Company Quick10K Filing
Mercer
Price12.46 EPS1
Shares66 P/E13
MCap822 P/FCF4
Net Debt735 EBIT161
TEV1,557 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-13
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-14
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-16
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-28
10-K 2016-12-31 Filed 2017-02-10
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-12
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-13
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-02
10-K 2013-12-31 Filed 2014-02-21
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-02
10-Q 2013-03-31 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-02-15
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-02-21
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-02-17
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-05
10-Q 2010-03-31 Filed 2010-05-04
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-06-22
8-K 2020-05-29
8-K 2020-05-15
8-K 2020-03-31
8-K 2020-02-13
8-K 2019-10-31
8-K 2019-10-03
8-K 2019-09-19
8-K 2019-09-19
8-K 2019-08-01
8-K 2019-05-31
8-K 2019-05-02
8-K 2019-04-16
8-K 2019-02-14
8-K 2018-12-19
8-K 2018-12-10
8-K 2018-12-07
8-K 2018-11-29
8-K 2018-11-28
8-K 2018-10-25
8-K 2018-10-03
8-K 2018-07-26
8-K 2018-06-01
8-K 2018-05-25
8-K 2018-05-03
8-K 2018-02-15
8-K 2018-01-01

MERC 10Q Quarterly Report

Part I. Financial Information
Item 1.Financial Statements
Note 1. The Company and Summary of Significant Accounting Policies
Note 2. Inventories
Note 3. Accounts Payable and Other
Note 4. Debt
Note 5. Pension and Other Post - Retirement Benefit Obligations
Note 6. Income Taxes
Note 7. Shareholders' Equity
Note 8. Net Income (Loss) per Common Share
Note 9. Accumulated Other Comprehensive Loss
Note 10. Related Party Transactions
Note 11. Business Segment Information
Note 12. Financial Instruments and Fair Value Measurement
Note 13. Commitments and Contingencies
Note 14. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 merc-ex311_7.htm
EX-31.2 merc-ex312_9.htm
EX-32.1 merc-ex321_6.htm
EX-32.2 merc-ex322_8.htm

Mercer Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.71.30.80.40.02012201420172020
Assets, Equity
0.50.40.30.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42012201420172020
Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

Commission File No.: 000-51826

MERCER INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

Washington

 

47-0956945

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

Suite 1120, 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8

(Address of office)

(604) 684-1099

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $1.00 per share

 

MERC

 

NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES       NO

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES      NO

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES     NO  

The Registrant had 65,799,946 shares of common stock outstanding as at April 29, 2020.

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

FORM 10-Q

QUARTERLY REPORT - PAGE 2


 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

$

350,599

 

 

$

483,950

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

276,056

 

 

 

343,033

 

Cost of sales depreciation and amortization

 

 

32,911

 

 

 

30,136

 

Selling, general and administrative expenses

 

 

17,570

 

 

 

17,229

 

Operating income

 

 

24,062

 

 

 

93,552

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(20,084

)

 

 

(18,551

)

Other income (expenses)

 

 

(2,026

)

 

 

1,039

 

Total other expenses, net

 

 

(22,110

)

 

 

(17,512

)

Income before provision for income taxes

 

 

1,952

 

 

 

76,040

 

Provision for income taxes

 

 

(5,344

)

 

 

(24,424

)

Net income (loss)

 

$

(3,392

)

 

$

51,616

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

Basic

 

$

(0.05

)

 

$

0.79

 

Diluted

 

$

(0.05

)

 

$

0.78

 

Dividends declared per common share

 

$

0.1375

 

 

$

0.1250

 

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(3,392

)

 

$

51,616

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(74,994

)

 

 

(3,872

)

Change in unrecognized losses and prior service costs related to defined benefit pension plans, net of tax of $nil (2019 - $6)

 

 

6

 

 

 

60

 

Other comprehensive loss, net of taxes

 

 

(74,988

)

 

 

(3,812

)

Total comprehensive income (loss)

 

$

(78,380

)

 

$

47,804

 

 

 

 

 

See accompanying Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 3


 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

286,526

 

 

$

351,085

 

Accounts receivable, net

 

 

221,921

 

 

 

208,740

 

Inventories

 

 

269,812

 

 

 

272,599

 

Prepaid expenses and other

 

 

10,294

 

 

 

12,273

 

Total current assets

 

 

788,553

 

 

 

844,697

 

Property, plant and equipment, net

 

 

1,020,345

 

 

 

1,074,242

 

Investment in joint ventures

 

 

48,188

 

 

 

53,122

 

Amortizable intangible assets, net

 

 

48,957

 

 

 

53,371

 

Operating lease right-of-use assets

 

 

11,866

 

 

 

13,004

 

Other long-term assets

 

 

32,848

 

 

 

26,038

 

Deferred income tax

 

 

1,232

 

 

 

1,246

 

Total assets

 

$

1,951,989

 

 

$

2,065,720

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and other

 

$

184,447

 

 

$

255,544

 

Pension and other post-retirement benefit obligations

 

 

696

 

 

 

768

 

Total current liabilities

 

 

185,143

 

 

 

256,312

 

Debt

 

 

1,136,454

 

 

 

1,087,932

 

Pension and other post-retirement benefit obligations

 

 

23,157

 

 

 

25,489

 

Finance lease liabilities

 

 

37,537

 

 

 

31,103

 

Operating lease liabilities

 

 

9,436

 

 

 

10,520

 

Other long-term liabilities

 

 

13,323

 

 

 

14,114

 

Deferred income tax

 

 

84,171

 

 

 

89,847

 

Total liabilities

 

 

1,489,221

 

 

 

1,515,317

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $1 par value; 200,000,000 authorized; 65,800,000 issued and outstanding (2019 – 65,629,000)

 

 

65,769

 

 

 

65,598

 

Additional paid-in capital

 

 

344,753

 

 

 

344,994

 

Retained earnings

 

 

243,794

 

 

 

256,371

 

Accumulated other comprehensive loss

 

 

(191,548

)

 

 

(116,560

)

Total shareholders’ equity

 

 

462,768

 

 

 

550,403

 

Total liabilities and shareholders’ equity

 

$

1,951,989

 

 

$

2,065,720

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Subsequent events (Note 7,14)

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 4


 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Common shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

(thousands

of shares)

 

 

Amount, at

Par

Value

 

 

Additional

Paid -in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Shareholders'

Equity

 

Three Months Ended March 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

65,629

 

 

$

65,598

 

 

$

344,994

 

 

$

256,371

 

 

$

(116,560

)

 

$

550,403

 

Shares issued on grants of performance share units

 

 

195

 

 

 

195

 

 

 

(195

)

 

 

 

 

 

 

 

 

 

Stock compensation recovery

 

 

 

 

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

(46

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,392

)

 

 

 

 

 

(3,392

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(9,047

)

 

 

 

 

 

(9,047

)

Repurchase of common shares

 

 

(24

)

 

 

(24

)

 

 

 

 

 

(138

)

 

 

 

 

 

(162

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74,988

)

 

 

(74,988

)

Balance as of March 31, 2020

 

 

65,800

 

 

$

65,769

 

 

$

344,753

 

 

$

243,794

 

 

$

(191,548

)

 

$

462,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

 

65,202

 

 

$

65,171

 

 

$

342,438

 

 

$

301,990

 

 

$

(128,170

)

 

$

581,429

 

Shares issued on grants of performance share units

 

 

449

 

 

 

449

 

 

 

(449

)

 

 

 

 

 

 

 

 

 

Stock compensation recovery

 

 

 

 

 

 

 

 

(345

)

 

 

 

 

 

 

 

 

(345

)

Net income

 

 

 

 

 

 

 

 

 

 

 

51,616

 

 

 

 

 

 

51,616

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(8,206

)

 

 

 

 

 

(8,206

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,812

)

 

 

(3,812

)

Balance as of March 31, 2019

 

 

65,651

 

 

$

65,620

 

 

$

341,644

 

 

$

345,400

 

 

$

(131,982

)

 

$

620,682

 

 

 

 

See accompanying Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 5


 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from (used in) operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,392

)

 

$

51,616

 

Adjustments to reconcile net income (loss) to cash flows from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

32,946

 

 

 

30,247

 

Deferred income tax provision (benefit)

 

 

(1,331

)

 

 

3,639

 

Inventory impairment

 

 

5,734

 

 

 

 

Defined benefit pension plans and other post-retirement benefit plan expense

 

 

762

 

 

 

856

 

Stock compensation recovery

 

 

(46

)

 

 

(345

)

Foreign exchange transaction gains

 

 

(6,144

)

 

 

(263

)

Other

 

 

(497

)

 

 

704

 

Defined benefit pension plans and other post-retirement benefit plan contributions

 

 

(915

)

 

 

(1,158

)

Changes in working capital

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(20,926

)

 

 

(56,353

)

Inventories

 

 

(18,120

)

 

 

21,141

 

Accounts payable and accrued expenses

 

 

(57,660

)

 

 

(173

)

Other

 

 

(253

)

 

 

(7,725

)

Net cash from (used in) operating activities

 

 

(69,842

)

 

 

42,186

 

Cash flows from (used in) investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(23,018

)

 

 

(19,389

)

Purchase of amortizable intangible assets

 

 

(438

)

 

 

(316

)

Other

 

 

51

 

 

 

(261

)

Net cash from (used in) investing activities

 

 

(23,405

)

 

 

(19,966

)

Cash flows from (used in) financing activities

 

 

 

 

 

 

 

 

Proceeds from (repayment of) revolving credit facilities, net

 

 

51,260

 

 

 

(33,672

)

Dividend payments

 

 

(9,047

)

 

 

 

Repurchase of common shares

 

 

(162

)

 

 

 

Payment of debt issuance costs

 

 

 

 

 

(509

)

Proceeds from government grants

 

 

 

 

 

6,320

 

Other

 

 

(9,801

)

 

 

(862

)

Net cash from (used in) financing activities

 

 

32,250

 

 

 

(28,723

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(3,562

)

 

 

(754

)

Net decrease in cash and cash equivalents

 

 

(64,559

)

 

 

(7,257

)

Cash and cash equivalents, beginning of period

 

 

351,085

 

 

 

240,491

 

Cash and cash equivalents, end of period

 

$

286,526

 

 

$

233,234

 

 

Supplemental cash flow disclosure

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

37,278

 

 

$

16,983

 

Cash paid for income taxes

 

$

12,974

 

 

$

23,613

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Leased production equipment

 

$

8,994

 

 

$

 

 

 

 

See accompanying Notes to the Interim Consolidated Financial Statements.

 

FORM 10-Q

QUARTERLY REPORT - PAGE 6


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 1. The Company and Summary of Significant Accounting Policies

 

Nature of Operations and Basis of Presentation

 

The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. ("Mercer Inc.") and all of its subsidiaries (collectively the "Company"). Mercer Inc. owns 100% of the economic interest in its subsidiaries with the exception of the 50% joint venture interest in the Cariboo mill with West Fraser Mills Ltd., which is accounted for using the equity method. The Company's shares of common stock are quoted and listed for trading on the NASDAQ Global Market.

 

The Interim Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). The year-end Consolidated Balance Sheet data was derived from audited financial statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States ("GAAP"). The unaudited Interim Consolidated Financial Statements should be read together with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2019. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis (except for the change in policy referred to below) with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2019 and contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year.

 

In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United States dollars ("U.S. dollars" or "$"). The symbol "€" refers to euros and the symbol "C$" refers to Canadian dollars.

 

Use of Estimates

 

Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.

 

Impact of COVID-19 Pandemic

 

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is in its early stages and information is rapidly evolving. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on our business.

 

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these Interim Consolidated Financial Statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

FORM 10-Q

QUARTERLY REPORT - PAGE 7


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 1. The Company and Summary of Significant Accounting Policies (continued)

 

New Accounting Pronouncements

 

Accounting Pronouncements Adopted

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment method with a method that reflects expected credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, which provides entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. These updates were effective for financial statements issued after December 15, 2019. The Company adopted these updates on January 1, 2020 using the modified-retrospective approach. The adoption of these updates did not have an impact on the Interim Consolidated Financial Statements as the Company’s credit risk associated with its sales is currently managed through the purchase of credit insurance, letters of credit and setting credit limits prior to the sale. The Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality.

 

The Company’s exposure to credit losses may increase if its customers are adversely affected by the COVID-19 pandemic. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’s customers are adversely impacted by the COVID-19 pandemic.

 

Accounting Pronouncements Not Yet Adopted

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod tax allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This update is effective for financial statements issued for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this update but believes it will not have a significant impact on the consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

 

 

FORM 10-Q

QUARTERLY REPORT - PAGE 8


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 2. Inventories

 

Inventories as of March 31, 2020 and December 31, 2019, were comprised of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

86,198

 

 

$

99,754

 

Finished goods

 

 

88,915

 

 

 

77,815

 

Spare parts and other

 

 

94,699

 

 

 

95,030

 

 

 

$

269,812

 

 

$

272,599

 

 

For the three months ended March 31, 2020, as a result of low pulp prices and high fiber costs for the Canadian mills, the Company recorded inventory impairment charges of $5,734 at certain Canadian mills (2019 – $nil). These charges were recorded in “Cost of sales, excluding depreciation and amortization” in the Interim Consolidated Statements of Operations. As of March 31, 2020, $3,681 of the write-down was recorded in raw materials inventory and $2,053 of the write-down was recorded in finished goods inventory. As of December 31, 2019, the Company recorded a $3,500 write-down in raw materials inventory and a $5,700 write-down in finished goods inventory.

 

Note 3. Accounts Payable and Other

 

Accounts payable and other as of March 31, 2020 and December 31, 2019, was comprised of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Trade payables

 

$

62,652

 

 

$

73,721

 

Accrued expenses

 

 

87,091

 

 

 

111,696

 

Interest payable

 

 

14,902

 

 

 

33,198

 

Income tax payable

 

 

10,337

 

 

 

28,080

 

Other