UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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.:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction |
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(I.R.S. Employer |
of incorporation or organization) |
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Identification No.) |
(Address of office)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023
(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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenues |
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$ |
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$ |
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Costs and expenses |
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Cost of sales, excluding depreciation and amortization |
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Cost of sales depreciation and amortization |
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Selling, general and administrative expenses |
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Operating income (loss) |
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( |
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Other income (expenses) |
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Interest expense |
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( |
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( |
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Other income |
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Total other expenses, net |
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( |
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( |
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Income (loss) before income taxes |
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( |
) |
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Income tax recovery (provision) |
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( |
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Net income (loss) |
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$ |
( |
) |
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$ |
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Net income (loss) per common share |
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Basic |
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$ |
( |
) |
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$ |
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Diluted |
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$ |
( |
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$ |
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Dividends declared per common share |
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$ |
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$ |
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INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands of U.S. dollars)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Net income (loss) |
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$ |
( |
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$ |
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Other comprehensive income (loss) |
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Loss related to defined benefit pension plans |
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( |
) |
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( |
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Income tax recovery |
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Loss related to defined benefit pension plans, net of tax |
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( |
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( |
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Foreign currency translation adjustments |
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( |
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Other comprehensive income (loss), net of taxes |
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( |
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Total comprehensive income (loss) |
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$ |
( |
) |
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$ |
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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)
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March 31, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other |
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Total current assets |
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Property, plant and equipment, net |
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Investment in joint ventures |
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Amortizable intangible assets, net |
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Goodwill |
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Operating lease right-of-use assets |
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Pension asset |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable and other |
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$ |
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$ |
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Pension and other post-retirement benefit obligations |
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Total current liabilities |
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Long-term debt |
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Pension and other post-retirement benefit obligations |
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Operating lease liabilities |
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Other long-term liabilities |
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Deferred income tax |
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Total liabilities |
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Shareholders’ equity |
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Common shares $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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(Note 15) |
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Subsequent events (Note 9, 16) |
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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)
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Common shares |
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Number |
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Amount, |
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Additional |
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Retained |
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Accumulated |
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Total |
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Three Months Ended March 31: |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Shares issued on grants of performance share units |
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( |
) |
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— |
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— |
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— |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Dividends declared |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Shares issued on grants of performance share units |
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( |
) |
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— |
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— |
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— |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Dividends declared |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance as of March 31, 2022 |
|
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from (used in) operating activities |
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Net income (loss) |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net income (loss) to cash flows from operating activities |
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Depreciation and amortization |
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Deferred income tax provision (recovery) |
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( |
) |
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Inventory impairment |
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Defined benefit pension plans and other post-retirement benefit plan expense |
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Stock compensation expense |
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Foreign exchange transaction losses (gains) |
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( |
) |
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Other |
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( |
) |
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( |
) |
Defined benefit pension plans and other post-retirement benefit plan contributions |
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( |
) |
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( |
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Changes in working capital |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
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Accounts payable and accrued expenses |
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( |
) |
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Other |
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( |
) |
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Net cash from (used in) operating activities |
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( |
) |
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Cash flows from (used in) investing activities |
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Purchase of property, plant and equipment |
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( |
) |
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( |
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Property insurance proceeds |
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Purchase of amortizable intangible assets |
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( |
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( |
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Other |
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Net cash from (used in) investing activities |
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( |
) |
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( |
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Cash flows from (used in) financing activities |
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Proceeds from revolving credit facilities, net |
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Payment of debt issuance costs |
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( |
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Proceeds from government grants |
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Payment of finance lease obligations |
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( |
) |
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( |
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Other |
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( |
) |
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( |
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Net cash from (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental cash flow disclosure: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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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
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, 2022 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, 2022. 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, 2022 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.
Note 2. Torgau Acquisition
On
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. Torgau Acquisition (continued)
The following table summarizes the Company’s preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed on the acquisition date:
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Purchase Price |
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Cash |
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$ |
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Accounts receivable |
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Inventories |
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Other current assets |
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Property, plant and equipment |
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Amortizable intangible assets (a) |
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Goodwill (b) |
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Other long-term assets |
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Total assets acquired |
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Accounts payable and other current liabilities |
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( |
) |
Deferred income tax |
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( |
) |
Other long-term liabilities |
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( |
) |
Total liabilities assumed |
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( |
) |
Net assets acquired |
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$ |
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The purchase price allocation was based on a preliminary valuation and may be revised as a result of additional information obtained regarding the assets acquired and liabilities assumed, and revisions of provisional estimates of fair value, including, but not limited to, the completion of valuations related to property, plant, and equipment and the identification of intangible assets. During the three month period ended March 31, 2023, immaterial adjustments were made to the purchase price allocation to reflect the most current calculation of the deferred tax liabilities. The purchase price will be finalized during the 12-month measurement period following the acquisition date.
Note 3. Business Interruption Insurance
In July 2022, a fire occurred in the woodyard of the Stendal mill. In September 2022, the Company received written confirmation from the insurance provider that the business interruption insurance claim related to the fire is covered. In the three months ended March 31, 2023, the insurance provider paid a nonrefundable business interruption insurance payment of €
Note 4. Inventories
Inventories as of March 31, 2023 and December 31, 2022, were comprised of the following:
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March 31, |
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December 31, |
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2023 |
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2022 |
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Raw materials |
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$ |
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$ |
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Finished goods |
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Spare parts and other |
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$ |
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$ |
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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 (continued)
For the three month period 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 $
Note 5. Accounts Payable and Other
Accounts payable and other as of March 31, 2023 and December 31, 2022, was comprised of the following:
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March 31, |
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December 31, |
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2023 |
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2022 |
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Trade payables |
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$ |
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$ |
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Accrued expenses |
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Interest payable |
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Income tax payable |
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Payroll-related accruals |
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Deposits for mass timber sales contracts |
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Wastewater fee (a) |
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Finance lease liability |
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Operating lease liability |
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Other |
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$ |
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$ |
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Note 6. Debt
Debt as of March 31, 2023 and December 31, 2022, was comprised of the following:
|
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March 31, |
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December 31, |
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Maturity |
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2023 |
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2022 |
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||
Senior notes (a) |
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$ |
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$ |
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Credit arrangements |
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€ |
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C$ |
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€ |
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|
|
|
||
|
|
|
|
|
|
|
|
|
||
Finance lease liability |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Less: unamortized senior note issuance costs |
|
|
|
|
( |
) |
|
|
( |
) |
Less: finance lease liability due within one year |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
$ |
|
|
$ |
|
||
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 (continued)
The maturities of the principal portion of the senior notes and credit arrangements as of March 31, 2023 were as follows:
|
|
Senior Notes and Credit Arrangements |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
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, 2023, the Company was in compliance with the terms of its debt agreements.
2029 Senior Notes |
||
12 Month Period Beginning |
|
Percentage |
February 1, 2024 |
|
|
February 1, 2025 |
|
|
February 1, 2026 and thereafter |
|
|
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)
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.
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
Pension |
|
|
Other Post- |
|
|
Pension |
|
|
Other Post- |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Net benefit costs (gains) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The components of the net benefit costs 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 month period ended March 31, 2023, the Company made contributions of $
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 month period ended March 31, 2023, the Company made contributions of $
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 8. Income Taxes
Differences between the U.S. Federal statutory and the Company's effective tax rates for the three month periods ended March 31, 2023 and 2022, were as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
U.S. Federal statutory rate |
|
|
|
|
||||
Income tax recovery (provision) using U.S. Federal statutory rate on income (loss) before income taxes |
|
$ |
|
|
$ |
( |
) |
|
Tax differential on foreign income (loss) |
|
|
|
|
|
( |
) |
|
Effect of foreign earnings (a) |
|
|
( |
) |
|
|
( |
) |
Valuation allowance (b) |
|
|
( |
) |
|
|
|
|
Foreign exchange on settlement of debt |
|
|
|
|
|
|
||
Tax benefit of partnership structure |
|
|
|
|
|
|
||
Non-taxable foreign subsidies |
|
|
|
|
|
|
||
True-up of prior year taxes |
|
|
|
|
|
|
||
Annual effective tax rate adjustment |
|
|
( |
) |
|
|
|
|
Other, net |
|
|
|
|
|
( |
) |
|
Income tax recovery (provision) |
|
$ |
|
|
$ |
( |
) |
|
Comprised of: |
|
|
|
|
|
|
||
Current income tax provision |
|
$ |
( |
) |
|
$ |
( |
) |
Deferred income tax recovery (provision) |
|
|
|
|
|
( |
) |
|
Income tax recovery (provision) |
|
$ |
|
|
$ |
( |
) |
|
Note 9. Shareholders' Equity
Dividends
On February 16, 2023, the Company's board of directors declared a quarterly dividend of $
On May 4, 2023, the Company's board of directors declared a quarterly dividend of $
Stock Based Compensation
The Company has a stock incentive plan which provides for stock options, restricted stock units (“RSUs”), deferred stock units (“DSUs”), restricted shares, performance shares, performance share units (“PSUs”), and stock appreciation rights to be awarded to employees, consultants and non-employee directors. During the three month period ended March 31, 2
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 (continued)
During the three month period ended March 31, 2023, there were no changes to the outstanding restricted shares, RSUs and DSUs.
The following table summarizes PSU activity during the period:
|
|
|
|
|
|
Number of PSUs |
|
|
Outstanding as of January 1, 2023 |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Vested and issued |
|
|
|
|
|
|
( |
) |
Forfeited |
|
|
|
|
|
|
( |
) |
Outstanding as of March 31, 2023 |
|
|
|
|
|
|
|
|
Note 10. Net Income (Loss) Per Common Share
The reconciliation of basic and diluted net income (loss) per common share for the three month periods ended March 31, 2023 and 2022 was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net income (loss) |
|
|
|
|
|
|
||
Basic and diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Net income (loss) per common share |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
|
|
Diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
||
Basic (a) |
|
|
|
|
|
|
||
Effect of dilutive instruments: |
|
|
|
|
|
|
||
PSUs |
|
|
|
|
|
|
||
Restricted shares |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
The calculation of diluted net income (loss) per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net income (loss) per common share.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
PSUs |
|
|
|
|
|
|
||
Restricted shares |
|
|
|
|
|
|
||
RSUs |
|
|
|
|
|
|
||
DSUs |
|
|
|
|
|
|
||
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 11. Accumulated Other Comprehensive Loss
The change in the accumulated other comprehensive loss by component (net of tax) for the three month periods ended March 31, 2023 and 2022 was as follows:
|
|
Foreign Currency Translation Adjustments |
|
|
Defined Benefit Pension and Other Post-Retirement Benefit Items |
|
|
Total |
|
|||
Three months Ended March 31: |
|
|
|
|
|
|
|
|
|
|||
Balance as of December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
( |
) |
|
|
|
||
Amounts reclassified |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance as of March 31, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Balance as of December 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amounts reclassified |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Note 12. Related Party Transactions
Note 13. Segment Information
The Company is managed based on the primary products it manufactures: pulp and solid wood. Accordingly, the Company's
None of the income or loss items following operating income (loss) in the Company's Interim Consolidated Statements of Operations are allocated to the segments, as those items are reviewed separately by management.
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 13. Segment Information (continued)
Information about certain segment data for the three month periods ended March 31, 2023 and 2022, was as follows:
Three Months Ended March 31, 2023 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate |
|
|
Consolidated |
|
||||
Revenues from external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets (a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pulp |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lumber |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Energy and chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufactured products (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pallets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biofuels (c) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wood residuals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues by geographical markets (d) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other countries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
FORM 10-Q
QUARTERLY REPORT - PAGE 15
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 13. Segment Information (continued)
Three Months Ended March 31, 2022 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate |
|
|
Consolidated |
|
||||
Revenues from external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pulp |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lumber |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Energy and chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufactured products (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wood residuals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues by geographical markets (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other countries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of December 31, 2022, the Company had total assets of $
Revenues between segments are accounted for at prices that approximate fair value. These include revenues from the sale of residual fiber from the solid wood segment to the pulp segment for use in pulp production and from the sale of residual fuel from the pulp segment to the solid wood segment for use in energy production. For the three month period ended March 31, 2023, the pulp segment sold $
FORM 10-Q
QUARTERLY REPORT - PAGE 16
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 14. Financial Instruments and Fair Value Measurement
Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and other approximates their fair value.
|
|
Fair value measurements as of |
|
|||||||||||||
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Revolving credit facilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Fair value measurements as of |
|
|||||||||||||
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Revolving credit facilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The carrying value of the revolving credit facilities classified as Level 2 approximates the fair value as the variable interest rates reflect current interest rates for financial instruments with similar characteristics and maturities.
The fair value of the Senior Notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company's Senior Notes are not carried at fair value in the Interim Consolidated Balance Sheets as of March 31, 2023 or December 31, 2022. However, fair value disclosure is required. The carrying value of the Company's Senior Notes, net of unamortized note issuance costs, was $
Credit Risk
The Company’s credit risk is primarily attributable to cash held in bank accounts and accounts receivable. The Company maintains cash balances in foreign financial institutions in excess of insured limits. The Company limits its 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. The Company’s credit risk associated with its 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. The Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. Concentrations of credit risk are with customers and agents based primarily in Germany, China and the U.S.
The Company’s exposure to credit losses may increase if its customers' production and other costs are adversely affected by inflation. 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 inflation. As of March 31, 2023, the Company has not had significant credit losses.
As of March 31, 2023, the carrying amount of cash and cash equivalents of $
FORM 10-Q
QUARTERLY REPORT - PAGE 17
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 15. Commitments and Contingencies
Note 16. Subsequent Event
In April 2023, the Company entered into an agreement to be the "stalking horse bidder" to acquire substantially all of the assets of an engineered wood group of companies with operations in the United States and Canada in bankruptcy for $
FORM 10-Q
QUARTERLY REPORT - PAGE 18
NON-GAAP FINANCIAL MEASURES
This quarterly report on Form 10-Q contains “non-GAAP financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as “GAAP”. Specifically, we make use of the non-GAAP measure “Operating EBITDA”.
Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. We use Operating EBITDA as a benchmark measurement of our own operating results and as a benchmark relative to our competitors. We consider it to be a meaningful supplement to operating income (loss) as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not actual cash costs, and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income (loss) as a measure of performance, or as an alternative to net cash from (used in) operating activities as a measure of liquidity. Operating EBITDA is an internal measure and therefore may not be comparable to other companies.
Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Operating EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt; (iv) the impact of realized or marked to market changes in our derivative positions, which can be substantial; and (v) the impact of non-recurring impairment charges against our investments or assets. Because of these limitations, Operating EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this document: (i) unless the context otherwise requires, references to “we”, “our”, “us”, the “Company” or “Mercer” mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer Inc.” mean the Company excluding its subsidiaries; (iii) information is provided as of March 31, 2023, unless otherwise stated; (iv) our reporting currency is dollars and references to “€” mean euros and “C$” mean Canadian dollars; (v) “ADMTs” refers to air-dried metric tonnes; (vi) “m3” means cubic meters; (vii) “NBSK” refers to northern bleached softwood kraft; (viii) “NBHK” refers to northern bleached hardwood kraft; (ix) “MW” refers to megawatts and “MWh” refers to megawatt hours; (x) “Mfbm” refers to thousand board feet of lumber and “MMfbm” mean million board feet of lumber; and (xi) our lumber metrics are converted from cubic meters to Mfbm using a conversion ratio of 1.6 cubic meters to one Mfbm, which is the ratio commonly used in the industry.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.
The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, 2023 should be read in conjunction with our Interim Consolidated Financial Statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission, referred to as the “SEC”.
Results of Operations
General
We have two reportable operating segments:
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.
Historically, we included our Mercer Mass Timber facility in our corporate and other segment. However, with our acquisition of the Torgau facility on September 30, 2022, we now include the Mercer Mass Timber facility within our solid wood segment, which has been reflected retroactively.
Current Market Environment
In the first quarter of 2023, our pulp, lumber and pallet sales realizations decreased in all of our key markets when compared to the fourth quarter of 2022 due to economic uncertainty resulting from high interest and inflation rates.
As we move into the second quarter, we currently expect downward price pressure on pulp as a result of lower demand from our customers due to inflationary pressures negatively impacting paper demand. For NBHK pulp we also currently expect additional downward pricing pressure from additional supply coming online.
As of March 31, 2023, third party industry quoted NBSK list prices in Europe and North America were approximately $1,350 per ADMT and $1,650 per ADMT, respectively and NBSK net prices in China were approximately $865 per ADMT. Prices for China are net of discounts, allowances and rebates.
FORM 10-Q
QUARTERLY REPORT - PAGE 20
In our solid wood segment, we currently expect lumber prices to modestly increase in the second quarter due to the start of the residential construction season and we expect pallet prices to decrease as a result of continued uncertain economic conditions.
Our energy revenues also decreased in the first quarter of 2023 compared to the fourth quarter of 2022 due to lower energy prices in Germany as warm weather and strong natural gas storage levels took significant pressure off the market electricity price.
Fiber costs continued to increase for our Canadian mills in the first quarter of 2023 compared to the fourth quarter of 2022 due to reduced wood chip availability as a result of sawmill curtailments. For our German mills per unit fiber costs stabilized during the first quarter. For the second quarter of 2023, we currently expect lower per unit fiber costs for our pulp mills caused by increased wood chip availability as a result of stronger sawmill production and realizing the early benefits from using the Peace River wood room which was completed in the first quarter of 2023. In our solid wood segment, we currently expect stable per unit fiber costs.
At the end of the first quarter of 2023, our inventories increased to a high level of $531.4 million. The increase reflected, among other things, a build up of fiber in front of the recently upgraded wood room at our Peace River pulp mill and overall market conditions. We expect inventory levels to normalize in the second and coming quarters of 2023.
FORM 10-Q
QUARTERLY REPORT - PAGE 21
Summary Financial Highlights
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
|
|
(in thousands, other than per share amounts) |
|
|
|||||
Statement of Operations Data |
|
|
|
|
|
|
|
||
Pulp segment revenues |
|
$ |
400,401 |
|
|
$ |
485,931 |
|
|
Solid wood segment revenues |
|
|
121,014 |
|
|
|
104,797 |
|
|
Corporate and other revenues |
|
|
1,251 |
|
|
|
2,013 |
|
|
Total revenues |
|
$ |
522,666 |
|
|
$ |
592,741 |
|
|
|
|
|
|
|
|
|
|
||
Pulp segment operating income |
|
$ |
12,771 |
|
|
$ |
86,236 |
|
|
Solid wood segment operating income (loss) |
|
|
(27,069 |
) |
|
|
38,301 |
|
|
Corporate and other operating loss |
|
|
(5,823 |
) |
|
|
(2,186 |
) |
|
Total operating income (loss) |
|
$ |
(20,121 |
) |
|
$ |
122,351 |
|
|
|
|
|
|
|
|
|
|
||
Pulp segment depreciation and amortization |
|
$ |
27,399 |
|
|
$ |
27,684 |
|
|
Solid wood segment depreciation and amortization |
|
|
19,898 |
|
|
|
4,194 |
|
|
Corporate and other depreciation and amortization |
|
|
294 |
|
|
|
238 |
|
|
Total depreciation and amortization |
|
$ |
47,591 |
|
|
$ |
32,116 |
|
|
|
|
|
|
|
|
|
|
||
Operating EBITDA(1) |
|
$ |
27,470 |
|
|
$ |
154,467 |
|
|
Income tax recovery (provision) |
|
$ |
5,356 |
|
|
$ |
(24,236 |
) |
|
Net income (loss) |
|
$ |
(30,578 |
) |
|
$ |
88,897 |
|
|
Net income (loss) per common share |
|
|
|
|
|
|
|
||
Basic |
|
$ |
(0.46 |
) |
|
$ |
1.35 |
|
|
Diluted |
|
$ |
(0.46 |
) |
|
$ |
1.34 |
|
|
Common shares outstanding at period end |
|
|
66,421 |
|
|
|
66,132 |
|
|
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
|
|
(in thousands) |
|
|
|||||
Net income (loss) |
|
$ |
(30,578 |
) |
|
$ |
88,897 |
|
|
Income tax provision (recovery) |
|
|
(5,356 |
) |
|
|
24,236 |
|
|
Interest expense |
|
|
19,047 |
|
|
|
17,464 |
|
|
Other income |
|
|
(3,234 |
) |
|
|
(8,246 |
) |
|
Operating income (loss) |
|
|
(20,121 |
) |
|
|
122,351 |
|
|
Add: Depreciation and amortization |
|
|
47,591 |
|
|
|
32,116 |
|
|
Operating EBITDA |
|
$ |
27,470 |
|
|
$ |
154,467 |
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 22
Selected Production, Sales and Other Data
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Pulp Segment |
|
|
|
|
|
|
|
||
Pulp production ('000 ADMTs) |
|
|
|
|
|
|
|
||
NBSK |
|
|
430.0 |
|
|
|
435.5 |
|
|
NBHK |
|
|
72.3 |
|
|
|
56.8 |
|
|
Annual maintenance downtime ('000 ADMTs) |
|
|
13.5 |
|
|
|
— |
|
|
Annual maintenance downtime (days) |
|
|
10 |
|
|
|
— |
|
|
Pulp sales ('000 ADMTs) |
|
|
|
|
|
|
|
||
NBSK |
|
|
378.6 |
|
|
|
505.1 |
|
|
NBHK |
|
|
57.4 |
|
|
|
49.9 |
|
|
Average NBSK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
||
Europe |
|
|
1,377 |
|
|
|
1,330 |
|
|
China |
|
|
891 |
|
|
|
899 |
|
|
North America |
|
|
1,675 |
|
|
|
1,527 |
|
|
Average NBHK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
||
China |
|
|
710 |
|
|
|
668 |
|
|
North America |
|
|
1,523 |
|
|
|
1,312 |
|
|
Average pulp sales realizations ($/ADMT)(2) |
|
|
|
|
|
|
|
||
NBSK |
|
|
849 |
|
|
|
812 |
|
|
NBHK |
|
|
809 |
|
|
|
695 |
|
|
Energy production ('000 MWh)(3) |
|
|
534.6 |
|
|
|
531.5 |
|
|
Energy sales ('000 MWh)(3) |
|
|
196.9 |
|
|
|
194.7 |
|
|
Average energy sales realizations ($/MWh)(3) |
|
|
122 |
|
(4) |
|
186 |
|
|
Solid Wood Segment |
|
|
|
|
|
|
|
||
Lumber |
|
|
|
|
|
|
|
||
Production (MMfbm) |
|
|
134.0 |
|
|
|
115.6 |
|
|
Sales (MMfbm) |
|
|
139.9 |
|
|
|
109.9 |
|
|
Average sales realizations ($/Mfbm) |
|
|
429 |
|
|
|
840 |
|
|
Energy |
|
|
|
|
|
|
|
||
Production and sales ('000 MWh) |
|
|
40.5 |
|
|
|
24.5 |
|
|
Average sales realizations ($/MWh) |
|
|
141 |
|
(4) |
|
211 |
|
|
Manufactured products(5) |
|
|
|
|
|
|
|
||
Production ('000 m3) |
|
|
0.8 |
|
|
|
5.5 |
|
|
Sales ('000 m3) |
|
|
4.3 |
|
|
|
5.6 |
|
|
Average sales realizations ($/m3) |
|
|
666 |
|
|
|
671 |
|
|
Pallets |
|
|
|
|
|
|
|
||
Production ('000 units) |
|
|
2,880.2 |
|
|
|
— |
|
|
Sales ('000 units) |
|
|
2,942.4 |
|
|
|
— |
|
|
Average sales realizations ($/unit) |
|
|
12 |
|
|
|
— |
|
|
Biofuels(6) |
|
|
|
|
|
|
|
||
Production ('000 tonnes) |
|
|
32.6 |
|
|
|
— |
|
|
Sales ('000 tonnes) |
|
|
25.8 |
|
|
|
— |
|
|
Average realizations ($/tonne) |
|
|
315 |
|
|
|
— |
|
|
Average Spot Currency Exchange Rates |
|
|
|
|
|
|
|
||
$ / €(7) |
|
|
1.0730 |
|
|
|
1.1216 |
|
|
$ / C$(7) |
|
|
0.7393 |
|
|
|
0.7897 |
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 23
Consolidated – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Total revenues in the first quarter of 2023 decreased by approximately 12% to $522.7 million from $592.7 million in the same quarter of 2022 primarily due to lower pulp sales volumes and lower lumber and energy sales realizations partially offset by the inclusion of Torgau and higher lumber sales volumes and pulp sales realizations.
Costs and expenses in the first quarter of 2023 increased by approximately 15% to $542.8 million from $470.4 million in the first quarter of 2022 primarily due to higher fiber and chemical costs, the inclusion of Torgau and a non-cash inventory impairment of $15.2 million substantially related to hardwood inventory at the Peace River mill due to lower NBHK pulp prices and high production and logistics costs. These increases were partially offset by lower pulp sales volumes, the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses and the receipt of €7.0 million ($7.5 million) in insurance proceeds in the current quarter relating to the July 2022 fire at our Stendal mill.
In the first quarter of 2023, cost of sales depreciation and amortization increased by approximately 48% to $47.5 million from $32.1 million in the same quarter of 2022 due to the inclusion of Torgau.
Selling, general and administrative expenses increased by approximately 53% to $34.0 million in the first quarter of 2023 from $22.2 million in the same quarter of 2022 primarily because of the inclusion of Torgau.
In the first quarter of 2023, operating loss was $20.1 million from operating income of $122.4 million in the same quarter of 2022 primarily due to higher per unit fiber and chemical costs, lower lumber and energy sales realizations, lower pulp sales volumes and the non-cash impairment substantially related to hardwood inventory partially offset by higher pulp sales realizations and the positive impact of a stronger dollar.
Interest expense in the first quarter of 2023 increased to $19.0 million from $17.5 million in the same quarter of 2022 due to borrowings on our German revolving credit facility and higher interest rates.
In the first quarter of 2023, other income was $3.2 million compared to $8.2 million in the same quarter of 2022. Other income in the first quarter of 2023 is primarily due to interest earned on cash and in the first quarter of 2022 other income is primarily as a result of foreign exchange gains on dollar denominated cash held at our operations, as the dollar strengthened in the quarter.
During the first quarter of 2023, we had an income tax recovery of $5.4 million or an effective tax rate of 15% due to not recognizing a tax recovery for certain entities with a net loss before tax and in the comparative quarter of 2022, we had an income tax provision of $24.2 million or an effective tax rate of 21%.
For the first quarter of 2023, net loss was $30.6 million, or $0.46 per share, compared to net income of $88.9 million, or $1.35 per basic share and $1.34 per diluted share in the same quarter of the prior year.
In the first quarter of 2023, Operating EBITDA decreased to $27.5 million from $154.5 million in the same quarter of 2022 primarily due to higher per unit fiber and chemical costs, lower lumber and energy sales realizations, lower pulp sales volumes and the non-cash impairment substantially related to hardwood inventory partially offset by higher pulp sales realizations and the positive impact of a stronger dollar.
Operating Results by Business Segment
None of the income or loss items following operating income (loss) in our Interim Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management.
FORM 10-Q
QUARTERLY REPORT - PAGE 24
Pulp Segment – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Selected Financial Information
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Pulp revenues |
|
$ |
369,656 |
|
|
$ |
446,911 |
|
Energy and chemical revenues |
|
$ |
30,745 |
|
|
$ |
39,020 |
|
Depreciation and amortization |
|
$ |
27,399 |
|
|
$ |
27,684 |
|
Operating income |
|
$ |
12,771 |
|
|
$ |
86,236 |
|
Pulp revenues in the first quarter of 2023 decreased by approximately 17% to $369.7 million from $446.9 million in the same quarter of 2022 due to lower sales volumes partially offset by higher sales realizations.
Energy and chemical revenues decreased by approximately 21% to $30.7 million in the first quarter of 2023 from $39.0 million in the same quarter of 2022 as a result of lower energy sales realizations.
Total pulp production modestly increased to 502,372 ADMTs in the first quarter of 2023 from 492,288 ADMTs in the same quarter of 2022 primarily due to stable production at all of our mills.
In the first quarter of 2023, our pulp mills had ten days of annual maintenance downtime (approximately 13,500 ADMTs). In the comparative quarter of 2022, we had no annual maintenance downtime.
In the second quarter of 2023, our pulp mills currently have a total of 38 days of annual maintenance downtime (approximately 42,700 ADMTs). Our Peace River mill currently has 20 days of scheduled maintenance downtime (approximately 30,100 ADMTs) and nine days of market downtime (approximately 13,500 ADMTs) which may be extended to shift more production at the mill to NBSK from NBHK.
We estimate that annual maintenance downtime in the first quarter of 2023 adversely impacted our operating income by approximately $4.7 million, comprised of approximately $0.8 million in direct out-of-pocket expenses and the balance in reduced production.
Total pulp sales volumes decreased by approximately 21% to 435,973 ADMTs in the first quarter of 2023 from 555,035 ADMTs in the same quarter of 2022 primarily as a result of lower demand as a result of inflationary pressures negatively impacting paper demand.
In the first quarter of 2023, third party industry quoted average list prices for NBSK pulp increased in Europe and North America and were flat in China from the same quarter of 2022. Average third party industry quoted list prices for NBSK pulp in Europe and North America were approximately $1,377 per ADMT and $1,675 per ADMT, respectively, in the first quarter of 2023 compared to approximately $1,330 per ADMT and $1,527 per ADMT, respectively, in the same quarter of 2022. Average third party industry quoted NBSK net prices in China were approximately $891 per ADMT in the first quarter of 2023 compared to approximately $899 per ADMT in the same quarter of 2022.
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.
Our average NBSK pulp sales realizations increased by approximately 5% to $849 per ADMT in the first quarter of 2023 from approximately $812 per ADMT in the same quarter of 2022 as a result of higher list prices.
In the first quarter of 2023 compared to the same quarter of 2022, we had a positive impact of approximately $18.5 million in operating income due to foreign exchange, primarily as a result of the effect of the stronger U.S. dollar on our Canadian dollar and euro denominated costs and expenses.
Costs and expenses in the first quarter of 2023 modestly decreased to $388.0 million from $399.7 million in the first quarter of 2022 primarily due to lower pulp sales volumes, the positive impact of a stronger dollar and the receipt of
FORM 10-Q
QUARTERLY REPORT - PAGE 25
€7.0 million ($7.5 million) in insurance proceeds in the current quarter relating to the July 2022 fire at our Stendal mill partially offset by higher per unit fiber and chemical costs. The first quarter of 2023 included a non-cash inventory impairment of $15.2 million which substantially related to hardwood inventories at the Peace River mill.
In the first quarter of 2023 per unit fiber costs increased by approximately 43% from the same quarter of 2022 due to higher per unit fiber costs for all of our mills. Our German mills had higher per unit fiber costs as a result of strong demand from other wood consumers such as heating pellet manufacturers in response to energy shortages caused by the war in Ukraine. For our Canadian mills, per unit fiber costs increased due to strong demand in the mills' fiber baskets and for our Celgar mill a decrease in the availability of wood chips because of regional sawmill curtailments. We currently expect per unit fiber costs to decrease in the second quarter of 2023 with a decrease in Germany due to less demand for wood for energy purposes and in Canada as a result of increased wood chip availability from increased sawmill production and realizing the early benefits from using the Peace River wood room which was completed in the first quarter of 2023.
Transportation costs decreased by approximately 26% to $35.4 million in the first quarter of 2023 from $47.9 million in the same quarter of 2022 primarily as a result of lower pulp sales volumes.
In the first quarter of 2023, depreciation and amortization modestly decreased to $27.4 million from $27.7 million in the same quarter of 2022 due to the positive impact of a stronger dollar.
In the first quarter of 2023, pulp segment operating income decreased to $12.8 million from $86.2 million in the same quarter of 2022 primarily as a result of higher per unit fiber and chemical costs, lower pulp sales volumes and the non-cash inventory impairment of $15.2 million partially offset by higher pulp sales realizations and the positive impact of a stronger dollar.
Solid Wood Segment – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Selected Financial Information
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Lumber revenues |
|
$ |
60,039 |
|
|
$ |
92,366 |
|
Energy revenues |
|
$ |
5,695 |
|
|
$ |
5,177 |
|
Manufactured products revenues(1) |
|
$ |
5,804 |
|
|
$ |
3,764 |
|
Pallet revenues |
|
$ |
36,175 |
|
|
$ |
— |
|
Biofuel revenues(2) |
|
$ |
8,135 |
|
|
$ |
— |
|
Wood residuals revenues |
|
$ |
5,166 |
|
|
$ |
3,490 |
|
Depreciation and amortization |
|
$ |
19,898 |
|
|
$ |
4,194 |
|
Operating income (loss) |
|
$ |
(27,069 |
) |
|
$ |
38,301 |
|
In the first quarter of 2023, lumber revenues decreased by approximately 35% to $60.0 million from $92.4 million in the same quarter of 2022 primarily due to lower sales realizations partially offset by higher sales volumes. In the first quarter of 2023, both U.S. and European realized lumber prices were lower because of decreased demand as a result of higher interest rates and an uncertain economic outlook compared to the same quarter of 2022. The U.S. market accounted for approximately 54% of our lumber revenues and approximately 50% of our lumber sales volumes in the first quarter of 2023. The majority of the balance of our lumber sales were to Europe.
Energy and wood residuals revenues in the first quarter of 2023 increased by approximately 25% to $10.9 million from $8.7 million in the same quarter of 2022 primarily due to the inclusion of Torgau.
Pallet revenues of $36.2 million and biofuel revenues of $8.1 million in the first quarter of 2023 are from the inclusion of Torgau.
FORM 10-Q
QUARTERLY REPORT - PAGE 26
Manufactured products revenues increased to $5.8 million in the first quarter of 2023 from $3.8 million in the first quarter of 2022 primarily due to the inclusion of Torgau.
In the first quarter of 2023, lumber production increased by approximately 16% to a record 134.0 MMfbm from 115.6 MMfbm in the same quarter of 2022 as a result of record production at our Friesau mill and the inclusion of Torgau.
Lumber sales volumes increased by approximately 27% to 139.9 MMfbm in the first quarter of 2023 from 109.9 MMfbm in the same quarter of 2022 primarily due to higher production and increasing demand as a result of lower prices.
Average lumber sales realizations decreased by approximately 49% to $429 per Mfbm in the first quarter of 2023 from approximately $840 per Mfbm in the same quarter of 2022 as a result of lower demand in both the U.S. and European markets. Demand was negatively impacted by concerns over rising interest rates, inflationary pressures and an uncertain economic outlook.
Fiber costs were approximately 80% of our lumber cash production costs in the first quarter of 2023. In the first quarter of 2023, per unit fiber costs for lumber production increased by approximately 6% compared to the same quarter of 2022. Higher per unit fiber costs were due to strong fiber demand in Germany. We currently expect stable per unit fiber costs in the second quarter of 2023.
In the first quarter of 2023, depreciation and amortization increased to $19.9 million compared to $4.2 million in the same quarter of 2022 as a result of the inclusion of Torgau. Torgau’s amortization included $8.3 million for the order backlog intangible asset acquired, which is now fully amortized.
Transportation costs in the first quarter of 2023 increased by approximately 55% to $17.7 million from $11.4 million in the same quarter of 2022 primarily due to the inclusion of Torgau and higher lumber sales volumes.
In the first quarter of 2023, operating loss was $27.1 million compared to operating income of $38.3 million in the same quarter of 2022 primarily due to lower sales realizations.
Liquidity and Capital Resources
Summary of Cash Flows
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net cash from (used in) operating activities |
|
$ |
(49,650 |
) |
|
$ |
68,810 |
|
Net cash used in investing activities |
|
|
(32,624 |
) |
|
|
(26,790 |
) |
Net cash from financing activities |
|
|
28,099 |
|
|
|
24,609 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
703 |
|
|
|
(1,534 |
) |
Net increase (decrease) in cash and cash equivalents |
|
$ |
(53,472 |
) |
|
$ |
65,095 |
|
We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, labor and chemicals. Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and sales and the payment of payables and expenses.
FORM 10-Q
QUARTERLY REPORT - PAGE 27
Cash Flows from (used in) Operating Activities. Cash used in operating activities was $49.7 million in the three months ended March 31, 2023 compared to $68.8 million generated in the comparative period of 2022. A decrease in accounts receivable provided cash of $11.3 million in the three months ended March 31, 2023 and an increase in accounts receivable used cash of $52.1 million in the same period of 2022. An increase in inventories used cash of $86.4 million in the three months ended March 31, 2023 and $1.7 million in the same period of 2022. An increase in accounts payable and accrued expenses provided cash of $0.3 million in the three months ended March 31, 2023 and a decrease in accounts payable and accrued expenses used cash of $0.6 million in the same period of 2022.
Cash Flows used in Investing Activities. Investing activities in the three months ended March 31, 2023 used cash of $32.6 million primarily related to capital expenditures of $33.4 million. In the three months ended March 31, 2023, capital expenditures primarily related to upgrades to the wood rooms at our Canadian mills and maintenance and optimization projects at our German mills. Investing activities in the three months ended March 31, 2022 used cash of $26.8 million primarily related to capital expenditures of $33.3 million. In the three months ended March 31, 2022, we received the final payment of $6.4 million of insurance proceeds for our property damage claim related to the Peace River recovery boiler.
We have lowered our estimated planned annual capital expenditures for 2023 to between $150 million and $180 million.
Cash Flows from Financing Activities. In the three months ended March 31, 2023, financing activities provided cash of $28.1 million. In the three months ended March 31, 2023, we borrowed approximately $30.1 million under our revolving credit facilities. In the three months ended March 31, 2022, financing activities provided cash of $24.6 million. In the first quarter of 2022, we borrowed $30.5 million under our revolving credit facilities and we received $1.1 million in government grants to partially finance innovation and greenhouse gas emission reduction capital projects at our Canadian mills.
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
300,560 |
|
|
$ |
354,032 |
|
Working capital |
|
$ |
813,165 |
|
|
$ |
800,114 |
|
Total assets |
|
$ |
2,740,475 |
|
|
$ |
2,725,037 |
|
Long-term liabilities |
|
$ |
1,534,924 |
|
|
$ |
1,508,192 |
|
Total shareholders' equity |
|
$ |
822,873 |
|
|
$ |
838,784 |
|
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:
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
|
|
(in thousands) |
|
|
|||||
Capital expenditures |
|
$ |
33,429 |
|
|
$ |
33,293 |
|
|
Cash paid for interest expense(1) |
|
$ |
33,240 |
|
|
$ |
32,073 |
|
|
Interest expense(2) |
|
$ |
19,047 |
|
|
$ |
17,464 |
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 28
As of March 31, 2023, we had cash and cash equivalents of $300.6 million and approximately $255.4 million available under our revolving credit facilities and as a result aggregate liquidity of about $556.0 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, will be adequate to finance the capital requirements for our business including the payment of our quarterly dividend during the next 12 months.
In the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets or the issuance of securities.
Debt Covenants
Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements. See our annual report on Form 10-K for the fiscal year ended December 31, 2022.
As of March 31, 2023, we were in full compliance with all of the covenants of our indebtedness.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Contractual Obligations and Commitments
There were no material changes outside the ordinary course to any of our material contractual obligations during the three months ended March 31, 2023.
Foreign Currency
As a majority of our assets, liabilities and expenditures are held or denominated in euros or Canadian dollars, 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 recorded in other comprehensive income (loss) and do not affect our net earnings.
As a result of the weakening of the dollar versus the euro as of March 31, 2023, we recorded a net non-cash increase of $18.7 million in the carrying value of our net assets, consisting primarily of our property, plant and equipment denominated in euros. This non-cash increase does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income and as an increase to our total equity. As a result, our accumulated other comprehensive loss decreased to $161.5 million.
Based upon the exchange rate as of March 31, 2023, the dollar has weakened by approximately 2% against the euro and was flat against the Canadian dollar since December 31, 2022. See "Quantitative and Qualitative Disclosures about Market Risk".
FORM 10-Q
QUARTERLY REPORT - PAGE 29
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 the 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 increases, these judgments become even more subjective and complex.
Our significant accounting policies are disclosed in Note 1 to our audited annual financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2022. 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, 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.
We have identified certain accounting policies that are the most important to the portrayal of our current financial condition and results of operations.
For information about both our significant and critical accounting policies, see our annual report on Form 10-K for the fiscal year ended December 31, 2022.
Cautionary Statement Regarding Forward-Looking Information
The statements in this report that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.
Generally, forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", or words of similar meaning, or future or conditional verbs, such as "will", "should", "could", or "may", although not all forward-looking statements contain these identifying words. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties and other factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, the following:
Risks Related to our Business
FORM 10-Q
QUARTERLY REPORT - PAGE 30
Risks Related to our Debt
Risks Related to Macro-economic Conditions
FORM 10-Q
QUARTERLY REPORT - PAGE 31
Legal and Regulatory Risks
Risks Related to Ownership of our Shares
Given these uncertainties, you should not place undue reliance on our forward-looking statements. The foregoing review of important factors is not exhaustive or necessarily in order of importance and should be read in conjunction with the risks and assumptions including those set forth under "Part II. Other Information – Item 1A. Risk Factors" and in reports and other documents we have filed with or furnished to the SEC, including in our annual report on Form 10-K for the fiscal year ended December 31, 2022. We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.
Cyclical Nature of Business
Revenues
The pulp and lumber businesses are highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can materially affect prices. Pulp and lumber markets are sensitive to cyclical changes in the global economy, industry capacity and foreign exchange rates, all of which can have a significant influence on selling prices and our operating results. The length and magnitude of industry cycles have varied over time but generally reflect changes in macro-economic conditions and levels of industry capacity. Pulp and lumber are commodities that are generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is generally determined by supply relative to demand.
Industry capacity can fluctuate as changing industry conditions can influence producers to idle production capacity or permanently close mills. In addition, to avoid substantial cash costs in idling or closing a mill, some producers will choose to operate at a loss, sometimes even a cash loss, which can prolong weak pricing environments due to oversupply. Oversupply of our products can also result from producers introducing new capacity in response to favorable pricing trends. Certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their pulp production on the market, if market conditions, prices and trends warrant such actions.
FORM 10-Q
QUARTERLY REPORT - PAGE 32
Demand for each of pulp and lumber has historically been determined primarily by general global macro-economic conditions and has been closely tied to overall business activity. Pulp and lumber prices have been and are likely to continue to be volatile and can fluctuate widely over time.
The third party industry quoted average European list prices for NBSK pulp between 2013 and 2023 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,500 per ADMT in 2022. In the same period, third party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $770 per ADMT in 2013 to a high of $1,620 per ADMT in 2022.
As a key construction material, the pricing and demand for lumber is also significantly influenced by the number of housing starts, especially in the United States. In the U.S., third party industry quoted monthly average western spruce/pine/fir (WSPF) 2 x 4 #2&Btr prices between 2013 and 2023 have fluctuated between a low of $245 per Mfbm in 2015 to a high of $1,604 per Mfbm in 2021. Similarly, the demand for CLT is primarily driven by the wood construction market and increased government policies focused on a low-carbon economy.
Our mills and operations voluntarily subject themselves to third-party certification as to compliance with internationally recognized, sustainable management standards because end use paper and lumber customers have shown an increased interest in understanding the origin of products they purchase. Demand for our products could be adversely affected if we, or our suppliers, are unable to achieve compliance, or are perceived by the public as failing to comply, with these standards or if our customers require compliance with alternate standards for which our operations are not certified.
A pulp producer's actual sales price realizations are net of customer discounts, rebates and other selling concessions. Accordingly, prices for pulp and lumber are driven by many factors outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond our control determine the prices for pulp and lumber, prices may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our mills. Therefore, our profitability depends on managing our cost structure, particularly raw materials which represent a significant component of our operating costs and can fluctuate based upon factors beyond our control. If the prices of our products decline, or if prices for our raw materials increase, or both, our results of operations and cash flows could be materially adversely affected.
Costs
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 and sawlogs. Wood chip, pulp log and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber prices could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy.
Currency
We have manufacturing operations in Germany, Canada and the United States. Most of the operating costs and expenses of our German mills are incurred in euros and those of our Canadian mills in Canadian dollars. However, the majority of our sales are in products quoted in dollars. Our results of operations and financial condition are reported in dollars. As a result, our costs generally benefit from a strengthening dollar but are adversely affected by a decrease in the value of the dollar relative to the euro and to the Canadian dollar. Such declines in the dollar relative to the euro and the Canadian dollar reduce our operating margins and the cash flow available to fund our operations and to service our debt. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
FORM 10-Q
QUARTERLY REPORT - PAGE 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in interest rates and foreign currency exchange rates, particularly the exchange rates between the dollar and the euro and Canadian dollar. Changes in these rates may affect our results of operations and financial condition and, consequently, our fair value. We seek to manage these risks through internal risk management policies as well as the periodic use of derivatives.
For additional information, please refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our annual report on Form 10-K for the fiscal year ended December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
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 Securities Exchange Act of 1934, as amended, referred to as the "Exchange Act"), as of the end of the period covered by this report. 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.
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 period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORM 10-Q
QUARTERLY REPORT - PAGE 34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to routine litigation incidental to our business, including that which is described in our latest annual report on Form 10-K for the fiscal year ended December 31, 2022. We do not believe that the outcome of such litigation will have a material adverse effect on our business or financial condition.
ITEM 1A. RISK FACTORS
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2022.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
FORM 10-Q
QUARTERLY REPORT - PAGE 35
ITEM 6. EXHIBITS
Exhibit No. |
|
Description |
|
|
|
10.1 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101 |
|
The following financial information from the Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2023 of Mercer International Inc., formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Interim Consolidated Statements of Operations; (ii) Interim Consolidated Statements of Comprehensive Income (Loss); (iii) Interim Consolidated Balance Sheets; (iv) Interim Consolidated Statements of Changes in Shareholders' Equity; (v) Interim Consolidated Statements of Cash Flows; and (vi) Notes to the Interim Consolidated Financial Statements. |
|
|
|
104 |
|
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 has been formatted in Inline XBRL. |
* In accordance with Release No. 33-8212 of the SEC, these Certifications: (i) are "furnished" to the SEC and are not "filed" for the purposes of liability under the Securities Exchange Act of 1934, as amended; and (ii) are not to be subject to automatic incorporation by reference into any of the Company's registration statements filed under the Securities Act of 1933, as amended, for the purposes of liability thereunder or any offering memorandum, unless the Company specifically incorporates them by reference therein.
FORM 10-Q
QUARTERLY REPORT - PAGE 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
MERCER INTERNATIONAL INC. |
||
|
|
|
|
|
By: |
|
/s/ Juan Carlos Bueno |
|
|
|
Juan Carlos Bueno |
|
|
|
Chief Executive Officer |
Date: May 4, 2023
FORM 10-Q
QUARTERLY REPORT - PAGE 37