MERCER INTERNATIONAL INC

Summary of Cash Flows

We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash

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expenditures are for production costs, such as fiber, chemicals and energy costs, and other material operating costs for maintenance, freight and labor.

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.

In 2024, operating activities provided cash of $90.2 million compared to using cash of $69.0 million in 2023. An increase in accounts receivable used cash of $32.1 million in 2024 and a decrease in accounts receivable provided cash of $52.5 million in 2023. Adjusting for inventory impairments of $9.0 million, a decrease in inventories provided cash of $23.9 million in 2024 and adjusting for inventory impairments of $58.6 million, an increase in inventories used cash of $15.8 million in 2023. A decrease in accounts payable and accrued expenses used cash of $17.7 million in 2024 and $98.2 million in 2023.

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.

In 2024, investing activities used cash of $67.0 million. In 2024, we incurred $84.3 million of capital expenditures primarily related to log yard upgrades and other strategic projects at our Torgau facility, optimization projects at our Peace River mill and mass timber facilities and maintenance projects across all mills and facilities. In 2024, we received $19.9 million of proceeds from sale of property, plant and equipment primarily related to the sale of land from our sandalwood business.

In 2023, investing activities used cash of $199.9 million. In 2023, we acquired the Structurlam Mass Timber Corporation and its subsidiaries for $82.1 million and incurred capital expenditures of $136.3 million 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 Mercer Spokane facility. In 2023, we received $12.2 million of property insurance proceeds for the 2022 fire at our Stendal mill and we received $5.6 million of government grants mainly for the Peace River wood room project.

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 2024, financing activities used cash of $152.8 million. In 2024, we redeemed the $300 million 2026 Senior Notes using cash on hand and the proceeds from the issuance of $200.0 million of additional 2028 Senior Notes at a 103.0% premium. In 2024, we repaid approximately $25.1 million under our revolving credit facilities, paid dividends of $20.1 million and incurred aggregate debt issuance costs of $4.5 million related to the issuance of the 2028 Senior Notes.

In 2023, financing activities provided cash of $228.6 million. In 2023, we received proceeds from the issuance of $200.0 million of 2028 Senior Notes and borrowed 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 in our maximum borrowing capacity under our German Revolving Facility.