MERCER INTERNATIONAL INC

Note 1. The Company and Summary of Significant Accounting Policies

Background

Mercer International Inc. (“Mercer Inc.”) is a Washington corporation and its shares of common stock are quoted and listed for trading on the NASDAQ Global Select Market.

Mercer Inc. owns and operates four pulp manufacturing facilities, two in Canada andtwo in Germany, has a 50% joint venture interest in a pulp mill in Canada, one sawmill andone timber processing and value-add pallet production facility in Germany. The Company also owns mass timber production facilities located in Spokane, Washington and since acquiring the assets of Structurlam Mass Timber Corporation and its subsidiaries (“Structurlam”) on June 15, 2023, in Conway, Arkansas and British Columbia, Canada.

In these consolidated financial statements, unless otherwise indicated, all amounts are expressed in U.S. dollars (“$”). The symbol “€” refers to euros and the symbol “C$” refers to Canadian dollars.

Basis of Presentation

These consolidated financial statements contained herein include the accounts of Mercer Inc. and all of its subsidiaries (collectively, the “Company”). The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All significant intercompany balances and transactions have been eliminated upon consolidation.

Mercer Inc. owns 100% of its subsidiaries with the exception of the 50% joint venture interest in the Cariboo Pulp & Paper Company (“CPP”) with West Fraser Mills Ltd., which is accounted for using the equity method.

Use of Estimates

Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the 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, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include cash held in bank accounts and highly liquid investments with original maturities of three months or less.

Accounts Receivable

Accounts receivable are recorded at cost, net of an allowance for doubtful accounts. The Company reviews the collectability of accounts receivable at each reporting date and maintains an allowance for doubtful accounts at an amount estimated to cover the expected losses on uninsured accounts receivable. Any amounts that are determined to be uncollectible and uninsured are offset against the allowance. The allowance is based on the Company’s evaluation of numerous factors, including the payment history, financial position of the debtors and current market conditions.

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The Company’s credit risk associated with its sales is currently managed through the purchase of credit insurance, obtaining letters of credit and setting credit limits prior to the sale. The Company reviews new customers' credit history before granting credit and conducts regular reviews of existing customers' credit.

Inventories

Inventories of raw materials, finished goods and work in progress are valued at the lower of cost, using the weighted-average cost method, or net realizable value and are released from inventory on the same basis. Spare parts and other materials are valued at the lower of cost and replacement cost. Cost includes labor, materials and production overhead and is determined by using the weighted-average cost method. Raw materials inventories include pulp logs, sawlogs, wood chips and lumber. These inventories are located both at the mills and at various offsite locations. In accordance with industry practice, physical inventory counts utilize standardized techniques to estimate quantities of such inventory volumes. These techniques historically have provided reasonable estimates of such inventories.

Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation of buildings and production equipment is based on the estimated useful lives of the assets and is computed using the straight-line method. The amortization periods have been provided in the Property, Plant and Equipment, Net Note.

The costs of major rebuilds, replacements and those expenditures that substantially increase the useful lives of existing property, plant and equipment are capitalized. The Company capitalizes interest on borrowings during the construction period of major capital projects as part of the related asset. The cost of repairs and maintenance as well as planned shutdown maintenance performed on manufacturing facilities, composed of labor, materials and other incremental costs, is recognized as an expense in the Consolidated Statements of Operations as incurred.

The Company provides for asset retirement obligations when there is a legislated or contractual basis for those obligations. An obligation is recorded as a liability at fair value in the period in which the Company incurs a legal obligation associated with the retirement of an asset. The associated costs are capitalized as part of the carrying value of the related asset and amortized over its remaining useful life. The liability is accreted using a credit adjusted risk-free interest rate.

Impairment of Long-Lived Assets

Long-lived assets include “Property, plant and equipment, net” and “Amortizable intangible assets, net”. The unit of accounting for impairment testing for long-lived assets is its “Asset Group”, which includes the long-lived assets and liabilities directly related to those assets. The Company evaluates 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, the Company compares the carrying value of the Asset Group to its forecasted undiscounted future cash flows. If the carrying value of the Asset Group is greater than the undiscounted future cash flows an impairment charge is recorded based on the excess of the Asset Group’s carrying value over its fair value.

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Leases

The Company determines if a contract contains a lease at inception. Leases are classified as either operating or finance leases. Leases with a term of less than 12 months are not recorded in the Consolidated Balance Sheets, and are expensed over the term of the lease in the Consolidated Statements of Operations.

Operating and finance lease right-of-use assets and the related liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the term of the lease. Renewal and termination options are included in the lease terms when it is reasonably certain that they will be exercised. In determining the present value of lease payments, the Company uses the implicit rate when readily determinable, or the Company’s estimated incremental borrowing rate, which is based on information available at the lease commencement date.

Government Grants

The Company records grants from federal, provincial and state governments when the conditions of their receipt are complied with and there is reasonable assurance that the grants will be received. Grants related to assets are government grants whose primary condition is that the company qualifying for them should purchase, construct or otherwise acquire long-term assets. Secondary conditions may also be attached, including restricting the type or location of the assets and/or other conditions that must be met. Grants related to assets are deducted from the cost of the assets in the Consolidated Balance Sheets and amortized over the same period as the related asset in “Cost of sales depreciation and amortization” in the Consolidated Statements of Operations. Grants related to income are government grants which are either unconditional, related to reduced environmental emissions or related to the Company’s normal business operations, and are reported as a reduction of related expenses in the Consolidated Statements of Operations.

The Company is required to pay certain fees based on wastewater emissions at its German mills. Accrued fees can be reduced upon the mills’ demonstration of lower wastewater emissions. The fees are expensed as incurred and the fee reduction is recognized once the Company has reasonable assurance that the German regulators will accept the lower level of wastewater emissions. Both the fees and the fee reduction are recognized in “Cost of sales, excluding depreciation and amortization” in the Consolidated Statements of Operations. There may be a significant period of time between recognition of the wastewater expense and recognition of the wastewater fee reduction.

Amortizable Intangible Assets

Amortizable intangible assets are stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the assets. The amortization periods have been provided in the Amortizable Intangible Assets, Net Note.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets upon acquisition of a business. The carrying value of goodwill, which is not amortized, is assessed for impairment annually as of August 31 or more frequently if events or changes in circumstances arise that suggest the carrying value of goodwill may be impaired. Goodwill is allocated to reporting units that are expected to benefit from the synergies arising from business combinations.

The impairment test of goodwill is performed at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment assessment. The quantitative impairment test compares the fair value of the reporting unit to its carrying value, including goodwill. If the estimated fair value of the reporting unit is less than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the fair value.

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However, the impairment charge recognized cannot exceed the carrying amount of goodwill. The fair value of a reporting unit is estimated using a discounted cash flow model, based on market participant assumptions. This requires significant estimates and assumptions related to future estimated sales volumes, selling prices and costs, capital expenditures and the discount rate. The assumptions used are consistent with internal forecasts. Unanticipated market and macroeconomic events and circumstances may occur and could affect the accuracy of management assumptions. Sensitivities of these assumptions are also performed.

Pension Plans

The Company maintains defined benefit pension plans for its Peace River employees and its salaried employees at the Celgar mill which are funded and non-contributory. The cost of the benefits earned by the employees is determined using the projected unit credit benefit method prorated on years of service. The pension expense reflects the current service cost, the interest on the unfunded liability and the amortization over the estimated average remaining service life of the employees of: (i) prior service costs, and (ii) the net actuarial gain or loss that exceeds 10% of the greater of the accrued benefit obligation and the fair value of plan assets as of the beginning of the year. The Company recognizes the net funded status of the plan.

The Company also has a multiemployer pension plan and defined contribution plans for which contributions are expensed in the Consolidated Statements of Operations.

Foreign Operations and Currency Translation

The Company determines its foreign subsidiaries’ functional currency by reviewing the currency of the primary economic environment in which the foreign subsidiaries operate, which is normally the currency of the environment in which the foreign subsidiaries generate and expend cash. The Company translates assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using the rate in effect at the balance sheet date and revenues and expenses are translated at the average rate of exchange throughout the period. Foreign currency translation gains and losses are recognized within “Accumulated other comprehensive loss” in the Consolidated Balance Sheets.

Transactions in foreign currencies are translated to the respective functional currencies of each operation using exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using historical exchange rates. Gains and losses resulting from foreign currency transactions related to operating activities are included in “Cost of sales, excluding depreciation and amortization” while those related to non-operating activities are included in “Other income” in the Consolidated Statements of Operations.

Where intercompany loans are of a long-term investment nature, exchange rate changes are included as a foreign currency translation adjustment within “Accumulated other comprehensive loss” in the Consolidated Balance Sheets.

Revenue Recognition

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of the products sold. Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when the Company has the right to payment, the customer has legal title to the asset and the customer has the risks of ownership. Payment is due, and revenue and a receivable is recognized after control has transferred to the customer. Payment terms are defined in the contract as typically due within three months after control has transferred to the customer, and as such, the contract does not have a significant financing component.

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A contract liability is created when the customer prepays for goods prior to the Company transferring control over those goods to the customer. The contract liability is reduced and revenue is recognized once control of the goods is transferred to the customer.

The Company excludes value-added taxes, sales and other taxes it collects from the customer on behalf of third parties concurrent with revenue-producing activities from revenues.

The Company may arrange shipping and handling activities as part of the sale of its products. The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of the product as a fulfillment cost rather than as an additional promised service.

The following is a description of the principal activities from which the Company generates its revenues. For a breakdown of revenues by product and geographic location see the Segment Information Note.

Pulp and Lumber Revenues

For European sales sent by truck or train from the mills directly to the customer, the contracted sales terms are such that control transfers once the truck or train leaves the mill. For orders sent by ocean freighter, the contract terms state that control transfers at the time the product passes the ship’s rail. For North American sales shipped by truck or train, the contracts state that control transfers once the truck or train has arrived at the customer’s specified location.

The transaction price is included in the sales contract and is net of customer discounts, rebates and other selling concessions.

The Company’s pulp sales are to tissue and paper producers and the Company’s lumber sales are to manufacturers and retailers. The Company’s sales in Europe and North America are direct to the customer. The Company’s pulp sales to overseas customers are primarily through third party sales agents and the Company’s lumber sales to overseas customers are either direct to the customer or through third party sales agents. The Company is the principal in all of the arrangements with third party sales agents.

Energy Revenues

Energy sales are to utility companies in Canada and Germany. Sales of energy are recognized as the electricity is consumed by the customer and is based on contractual usage rates and meter readings that measure electricity consumption.

Pallet, Chemical, Biofuel and Wood Residual Revenues

Pallet, chemical, biofuel and wood residual revenues sold from the German mills are sold primarily into the European market. Pallet and biofuel sales are sold to the customer or to a trader. Chemical and wood residual sales are sold direct to the customer. These sales typically have shipping terms where control transfers once the product is loaded onto the truck at the mill.

Mass Timber Revenues

Mass timber includes CLT and glulam, manufactured at our mass timber production facilities. A mass timber sales contract will typically represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods and services provided.

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Mass timber contract revenue is recognized over the contract term as the work progresses because of the continuous transfer of control to the customer. The customer typically controls the work in process as evidenced by the Company's right to payment of the transaction price associated with work performed to date on products or services that do not have an alternative use to the Company.

The accounting for the mass timber contracts involves a judgmental process of estimating total sales, costs and profit for the performance obligation. Cost of sales is recognized as incurred. The amount reported as revenues is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales. Recognizing revenue as costs are incurred provides an objective measure of progress and thereby best depicts the extent of transfer of control to the customer. Changes in estimated revenues, cost of sales and the related effect on operating income (loss) are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on the contract’s percentage-of-completion.

The Company's mass timber contracts have remaining performance obligations which are exempt from disclosure as these contracts are expected to be complete within twelve months.

Shipping and Handling Costs

Amounts charged to customers for shipping and handling costs are recognized in “Revenues” in the Consolidated Statements of Operations. Shipping and handling costs incurred by the Company are included in “Cost of sales, excluding depreciation and amortization” in the Consolidated Statements of Operations at the time the related revenue is recognized.

Insurance Claims

The Company records business interruption insurance proceeds once the insurance provider acknowledges that the claim is covered and agrees in writing to the amount to be paid for the claim. The Company reports business interruption insurance proceeds in “Cost of sales, excluding depreciation and amortization” in the Consolidated Statements of Operations.

The Company records property insurance proceeds up to the amount of the related impairment when it is probable the proceeds will be received. Proceeds in excess of the impairment are recorded once the insurance provider acknowledges that the claim is covered and agrees in writing to the amount to be paid for the claim. The Company reports property insurance proceeds in the same line item in which the related impairment was recognized in the Consolidated Statements of Operations.

Stock-Based Compensation

The Company's stock incentive plan consists of stock options, restricted stock units ("RSUs"), deferred stock units ("DSUs"), restricted shares, performance shares, performance share units ("PSUs") and stock appreciation rights. The stock-based compensation expense is recognized over an award’s requisite service period based on the award’s fair value in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations. The Company issues new shares upon the exercise of stock-based compensation awards.

PSUs provide the holder the right to receive upon vesting a common share of the Company, a cash payment or a combination of common shares or cash, as determined by the Company, if certain market and/or performance goals established by the Company are met. The performance objective period is generally three years. The fair value of PSUs granted with a performance condition is based upon the targeted number of shares to be awarded and the quoted market price of the Company’s shares at that date.

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The fair value of PSUs granted with a market and performance condition is estimated using a Monte Carlo simulation model using historical volatility and a risk-free interest rate.

The Company estimates forfeitures of PSUs based on management’s expectations and recognizes compensation cost only for those awards expected to vest. Estimated forfeitures are adjusted to actual experience at each balance sheet date.

The fair value of equity settled restricted shares, RSUs, and DSUs (“Equity DSUs”) is determined based upon the number of shares or units granted and the quoted price of the Company’s common shares on the date of grant. The vesting period is generallyone year.

DSUs which are settled in cash (“Cash Only DSUs”), are settled at the quoted price of the Company's common shares on the redemption date. Cash Only DSUs are accounted for as a liability and measured based on the quoted price of the Company's common shares on the balance sheet date. The change in the fair value of the outstanding Cash Only DSUs is recorded as an expense in the Consolidated Statements of Operations. The vesting period is generallyone year or less.

Deferred Income Taxes

Deferred income taxes are recognized using the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Valuation allowances are provided if, after considering both positive and negative available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.

Deferred income taxes are determined separately for each tax-paying component of the Company. For each tax-paying component, all deferred tax liabilities and assets are offset and presented as a single net amount.

Derivative Financial Instruments

The Company occasionally enters into derivative financial instruments to manage certain market risks. These derivative instruments are not designated as hedging instruments and accordingly, are recorded at fair value in the Consolidated Balance Sheets with the changes in fair value recognized in “Other income” in the Consolidated Statements of Operations. Periodically, the Company enters into derivative contracts to supply materials for its own use and as such are exempt from mark-to-market accounting.

Fair Value Measurements

The fair value methodologies and, as a result, the fair value of the Company’s financial instruments are determined based on the fair value hierarchy provided in the Fair Value Measurements and Disclosures topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, and are as follows:

Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities.

Level 2 – Valuations based on observable inputs in active markets for similar assets and liabilities, other than Level 1 prices, such as quoted commodity prices or interest or currency exchange rates.

Level 3 – Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts.

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The financial instrument’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding in the period. Diluted net income (loss) per common share is calculated to give effect to all potentially dilutive common shares outstanding by applying the “Treasury Stock” and “If-Converted” methods. Instruments that could have a potentially dilutive effect on the Company’s weighted average shares outstanding include all or a portion of outstanding stock options, RSUs, Equity DSUs, restricted shares, performance shares, PSUs and stock appreciation rights.

Business Combinations

The Company uses the acquisition method in accounting for a business combination that meets the definition of a business. Under this approach, identifiable assets acquired and liabilities assumed are recorded at their respective fair market values at the date of acquisition. In developing estimates of fair market values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs including forecasted cash flows, discount rates, estimated replacement costs and depreciation and obsolescence factors. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate. Acquisition costs, as well as costs to integrate acquired companies, are expensed as incurred in the Consolidated Statements of Operations.

Assets and Liabilities Classified as Held for Sale

Assets (and disposal groups) are classified as held for sale if their carrying amount will be recovered primarily through a sale as opposed to continued use by the Company. Assets (and disposal groups) to be disposed that meet the held for sale criteria are reported at the lower of their carrying amount and fair value less costs to sell and are no longer depreciated.

New Accounting Pronouncements

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, which requires the disclosure of significant segment expenses that are part of an entity’s segment measure of profit or loss and regularly provided to the chief operating decision maker. In addition, it adds or makes clarifications to other segment-related disclosures, such as clarifying that disclosure requirements are required for entities with a single reportable segment and that an entity may disclose multiple measures of segment profit and loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024 with early adoption permitted. The Company currently does not expect the adoption of ASU 2023-07 to have a material impact to the consolidated financial statements and will continue to assess the potential impact.

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, which requires additional disaggregation of the reconciliation between the statutory and effective tax rate for an entity and of income taxes paid. The amendments improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company will continue to assess the potential impact.

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Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In March 2021, the intended cessation date of the London Inter-Bank Offered Rate ("LIBOR") in the U.S. was extended to June 30, 2023. Accordingly, ASU 2022-06 defers the expiration date to December 31, 2024.

As of December 31, 2023, the Company does not have any debt agreements that utilize LIBOR as one of the alternative applicable rates. Therefore, the discontinuation of LIBOR did not have a material adverse effect on the Company's financial position.

Note 2. Acquisitions

2023 Structurlam

On June 15, 2023, the Company acquired substantially all the assets of Structurlam, including a mass timber production facility located in Conway, Arkansas (the “Mercer Conway facility”) and mass timber production facilities in British Columbia, Canada, for cash consideration of$82,100 net of a$2,400 break fee and expense reimbursement and including$1,000 of acquisition costs.

The transaction is accounted for as an acquisition of a group of assets as management determined it does not qualify as an acquisition of a business under GAAP. Substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets, being the land, building and production equipment at the Mercer Conway facility.

2022 Torgau

On September 30, 2022, the Company acquired all the issued and outstanding shares of Wood Holdco GmbH, which is the parent company of Holzindustrie Torgau KG ("Torgau") for consideration of €270.0 million ($263,196) cash. The acquisition results in 100% ownership of a timber processing and value-add pallet production facility in Torgau, Germany and a wood processing facility in Dahlen, Germany that produces garden products. The acquisition of Torgau expands the Company’s solid wood business and further diversifies the Company’s product offerings.

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Note 2. Acquisitions (continued)

The following summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at the acquisition date:

(a)

Amortizable intangible assets include an order backlog, which has an estimated fair value of $15,243 and was amortized on a straight-line basis oversix months and an energy sales agreement, which has an estimated fair value of $9,898 and is being amortized on a straight-line basis over 12 years.

(b)

The goodwill is primarily for expected synergies from combining the operations of Torgau with the Company’s existing German operations. The goodwill isnot deductible for tax purposes.

Management applied significant judgment in estimating the fair value of certain property, plant and equipment acquired using the cost approach, which involved the use of assumptions with respect to estimated replacement costs, estimated useful lives, as well as physical, functional and economic obsolescence, as applicable, at the time of acquisition.

Torgau is a business under GAAP, accordingly the Company began consolidating its results of operations, financial position and cash flows in the consolidated financial statements as of the acquisition date. The amount of Torgau’s revenues and net loss included in the Consolidated Statements of Operations for the year ended December 31, 2022 was $64,364 and $13,450, respectively. In the year ended December 31, 2022, $1,945 of acquisition related costs were recognized in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

The following unaudited pro forma information represents the Company’s results of operations as if the acquisition of Torgau had occurred on January 1, 2021. This pro forma information does not purport to be indicative of the results that would have occurred for the periods presented or that may be expected in the future.

The unaudited pro forma information had no material nonrecurring adjustments directly attributable to the acquisition.

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Note 3. Assets and Liabilities Classified as Held for Sale

In the fourth quarter of 2023, the Company committed to a plan to sell the sandalwood business. Efforts to sell the business have started and a sale is expected to occur within the next 12 months. Accordingly, the assets and associated liabilities of the business, referred to as the “disposal group” are classified as held for sale in the Consolidated Balance Sheets. Concurrently with this classification, the Company determined the net book value of the disposal group exceeded its estimated fair value of $28,500 as of December 31, 2023. As a result, a preliminary non-cash impairment charge of $33,734 was recognized in the Consolidated Statements of Operations. The disposal group’s estimated fair value was determined using Level 3 inputs based on preliminary indicative offers from third parties.

The following summarizes the major classes of assets and liabilities classified as held for sale as of December 31,2023.

Note 4. Business Interruption Insurance

In 2021, the Rosenthal mill turbine was taken down to complete extensive repair work. In June 2023, the Company settled the business interruption portion of the insurance claim for€15.2 million ($16,553).

In July 2022, a fire occurred in the woodyard of the Stendal mill. For the year ended December 31, 2023, the insurance provider paid nonrefundable business interruption insurance payments of€16.3 million ($17,665) and property insurance payments of€11.2 million ($12,203). For the year ended December 31, 2022, the insurance provider paid nonrefundable business interruption insurance payments of €14.4 million ($15,143) and property insurance payments of €2.1 million ($2,206).

The business interruption and property insurance proceeds for the year ended December 31, 2023 of€42.7 million ($46,421) (2022 – €16.5 million ($17,349)) was recognized in “Cost of sales, excluding depreciation and amortization” in the Consolidated Statements of Operations.

Note 5. Other Income

Other income for the years ended December 31,2023, 2022 and 2021 was comprised of the following:

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Note 6. Accounts Receivable, Net

Accounts receivable, net as of December 31,2023 and December 31, 2022, was comprised of the following:

Note 7. Inventories

Inventories as of December 31,2023 and December 31, 2022, were comprised of the following:

For the year ended December 31, 2023, the Company recorded net inventory impairment charges of$58,600 (2022 and 2021 – $nil) as a result of low pulp prices and high per unit fiber costs for the Canadian mills. The net inventory impairment charges are recorded in "Cost of sales, excluding depreciation and amortization" in the Consolidated Statements of Operations. As of December 31,2023, $5,400 of the write-down was recorded against raw materials inventory and $1,100 was recorded against finished goods inventory. As of December 31,2022, there wereno inventory impairment charges.

Note 8. Property, Plant and Equipment, Net

Property, plant and equipment, net as of December 31,2023 and December 31, 2022, was comprised of the following:

As of December 31, 2023, property, plant and equipment was net of$132,708 of unamortized government grants (2022 –$144,096). Amortization expense related to government grants for the year ended December 31, 2023 was$18,720 (2022 –$18,103; 2021 –$19,855). In 2023, the Company received government grants of$5,569 (2022 –$1,067; 2021 – $9,333) to partially finance innovation and greenhouse gas reduction projects at the Canadian mills. These grants were netted against “Property, plant and equipment, net” in the Consolidated Balance Sheets.

The Company maintains industrial landfills on its premises for the disposal of waste, primarily from the mills’ pulp processing activities. The mills have obligations under their landfill permits to decommission these disposal facilities pursuant to certain regulations. As of December 31, 2023, the Company had recorded$11,099 (2022 –$11,892) of asset retirement obligations in “Other long-term liabilities” in the Consolidated Balance Sheets.

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Note 9. Amortizable Intangible Assets, Net

Amortizable intangible assets, net as of December 31,2023 and December 31, 2022, were comprised of the following:

Amortization expense related to intangible assets for the year ended December 31, 2023 was$13,645 (2022 –$11,882; 2021 –$4,767).

Amortization expense for the next five years related to intangible assets as of December 31,2023 is expected to be as follows:

Note 10. Goodwill

The Company tests goodwill for impairment annually on August 31 at the reporting unit level. Goodwill was assigned to the Torgau facility, the reporting unit which benefits from the synergies arising from the business combination. The annual impairment test was completed on August 31, 2023 andno impairment was identified. There were no indicators of goodwill impairment during the remainder of the year.

Note 11. Other Long-Term Assets

Other long-term assets as of December 31,2023 and December 31, 2022, were comprised of the following:

(a)

As of December 31, 2023, the sandalwood tree plantations were classified as held for sale. Refer to the Assets and Liabilities Classified as Held for Sale Note.

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Note 12. Accounts Payable and Other

Accounts payable and other as of December 31,2023 and December 31, 2022, was comprised of the following:

(a)

The Company is required to pay certain fees based on wastewater emissions at its German mills. Accrued fees can be reduced upon the mills’ demonstration of reduced wastewater emissions. Reduction to the wastewater fee for the year ended December 31, 2023 was$4,348 (2022 –$12,847; 2021 –$nil).

Note 13. Debt

Debt as of December 31,2023 and December 31, 2022, was comprised of the following:

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Note 13. Debt (continued)

The maturities of the principal portion of debt as of December 31,2023 were as follows:

Certain of the Company’s debt instruments were issued under agreements which, among other things, may limit its ability and the ability of its subsidiaries to make certain payments, including dividends. These limitations are subject to specific exceptions. As of December 31,2023, the Company was in compliance with the terms of its debt agreements.

(a)

In September 2023, the Company issued $200,000 in aggregate principal amount of 12.875% senior notes which mature on October 1, 2028 (the “2028 Senior Notes”). The net proceeds from the 2028 Senior Notes issuance was $195,668 after deducting the underwriter’s discount and offering expenses.

The senior notes which mature on February 1, 2029 (the "2029 Senior Notes") and on January 15, 2026 (the “2026 Senior Notes” and collectively with the 2029 Senior Notes and 2028 Senior Notes, the “Senior Notes”) and the 2028 Senior Notes, are general unsecured senior obligations of the Company. The Company may redeem all or a part of the Senior Notes upon not less than 10 days’ or more than 60 days’ notice at the redemption price plus accrued and unpaid interest to (but not including) the applicable redemption date. The 2026 Senior Notes redemption price is 100.000% of the principal amount. The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the 2028 Senior Notes and the 2029 Senior Notes:

(b)

In September 2023, the Company increased the borrowing capacity of the joint revolving credit facility for the German mills by €70.1 million to €370.1 million. The credit facility matures in September 2027. Borrowings under the facility are unsecured and bear interest at Euribor plus a variable margin ranging from 1.40% to 2.35% dependent on conditions including but not limited to a prescribed leverage ratio. The facility is sustainability linked whereby the interest rate margin is subject to upward or downward adjustments of up to 0.05% per annum if the Company achieves, or fails to achieve, certain specified sustainability targets. As of December 31, 2023, approximately€146.0 million ($161,330) of this facility was drawn and accruing interest at a rate of 5.296%, approximately€13.6 million ($14,986) was supporting bank guarantees and approximately€210.6 million ($232,672) was available.

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Note 13. Debt (continued)

(c)

A C$160.0 million joint revolving credit facility for the Celgar mill, Peace River mill and certain other Canadian subsidiaries that matures in January 2027. The facility is available by way of: (i) Canadian denominated advances, which bear interest at adesignated 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 thefederal funds rate plus 0.50%, an Adjusted Term Secured Overnight Financing Rate ("SOFR") for a one month tenor plus 1.00% and thebank’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. As of December 31, 2023, approximately C$62.5 million ($47,255) of this facility was drawn and accruing interest at a rate of 6.614%, approximately C$1.4 million ($1,037) was supporting letters of credit and approximately C$84.1 million ($63,608) was available.

(d)

A €2.6 million demand loan for Rosenthal that does not have a maturity date. Borrowings under this facility are unsecured and bear interest at the rate of thethree-month Euribor plus 2.50%. As of December 31,2023, approximately€2.6 million ($2,820) of this facility was supporting bank guarantees and approximately$nil was available.

Note 14. Pension and Other Post-Retirement Benefit Obligations

Defined Benefit Plans

Pension benefits are based on employees’ earnings and years of service. The defined benefit plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. Information about the Celgar and Peace River defined benefit plans, in aggregate for the year ended December 31,2023 was as follows:

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Information about the Celgar and Peace River defined benefit plans, in aggregate for the year ended December 31, 2022 was as follows:

The components of the net benefit cost other than service cost are recognized in “Other income” in the Consolidated Statements of Operations. The amortization of unrecognized items relates to net actuarial losses (gains) and prior service costs.

The Company anticipates that it will make contributions to the defined benefit plans of approximately$689 in 2024. Estimated future benefit payments under these plans as of December 31,2023 were as follows:

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Weighted Average Assumptions

The weighted-average assumptions used to determine the benefit obligations at the measurement dates and the net benefit costs for the years ended December 31,2023, 2022 and 2021 were as follows for Celgar’s defined benefit plan:

The weighted-average assumptions used to determine the benefit obligations at the measurement dates and the net benefit costs for the years ended December 31,2023, 2022 and 2021 were as follows for Peace River’s defined benefit plan:

The discount rate assumption is adjusted annually to reflect the rates available on high-quality debt instruments, with a duration that is expected to match the timing and amount of expected pension and other post-retirement benefit payments. High-quality debt instruments are corporate bonds with a rating of “AA” or better.

The expected rate of return on plan assets is a management estimate based on, among other factors, historical long-term returns, expected asset mix and an active management premium.

The expected rate of compensation increase is a management estimate based on, among other factors, historical compensation increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with employees and the outlook for the industry.

The assumed health care cost trend rates used to determine the other post-retirement benefit obligations as of December 31,2023 and December 31, 2022 were as follows:

The expected health care cost trend rates are based on historical trends for these costs, as well as recently enacted health care legislation. The Company also compares health care cost trend rates to those of the industry.

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Investment Objective and Asset Allocation

The investment objective for the defined benefit pension plans is to sufficiently diversify invested plan assets to maintain a reasonable level of risk without imprudently sacrificing the return on the invested funds, and ultimately to achieve a long-term total rate of return, net of fees and expenses, at least equal to the long-term interest rate assumptions used for funding actuarial valuations. To achieve this objective, the Company’s overall investment strategy is to maintain an investment allocation mix of long-term growth investments (equities) and fixed income investments (debt securities). Investment allocation targets have been established by asset class after considering the nature of the liabilities, long-term return expectations, the risks associated with key asset classes, funded position, inflation and interest rates and related management fees and expenses. In addition, the defined benefit pension plan’s investment strategy seeks to minimize risk beyond legislated requirements by constraining the investment managers’ investment options. There are a number of specific constraints based on investment type, but they all have the general purpose of ensuring that the investments are fully diversified and that risk is appropriately managed. For example, there are constraints on the book value of assets that can be invested in any one entity or group, and all equity holdings must be listed on a public exchange. Reviews of the investment objectives, key assumptions and the independent investment managers are performed periodically.

Pension De-Risking Actions

In 2017, the Company initiated a pension de-risking strategy for Celgar’s defined benefit plan. The first step of the strategy resulted in changing the target investment mix to 80% debt securities, to more effectively hedge the plan liabilities for inactive members, and 20% equity securities, to consider the inflationary effect of future salary increases for the remaining active members.

In 2018, the Company used the debt security investments in Celgar’s defined benefit plan to purchase buy-in annuities for all inactive members. This transaction fully hedges the plan liabilities for the majority of inactive members.

In 2023, as part of the Company's efforts to reduce pension plan obligations, the Company transferred $16,305 of pension assets and obligations under Celgar's defined benefit plan to a third party insurance provider by converting the buy-in annuity to a buy-out annuity. In connection with this transaction, for the year-ended December 31, 2023, the Company recognized a non-cash settlement loss of $3,502 in “Other income” in the Consolidated Statements of Operations. The settlement accelerated the recognition of previously unrecognized losses in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets that would have otherwise been recognized in subsequent periods.

Concentrations of Risk in the Defined Benefit Pension Plan’s Assets

The Company has reviewed the defined benefit pension plan’s equity investments and determined that they are allocated based on the specific investment managers’ stated investment strategies with only slight over- or under-weightings within any specific category, and that those investments are within the constraints that have been set by the Company. Those constraints include a limitation on the value that can be invested in any one entity or investment category. The Company has concluded that there are no significant concentrations of risk.

The following table presents the Celgar and Peace River defined benefit pension plans’ assets fair value measurements as of December 31,2023 under the fair value hierarchy:

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The following table presents the Celgar and Peace River defined benefit pension plans’ assets fair value measurements as of December 31,2022 under the fair value hierarchy:

The change in Level 3 fair value measurements of plan assets for the years ended December 31,2023 and 2022 was as follows:

Defined Contribution Plans

Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members. In addition, the related defined benefit service accrual ceased on December 31, 2008, and members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan effective January 1, 2009. The Company’s head office employees also participate in a defined contribution plan. During the year ended December 31, 2023, the Company made contributions of $2,477 to these plans (2022 –$1,982; 2021 –$1,768).

Multiemployer Plan

The Company participates in a multiemployer plan for the hourly-paid employees at the Celgar mill. The contributions to the plan are determined based on a percentage of pensionable earnings pursuant to a collective bargaining agreement. The Company has no current or future contribution obligations in excess of the contractual contributions. During the year ended December 31, 2023, the Company made contributions of$2,193 to this plan (2022 –$2,175; 2021 –$2,370).

Plan details for the years ended December 31,2023, 2022 and 2021 were as follows:

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Note 15. Income Taxes

The components ofincome (loss) before income taxes for the years ended December 31, 2023, 2022 and 2021 were as follows:

Income tax recovery (provision) recognized in the Consolidated Statements of Operations for the years ended December 31,2023, 2022 and 2021 was comprised of the following:

During the year ended December 31, 2023, the foreign current income tax provision is primarily for German entities.

The Company’s effective income tax rate can be affected by many factors, including but not limited to, changes in the mix of earnings in tax jurisdictions with differing statutory rates, changes in corporate structure, changes in the valuation of deferred tax assets and liabilities, the result of audit examinations of previously filed tax returns and changes in tax laws and rates. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

The Company and/or one or more of its subsidiaries file income tax returns in the U.S., Germany, Canada and Australia. Currently, the Company does not anticipate that the expiration of the statute of limitations or the completion of audits in the next fiscal year will result in liabilities for uncertain income tax positions that are materially different than the amounts accrued or disclosed as of December 31, 2023. However, this could change as tax years are examined by taxing authorities, the timing of which are uncertain at this time. The German tax authorities have completed examinations up to and including the 2017 tax year for all butone German entity which had its examination completed up to and including the 2013 tax year. The Company is generally not subject to U.S. or Canadian income tax examinations for tax years before 2020 and 2019, respectively. The Company believes that it has adequately provided for any reasonable foreseeable outcomes related to its tax audits and that any settlement will not have a material adverse effect on its consolidated results.

The liability in the Consolidated Balance Sheets related to unrecognized tax benefits was$nil as of December 31, 2023 (2022 –$nil). The Company recognizes interest and penalties related to unrecognized tax benefits in “Income tax recovery (provision)” in the Consolidated Statements of Operations. During the years ended December 31, 2023, 2022 and 2021 the Company didnot record any interest and penalties related to unrecognized tax benefits.

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Differences between the U.S. Federal statutory and the Company’s effective rates for the years ended December 31,2023, 2022 and 2021 were as follows:

(a)

Primarily due to the impact of the global intangible low-taxed income provision in the Tax Cuts and Jobs Act of 2017.

Deferred income tax assets and liabilities as of December 31,2023 and December 31, 2022 were comprised of the following:

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The following table details the scheduled expiration dates of the Company’s net operating loss, interest, investment tax credit and other tax attributes carryforwards as of December 31,2023:

At each reporting period, the Company assesses whether it is more likely than not that the deferred tax assets will be realized, based on the review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, estimates of future taxable income, past operating results and prudent and feasible tax planning strategies. The carrying value of the Company’s deferred tax assets reflects its expected ability to generate sufficient future taxable income in certain tax jurisdictions to utilize these deferred income tax benefits. Significant judgment is required when evaluating this positive and negative evidence.

Changes in valuation allowances related to net deferred tax assets for the years ended December 31,2023 and 2022 were as follows:

As of December 31, 2023, the Company has recognized the deferred tax assets of its German entities and has a full valuation allowance against the net deferred tax assets of its U.S. and Canadian entities.

The Company has not recognized a tax liability on the undistributed earnings of its foreign subsidiaries as of December 31, 2023 because these earnings are expected to be permanently reinvested outside the U.S. or repatriated without incurring a tax liability. As of December 31, 2023, the cumulative amount of undistributed earnings upon which U.S. income taxes have not been provided was approximately$233,746.

Global Corporate Minimum Tax Rate

On December 12, 2022, the European Union member states agreed to the implementation of the Organisation for Economic Co-operation and Development’s global corporate minimum tax rate of 15%, to be effective as of January 2024 (the “Pillar Two” rules). On February 1, 2023, the FASB staff announced that the global corporate minimum tax imposed under the Pillar Two rules is an alternative minimum tax and that deferred taxes would not be recognized or adjusted for the effect of global minimum taxes that conform to Pillar Two rules. Accordingly, the incremental effects of such taxes would be accounted for as a period cost in the period when the tax law is effective.

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As of December 31, 2023, Germany has enacted laws to conform with the Pillar Two rules, but Canada, the U.S. and Australia have not. The Company will continue to monitor the impact of proposed and enacted legislative changes in the geographic regions in which we operate.

Note 16. Shareholders’ Equity

Dividends

The Company’s board of directors declared quarterly dividends during the years ended December 31,2023 and 2022 as follows:

On February 15, 2024, the Company’s board of directors declared a quarterly dividend of$0.075 per common share. Payment of the dividend will be on April 4, 2024 to all shareholders of record on March 27, 2024. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.

Share Capital

Preferred shares

The Company has authorized 50,000,000 preferred shares (2022 –50,000,000) with $1 par value issuable in series, of which 2,000,000 shares have been designated as Series A. The preferred shares may be issued in one or more series. Designations and preferences for each series shall be stated in the resolutions providing for the designation and issuance of each such series adopted by the Company’s board of directors. The board of directors is authorized by the Company’s articles of incorporation to determine the voting, dividend, redemption and liquidation preferences pertaining to each such series. As of December 31, 2023, no preferred shares had been issued by the Company.

Stock-Based Compensation

The Company has a stock incentive plan which provides for stock options, RSUs, DSUs, restricted shares, performance shares, PSUs, and stock appreciation rights to be awarded to employees, consultants and non-employee directors. During the year ended December 31, 2023, there wereno issued and outstanding stock options, performance shares or stock appreciation rights. As of December 31,2023, after factoring in all allocated shares, there remain approximately 2.2 million common shares available for grant.

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Note 16. Shareholders’ Equity (continued)

As of December 31, 2023, the total compensation cost related to unvested PSUs, restricted shares, RSUs and DSUs not recognized was approximately$5,672 which will be recognized over a weighted average period of approximatelyone year.

In May 2023, the board of directors adopted the 2023 Non-Employee Director Compensation Plan which allows non-employee directors to elect on an annual basis to receive, in lieu of annual cash retainers, either restricted stock or DSUs. In addition, the board of directors receive annual equity compensation of restricted stock unless they elect to receive DSUs. The election for DSUs may be in the form of Equity DSUs or Cash Only DSUs and are redeemable by the director at their option following their separation from the board of directors. The value of the Cash Only DSUs redeemed is the fair market value on the redemption date. The Cash Only DSUs are accounted for as a liability and the other equity awards are accounted for as equity.

PSUs

PSU activity during the year ended December 31,2023 was as follows:

The weighted-average grant date fair value per unit of all PSUs granted in 2022 and 2021 was$13.61 and$13.72, respectively. The total fair value of PSUs vested and issued in 2023, 2022 and 2021 was$2,943,$1,208 and$1,642, respectively.

Restricted Shares, RSUs and DSUs

Restricted share, RSU and DSU activity during the year ended December 31,2023 was as follows:

The weighted-average grant date fair value per share of all restricted shares granted in 2022 and 2021 was$15.65 and$14.84, respectively. The total fair value of restricted shares and DSUs vested and issued in 2023, 2022 and 2021 was$920,$793 and$1,011, respectively.

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Note 17. Net Income (Loss) Per Common Share

The reconciliation of basic and diluted net income (loss) per common share for the years ended December 31,2023, 2022 and 2021 was as follows:

(a)

For the year ended December 31, 2023, the basic weighted average number of common shares outstanding excludes 54,227 restricted shares which have been issued, but have not vested as of December 31, 2023 (2022 –34,699 restricted shares; 2021 –49,195 restricted shares).

The calculation of diluted net income (loss) per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net income (loss) per common share. Instruments excluded from the calculation of net income (loss) per common share because they were anti-dilutive for the years ended December 31,2023, 2022 and 2021 were as follows:

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Note 18. Accumulated Other Comprehensive Loss

The change in accumulated other comprehensive loss by component (net of tax) for the years ended December 31,2023, 2022 and 2021 was as follows:

Foreign currency translation adjustments recognized in other comprehensive income (loss) include intra-entity foreign currency loans that are of a long-term investment nature. For the year ended December 31, 2023, the foreign currency translation gain from these transactions was$2,190 (2022 – gain of$1,598; 2021 – loss of$6,905).

Note 19. Related Party Transactions

The Company enters into related party transactions with its joint ventures. For the year ended December 31, 2023, pulp purchases from the Company’s 50% owned CPP mill, which are transacted at the CPP mill’s cost, were$97,836 (2022 –$101,095; 2021 –$88,073) and as of December 31, 2023 the Company had apayable balance to the CPP mill of$90 (December 31, 2022 –payable of$4,409).

For the year ended December 31, 2023, services from the Company’s 50% owned logging and chipping operation, which are transacted at arm’s length negotiated prices, were$11,350 (2022 –$12,545; 2021 –$12,775) and as of December 31, 2023 the Company had a receivable balance from the operation of$1,912 (December 31, 2022 – receivable of$522).

For the year ended December 31, 2023, services from the Company’s 50% owned wood purchasing and import logistics operations, which are transacted at arm’s length negotiated prices were$342 (2022 –$277; 2021 –$491) and as of December 31, 2023 the Company had apayable balance to the operation of $5 (December 31,2022 –payable of $14).

For the year ended December 31, 2023, services from the Company’s 26% owned wood purchasing operations, which are transacted at arm’s length negotiated prices were$2,274 (2022 –$1,938; 2021 –$nil) and as of December 31, 2023 the Company had areceivable balance from the operation of $563 (December 31,2022 –receivable of $544).

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Note 20. Segment Information

The Company is managed based on the primary products it manufactures: pulp and solid wood, whose operating results are regularly reviewed by the Company’s chief operating decision maker to assess segment performance and to make decisions about resource allocation. Accordingly, the Company'sfour pulp mills and its 50% interest in the Cariboo pulp mill are aggregated into the pulp segment. The Friesau sawmill, the Torgau facility and the mass timber facilities are aggregated into the solid wood segment. The Company's sandalwood business is included in corporate and other as it does not meet the criteria to be reported as a separate reportable segment.

None of the income or loss items following operating income (loss) in the Company’s Consolidated Statements of Operations are allocated to the segments, as those items are reviewed separately by management. Information about certain segment data for the years ended December 31,2023, 2022 and 2021, was as follows:

(a)

Total assets for the pulp segment includes the Company’s$41,665 investment in joint ventures, primarily for the CPP mill. Total assets for the solid wood segment includes$35,381 of goodwill from the acquisition of Torgau. Total assets under corporate and other includes$35,125 of assets for the Company's sandalwood business which have been classified as held for sale.

(b)

(c)

(d)

Sales are attributed to countries based on the ship-to location provided by the customer.

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(a)

Total assets for the pulp segment includes the Company’s$45,635 investment in joint ventures, primarily for the CPP mill. Total assets for the solid wood segment includes$30,937 of goodwill from the acquisition of Torgau.

(b)

Manufactured products primarily includes CLT and finger joint lumber.

(c)

(d)

Sales are attributed to countries based on the ship–to location provided by the customer.

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(a)

Total assets for the pulp segment includes the Company’s$49,651 investment in joint ventures, primarily for the CPP mill.

(b)

Manufactured products primarily includes finger joint lumber.

(c)

Sales are attributed to countries based on the ship-to location provided by the customer.

Revenues between segments are accounted for at prices that approximate fair value. These include revenues from the sale of residual fiber from the solid wood segment to the pulp segment for use in the pulp production process and from the sale of residual fuel from the pulp segment to the solid wood segment for use in energy production. For the year ended December 31, 2023, the pulp segment sold$1,037 of residual fuel to the solid wood segment (2022 –$nil; 2021– $336) and the solid wood segment sold$41,351 of residual fiber to the pulp segment (2022 –$34,236; 2021– $12,661).

Reconciliation to Income (Loss) before Income Taxes

The reconciliation from operating income (loss) to income (loss) before income taxes for the years ended December 31,2023, 2022 and 2021 was as follows:

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The Company’s long-lived assets by geographic area based on the location of the assets as of December 31,2023 and December 31, 2022 were as follows:

In 2023, no single customer accounted for greater than 10% of the Company’s total revenues (2022 –no customer;2021 –no customer).

Note 21. Financial Instruments and Fair Value Measurement

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and other, approximates their fair value.

The estimated fair values of the Company’s outstanding debt under the fair value hierarchy as of December 31,2023 and December 31, 2022 were as follows:

The carrying value of the revolving credit facilities classified as Level 2 approximates the fair value as the variable interest rates reflect current interest rates for financial instruments with similar characteristics and maturities.

The fair value of the senior notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company’s senior notes are not carried at fair value on the Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022. However, fair value disclosure is required. The carrying value of the Company’s senior notes, net of note issuance costs is$1,360,155 as of December 31, 2023 (December 31, 2022– $1,161,672).

Credit Risk

The Company’s credit risk is primarily attributable to cash held in bank accounts and accounts receivable. The Company maintains cash balances in foreign financial institutions in excess of insured limits.

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Note 21. Financial Instruments and Fair Value Measurement (continued)

The Company limits its credit exposure on cash held in bank accounts by periodically investing cash in excess of short-term operating requirements and debt obligations in low risk government bonds, or similar debt instruments. The Company’s credit risk associated with its sales is managed through setting credit limits, the purchase of credit insurance and for certain customers a letter of credit is received prior to shipping the product. The Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit. Concentrations of credit risk on its sales are with customers and agents based primarily in Germany, China and the U.S.

The Company’s exposure to credit losses may increase if its customers' production and other costs are adversely affected by inflation. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’s customers are adversely impacted by inflation and interest rate levels. As of December 31, 2023, the Company has not had significant credit losses.

The carrying amount of cash and cash equivalents as of December 31, 2023 of$313,992 and accounts receivable as of December 31, 2023 of$306,166 recorded in the Consolidated Balance Sheet, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.

Note 22. Lease Commitments

The Company has finance leases primarily for railcars and production equipment. The railcars primarily have a remaining lease term offive tonine years with annual renewal options thereafter. The production equipment has a weighted average remaining lease term ofsix years. The Company has operating leases primarily for land to support the sandalwood tree plantations and for offices. The land leases have remaining terms ofone toeight years with options to renew for up to 17 years. The office leases have remaining terms offour tosix years with options to renew up tofive years. A majority of the operating leases are subject to annual changes to the Consumer Price Index (“CPI”). Changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. A 100-basis-point increase in CPI would not have a material impact on lease costs.

The components of lease expense for the years ended December 31,2023, 2022 and 2021 was as follows:

Supplemental cash flow information related to leases for the years ended December 31,2023, 2022 and 2021 was as follows:

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Note 22. Lease Commitments (continued)

Other information related to leases for the years ended December 31,2023, 2022 and 2021 was as follows:

The discount rate used to calculate the present value of the minimum lease payments is the incremental borrowing rate that the subsidiary entering into the lease would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Supplemental balance sheet information related to leases as of December 31,2023 and December 31, 2022 was as follows:

Maturities of operating lease liabilities as of December 31, 2023 were as follows:

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Note 23. Commitments and Contingencies

(a)

In the normal course of business, the Company has entered into purchase obligations primarily for fiber. As of December 31,2023 these commitments were as follows:

(b)

The Company is involved in legal actions and claims arising in the ordinary course of business. While the outcome of any legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claims which are pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

(c)

The Company is subject to regulations that require the handling and disposal of asbestos in a prescribed manner if a property undergoes a major renovation or demolition. Otherwise, the Company is not required to remove asbestos from its facilities. Generally asbestos is found on steam and condensate piping systems as well as certain cladding on buildings and in building insulation throughout older facilities. The Company’s obligation for the proper removal and disposal of asbestos products from the Company’s mills is a conditional asset retirement obligation. As a result of the longevity of the Company’s mills, due in part to the maintenance procedures and the fact that the Company does not have plans for major changes that require the removal of asbestos, the timing of the asbestos removal is indeterminate. As a result, the Company is currently unable to reasonably estimate the fair value of its asbestos removal and disposal obligation. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.

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SIGNA TURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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