10-Q 1 merc-10q_20220331.htm 10-Q merc-10q_20220331.htm
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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, 2022

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 66,132,492 shares of common stock outstanding as of April 27, 2022.

 

 

 


 

 

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2022

(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,

 

 

 

2022

 

 

2021

 

Revenues

 

$

592,741

 

 

$

412,720

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

416,095

 

 

 

310,197

 

Cost of sales depreciation and amortization

 

 

32,097

 

 

 

30,946

 

Selling, general and administrative expenses

 

 

22,198

 

 

 

20,548

 

Operating income

 

 

122,351

 

 

 

51,029

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(17,464

)

 

 

(19,019

)

Loss on early extinguishment of debt

 

 

 

 

 

(30,368

)

Other income

 

 

8,246

 

 

 

6,989

 

Total other expenses, net

 

 

(9,218

)

 

 

(42,398

)

Income before income taxes

 

 

113,133

 

 

 

8,631

 

Income tax provision

 

 

(24,236

)

 

 

(2,698

)

Net income

 

$

88,897

 

 

$

5,933

 

Net income per common share

 

 

 

 

 

 

 

 

Basic

 

$

1.35

 

 

$

0.09

 

Diluted

 

$

1.34

 

 

$

0.09

 

Dividends declared per common share

 

$

0.0750

 

 

$

0.0650

 

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

88,897

 

 

$

5,933

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Gain (loss) related to defined benefit pension plans

 

 

(116

)

 

 

1,061

 

Income tax recovery (provision)

 

 

62

 

 

 

(681

)

Gain (loss) related to defined benefit pension plans, net of tax

 

 

(54

)

 

 

380

 

Foreign currency translation adjustment

 

 

(10,522

)

 

 

(36,023

)

Other comprehensive loss, net of taxes

 

 

(10,576

)

 

 

(35,643

)

Total comprehensive income (loss)

 

$

78,321

 

 

$

(29,710

)

 

 

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,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

410,705

 

 

$

345,610

 

Accounts receivable, net

 

 

387,779

 

 

 

345,345

 

Inventories

 

 

353,407

 

 

 

356,731

 

Prepaid expenses and other

 

 

17,494

 

 

 

16,619

 

Total current assets

 

 

1,169,385

 

 

 

1,064,305

 

Property, plant and equipment, net

 

 

1,130,337

 

 

 

1,135,631

 

Investment in joint ventures

 

 

49,574

 

 

 

49,651

 

Amortizable intangible assets, net

 

 

47,237

 

 

 

47,902

 

Operating lease right-of-use assets

 

 

9,172

 

 

 

9,712

 

Pension asset

 

 

4,009

 

 

 

4,136

 

Other long-term assets

 

 

45,887

 

 

 

38,718

 

Deferred income tax

 

 

1,343

 

 

 

1,177

 

Total assets

 

$

2,456,944

 

 

$

2,351,232

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and other

 

$

280,366

 

 

$

282,307

 

Pension and other post-retirement benefit obligations

 

 

818

 

 

 

817

 

Total current liabilities

 

 

281,184

 

 

 

283,124

 

Long-term debt

 

 

1,264,525

 

 

 

1,237,545

 

Pension and other post-retirement benefit obligations

 

 

20,884

 

 

 

21,252

 

Operating lease liabilities

 

 

6,110

 

 

 

6,574

 

Other long-term liabilities

 

 

13,270

 

 

 

13,590

 

Deferred income tax

 

 

102,637

 

 

 

95,123

 

Total liabilities

 

 

1,688,610

 

 

 

1,657,208

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $1 par value; 200,000,000 authorized; 66,132,000 issued and outstanding (2021 – 66,037,000)

 

 

66,083

 

 

 

65,988

 

Additional paid-in capital

 

 

348,756

 

 

 

347,902

 

Retained earnings

 

 

454,864

 

 

 

370,927

 

Accumulated other comprehensive loss

 

 

(101,369

)

 

 

(90,793

)

Total shareholders’ equity

 

 

768,334

 

 

 

694,024

 

Total liabilities and shareholders’ equity

 

$

2,456,944

 

 

$

2,351,232

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Subsequent event (Note 7)

 

 

 

 

 

 

 

 

 

 

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, 2021

 

 

66,037

 

 

$

65,988

 

 

$

347,902

 

 

$

370,927

 

 

$

(90,793

)

 

$

694,024

 

Shares issued on grants of performance share units

 

 

95

 

 

 

95

 

 

 

(95

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

949

 

 

 

 

 

 

 

 

 

949

 

Net income

 

 

 

 

 

 

 

 

 

 

 

88,897

 

 

 

 

 

 

88,897

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(4,960

)

 

 

 

 

 

(4,960

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,576

)

 

 

(10,576

)

Balance as of March 31, 2022

 

 

66,132

 

 

$

66,083

 

 

$

348,756

 

 

$

454,864

 

 

$

(101,369

)

 

$

768,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

65,868

 

 

$

65,800

 

 

$

345,696

 

 

$

217,106

 

 

$

(27,575

)

 

$

601,027

 

Shares issued on grants of performance share units

 

 

120

 

 

 

120

 

 

 

(120

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

610

 

 

 

 

 

 

 

 

 

610

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5,933

 

 

 

 

 

 

5,933

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(4,289

)

 

 

 

 

 

(4,289

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,643

)

 

 

(35,643

)

Balance as of March 31, 2021

 

 

65,988

 

 

$

65,920

 

 

$

346,186

 

 

$

218,750

 

 

$

(63,218

)

 

$

567,638

 

 

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from (used in) operating activities

 

 

 

 

 

 

 

 

Net income

 

$

88,897

 

 

$

5,933

 

Adjustments to reconcile net income to cash flows from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

32,116

 

 

 

30,967

 

Deferred income tax provision

 

 

8,383

 

 

 

1,204

 

Loss on early extinguishment of debt

 

 

 

 

 

30,368

 

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

 

 

438

 

 

 

919

 

Stock compensation expense

 

 

949

 

 

 

610

 

Foreign exchange transaction gains

 

 

(3,828

)

 

 

(8,606

)

Other

 

 

(801

)

 

 

(616

)

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

 

 

(1,194

)

 

 

(923

)

Changes in working capital

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(52,127

)

 

 

(12,423

)

Inventories

 

 

(1,725

)

 

 

(20,799

)

Accounts payable and accrued expenses

 

 

(567

)

 

 

4,436

 

Other

 

 

(1,731

)

 

 

(782

)

Net cash from (used in) operating activities

 

 

68,810

 

 

 

30,288

 

Cash flows from (used in) investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(33,293

)

 

 

(25,262

)

Insurance proceeds

 

 

6,410

 

 

 

 

Purchase of amortizable intangible assets

 

 

(60

)

 

 

(641

)

Other

 

 

153

 

 

 

(394

)

Net cash from (used in) investing activities

 

 

(26,790

)

 

 

(26,297

)

Cash flows from (used in) financing activities

 

 

 

 

 

 

 

 

Redemption of senior notes

 

 

 

 

 

(824,557

)

Proceeds from issuance of senior notes

 

 

 

 

 

875,000

 

Proceeds from (repayment of) revolving credit facilities, net

 

 

30,504

 

 

 

(15,070

)

Payment of debt issuance costs

 

 

(1,184

)

 

 

(14,414

)

Proceeds from government grants

 

 

1,067

 

 

 

8,532

 

Payment of finance lease obligations

 

 

(4,935

)

 

 

(1,703

)

Other

 

 

(843

)

 

 

3,624

 

Net cash from (used in) financing activities

 

 

24,609

 

 

 

31,412

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,534

)

 

 

(1,418

)

Net increase in cash and cash equivalents

 

 

65,095

 

 

 

33,985

 

Cash and cash equivalents, beginning of period

 

 

345,610

 

 

 

361,098

 

Cash and cash equivalents, end of period

 

$

410,705

 

 

$

395,083

 

 

 

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

32,073

 

 

$

39,026

 

Cash paid for income taxes

 

$

18,900

 

 

$

1,845

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Leased production and other equipment

 

$

 

 

$

15,969

 

 

 

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 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 Select 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, 2021. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis 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, 2021 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 the COVID-19 Pandemic

 

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. During the pandemic, there have been several "waves" or periods during which there has been a significant widespread increase in reported infections and the emergence and rapid spread of new variants of the COVID-19 virus. In response to such waves, various countries have from time to time re-imposed various restrictions on social, business, travel and other activities. Such economic disruption could have a material adverse effect on the Company’s business.

 

As of the date of issuance of these Interim Consolidated Financial Statements, the Company has not had significant downtime or closures at its mills or disruptions to raw material supplies or access to logistics networks due to the COVID-19 pandemic, but the extent to which the COVID-19 pandemic may materially impact the Company's future financial condition, liquidity, or results of operations remains uncertain.

 

The Companys future results of operations and liquidity, however, could be adversely impacted by economic factors arising from the pandemic that affect our business and customers. For instance, we may experience 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.

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 2. Inventories

 

Inventories as of March 31, 2022 and December 31, 2021, were comprised of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Raw materials

 

$

130,652

 

 

$

106,434

 

Finished goods

 

 

106,448

 

 

 

140,829

 

Spare parts and other

 

 

116,307

 

 

 

109,468

 

 

 

$

353,407

 

 

$

356,731

 

 

Note 3. Accounts Payable and Other

 

Accounts payable and other as of March 31, 2022 and December 31, 2021, was comprised of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Trade payables

 

$

67,061

 

 

$

58,451

 

Accrued expenses

 

 

83,834

 

 

 

76,409

 

Interest payable

 

 

11,356

 

 

 

26,506

 

Income tax payable

 

 

51,744

 

 

 

56,241

 

Payroll-related accruals

 

 

19,596

 

 

 

20,707

 

Wastewater fee (a)

 

 

20,538

 

 

 

19,248

 

Finance lease liability

 

 

7,314

 

 

 

8,467

 

Operating lease liability

 

 

3,115

 

 

 

3,192

 

Government grants (b)

 

 

5,601

 

 

 

7,302

 

Other

 

 

10,207

 

 

 

5,784

 

 

 

$

280,366

 

 

$

282,307

 

 

(a)

The Company is required to pay certain fees based on wastewater emissions at its German mills. Accrued fees can be reduced upon the mills’ demonstration of reduced wastewater emissions.

 

(b)

The Canadian mills have a liability for unspent government grants which are required to be used to partially finance greenhouse gas emission reduction and innovation capital projects. The grants are recorded in “Cash and cash equivalents” in the Interim Consolidated Balance Sheets, however, they are considered restricted as they are repayable if the mills do not spend the funds on approved projects.

 

 

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 4. Debt

 

Debt as of March 31, 2022 and December 31, 2021, was comprised of the following:

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

Maturity

 

2022

 

 

2021

 

Senior notes (a)

 

 

 

 

 

 

 

 

 

 

5.500% senior notes

 

2026

 

$

300,000

 

 

$

300,000

 

5.125% senior notes

 

2029

 

 

875,000

 

 

 

875,000

 

 

 

 

 

 

 

 

 

 

 

 

Credit arrangements

 

 

 

 

 

 

 

 

 

 

200 million German joint revolving credit facility (b)

 

2023

 

 

 

 

 

 

C$160 million Canadian joint revolving credit facility (c)

 

2027

 

 

54,017

 

 

 

 

C$60 million Peace River revolving credit facility (c)

 

 

 

 

 

 

 

22,874

 

C$60 million Celgar revolving credit facility (c)

 

 

 

 

 

 

 

 

2.6 million demand loan (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease liability

 

 

 

 

58,081

 

 

 

64,041

 

 

 

 

 

 

1,287,098

 

 

 

1,261,915

 

Less: unamortized senior note issuance costs

 

 

 

 

(15,259

)

 

 

(15,903

)

Less: finance lease liability due within one year

 

 

 

 

(7,314

)

 

 

(8,467

)

 

 

 

 

$

1,264,525

 

 

$

1,237,545

 

 

The maturities of the principal portion of the senior notes and credit arrangements as of March 31, 2022 were as follows:

 

 

 

Senior Notes and Credit Arrangements

 

2022

 

$

 

2023

 

 

 

2024

 

 

 

2025

 

 

 

2026

 

 

300,000

 

Thereafter