MERC US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF 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, 2025 and 2024 is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. 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, 2024 for a discussion of our results of operations for 2023 and financial position as of December 31, 2023. This Annual Report contains forward-looking statements that involve risks and uncertainties, including statements respecting our plans, estimates and beliefs and outlook on the markets in which we operate. Our actual results may differ materially from those indicated in forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. “Risk Factors”.

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.

Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.

Markets for kraft pulp are global, cyclical and commodity-based. Our financial performance depends on a number of variables that impact sales and production costs. Sales and production results for kraft pulp are influenced largely by the market price for kraft pulp, fiber costs and foreign currency exchange rates. Kraft pulp prices are highly cyclical and primarily determined by the balance between supply and demand. Pricing and demand are influenced by global macroeconomic conditions, changes in consumption and industry capacity, the level of customer and producer inventories and fluctuations in exchange rates. The third-party industry quoted average European list prices for NBSK pulp between 2016 and 2025 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,635 per ADMT in 2024. 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. Our sales to China and Asia are generally based closer to third-party industry quoted prices, which are quoted on a net basis, inclusive of discounts, allowances, rebates and other selling concessions.

The market for lumber is cyclical and generally driven by macroeconomic conditions, producer inventories and fluctuations in exchange rates. 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. In the U.S., third-party industry quoted monthly average western spruce/pine/fir (“WSPF”) 2 x 4 #2&Btr prices between 2016 and 2025 have fluctuated between a low of $259 per Mfbm in 2016 to a high of $1,604 per Mfbm in 2021. Similarly, the demand for CLT is primarily driven by the wood construction market and government policies focused on a low-carbon economy.

European and U.S. lumber markets differ. In the European market, lumber is generally customized in terms

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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.

Energy and chemical production and sales are revenue sources for us. Further initiatives to increase our generation and sales of renewable energy, chemicals and other by-products will continue to be a focus for us. Such further initiatives may require additional capital spending.

Energy and chemicals are by-products of our pulp and lumber production and the volumes generated and sold are primarily related to the rate of production. 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. Fiber 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.

Our financial performance is also impacted by changes in the dollar to euro and Canadian dollar exchange rates. Changes in currency rates affect our operating results because most of our operating costs at our German mills are incurred in euros and those at our Canadian mills are in Canadian dollars. These costs do not fluctuate with the dollar to euro or Canadian dollar exchange rates. Thus, an increase in the strength of the dollar versus the euro and the Canadian dollar decreases our operating costs and increases our operating margins and income from operations. Conversely, a weakening of the dollar against the euro and the Canadian dollar tends to increase our operating costs and decrease our operating margins and income from operations. Our energy, chemical, pallet, biofuel, wood residual and European lumber sales are made in local currencies and, as a result, decline in dollar terms when the dollar strengthens and increase when the dollar weakens.

As a corollary to changes in exchange rates between the dollar and the euro and Canadian dollar, a stronger dollar generally increases costs to our customers and results in downward pressure on pulp prices. Conversely, a weakening dollar generally supports higher pulp pricing. However, there is invariably a time lag between changes in currency exchange rates and prices. This lag can vary and is not predictable with any precision.

Production costs also depend on the total volume of production. High operating rates and production efficiencies permit us to lower our average per unit cost by spreading fixed costs over more units. Higher operating rates also permit us to increase our generation and sales of surplus renewable energy, chemicals and biofuels. Our production levels are also dependent on, among other things, the number of days of maintenance downtime at our mills.

Unexpected maintenance downtime can be particularly disruptive in our industry.

Selected 2025 Highlights

In 2025, we:

•

realized approximately $30.0 million in cost savings and operational reliability improvements towards our “One Goal One Hundred” program. This core initiative targets $100.0 million in total profitability improvement actions by the end of 2026, using 2024 as a baseline;

•

continued to grow the order book for our mass timber products, with mass timber production expected to ramp up in 2026;

•

commissioned a pilot program for the operation of a carbon capture demonstration unit at the Peace River mill. See Item 1. “Business - Innovation”.

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Non-Cash Impairments of Long-Lived Assets

In 2025, we recognized an aggregate of $215.7 million in non-cash impairments of long-lived assets. This comprised $203.5 million against long-lived assets at our Peace River mill and $12.2 million against certain non-core equipment that was identified as obsolete in our solid wood segment. Given the sustained weakness in hardwood pulp prices, we conducted a recoverability test for the Peace River assets. Due to this down-cycle pricing environment, we recognized the non-cash impairment, representing the difference between the carrying value and our estimated fair value.

Please see Note 7 to our consolidated financial statements included in Item 15 and our critical accounting policies regarding long-lived assets in Item 7 of this Annual Report on Form 10-K.

Current Market Environment

We currently expect pulp prices to modestly increase in all our markets in the first half of 2026 due to stable demand and global supply constraints.

In our solid wood segment, we currently expect U.S. and European lumber prices to modestly increase in the first half of 2026. In the U.S., the increase is driven by reduced overall supply, resulting from lower production from Canadian producers. In Europe, the increase is due to rising fiber costs. We currently expect mass timber prices to remain under pressure in the first half of 2026 primarily due to overall market weakness linked to the relatively high interest rate environment. Pallet prices are expected to be generally stable in the first half of 2026.

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Summary Financial Highlights

Year Ended December 31,

(in thousands, other than percent and per share amounts)

Statement of Operations Data

Revenues from external customers

Solid wood Segment Operating EBITDA(1) (25,192 ) (4,390 )

Operating EBITDA margin(2) (1 %) 12 %

Net loss per common share

Common shares outstanding at period end 66,983 66,871

(1)

Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

(2)

Operating EBITDA and Operating EBITDA margin are non-GAAP measures. See “Non-GAAP Financial Measures” for their descriptions, limitations and why we consider them to be useful measures. The following table provides a reconciliation of net loss to operating income (loss) and Operating EBITDA for the years indicated:

Year Ended December 31,

(in thousands)

Add: Impairments of long-lived assets 215,682 —

Add: Loss on disposal of investment in joint venture — 23,645

Add: Goodwill impairment — 34,277

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Selected Production, Sales and Other Data

Year Ended December 31,

Pulp Segment

Pulp production ('000 ADMTs)

Annual maintenance downtime ('000 ADMTs) 125.7 86.9

Annual maintenance downtime (days) 86 57

Pulp sales ('000 ADMTs)

Average NBSK pulp prices ($/ADMT)(1)

Average NBHK pulp prices ($/ADMT)(1)

Average pulp sales realizations ($/ADMT)(2)

Average energy sales realizations ($/MWh)(3) 97 91

Solid Wood Segment

Lumber

Average sales realizations ($/Mfbm) 533 462

Energy

Average sales realizations ($/MWh) 139 131

Manufactured products(4)

Pallets

Average sales realizations ($/unit) 12 10

Biofuels(5)

Average sales realizations ($/tonne) 254 217

Average Spot Currency Exchange Rates

(1)

Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates.

(2)

Sales realizations after customer discounts, rebates and other selling concessions.

(3)

Does not include our 50% joint venture interest in CPP, which was accounted for using the equity method. In 2024, we disposed of this interest.

(4)

Manufactured products primarily includes CLT and glulam.

(5)

Biofuels includes pellets and briquettes.

(6)

Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.

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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Consolidated – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Total revenues in 2025 decreased by approximately 9% to $1,868.1 million from $2,043.4 million in 2024. This decrease was primarily due to lower pulp and manufactured products sales volumes and realizations partially offset by higher lumber sales realizations.

Costs and expenses in 2025 modestly increased to $2,265.8 million from $2,028.4 million in 2024. This increase was primarily due to higher per unit fiber costs, negative foreign exchange impacts from a weaker dollar and higher planned maintenance costs for our pulp mills partially offset by lower pulp and pallet sales volumes and lower per unit energy costs.

In 2025, costs and expenses included an aggregate of non-cash impairments of $215.7 million recognized against long-lived assets at our Peace River mill and obsolete equipment. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets”.In 2025, costs and expenses also included inventory impairment charges of $54.4 million primarily recorded against pulp inventory as a result of low pricing and high fiber costs. In 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture and a non-cash goodwill impairment of $34.3 million related to the Torgau facility, which was recognized as a result of ongoing weakness in lumber, pallet and biofuels markets in Europe stemming from high interest rates and other economic conditions.

In 2025, cost of sales depreciation and amortization decreased by approximately 6% to $159.8 million from $170.5 million in 2024 as certain property, plant and equipment at our Rosenthal mill became fully depreciated in 2024.

Selling, general and administrative expenses were relatively steady at $114.4 million in 2025 compared to $116.4 million in 2024.

In 2025, we had a negative foreign exchange impact of approximately $53.8 million on our operating loss compared to 2024. This negative impact was primarily due to the effect of a weaker dollar on our euro denominated costs and expenses and on the revaluation of dollar denominated accounts receivable held at our foreign operations.

Our operating loss decreased to $397.7 million in 2025 from operating income of $15.0 million in 2024. This decrease was primarily due to the non-cash impairments on long-lived assets, lower pulp sales realizations, higher per unit fiber costs, the negative foreign exchange impacts from a weaker dollar, higher planned maintenance costs for our pulp mills and lower manufactured products sales realizations and volumes. In 2025, our operating loss also included inventory impairment charges of $54.4 million. These adverse impacts were partially offset by higher lumber sales realizations and lower per unit energy costs. In 2024, our operating loss included a non-cash goodwill impairment of $34.3 million related to the Torgau facility and a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.

Interest expense in 2025 increased by approximately 5% to $114.8 million from $109.2 million in 2024. This increase primarily resulted from the replacement of maturing senior notes in October 2024 with higher interest senior notes with extended maturities.

Other income was $1.4 million in 2025 compared to $7.2 million in 2024. Other income in 2025 primarily consisted of interest earned on cash mostly offset by foreign exchange losses on the revaluation of dollar denominated cash held at our operations due to the weakening of dollar. Other income in 2024 primarily consisted of interest earned on cash.

In 2025, we had an income tax recovery of $13.3 million, or an effective tax rate of approximately 3%, and in 2024, we had an income tax recovery of $1.8 million, or an effective tax rate of 2%. Our effective tax rates were different from the statutory rates of the jurisdictions in which we operate as we do not recognize tax recoveries for certain entities which we do not expect to realize a tax benefit. In 2024, the effective tax rate was also impacted by the non-deductibility of the non-cash goodwill impairment.

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In 2025, our net loss was $497.9 million, or $7.44 per share, compared to $85.1 million, or $1.27 per share in 2024. The net loss in 2025 included an aggregate of $215.7 million related to the non-cash impairments of long-lived assets. The net loss in 2024 included a total of $57.9 million related to the non-cash goodwill impairment and the non-cash loss recognized on disposal of our CPP joint venture investment.

In 2025, Operating EBITDA decreased to negative $22.0 million from positive $243.7 million in 2024. This decrease primarily resulted from lower pulp sales realizations, higher per unit fiber costs, the negative foreign exchange impacts from a weaker dollar, higher planned maintenance costs for our pulp mills, the inventory impairment and lower manufactured products sales realizations and volumes. These adverse impacts were partially offset by higher lumber sales realizations and lower per unit energy costs.

Pulp Segment – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Selected Financial Information

Year Ended December 31,

(in thousands)

(1)

Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

Pulp segment revenues, comprised of pulp, energy and chemical revenues, decreased by approximately 10% to $1,386.7 million in 2025 from $1,548.6 million in 2024 driven by lower revenues from all our products.

Pulp revenues decreased by approximately 11% to $1,304.8 million in 2025 from $1,460.5 million in 2024 as a result of lower sales realizations and volumes.

Energy and chemical revenues decreased by approximately 7% to $81.9 million in 2025 from $88.1 million in 2024 primarily as a result of lower chemical sales realizations.

Total pulp production was relatively flat at 1,834,736 ADMTs in 2025 compared to 1,843,071 ADMTs in 2024. In 2025, our pulp mills had 112days of downtime (approximately 159,400 ADMTs) which included 86 days of planned annual maintenance, 20 days of unplanned downtime at our Celgar mill due to mechanical failures and six additional days due to slower than expected start-up. In 2024, our pulp mills had 117 days of downtime (approximately 180,400 ADMTs) which included 57 days of planned annual maintenance, 53 days of unplanned downtime at our Peace River and Celgar mills due to mechanical failures and seven additional days due to slower than expected start-up.

We estimate that planned annual maintenance downtime in 2025 adversely impacted our Segment Operating EBITDA by approximately $120.8 million, comprised of approximately $85.5 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 capitalize their direct costs of maintenance downtime.

In 2026, we currently have planned maintenance downtime for our pulp mills of an aggregate of 44 days, or approximately 53,400 ADMTs, which is expected to be comprised of 24 days in the third quarter and 20 days in the fourth quarter.

Pulp sales volumes decreased by approximately 4% to 1,829,888 ADMTs in 2025 from 1,899,754 ADMTs in 2024 driven by weaker demand and the timing of sales.

In 2025, the third-party industry quoted average list price for NBSK pulp in Europe was relatively stable, while the North American list price increased compared to 2024. The increase in North America was primarily due to stable demand and supply constraints. In 2025, the third-party industry quoted average net price for NBSK pulp in China decreased compared to 2024 as a result of an oversupplied paper market and

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weaker demand driven by the current economic climate and global trade policy uncertainty. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,525 per ADMT and $1,710 per ADMT, respectively, in 2025 compared to approximately $1,519 per ADMT and $1,646 per ADMT, respectively, in 2024. The third-party industry quoted average NBSK net price in China was approximately $722 per ADMT in 2025 compared to approximately $774 per ADMT in 2024. Prices quoted for China are net of discounts, allowances and rebates whereas quoted prices for Europe and North America are before applicable discounts, allowances and rebates.

In 2025, the third-party industry quoted average list price for NBHK pulp in North America decreased compared to 2024 as a result of downward price pressure from other markets. The third-party industry quoted average net price for NBHK pulp in China decreased compared to 2024 due to weaker demand driven by the current economic climate and global trade policy uncertainty and the impact of additional hardwood capacity that came online in 2024. The third-party industry quoted average list price for NBHK pulp in North America was approximately $1,245 per ADMT in 2025 compared to approximately $1,356 per ADMT in 2024. The third-party industry quoted average net price for NBHK pulp in China was approximately $539 per ADMT in 2025 compared to approximately $645 per ADMT in 2024.

Our average NBSK pulp sales realizations in 2025 decreased by approximately 5% to $743 per ADMT from $784 per ADMT in 2024 as lower prices in China were partially offset by higher prices in North America. In 2025, average NBHK pulp sales realizations decreased by approximately 14% to $549 per ADMT from $637 per ADMT in 2024 driven by lower prices in North America and China.

In 2025, we had a negative foreign exchange impact of approximately $43.8 million on Segment Operating EBITDA compared to 2024. This negative impact was primarily due to the effect of a weaker dollar on our euro denominated costs and expenses and on the revaluation of dollar denominated accounts receivables held at our foreign operations.

Costs and expenses in 2025 increased by approximately 17% to $1,685.3 million from $1,436.1 million in 2024 driven by the negative foreign exchange impact from a weaker dollar, higher per unit fiber costs and higher planned maintenance downtime. This increase was partially offset by lower pulp sales volume and lower per unit energy costs. Costs and expenses in 2025 included a non-cash impairment of $203.5 million recognized against long-lived assets at our Peace River mill due to the protracted down-cycle in hardwood pulp pricing. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets”. Costs and expenses in 2025 also included an inventory impairment of $52.9 million recognized as a result of low pulp prices and high fiber costs. In 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.

In 2025, overall average per unit fiber costs increased by approximately 9% from 2024 primarily as a result of reduced supply in Germany and Canada. In 2026, per unit fiber costs are expected to increase due to continued supply constraints stemming from reduced sawmill activity in Canada and low harvesting levels in Germany.

Transportation costs for our pulp segment remained relatively flat at $142.4 million in 2025 compared to $145.7 million in 2024.

In 2025, Segment Operating EBITDA decreased to $15.6 million from $260.9 million in 2024. This decrease primarily resulted from lower pulp sales realizations, the negative foreign exchange impact from a weaker dollar, higher per unit fiber costs, higher planned maintenance downtime, the inventory impairment and lower chemical sales realizations partially offset by lower per unit energy costs.

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Solid Wood Segment – Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Selected Financial Information

Year Ended December 31,

(in thousands)

(1)

Manufactured products primarily includes CLT and glulam.

(2)

Biofuels includes pellets and briquettes.

(3)

Segment Operating EBITDA is a measure of segment profit or loss presented in our financial statements under GAAP. Refer to the segment information note in our consolidated financial statements for more information.

Solid wood segment revenues decreased by approximately 4% to $467.4 million in 2025 from $486.0 million in 2024 as higher lumber revenues were more than offset by lower revenues from manufactured products.

Lumber revenues in 2025 increased by approximately 14% to $247.6 million from $217.5 million in 2024 primarily due to higher sales realizations partially offset by lower sales volumes.

In 2025, manufactured products revenues decreased by approximately 43% to $57.5 million from $100.6 million in 2024 due to lower sales realizations and volumes as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.

Pallet revenues in 2025 decreased by approximately 4% to $100.1 million from$104.4 million in 2024 as a result of lower sales volumes, as weak economic conditions in Europe continue to negatively impact demand. This decrease was partially offset by modestly higher sales realizations.

Biofuels, energy and wood residuals revenues in 2025 were flat at $62.3 million compared to $63.6 million in 2024.

Lumber production and sales volumes remained steady in 2025 at 472.2 MMfbm and 464.8 MMfbm, respectively, compared to production and sales volumes of 475.6 MMfbm and 470.4 MMfbm, respectively, in 2024.

Average lumber sales realizations increased by approximately 15% to $533 per Mfbm in 2025 from $462 per Mfbm in 2024 as a result of lower supply and improved demand in both the U.S. and European markets. The U.S. market accounted for approximately 46% of our lumber revenues and approximately 41% of our lumber sales volumes in 2025. The majority of the balance of our lumber sales were to Europe.

Manufactured products sales realizations decreased to $1,834 per m3 in 2025 from $3,006 per m3 in 2024 as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.

Fiber costs were approximately 75% of our lumber cash production costs in 2025. In 2025, per unit fiber costs for lumber increased by approximately 26% compared to 2024 primarily due to reduced supply. In 2026, we currently expect per unit fiber costs to increase due to continued supply constraints.

Transportation costs remained relatively flat at $52.4 million in 2025 compared to $52.9 million in 2024.

In 2025, we recognized a non-cash impairment of $12.2 million against obsolete equipment in our solid wood segment. See “ - Results of Operations - Non-Cash Impairments of Long-Lived Assets”.

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In 2025, Segment Operating EBITDA was negative $25.2 million compared to negative $4.4 million in 2024. This primarily resulted from higher per unit fiber costs and lower manufactured products sales realizations and volumes partially offset by higher lumber sales realizations.

Sensitivities

The following sensitivity analysis provides only a limited point-in-time view of the pulp price, lumber price, fiber costs, foreign exchange rates and inflation discussed. 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. As a result, our earnings are sensitive to pulp price changes. Based upon our 2025 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 $12.6 million.

Lumber Price. Lumber markets are highly competitive and cyclical in nature. As a result, our earnings are sensitive to lumber price changes. Based upon our 2025 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 $4.6 million.

Fiber Costs. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber. 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 2025 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 $6.4 million. For our solid wood segment, based upon our 2025 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 $2.7 million.

Foreign Exchange. Our operating costs are primarily in euros for our German mills and Canadian dollars for our Canadian mills. As a result, our operating costs will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 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 $11.0 million. Based on our 2025 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 $8.6 million.

Our energy, chemical, pallet, biofuel, wood residual and European lumber sales are made in local currencies and, as a result, will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 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 $2.7 million. Based on our 2025 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 $0.1 million.

Our interest expense is primarily in euros for our German mills and Canadian dollars for our Canadian mills. As a result, our interest expense will fluctuate with changes in the value of the dollar relative to the euro and Canadian dollar. Based on our 2025 interest expense 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 interest expense of approximately $0.1 million. Based on our 2025 interest expense 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 interest expense of approximately $0.1 million.

Inflation. Our key production input costs are for fiber, chemicals and energy. Other material costs in our business include maintenance, freight and labor costs. As a result, our operating costs are sensitive to

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inflation. For our pulp segment, based upon our 2025 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 $11.8 million. For our solid wood segment, based upon our 2025 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 $4.5 million.

Seasonal Influences. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These factors are common in the pulp and lumber industries. We generally have weaker pulp demand in Europe during the summer holiday months and in China in the period relating to the Lunar New Year. We typically have a seasonal build-up in raw material inventories in the early winter months as the mills build up their fiber supply for the winter when there is reduced availability.

Liquidity and Capital Resources

Summary of Cash Flows

Year Ended December 31,

(in thousands)

Net cash from operating activities $ 8,587 $ 90,204

Net cash used in investing activities (81,326 ) (66,992 )

Net cash from (used in) financing activities 79,806 (152,783 )

Effect of exchange rate changes on cash and cash equivalents (5,187 ) 504

Net increase (decrease) in cash and cash equivalents $ 1,880 $ (129,067 )

We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for production costs, such as fiber, chemicals and energy costs, and other material operating costs for maintenance, freight and labor. Historically, we have met our liquidity needs principally from cash on hand, cash flow from operations, and, if needed, external borrowings, including borrowings under revolving credit facilities and issuances of debt securities.

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:

•

cash received from customers;

•

cash paid to employees and suppliers;

•

cash paid for interest on our debt; and

•

cash paid or received for taxes.

In 2025, operating activities provided cash of $8.6 million compared to $90.2 million in 2024. A decrease in accounts receivable provided cash of $52.6 million in 2025 and an increase in accounts receivable used cash of $32.1 million in 2024. Adjusting for inventory impairments of $54.4 million, a decrease in inventories provided cash of $0.5 million in 2025 and adjusting for inventory impairments of $9.0 million, a decrease in inventories provided cash of $23.9 million in 2024. An increase in accounts payable and accrued expenses provided cash of $7.2 million in 2025 and a decrease in accounts payable and accrued expenses used cash of $17.7 million in 2024.

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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.

In 2025, investing activities used cash of $81.3 million. In 2025, we incurred $88.6 million of capital expenditures primarily related to completion of the wood room project at our Celgar mill, log yard upgrades at our Torgau facility and Friesau mill, upgrades to the digester evaporator and a new turbine generator at our Rosenthal mill, lime kiln improvements at our Stendal mill, sorting line upgrades and other strategic projects at our mass timber facilities, and maintenance projects across our operating segments. In 2025, we received $3.4 million in government grants for capital projects at our Celgar mill and mass timber facilities and $6.4 million of proceeds from sale of non-core property, plant and equipment primarily related to the sale of land from our sandalwood business.

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.

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

•

payments of cash dividends and repurchases of stock.

In 2025, financing activities provided cash of $79.8 million. In 2025, we borrowed approximately $102.9 million under our revolving credit facilities and paid dividends of $10.0 million.

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.

Balance Sheet Data

The following table is a summary of selected financial information for the dates indicated:

As of December 31,

(in thousands)

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Sources and Uses of Funds

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand. Our principal uses of funds consist of operating expenditures, capital expenditures and interest payments on our Senior Notes.

The following table sets out our total capital expenditures and interest expense for the periods indicated:

Year Ended December 31,

(in thousands)

(1)

Amounts differ from interest expense which includes non-cash items. See supplemental disclosure of cash flow information from our Consolidated Statements of Cash Flows included in this report.

(2)

Interest on our 2028 Senior Notes is paid semi-annually in April and October of each year. Interest on our 2029 Senior Notes is paid semi-annually in February and August of each year. Prior to their redemption in October 2024, interest on our 2026 Senior Notes was paid semi-annually in January and July of each year.

As of December 31, 2025, we had cash and cash equivalents of $186.8million and approximately $243.6million available under our revolving credit facilities providing us with aggregate liquidity of approximately $430.4million.

As of December 31, 2025, we had no material commitments to acquire assets or operating businesses.

On July 31, 2025, we announced that our board of directors had suspended our quarterly dividend. In making this determination, the change was considered prudent from a capital allocation standpoint in light of ongoing market and global trade environment uncertainties. Our capital allocation priorities are currently primarily focused on reducing our debt profile and capital expenditures relating to maintenance. At the same time, we may consider strategic capital expenditures that are accretive.

In 2026, excluding amounts being financed through government grants, we currently expect capital expenditures to be approximately $60.0 million to $80.0 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. 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. However, it is currently not practical to estimate the income tax liability that might be incurred if such earnings were remitted to the United States. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the United States.

Based upon the current level of operations and our current expectations for future periods in light of the current economic environment, and in particular, current and expected pulp and lumber pricing and foreign exchange rates, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facilities and access to capital markets, will be adequate to finance the capital requirements for our business during the next 12 months.

In the future we may make commitments to additional capital projects or make acquisitions to achieve our long-term goals, including expanding our assets and earnings, which may require capital resources. Capital resources may also be required to repay or refinance our maturing debt over the longer term. Such capital resources may be substantial. The necessary capital resources are expected to be generated from cash flow from operations, cash on hand, borrowings against assets, asset dispositions, the issuance of securities or other financing arrangements. We continually monitor potential capital sources, including debt and equity financings, to, among other things, meet our targeted liquidity requirements and balance sheet goals. Our

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future success and ability to meet our business goals will be highly dependent on our ability to continue to access outside sources of capital.

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,

(in thousands)

Rosenthal €2.6 million loan $ — $ —

Canadian Revolving Facility $ 94,758 $ 347

Standby Letters of Credit Facility(1) $ — $ —

(1)

In October 2025, our Celgar mill and Peace River mill entered into a C$20.0 million revolving credit facility that matures in August 2027. This facility is available through letters of credit denominated in Canadian dollars and dollars and is guaranteed by Export Development Canada until August 2026.

For a description of such indebtedness, see Item 1. “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 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.

The Canadian Revolving Facility includes a covenant which requires the borrowers to comply, on a combined basis, with a 1.00:1.00 fixed charge coverage ratio as long as the excess amount under the facility is less than the greater of 10% of the line cap thereunder and C$14.0 million, in either case, for five consecutive days or less than the greater of 7.5% of the line cap and C$10.0 million, at any time.

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. However, if any of these financial institutions were to default on their commitment to fund, we could be adversely affected.

The indentures governing the Senior Notes do not contain any financial maintenance covenants and there are no scheduled principal payments until maturity. 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. 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.

As of December 31, 2025, we were in full compliance with all of the covenants of our indebtedness.

Foreign Currency

Our reporting currency is the dollar. 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. Equity accounts are translated using historical exchange rates. Unrealized gains or losses from these translations are recognized in our other comprehensive income (loss) and do not affect our net earnings.

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As a result of the weakening of the dollar versus the euro and Canadian dollar as of December 31, 2025, we recorded a non-cash increase of $133.4 million in the carrying value of our net assets denominated in euros and Canadian dollars, consisting primarily of our property, plant and equipment. This non-cash increase does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as an increase to our total equity. As a result, our accumulated other comprehensive loss decreased to $87.2 million.

Based upon the exchange rate as of December 31, 2025, the dollar was approximately 13% weaker against the euro and 5% weaker against the Canadian dollar since December 31, 2024. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”.

Credit Ratings of Senior Notes

The Company and its Senior Notes are rated by Standard & Poor’s Rating Services, referred to as “S&P”, Moody’s Investors Service, Inc., referred to as “Moody’s” and Fitch Ratings, referred to as “Fitch”.

S&P, Moody’s and Fitch 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, 2025, all of our subsidiaries were restricted subsidiaries. Factors that may affect our credit rating include changes in our operating performance and liquidity. Credit rating downgrades can adversely impact, among other things, future borrowing costs and access to capital markets.

In November 2025, Moody’s downgraded its rating on our Senior Notes to Caa2 from B3 and changed its outlook to stable from negative. In October 2025, S&P downgraded its rating on our Senior Notes from B to B- and revised its outlook to stable from negative. In January 2026, Fitch downgraded its rating on our Senior Notes from B+ to B- and maintained its outlook as negative.

Credit ratings are not recommendations to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Critical Accounting 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. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex.

Our significant accounting policies are disclosed in Note 1 to our audited annual consolidated financial statements included in Part IV of this Annual Report on Form 10-K. 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. 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 long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), 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.

The following accounting policies require management’s most difficult, subjective and complex judgments, and are subject to a fair degree of measurement uncertainty.

Long-Lived Assets

As of December 31, 2025, we had long-lived assets recorded in our Consolidated Balance Sheet of $1,141.6

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million. These long-lived assets include property, plant and equipment, net and amortizable intangible assets, net. In 2025, we recorded depreciation and amortization of $160.0 million and impairment charges of $215.7 million against long-lived assets at our Peace River mill and obsolete equipment. Depreciation, 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. 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.

If our estimate of the remaining useful life changes, such a change is accounted for prospectively in our determination of depreciation and amortization. Actual depreciation and amortization charges for an individual asset may therefore be significantly accelerated if the outlook for its remaining useful life is shortened considerably.

The unit of accounting for impairment testing for long-lived assets is its “Asset Group”, which includes property, plant and equipment and amortizable intangible assets, and liabilities directly related to those assets. 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. 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.

Impairment testing for long-lived assets requires us to apply judgment in estimating the future cash flows of the Asset Group. The significant estimates in the future cash flows include periods of operation, future production and sales volumes, selling prices, fiber costs, and long-term growth and discount rates. When performing impairment tests, we estimate the fair values of the assets using management’s best assumptions, which we believe are consistent with the assumptions that a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated each period an impairment indicator is triggered.

In 2025, the fair value measurement of the Peace River mill's Asset Group was sensitive to the key assumptions noted above. Changes in these assumptions would impact the fair value as follows:

Key assumptions Change Estimated impact on fair value

(In thousands)

Estimated future cash flows 5% increase $ 11,000

Discount rate 100 basis point increase $ (9,000 )

Terminal growth rate 100 basis point increase $ 7,000

Actual asset impairment losses could vary considerably from estimated impairment losses if actual results are not consistent with the assumptions and judgments used in estimating future cash flows.

Pension and Other Post-Retirement Benefit Obligations

We maintain defined benefit pension plans and an other post-retirement benefit plan for certain employees of our Peace River mill and our Celgar mill which are funded based on actuarial estimates and requirements and are non-contributory. 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, 2025, we had pension and other post-retirement benefit obligations aggregating $93.0 million and accumulated pension plan assets with a fair value of $94.8 million. Our 2025 net periodic pension and other post-retirement benefit cost was $0.7 million. The amounts recorded for the net pension and other post-retirement obligations include various judgments and uncertainties.

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Judgment is required for the following inputs which are used to determine our net obligations and our net periodic benefit costs each year:

•

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.

For the discount rate, we use the rates available on high-quality corporate bonds with a duration that is expected to match the timing of expected pension and other post-retirement benefit obligations. High-quality corporate bonds are those with a rating of “AA” or better.

In determining the expected return on assets, we consider the historical long-term returns, expected asset mix and the active management premium.

For the mortality rate we use actuarially-determined mortality tables that are consistent with our historical mortality experience and future expectations for mortality of the employees who participate in our pension and other post-retirement benefit plans.

In determining the rate of compensation increase, we review historical compensation increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with employees and the outlook for the industry.

For the health care cost trend rate, we consider historical trends for these costs, as well as recently enacted health care legislation. 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. For example, a one-percentage point change in any one of the following assumptions would have increased (decreased) our 2025 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

Return on assets $ (919 ) $ 920 $ — $ —

Health care cost trend rate $ 101 $ (95 ) $ 426 $ (457 )

Deferred Income Taxes

As of December 31, 2025, we had a deferred income tax liability of $58.3 million and a deferred income tax asset of $7.8 million, resulting in a net deferred income tax liability of $50.5 million. Our deferred income tax assets are net of a $198.8 million valuation allowance. Our deferred income tax assets are comprised primarily of income tax loss and interest carryforwards and deductible temporary differences, all of which will reduce taxable income in the future. We assess the realization of these deferred income tax assets at each

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reporting period to determine whether it is more likely than not that the deferred income tax assets will be realized. Our assessment includes a review of all available positive and negative evidence, including, but not limited to, the following:

•

the history of the income tax loss carryforwards and their expiry dates;

•

future reversals of temporary differences;

•

our historical and projected earnings; and

•

tax planning opportunities.

Significant judgment is required when evaluating the positive and negative evidence, specifically our estimates of future earnings. The weight given to negative and positive evidence is commensurate with the extent to which it can be objectively verified. Operating results during the most recent three-year period are generally given more weight than expectations of future profitability, which are inherently uncertain. A cumulative loss position during the most recent three-year period is considered significant negative evidence in assessing the realizability of deferred income tax assets that is difficult to overcome.

Once our evaluation of the evidence is complete, if we believe that it is more likely than not that some of the deferred income tax assets will not be realized, based on currently available information, a valuation allowance is recorded against the deferred income tax assets.

If market conditions improve or tax planning opportunities arise in the future, we may reduce our valuation allowance, resulting in future income tax benefits. If market conditions deteriorate in the future, we may increase our valuation allowance, resulting in future income tax expenses. Any change in tax laws may change the valuation allowances in future periods.

Revenues Under Long-Term Contracts

We have revenues from long-term contracts which are recognized over the contract term as the work progresses towards completion. The timing of revenue recognition involves a judgmental process of estimating costs and profit for the performance obligation. Cost of sales is recognized as incurred. The amount we report as revenues is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales. We recognize revenue as costs are incurred as this provides an objective measure of progress and thereby best depicts the extent of transfer of control to the customer. Estimating cost to complete requires us to apply judgment and is largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Factors that influence these estimates may include inflationary trends, internal and supplier performance, asset utilization, amongst others. Actual costs to complete could vary considerably from the estimated costs to complete and have a significant impact on the revenue we recognize.

Revenue and cost estimates for all significant long-term contract performance obligations are reviewed quarterly. Changes in estimated revenues, cost of sales and the related effect on our earnings 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.

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. Estimating net realizable value requires us to apply judgment and is based on current and expected selling prices in the ordinary course of business, less reasonably predictable costs of completion.

Contingent Liabilities

We are subject to lawsuits, investigations and other claims related to environmental, product and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. We disclose contingent liabilities when there is a reasonable

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possibility that an ultimate loss may occur and we record contingent liabilities when it becomes probable that we will have to make payments and the amount of loss can be reasonably estimated.

Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including, but not limited to, the following:

•

historical experience;

•

judgments about the potential actions of third-party claimants and courts; and

•

recommendations of legal counsel.

Contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges. These exposures and proceedings can be significant and the ultimate negative outcomes could be material to our operating results or liquidity in any given quarter or year.

New Accounting Standards

See Note 1 to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to risks associated with fluctuations in:

•

foreign currency exchange rates;

•

prices for the products we manufacture;

•

fiber costs;

•

inflation;

•

interest rates; and

•

credit risk.

For a discussion of our earnings sensitivities to pulp and lumber prices, fiber costs, foreign exchange rates and inflation, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sensitivities” on page 64 hereof.

Foreign Currency Exchange Risk

We compete with producers from around the world, particularly Europe and North America, in our product lines. We sell pulp, U.S. lumber and mass timber products 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. 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.

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.

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. An appreciation of these currencies against the dollar

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will increase the fair value of such financial instrument assets and a depreciation of these currencies against the dollar will decrease the fair value of financial instrument liabilities, thereby increasing our fair value. As a result, our earnings can be subject to the potentially significant effect of foreign currency translation gains or losses in respect of these euro and Canadian dollar denominated financial instruments.

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, 2025 and the expected cash flows from these instruments:

Expected maturity date

(in thousands)

Financial Instruments

in euros

in Canadian dollars

Product Price Risk

Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volumes 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 generally 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 Price Risk

Fiber in the form of wood chips, pulp logs, sawlogs and lumber represents our largest operating cost. Fiber is a market-priced commodity and, as such, is subject to fluctuations in prices based on supply and demand. Increases in the price of fiber will tend to increase our operating costs and reduce our operating margins.

Inflation Risk

Our key production input costs are for fiber, chemicals and energy. Other material costs in our business include maintenance, freight and labor costs. As a result, our operating costs are sensitive to inflation. Increases in inflation will tend to increase our operating costs and reduce our operating margins.

Interest Rate Risk

Fluctuations in interest rates may affect the fair value of fixed interest rate financial instruments which are sensitive to such fluctuations. A decrease in interest rates may increase the fair value of such fixed interest rate financial instrument assets and an increase in interest rates may decrease the fair value of such fixed interest rate financial instrument liabilities, thereby increasing 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.

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The following table provides information about our exposure to interest rate fluctuations for the financial instruments sensitive to such fluctuations as of December 31, 2025 and expected cash flows from these instruments:

Expected maturity date

(in thousands other than percentages)

Liabilities

Fixed rate long-term debt:

Variable rate long-term debt:

(1)

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. 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.

(2)

The Canadian Revolving Facility bearing interest by way of: (i) Canadian dollar denominated advances, which bear interest at a designated prime rate per annum; (ii) Canadian dollar denominated advances, which bear interest at the applicable Adjusted CORRA 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 dollar denominated loans; and (iv) dollar denominated 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. We limit our 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. Our credit risk associated with our 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. We review new customers’ credit history before granting credit and conduct regular reviews of existing customers’ credit. Concentrations of credit risk are with customers and agents based primarily in Germany, China and the U.S.

Risk Management and Derivatives

We seek to manage these risks through internal risk management policies as well as, from time to time, through the periodic use of derivatives. We may also from time to time use derivatives to reduce or limit our exposure to interest rate and currency risks. We may also use derivatives to reduce or limit our exposure to fluctuations in pulp, lumber and energy prices. We may use derivatives to reduce our potential losses or to augment our potential gains, depending on our perception of future economic events and developments. These types of derivatives are generally highly speculative in nature. They are also very volatile as they are highly leveraged given that margin requirements are relatively low in proportion to notional amounts.

The principal derivatives we have periodically previously used are interest rate derivatives, pulp price derivatives, energy derivatives and foreign exchange derivatives.

Many of our strategies, including the use of derivatives, and the types of derivatives selected by us, are based on historical trading patterns and correlations and our expectations of future events. 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 are not effective, we may incur significant losses.

As of December 31, 2025 and December 31, 2024, we had no outstanding derivatives measured at fair value.

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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. We have also converted some of our costs to dollars by issuing long-term dollar-denominated debt in the form of our Senior Notes. We may also from time to time use pulp or lumber derivatives to fix price realizations and interest rate derivatives to fix the rate of interest on indebtedness.

We record unrealized gains and losses on our outstanding derivatives when they are marked-to-market at the end of each reporting period and realized gains or losses on them when they are settled. We determine market valuations based primarily upon observable market data or valuations provided by our counterparties.

We are exposed to modest credit related risks in the event of non-performance by counterparties to derivative contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required with respect to this Item 8, and as listed in Item 15 of this Annual Report on Form 10-K, are included in this Annual Report on Form 10-K commencing on page 81.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Mercer’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Mercer;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and

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expenditures are being made only in accordance with authorizations of management and directors; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Mercer’s internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework, as issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2025.

The effectiveness of our internal control over financial reporting as of December 31, 2025 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report which appears in this Annual Report on Form 10-K.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

During the quarter ended December 31, 2025, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, as defined in Item 408 of Regulation S-K.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our directors and remaining information required by this Item 10 is incorporated herein by reference to the sections entitled “Proposal 1 - Election of Directors”, “Share Ownership of Certain Beneficial Owners” and “Corporate Governance and Board Matters” in our proxy statement relating to our annual meeting to be held in 2026.

The information on beneficial ownership reporting compliance will be contained under the section entitled “Corporate Governance and Board Matters – Delinquent Section 16(a) Insider Reports” in our proxy statement relating to our annual meeting to be held in 2026, and such disclosure, if any, is incorporated herein by reference.

Executive Officers

Juan Carlos Bueno, age 57, has served as Chief Executive Officer and President and as a director since May 2022. His previous roles included from 2018 to March 2022 serving as the Chairman of the Board and co-founder of Global Energy which produces novel green energy generation devices. Prior to that, from 2011 to 2017, Mr. Bueno was Executive Vice President and Divisional CEO, Biomaterials, for Stora Enso Oyj, a manufacturer of pulp, paper and other forest products. At Stora Enso he designed and led their new biomaterials division, growing sales and profitability. The business included six manufacturing sites and a team of approximately 2,000 employees. Mr. Bueno created a vision and strategy to expand into new sectors such as lignin and hemicellulose. He also has broad experience in investor relations, board interaction and other key CEO functions. Prior to that, Mr. Bueno served in executive positions including Vice President, Crop Protection, President Agar Cross, Commercial Manager, Global Financial Analyst and Business Consultant with EI DuPont de Nemours & Company in Brazil, UK, Argentina, Colombia and USA. EI Dupont de Nemours & Company merged with the Dow Chemical Company to create DowDuPont. Mr. Bueno holds, among other things, a BSc., Industrial Engineering degree and a graduate degree in Negotiation & International Relations. Mr. Bueno has extensive global industrial and product experience and a proven track record of achieving commercial and operational excellence over a 30-year career.

Richard Short, age 58, has served as Chief Financial Officer and Secretary since June 2023 and was previously the Vice President, Controller since February 2014 and as Controller from November 2010 to February 2014, prior to which he served as Director, Corporate Finance since joining Mercer in 2007. Previous roles include Controller, Financial Reporting from 2006 to 2007 and Director, Corporate Finance from 2004 to 2006 with Catalyst Paper Corporation and Assistant Controller at The Alderwoods Group Inc. Mr. Short holds a Bachelor of Arts in Psychology from the University of British Columbia and has been a member of the Chartered Professional Accountants of Canada since 1993.

Adolf Koppensteiner, age 64, has been Chief Operating Officer, Pulp Products since August 2022, and previously served as Chief Operating Officer since January 1, 2018 and has served as Managing Director, Operations and Technical of the Stendal mill since October 2013. Previously, he served as Mill Manager at the Rosenthal mill since joining Mercer in 2007. In the past, Mr. Koppensteiner was Managing Director of Kvaerner Central Europe, where he was responsible for sales and service for fifteen years. His whole career has been in the pulp and paper industry, where he has held a variety of positions building up significant experience in engineering, project work, and pulp mill start-ups, as well as the development and optimization of operating processes.

Wolfram Ridder, age 64, has served as Senior Vice President of Innovation & Government Relations since February 2023, and previously served as Vice President of Business Development from 2005. Prior to this, he served as Managing Director at Mercer’s Stendal mill from 2001 to 2005. Mr. Ridder also served as Vice President Pulp Operations, Assistant to Chief Executive Officer from 1999 to 2005 and Assistant Managing Director at the Rosenthal mill from 1995 to 1998. Prior to joining Mercer, Mr. Ridder worked as a Scientist for pulping technology development at the German Federal Research Center for Wood Science and Technology in Hamburg from 1988 to 1995. Mr. Ridder has a Master of Business Administration and a Master of Wood Science and Forest Product Technology from Hamburg University.

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Cindy Alekson, age 52, has served as Vice President, Controller since April 2023. Before this, she held the position of Director, External Reporting since joining Mercer in November 2011. Her previous roles include management positions responsible for financial reporting for public companies across several industries, including mining, high-tech and consumer products. Ms. Alekson holds a Bachelor of Science degree from the University of British Columbia and is a member of the Chartered Professional Accountants of British Columbia.

Genevieve Stannus, age 55, has served as Vice President, Treasurer since February 2021 and as Treasurer from July 2005 to February 2021, prior to which she served as Senior Financial Analyst since joining Mercer in August 2003. Prior to her role at Mercer, Ms. Stannus held Senior Treasury Analyst positions with Catalyst Paper Corporation and Pacifica Papers Inc. Ms. Stannus has over twenty years of experience in the forest products industry. She is a member of the Chartered Professional Accountants of Canada.

Dr. Carsten Merforth, age 59, has served as Chief Operating Officer, Wood Products since August 2022, prior to which he was the Managing Director of the Friesau sawmill since April 2017. Dr. Merforth was previously the managing director of several high-capacity sawmills for Rettenmeier Holding AG from 2000 to 2010 and from 2013 to 2014 and Pfeifer Holz GmbH from 2010 to 2012. Dr. Merforth serves as a board member of the German Sawmill Association DeSH, the President of the Main Association of the German Wood Industry HDH and a board member of the European Sawmilling Association EOS. He is also the spokesperson for the Raw Wood Working Group. He holds a Master of Forestry from Georg August University and a Doctorate of Forestry Economics from Albert Ludwigs University.

Wolfgang Beck, age 52, has served as Senior Vice President, Global Product Sourcing since September 1, 2022. Mr. Beck has served in different leading functions in Mercer’s German wood business since 2005, and most recently, he was Managing Director of Mercer Holz since 2016. In the past, Mr. Beck worked for a German state forest organization and in the German financial sector at the beginning of his career. He has been Managing Director of wood2M since 2016, a Joint Venture Company of Mercer and another Pulp and Paper Manufacturer. Mr. Beck is a committee chairman or member of various wood industry associations.

Guy Arguin, age 61, has served as Chief Human Resources Officer since January 2022, prior to which he was Senior Vice President, Human Resources for the Global Resources sector of SNC-Lavalin and Senior Vice President Human Resources and Human Resources Director roles with British American Tobacco across the Middle East, Northern Europe, France and Canada. Mr. Arguin started his professional career with Domtar in Montreal. Mr. Arguin has diverse Human Resources experiences across several sectors, such as Engineering and Consulting Services, Oil & Gas, Mining, Consumer Products and Pulp and Paper. Mr. Arguin holds a Master’s Degree in Industrial Relations and Human Resources from the Université du Québec en Outaouais and a Bachelor of Arts in Industrial Relations from McGill University. He is also a Certified Human Resources Professional and a certified Executive Coach from the Academy of Executive Coaching in the U.K.

We also have experienced mill managers at all of our mills who have operated through multiple business cycles in the pulp industry.

Code of Business Conduct and Ethics and Anti-Corruption Policy

The Board has adopted a Code of Business Conduct and Ethics that applies to our directors, employees and executive officers and an Anti-Corruption Policy. The code and the policy are available on our website at www.mercerint.com/our-company/governance/. Copies of the code and the policy may also be obtained without charge upon request to Investor Relations, Mercer International Inc., Suite 1120, 700 West Pender Street, Vancouver, British Columbia, Canada V6C 1G8 (Telephone: (604) 684-1099).

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference from the proxy statement relating to our annual meeting to be held in 2026.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is incorporated by reference from the proxy statement relating to our annual meeting to be held in 2026.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference to the section entitled “Corporate Governance and Board Matters – Review and Approval of Related Party Transactions” of our proxy statement relating to our annual meeting to be held in 2026.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is incorporated by reference from the section entitled “Independent Registered Public Accounting Firm – Fees of Independent Registered Public Accounting Firm” of our proxy statement relating to our annual meeting to be held in 2026.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

Page

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 271) 83

Consolidated Statements of Operations 86

Consolidated Statements of Comprehensive Loss 86

Consolidated Balance Sheets 87

Consolidated Statements of Changes in Shareholders’ Equity 88

Consolidated Statements of Cash Flows 89

Notes to the Consolidated Financial Statements 90

(a)(2) Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits

Exhibits that are not filed herewith have been previously filed with the SEC and are incorporated herein by reference.

Exhibit No. Description of Exhibit

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21.1* List of Subsidiaries of Registrant.

23.1* Consent of PricewaterhouseCoopers LLP.

31.1* Section 302 Certificate of Chief Executive Officer.

31.2* Section 302 Certificate of Chief Financial Officer.

32.1* Section 906 Certificate of Chief Executive Officer.

32.2* Section 906 Certificate of Chief Financial Officer.

* Filed herewith.

† Denotes management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY

None.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Mercer International Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mercer International Inc. and its subsidiaries (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive loss, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control ‒ Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control ‒ Integrated Framework(2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment assessment of long-lived assets for the Peace River mill asset group

As described in Notes 1 and 7 to the consolidated financial statements, the Company’s Peace River mill asset group as of December 31, 2025 amounted to $125 million, after recording an impairment charge of $203 million. The unit of account for impairment testing for long-lived assets is its asset group, which includes the carrying value of property, plant and equipment and amortizable intangible assets and liabilities directly related to those assets. Management evaluates an asset group for impairment whenever events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. When an indicator that the carrying value of an asset group may not be recoverable is triggered, management compares the carrying value of the asset group to its forecasted undiscounted future cash flows. If the carrying value of an asset group is greater than its forecasted undiscounted future cash flows, an

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impairment charge is recorded based on the excess of the asset group’s carrying value over its fair value. A revised forecast reflecting a sustained weakness in hardwood prices was identified as an impairment indicator for the Peace River mill asset group, and management performed a recoverability test on the Peace River mill asset group as of December 31, 2025. As the Peace River mill asset group’s carrying value was not recoverable through its forecasted undiscounted future cash flows, management estimated the Peace River mill asset group’s fair value through a discounted cash flow model, which required management to apply judgment and develop significant unobservable inputs related to periods of operation, future production and sales volumes, selling prices, fiber costs, and long-term growth and discount rates.

The principal considerations for our determination that performing procedures relating to the impairment assessment of the Peace River mill asset group is a critical audit matter are (i) the significant judgment by management when developing the fair value of the Peace River mill asset group; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant unobservable inputs used in the determination of the fair value of the Peace River mill asset group, related to periods of operation, future production and sales volumes, selling prices, fiber costs, and long-term growth and discount rates, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment assessment, including controls relating to the significant unobservable inputs used in the impairment assessment of the Peace River mill asset group. These procedures also included, among others, (i) testing management’s process for developing the fair value of the Peace River mill asset group; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of significant unobservable inputs used by management related to periods of operation, future production and sales volumes, selling prices, fiber costs, and long-term growth and discount rates. Evaluating whether management’s significant unobservable inputs related to periods of operation, future production and sales volumes, selling prices, and fiber costs were reasonable involved considering: (i) the current and past performance of the Peace River mill asset group, (ii) the consistency with external market and industry data, and (iii) the consistency with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model, (ii) the reasonableness of the long-term growth rate, and (iii) the discount rate.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants

Vancouver, CanadaFebruary 12, 2026

We have served as the Company’s auditor since 2007.

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share data)

For the Year Ended December 31,

Costs and expenses

Impairments of long-lived assets 215,682 — —

Impairment of sandalwood business — — 33,734

Loss on disposal of investment in joint venture — 23,645 —

Goodwill impairment — 34,277 —

Other income (expenses)

Net loss per common share

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S. dollars)

For the Year Ended December 31,

Other comprehensive income (loss)

Gain related to defined benefit pension plans 7,616 5,128 4,063

Income tax recovery (provision) 2,642 (653 ) (252 )

Gain related to defined benefit pension plans, net of tax 10,258 4,475 3,811

See accompanying Notes to the Consolidated Financial Statements.

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MERCER INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share and per share data)

December 31,

ASSETS

Current assets

Assets classified as held for sale — 18,451

Operating lease right-of-use assets 6,818 7,598

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Pension and other post-retirement benefit obligations 745 732

Liabilities associated with assets held for sale — 7,145

Pension and other post-retirement benefit obligations 10,392 11,134

Shareholders’ equity

Accumulated other comprehensive loss (87,152 ) (230,769 )

Commitments and contingencies (Note 21)

See accompanying Notes to the Consolidated Financial Statements.

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands of U.S. dollars)

Common shares

Shares issued on grants of restricted shares 54 35 (35 ) — — —

Shares issued on grants of performance share units 254 254 (254 ) — — —

Shares issued on grants of restricted share units 50 50 (50 ) — — —

Stock compensation expense — — 5,341 — — 5,341

Shares issued on grants of restricted shares 21 54 (54 ) — — —

Shares issued on grants of performance share units 325 325 (325 ) — — —

Stock compensation expense — — 3,664 — — 3,664

Disposal of investment in joint venture — — — — (4,181 ) (4,181 )

Other comprehensive loss — — — — (99,917 ) (99,917 )

Shares issued on grants of restricted shares 112 21 (21 ) — — —

Stock compensation expense — — 2,596 — — 2,596

See accompanying Notes to the Consolidated Financial Statements.

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

For the Year Ended December 31,

Cash flows from (used in) operating activities

Adjustments to reconcile net loss to cash flows from operating activities

Impairments of long-lived assets 215,682 — —

Impairment of sandalwood business — — 33,734

Loss on disposal of investment in joint venture — 23,645 —

Goodwill impairment — 34,277 —

Changes in working capital

Cash flows from (used in) investing activities

Proceeds from sale of property, plant and equipment 6,383 19,874 3,408

Acquisition, net of cash acquired — — (82,100 )

Cash flows from (used in) financing activities

Redemption of senior notes — (300,000 ) —

Payment of debt issuance costs — (4,515 ) (4,865 )

Effect of exchange rate changes on cash and cash equivalents (5,187 ) 504 208

Net increase (decrease) in cash and cash equivalents 1,880 (129,067 ) (40,040 )

Supplemental cash flow disclosure:

Supplemental schedule of non-cash investing and financing activities:

See accompanying Notes to the Consolidated Financial Statements.

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MERCER INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share data)

Note1. 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 and two in Germany, one sawmill and one timber processing and value-add pallet production facility in Germany. The Company also owns three mass timber production facilities, two located in the U.S. and one in 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. In 2024, the Company disposed of its 50% joint venture interest in Cariboo Pulp & Paper Company (“CPP”) with West Fraser Mills Ltd. (“West Fraser”) which prior to the disposal was accounted for using the equity method.

Use of Estimates