MERCER INTERNATIONAL INC

Summary of Cash Flows

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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.

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Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and the payment of payables and expenses. Generally, finished goods inventories are increased prior to scheduled maintenance downtime to maintain sales volume while production is stopped. Our fiber inventories exhibit seasonal swings as we increase pulp log, sawlog and wood chip inventories to ensure adequate supply of fiber to our mills during the winter months. Changes in sales volume can affect the level of receivables and influence overall working capital levels. We believe our management practices with respect to working capital conform to common business practices.

Cash Flows from Operating Activities

Cash from (used in) operations includes:

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cash received from customers;

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cash paid to employees and suppliers;

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cash paid for interest on our debt; and

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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. A decrease in accounts receivable provided cash of $52.5 million in 2023 and an increase in accounts receivable used cash of $20.5 million in 2022. An increase in inventories used cash of $15.8 million, adjusting for net inventory impairments of $58.6 million, in 2023 and $63.2 million in 2022. 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.

Cash Flows from Investing Activities

Cash from (used in) investing activities includes:

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acquisitions of property, plant and equipment and businesses;

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proceeds from the sale of assets; and

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purchases and sales of short-term investments.

Investing activities in 2023 used cash of $199.9 million primarily related to capital expenditures of $136.3 million and acquisition costs of $82.1 million for the Mercer Conway facility and Mercer Okanagan facility. In 2023, capital expenditures primarily related to costs to complete the rebuild of the wood chip conveying system at our Stendal mill and the Rosenthal lignin plant, upgrades to the wood rooms at our Canadian mills and maintenance and optimization projects at our German mills and the Mercer Spokane facility. In 2023, we received $12.2 million of property insurance proceeds for the July 2022 fire at our Stendal mill and we received $5.6 million of government grants mainly for the Peace River wood room project.

Investing activities in 2022 used cash of $424.6 million primarily related to the acquisition of Torgau for $256.6 million and capital expenditures of $178.7 million. 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. 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.

Cash Flows from Financing Activities

Cash from (used in) financing activities includes:

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issuances and payments of debt;

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borrowings and payments under revolving lines of credit; and

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payments of cash dividends and repurchases of stock.

In 2023, financing activities provided cash of $228.6 million primarily from the proceeds of the issuance of $200.0 million 2028 Senior Notes and borrowing approximately $61.3 million under our revolving credit facilities. In 2023, we paid dividends of $20.0 million and incurred aggregate debt issuance costs of $4.9 million related to the issuance of senior notes and the increase of borrowing capacity under our German Revolving Facility.

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.