total of 66,167,191 shares were outstanding. (c) Dividend Information.
As of February 13, 2024, there were approximately 176 holders of record of our shares and a total of 66,524,866 shares were outstanding. (c) Dividend Information.
The underlying shares of common stock relating to the vested performance share units will be issued in February 2023. Of the remaining 2,398,750 performance share units, 1,117,284 will vest in 2023 and 1,281,466 will vest in 2024.
The underlying shares of common stock relating to the vested performance share units will be issued in February 2024. Of the remaining 2,599,043 performance share units, 1,205,667 will vest in 2024 and 1,393,376 will vest in 2025.
Removed
Ltd., Rayonier Advanced Materials Inc. and Suzano S.A.
Added
The Peer Group, was determined by our Human Resources Committee as part of its compensation review and relevant comparator criteria, and is identical to the Prior Peer Group, with the exception of the addition of Empresas CMPC S.A., International Paper, Klabin S.A., Metsä Board Oyj and Svenska Cellulosa AB SCA and the removal of Resolute Forest Products as its shares are no longer publicly traded.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

2 edited+0 added−0 removed0 unchanged
Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 51 Results of Operations 51 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 55 Sensitivities 58 Liquidity and Capital Resources 59 Balance Sheet Data 61 Sources and Uses of Funds 61 Credit Facilities and Debt Covenants 62 Foreign Currency 63 Credit Ratings of Senior Notes 63 Critical Accounting Policies 63 New Accounting Standards 67 ITEM 7A.
Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 56 Results of Operations 56 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 60 Sensiti vities 63 Liquidity and Capital Resources 64 Balance Sheet Data 66 Sources and Uses of Funds 66 Credit Facilities and Debt Covenants 67 Foreign Currency 68 Credit Ratings of Senior Notes 68 Critical Accounting Policies 68 New Accounting Standards 73 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 67 Foreign Currency Exchange Risk 67 Product Price Risk 68 Fiber Price Risk 68 ( i ) Inflation Risk 68 Interest Rate Risk 68 Credit Risk 69 Risk Management and Derivatives 69 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 70
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 73 Foreign Currency Exchange Risk 74 Product Price Risk 74 ( i ) Fiber Price Risk 75 Inflation Risk 75 Interest Rate Risk 75 Credit Risk 76 Risk Management and Derivatives 76 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 76

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

101 edited+57 added−38 removed49 unchanged
Biggest change( 53 ) Selected Production, Sales and Other Data Year Ended December 31, 2022 (1) 2021 Pulp Segment Pulp production ('000 ADMTs) NBSK 1,607.6 1,671.2 NBHK 271.0 192.7 Annual maintenance downtime ('000 ADMTs) 111.0 253.7 Annual maintenance downtime (days) 80 188 Pulp sales ('000 ADMTs) NBSK 1,660.8 1,616.9 NBHK 257.0 195.8 Average NBSK pulp prices ($/ADMT) (2) Europe 1,427 1,243 China 949 850 North America 1,704 1,478 Average NBHK pulp prices ($/ADMT) (2) China 794 661 North America 1,514 1,225 Average pulp sales realizations ($/ADMT) (3) NBSK 876 779 NBHK 869 615 Energy production ('000 MWh) (4) 2,028.1 1,826.5 Energy sales ('000 MWh) (4) 751.7 702.0 Average energy sales realizations ($/MWh) (4) 214 (5) 123 Solid Wood Segment Lumber Production (MMfbm) 442.2 447.9 Sales (MMfbm) 409.9 419.7 Average sales realizations ($/Mfbm) 703 699 Energy Production and sales ('000 MWh) 109.6 74.6 Average sales realizations ($/MWh) 224 (5) 155 Manufactured products (6) Production ('000 m 3 ) 36.3 6.1 Sales ('000 m 3 ) 28.8 4.1 Average sales realizations ($/m 3 ) 715 580 Pallets Production ('000 units) 2,568.4 - Sales ('000 units) 2,646.3 - Average sales realizations ($/unit) 14 - Biofuels (7) Production ('000 tonnes) 45.7 - Sales ('000 tonnes) 49.8 - Average realizations ($/tonne) 355 - Average Spot Currency Exchange Rates $ / € (8) 1.0534 1.1830 $ / C$ (8) 0.7691 0.7981 (1) Includes results of the Torgau facility since September 30, 2022.
Biggest changeThe following table provides a reconciliation of net income (loss) to operating income (loss) and Operating EBITDA for the years indicated: Year Ended December 31, 2023 2022 (1) (in thousands) Net income (loss) $ (242,056 ) $ 247,039 Income tax provision (recovery) (27,767 ) 98,264 Interest expense 88,246 71,499 Other income (7,197 ) (24,434 ) Operating income (loss) (188,774 ) 392,368 Add: Depreciation and amortization 172,502 144,153 Add: Impairment of sandalwood business held for sale 33,734 — Operating EBITDA $ 17,462 $ 536,521 ( 58 ) Selected Production, Sales and Other Data Year Ended December 31, 2023 2022 (1) Pulp Segment Pulp production ('000 ADMTs) NBSK 1,714.4 1,607.6 NBHK 251.2 271.0 Annual maintenance downtime ('000 ADMTs) 82.9 111.0 Annual maintenance downtime (days) 71 80 Pulp sales ('000 ADMTs) NBSK 1,689.0 1,660.8 NBHK 262.2 257.0 Average NBSK pulp prices ($/ADMT) (2) Europe 1,257 1,427 China 747 949 North America 1,448 1,704 Average NBHK pulp prices ($/ADMT) (2) China 592 794 North America 1,227 1,514 Average pulp sales realizations ($/ADMT) (3) NBSK 729 876 NBHK 627 869 Energy production ('000 MWh) (4) 2,142.0 2,028.1 Energy sales ('000 MWh) (4) 832.6 751.7 Average energy sales realizations ($/MWh) (4) 107 214 (5) Solid Wood Segment Lumber Production (MMfbm) 462.3 442.2 Sales (MMfbm) 500.5 409.9 Average sales realizations ($/Mfbm) 435 703 Energy Production and sales ('000 MWh) 160.2 109.6 Average sales realizations ($/MWh) 134 224 (5) Manufactured products (6) Production ('000 m 3 ) 25.1 36.3 Sales ('000 m 3 ) 33.4 28.8 Average sales realizations ($/m 3 ) 1,514 715 Pallets Production ('000 units) 10,707.2 2,568.4 Sales ('000 units) 11,041.2 2,646.3 Average sales realizations ($/unit) 11 14 Biofuels (7) Production ('000 tonnes) 167.2 45.7 Sales ('000 tonnes) 144.8 49.8 Average sales realizations ($/tonne) 281 355 Average Spot Currency Exchange Rates $ / € (8) 1.0817 1.0534 $ / C$ (8) 0.7412 0.7691 (1) Includes results of the Torgau facility since September 30, 2022.
Prices for our energy and chemical sales are generally stable and unrelated to cyclical changes in pulp or lumber prices. Our production costs are influenced by the availability and cost of raw materials, energy and labor, and our plant efficiencies and productivity. Our main raw material is fiber in the form of wood chips, pulp logs and sawlogs.
Prices for our energy and chemical sales are generally stable and unrelated to cyclical changes in pulp or lumber prices. Our production costs are influenced by the availability and cost of raw materials, energy and labor, and our plant efficiencies and productivity. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber.
In 2022, we received property insurance proceeds of $8.6 million, which included the final payment of $6.4 million for the Peace River recovery boiler claim and initial payments of $2.2 million for the Stendal fire claim.
In 2022, we received property insurance proceeds of $8.6 million which included the final payment of $6.4 million for the Peace River recovery boiler claim and the initial payments of $2.2 million for the Stendal fire claim.
The following inputs are used to determine our net obligations and our net periodic benefit costs each year and the determination of these inputs requires judgment: • discount rate – used to determine the net present value of our pension and other post-retirement benefit obligations and to determine the interest cost component of our net periodic pension and other post-retirement benefit costs; • return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension obligations and to determine the expected return on the plan assets component of our net periodic pension costs; • mortality rate – used to estimate the impact of mortality on pension and other post-retirement benefit obligations; • rate of compensation increase – used to calculate the impact future pay increases will have on pension benefit obligations; and • health care cost trend rate – used to calculate the impact of future health care costs on other post-retirement benefit obligations.
The following inputs are used to determine our net obligations and our net periodic benefit costs each year and the determination of these inputs requires judgment: • discount rate – used to determine the net present value of our pension and other post-retirement benefit obligations and to determine the interest cost component of our net periodic pension and other post-retirement benefit costs; ( 70 ) • return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension obligations and to determine the expected return on the plan assets component of our net periodic pension costs; • mortality rate – used to estimate the impact of mortality on pension and other post-retirement benefit obligations; • rate of compensation increase – used to calculate the impact future pay increases will have on pension benefit obligations; and • health care cost trend rate – used to calculate the impact of future health care costs on other post-retirement benefit obligations.
We also compare our health care rate to those of our industry. ( 64 ) Variations in assumptions described above could have a significant effect on the pension and other post-retirement benefits, net periodic benefit cost and obligation reported in our consolidated financial statements.
We also compare our health care rate to those of our industry. Variations in assumptions described above could have a significant effect on the pension and other post-retirement benefits, net periodic benefit cost and obligation reported in our consolidated financial statements.
Our significant accounting policies are disclosed in Note 1 to our audited annual consolidated financial statements included in Part IV of this annual report. 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.
Our significant accounting policies are disclosed in Note 1 to our audited annual consolidated financial statements included in Part IV of this Annual Report. While all of the significant accounting policies are ( 68 ) important to the consolidated financial statements, some of these policies may be viewed as having a high degree of judgment.
However, if we were required to repatriate ( 61 ) funds to the United States, we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and U.S. tax reform.
However, if we were required to repatriate funds to the United States, we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and U.S. tax reform.
Our assessment includes a review of all available positive and negative evidence, including, but not limited to, the following: • the history of the tax loss carryforwards and their expiry dates; • future reversals of temporary differences; • our historical and projected earnings; and • tax planning opportunities.
Our assessment includes a review of all available positive and negative evidence, including, but not limited to, the following: • the history of the tax loss carryforwards and their expiry dates; • future reversals of temporary differences; ( 71 ) • our historical and projected earnings; and • tax planning opportunities.
The New German Facility is provided by a syndicate of six financial institutions and the Canadian Revolving Facility is provided by three financial institutions. To date we have not experienced any reductions in credit availability with respect to these credit facilities.
The German Revolving Facility is provided by a syndicate of six financial institutions and the Canadian Revolving Facility is provided by three financial institutions. To date we have not experienced any reductions in credit availability with respect to these credit facilities.
( 66 ) New Accounti ng Standards See Note 1 to our consolidated financial statements included in Item 15 of this annual report on Form 10-K.
New Accounti ng Standards See Note 1 to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.
We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, labor, chemicals and debt service. ( 59 ) Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and the payment of payables and expenses.
We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, labor, chemicals and debt service. ( 64 ) Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and the payment of payables and expenses.
Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2021 for a discussion of our results of operations for 2020 and financial position as of December 31, 2020. This annual report contains forward-looking statements that involve risks and uncertainties.
Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our results of operations for 2021 and financial position as of December 31, 2021. This Annual Report contains forward-looking statements that involve risks and uncertainties.
Wood chip, pulp logs and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber costs could affect producer profit margins if they are unable to pass along price increases to pulp, lumber, pallet and biofuel customers or purchasers of surplus energy.
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 costs could affect producer profit margins if they are unable to pass along price increases to pulp, lumber, pallet and biofuel customers or purchasers of surplus energy.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of our operations for the years ended December 31, 2022 and 2021 is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of our operations for the years ended December 31, 2023 and 2022 is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report.
In the European market, lumber is generally customized in terms of dimensions and finishing, whereas the U.S. market is driven primarily by demand from new housing starts and home renovation activities and dimensions and finishing are generally standardized and competition is primarily price driven. ( 51 ) Energy and chemical production and sales are key revenue sources for us.
In the European market, lumber is generally customized in terms of dimensions and finishing, whereas the U.S. market is driven primarily by demand from new housing starts ( 56 ) and home renovation activities and dimensions and finishing are generally standardized and competition is primarily price driven. Energy and chemical production and sales are key revenue sources for us.
Based on our 2022 energy, chemical, pallet, biofuel, wood residual and European lumber revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in revenues of approximately $3.1 million.
Based on our 2023 energy, chemical, pallet, biofuel, wood residual and European lumber revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in revenues of approximately $3.3 million.
Based on our 2022 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in annual operating costs of approximately $9.9 million.
Based on our 2023 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in annual operating costs of approximately $9.7 million.
Based on our 2022 energy and chemical revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in energy and chemical revenues of approximately $0.3 million. Inflation. Our key production input costs are for fiber, chemicals and energy.
Based on our 2023 energy and chemical revenues and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the Canadian dollar yields a total change in energy and chemical revenues of approximately $0.2 million. Inflation. Our key production input costs are for fiber, chemicals and energy.
The third party industry quoted average European list prices for NBSK pulp between 2013 and 2022 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,500 per ADMT in 2022.
The third party industry quoted average European list prices for NBSK pulp between 2014 and 2023 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,500 per ADMT in 2022.
In the U.S., third party industry quoted monthly average western spruce/pine/fir (“WSPF”) 2 x 4 #2&Btr prices between 2013 and 2022 have fluctuated between a low of $245 per Mfbm in 2015 to a high of $1,604 per Mfbm in 2021.
In the U.S., third party industry quoted monthly average western spruce/pine/fir (“WSPF”) 2 x 4 #2&Btr prices between 2014 and 2023 have fluctuated between a low of $245 per Mfbm in 2015 to a high of $1,604 per Mfbm in 2021.
For our solid wood segment, based upon our 2022 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $1.8 million. Foreign Exchange. Our operating costs are in euros for our German mills and Canadian dollars for our Canadian mills.
For our solid wood segment, based upon our 2023 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $2.4 million. Foreign Exchange. Our operating costs are in euros for our German mills and Canadian dollars for our Canadian mills.
S&P and Moody’s base their assessment of the credit risk on our Senior Notes on the business and financial profile of Mercer Inc. and our restricted subsidiaries under the indentures governing the Senior Notes. As of December 31, 2022, all of our subsidiaries are restricted subsidiaries.
S&P and Moody’s base their assessment of the credit risk on our Senior Notes on the business and financial profile of Mercer Inc. and our restricted subsidiaries under the indentures governing the Senior Notes. As of December 31, 2023, all of our subsidiaries were restricted subsidiaries.
Our tax assets are net of a $38.9 million valuation allowance. Our deferred tax assets are comprised primarily of tax loss and interest carryforwards and deductible temporary differences, all of which will reduce taxable income in the future.
Our tax assets are net of a $78.7 million valuation allowance. Our deferred tax assets are comprised primarily of tax loss and interest carryforwards and deductible temporary differences, all of which will reduce taxable income in the future.
For our solid wood segment, based upon our 2022 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $2.6 million. Seasonal Influences. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors.
For our solid wood segment, based upon our 2023 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $4.3 million. Seasonal Influences. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors.
In the same period, third party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $770 per ADMT in 2013 to a high of $1,620 per ADMT in 2022. Our pulp sales realizations are third party industry quoted list prices, net of customer discounts, rebates and other selling concessions.
In the same period, third party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $820 per ADMT in 2016 to a high of $1,620 per ADMT in 2022. Our pulp sales realizations are based on third party industry quoted list prices, net of customer discounts, rebates and other selling concessions.
Other material costs in our business include labor and transportation. As a result, our operating costs are sensitive to inflation. For our pulp segment, based upon our 2022 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $10.8 million.
Other material costs in our business include labor and transportation. As a result, our operating costs are sensitive to inflation. For our pulp segment, based upon our 2023 cash production costs and assuming all other factors remained constant, each 1% change in per unit cash production cost yields a change in annual cash production costs of approximately $11.5 million.
As a key construction material, the pricing and demand for lumber is significantly influenced by the number of housing starts, especially in the United States.
As a key construction material, the pricing and demand for lumber is significantly influenced by the number of housing starts, especially in the U.S.
Based on our 2022 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in annual operating costs of approximately $9.2 million.
Based on our 2023 operating costs and assuming all other factors remained constant, each $0.01 change in the value of the dollar relative to the euro yields a total change in annual operating costs of approximately $11.3 million.
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 in Germany and Canada. • Solid Wood – consists of the manufacture, sale and distribution of lumber, manufactured products (including CLT and finger joint lumber), wood pallets, electricity, biofuels and wood residuals at our sawmills and other facilities in Germany and the United States.
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.
Critical Accoun ting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of recording of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying note disclosures.
Each rating should be evaluated independently of any other rating. Critical Accoun ting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of recording of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying note disclosures.
Average net prices for NBSK pulp in China were approximately $949 per ADMT in 2022 compared to approximately $850 per ADMT in 2021. Third party industry quoted average list prices for NBHK pulp in North America were approximately $1,514 per ADMT in 2022 compared to approximately $1,225 per ADMT in 2021.
Third party industry quoted average net prices for NBSK pulp in China were approximately $747 per ADMT in 2023 compared to approximately $949 per ADMT in 2022. Third party industry quoted average list prices for NBHK pulp in North America were approximately $1,227 per ADMT in 2023 compared to approximately $1,514 per ADMT in 2022.
On an ongoing basis using currently available information, management reviews its estimates, including those related to accounting for, among other things, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets ( 63 ) acquired and liabilities assumed, legal liabilities and contingencies.
On an ongoing basis using currently available information, management reviews its estimates, including those related to accounting for, among other things, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups and legal liabilities and contingencies.
See supplemental disclosure of cash flow information from our Consolidated Statements of Cash Flows included in this report. (5) Interest on our 2024 Senior Notes was paid semi-annually in February and August of each year and interest on our 2025 Senior Notes was paid semi-annually in January and July of each year.
See supplemental disclosure of cash flow information from our Consolidated Statements of Cash Flows included in this report. (4) Interest on our 2026 Senior Notes is paid semi-annually in January and July of each year. Interest on our 2029 Senior Notes is paid semi-annually in February and August of each year.
Based upon our 2022 sales volume and assuming all other factors remained constant, each $10.00 per tonne change in pulp third party industry quoted list prices yields a change in pulp revenues of approximately $14.1 million. ( 58 ) Lumber Price. Lumber markets are highly competitive and cyclical in nature.
As a result, our earnings are sensitive to pulp price changes. Based upon our 2023 sales volume and assuming all other factors remained constant, each $10.00 per tonne change in pulp third party industry quoted list prices yields a change in pulp revenues of approximately $14.7 million. Lumber Price. Lumber markets are highly competitive and cyclical in nature.
Our 2022 net periodic pension and other post-retirement benefit cost was $1.7 million. The amounts recorded for the net pension and other post-retirement obligations include various judgments and uncertainties.
Our 2023 net periodic pension and other post-retirement benefit cost was $5.2 million. The amounts recorded for the net pension and other post-retirement obligations include various judgments and uncertainties.
Based upon the exchange rate as of December 31, 2022, the dollar was approximately 6% stronger against both the euro and the Canadian dollar since December 31, 2021. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”.
Based upon the exchange rate as of December 31, 2023, the dollar was approximately 4% weaker against the euro and 2% weaker against the Canadian dollar since December 31, 2022. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”.
We recognize the net funded status of the plans and we record net periodic benefit costs associated with these net obligations. As of December 31, 2022, we had pension and other post-retirement benefit obligations aggregating $104.1 million and accumulated pension plan assets with a fair value of $95.6 million.
We recognize the net funded status of the plans and we record net periodic benefit costs associated with these net obligations. As of December 31, 2023, we had pension and other post-retirement benefit obligations aggregating $96.5 million and accumulated pension plan assets with a fair value of $88.8 million.
Credit Facilities and Debt Covenants We had the following principal amounts outstanding under our credit facilities and Senior Notes as of the dates indicated: December 31, 2022 2021 (in thousands) New German Facility (1) $ 109,326 $ — Rosenthal €2.6 million loan $ — $ — Canadian Revolving Facility $ 31,749 $ — Celgar Working Capital Facility (2) $ — $ — Peace River Working Capital Facility (2) $ — $ 22,874 2026 Senior Notes $ 300,000 $ 300,000 2029 Senior Notes (3) $ 875,000 $ 875,000 (1) In September 2022, replaced the prior €200.0 million facility for our German subsidiaries.
Credit Facilities and Debt Covenants We had the following principal amounts outstanding under our credit facilities and Senior Notes as of the dates indicated: As of December 31, 2023 2022 (in thousands) German Revolving Facility (1) $ 161,330 $ 109,326 Rosenthal €2.6 million loan $ — $ — Canadian Revolving Facility $ 47,255 $ 31,749 2026 Senior Notes $ 300,000 $ 300,000 2028 Senior Notes (2) $ 200,000 $ — 2029 Senior Notes $ 875,000 $ 875,000 (1) In September 2022, replaced the prior €200.0 million facility for our German subsidiaries.
For our Canadian mills, per unit fiber costs increased due to strong demand in the mills' fiber baskets and for our Celgar mill a decrease in the availability of wood chips due to regional sawmill curtailments.
For our Canadian pulp mills, per unit fiber costs increased as a result of strong demand in the mills' fiber baskets and for our Celgar mill a decrease in the availability of wood chips because of regional sawmill curtailments. In 2024, we expect a modest decrease of per unit fiber costs due to a stable supply.
In 2022, the U.S. market accounted for approximately 55% of our lumber revenues and approximately 42% of our lumber sales volumes, while the majority of remaining sales were to Europe.
The U.S. market accounted for approximately 55% of our lumber revenues and approximately 48% of our lumber sales volumes in 2023. The majority of the balance of our lumber sales were to Europe.
The following table sets out our total capital expenditures and interest expense for the periods indicated: Year Ended December 31, 2022 (1) 2021 (in thousands) Capital expenditures $ 178,742 (2) $ 159,440 (3) Cash paid for interest expense (4) $ 67,103 $ 73,088 Interest expense (5) $ 71,499 $ 70,047 (1) Includes results of the Torgau facility since September 30, 2022.
The following table sets out our total capital expenditures and interest expense for the periods indicated: Year Ended December 31, 2023 2022 (1) (in thousands) Capital expenditures (2) $ 136,324 $ 178,742 Cash paid for interest expense (3) $ 79,620 $ 67,103 Interest expense (4) $ 88,246 $ 71,499 (1) Includes results of the Torgau facility since September 30, 2022.
In 2022, our pulp mills had 80 days of annual maintenance downtime (approximately 111,000 ADMTs) and an additional six days (approximately 8,400 ADMTs) at our Celgar mill due to a slower than planned start up.
In 2022, our pulp mills had 86 days of downtime (approximately 119,400 ADMTs) comprised of 80 days of annual maintenance downtime and an additional six days at our Celgar mill caused by slower than planned start up.
In 2022, capital expenditures for our pulp segment related primarily to upgrades to the woodrooms at our Canadian mills, capacity expansion projects and initial costs to rebuild the wood chip conveying systems at our Stendal mill and construction of a lignin production and research and development plant at our Rosenthal mill.
In 2022, capital expenditures related primarily to upgrades to the wood rooms at our Canadian mills, capacity expansion projects and initial costs to rebuild the wood chip conveying systems at our Stendal mill and initial costs to construct the Rosenthal lignin plant.
Balance Sh eet Data The following table is a summary of selected financial information for the dates indicated: December 31, 2022 2021 (in thousands) Financial Position Cash and cash equivalents $ 354,032 $ 345,610 Working capital $ 800,114 $ 781,181 Total assets $ 2,725,037 $ 2,351,232 Long-term liabilities $ 1,508,192 $ 1,374,084 Total shareholders' equity $ 838,784 $ 694,024 Sources and U ses of Funds Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand.
Balance Sh eet Data The following table is a summary of selected financial information for the dates indicated: As of December 31, 2023 2022 (in thousands) Cash and cash equivalents $ 313,992 $ 354,032 Working capital $ 806,468 $ 800,114 Total assets $ 2,662,578 $ 2,725,037 Long-term liabilities $ 1,740,731 $ 1,508,192 Total shareholders' equity $ 635,410 $ 838,784 Sources and U ses of Funds Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand.
Interest on our 2026 Senior Notes is payable semi-annually in arrears on ( 62 ) January 15 and July 15, at the rate of 5.50% and they mature in January 2026. Interest on our 2029 Senior Notes is payable semi-annually in arrears on February 1 and August 1, at the rate of 5.125% and they mature in February 2029.
Interest on our 2026 Senior Notes is payable semi-annually ( 67 ) in arrears on January 15 and July 15, at the rate of 5.50% and they mature in January 2026. Interest on our 2028 Senior Notes is payable semi-annually in arrears on April 1 and October 1, at the rate of 12.875% and they mature in October 2028.
Cash Flows from Operating Activities Cash from operations includes: • cash received from customers; • cash paid to employees and suppliers; • cash paid for interest on our debt; and • cash paid or received for taxes. Cash provided by operating activities in 2022 increased to $360.7 million from $182.2 million in 2021.
Cash Flows from Operating Activities Cash from (used in) operations includes: • cash received from customers; • cash paid to employees and suppliers; • cash paid for interest on our debt; and • cash paid or received for taxes. Cash used in operating activities was $69.0 million in 2023 compared to cash provided of $360.7 million in 2022.
Cash Flows from Financing Activities Cash from financing activities includes: • issuances and payments of debt; • borrowings and payments under revolving lines of credit; • proceeds from issuances of stock; and • payments of cash dividends and repurchases of stock. ( 60 ) In 2022, financing activities provided cash of $82.0 million.
Cash Flows from Financing Activities Cash from (used in) financing activities includes: • issuances and payments of debt; • borrowings and payments under revolving lines of credit; and ( 65 ) • payments of cash dividends and repurchases of stock.
In 2022, we had a positive impact of approximately $106.0 million on operating income due to foreign exchange compared to 2021, primarily as a result of the effect of the stronger dollar on our euro and Canadian dollar denominated costs and expenses.
In 2023, we had a net negative impact of approximately $6.4 million on operating loss due to foreign exchange compared to 2022, primarily as a result of the negative effect of a weaker dollar on our euro denominated costs and expenses partially offset by the positive effect of a stronger dollar on our Canadian dollar denominated costs and expenses.
The calculation of depreciation and amortization of long-lived assets requires us to apply judgment in selecting the remaining useful lives of the assets. The remaining useful life of an asset must address both physical and economic considerations. The remaining economic life of a long-lived asset may be shorter than its physical life.
Depreciation and amortization and impairment charges are based on accounting estimates. The calculation of depreciation and amortization of long-lived assets requires us to apply judgment in selecting the remaining useful lives of the assets. The remaining useful life of an asset must address both physical and economic considerations.
Average net prices for NBHK pulp in China were approximately $794 per ADMT in 2022 compared to approximately $661 per ADMT in 2021.
Third party industry quoted average net prices for NBHK pulp in China were approximately $592 per ADMT in 2023 compared to approximately $794 per ADMT in 2022.
As a result, our earnings are sensitive to lumber price changes. Based upon our 2022 sales volume and assuming all other factors remain constant, each $10.00 per Mfbm change in lumber price yields a change in lumber revenues of approximately $4.1 million. Fiber Costs. Our main raw material is fiber in the form of wood chips, pulp logs and sawlogs.
As a result, our earnings are sensitive to lumber price changes. Based upon our 2023 sales volume and assuming all other factors remain constant, each $10.00 per Mfbm change in lumber price yields a change in lumber revenues of approximately $5.0 million. ( 63 ) Fiber Costs.
(2) Includes initial expenditures to rebuild the wood chip conveying systems at the Stendal mill which were damaged by a fire in 2022. The rebuild will be financed with insurance proceeds, of which $2.2 million was received in 2022.
(2) Includes expenditures to rebuild the wood chip conveying systems at the Stendal mill which were damaged by a fire in 2022. The rebuild was financed with insurance proceeds, of which $12.2 million was received in 2023 and $2.2 million was received in 2022. (3) Amounts differ from interest expense which includes non-cash items.
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.
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.
Credit Ratings o f Senior Notes We and our Senior Notes are rated by Standard & Poor’s Rating Services, referred to as “S&P”, and Moody’s Investors Service, Inc., referred to as “Moody’s”.
Credit Ratings o f Senior Notes We and our Senior Notes are rated by Standard & Poor’s Rating Services, referred to as “S&P”, and Moody’s Investors Service, Inc., referred to as “Moody’s”. In September 2023, S&P lowered its outlook to negative from stable and downgraded its rating on our Senior Notes to B from B+.
Long-Lived Assets As of December 31, 2022, we had long-lived assets recorded in our Consolidated Balance Sheet of $1,433.8 million. These long-lived assets include property, plant and equipment, net, amortizable intangible assets, net and goodwill. In 2022, we recorded depreciation and amortization of $144.2 million and no impairment charges. Depreciation and amortization and impairment charges are based on accounting estimates.
( 69 ) Long-Lived Assets As of December 31, 2023, we had long-lived assets recorded in our Consolidated Balance Sheet of $1,462.6 million. These long-lived assets include property, plant and equipment, net and amortizable intangible assets, net. In 2023, we recorded depreciation and amortization of $172.5 million and no impairment charges.
“Business – Description of Certain Indebtedness”. Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements. Under the New German Facility, the Obligors must not exceed a ratio of net debt to EBITDA of 3.50:1:00 in any 12 month period and maintain defined capital of not less than €500.0 million.
Under the German Revolving Facility, the Obligors must not exceed a ratio of net debt to EBITDA of 3.50:1:00 in any 12 month period and maintain defined capital of not less than €500.0 million.
Current Market Environment We currently expect modestly declining NBSK pulp prices in Europe and North America in the first half of 2023 as a result of lower demand due to inflationary pressures negatively impacting paper demand.
( 57 ) Current Market Environment We currently expect modestly increasing NBSK pulp prices in Europe in the first half of 2024 as a result of stronger demand due to the easing of inflationary pressures.
(5) Energy sales realizations are net of the German energy windfall tax of $6.7 million for the pulp segment and $1.1 million for the solid wood segment. (6) Manufactured products primarily includes finger joint lumber and CLT. (7) Biofuels includes pellets and briquettes. (8) Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.
(6) Manufactured products primarily includes CLT, glulam and finger joint lumber. (7) Biofuels includes pellets and briquettes. (8) Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.
Solid Wood Segment – Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Selected Financial Information Year Ended December 31, 2022 (1) 2021 (in thousands) Lumber revenues $ 288,002 $ 293,166 Energy revenues $ 25,653 $ 11,547 Manufactured products revenues (2) $ 22,759 $ 2,391 Pallet revenues $ 36,063 $ — Biofuel revenues (3) $ 17,691 $ — Wood residual revenues $ 18,290 $ 6,368 Depreciation and amortization $ 31,170 $ 15,784 Operating income $ 70,642 $ 106,092 (1) Includes results of the Torgau facility since September 30, 2022.
Solid Wood Segment – Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Selected Financial Information Year Ended December 31, 2023 2022 (1) (in thousands) Lumber revenues $ 217,939 $ 288,002 Energy revenues $ 21,451 $ 25,653 Manufactured products revenues (2) $ 58,895 $ 22,759 Pallet revenues $ 121,424 $ 36,063 Biofuels revenues (3) $ 40,680 $ 17,691 Wood residuals revenues $ 11,665 $ 18,290 Depreciation and amortization $ 57,320 $ 31,170 Operating income (loss) $ (87,663 ) $ 70,642 (1) Includes results of the Torgau facility since September 30, 2022.
We evaluate an Asset Group for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as continuing operating losses. When an indicator that the carrying value of an Asset Group may not be recoverable is triggered, we compare the carrying value of the Asset Group to its forecasted undiscounted future cash flows.
When an indicator that the carrying value of an Asset Group may not be recoverable is triggered, we compare the carrying value of the Asset Group to its forecasted undiscounted future cash flows.
The pulp industry has historically been characterized by considerable uncertainty in business conditions. Estimates of future economic conditions for our long-lived assets and therefore, their remaining useful economic life, require considerable judgment. ( 65 ) If our estimate of the remaining useful life changes, such a change is accounted for prospectively in our determination of depreciation and amortization.
The remaining economic life of a long-lived asset may be shorter than its physical life. The pulp industry has historically been characterized by considerable uncertainty in business conditions. Estimates of future economic conditions for our long-lived assets and therefore, their remaining useful economic life, require considerable judgment.
Third party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,427 per ADMT and $1,704 per ADMT, respectively, in 2022 compared to approximately $1,243 per ADMT and $1,478 per ( 56 ) ADMT, respectively, in 2021.
In 2023, prices for NBSK pulp decreased from 2022, largely as a result of weaker demand. Third party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,257 per ADMT and $1,448 per ADMT, respectively, in 2023 compared to approximately $1,427 per ADMT and $1,704 per ADMT, respectively, in 2022.
Fiber is a commodity and both prices and supply are cyclical. As a result, our operating costs are sensitive to fiber cost changes. For our pulp segment, based upon our 2022 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $5.2 million.
For our pulp segment, based upon our 2023 fiber costs and assuming all other factors remained constant, each 1% change in per unit fiber cost yields a change in annual operating costs of approximately $6.3 million.
Liquidity and Ca pital Resources Summary of Cash Flows Year Ended December 31, 2022 (1) 2021 (in thousands) Net cash from operating activities $ 360,660 $ 182,214 Net cash used in investing activities (425,677 ) (187,127 ) Net cash from (used in) financing activities 81,965 (9,504 ) Effect of exchange rate changes on cash and cash equivalents (8,526 ) (1,071 ) Net increase (decrease) in cash and cash equivalents $ 8,422 $ (15,488 ) (1) Includes results of the Torgau facility since September 30, 2022.
Liquidity and Ca pital Resources Summary of Cash Flows Year Ended December 31, 2023 2022 (1) (in thousands) Net cash from (used in) operating activities $ (69,005 ) $ 360,660 Net cash used in investing activities (199,867 ) (424,610 ) Net cash from financing activities 228,624 80,898 Effect of exchange rate changes on cash and cash equivalents 208 (8,526 ) Net increase (decrease) in cash and cash equivalents $ (40,040 ) $ 8,422 (1) Includes results of the Torgau facility since September 30, 2022.
Cash Flows from Investing Activities Cash from investing activities includes: • acquisitions of property, plant and equipment and businesses; • proceeds from the sale of assets; and • purchases and sales of short-term investments. Investing activities in 2022 used cash of $425.7 million primarily related to the acquisition of Torgau for $256.6 million and capital expenditures of $178.7 million.
Cash Flows from Investing Activities Cash from (used in) investing activities includes: • acquisitions of property, plant and equipment and businesses; • proceeds from the sale of assets; and • purchases and sales of short-term investments.
(2) Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. Effective January 2020, the RISI pricing report does not provide list prices for China. (3) Sales realizations after customer discounts, rebates and other selling concessions.
(2) Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. (3) Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
In 2023, excluding amounts being financed through government grants, we currently expect capital expenditures to be approximately $175.0 million to $200.0 million. We currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income tax has been provided on such earnings.
( 66 ) 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.
( 55 ) In 2022, our net income was a record $247.0 million, or $3.74 per basic share and $3.71 per diluted share, compared to $171.0 million, or $2.59 per basic share and $2.58 per diluted share in 2021.
In 2023, our net loss was $242.1 million, or $3.65 per share, compared to net income of $247.0 million, or $3.74 per basic share and $3.71 per diluted share in 2022.
For example, a one-percentage point change in any one of the following assumptions would have increased (decreased) our 2022 net periodic benefit cost and our accrued benefit obligation as follows: Net periodic benefit cost Accrued benefit obligation 1% increase 1% decrease 1% increase 1% decrease (in thousands) Assumption Discount rate $ (157 ) $ 155 $ (11,358 ) $ 13,658 Return on assets $ (769 ) $ 769 $ — $ — Rate of compensation $ 326 $ (337 ) $ 2,173 $ (2,575 ) Health care cost trend rate $ 131 $ (108 ) $ 262 $ (281 ) Deferred Taxes As of December 31, 2022, we had $126.0 million in deferred tax liabilities.
For example, a one-percentage point change in any one of the following assumptions would have increased (decreased) our 2023 net periodic benefit cost and our accrued benefit obligation as follows: Net periodic benefit cost Accrued benefit obligation 1% increase 1% decrease 1% increase 1% decrease (in thousands) Assumptions Discount rate $ 9 $ 62 $ (9,175 ) $ 11,479 Return on assets $ (870 ) $ 880 $ — $ — Rate of compensation $ 406 $ (389 ) $ 2,481 $ (2,932 ) Health care cost trend rate $ 116 $ (112 ) $ 436 $ (469 ) Deferred Taxes As of December 31, 2023, we had $97.3 million in deferred tax liabilities and a $0.7 million deferred tax asset, resulting in a net deferred tax liability of $96.7 million.
On average, in 2022, overall per unit fiber costs increased by approximately 33% from 2021 due to higher per unit fiber costs for all of our mills. Our German mills had higher per unit fiber costs as a result of strong demand from other wood consumers such as heating pellet manufacturers.
Our German mills had higher per unit fiber costs as a result of strong demand from other wood consumers such as heating pellet manufacturers in response to energy shortages early in 2023 caused by the war in Ukraine.
Transportation costs increased by approximately 33% to $45.6 million in 2022 from $34.4 million in 2021 primarily due to higher freight rates and the inclusion of Torgau. In 2022, depreciation and amortization for our solid wood segment increased to $31.2 million from $15.8 million in 2021 primarily due to the inclusion of Torgau.
Transportation costs for our solid wood segment increased by approximately 33% to $60.5 million in 2023 from $45.6 million in 2022 primarily due to the inclusion of Torgau for a full year and higher lumber sales volumes.
Summary Financial Highlights Year Ended December 31, 2022 (1) 2021 (in thousands, other than percent and per share amounts) Statement of Operations Data Pulp segment revenues $ 1,866,117 $ 1,483,093 Solid wood segment revenues 408,458 313,472 Corporate and other revenues 6,362 6,690 Total revenues $ 2,280,937 $ 1,803,255 Pulp segment operating income $ 340,664 $ 251,724 Solid wood segment operating income 70,642 106,092 Corporate and other operating loss (18,938 ) (11,233 ) Total operating income $ 392,368 $ 346,583 Pulp segment depreciation and amortization $ 112,058 $ 115,293 Solid wood segment depreciation and amortization 31,170 15,784 Corporate and other depreciation and amortization 925 1,122 Total depreciation and amortization $ 144,153 $ 132,199 Operating EBITDA (2) $ 536,521 $ 478,782 Operating EBITDA margin (2) 24 % 27 % Loss on early extinguishment of debt $ — $ (30,368 ) (3) Income tax provision $ (98,264 ) $ (89,579 ) Net income $ 247,039 $ 170,988 Net income per common share Basic $ 3.74 $ 2.59 Diluted $ 3.71 $ 2.58 Common shares outstanding at period end 66,167 66,037 (1) Includes results of the Torgau facility since September 30, 2022.
Summary Financial Highlights Year Ended December 31, 2023 2022 (1) (in thousands, other than percent and per share amounts) Statement of Operations Data Pulp segment revenues $ 1,516,130 $ 1,866,117 Solid wood segment revenues 472,054 408,458 Corporate and other revenues 5,660 6,362 Total revenues $ 1,993,844 $ 2,280,937 Pulp segment operating income (loss) $ (48,262 ) $ 340,664 Solid wood segment operating income (loss) (87,663 ) 70,642 Corporate and other operating loss (52,849 ) (18,938 ) Total operating income (loss) $ (188,774 ) $ 392,368 Pulp segment depreciation and amortization $ 114,151 $ 112,058 Solid wood segment depreciation and amortization 57,320 31,170 Corporate and other depreciation and amortization 1,031 925 Total depreciation and amortization $ 172,502 $ 144,153 Operating EBITDA (2) $ 17,462 $ 536,521 Operating EBITDA margin (2) 1 % 24 % Impairment of sandalwood business held for sale $ 33,734 $ — Income tax recovery (provision) $ 27,767 $ (98,264 ) Net income (loss) $ (242,056 ) $ 247,039 Net income (loss) per common share Basic $ (3.65 ) $ 3.74 Diluted $ (3.65 ) $ 3.71 Common shares outstanding at period end 66,525 66,167 (1) Includes results of the Torgau facility since September 30, 2022.
( 54 ) Year Ended December 31, 2022 Compar ed to Year Ended December 31, 2021 Consolidated – Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Total revenues in 2022 increased by approximately 26% to a record $2,280.9 million from $1,803.3 million in 2021 primarily due to higher sales realizations, higher pulp sales volumes and the inclusion of revenues from our Torgau facility from its acquisition on September 30, 2022.
( 59 ) Year Ended December 31, 2023 Compar ed to Year Ended December 31, 2022 Consolidated – Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Total revenues in 2023 decreased by approximately 13% to $1,993.8 million from $2,280.9 million in 2022 primarily due to lower pulp, lumber and energy sales realizations partially offset by the inclusion of Torgau for a full year and higher sales volumes.
Pulp is a global commodity that is priced in dollars, whose markets are highly competitive and cyclical in nature. As a result, our earnings are sensitive to pulp price changes.
The actual impact of the underlying price, rate and inflation changes may differ materially from that shown in the sensitivity analysis. Our earnings are sensitive to, among other things, fluctuations in: Pulp Price. Pulp is a global commodity that is priced in dollars, whose markets are highly competitive and cyclical in nature.
An increase in accounts receivable used cash of $20.5 million in 2022 and $121.6 million in 2021. An increase in inventories used cash of $63.2 million in 2022 and $96.4 million in 2021. An increase in accounts payable and accrued expenses provided cash of $66.8 million and in 2022 and $75.6 million in 2021.
A decrease in accounts payable and accrued expenses used cash of $98.2 million in 2023 and an increase in accounts payable and accrued expenses provided cash of $66.8 million in 2022.
In 2022, we paid debt issuance costs of $3.9 million for the New German Facility and Canadian Revolving Facility and paid dividends of $19.8 million. In 2021, financing activities used cash of $9.5 million.
In 2022, financing activities provided cash of $80.9 million primarily from borrowings of approximately $115.3 million under our revolving credit facilities to partially finance the acquisition of Torgau. In 2022, we paid dividends of $19.8 million and incurred aggregate debt issuance costs of $3.9 million for the German Revolving Facility and Canadian Revolving Facility.
In 2023, we currently have scheduled maintenance downtime for our pulp mills of an aggregate of 77 days, or approximately 91,000 ADMTs which will be comprised of 3 days in the first quarter, 31 days in the second quarter, 14 days in the third quarter and 29 days in the final quarter.
In 2024, we currently have scheduled maintenance downtime for our pulp mills of an aggregate of 48 days, or approximately 75,300 ADMTs, which will be comprised of 30 days in the second quarter and 18 days in the third quarter. Pulp sales volumes modestly increased to 1,951,206 ADMTs in 2023 compared to 1,917,744 ADMTs in 2022.
We estimate that annual maintenance downtime in 2022 adversely impacted our operating income by approximately $99.0 million, comprised of approximately $70.2 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using International Financial Reporting Standards, referred to as “IFRS”, capitalize their direct costs of maintenance downtime.
We estimate that annual maintenance downtime in 2023 adversely impacted our operating loss by approximately $62.0 million, comprised of approximately $45.6 million in direct out-of-pocket expenses and the balance in reduced production.
Average NBSK pulp sales realizations increased by approximately 12% to $876 per ADMT in 2022 from $779 per ADMT in 2021 and NBHK pulp sales realizations increased by approximately 41% to $869 per ADMT in 2022 from $615 per ADMT in 2021. The higher sales realizations are due to higher list prices.
Average NBSK pulp sales realizations decreased by approximately 17% to $729 per ADMT in 2023 from $876 per ADMT in 2022 and NBHK pulp sales realizations decreased by approximately 28% to $627 per ADMT in 2023 from $869 per ADMT in 2022.
Costs and expenses in 2022 increased by approximately 24% to $1,525.5 million from $1,231.7 million in 2021 primarily due to higher per unit fiber, chemical, freight and energy costs and higher pulp sales volumes.
Costs and expenses in 2023 modestly increased to $1,565.4 million from $1,525.5 million in 2022 primarily due to higher per unit fiber costs and higher pulp sales volumes partially offset by lower energy and freight costs and the receipt of $46.4 million of insurance proceeds in 2023 relating to the 2021 turbine downtime at the Rosenthal mill and the July 2022 fire at the Stendal mill.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

15 edited+1 added−2 removed16 unchanged
Biggest change( 67 ) The following table provides information about our exposure to foreign currency exchange rate fluctuations for the carrying amount of financial instruments sensitive to such fluctuations as of December 31, 2022 and expected cash flows from these instruments: As of December 31, 2022 Expected maturity date Carrying Value Fair Value 2023 2024 2025 2026 2027 Thereafter (in thousands) Financial Instruments in euros Cash and cash equivalents 33,557 33,557 33,557 — — — — — Accounts receivable, net 143,184 143,184 143,184 — — — — — Accounts payable and other 244,725 244,725 244,725 — — — — — Finance lease liabilities 44,313 44,313 6,388 5,722 5,234 5,382 5,543 16,044 Operating lease liabilities 4,934 4,934 2,627 1,624 566 80 25 12 Long-term debt 102,500 102,500 — — — — 102,500 — in Canadian dollars Cash and cash equivalents 46,494 46,494 46,494 — — — — — Accounts receivable, net 98,487 98,487 98,487 — — — — — Accounts payable and other 96,253 96,253 96,253 — — — — — Finance lease liabilities 5,236 5,236 892 913 695 634 666 1,436 Operating lease liabilities 4,927 4,927 1,090 783 695 618 604 1,137 Long-term debt 43,000 43,000 — — — — 43,000 — in Australian dollars Cash and cash equivalents 1,110 1,110 1,110 — — — — — Accounts receivable, net 819 819 819 — — — — — Accounts payable and other 1,144 1,144 1,144 — — — — — Operating lease liabilities 8,605 8,605 2,160 1,717 1,061 913 900 1,854 Product Pr ice Risk Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for our principal products, being kraft pulp and lumber.
Biggest changeThe following table provides information about our exposure to foreign currency exchange rate fluctuations for the carrying amount of financial instruments sensitive to such fluctuations as of December 31, 2023 and expected cash flows from these instruments: As of December 31, 2023 Expected maturity date Carrying Value Fair Value 2024 2025 2026 2027 2028 Thereafter (in thousands) Financial Instruments in euros Cash and cash equivalents 24,236 24,236 24,236 — — — — — Accounts receivable, net 87,582 87,582 87,582 — — — — — Accounts payable and other 120,290 120,290 120,290 — — — — — Finance lease liabilities 39,165 39,165 6,120 5,497 5,645 5,705 5,278 10,920 Operating lease liabilities 6,415 6,415 3,008 2,053 935 393 17 9 Long-term debt 146,000 146,000 — — — 146,000 — — in Canadian dollars Cash and cash equivalents 12,046 12,046 12,046 — — — — — Accounts receivable, net 15,071 15,071 15,071 — — — — — Accounts payable and other 72,294 72,294 72,294 — — — — — Finance lease liabilities 6,708 6,708 1,395 1,216 1,170 1,200 991 736 Operating lease liabilities 4,155 4,155 876 813 700 629 600 537 Long-term debt 62,500 62,500 — — — 62,500 — — Product Pr ice Risk Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for our principal products, being kraft pulp and lumber.
In general, our products are commodities that are widely available from other producers and, because these products have few distinguishing qualities from producer to producer, competition is based primarily on price which is determined by supply relative to demand.
In general, our products are commodities that are widely available from other producers ( 74 ) and, because these products have few distinguishing qualities from producer to producer, competition is based primarily on price which is determined by supply relative to demand.
The overall levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user demand. Fiber Pr ice Risk Fiber in the form of wood chips, pulp logs and sawlogs represents our largest operating cost.
The overall levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user demand. Fiber Pr ice Risk Fiber in the form of wood chips, pulp logs, sawlogs and lumber represents our largest operating cost.
(4) The Canadian Revolving Facility bearing interest by way of: (i) Canadian denominated advances, which bear interest at a designated prime rate per annum; (ii) banker’s acceptance equivalent loans, which bear interest at the applicable Canadian dollar banker’s acceptance plus 1.20% to 1.45% per annum; (iii) dollar denominated base rate advances at the greater of the federal funds rate plus 0.50%, an Adjusted Term SOFR for a one month tenor plus 1.00% and the bank’s applicable reference rate for U.S. dollar loans; and (iv) dollar SOFR advances, which bear interest at Adjusted Term SOFR plus 1.20% to 1.45% per annum.
(5) The Canadian Revolving Facility bearing interest by way of: (i) Canadian denominated advances, which bear interest at a designated prime rate per annum; (ii) banker’s acceptance equivalent loans, which bear interest at the applicable Canadian dollar banker’s acceptance plus 1.20% to 1.45% per annum; (iii) dollar denominated base rate advances at the greater of the federal funds rate plus 0.50%, an Adjusted Term SOFR for a one month tenor plus 1.00% and the bank’s applicable reference rate for U.S. dollar loans; and (iv) dollar SOFR advances, which bear interest at Adjusted Term SOFR plus 1.20% to 1.45% per annum.
Credit Risk Our credit risk is primarily attributable to cash held in bank accounts and accounts receivable. We maintain cash balances in foreign financial institutions in excess of insured limits.
( 75 ) Credit Risk Our credit risk is primarily attributable to cash held in bank accounts and accounts receivable. We maintain cash balances in foreign financial institutions in excess of insured limits.
However, in the future, we may from time to time use foreign exchange derivatives to convert some of our costs (including currency swaps relating to our long-term indebtedness) from euros or Canadian dollars to dollars as our principal product is priced in dollars.
As of December 31, 2023 and December 31, 2022, we had no outstanding derivatives. However, in the future, we may from time to time use foreign exchange derivatives to convert some of our costs (including currency swaps relating to our long-term indebtedness) from euros or Canadian dollars to dollars as our principal product is priced in dollars.
(2) 2029 Senior Notes bearing interest at 5.125%, principal amount $875.0 million. (3) The New German Facility bearing interest by way of: Euribor plus a variable margin ranging from 1.30% to 2.25% dependent on conditions including but not limited to a prescribed leverage ratio.
(2) 2028 Senior Notes bearing interest at 12.875%, principal amount $200.0 million. (3) 2029 Senior Notes bearing interest at 5.125%, principal amount $875.0 million. (4) The German Revolving Facility bearing interest by way of: Euribor plus a variable margin ranging from 1.40% to 2.35% dependent on conditions including but not limited to a prescribed leverage ratio.
Furthermore, certain of our assets and liabilities are denominated in euros and Canadian dollars. A depreciation of these currencies against the dollar will decrease the fair value of such financial instrument assets and an appreciation of these currencies against the dollar will increase the fair value of such financial instrument liabilities, thereby decreasing our fair value.
A depreciation of these currencies against the dollar will decrease the fair value of such financial instrument assets and an appreciation of these currencies against the dollar will increase the fair value of such financial instrument liabilities, thereby decreasing our fair value.
However, these ( 69 ) strategies may not be effective in all market environments or against all types of risks. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future.
However, these strategies may not be effective in all market environments or against all types of risks. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future. If any of the variety of instruments and strategies we utilize is not effective, we may incur significant losses.
An increase in interest rates may decrease the fair value of such fixed interest rate financial instrument assets and a decrease in interest rates may increase the fair value of such ( 68 ) fixed interest rate financial instrument liabilities, thereby decreasing our fair value.
An increase in interest rates may decrease the fair value of such fixed interest rate financial instrument assets and a decrease in interest rates may increase the fair value of such fixed interest rate financial instrument liabilities, thereby decreasing our fair value. We may seek to manage our interest rate risks through the use of interest rate derivatives.
The following tables provide information about our exposure to interest rate fluctuations for the financial instruments sensitive to such fluctuations as of December 31, 2022 and expected cash flows from these instruments: As of December 31, 2022 Expected maturity date Total Fair Value 2023 2024 2025 2026 2027 Thereafter (in thousands other than percentages) Liabilities Long-term debt: Fixed rate ($) (1) 300,000 284,124 — — — 300,000 — — Interest rate 5.500 % 5.500 % 5.500 % Fixed rate ($) (2) 875,000 731,509 — — — — — 875,000 Interest rate 5.125 % 5.125 % 5.125 % Variable rate ($) (3) 109,326 109,326 — — — — 109,326 — Interest rate 3.193 % 3.193 % 3.193 % Variable rate ($) (4) 31,749 31,749 — — — — 31,749 — Interest rate 6.034 % 6.034 % 6.034 % (1) 2026 Senior Notes bearing interest at 5.50%, principal amount $300.0 million.
The following table provides information about our exposure to interest rate fluctuations for the financial instruments sensitive to such fluctuations as of December 31, 2023 and expected cash flows from these instruments: As of December 31, 2023 Expected maturity date Total Fair Value 2024 2025 2026 2027 2028 Thereafter (in thousands other than percentages) Liabilities Long-term debt: Fixed rate ($) (1) 300,000 287,235 — — 300,000 — — — Interest rate 5.500% 5.500% 5.500% Fixed rate ($) (2) 200,000 218,610 — — — — 200,000 — Interest rate 12.875% 12.875% 12.875% Fixed rate ($) (3) 875,000 751,581 — — — — — 875,000 Interest rate 5.125% 5.125% 5.125% Variable rate ($) (4) 161,330 161,330 — — — 161,330 — — Interest rate 5.296% 5.296% 5.296% Variable rate ($) (5) 47,255 47,255 — — — 47,255 — — Interest rate 6.614% 6.614% 6.614% (1) 2026 Senior Notes bearing interest at 5.50%, principal amount $300.0 million.
We are particularly sensitive to changes in the value of the dollar versus the euro and Canadian dollar. We expect exchange rate fluctuations to continue to impact costs and revenues, but we cannot predict the magnitude or direction of this effect for any period, and there can be no assurance of any future effects.
We expect exchange rate fluctuations to continue to impact costs and revenues, but we cannot predict the magnitude or direction of this effect for any period, and there can be no assurance of any future effects. Furthermore, certain of our assets and liabilities are denominated in euros and Canadian dollars.
A stronger dollar lowers our operating costs but can in turn increase the cost of pulp to our customers and thereby create downward pressure on prices. On the other hand, a weaker dollar tends to increase our operating costs but tends to support higher pulp prices.
Changes in the relative strength or weakness of the dollar versus the euro and the Canadian dollar affect our operating costs and margins. A stronger dollar lowers our operating costs but can in turn increase the cost of pulp to our customers and thereby create downward pressure on prices.
For a discussion of our earnings sensitivities to foreign exchange rates, pulp and lumber prices, fiber costs and inflation, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sensitivities” on page 51 hereof. Foreign Currency Exchange Risk We compete with producers from around the world, particularly Europe and North America, in our product lines.
( 73 ) For a discussion of our earnings sensitivities to foreign exchange rates, pulp and lumber prices, fiber costs and inflation, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sensitivities” on page 63 hereof.
We sell our principal product, pulp, mainly in transactions denominated in dollars but sell certain other products including energy, chemicals, pallets, biofuels, wood residuals and European lumber in local currencies, being euros and Canadian dollars. Changes in the relative strength or weakness of the dollar versus the euro and the Canadian dollar affect our operating costs and margins.
Foreign Currency Exchange Risk We compete with producers from around the world, particularly Europe and North America, in our product lines. We sell our principal product, pulp, mainly in transactions denominated in dollars but sell certain other products including energy, chemicals, pallets, biofuels, wood residuals and European lumber in local currencies, being euros and Canadian dollars.
Removed
We may seek to manage our interest rate risks through the use of interest rate derivatives.
Added
On the other hand, a weaker dollar tends to increase our operating costs but tends to support higher pulp prices. We are particularly sensitive to changes in the value of the dollar versus the euro and Canadian dollar.
Removed
If any of the variety of instruments and strategies we utilize is not effective, we may incur significant losses. As of December 31, 2022 and December 31, 2021, we had no outstanding derivatives.

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