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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, 2024

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 66,849,720 shares of common stock outstanding as of May 7, 2024.

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024

(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,

 

 

 

2024

 

 

2023

 

Revenues

 

$

553,430

 

 

$

522,666

 

Costs and expenses

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

458,182

 

 

 

461,338

 

Cost of sales depreciation and amortization

 

 

40,350

 

 

 

47,498

 

Selling, general and administrative expenses

 

 

31,701

 

 

 

33,951

 

Loss on disposal of investment in joint venture

 

 

23,645

 

 

 

 

Operating loss

 

 

(448

)

 

 

(20,121

)

Other income (expenses)

 

 

 

 

 

 

Interest expense

 

 

(27,559

)

 

 

(19,047

)

Other income

 

 

4,939

 

 

 

3,234

 

Total other expenses, net

 

 

(22,620

)

 

 

(15,813

)

Loss before income taxes

 

 

(23,068

)

 

 

(35,934

)

Income tax recovery

 

 

6,365

 

 

 

5,356

 

Net loss

 

$

(16,703

)

 

$

(30,578

)

Net loss per common share

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

(0.46

)

Diluted

 

$

(0.25

)

 

$

(0.46

)

Dividends declared per common share

 

$

0.075

 

 

$

0.075

 

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(16,703

)

 

$

(30,578

)

Other comprehensive income (loss)

 

 

 

 

 

 

Loss related to defined benefit pension plans

 

 

(83

)

 

 

(227

)

Income tax provision

 

 

(90

)

 

 

 

Loss related to defined benefit pension plans, net of tax

 

 

(173

)

 

 

(227

)

Foreign currency translation adjustments

 

 

(37,469

)

 

 

18,650

 

Other comprehensive income (loss), net of tax

 

 

(37,642

)

 

 

18,423

 

Total comprehensive loss

 

$

(54,345

)

 

$

(12,155

)

 

 

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,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

274,272

 

 

$

313,992

 

Accounts receivable, net

 

 

368,466

 

 

 

306,166

 

Inventories

 

 

408,326

 

 

 

414,161

 

Prepaid expenses and other

 

 

42,241

 

 

 

23,461

 

Assets classified as held for sale

 

 

33,597

 

 

 

35,125

 

Total current assets

 

 

1,126,902

 

 

 

1,092,905

 

Property, plant and equipment, net

 

 

1,361,975

 

 

 

1,409,937

 

Investment in joint ventures

 

 

4,455

 

 

 

41,665

 

Amortizable intangible assets, net

 

 

51,113

 

 

 

52,641

 

Goodwill

 

 

34,616

 

 

 

35,381

 

Operating lease right-of-use assets

 

 

10,623

 

 

 

11,725

 

Pension asset

 

 

5,513

 

 

 

5,588

 

Other long-term assets

 

 

10,158

 

 

 

12,736

 

Total assets

 

$

2,605,355

 

 

$

2,662,578

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and other

 

$

294,289

 

 

$

278,986

 

Pension and other post-retirement benefit obligations

 

 

806

 

 

 

826

 

Liabilities associated with assets held for sale

 

 

6,443

 

 

 

6,625

 

Total current liabilities

 

 

301,538

 

 

 

286,437

 

Long-term debt

 

 

1,615,173

 

 

 

1,609,425

 

Pension and other post-retirement benefit obligations

 

 

12,349

 

 

 

12,483

 

Operating lease liabilities

 

 

6,797

 

 

 

7,755

 

Other long-term liabilities

 

 

13,448

 

 

 

13,744

 

Deferred income tax

 

 

82,411

 

 

 

97,324

 

Total liabilities

 

 

2,031,716

 

 

 

2,027,168

 

Shareholders’ equity

 

 

 

 

 

 

Common shares $1 par value; 200,000,000 authorized; 66,850,000 issued and outstanding (2023 – 66,525,000)

 

 

66,796

 

 

 

66,471

 

Additional paid-in capital

 

 

360,941

 

 

 

359,497

 

Retained earnings

 

 

314,396

 

 

 

336,113

 

Accumulated other comprehensive loss

 

 

(168,494

)

 

 

(126,671

)

Total shareholders’ equity

 

 

573,639

 

 

 

635,410

 

Total liabilities and shareholders’ equity

 

$

2,605,355

 

 

$

2,662,578

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Subsequent event (Note 9)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31:

 

Number
(thousands
of shares)

 

 

Amount,
at Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Shareholders'
Equity

 

Balance as of December 31, 2023

 

 

66,525

 

 

$

66,471

 

 

$

359,497

 

 

$

336,113

 

 

$

(126,671

)

 

$

635,410

 

Shares issued on grants of performance share units

 

 

325

 

 

 

325

 

 

 

(325

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

1,769

 

 

 

 

 

 

 

 

 

1,769

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,703

)

 

 

 

 

 

(16,703

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(5,014

)

 

 

 

 

 

(5,014

)

Disposal of investment in joint venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,181

)

 

 

(4,181

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,642

)

 

 

(37,642

)

Balance as of March 31, 2024

 

 

66,850

 

 

$

66,796

 

 

$

360,941

 

 

$

314,396

 

 

$

(168,494

)

 

$

573,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

 

66,167

 

 

$

66,132

 

 

$

354,495

 

 

$

598,119

 

 

$

(179,962

)

 

$

838,784

 

Shares issued on grants of performance share units

 

 

254

 

 

 

254

 

 

 

(254

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

1,226

 

 

 

 

 

 

 

 

 

1,226

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,578

)

 

 

 

 

 

(30,578

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(4,982

)

 

 

 

 

 

(4,982

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,423

 

 

 

18,423

 

Balance as of March 31, 2023

 

 

66,421

 

 

$

66,386

 

 

$

355,467

 

 

$

562,559

 

 

$

(161,539

)

 

$

822,873

 

 

 

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,

 

 

 

2024

 

 

2023

 

Cash flows from (used in) operating activities

 

 

 

 

 

 

Net loss

 

$

(16,703

)

 

$

(30,578

)

Adjustments to reconcile net loss to cash flows from operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

40,404

 

 

 

47,591

 

Deferred income tax recovery

 

 

(13,426

)

 

 

(9,944

)

Inventory impairment

 

 

 

 

 

15,200

 

Loss on disposal of investment in joint venture

 

 

23,645

 

 

 

 

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

 

 

210

 

 

 

446

 

Stock compensation expense

 

 

2,029

 

 

 

1,226

 

Foreign exchange transaction losses (gains)

 

 

(3,449

)

 

 

270

 

Other

 

 

727

 

 

 

(1,149

)

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

 

 

(329

)

 

 

(247

)

Changes in working capital

 

 

 

 

 

 

Accounts receivable

 

 

(63,729

)

 

 

11,342

 

Inventories

 

 

89

 

 

 

(86,434

)

Accounts payable and accrued expenses

 

 

2,390

 

 

 

309

 

Other

 

 

(1,052

)

 

 

2,318

 

Net cash from (used in) operating activities

 

 

(29,194

)

 

 

(49,650

)

Cash flows from (used in) investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(18,461

)

 

 

(33,429

)

Proceeds from government grants

 

 

787

 

 

 

 

Other

 

 

190

 

 

 

805

 

Net cash from (used in) investing activities

 

 

(17,484

)

 

 

(32,624

)

Cash flows from (used in) financing activities

 

 

 

 

 

 

Proceeds from revolving credit facilities, net

 

 

9,125

 

 

 

30,102

 

Payment of finance lease obligations

 

 

(2,189

)

 

 

(1,889

)

Other

 

 

(115

)

 

 

(114

)

Net cash from (used in) financing activities

 

 

6,821

 

 

 

28,099

 

Effect of exchange rate changes on cash and cash equivalents

 

 

137

 

 

 

703

 

Net decrease in cash and cash equivalents

 

 

(39,720

)

 

 

(53,472

)

Cash and cash equivalents, beginning of period

 

 

313,992

 

 

 

354,032

 

Cash and cash equivalents, end of period

 

$

274,272

 

 

$

300,560

 

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid for interest

 

$

34,716

 

 

$

33,240

 

Cash paid for income taxes

 

$

8,173

 

 

$

1,773

 

 

 

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. In the first quarter of 2024, the Company disposed of its 50% joint venture interest in the Cariboo Pulp & Paper Company (“CPP”) with West Fraser Mills Ltd. (“West Fraser”) which prior to the disposal was 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 consolidated balance sheet information as of December 31, 2023 was derived from the Company’s audited Consolidated Financial Statements, but does not contain all of the footnote disclosures from the annual Consolidated 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, 2023. 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, 2023 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, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.

New Accounting Pronouncements

Improvements to Reportable Segment Disclosures

 

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

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)

Improvements to Income Tax Disclosures

 

In December 2023, the FASB issued ASU 2023-09, which requires additional disaggregation of the reconciliation between the statutory and effective tax rate for an entity and of income taxes paid. The amendments improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company currently does not expect the adoption of ASU 2023-09 to have a material impact to the Company's financial position or results of operations.

 

Note 2. Disposal of Investment in Joint Venture

In the first quarter of 2024, the Company entered into an agreement with West Fraser to dissolve the CPP joint venture and effectively relinquished its contractual sharing of control over the joint venture.

For the three months ended March 31, 2024, a non-cash loss in the Interim Consolidated Statements of Operations of $23,645 was recognized as the estimated proceeds, comprised of inventory, were less than the net carrying amount of the disposal group. The disposal group includes the equity investment and the actuarial gains related to a defined benefit pension plan recognized in accumulated other comprehensive loss. The estimated fair value of the proceeds was determined using Level 2 inputs based on the market value of inventory.

 

Note 3. Assets and Liabilities Classified as Held for Sale

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

The following summarizes the major classes of assets and liabilities classified as held for sale as of March 31, 2024.

 

 

 

March 31,
2024

 

Cash and cash equivalent

 

$

786

 

Accounts receivable, net

 

 

710

 

Inventories

 

 

14,085

 

Prepaid expenses

 

 

68

 

Property, plant and equipment, net

 

 

14,221

 

Operating lease right-of-use-assets

 

 

4,200

 

Sandalwood tree plantations

 

 

31,817

 

Loss recognized on classification as held for sale

 

 

(33,734

)

Impact of changes in foreign exchange rate

 

 

1,444

 

Assets held for sale

 

$

33,597

 

 

 

 

 

Accounts payable and other

 

$

2,570

 

Operating lease liabilities

 

 

3,873

 

Liabilities associated with assets held for sale

 

$

6,443

 

 

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. Inventories

Inventories as of March 31, 2024 and December 31, 2023, were comprised of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

141,350

 

 

$

127,126

 

Finished goods

 

 

121,118

 

 

 

144,407

 

Spare parts and other

 

 

145,858

 

 

 

142,628

 

 

 

$

408,326

 

 

$

414,161

 

 

For the three months ended March 31, 2024, there were no inventory impairment charges recorded.

 

For the three months ended March 31, 2023, primarily as a result of low hardwood pulp prices and high production and logistics costs for the Peace River mill, the Company recorded an inventory impairment charge of $15,200 in “Cost of sales, excluding depreciation and amortization” in the Interim Consolidated Statements of Operations.

 

Note 5. Accounts Payable and Other

 

Accounts payable and other as of March 31, 2024 and December 31, 2023, were comprised of the following:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Trade payables

 

$

63,471

 

 

$

61,099

 

Accrued expenses

 

 

98,375

 

 

 

87,413

 

Interest payable

 

 

25,435

 

 

 

34,542

 

Income tax payable

 

 

19,963

 

 

 

21,807

 

Payroll-related accruals

 

 

27,496

 

 

 

27,512

 

Deposits for mass timber sales contracts

 

 

23,523

 

 

 

15,262

 

Wastewater fee (a)

 

 

7,123

 

 

 

6,721

 

Finance lease liability

 

 

8,660

 

 

 

7,664

 

Operating lease liability

 

 

3,900

 

 

 

4,043

 

Other

 

 

16,343

 

 

 

12,923

 

 

 

$

294,289

 

 

$

278,986

 

 

(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.

FORM 10-Q

QUARTERLY REPORT - PAGE 9


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 6. Debt

Debt as of March 31, 2024 and December 31, 2023, was comprised of the following:

 

 

Maturity

 

March 31,
2024

 

 

December 31,
2023

 

Senior notes (a)

 

 

 

 

 

 

 

 

5.500% senior notes

 

2026

 

$

300,000

 

 

$

300,000

 

12.875% senior notes

 

2028

 

 

200,000

 

 

 

200,000

 

5.125% senior notes

 

2029

 

 

875,000

 

 

 

875,000

 

 

 

 

 

 

 

 

 

 

Credit arrangements

 

 

 

 

 

 

 

 

370.1 million German joint revolving credit facility (b)

 

2027

 

 

163,246

 

 

 

161,330

 

C$160.0 million Canadian joint revolving credit facility (c)

 

2027

 

 

49,815

 

 

 

47,255

 

2.6 million demand loan (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease liability

 

 

 

 

49,603

 

 

 

48,349

 

 

 

 

 

 

1,637,664

 

 

 

1,631,934

 

Less: unamortized senior note issuance costs

 

 

 

 

(13,831

)

 

 

(14,845

)

Less: finance lease liability due within one year

 

 

 

 

(8,660

)

 

 

(7,664

)

 

 

 

 

$

1,615,173

 

 

$

1,609,425

 

 

The maturities of the principal portion of the senior notes and credit arrangements as of March 31, 2024 were as follows:

 

 

Senior Notes and Credit Arrangements

 

2025

 

$

 

2026

 

 

300,000

 

2027

 

 

213,061

 

2028

 

 

200,000

 

2029

 

 

875,000

 

Thereafter

 

 

 

 

 

$

1,588,061

 

 

Certain of the Company's debt instruments were issued under agreements which, among other things, may limit its ability and the ability of its subsidiaries to make certain payments, including dividends. These limitations are subject to specific exceptions. As of March 31, 2024, the Company was in compliance with the terms of its debt agreements.

 

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

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

 

 

 

FORM 10-Q

QUARTERLY REPORT - PAGE 10


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 6. Debt (continued)

The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the 2028 Senior Notes and the 2029 Senior Notes:

 

2028 Senior Notes

 

2029 Senior Notes

12 Month Period Beginning

 

Percentage

 

12 Month Period Beginning

 

Percentage

October 1, 2025

 

106.438%

 

February 1, 2024

 

102.563%

October 1, 2026

 

103.219%

 

February 1, 2025

 

101.281%

October 1, 2027 and thereafter

 

100.000%

 

February 1, 2026 and thereafter

 

100.000%

 

(b)
A €370.1 million joint revolving credit facility for the German mills that matures in September 2027. Borrowings under the facility are unsecured and bear interest at Euribor plus a variable margin ranging from 1.40% to 2.35% dependent on conditions including but not limited to a prescribed leverage ratio. The facility is sustainability linked whereby the interest rate margin is subject to upward or downward adjustments of up to 0.05% per annum if the Company achieves, or fails to achieve, certain specified sustainability targets. As of March 31, 2024, approximately 151.0 million ($163,246) of this facility was drawn and accruing interest at a rate of 5.318%, approximately 13.6 million ($14,662) was supporting bank guarantees and approximately 205.5 million ($222,234) was available.
(c)
A C$160.0 million joint revolving credit facility for the Celgar mill, Peace River mill and certain other Canadian subsidiaries that matures in January 2027. The facility is available by way of: (i) Canadian dollar denominated advances, which bear interest at a designated prime rate per annum; (ii) banker’s acceptance equivalent loans, which bear interest at the applicable Canadian dollar banker’s acceptance plus 1.20% to 1.45% per annum; (iii) dollar denominated base rate advances at the greater of the federal funds rate plus 0.50%, an Adjusted Term Secured Overnight Financing Rate (“SOFR”) for a one month tenor plus 1.00% and the bank’s applicable reference rate for dollar denominated loans; and (iv) dollar SOFR advances, which bear interest at Adjusted Term SOFR plus 1.20% to 1.45% per annum. As of March 31, 2024, approximately C$67.5 million ($49,815) of this facility was drawn and accruing interest at a rate of 6.629%, approximately C$1.4 million ($1,013) was supporting letters of credit and approximately C$79.1 million ($58,397) was available.
(d)
A €2.6 million demand loan for the Rosenthal mill that does not have a maturity date. Borrowings under this facility are unsecured and bear interest at the rate of the three-month Euribor plus 2.50%. As of March 31, 2024, approximately 2.6 million ($2,759) of this facility was supporting bank guarantees and approximately $nil was available.

Note 7. Pension and Other Post-Retirement Benefit Obligations

Defined Benefit Plans

Pension benefits are based on employees' earnings and years of service. The defined benefit plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. The components of the net benefit costs for the Celgar and Peace River defined benefit plans, in aggregate for the three months ended March 31, 2024 and 2023 were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Pension

 

 

Other Post-
Retirement
Benefits

 

 

Pension

 

 

Other Post-
Retirement
Benefits

 

Service cost

 

$

697

 

 

$

32

 

 

$

598

 

 

$

29

 

Interest cost

 

 

980

 

 

 

117

 

 

 

1,166

 

 

 

123

 

Expected return on plan assets

 

 

(1,533

)

 

 

 

 

 

(1,357

)

 

 

 

Amortization of unrecognized items

 

 

124

 

 

 

(207

)

 

 

128

 

 

 

(241

)

Net benefit costs (gains)

 

$

268

 

 

$

(58

)

 

$

535

 

 

$

(89

)

 

FORM 10-Q

QUARTERLY REPORT - PAGE 11


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 7. Pension and Other Post-Retirement Benefit Obligations (continued)

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

Defined Contribution Plan

Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members and the service accrual ceased. Effective January 1, 2009, the members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan. During the three months ended March 31, 2024, the Company made contributions of $320 to this plan (2023 – $252).

Multiemployer Plan

The Company participates in a multiemployer plan for the hourly-paid employees at the Celgar mill. The contributions to the plan are determined based on a percentage of pensionable earnings pursuant to a collective bargaining agreement. The Company has no current or future contribution obligations in excess of the contractual contributions. During the three months ended March 31, 2024, the Company made contributions of $521 to this plan (2023 – $523).

 

Note 8. Income Taxes

Differences between the U.S. Federal statutory rate and the Company's effective tax rate for the three months ended March 31, 2024 and 2023 were as follows:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

U.S. Federal statutory rate

 

21%

 

 

21%

 

Income tax recovery using U.S. Federal statutory rate on loss before income taxes

 

$

4,844

 

 

$

7,546

 

Tax differential on foreign income (loss)

 

 

(587

)

 

 

1,318

 

Effect of foreign earnings (a)

 

 

 

 

 

(525

)

Valuation allowance

 

 

(2,608

)

 

 

(4,563

)

Tax benefit of partnership structure

 

 

 

 

 

783

 

Non-taxable foreign subsidies

 

 

590

 

 

 

694

 

True-up of prior year taxes

 

 

1,236

 

 

 

4,886

 

Annual effective tax rate adjustment

 

 

1,700

 

 

 

(9,000

)

Non-taxable portion of capital gain

 

 

1,460

 

 

 

 

Other, net

 

 

(270

)

 

 

4,217

 

Income tax recovery

 

$

6,365

 

 

$

5,356

 

Comprised of:

 

 

 

 

 

 

Current income tax provision

 

$

(7,061

)

 

$

(4,588

)

Deferred income tax recovery

 

 

13,426

 

 

 

9,944

 

Income tax recovery

 

$

6,365

 

 

$

5,356

 

 

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

FORM 10-Q

QUARTERLY REPORT - PAGE 12


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 9. Shareholders' Equity

Dividends

During the three months ended March 31, 2024, the Company's board of directors declared the following quarterly dividend:

Date Declared

 

Dividend Per
Common Share

 

 

Amount

 

February 15, 2024

 

$

0.075

 

 

$

5,014

 

On May 9, 2024, the Company's board of directors declared a quarterly dividend of $0.075 per common share. Payment of the dividend will be made on July 3, 2024 to all shareholders of record on June 26, 2024. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.

Stock Based Compensation

The Company's stock incentive plan consists of stock options, restricted stock units (“RSUs”), deferred stock units (“DSUs”), restricted shares, performance shares, performance share units (“PSUs”) and stock appreciation rights. During the three months ended March 31, 2024, there were no issued and outstanding stock options, RSUs, performance shares or stock appreciation rights. As of March 31, 2024, after factoring in all allocated shares, there remain approximately 0.7 million common shares available for grant.

DSUs are comprised of grants which are settled in shares (“Equity DSUs”) and grants which are settled in cash based on the quoted price of the Company's common shares on the redemption date (“Cash Only DSUs”).

The following table summarizes PSU activity during the period:

 

 

 

 

 

Number of PSUs

 

Outstanding as of January 1, 2024

 

 

 

 

 

3,672,227

 

Granted

 

 

 

 

 

2,312,098

 

Vested and issued

 

 

 

 

 

(324,854

)

Forfeited

 

 

 

 

 

(807,974

)

Outstanding as of March 31, 2024

 

 

 

 

 

4,851,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FORM 10-Q

QUARTERLY REPORT - PAGE 13


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 10. Net loss Per Common Share

The reconciliation of basic and diluted net loss per common share for the three months ended March 31, 2024 and 2023 was as follows:

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net loss

 

 

 

 

 

Basic and diluted

$

(16,703

)

 

$

(30,578

)

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

Basic

$

(0.25

)

 

$

(0.46

)

Diluted

$

(0.25

)

 

$

(0.46

)

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

Basic (a)

 

66,641,990

 

 

 

66,259,216

 

Diluted

 

66,641,990

 

 

 

66,259,216

 

 

(a)
For the three months ended March 31, 2024, the weighted average number of common shares outstanding excludes 54,227 restricted shares which have been granted, but have not vested as of March 31, 2024 (202334,699 restricted shares).

The calculation of diluted net loss per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net loss per common share. Instruments excluded from the calculation of net loss per common share because they were anti-dilutive for the three months ended March 31, 2024 and 2023 were as follows:

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

PSUs

 

4,851,497

 

 

 

3,843,552

 

Restricted shares

 

54,227

 

 

 

34,699

 

RSUs

 

 

 

 

50,000

 

Equity DSUs

 

44,914

 

 

 

11,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FORM 10-Q

QUARTERLY REPORT - PAGE 14


MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Note 11. Accumulated Other Comprehensive Loss

The change in the accumulated other comprehensive loss by component (net of tax) for the three months ended March 31, 2024 and 2023 was as follows:

 

 

Foreign Currency Translation Adjustments

 

 

Defined Benefit Pension and Other Post-Retirement Benefit Items

 

 

Total

 

Three Months Ended March 31: