UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission File No.: 000-51826
MERCER INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Washington |
| 47-0956945 |
(State or other jurisdiction |
| (I.R.S. Employer |
of incorporation or organization) |
| Identification No.) |
Suite 1120, 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8
(Address of office)
(604) 684-1099
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $1.00 per share |
| MERC |
| NASDAQ Global Select Market |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesYes ☒ NONo ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NONo ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
| Accelerated filer |
|
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESYes ☐ NONo ☒
The Registrant had 65,868,08666,037,552 shares of common stock outstanding as of OctoberJuly 28, 2020.2021.
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021
(Unaudited)
FORM 10-Q
QUARTERLY REPORT - PAGE 2
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of U.S. dollars, except per share data)
|
| Three Months Ended September 30 |
|
| Nine Months Ended September 30 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Revenues |
| $ | 333,151 |
|
| $ | 383,536 |
|
| $ | 1,024,945 |
|
| $ | 1,293,239 |
|
| $ | 401,832 |
|
| $ | 341,195 |
|
| $ | 814,552 |
|
| $ | 691,794 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| 272,165 |
|
|
| 314,894 |
|
|
| 832,554 |
|
|
| 994,360 |
|
|
| 297,826 |
|
|
| 284,333 |
|
|
| 608,023 |
|
|
| 560,389 |
|
Cost of sales depreciation and amortization |
|
| 31,862 |
|
|
| 31,934 |
|
|
| 94,952 |
|
|
| 94,108 |
|
|
| 31,935 |
|
|
| 30,179 |
|
|
| 62,881 |
|
|
| 63,090 |
|
Selling, general and administrative expenses |
|
| 15,388 |
|
|
| 17,961 |
|
|
| 49,326 |
|
|
| 54,662 |
|
|
| 20,235 |
|
|
| 16,368 |
|
|
| 40,783 |
|
|
| 33,938 |
|
Operating income |
|
| 13,736 |
|
|
| 18,747 |
|
|
| 48,113 |
|
|
| 150,109 |
|
|
| 51,836 |
|
|
| 10,315 |
|
|
| 102,865 |
|
|
| 34,377 |
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (19,864 | ) |
|
| (18,183 | ) |
|
| (60,056 | ) |
|
| (55,103 | ) |
|
| (17,130 | ) |
|
| (20,108 | ) |
|
| (36,149 | ) |
|
| (40,192 | ) |
Other income |
|
| 11,898 |
|
|
| 887 |
|
|
| 12,136 |
|
|
| 3,177 |
| ||||||||||||||||
Loss on early extinguishment of debt |
|
| 0 |
|
|
| 0 |
|
|
| (30,368 | ) |
|
| 0 |
| ||||||||||||||||
Other income (expenses) |
|
| (2,606 | ) |
|
| 2,264 |
|
|
| 4,383 |
|
|
| 238 |
| ||||||||||||||||
Total other expenses, net |
|
| (7,966 | ) |
|
| (17,296 | ) |
|
| (47,920 | ) |
|
| (51,926 | ) |
|
| (19,736 | ) |
|
| (17,844 | ) |
|
| (62,134 | ) |
|
| (39,954 | ) |
Income before income taxes |
|
| 5,770 |
|
|
| 1,451 |
|
|
| 193 |
|
|
| 98,183 |
| ||||||||||||||||
Income tax recovery (provision) |
|
| 1,775 |
|
|
| (244 | ) |
|
| (4,451 | ) |
|
| (35,101 | ) | ||||||||||||||||
Income (loss) before income taxes |
|
| 32,100 |
|
|
| (7,529 | ) |
|
| 40,731 |
|
|
| (5,577 | ) | ||||||||||||||||
Income tax provision |
|
| (10,685 | ) |
|
| (882 | ) |
|
| (13,383 | ) |
|
| (6,226 | ) | ||||||||||||||||
Net income (loss) |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | 0.11 |
|
| $ | 0.02 |
|
| $ | (0.06 | ) |
| $ | 0.96 |
|
| $ | 0.32 |
|
| $ | (0.13 | ) |
| $ | 0.41 |
|
| $ | (0.18 | ) |
Dividends declared per common share |
| $ | 0.0650 |
|
| $ | 0.1375 |
|
| $ | 0.2675 |
|
| $ | 0.4000 |
|
| $ | 0.0650 |
|
| $ | 0.0650 |
|
| $ | 0.1300 |
|
| $ | 0.2025 |
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands of U.S. dollars)
|
| Three Months Ended September 30 |
|
| Nine Months Ended September 30 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net income (loss) |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
Other comprehensive income (loss), net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 52,280 |
|
|
| (48,538 | ) |
|
| 21,488 |
|
|
| (28,285 | ) |
|
| 18,457 |
|
|
| 44,202 |
|
|
| (17,566 | ) |
|
| (30,792 | ) |
Change in unrecognized losses and prior service costs related to defined benefit pension plans, net of tax of $nil (2019 - $7 and $43, respectively) |
|
| 8 |
|
|
| 39 |
|
|
| 31 |
|
|
| 134 |
| ||||||||||||||||
Change in unrecognized losses and prior service costs related to defined benefit pension plans, net of tax expense of $nil and $681, respectively (2020 — $nil) |
|
| (58 | ) |
|
| 17 |
|
|
| 322 |
|
|
| 23 |
| ||||||||||||||||
Other comprehensive income (loss), net of taxes |
|
| 52,288 |
|
|
| (48,499 | ) |
|
| 21,519 |
|
|
| (28,151 | ) |
|
| 18,399 |
|
|
| 44,219 |
|
|
| (17,244 | ) |
|
| (30,769 | ) |
Total comprehensive income (loss) |
| $ | 59,833 |
|
| $ | (47,292 | ) |
| $ | 17,261 |
|
| $ | 34,931 |
|
| $ | 39,814 |
|
| $ | 35,808 |
|
| $ | 10,104 |
|
| $ | (42,572 | ) |
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)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 345,580 |
|
| $ | 351,085 |
|
| $ | 384,534 |
|
| $ | 361,098 |
|
Accounts receivable, net |
|
| 202,619 |
|
|
| 208,740 |
|
|
| 225,238 |
|
|
| 227,055 |
|
Inventories |
|
| 269,864 |
|
|
| 272,599 |
|
|
| 313,354 |
|
|
| 271,696 |
|
Prepaid expenses and other |
|
| 16,417 |
|
|
| 12,273 |
|
|
| 14,475 |
|
|
| 15,003 |
|
Total current assets |
|
| 834,480 |
|
|
| 844,697 |
|
|
| 937,601 |
|
|
| 874,852 |
|
Property, plant and equipment, net |
|
| 1,065,345 |
|
|
| 1,074,242 |
|
|
| 1,133,292 |
|
|
| 1,109,740 |
|
Investment in joint ventures |
|
| 47,865 |
|
|
| 53,122 |
|
|
| 45,844 |
|
|
| 46,429 |
|
Amortizable intangible assets, net |
|
| 50,132 |
|
|
| 53,371 |
|
|
| 50,982 |
|
|
| 51,571 |
|
Operating lease right-of-use assets |
|
| 12,932 |
|
|
| 13,004 |
|
|
| 11,829 |
|
|
| 13,251 |
|
Other long-term assets |
|
| 32,744 |
|
|
| 26,038 |
|
|
| 33,896 |
|
|
| 31,928 |
|
Deferred income tax |
|
| 1,237 |
|
|
| 1,246 |
|
|
| 1,254 |
|
|
| 1,355 |
|
Total assets |
| $ | 2,044,735 |
|
| $ | 2,065,720 |
|
| $ | 2,214,698 |
|
| $ | 2,129,126 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other |
| $ | 199,992 |
|
| $ | 255,544 |
|
| $ | 264,459 |
|
| $ | 210,994 |
|
Pension and other post-retirement benefit obligations |
|
| 724 |
|
|
| 768 |
|
|
| 905 |
|
|
| 802 |
|
Total current liabilities |
|
| 200,716 |
|
|
| 256,312 |
|
|
| 265,364 |
|
|
| 211,796 |
|
Debt |
|
| 1,124,202 |
|
|
| 1,087,932 |
|
|
| 1,157,873 |
|
|
| 1,145,294 |
|
Pension and other post-retirement benefit obligations |
|
| 24,613 |
|
|
| 25,489 |
|
|
| 31,057 |
|
|
| 31,810 |
|
Finance lease liabilities |
|
| 39,741 |
|
|
| 31,103 |
|
|
| 57,039 |
|
|
| 41,329 |
|
Operating lease liabilities |
|
| 9,912 |
|
|
| 10,520 |
|
|
| 8,488 |
|
|
| 9,933 |
|
Other long-term liabilities |
|
| 14,213 |
|
|
| 14,114 |
|
|
| 12,130 |
|
|
| 10,909 |
|
Deferred income tax |
|
| 80,631 |
|
|
| 89,847 |
|
|
| 78,613 |
|
|
| 77,028 |
|
Total liabilities |
|
| 1,494,028 |
|
|
| 1,515,317 |
|
|
| 1,610,564 |
|
|
| 1,528,099 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares $1 par value; 200,000,000 authorized; 65,868,000 issued and outstanding (2019 – 65,629,000) |
|
| 65,800 |
|
|
| 65,598 |
| ||||||||
Common shares $1 par value; 200,000,000 authorized; 66,037,000 issued and outstanding (2020 – 65,868,000) |
|
| 65,988 |
|
|
| 65,800 |
| ||||||||
Additional paid-in capital |
|
| 345,583 |
|
|
| 344,994 |
|
|
| 347,093 |
|
|
| 345,696 |
|
Retained earnings |
|
| 234,365 |
|
|
| 256,371 |
|
|
| 235,872 |
|
|
| 217,106 |
|
Accumulated other comprehensive loss |
|
| (95,041 | ) |
|
| (116,560 | ) |
|
| (44,819 | ) |
|
| (27,575 | ) |
Total shareholders’ equity |
|
| 550,707 |
|
|
| 550,403 |
|
|
| 604,134 |
|
|
| 601,027 |
|
Total liabilities and shareholders’ equity |
| $ | 2,044,735 |
|
| $ | 2,065,720 |
|
| $ | 2,214,698 |
|
| $ | 2,129,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent event (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Interim Consolidated Financial Statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 4
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of U.S. dollars)
|
| Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Number (thousands of shares) |
|
| Amount, at Par Value |
|
| Additional Paid -in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders' Equity |
|
| Number (thousands of shares) |
|
| Amount, at Par Value |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders' Equity |
| ||||||||||||
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance as of June 30, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 344,688 |
|
| $ | 231,101 |
|
| $ | (147,329 | ) |
| $ | 494,260 |
| ||||||||||||||||||||||||
Three Months Ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance as of March 31, 2021 |
|
| 65,988 |
|
| $ | 65,920 |
|
| $ | 346,186 |
|
| $ | 218,750 |
|
| $ | (63,218 | ) |
| $ | 567,638 |
| ||||||||||||||||||||||||
Shares issued on grants of restricted shares |
|
| 49 |
|
|
| 68 |
|
|
| (68 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 895 |
|
|
| — |
|
|
| — |
|
|
| 895 |
|
|
| — |
|
|
| — |
|
|
| 975 |
|
|
| — |
|
|
| — |
|
|
| 975 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,545 |
|
|
| — |
|
|
| 7,545 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,415 |
|
|
| — |
|
|
| 21,415 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,281 | ) |
|
| — |
|
|
| (4,281 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,293 | ) |
|
| — |
|
|
| (4,293 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,288 |
|
|
| 52,288 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,399 |
|
|
| 18,399 |
|
Balance as of September 30, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 345,583 |
|
| $ | 234,365 |
|
| $ | (95,041 | ) |
| $ | 550,707 |
| ||||||||||||||||||||||||
Balance as of June 30, 2021 |
|
| 66,037 |
|
| $ | 65,988 |
|
| $ | 347,093 |
|
| $ | 235,872 |
|
| $ | (44,819 | ) |
| $ | 604,134 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019 |
|
| 65,629 |
|
| $ | 65,598 |
|
| $ | 342,815 |
|
| $ | 345,934 |
|
| $ | (107,822 | ) |
| $ | 646,525 |
| ||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 1,179 |
|
|
| — |
|
|
| — |
|
|
| 1,179 |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,207 |
|
|
| — |
|
|
| 1,207 |
| ||||||||||||||||||||||||
Balance as of March 31, 2020 |
|
| 65,800 |
|
| $ | 65,769 |
|
| $ | 344,753 |
|
| $ | 243,794 |
|
| $ | (191,548 | ) |
| $ | 462,768 |
| ||||||||||||||||||||||||
Shares issued on grants of restricted shares |
|
| 68 |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock compensation reversal |
|
| — |
|
|
| — |
|
|
| (34 | ) |
|
| — |
|
|
| — |
|
|
| (34 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,411 | ) |
|
| — |
|
|
| (8,411 | ) | ||||||||||||||||||||||||
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,025 | ) |
|
| — |
|
|
| (9,025 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,282 | ) |
|
| — |
|
|
| (4,282 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
| �� |
| — |
|
|
| (48,499 | ) |
|
| (48,499 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2019 |
|
| 65,629 |
|
| $ | 65,598 |
|
| $ | 343,994 |
|
| $ | 338,116 |
|
| $ | (156,321 | ) |
| $ | 591,387 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,219 |
|
|
| 44,219 |
| ||||||||||||||||||||||||
Balance as of June 30, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 344,688 |
|
| $ | 231,101 |
|
| $ | (147,329 | ) |
| $ | 494,260 |
|
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance as of December 31, 2019 |
|
| 65,629 |
|
| $ | 65,598 |
|
| $ | 344,994 |
|
| $ | 256,371 |
|
| $ | (116,560 | ) |
| $ | 550,403 |
| ||||||||||||||||||||||||
Shares issued on grants of restricted shares |
|
| 68 |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Shares issued on grants of performance share units |
|
| 195 |
|
|
| 195 |
|
|
| (195 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 815 |
|
|
| — |
|
|
| — |
|
|
| 815 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,258 | ) |
|
| — |
|
|
| (4,258 | ) | ||||||||||||||||||||||||
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,610 | ) |
|
| — |
|
|
| (17,610 | ) | ||||||||||||||||||||||||
Repurchase of common shares |
|
| (24 | ) |
|
| (24 | ) |
|
| — |
|
|
| (138 | ) |
|
| — |
|
|
| (162 | ) | ||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,519 |
|
|
| 21,519 |
| ||||||||||||||||||||||||
Balance as of September 30, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 345,583 |
|
| $ | 234,365 |
|
| $ | (95,041 | ) |
| $ | 550,707 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
| 65,202 |
|
| $ | 65,171 |
|
| $ | 342,438 |
|
| $ | 301,990 |
|
| $ | (128,170 | ) |
| $ | 581,429 |
| ||||||||||||||||||||||||
Six Months Ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance as of December 31, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 345,696 |
|
| $ | 217,106 |
|
| $ | (27,575 | ) |
| $ | 601,027 |
| ||||||||||||||||||||||||
Shares issued on grants of restricted shares |
|
| 31 |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| 68 |
|
|
| (68 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued on grants of performance share units |
|
| 449 |
|
|
| 449 |
|
|
| (449 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| (120 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 2,036 |
|
|
| — |
|
|
| — |
|
|
| 2,036 |
|
|
| — |
|
|
| — |
|
|
| 1,585 |
|
|
| — |
|
|
| — |
|
|
| 1,585 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,082 |
|
|
| — |
|
|
| 63,082 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,348 |
|
|
| — |
|
|
| 27,348 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,255 | ) |
|
| — |
|
|
| (26,255 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,582 | ) |
|
| — |
|
|
| (8,582 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,244 | ) |
|
| (17,244 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2021 |
|
| 66,037 |
|
| $ | 65,988 |
|
| $ | 347,093 |
|
| $ | 235,872 |
|
| $ | (44,819 | ) |
| $ | 604,134 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance as of December 31, 2019 |
|
| 65,629 |
|
| $ | 65,598 |
|
| $ | 344,994 |
|
| $ | 256,371 |
|
| $ | (116,560 | ) |
| $ | 550,403 |
| ||||||||||||||||||||||||
Shares issued on grants of restricted shares |
|
| 68 |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Shares issued on grants of performance share units |
|
| 195 |
|
|
| 195 |
|
|
| (195 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock compensation reversal |
|
| — |
|
|
| — |
|
|
| (80 | ) |
|
| — |
|
|
| — |
|
|
| (80 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,803 | ) |
|
| — |
|
|
| (11,803 | ) | ||||||||||||||||||||||||
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,329 | ) |
|
| — |
|
|
| (13,329 | ) | ||||||||||||||||||||||||
Repurchase of common shares |
|
| (53 | ) |
|
| (53 | ) |
|
| — |
|
|
| (701 | ) |
|
| — |
|
|
| (754 | ) |
|
| (24 | ) |
|
| (24 | ) |
|
| — |
|
|
| (138 | ) |
|
| — |
|
|
| (162 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,151 | ) |
|
| (28,151 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,769 | ) |
|
| (30,769 | ) |
Balance as of September 30, 2019 |
|
| 65,629 |
|
| $ | 65,598 |
|
| $ | 343,994 |
|
| $ | 338,116 |
|
| $ | (156,321 | ) |
| $ | 591,387 |
| ||||||||||||||||||||||||
Balance as of June 30, 2020 |
|
| 65,868 |
|
| $ | 65,800 |
|
| $ | 344,688 |
|
| $ | 231,101 |
|
| $ | (147,329 | ) |
| $ | 494,260 |
|
See accompanying Notes to the Interim Consolidated Financial Statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 5
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
|
| Three Months Ended September 30 |
|
| Nine Months Ended September 30 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Cash flows from (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
Adjustments to reconcile net income (loss) to cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 31,884 |
|
|
| 32,052 |
|
|
| 95,031 |
|
|
| 94,447 |
|
|
| 31,955 |
|
|
| 30,201 |
|
|
| 62,922 |
|
|
| 63,147 |
|
Deferred income tax provision (recovery) |
|
| (4,255 | ) |
|
| (1,706 | ) |
|
| (10,330 | ) |
|
| 2,359 |
|
|
| 1,276 |
|
|
| (4,744 | ) |
|
| 2,480 |
|
|
| (6,075 | ) |
Inventory impairment |
|
| 8,000 |
|
|
| 6,900 |
|
|
| 25,998 |
|
|
| 13,800 |
|
|
| 0 |
|
|
| 6,530 |
|
|
| 0 |
|
|
| 12,264 |
|
Loss on early extinguishment of debt |
|
| 0 |
|
|
| 0 |
|
|
| 30,368 |
|
|
| 0 |
| ||||||||||||||||
Defined benefit pension plans and other post-retirement benefit plan expense |
|
| 769 |
|
|
| 866 |
|
|
| 2,270 |
|
|
| 2,582 |
|
|
| 856 |
|
|
| 739 |
|
|
| 1,775 |
|
|
| 1,501 |
|
Stock compensation expense |
|
| 895 |
|
|
| 1,179 |
|
|
| 815 |
|
|
| 2,036 |
| ||||||||||||||||
Gain on sale of investments |
|
| (15,443 | ) |
|
| 0 |
|
|
| (15,443 | ) |
|
| 0 |
| ||||||||||||||||
Stock compensation expense (reversal) |
|
| 975 |
|
|
| (34 | ) |
|
| 1,585 |
|
|
| (80 | ) | ||||||||||||||||
Foreign exchange transaction losses (gains) |
|
| 3,384 |
|
|
| (8,873 | ) |
|
| 4,120 |
|
|
| 369 |
|
|
| 1,966 |
|
|
| 6,880 |
|
|
| (6,640 | ) |
|
| 736 |
|
Other |
|
| (1,801 | ) |
|
| 2,887 |
|
|
| (2,993 | ) |
|
| 4,331 |
|
|
| 356 |
|
|
| (695 | ) |
|
| (260 | ) |
|
| (1,192 | ) |
Defined benefit pension plans and other post-retirement benefit plan contributions |
|
| (783 | ) |
|
| (1,200 | ) |
|
| (2,495 | ) |
|
| (2,628 | ) |
|
| (1,202 | ) |
|
| (797 | ) |
|
| (2,125 | ) |
|
| (1,712 | ) |
Changes in working capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 17,226 |
|
|
| 41,381 |
|
|
| 11,238 |
|
|
| 17,232 |
|
|
| 16,364 |
|
|
| 14,938 |
|
|
| 3,941 |
|
|
| (5,988 | ) |
Inventories |
|
| (8,031 | ) |
|
| 2,342 |
|
|
| (20,443 | ) |
|
| 15,714 |
|
|
| (21,964 | ) |
|
| 11,442 |
|
|
| (42,763 | ) |
|
| (6,678 | ) |
Accounts payable and accrued expenses |
|
| (4,219 | ) |
|
| (16,691 | ) |
|
| (54,000 | ) |
|
| (12,667 | ) |
|
| 30,167 |
|
|
| 7,879 |
|
|
| 34,603 |
|
|
| (49,781 | ) |
Other |
|
| (6,683 | ) |
|
| (3,483 | ) |
|
| (6,759 | ) |
|
| (12,889 | ) |
|
| (1,012 | ) |
|
| 177 |
|
|
| (1,794 | ) |
|
| (76 | ) |
Net cash from (used in) operating activities |
|
| 28,488 |
|
|
| 56,861 |
|
|
| 22,751 |
|
|
| 187,768 |
|
|
| 81,152 |
|
|
| 64,105 |
|
|
| 111,440 |
|
|
| (5,737 | ) |
Cash flows from (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
| (14,639 | ) |
|
| (37,049 | ) |
|
| (59,201 | ) |
|
| (81,417 | ) |
|
| (62,124 | ) |
|
| (21,544 | ) |
|
| (87,386 | ) |
|
| (44,562 | ) |
Insurance proceeds |
|
| 20,048 |
|
|
| 0 |
|
|
| 20,048 |
|
|
| 0 |
| ||||||||||||||||
Purchase of amortizable intangible assets |
|
| (30 | ) |
|
| (215 | ) |
|
| (557 | ) |
|
| (710 | ) |
|
| (568 | ) |
|
| (89 | ) |
|
| (1,209 | ) |
|
| (527 | ) |
Purchase of investments |
|
| 0 |
|
|
| 0 |
|
|
| (9,370 | ) |
|
| 0 |
| ||||||||||||||||
Proceeds from sale of investments |
|
| 21,540 |
|
|
| 0 |
|
|
| 21,540 |
|
|
| 0 |
| ||||||||||||||||
Other |
|
| 396 |
|
|
| 162 |
|
|
| 1,243 |
|
|
| (181 | ) |
|
| 285 |
|
|
| 796 |
|
|
| (109 | ) |
|
| 847 |
|
Net cash from (used in) investing activities |
|
| 7,267 |
|
|
| (37,102 | ) |
|
| (46,345 | ) |
|
| (82,308 | ) |
|
| (42,359 | ) |
|
| (20,837 | ) |
|
| (68,656 | ) |
|
| (44,242 | ) |
Cash flows from (used in) financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of senior notes |
|
| 0 |
|
|
| 0 |
|
|
| (824,557 | ) |
|
| 0 |
| ||||||||||||||||
Proceeds from issuance of senior notes |
|
| 0 |
|
|
| 0 |
|
|
| 875,000 |
|
|
| 0 |
| ||||||||||||||||
Proceeds from (repayment of) revolving credit facilities, net |
|
| 8,750 |
|
|
| 0 |
|
|
| 34,359 |
|
|
| (58,404 | ) |
|
| (42,042 | ) |
|
| (25,651 | ) |
|
| (57,112 | ) |
|
| 25,609 |
|
Dividend payments |
|
| (4,282 | ) |
|
| (9,025 | ) |
|
| (13,329 | ) |
|
| (17,231 | ) |
|
| (4,289 | ) |
|
| 0 |
|
|
| (4,289 | ) |
|
| (9,047 | ) |
Repurchase of common shares |
|
| 0 |
|
|
| 0 |
|
|
| (162 | ) |
|
| (754 | ) | ||||||||||||||||
Payment of debt issuance costs |
|
| 0 |
|
|
| (369 | ) |
|
| 0 |
|
|
| (1,126 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (14,414 | ) |
|
| 0 |
|
Proceeds from government grants |
|
| 0 |
|
|
| 147 |
|
|
| 299 |
|
|
| 6,467 |
|
|
| 0 |
|
|
| 299 |
|
|
| 8,532 |
|
|
| 299 |
|
Repurchase of common shares |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (162 | ) | ||||||||||||||||
Other |
|
| (302 | ) |
|
| (1,735 | ) |
|
| (2,729 | ) |
|
| (8,664 | ) |
|
| (1,832 | ) |
|
| (1,996 | ) |
|
| 89 |
|
|
| (11,797 | ) |
Net cash from (used in) financing activities |
|
| 4,166 |
|
|
| (10,982 | ) |
|
| 18,438 |
|
|
| (79,712 | ) |
|
| (48,163 | ) |
|
| (27,348 | ) |
|
| (16,751 | ) |
|
| 4,902 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 2,325 |
|
|
| (1,200 | ) |
|
| (349 | ) |
|
| (1,340 | ) |
|
| (1,179 | ) |
|
| 888 |
|
|
| (2,597 | ) |
|
| (2,674 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 42,246 |
|
|
| 7,577 |
|
|
| (5,505 | ) |
|
| 24,408 |
|
|
| (10,549 | ) |
|
| 16,808 |
|
|
| 23,436 |
|
|
| (47,751 | ) |
Cash and cash equivalents, beginning of period |
|
| 303,334 |
|
|
| 257,322 |
|
|
| 351,085 |
|
|
| 240,491 |
|
|
| 395,083 |
|
|
| 286,526 |
|
|
| 361,098 |
|
|
| 351,085 |
|
Cash and cash equivalents, end of period |
| $ | 345,580 |
|
| $ | 264,899 |
|
| $ | 345,580 |
|
| $ | 264,899 |
|
| $ | 384,534 |
|
| $ | 303,334 |
|
| $ | 384,534 |
|
| $ | 303,334 |
|
Supplemental cash flow disclosure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash paid for interest |
| $ | 38,029 |
|
| $ | 32,857 |
|
| $ | 76,257 |
|
| $ | 55,742 |
|
| $ | 1,084 |
|
| $ | 950 |
|
| $ | 40,110 |
|
| $ | 38,228 |
|
Cash paid for income taxes |
| $ | 2,916 |
|
| $ | 3,337 |
|
| $ | 17,797 |
|
| $ | 42,074 |
|
| $ | 3,290 |
|
| $ | 1,907 |
|
| $ | 5,135 |
|
| $ | 14,881 |
|
Supplemental schedule of non-cash investing and financing activities: | Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Leased production equipment |
| $ | 510 |
|
| $ | 0 |
|
| $ | 11,206 |
|
| $ | 0 |
|
| $ | 7,210 |
|
| $ | 1,702 |
|
| $ | 23,179 |
|
| $ | 10,696 |
|
See accompanying Notes to the Interim Consolidated Financial Statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 6
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 1. The Company and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. ("Mercer Inc.") and all of its subsidiaries (collectively the "Company"). Mercer Inc. owns 100% of the economic interest in its subsidiaries with the exception of the 50% joint venture interest in the Cariboo mill with West Fraser Mills Ltd., which is accounted for using the equity method. The Company's shares of common stock are quoted and listed for trading on the NASDAQ Global Select Market.
The Interim Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). The year-end Consolidated Balance Sheet data was derived from audited financial statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States ("GAAP"). The unaudited Interim Consolidated Financial Statements should be read together with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2019.2020. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis (except for the change in policy referred to below) with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 20192020 and contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year.
In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United States dollars ("U.S. dollars" or "$"). The symbol "€" refers to euros and the symbol "C$" refers to Canadian dollars.
Use of Estimates
Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.
Impact of the COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic and information continues to evolve. In mid-2020,Recently many countries eased restrictions on economic and social activities to, among other things, reopen their economies by allowing businesses to restart and encourage economic recovery. Recently there has been a widespread increase or "second wave" in reported infections including in EuropeThe impact of the eased restrictions on the COVID-19 virus infection rate and the U.S. In response, various countries including in Europe have announced thepossible re-imposition of some restrictions on social, business and other activities. Such economic disruption could have a material adverse effect on our business.
FORM 10-Q
QUARTERLY REPORT - PAGE 7
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 1. The Company and Summary of Significant Accounting Policies (continued)
activities is uncertain at this time.
The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these Interim Consolidated Financial Statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations remain uncertain.
New Accounting Pronouncements
Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment method with a method that reflects expected credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, which provides entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. These updates were effective for financial statements issued after December 15, 2019. The Company adopted these updates on January 1, 2020 using the modified-retrospective approach. The adoption of these updates did not have an impact on the Interim Consolidated Financial Statements as the Company’s credit risk associated with its sales is currently managed through the purchase of credit insurance, letters of credit and setting credit limits prior to the sale. The Company reviews new customers' credit history before granting credit and conducts regular reviews of existing customers' credit performance. The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality.
The Company's exposure to credit losses may increase if its customers are adversely affected by the COVID-19 pandemic. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company's customers are adversely impacted by the COVID-19 pandemic.
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod tax allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This update is effective for financial statements issued for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this update.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.
FORM 10-Q
QUARTERLY REPORT - PAGE 87
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 1. The Company and Summary of Significant Accounting Policies (continued)
As of the date of issuance of these Interim Consolidated Financial Statements, the Company has not had significant credit losses, downtime or closures at its mills or disruptions to raw material supplies or access to logistics networks due to the COVID-19 pandemic, but the extent to which the COVID-19 pandemic may materially impact the Company's future financial condition, liquidity, or results of operations remains uncertain.
Note 2. Inventories
Inventories as of SeptemberJune 30, 20202021 and December 31, 2019,2020, were comprised of the following:
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Raw materials |
| $ | 64,104 |
|
| $ | 99,754 |
|
| $ | 107,150 |
|
| $ | 74,526 |
|
Finished goods |
|
| 102,570 |
|
|
| 77,815 |
|
|
| 98,413 |
|
|
| 88,256 |
|
Spare parts and other |
|
| 103,190 |
|
|
| 95,030 |
|
|
| 107,791 |
|
|
| 108,914 |
|
|
| $ | 269,864 |
|
| $ | 272,599 |
|
| $ | 313,354 |
|
| $ | 271,696 |
|
For the three and nine month periods ended September 30, 2020, as a result of low pulp prices and high fiber costs for the Canadian mills, the Company recorded inventory impairment charges of $8,000 and $25,998, respectively at certain Canadian mills (2019 – $6,900 and $13,800). These charges were recorded in "Cost of sales, excluding depreciation and amortization" in the Interim Consolidated Statements of Operations. As of September 30, 2020, $4,853 of the write-down was recorded against raw materials inventory and $3,147 was recorded against finished goods inventory. As of December 31, 2019, the Company recorded a $3,500 write-down against raw materials inventory and a $5,700 write-down against finished goods inventory.
Note 3. Accounts Payable and Other
Accounts payable and other as of SeptemberJune 30, 20202021 and December 31, 2019,2020, was comprised of the following:
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Trade payables |
| $ | 62,169 |
|
| $ | 73,721 |
|
| $ | 67,679 |
|
| $ | 42,730 |
|
Accrued expenses |
|
| 93,517 |
|
|
| 111,696 |
|
|
| 109,142 |
|
|
| 90,875 |
|
Interest payable |
|
| 14,908 |
|
|
| 33,198 |
|
|
| 27,289 |
|
|
| 33,241 |
|
Income tax payable |
|
| 14,453 |
|
|
| 28,080 |
|
|
| 21,319 |
|
|
| 23,256 |
|
Government grants (a) |
|
| 9,105 |
|
|
| 7,161 |
| ||||||||
Insurance proceeds (a) |
|
| 6,941 |
|
|
| 3,369 |
| ||||||||
Other |
|
| 14,945 |
|
|
| 8,849 |
|
|
| 22,984 |
|
|
| 10,362 |
|
|
| $ | 199,992 |
|
| $ | 255,544 |
|
| $ | 264,459 |
|
| $ | 210,994 |
|
Note 4. Debt
(a) | The Canadian mills have a liability for unspent government grants which will be used to partially finance innovation and greenhouse gas emission reduction capital projects. The Peace River mill has a liability for unspent insurance proceeds which will be used to finance the rebuild of the recovery boiler. The grants and insurance proceeds are recorded in “Cash and cash equivalents” in the Interim Consolidated Balance Sheets, however, they are considered to be restricted as they are repayable if the mills do not spend the funds on approved projects. |
Debt as of September 30, 2020 and December 31, 2019, was comprised of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
2024 Senior Notes, principal amount $250,000 (a) |
| $ | 247,478 |
|
| $ | 246,911 |
|
2025 Senior Notes, principal amount $550,000 (a) |
|
| 546,306 |
|
|
| 545,665 |
|
2026 Senior Notes, principal amount $300,000 (a) |
|
| 295,933 |
|
|
| 295,356 |
|
Credit arrangements |
|
|
|
|
|
|
|
|
€200 million joint revolving credit facility (b) |
|
| 0 |
|
|
| 0 |
|
C$60 million revolving credit facility (c) |
|
| 22,490 |
|
|
| 0 |
|
C$60 million revolving credit facility (d) |
|
| 11,995 |
|
|
| 0 |
|
€2.6 million demand loan (e) |
|
| 0 |
|
|
| 0 |
|
|
| $ | 1,124,202 |
|
| $ | 1,087,932 |
|
FORM 10-Q
QUARTERLY REPORT - PAGE 98
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 4. Debt (continued)
Debt as of June 30, 2021 and December 31, 2020, was comprised of the following:
|
|
|
| June 30, |
|
| December 31, |
| ||
|
| Maturity |
| 2021 |
|
| 2020 |
| ||
Senior notes (a) |
|
|
|
|
|
|
|
|
|
|
5.500% senior notes |
| 2026 |
| $ | 300,000 |
|
| $ | 300,000 |
|
5.125% senior notes |
| 2029 |
|
| 875,000 |
|
|
| 0 |
|
6.500% senior notes |
| 2024 |
|
| 0 |
|
|
| 250,000 |
|
7.375% senior notes |
| 2025 |
|
| 0 |
|
|
| 550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Credit arrangements |
|
|
|
|
|
|
|
|
|
|
€200 million joint revolving credit facility (b) |
| 2023 |
|
| 0 |
|
|
| 0 |
|
C$60 million revolving credit facility (c) |
| 2024 |
|
| 0 |
|
|
| 21,992 |
|
C$60 million revolving credit facility (d) |
| 2023 |
|
| 0 |
|
|
| 32,988 |
|
€2.6 million demand loan (e) |
|
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
| 1,175,000 |
|
|
| 1,154,980 |
|
Less: unamortized premium and issuance costs, net |
|
|
|
| (17,127 | ) |
|
| (9,686 | ) |
|
|
|
| $ | 1,157,873 |
|
| $ | 1,145,294 |
|
The maturities of the principal portion of debt as of SeptemberJune 30, 20202021 were as follows:
2020 |
| $ | 0 |
| ||||
2021 |
|
| 0 |
|
| $ | 0 |
|
2022 |
|
| 0 |
|
|
| 0 |
|
2023 |
|
| 11,995 |
|
|
| 0 |
|
2024 |
|
| 272,490 |
|
|
| 0 |
|
2025 |
|
| 0 |
| ||||
Thereafter |
|
| 850,000 |
|
|
| 1,175,000 |
|
|
| $ | 1,134,485 |
|
| $ | 1,175,000 |
|
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 SeptemberJune 30, 2020,2021, the Company was in compliance with the terms of its debt agreements.
(a) | In |
In October 2019, the Company issued an additional $200,000 in aggregate principal amount of 2025The 2029 Senior Notes at a price of 102.75% of their principal amount for a yield to worst of 6.435%. The net proceeds ofand the offering were $202,063 after deducting the underwriter's discount and offering expenses. The net proceeds were used to redeem $100,000 of remaining aggregate principal amount of outstanding senior notes due 2022 (the "2022 Senior Notes") and for general corporate purposes.
In 2017, the Company issued $300,000 in aggregate principal amount of 5.50% senior notes which mature on January 15, 2026 (the "2026“2026 Senior Notes"). The 2026 Senior Notes were issued at a price of 100% of their principal amount. The net proceeds of the offering were $293,795 after deducting the underwriter's discount and offering expenses. In 2018, the net proceeds, together with cash on hand, were used to redeem $300,000 in aggregate principal amount of the 2022 Senior Notes.
In 2017, the Company issued $250,000 in aggregate principal amount of 6.50% senior notes which mature on February 1, 2024 (the "2024 Senior Notes"Notes” and collectively with the 2025 Senior Notes and 20262029 Senior Notes, the "Senior Notes"“Senior Notes”). The 2024 Senior Notes were issued at a price of 100% of their principal amount. The net proceeds of the offering were $244,711 after deducting the underwriter's discount and offering expenses. The net proceeds, together with cash on hand, were used to redeem $227,000 of remaining aggregate principal amount of outstanding senior notes due 2019, to finance the acquisition of the Friesau mill and for general working capital purposes.
The Senior Notes are general unsecured senior obligations of the Company. They rank equal in right of payment with all existing and future unsecured senior indebtedness of the Company and are senior in right of payment to any current or future subordinated indebtedness of the Company. The Senior Notes are effectively junior in right of payment to all existing and future secured indebtedness, to the extent of the assets securing such indebtedness, and all indebtedness and liabilities of the Company's subsidiaries.
The Company may redeem all or a part of the 2025 Senior Notes or 2026 Senior Notes, upon not less than 10 days'days’ or more than 60 days' notice and the Company may redeem all or a part of the 2024 Senior Notes, upon not less than 30 days' or more than 60 days'days’ notice at the redemption price plus accrued and unpaid interest to (but not including) the applicable redemption date.
FORM 10-Q
QUARTERLY REPORT - PAGE 109
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 4. Debt (continued)
The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the outstanding Senior Notes:
2024 Senior Notes |
| 2025 Senior Notes |
| 2026 Senior Notes | ||||||
12 Month Period Beginning |
| Percentage |
| 12 Month Period Beginning |
| Percentage |
| 12 Month Period Beginning |
| Percentage |
February 1, 2020 |
| 103.250% |
| January 15, 2021 |
| 103.688% |
| January 15, 2021 |
| 102.750% |
February 1, 2021 |
| 101.625% |
| January 15, 2022 |
| 101.844% |
| January 15, 2022 |
| 101.375% |
February 1, 2022 and thereafter |
| 100.000% |
| January 15, 2023 and thereafter |
| 100.000% |
| January 15, 2023 and thereafter |
| 100.000% |
2026 Senior Notes |
|
| 2029 Senior Notes |
| ||||
12 Month Period Beginning |
| Percentage |
|
| 12 Month Period Beginning |
| Percentage |
|
January 15, 2021 |
| 102.750% |
|
| February 1, 2024 |
| 102.563% |
|
January 15, 2022 |
| 101.375% |
|
| February 1, 2025 |
| 101.281% |
|
January 15, 2023 and thereafter |
| 100.000% |
|
| February 1, 2026 and thereafter |
| 100.000% |
|
(b) | A €200.0 million joint revolving credit facility with all of the Company's German mills that matures in December 2023. Borrowings under the facility are unsecured and bear interest at Euribor plus a variable margin ranging from 1.05% to 2.00% dependent on conditions including but not limited to a prescribed leverage ratio. As of |
(c) | A C$60.0 million revolving credit facility for |
(d) |
|
(e) | A €2.6 million demand loan |
FORM 10-Q
QUARTERLY REPORT - PAGE 1110
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 5. Pension and Other Post-Retirement Benefit Obligations
Defined Benefit Plans
Pension benefits are based on employees' earnings and years of service. The defined benefit plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. The components of the net benefit costs for the Celgar and MPRPeace River defined benefit plans, in aggregate for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 20192020 were as follows:
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
| ||||||||
Service cost |
| $ | 857 |
|
| $ | 65 |
|
| $ | 721 |
|
| $ | 68 |
|
| $ | 956 |
|
| $ | 73 |
|
| $ | 824 |
|
| $ | 63 |
|
Interest cost |
|
| 848 |
|
|
| 97 |
|
|
| 883 |
|
|
| 137 |
|
|
| 854 |
|
|
| 94 |
|
|
| 814 |
|
|
| 93 |
|
Expected return on plan assets |
|
| (1,106 | ) |
|
| 0 |
|
|
| (1,009 | ) |
|
| 0 |
|
|
| (1,095 | ) |
|
| 0 |
|
|
| (1,072 | ) |
|
| 0 |
|
Amortization of unrecognized items |
|
| 232 |
|
|
| (224 | ) |
|
| 236 |
|
|
| (170 | ) |
|
| 165 |
|
|
| (191 | ) |
|
| 233 |
|
|
| (216 | ) |
Net benefit costs |
| $ | 831 |
|
| $ | (62 | ) |
| $ | 831 |
|
| $ | 35 |
|
| $ | 880 |
|
| $ | (24 | ) |
| $ | 799 |
|
| $ | (60 | ) |
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
|
| Pension |
|
| Other Post- Retirement Benefits |
| ||||||||
Service cost |
| $ | 2,530 |
|
| $ | 192 |
|
| $ | 2,148 |
|
| $ | 203 |
|
| $ | 1,981 |
|
| $ | 152 |
|
| $ | 1,673 |
|
| $ | 127 |
|
Interest cost |
|
| 2,502 |
|
|
| 286 |
|
|
| 2,632 |
|
|
| 410 |
|
|
| 1,771 |
|
|
| 196 |
|
|
| 1,654 |
|
|
| 189 |
|
Expected return on plan assets |
|
| (3,271 | ) |
|
| — |
|
|
| (3,008 | ) |
|
| — |
|
|
| (2,269 | ) |
|
| 0 |
|
|
| (2,165 | ) |
|
| 0 |
|
Amortization of unrecognized items |
|
| 693 |
|
|
| (662 | ) |
|
| 704 |
|
|
| (507 | ) |
|
| 341 |
|
|
| (397 | ) |
|
| 461 |
|
|
| (438 | ) |
Net benefit costs |
| $ | 2,454 |
|
| $ | (184 | ) |
| $ | 2,476 |
|
| $ | 106 |
|
| $ | 1,824 |
|
| $ | (49 | ) |
| $ | 1,623 |
|
| $ | (122 | ) |
The components of the net benefit costs other than service cost are recorded in "Other income"income (expenses)" in the Interim Consolidated Statements of Operations. The amortization of unrecognized items relates to net actuarial losses and prior service costs.
Defined Contribution Plan
Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members. In addition, the related defined benefit service accrual ceased on December 31, 2008, and members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan effective January 1, 2009. During the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company made contributions of $320$315 and $791,$695, respectively to this plan (2019(2020 – $242$58 and $988)$471).
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 and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company made contributions of $475$610 and $1,481,$1,324, respectively to this plan (2019(2020 – $598$555 and $1,569)$1,006).
FORM 10-Q
QUARTERLY REPORT - PAGE 1211
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. Income Taxes
Differences between the U.S. Federal statutory and the Company's effective tax rates for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 2019,2020, were as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
U.S. Federal statutory rate |
| 21% |
|
| 21% |
|
| 21% |
|
| 21% |
|
| 21% |
|
| 21% |
|
| 21% |
|
| 21% |
| ||||||||
U.S. Federal statutory rate on income before income taxes |
| $ | (1,212 | ) |
| $ | (304 | ) |
| $ | (41 | ) |
| $ | (20,618 | ) | ||||||||||||||||
U.S. Federal statutory rate on income (loss) before income taxes |
| $ | (6,741 | ) |
| $ | 1,581 |
|
| $ | (8,554 | ) |
| $ | 1,171 |
| ||||||||||||||||
Tax differential on foreign income |
|
| 611 |
|
|
| (1,177 | ) |
|
| (1,270 | ) |
|
| (9,539 | ) |
|
| (6,532 | ) |
|
| (662 | ) |
|
| (9,380 | ) |
|
| (1,881 | ) |
Effect of foreign earnings (a) |
|
| 468 |
|
|
| 892 |
|
|
| (2,402 | ) |
|
| (11,148 | ) |
|
| (3,508 | ) |
|
| (1,295 | ) |
|
| (6,620 | ) |
|
| (2,870 | ) |
Valuation allowance |
|
| (919 | ) |
|
| (8,934 | ) |
|
| (4,084 | ) |
|
| (5,173 | ) |
|
| 165 |
|
|
| (3,169 | ) |
|
| (10,952 | ) |
|
| (3,165 | ) |
Tax benefit of partnership structure |
|
| 935 |
|
|
| 960 |
|
|
| 2,805 |
|
|
| 2,881 |
|
|
| 673 |
|
|
| 935 |
|
|
| 1,566 |
|
|
| 1,870 |
|
Non-taxable foreign subsidies |
|
| 734 |
|
|
| 1,571 |
|
|
| 2,098 |
|
|
| 2,965 |
|
|
| 743 |
|
|
| 678 |
|
|
| 1,491 |
|
|
| 1,364 |
|
True-up of prior year taxes |
|
| (1,996 | ) |
|
| 6,733 |
|
|
| (2,150 | ) |
|
| 5,612 |
|
|
| (46 | ) |
|
| 1,068 |
|
|
| 3,124 |
|
|
| (154 | ) |
Other |
|
| 3,154 |
|
|
| 15 |
|
|
| 593 |
|
|
| (81 | ) | ||||||||||||||||
|
| $ | 1,775 |
|
| $ | (244 | ) |
| $ | (4,451 | ) |
| $ | (35,101 | ) | ||||||||||||||||
Annual effective tax rate adjustment |
|
| 4,700 |
|
|
| — |
|
|
| 18,000 |
|
|
| — |
| ||||||||||||||||
Other, net |
|
| (139 | ) |
|
| (18 | ) |
|
| (2,058 | ) |
|
| (2,561 | ) | ||||||||||||||||
Income tax provision |
| $ | (10,685 | ) |
| $ | (882 | ) |
| $ | (13,383 | ) |
| $ | (6,226 | ) | ||||||||||||||||
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax provision |
| $ | (2,480 | ) |
| $ | (1,950 | ) |
| $ | (14,781 | ) |
| $ | (32,742 | ) |
| $ | (9,409 | ) |
| $ | (5,626 | ) |
| $ | (10,903 | ) |
| $ | (12,301 | ) |
Deferred income tax recovery (provision) |
|
| 4,255 |
|
|
| 1,706 |
|
|
| 10,330 |
|
|
| (2,359 | ) |
|
| (1,276 | ) |
|
| 4,744 |
|
|
| (2,480 | ) |
|
| 6,075 |
|
|
| $ | 1,775 |
|
| $ | (244 | ) |
| $ | (4,451 | ) |
| $ | (35,101 | ) | ||||||||||||||||
Income tax provision |
| $ | (10,685 | ) |
| $ | (882 | ) |
| $ | (13,383 | ) |
| $ | (6,226 | ) |
(a) | Primarily due to the impact of the global intangible low-taxed income provision in the Tax Cuts and Jobs Act of 2017. |
(b) | For the three and six month periods ended June 30, 2021, the valuation allowance primarily relates to taxable losses and denied interest expense. |
Note 7. Shareholders' Equity
Dividends
During the ninesix month period ended SeptemberJune 30, 2020,2021, the Company's board of directors declared the following quarterly dividends:
Date Declared |
| Dividend Per Common Share |
|
| Amount |
| ||
February 13, 2020 |
| $ | 0.1375 |
|
| $ | 9,047 |
|
April 30, 2020 |
|
| 0.0650 |
|
|
| 4,282 |
|
July 30, 2020 |
|
| 0.0650 |
|
|
| 4,281 |
|
|
| $ | 0.2675 |
|
| $ | 17,610 |
|
Date Declared |
| Dividend Per Common Share |
|
| Amount |
| ||
February 16, 2021 |
| $ | 0.0650 |
|
| $ | 4,289 |
|
April 29, 2021 |
|
| 0.0650 |
|
|
| 4,293 |
|
|
| $ | 0.1300 |
|
| $ | 8,582 |
|
On October 29, 2020,In July 2021, the Company's board of directors declared a quarterly dividend of $0.065 per common share. Payment of the dividend will be made on December 30, 2020October 6, 2021 to all shareholders of record on December 23, 2020.September 29, 2021. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.
Share Repurchase Program
In May 2019, the Company's board of directors authorized a common stock repurchase program, under which the Company may repurchase up to $50,000 of its shares, which expired in May 2020. During the nine month period ended September 30, 2020, prior to the expiration the Company paid $162 to acquire 23,584 common shares at an average repurchase price of $6.84. The shares were retired upon repurchase.
FORM 10-Q
QUARTERLY REPORT - PAGE 1312
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 7. Shareholders' Equity (continued)
Stock Based Compensation
In June 2010, theThe Company adoptedhas a stock incentive plan which provides for options, restricted stock rights, 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 and ninesix month periods ended SeptemberJune 30, 2020,2021, there were 0 issued and outstanding options, restricted stock rights, performance shares or stock appreciation rights. As of SeptemberJune 30, 2020,2021, after factoring in all allocated shares, there remain approximately 1.71.2 million common shares available for grant.
PSUs
PSUs comprise rights to receive common shares at a future date that are contingent on the Company and the grantee achieving certain performance objectives. The performance objective period is generally three years. For the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company recognized an expense of $757$822 and $444,$1,295, respectively related to PSUs (2019(2020 – $1,066a reversal of $154 and $1,669)$313).
The following table summarizes PSU activity during the period:
|
| Number of PSUs |
| |
Outstanding as of January 1, |
|
|
|
|
Granted |
|
|
|
|
Vested and issued |
|
| ( | ) |
Forfeited |
|
| ( | ) |
Outstanding as of |
|
|
|
|
Restricted Shares
Restricted shares generally vest at the end of one year. For the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company recognized an expense of $138$153 and $371,$290, respectively related to restricted shares (2019(2020 - $113$120 and $367)$233). As of SeptemberJune 30, 2020,2021, the total remaining unrecognized compensation cost related to restricted shares amounted to approximately $367$669 which will be amortized over the remaining vesting periods.
The following table summarizes restricted share activity during the period:
|
| Number of Restricted Shares |
| |
Outstanding as of January 1, |
|
|
|
|
Granted |
|
|
|
|
Vested |
|
| ( | ) |
Outstanding as of |
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 1413
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. Net Income (Loss) Per Common Share
The reconciliation of basic and diluted net income (loss) per common share for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 20192020 was as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | 0.11 |
|
| $ | 0.02 |
|
| $ | (0.06 | ) |
| $ | 0.96 |
|
| $ | 0.32 |
|
| $ | (0.13 | ) |
| $ | 0.41 |
|
| $ | (0.18 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (a) |
|
| 65,799,946 |
|
|
| 65,598,177 |
|
|
| 65,757,921 |
|
|
| 65,538,037 |
|
|
| 65,941,932 |
|
|
| 65,778,894 |
|
|
| 65,899,904 |
|
|
| 65,736,677 |
|
Effect of dilutive instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs |
|
| 79,489 |
|
|
| 372,495 |
|
|
| — |
|
|
| 358,851 |
|
|
| 352,170 |
|
|
| — |
|
|
| 318,770 |
|
|
| — |
|
Restricted shares |
|
| 11,413 |
|
|
| 3,198 |
|
|
| — |
|
|
| 13,437 |
|
|
| 38,581 |
|
|
| — |
|
|
| 47,342 |
|
|
| — |
|
Diluted |
|
| 65,890,848 |
|
|
| 65,973,870 |
|
|
| 65,757,921 |
|
|
| 65,910,325 |
|
|
| 66,332,683 |
|
|
| 65,778,894 |
|
|
| 66,266,016 |
|
|
| 65,736,677 |
|
(a) | For the three and |
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. Instruments excluded from the calculation of net income (loss) per common share because they were anti-dilutive for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 20192020 were as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
PSUs |
|
| — |
|
|
| — |
|
|
| 2,391,082 |
|
|
| — |
|
|
| — |
|
|
| 2,391,082 |
|
|
| — |
|
|
| 2,391,082 |
|
Restricted shares |
|
| — |
|
|
| — |
|
|
| 68,140 |
|
|
| — |
|
|
| — |
|
|
| 68,140 |
|
|
| — |
|
|
| 68,140 |
|
Note 9. Accumulated Other Comprehensive Loss
The change in the accumulated other comprehensive loss by component (net of tax) for the ninesix month period ended SeptemberJune 30, 20202021 was as follows:
|
| Foreign Currency Translation Adjustment |
|
| Defined Benefit Pension and Other Post- Retirement Benefit Items |
|
| Total |
| |||
Balance as of January 1, 2020 |
| $ | (114,709 | ) |
| $ | (1,851 | ) |
| $ | (116,560 | ) |
Other comprehensive income before reclassifications |
|
| 21,488 |
|
|
| 0 |
|
|
| 21,488 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| 0 |
|
|
| 31 |
|
|
| 31 |
|
Other comprehensive income, net of taxes |
|
| 21,488 |
|
|
| 31 |
|
|
| 21,519 |
|
Balance as of September 30, 2020 |
| $ | (93,221 | ) |
| $ | (1,820 | ) |
| $ | (95,041 | ) |
|
| Foreign Currency Translation Adjustment |
|
| Defined Benefit Pension and Other Post- Retirement Benefit Items |
|
| Total |
| |||
Balance as of January 1, 2021 |
| $ | (19,578 | ) |
| $ | (7,997 | ) |
| $ | (27,575 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (17,566 | ) |
|
| 378 |
|
|
| (17,188 | ) |
Amounts reclassified |
|
| 0 |
|
|
| (56 | ) |
|
| (56 | ) |
Other comprehensive income (loss), net of taxes |
|
| (17,566 | ) |
|
| 322 |
|
|
| (17,244 | ) |
Balance as of June 30, 2021 |
| $ | (37,144 | ) |
| $ | (7,675 | ) |
| $ | (44,819 | ) |
FORM 10-Q
QUARTERLY REPORT - PAGE 1514
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 10. Related Party Transactions
The Company enters into related party transactions with its joint ventures. For the three and ninesix month periods ended SeptemberJune 30, 2020,2021, pulp purchases from the Company's 50% owned Cariboo mill, which are transacted at the Cariboo mill's cost, were $20,717$27,152 and $54,253,$48,195, respectively (2019(2020 – $21,232$13,942 and $76,388)$33,536) and as of SeptemberJune 30, 20202021 the Company had a receivable balance from the Cariboo mill of $4,482$2,791 (December 31, 20192020 – $3,462)$3,518). For the three and ninesix month periods ended SeptemberJune 30, 2020,2021, services from the Company's 50% owned logging and chipping operation, which are transacted at arm's length negotiated prices, were $3,265$610 and $11,543,$5,234, respectively (2019(2020 – $3,074$1,735 and $11,923)$8,278) and as of SeptemberJune 30, 20202021 the Company had a payable balance to the operation of $463$2,172 (December 31, 20192020 – $1,151)$1,953).
Note 11. Segment Information
The Company is managed based on the primary products it manufactures: pulp and wood products. Accordingly, the Company's 4 pulp mills and its 50% interest in the Cariboo mill are aggregated into the pulp segment, and the Friesau sawmill is a separate reportable segment, wood products. The Company's sandalwood business is included in corporateCorporate and otherOther as it does not meet the criteria to be reported as a separate reportable segment.
None of the income or loss items following operating income in the Company's Interim Consolidated Statements of Operations are allocated to the segments, as those items are reviewed separately by management.
Information about certain segment data for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 2019,2020, was as follows:
Three Months Ended September 30, 2020 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||||||||||||||
Three Months Ended June 30, 2021 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||||||||||||||
Revenues from external customers |
| $ | 274,916 |
|
| $ | 57,053 |
|
| $ | 1,182 |
|
| $ | 333,151 |
|
| $ | 310,249 |
|
| $ | 90,439 |
|
| $ | 1,144 |
|
| $ | 401,832 |
|
Operating income (loss) |
| $ | 3,753 |
|
| $ | 11,963 |
|
| $ | (1,980 | ) |
| $ | 13,736 |
|
| $ | 13,338 |
|
| $ | 42,314 |
|
| $ | (3,816 | ) |
| $ | 51,836 |
|
Depreciation and amortization |
| $ | 28,251 |
|
| $ | 3,446 |
|
| $ | 187 |
|
| $ | 31,884 |
|
| $ | 27,967 |
|
| $ | 3,748 |
|
| $ | 240 |
|
| $ | 31,955 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 253,056 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 253,056 |
|
| $ | 297,191 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 297,191 |
|
Lumber |
|
| 0 |
|
|
| 53,612 |
|
|
| 0 |
|
|
| 53,612 |
|
|
| 0 |
|
|
| 86,285 |
|
|
| 0 |
|
|
| 86,285 |
|
Energy and chemicals |
|
| 21,860 |
|
|
| 2,226 |
|
|
| 1,182 |
|
|
| 25,268 |
|
|
| 13,058 |
|
|
| 2,692 |
|
|
| 1,144 |
|
|
| 16,894 |
|
Wood residuals |
|
| 0 |
|
|
| 1,215 |
|
|
| 0 |
|
|
| 1,215 |
|
|
| 0 |
|
|
| 1,462 |
|
|
| 0 |
|
|
| 1,462 |
|
Total revenues |
| $ | 274,916 |
|
| $ | 57,053 |
|
| $ | 1,182 |
|
| $ | 333,151 |
|
| $ | 310,249 |
|
| $ | 90,439 |
|
| $ | 1,144 |
|
| $ | 401,832 |
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 29,295 |
|
| $ | 31,466 |
|
| $ | 540 |
|
| $ | 61,301 |
|
| $ | 34,406 |
|
| $ | 53,610 |
|
| $ | 547 |
|
| $ | 88,563 |
|
Germany |
|
| 79,535 |
|
|
| 11,744 |
|
|
| 0 |
|
|
| 91,279 |
|
|
| 101,095 |
|
|
| 17,422 |
|
|
| 0 |
|
|
| 118,517 |
|
China |
|
| 83,554 |
|
|
| 0 |
|
|
| 0 |
|
|
| 83,554 |
|
|
| 68,008 |
|
|
| 469 |
|
|
| 0 |
|
|
| 68,477 |
|
Other countries |
|
| 82,532 |
|
|
| 13,843 |
|
|
| 642 |
|
|
| 97,017 |
|
|
| 106,740 |
|
|
| 18,938 |
|
|
| 597 |
|
|
| 126,275 |
|
Total revenues |
| $ | 274,916 |
|
| $ | 57,053 |
|
| $ | 1,182 |
|
| $ | 333,151 |
|
| $ | 310,249 |
|
| $ | 90,439 |
|
| $ | 1,144 |
|
| $ | 401,832 |
|
(a) | Sales are attributed to countries based on the ship-to location provided by the customer. |
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 11. Business Segment Information (continued)
Three Months Ended June 30, 2020 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues from external customers |
| $ | 298,046 |
|
| $ | 41,727 |
|
| $ | 1,422 |
|
| $ | 341,195 |
|
Operating income (loss) |
| $ | 8,110 |
|
| $ | 4,327 |
|
| $ | (2,122 | ) |
| $ | 10,315 |
|
Depreciation and amortization |
| $ | 27,219 |
|
| $ | 2,804 |
|
| $ | 178 |
|
| $ | 30,201 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 276,919 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 276,919 |
|
Lumber |
|
| 0 |
|
|
| 37,611 |
|
|
| 0 |
|
|
| 37,611 |
|
Energy and chemicals |
|
| 21,127 |
|
|
| 2,629 |
|
|
| 1,422 |
|
|
| 25,178 |
|
Wood residuals |
|
| 0 |
|
|
| 1,487 |
|
|
| 0 |
|
|
| 1,487 |
|
Total revenues |
| $ | 298,046 |
|
| $ | 41,727 |
|
| $ | 1,422 |
|
| $ | 341,195 |
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 39,651 |
|
| $ | 17,622 |
|
| $ | 575 |
|
| $ | 57,848 |
|
Germany |
|
| 77,568 |
|
|
| 12,294 |
|
|
| 0 |
|
|
| 89,862 |
|
China |
|
| 78,814 |
|
|
| 0 |
|
|
| 0 |
|
|
| 78,814 |
|
Other countries |
|
| 102,013 |
|
|
| 11,811 |
|
|
| 847 |
|
|
| 114,671 |
|
Total revenues |
| $ | 298,046 |
|
| $ | 41,727 |
|
| $ | 1,422 |
|
| $ | 341,195 |
|
(a) | Sales are attributed to countries based on the ship-to location provided by the customer. |
Six Months Ended June 30, 2021 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues from external customers |
| $ | 650,005 |
|
| $ | 161,426 |
|
| $ | 3,121 |
|
| $ | 814,552 |
|
Operating income (loss) |
| $ | 38,634 |
|
| $ | 70,291 |
|
| $ | (6,060 | ) |
| $ | 102,865 |
|
Depreciation and amortization |
| $ | 55,013 |
|
| $ | 7,471 |
|
| $ | 438 |
|
| $ | 62,922 |
|
Total assets (a) |
| $ | 1,778,079 |
|
| $ | 249,205 |
|
| $ | 187,414 |
|
| $ | 2,214,698 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 614,773 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 614,773 |
|
Lumber |
|
| 0 |
|
|
| 153,596 |
|
|
| 0 |
|
|
| 153,596 |
|
Energy and chemicals |
|
| 35,232 |
|
|
| 4,806 |
|
|
| 3,121 |
|
|
| 43,159 |
|
Wood residuals |
|
| 0 |
|
|
| 3,024 |
|
|
| 0 |
|
|
| 3,024 |
|
Total revenues |
| $ | 650,005 |
|
| $ | 161,426 |
|
| $ | 3,121 |
|
| $ | 814,552 |
|
Revenues by geographical markets (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 80,278 |
|
| $ | 98,702 |
|
| $ | 1,306 |
|
| $ | 180,286 |
|
Germany |
|
| 193,632 |
|
|
| 29,539 |
|
|
| 0 |
|
|
| 223,171 |
|
China |
|
| 163,543 |
|
|
| 846 |
|
|
| 0 |
|
|
| 164,389 |
|
Other countries |
|
| 212,552 |
|
|
| 32,339 |
|
|
| 1,815 |
|
|
| 246,706 |
|
Total revenues |
| $ | 650,005 |
|
| $ | 161,426 |
|
| $ | 3,121 |
|
| $ | 814,552 |
|
(a) | Total assets for the pulp segment includes the Company's $45,844 investment in joint ventures, primarily for the Cariboo mill. |
(b) | Sales are attributed to countries based on the ship-to location provided by the customer. |
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 11. Business Segment Information (continued)
Three Months Ended September 30, 2019 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||||||||||||||
Six Months Ended June 30, 2020 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||||||||||||||
Revenues from external customers |
| $ | 345,060 |
|
| $ | 36,458 |
|
| $ | 2,018 |
|
| $ | 383,536 |
|
| $ | 601,651 |
|
| $ | 87,505 |
|
| $ | 2,638 |
|
| $ | 691,794 |
|
Operating income (loss) |
| $ | 21,386 |
|
| $ | 544 |
|
| $ | (3,183 | ) |
| $ | 18,747 |
|
| $ | 29,549 |
|
| $ | 9,882 |
|
| $ | (5,054 | ) |
| $ | 34,377 |
|
Depreciation and amortization |
| $ | 29,744 |
|
| $ | 2,016 |
|
| $ | 292 |
|
| $ | 32,052 |
|
| $ | 57,590 |
|
| $ | 5,181 |
|
| $ | 376 |
|
| $ | 63,147 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 322,707 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 322,707 |
|
| $ | 555,867 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 555,867 |
|
Lumber |
|
| 0 |
|
|
| 32,687 |
|
|
| 0 |
|
|
| 32,687 |
|
|
| 0 |
|
|
| 78,597 |
|
|
| 0 |
|
|
| 78,597 |
|
Energy and chemicals |
|
| 22,353 |
|
|
| 1,621 |
|
|
| 2,018 |
|
|
| 25,992 |
|
|
| 45,784 |
|
|
| 5,260 |
|
|
| 2,638 |
|
|
| 53,682 |
|
Wood residuals |
|
| 0 |
|
|
| 2,150 |
|
|
| 0 |
|
|
| 2,150 |
|
|
| 0 |
|
|
| 3,648 |
|
|
| 0 |
|
|
| 3,648 |
|
Total revenues |
| $ | 345,060 |
|
| $ | 36,458 |
|
| $ | 2,018 |
|
| $ | 383,536 |
|
| $ | 601,651 |
|
| $ | 87,505 |
|
| $ | 2,638 |
|
| $ | 691,794 |
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 30,693 |
|
| $ | 13,027 |
|
| $ | 0 |
|
| $ | 43,720 |
|
| $ | 73,518 |
|
| $ | 35,244 |
|
| $ | 1,161 |
|
| $ | 109,923 |
|
Germany |
|
| 97,339 |
|
|
| 11,915 |
|
|
| 0 |
|
|
| 109,254 |
|
|
| 167,240 |
|
|
| 27,197 |
|
|
| 0 |
|
|
| 194,437 |
|
China |
|
| 113,578 |
|
|
| 0 |
|
|
| 0 |
|
|
| 113,578 |
|
|
| 164,362 |
|
|
| 0 |
|
|
| 0 |
|
|
| 164,362 |
|
Other countries |
|
| 103,450 |
|
|
| 11,516 |
|
|
| 2,018 |
|
|
| 116,984 |
|
|
| 196,531 |
|
|
| 25,064 |
|
|
| 1,477 |
|
|
| 223,072 |
|
Total revenues |
| $ | 345,060 |
|
| $ | 36,458 |
|
| $ | 2,018 |
|
| $ | 383,536 |
|
| $ | 601,651 |
|
| $ | 87,505 |
|
| $ | 2,638 |
|
| $ | 691,794 |
|
(a) | Sales are attributed to countries based on the ship-to location provided by the customer. |
Nine Months Ended September 30, 2020 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues from external customers |
| $ | 876,567 |
|
| $ | 144,558 |
|
| $ | 3,820 |
|
| $ | 1,024,945 |
|
Operating income (loss) |
| $ | 33,302 |
|
| $ | 21,845 |
| �� | $ | (7,034 | ) |
| $ | 48,113 |
|
Depreciation and amortization |
| $ | 85,841 |
|
| $ | 8,627 |
|
| $ | 563 |
|
| $ | 95,031 |
|
Total assets (a) |
| $ | 1,767,397 |
|
| $ | 99,743 |
|
| $ | 177,595 |
|
| $ | 2,044,735 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 808,923 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 808,923 |
|
Lumber |
|
| 0 |
|
|
| 132,209 |
|
|
| 0 |
|
|
| 132,209 |
|
Energy and chemicals |
|
| 67,644 |
|
|
| 7,486 |
|
|
| 3,820 |
|
|
| 78,950 |
|
Wood residuals |
|
| 0 |
|
|
| 4,863 |
|
|
| 0 |
|
|
| 4,863 |
|
Total revenues |
| $ | 876,567 |
|
| $ | 144,558 |
|
| $ | 3,820 |
|
| $ | 1,024,945 |
|
Revenues by geographical markets (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 102,813 |
|
| $ | 66,710 |
|
| $ | 1,701 |
|
| $ | 171,224 |
|
Germany |
|
| 246,775 |
|
|
| 38,941 |
|
|
| 0 |
|
|
| 285,716 |
|
China |
|
| 247,916 |
|
|
| 0 |
|
|
| 0 |
|
|
| 247,916 |
|
Other countries |
|
| 279,063 |
|
|
| 38,907 |
|
|
| 2,119 |
|
|
| 320,089 |
|
Total revenues |
| $ | 876,567 |
|
| $ | 144,558 |
|
| $ | 3,820 |
|
| $ | 1,024,945 |
|
|
|
|
|
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 11. Segment Information (continued)
Nine Months Ended September 30, 2019 |
| Pulp |
|
| Wood Products |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues from external customers |
| $ | 1,166,333 |
|
| $ | 120,349 |
|
| $ | 6,557 |
|
| $ | 1,293,239 |
|
Operating income (loss) |
| $ | 157,157 |
|
| $ | 2,075 |
|
| $ | (9,123 | ) |
| $ | 150,109 |
|
Depreciation and amortization |
| $ | 87,616 |
|
| $ | 5,937 |
|
| $ | 894 |
|
| $ | 94,447 |
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
| $ | 1,095,225 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,095,225 |
|
Lumber |
|
| 0 |
|
|
| 107,172 |
|
|
| 0 |
|
|
| 107,172 |
|
Energy and chemicals |
|
| 71,108 |
|
|
| 7,075 |
|
|
| 6,557 |
|
|
| 84,740 |
|
Wood residuals |
|
| 0 |
|
|
| 6,102 |
|
|
| 0 |
|
|
| 6,102 |
|
Total revenues |
| $ | 1,166,333 |
|
| $ | 120,349 |
|
| $ | 6,557 |
|
| $ | 1,293,239 |
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 124,039 |
|
| $ | 38,997 |
|
| $ | 0 |
|
| $ | 163,036 |
|
Germany |
|
| 338,678 |
|
|
| 40,860 |
|
|
| 0 |
|
|
| 379,538 |
|
China |
|
| 347,232 |
|
|
| 0 |
|
|
| 0 |
|
|
| 347,232 |
|
Other countries |
|
| 356,384 |
|
|
| 40,492 |
|
|
| 6,557 |
|
|
| 403,433 |
|
Total revenues |
| $ | 1,166,333 |
|
| $ | 120,349 |
|
| $ | 6,557 |
|
| $ | 1,293,239 |
|
|
|
As of December 31, 2019,2020, the Company had total assets of $1,782,105$1,740,233 in the pulp segment, $83,102$112,267 in the wood products segment and $200,513$276,626 in corporate and other. Total assets for the pulp segment includes the Company's $53,122$46,429 investment in joint ventures, primarily for the Cariboo mill.
Revenues between segments are accounted for at prices that approximate fair value. These include revenues from the sale of residual fiber from the wood products segment to the pulp segment for use in the pulp production process and from the sale of residual fuel from the pulp segment to the wood products segment for use in energy production. For the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the pulp segment sold $42$52 and $388,$151, respectively of residual fuel to the wood products segment (2019(2020 – $59$164 and $423)$346) and the wood products segment sold $2,246$2,901 and $9,676,$5,833, respectively of residual fiber to the pulp segment (2019(2020 – $2,360$3,594 and $11,713)$7,430).
FORM 10-Q
QUARTERLY REPORT - PAGE 1817
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 12. 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.
The estimated fair values of the Company's outstanding debt under the fair value hierarchy as of SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
|
| Fair value measurements as of September 30, 2020 using: |
| |||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Revolving credit facilities |
| $ | 0 |
|
| $ | 34,485 |
|
| $ | 0 |
|
| $ | 34,485 |
|
Senior Notes |
|
| 0 |
|
|
| 1,095,500 |
|
|
| 0 |
|
|
| 1,095,500 |
|
|
| $ | 0 |
|
| $ | 1,129,985 |
|
| $ | 0 |
|
| $ | 1,129,985 |
|
|
| Fair value measurements as of June 30, 2021 using: |
| |||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Senior notes |
| $ | 0 |
|
| $ | 1,208,622 |
|
| $ | 0 |
|
| $ | 1,208,622 |
|
|
| Fair value measurements as of December 31, 2019 using: |
|
| Fair value measurements as of December 31, 2020 using: |
| ||||||||||||||||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Senior Notes |
| $ | 0 |
|
| $ | 1,156,673 |
|
| $ | 0 |
|
| $ | 1,156,673 |
| ||||||||||||||||
Revolving credit facilities |
| $ | 0 |
|
| $ | 54,980 |
|
| $ | 0 |
|
| $ | 54,980 |
| ||||||||||||||||
Senior notes |
|
| 0 |
|
|
| 1,131,229 |
|
|
| 0 |
|
|
| 1,131,229 |
| ||||||||||||||||
|
| $ | 0 |
|
| $ | 1,186,209 |
|
| $ | 0 |
|
| $ | 1,186,209 |
|
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 Notessenior notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company's Senior Notessenior notes are not carried at fair value onin the Interim Consolidated Balance Sheets as of SeptemberJune 30, 20202021 or December 31, 2019.2020. However, fair value disclosure is required. The carrying value of the Company's Senior Notes,senior notes, net of note issuance costs and premium is $1,089,717$1,157,873 as of SeptemberJune 30, 20202021 (December 31, 20192020 – $1,087,932)$1,090,314).
For the three and nine month periods ended September 30, 2020, the Company recognized a realized gain of $15,443 on the sale of investments in “Other income” in the Interim Consolidated Statements of Operations.
Credit Risk
The Company’sCompany'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’sCompany's credit risk associated with the sale of pulp, lumber and other wood residuals 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’customers' credit history before granting credit and conducts regular reviews of existing customers’customers' credit performance. Concentrations of credit risk on the sale of pulp, lumber and other wood residuals are with customers and agents based primarily in Germany, China and the U.S. and Italy.
The Company’sCompany's exposure to credit losses may increase if its customers are adversely affected by the COVID-19 pandemic. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’sCompany's customers are adversely impacted by the COVID-19 pandemic. As of June 30, 2021, the Company has not had significant credit losses due to the COVID-19 pandemic.
The carrying amount of cash and cash equivalents of $345,580$384,534 and accounts receivable of $202,619$225,238 recorded in the Interim Consolidated Balance Sheet, net of any allowances for losses, represents the Company’sCompany's maximum exposure to credit risk.
FORM 10-Q
QUARTERLY REPORT - PAGE 1918
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. Commitments and Contingencies
(a) | The Company is involved in legal actions and claims arising in the ordinary course of business. While the outcome of any legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claims which are pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company. |
(b) | The Company is subject to regulations that require the handling and disposal of asbestos in a prescribed manner if a property undergoes a major renovation or demolition. Otherwise, the Company is not required to remove asbestos from its facilities. Generally asbestos is found on steam and condensate piping systems as well as certain cladding on buildings and in building insulation throughout older facilities. The |
FORM 10-Q
QUARTERLY REPORT - PAGE 2019
NON-GAAP FINANCIAL MEASURES
This quarterly report on Form 10-Q contains “non-GAAP"non-GAAP financial measures”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”"GAAP". Specifically, we make use of the non-GAAP measure “Operating EBITDA”"Operating EBITDA".
Operating EBITDA is defined as operating income 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 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 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 2120
ITEM 2. |
|
In this document: (i) unless the context otherwise requires, references to “we”"we", “our”"our", “us”"us", the “Company”"Company" or “Mercer”"Mercer" mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer"Mercer Inc.”" mean the Company excluding its subsidiaries; (iii) information is provided as of SeptemberJune 30, 2020,2021, unless otherwise stated; (iv) our reporting currency is dollars and references to “€”"€" mean euros and “C$”"C$" mean Canadian dollars; (v) “ADMTs”"ADMTs" refers to air-dried metric tonnes; (vi) “NBSK”"NBSK" refers to northern bleached softwood kraft; (vii) “NBHK”"NBHK" refers to northern bleached hardwood kraft; (viii) “MW”"MW" refers to megawatts and “MWh”"MWh" refers to megawatt hours; (ix) “Mfbm”"Mfbm" refers to thousand board feet of lumber and “MMfbm”"MMfbm" mean million board feet of lumber; and (x) 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 and ninesix months ended SeptemberJune 30, 20202021 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, 20192020 filed with the Securities and Exchange Commission, referred to as the “SEC”"SEC".
Results of Operations
General
We have two reportable operating segments:
| • | Pulp – consists of the manufacture, sale and distribution of pulp, electricity and other by-products at our pulp mills. |
| • | Wood Products – consists of the manufacture, sale and distribution of lumber, electricity and other wood residuals at the Friesau sawmill. |
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.
Current Market Environment
Looking ahead to the third quarter, we expect strong pulp market fundamentals to support marginally higher NBSK pulp prices in Europe but we expect a modest price decline in China. As well, we expect lumber demand and pricing to remain steady in all markets. Although there was a recent significant price correction in the U.S. lumber market, prices remain at historically attractive levels. Further, we believe U.S. lumber prices are near a floor level and expect them to slowly increase once home construction ramps up in the early fall.
Currently NBSK list prices in Europe and North America are approximately $1,340 per ADMT and $1,615 per ADMT, respectively and NBSK net prices in China are approximately $850 per ADMT. Prices for China are net of discounts, allowances and rebates.
COVID-19 Pandemic
The COVID-19 pandemic continuessignificant ramp up in the administration of vaccines has led to cause significant widespread global infections and fatalities. It has materially adversely affected global economic activity, caused significant market volatility and resulteda decline in numerous governments declaring emergencies and implementing measures, such as travel bans, quarantines, business closures, shelter-in-place and other restrictions.
In mid-2020,infection rates in many countries eased restrictions on economic and social activitiesthe lifting of certain restrictive measures by them to among other things, reopen their economies, by allowing businesses to restart and encourage economic recovery. The results of such economic measures and the reopening have varied from country to country.
Recently there has been a widespread increase or “second wave” in reported infections including in Europe and the United States. In response, various countries including in Europewhere we have announced the re-imposition of some restrictions on social, business and other activities. Currently we are unable to predictoperations. However, currently there remains ongoing uncertainty about the impact of the recent resurgenceCOVID-19 variations on infection levels. The re-emergence of significant increases in infections, the extent of measures governments may takeinfection rates could result in response thereto, including imposing some or all prior or newcountries re-imposing restrictive measures including business closures,that could reduce or impair economic activity. Further, the overall impact on global economic activity, including the pacerollout of any economic recovery. See “Part II. Other Information – Item 1A. Risk Factors – The COVID-19 pandemic could materially adversely affect our business, financial positionvaccines among countries has varied and results of operations”.been uneven.
FORM 10-Q
QUARTERLY REPORT - PAGE 2221
We are continuing with important health and safety measures at our operations to protect our employees and to allow our mills to operate responsibly and efficiently including with respect to social distancing, sanitation and personal protection equipment. Further, we are constantly monitoring our operations and guidance from governmental and health organizations to ensure we take appropriate and necessary actions to protect our people.
During the third quarter of 2020, To date we have not had any downtime at our average NBSK pulp sales realizations were approximately 2% lower comparedmills or material disruptions to the second quarter of 2020 as a result of market uncertainty.
At the end of the current quarter, NBSK list prices in Europe and North America were approximately $840 per ADMT and $1,130 per ADMT, respectively. Commencing in 2020 only net prices (which are net of discounts, allowances and rebates) are published for China. At the end of the current quarter, NBSK net prices in China were approximately $590 per ADMT. NBHK list prices in North America were approximately $860 per ADMT and NBHK net prices in China were approximately $445 per ADMT.
Although there is continued economic uncertainty resulting from the COVID-19 pandemic, we are currently expecting generally stable pulp demand during the fourth quarter of 2020 with some modest price improvements dueraw material supplies or access to improving global economic activity, particularly in China.
On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance scheduleslogistics networks due to the COVID-19 pandemic. As a result, we currently expect mills to curtail production to implement such delayed maintenance in the later part of this year or the early part of next year.
In the third quarter of 2020, lumber sales realizations increased by approximately 31% from the second quarter of 2020 due to strong demand from the U.S. market. We currently expect continuing strong lumber demand and lumber prices in the U.S. market and steady demand and modestly improving sales realizations in the European lumber market in the upcoming quarter.
FORM 10-Q
QUARTERLY REPORT - PAGE 23
Summary Financial Highlights
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (in thousands, other than per share amounts) |
|
| (in thousands, other than per share amounts) |
| ||||||||||||||||||||||||||
Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment revenues |
| $ | 274,916 |
|
| $ | 345,060 |
|
| $ | 876,567 |
|
| $ | 1,166,333 |
|
| $ | 310,249 |
|
| $ | 298,046 |
|
| $ | 650,005 |
|
| $ | 601,651 |
|
Wood products segment revenues |
|
| 57,053 |
|
|
| 36,458 |
|
|
| 144,558 |
|
|
| 120,349 |
|
|
| 90,439 |
|
|
| 41,727 |
|
|
| 161,426 |
|
|
| 87,505 |
|
Corporate and other revenues |
|
| 1,182 |
|
|
| 2,018 |
|
|
| 3,820 |
|
|
| 6,557 |
|
|
| 1,144 |
|
|
| 1,422 |
|
|
| 3,121 |
|
|
| 2,638 |
|
Total revenues |
| $ | 333,151 |
|
| $ | 383,536 |
|
| $ | 1,024,945 |
|
| $ | 1,293,239 |
|
| $ | 401,832 |
|
| $ | 341,195 |
|
| $ | 814,552 |
|
| $ | 691,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment operating income |
| $ | 3,753 |
|
| $ | 21,386 |
|
| $ | 33,302 |
|
| $ | 157,157 |
|
| $ | 13,338 |
|
| $ | 8,110 |
|
| $ | 38,634 |
|
| $ | 29,549 |
|
Wood products segment operating income |
|
| 11,963 |
|
|
| 544 |
|
|
| 21,845 |
|
|
| 2,075 |
|
|
| 42,314 |
|
|
| 4,327 |
|
|
| 70,291 |
|
|
| 9,882 |
|
Corporate and other operating loss |
|
| (1,980 | ) |
|
| (3,183 | ) |
|
| (7,034 | ) |
|
| (9,123 | ) |
|
| (3,816 | ) |
|
| (2,122 | ) |
|
| (6,060 | ) |
|
| (5,054 | ) |
Total operating income |
| $ | 13,736 |
|
| $ | 18,747 |
|
| $ | 48,113 |
|
| $ | 150,109 |
|
| $ | 51,836 |
|
| $ | 10,315 |
|
| $ | 102,865 |
|
| $ | 34,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment depreciation and amortization |
| $ | 28,251 |
|
| $ | 29,744 |
|
| $ | 85,841 |
|
| $ | 87,616 |
|
| $ | 27,967 |
|
| $ | 27,219 |
|
| $ | 55,013 |
|
| $ | 57,590 |
|
Wood products segment depreciation and amortization |
|
| 3,446 |
|
|
| 2,016 |
|
|
| 8,627 |
|
|
| 5,937 |
|
|
| 3,748 |
|
|
| 2,804 |
|
|
| 7,471 |
|
|
| 5,181 |
|
Corporate and other depreciation and amortization |
|
| 187 |
|
|
| 292 |
|
|
| 563 |
|
|
| 894 |
|
|
| 240 |
|
|
| 178 |
|
|
| 438 |
|
|
| 376 |
|
Total depreciation and amortization |
| $ | 31,884 |
|
| $ | 32,052 |
|
| $ | 95,031 |
|
| $ | 94,447 |
|
| $ | 31,955 |
|
| $ | 30,201 |
|
| $ | 62,922 |
|
| $ | 63,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EBITDA(1) |
| $ | 45,620 |
|
| $ | 50,799 |
|
| $ | 143,144 |
|
| $ | 244,556 |
|
| $ | 83,791 |
|
| $ | 40,516 |
|
| $ | 165,787 |
|
| $ | 97,524 |
|
Income tax recovery (provision) |
| $ | 1,775 |
|
| $ | (244 | ) |
| $ | (4,451 | ) |
| $ | (35,101 | ) | ||||||||||||||||
Loss on early extinguishment of debt |
| $ | — |
|
| $ | — |
|
| $ | (30,368 | ) | (2) | $ | — |
| ||||||||||||||||
Income tax provision |
| $ | (10,685 | ) |
| $ | (882 | ) |
| $ | (13,383 | ) |
| $ | (6,226 | ) | ||||||||||||||||
Net income (loss) |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | 0.11 |
|
| $ | 0.02 |
|
| $ | (0.06 | ) |
| $ | 0.96 |
|
| $ | 0.32 |
|
| $ | (0.13 | ) |
| $ | 0.41 |
|
| $ | (0.18 | ) |
Common shares outstanding at period end |
|
| 65,868 |
|
|
| 65,629 |
|
|
| 65,868 |
|
|
| 65,629 |
|
|
| 66,037 |
|
|
| 65,868 |
|
|
| 66,037 |
|
|
| 65,868 |
|
(1) | The following table provides a reconciliation of net income (loss) to operating income and Operating EBITDA for the periods indicated: |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Net income (loss) |
| $ | 7,545 |
|
| $ | 1,207 |
|
| $ | (4,258 | ) |
| $ | 63,082 |
|
| $ | 21,415 |
|
| $ | (8,411 | ) |
| $ | 27,348 |
|
| $ | (11,803 | ) |
Income tax provision (recovery) |
|
| (1,775 | ) |
|
| 244 |
|
|
| 4,451 |
|
|
| 35,101 |
| ||||||||||||||||
Income tax provision |
|
| 10,685 |
|
|
| 882 |
|
|
| 13,383 |
|
|
| 6,226 |
| ||||||||||||||||
Interest expense |
|
| 19,864 |
|
|
| 18,183 |
|
|
| 60,056 |
|
|
| 55,103 |
|
|
| 17,130 |
|
|
| 20,108 |
|
|
| 36,149 |
|
|
| 40,192 |
|
Other income |
|
| (11,898 | ) |
|
| (887 | ) |
|
| (12,136 | ) |
|
| (3,177 | ) | ||||||||||||||||
Loss on early extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 30,368 |
|
|
| — |
| ||||||||||||||||
Other expenses (income) |
|
| 2,606 |
|
|
| (2,264 | ) |
|
| (4,383 | ) |
|
| (238 | ) | ||||||||||||||||
Operating income |
|
| 13,736 |
|
|
| 18,747 |
|
|
| 48,113 |
|
|
| 150,109 |
|
|
| 51,836 |
|
|
| 10,315 |
|
|
| 102,865 |
|
|
| 34,377 |
|
Add: Depreciation and amortization |
|
| 31,884 |
|
|
| 32,052 |
|
|
| 95,031 |
|
|
| 94,447 |
|
|
| 31,955 |
|
|
| 30,201 |
|
|
| 62,922 |
|
|
| 63,147 |
|
Operating EBITDA |
| $ | 45,620 |
|
| $ | 50,799 |
|
| $ | 143,144 |
|
| $ | 244,556 |
|
| $ | 83,791 |
|
| $ | 40,516 |
|
| $ | 165,787 |
|
| $ | 97,524 |
|
(2) | Redemption of 6.5% senior notes due 2024 (the “2024 Senior Notes”) and 7.375% senior notes due 2025 (the “2025 Senior Notes”). |
FORM 10-Q
QUARTERLY REPORT - PAGE 2422
Selected Production, Sales and Other Data
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Pulp Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp production (‘000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Pulp production ('000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
NBSK |
|
| 400.2 |
|
|
| 441.7 |
|
|
| 1,279.1 |
|
|
| 1,355.1 |
|
|
| 355.1 |
|
|
| 423.8 |
|
|
| 752.0 |
|
|
| 879.0 |
|
NBHK |
|
| 79.8 |
|
|
| 75.3 |
|
|
| 247.6 |
|
|
| 243.3 |
|
|
| 4.5 |
|
|
| 88.8 |
|
|
| 86.1 |
|
|
| 167.8 |
|
Annual maintenance downtime (‘000 ADMTs) |
|
| 15.0 |
|
|
| 14.1 |
|
|
| 28.6 |
|
|
| 21.6 |
| ||||||||||||||||
Annual maintenance downtime ('000 ADMTs) |
|
| 173.1 |
|
|
| 11.3 |
|
|
| 210.9 |
|
|
| 13.6 |
| ||||||||||||||||
Annual maintenance downtime (days) |
|
| 10 |
|
|
| 13 |
|
|
| 27 |
|
|
| 28 |
|
|
| 117 |
|
|
| 15 |
|
|
| 144 |
|
|
| 17 |
|
Pulp sales (‘000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Pulp sales ('000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
NBSK |
|
| 369.9 |
|
|
| 451.2 |
|
|
| 1,230.8 |
|
|
| 1,356.6 |
|
|
| 330.4 |
|
|
| 422.6 |
|
|
| 749.1 |
|
|
| 860.9 |
|
NBHK |
|
| 100.1 |
|
|
| 91.0 |
|
|
| 235.4 |
|
|
| 260.4 |
|
|
| 30.3 |
|
|
| 69.3 |
|
|
| 99.4 |
|
|
| 135.4 |
|
Average NBSK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
| 840 |
|
|
| 860 |
|
|
| 841 |
|
|
| 987 |
|
|
| 1,288 |
|
|
| 850 |
|
|
| 1,163 |
|
|
| 842 |
|
China |
|
| 572 |
|
|
| 555 |
|
|
| 572 |
|
|
| 628 |
|
|
| 962 |
|
|
| 572 |
|
|
| 922 |
|
|
| 573 |
|
North America |
|
| 1,133 |
|
|
| 1,170 |
|
|
| 1,139 |
|
|
| 1,281 |
|
|
| 1,598 |
|
|
| 1,158 |
|
|
| 1,450 |
|
|
| 1,143 |
|
Average NBHK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
| 443 |
|
|
| 477 |
|
|
| 456 |
|
|
| 593 |
|
|
| 767 |
|
|
| 465 |
|
|
| 729 |
|
|
| 463 |
|
North America |
|
| 868 |
|
|
| 970 |
|
|
| 885 |
|
|
| 1,083 |
|
|
| 1,297 |
|
|
| 897 |
|
|
| 1,158 |
|
|
| 893 |
|
Average pulp sales realizations ($/ADMT)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBSK |
|
| 562 |
|
|
| 609 |
|
|
| 565 |
|
|
| 689 |
|
|
| 830 |
|
|
| 573 |
|
|
| 739 |
|
|
| 567 |
|
NBHK |
|
| 424 |
|
|
| 499 |
|
|
| 451 |
|
|
| 589 |
|
|
| 672 |
|
|
| 475 |
|
|
| 566 |
|
|
| 472 |
|
Energy production (‘000 MWh)(3) |
|
| 529.2 |
|
|
| 572.5 |
|
|
| 1,670.5 |
|
|
| 1,708.3 |
| ||||||||||||||||
Energy sales (‘000 MWh)(3) |
|
| 215.5 |
|
|
| 224.7 |
|
|
| 669.3 |
|
|
| 668.4 |
| ||||||||||||||||
Energy production ('000 MWh)(3) |
|
| 362.0 |
|
|
| 562.9 |
|
|
| 881.1 |
|
|
| 1,141.3 |
| ||||||||||||||||
Energy sales ('000 MWh)(3) |
|
| 130.9 |
|
|
| 222.0 |
|
|
| 332.0 |
|
|
| 453.7 |
| ||||||||||||||||
Average energy sales realizations ($/MWh)(3) |
|
| 96 |
|
|
| 89 |
|
|
| 92 |
|
|
| 92 |
|
|
| 90 |
|
|
| 85 |
|
|
| 94 |
|
|
| 90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wood Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber production (MMfbm) |
|
| 96.8 |
|
|
| 96.6 |
|
|
| 326.6 |
|
|
| 308.0 |
|
|
| 116.7 |
|
|
| 113.5 |
|
|
| 234.5 |
|
|
| 229.8 |
|
Lumber sales (MMfbm) |
|
| 118.5 |
|
|
| 97.0 |
|
|
| 345.2 |
|
|
| 307.7 |
|
|
| 109.3 |
|
|
| 109.0 |
|
|
| 217.5 |
|
|
| 226.7 |
|
Average lumber sales realizations ($/Mfbm) |
|
| 453 |
|
|
| 337 |
|
|
| 383 |
|
|
| 348 |
|
|
| 789 |
|
|
| 345 |
|
|
| 706 |
|
|
| 347 |
|
Energy production and sales (‘000 MWh) |
|
| 17.8 |
|
|
| 13.9 |
|
|
| 63.3 |
|
|
| 60.4 |
| ||||||||||||||||
Energy production and sales ('000 MWh) |
|
| 21.0 |
|
|
| 22.7 |
|
|
| 37.3 |
|
|
| 45.4 |
| ||||||||||||||||
Average energy sales realizations ($/MWh) |
|
| 125 |
|
|
| 116 |
|
|
| 118 |
|
|
| 117 |
|
|
| 128 |
|
|
| 116 |
|
|
| 129 |
|
|
| 116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Spot Currency Exchange Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ / €(4) |
|
| 1.1698 |
|
|
| 1.1120 |
|
|
| 1.1248 |
|
|
| 1.1234 |
|
|
| 1.2050 |
|
|
| 1.1016 |
|
|
| 1.2048 |
|
|
| 1.1019 |
|
$ / C$(4) |
|
| 0.7508 |
|
|
| 0.7573 |
|
|
| 0.7388 |
|
|
| 0.7523 |
|
|
| 0.8142 |
|
|
| 0.7221 |
|
|
| 0.8026 |
|
|
| 0.7328 |
|
(1) | Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. |
(2) | Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates. |
(3) | Does not include our 50% joint venture interest in the Cariboo mill, which is accounted for using the equity method. |
(4) | Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period. |
Consolidated –‑ Three Months Ended SeptemberJune 30, 20202021 Compared to Three Months Ended SeptemberJune 30, 20192020
Total revenues for the three months ended SeptemberJune 30, 2020 decreased2021 increased by approximately 13%18% to $333.2$401.8 million from $383.5$341.2 million in the same quarter of 20192020 primarily due to lowerhigher pulp sales volumes and pulplumber sales realizations partially offset by higher lumberlower pulp sales realizations and volumes.
Costs and expenses in the current quarter decreasedincreased by approximately 12%6% to $319.4$350.0 million from $364.8$330.9 million in the thirdsecond quarter of 20192020 primarily due to lower pulp sales volumes, per unit fiber costs andhigher maintenance costs partially offset by the negative impact of a weaker dollar primarily on our euro denominated costs and expenses.
In the third quarter of 2020, cost of sales depreciation and amortization was flat at $31.9 million when compared to the same quarter of 2019.
FORM 10-Q
QUARTERLY REPORT - PAGE 25
Selling, general and administrative expenses decreased by approximately 14% to $15.4 million in the third quarter of 2020 from $18.0 million in the same quarter of 2019 primarily due to cost reduction initiatives.
In the third quarter of 2020, our operating income decreased by approximately 27% to $13.7 million from $18.7 million in the same quarter of 2019 primarily due to lower pulp sales realizations and the negative impact of a weaker dollar primarily on our Canadian dollar and euro denominated costs and expenses partially offset by lower per unit fiberpulp sales volumes.
In the second quarter of 2021, cost of sales depreciation and amortization increased to $31.9 million from $30.2 million in the same quarter of 2020 primarily due to the negative impact of a weaker dollar.
FORM 10-Q
QUARTERLY REPORT - PAGE 23
Selling, general and administrative expenses increased by approximately 23% to $20.2 million in the second quarter of 2021 from $16.4 million in the same quarter of 2020 primarily due to the negative impact of a weaker dollar and higher stock based compensation expense.
In the second quarter of 2021, our operating income increased to $51.8 million from $10.3 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations partially offset by higher maintenance costs, the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and significantly higher wood products segment operating income.expenses and lower pulp sales volumes.
Interest expense in the current quarter increaseddecreased to $19.9$17.1 million from $18.2$20.1 million in the same quarter of 20192020 primarily as a result of higher indebtedness.a lower weighted average interest rate.
In the thirdsecond quarter of 2020,2021, other expenses were $2.6 million compared to other income increased to $11.9 million from $0.9of $2.3 million in the same quarter of 2019 primarily as a result of $15.4 million of realized gains on the sale of investments2020. Other expenses in the current quarter.quarter is primarily due to foreign exchange losses on U.S. dollar denominated cash balances.
During the thirdsecond quarter of 2020, we had a recovery for income taxes of $1.8 million primarily due to the income tax recoveries for our Canadian operations only partially offset by the tax provision for our German operations. In the comparative quarter of 2019,2021, the provision for income taxes was $0.2 million. $10.7 million or an effective tax rate of approximately 33%. In the comparative quarter of 2020, the provision for income taxes was $0.9 million primarily due to tax for our German operations being only partially offset by tax recoveries for our Canadian operations.
For the thirdsecond quarter of 2020,2021, our net income was $7.5$21.4 million, or $0.11$0.32 per share compared to $1.2a net loss of $8.4 million, or $0.02$0.13 per share, in the same quarter of 2019.2020.
In the thirdsecond quarter of 2020,2021, Operating EBITDA decreased by approximately 10%increased to $45.6$83.8 million from $50.8$40.5 million in the same quarter of 20192020 primarily due to lowerhigher pulp and lumber sales realizations andpartially offset by higher maintenance costs, the negative impact of a weaker dollar primarily on our euro denominated costs and expenses partially offset by lower per unit fiber costs and higher lumberpulp sales realizations.volumes.
Operating Results by Business Segment
None of the income or loss items following operating income in our Interim Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management.
Pulp Segment –‑ Three Months Ended SeptemberJune 30, 20202021 Compared to Three Months Ended SeptemberJune 30, 20192020
Selected Financial Information
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Pulp revenues |
| $ | 253,056 |
|
| $ | 322,707 |
|
| $ | 297,191 |
|
| $ | 276,919 |
|
Energy and chemical revenues |
| $ | 21,860 |
|
| $ | 22,353 |
|
| $ | 13,058 |
|
| $ | 21,127 |
|
Depreciation and amortization |
| $ | 28,251 |
|
| $ | 29,744 |
|
| $ | 27,967 |
|
| $ | 27,219 |
|
Operating income |
| $ | 3,753 |
|
| $ | 21,386 |
|
| $ | 13,338 |
|
| $ | 8,110 |
|
Pulp revenues in the thirdsecond quarter of 2020 decreased2021 increased by approximately 22%7% to $253.1$297.2 million from $322.7$276.9 million in the same quarter of 20192020 due to higher sales realizations partially offset by lower sales volumes and sales realizations.volumes.
Energy and chemical revenues decreased by approximately 2%38% to $21.9$13.1 million in the thirdsecond quarter of 20202021 from $22.4$21.1 million in the same quarter of 20192020 primarily due to lower chemicalenergy production at our German mills. In September 2020, our Celgar mill finalizedas a new electricity purchase agreement with the local utility for the saleresult of electricity from the mill to replace its expiring agreement. The new agreement is for a ten-year term and provides for the sale of approximately 80% of the mill’s surplus power at about 80% of the previous price but provides us with greater flexibility and optionality to pursue and effect “market” sales and other strategic initiatives with respect to the mill’s surplus power.annual maintenance downtime.
NBSK pulp production declined by approximately 9%16% to 400,172355,103 ADMTs in the current quarter from 441,672423,773 ADMTs in the same quarter of 20192020 primarily due to market related downtime at our Celgar mill.capital projects and maintenance downtime. In the current quarter of 2021, our pulp mills had 117 days of maintenance downtime (approximately 173,100 ADMTs) including our 50% owned Cariboo mill. Approximately 79 days of such downtime was at our Peace River mill and primarily related to boiler work which was deferred from last year relating to a 2017 incident. The Peace River mill
FORM 10-Q
QUARTERLY REPORT - PAGE 2624
2020, our pulp mills had tenmaintenance shut was about 25 days longer than planned, nine days of annual maintenance downtime (approximately 15,000 ADMTs) andwhich were in July, 2020but we expect the majority of this extra downtime will be covered by our Celgar mill had 30 days of market related downtime. insurance.
In the comparativesecond quarter of 2019,2021, we received insurance proceeds of $20.0 million in connection with the costs of the Peace River mill boiler work along with an initial payment of $4.2 million for our pulp mills had 13 daysbusiness interruption insurance claims. We currently expect our remaining business interruption insurance claim to be in excess of scheduled maintenance downtime (approximately 14,100 ADMTs).$15 million.
We estimate that annual maintenance downtime in the current quarter adversely impacted our operating income by approximately $7.5$80.1 million, comprised of approximately $4.4$45.0 million in direct out-of-pocket expenses and the balance in reduced production.production (exclusive of business interruption insurance proceeds).
In the third quarter of 2021, excluding our 50% owned Cariboo mill, we have 24 days of scheduled maintenance. Also, while our Rosenthal mill will be operating and producing pulp, in the third quarter of 2021 it will take down and rebuild its turbine. This work is expected to continue into the early fourth quarter of 2020, our pulp mills currently have 17 days of planned annual maintenance downtime (approximately 19,600 ADMTs).and require the mill to purchase its energy requirements.
NBSK pulp sales volumes decreased by approximately 18%22% to 369,913330,425 ADMTs in the current quarter from 451,171422,586 ADMTs in the same quarter of 20192020 primarily due to lower production and modestly lower sales for all of our mills.production.
In the current quarter of 2020, overall2021, prices for NBSK pulp were generally flatincreased from the same quarter of 2019.2020 largely as a result of strong demand and low customer inventory levels. Average list prices for NBSK pulp in Europe and North America were approximately $840$1,288 per ADMT and $1,133$1,598 per ADMT, respectively in the thirdsecond quarter of 20202021 compared to approximately $860$850 per ADMT and $1,170$1,158 per ADMT, respectively, in the same quarter of 2019.2020. Average NBSK net prices in China were approximately $572$962 per ADMT in the current quarter compared to approximately $555$572 per ADMT in the same quarter of 2019.2020.
Average NBSK pulp sales realizations decreasedincreased by approximately 8%45% to $562$830 per ADMT in the thirdsecond quarter of 20202021 from approximately $609$573 per ADMT in the same quarter of 2019.2020.
In the current quarter of 2020 our Canadian mills recorded a non-cash write down of our inventory carrying values of $8.0 million as a result of low pulp sales realizations and high per unit fiber costs. In the same quarter of the prior year our Canadian mills recorded a non-cash write down of our inventory carrying values of $6.9 million.
In the current quarter of 20202021, primarily as a result of the effect of the weaker dollar on our Canadian dollar and euro denominated costs and expenses, we recorded a negative impact of approximately $15.8$23.3 million in operating income due to foreign exchange compared to the same quarter of 2019.2020.
Costs and expenses in the current quarter decreasedincreased by approximately 16%2% to $271.2$297.0 million from $323.7$290.1 million in the thirdsecond quarter of 20192020 primarily due to lower pulp sales volumes, per unit fiberhigher maintenance costs and maintenance costs partially offset by the negative impact of a weaker dollar. Indollar partially offset by lower pulp sales volumes.
On average, in the current quarter of 2020 we received approximately $3.5 million of wage assistance under a Canadian government wage subsidy program.
In the third quarter of 2020, depreciation and amortization decreasedoverall per unit fiber costs were flat when compared to $28.3 million from $29.7 million in the same quarter of 2019.
In the current quarter per unit fiber costs decreased by approximately 12% from the same quarter of 2019 due to lower per unit fiber costs for all of our mills.2020. In the current quarter, per unit fiber costs for our German mills declined due to the continued availability of beetle damaged wood. For our Canadian mills, per unit fiber costs declinedincreased due to increased sawmill activity but remained at historically high levelsa higher proportion of more expensive softwood chips due to strong demand for fiber in the mills’ fiber procurement areas.annual maintenance downtime at the Peace River mill. We currently expect stablemodestly higher per unit fiber costs in the fourththird quarter of 2020.2021 due to strong fiber demand.
Transportation costs for our pulp segment decreased to $32.6$24.9 million in the current quarter from $37.2$34.6 million in the same quarter of 20192020 primarily as a result of lower sales volumes.
In the thirdsecond quarter of 2020, pulp segment operating income decreased2021, depreciation and amortization increased to $3.8$28.0 million from $21.4$27.2 million in the same quarter of 20192020 primarily due to the negative impact of a weaker dollar.
In the second quarter of 2021, pulp segment operating income increased by approximately 64% to $13.3 million from $8.1 million in the same quarter of 2020 as lowerhigher pulp sales realizations andwere only partially offset by higher maintenance costs, the negative impact of a weaker dollar were only partially offset by the positive impact of lower per unit fiber costs and lower maintenance costs.pulp sales volumes.
FORM 10-Q
QUARTERLY REPORT - PAGE 2725
Wood Products Segment –‑ Three Months Ended SeptemberJune 30, 20202021 Compared to Three Months Ended SeptemberJune 30, 20192020
Selected Financial Information
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Lumber revenues |
| $ | 53,612 |
|
| $ | 32,687 |
|
| $ | 86,285 |
|
| $ | 37,611 |
|
Energy revenues |
| $ | 2,226 |
|
| $ | 1,621 |
|
| $ | 2,692 |
|
| $ | 2,629 |
|
Wood residual revenues |
| $ | 1,215 |
|
| $ | 2,150 |
|
| $ | 1,462 |
|
| $ | 1,487 |
|
Depreciation and amortization |
| $ | 3,446 |
|
| $ | 2,016 |
|
| $ | 3,748 |
|
| $ | 2,804 |
|
Operating income |
| $ | 11,963 |
|
| $ | 544 |
|
| $ | 42,314 |
|
| $ | 4,327 |
|
In the thirdsecond quarter of 2020,2021, lumber revenues increased by approximately 64% to $53.6$86.3 million from $32.7$37.6 million in the same quarter of 20192020 due to higher sales realizations and sales volumes.realizations. In the current quarter, both the U.S. and European markets were particularly robust withstrong. The U.S. market accounted for approximately 59%62% of our lumber revenues and approximately 39% of our lumber sales volumes to such market.volumes. The majority of the balance of our lumberremaining sales were to Europe.
Energy and wood residual revenues in the thirdsecond quarter of 2020 decreased by approximately 11%2021 were flat at $4.2 million compared to $3.4 million from $3.8$4.1 million in the same quarter of 2019 primarily due to a lower realized sales price for wood residuals.2020.
Lumber production was flat at 96.8increased by approximately 3% to 116.7 MMfbm in the current quarter of 20202021 from 96.6113.5 MMfbm in the same quarter of 2019.2020 primarily due to capital improvements. In the currentthird quarter of 2020,2021, our mill had approximately ten daysFriesau sawmill has four weeks of planned downtime for our sawmill upgrade project.seasonal scheduled downtime.
Average lumber sales realizations increased by approximately 34% to $453$789 per Mfbm in the thirdsecond quarter of 20202021 from approximately $337$345 per Mfbm in the same quarter of 2019 primarily2020 due to higher pricing in both the U.S. market.and European markets. U.S. lumber pricing increased due to strong demand duringfrom the current quarter.housing and renovation markets. European lumber pricing modestly decreasedincreased due to the supply of lumber processed from beetle damaged wood which generally obtains a lower price. steady demand with limited supply.
Fiber costs were approximately 70%75% of our lumber cash production costs in the current quarter. In the thirdcurrent quarter of 2020 per unit fiber costs decreasedincreased by approximately 6%30% from the same periodquarter of 20192020 primarily due to strong demand for sawlogs and the availabilitynegative impact of lower cost beetle damaged wood.a weaker dollar on our euro denominated fiber costs. We currently expect stablemodestly increasing per unit fiber costs in the fourththird quarter of 20202021 due to the continuing availability of beetle damaged wood.continued strong demand.
In the thirdsecond quarter of 2020,2021, depreciation and amortization increased to $3.4$3.7 million from $2.0$2.8 million in the same quarter of 20192020 primarily due to the completion of capital projects.
Transportation costs for our wood products segment in the thirdsecond quarter of 20202021 increased by approximately 43%15% to $8.0$8.3 million from $5.6$7.2 million in the same quarter of 20192020 primarily due to higher sales volumes to the U.S.negative impact of a weaker dollar on our euro denominated transportations costs.
In the thirdsecond quarter of 2020,2021, our wood products segment had record operating income of $12.0$42.3 million compared to $0.5$4.3 million in the same quarter of 20192020 primarily due to a higher lumber realized sales price.
Consolidated – Nine‑ Six Months Ended SeptemberJune 30, 20202021 Compared to NineSix Months Ended SeptemberJune 30, 20192020
Total revenues for the nine months ended September 30, 2020 decreasedfirst half of 2021 increased by approximately 21%18% to $1,024.9$814.6 million from $1,293.2$691.8 million in the nine months ended September 30, 2019first half of 2020 primarily due to higher pulp and lumber sales realizations partially offset by lower pulp sales realizations and pulp sales volumes partially offset by higher lumber sales volumes and realizations.
Costs and expenses in the nine months ended September 30, 2020 decreased by approximately 15% to $976.8 million from $1,143.1 million in the nine months ended September 30, 2019 primarily due to lower pulp sales volumes, per unit fiber costs and maintenance costs.volumes.
FORM 10-Q
QUARTERLY REPORT - PAGE 2826
Costs and expenses in the first half of 2021 increased by approximately 8% to $711.7 million from $657.4 million in the first half of 2020 primarily due to the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses and higher maintenance costs partially offset by lower pulp sales volumes and lower per unit fiber costs.
In the nine months ended September 30, 2020,first half of 2021, cost of sales depreciation and amortization increasedslightly decreased to $95.0$62.9 million from $94.1$63.1 million in the same period of 2019.2020.
Selling, general and administrative expenses decreasedincreased by approximately 20% to $49.3$40.8 million in the nine months ended September 30, 2020first half of 2021 from $54.7$33.9 million in the same periodfirst half of 20192020 primarily due to cost reduction initiativesthe negative impact of a weaker dollar and lowerhigher stock based compensation expense.
In the nine months ended September 30, 2020,first half of 2021, our operating income decreased by approximately 68%increased to $48.1$102.9 million from $150.1$34.4 million in the same period of 20192020 primarily due to lowerhigher pulp and lumber sales realizations and pulp sales volumes partially offset by lower per unit fiber costs lowerpartially offset by the negative impact of a weaker dollar, higher maintenance costs and significantly higher wood products segment operating income.lower pulp and energy sales volumes.
In January 2021, we refinanced (the “Refinancing”) a significant portion of our debt by issuing $875.0 million of 5.125% senior notes due 2029 (the “2029 Senior Notes”) and used the proceeds to redeem and/or repurchase all of our 6.5% 2024 Senior Notes and 7.375% 2025 Senior Notes at a cost including premium of $824.6 million (the “Redemption”). We recorded a loss on such Redemption of $30.4 million (being $0.46 per share). The Refinancing reduced our annual interest expense going forward by approximately $12 million.
Interest expense in the nine months ended September 30, 2020 increasedfirst half of 2021 decreased to $60.1$36.1 million from $55.1$40.2 million in the same period of 20192020 primarily as a result of higher indebtedness resulting froma lower interest rate for our issuance2029 Senior Notes.
In the first half of an additional $100.0 million of senior notes in October 2019.
Other2021, other income in the nine months ended September 30, 2020 increased to $12.1$4.4 million from $3.2$0.2 million in the same period of 20192020. Other income in the first half of 2021 is primarily due to $15.4 million of realizedforeign exchange gains on the sale of investments.U.S. dollar denominated cash balances.
During the nine months ended September 30,first half of 2021, the provision for income taxes was $13.4 million or an effective tax rate of 33%. In the same period of 2020, the provision for income taxes was $4.5$6.2 million primarily due to income before tax for our German operations being only partially offset by tax recoveries for our Canadian operations. In the same period of 2019, the provision for income taxes was $35.1 million due to higher income.
For the nine months ended September 30, 2020,first half of 2021, our net lossincome was $4.3$27.3 million, or $0.06$0.41 per share compared to a net incomeloss of $63.1$11.8 million, or $0.96$0.18 per share, in the same period of 2019.2020.
In the nine months ended September 30, 2020,first half of 2021, Operating EBITDA decreasedincreased by approximately 41%70% to $143.1$165.8 million from $244.6$97.5 million in the same period of 20192020 primarily due to lowerhigher pulp and lumber sales realizations and pulp sales volumes partially offset by lower per unit fiber costs lowerpartially offset by higher maintenance costs, the negative impact of a weaker dollar and higher lumberlower pulp and energy sales realizations.volumes.
Pulp Segment – Nine‑ Six Months Ended SeptemberJune 30, 20202021 Compared to NineSix Months Ended SeptemberJune 30, 20192020
Selected Financial Information
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Pulp revenues |
| $ | 808,923 |
|
| $ | 1,095,225 |
|
| $ | 614,773 |
|
| $ | 555,867 |
|
Energy and chemical revenues |
| $ | 67,644 |
|
| $ | 71,108 |
|
| $ | 35,232 |
|
| $ | 45,784 |
|
Depreciation and amortization |
| $ | 85,841 |
|
| $ | 87,616 |
|
| $ | 55,013 |
|
| $ | 57,590 |
|
Operating income |
| $ | 33,302 |
|
| $ | 157,157 |
|
| $ | 38,634 |
|
| $ | 29,549 |
|
Pulp revenues in the nine months ended September 30, 2020 decreasedfirst half of 2021 increased by approximately 26%11% to $808.9$614.8 million from $1,095.2$555.9 million in the same period of 20192020 due to lowerhigher sales realizations andpartially offset by lower sales volumes.
FORM 10-Q
QUARTERLY REPORT - PAGE 27
Energy and chemical revenues decreased by approximately 5%23% to $67.6$35.2 million in the nine months ended September 30, 2020first half of 2021 from $71.1$45.8 million in the same period of 20192020 primarily due to lower chemicalenergy production caused by our German mills processing dry beetle damaged wood.as a result of annual maintenance downtime.
NBSK pulp production declineddecreased by approximately 6%14% to 1,279,137751,968 ADMTs in the nine months ended September 30, 2020first half of 2021 from 1,355,120878,965 ADMTs in the same period of 2019. In the current period, we had2020 primarily due to annual maintenance downtime of 27 days (approximately 28,600 ADMTs) and planned market related downtime of 30 days at our Celgarpulp mills. In the first half of 2021, our pulp mills had 144 days of annual maintenance downtime (approximately 210,900 ADMTs) including our 50% owned Cariboo mill. Approximately 79 days of such downtime was at our Peace River mill and four weeks atprimarily related to boiler work which was deferred from last year. In the first half of 2021, we received insurance proceeds of $20.0 million in connection with the costs of this mill's boiler work along with an initial payment of $4.2 million for our 50% joint venture Cariboo mill compared to 28 days (approximately 21,600 ADMTs) of scheduled maintenance downtime in the same period of 2019. business interruption insurance claims.
We estimate that annual maintenance downtime in the nine months ended September 30, 2020first half of 2021 adversely impacted our operating income by approximately
FORM 10-Q
QUARTERLY REPORT - PAGE 29
$13.1 $110.4 million, comprised of approximately $6.8$66.8 million in direct out-of-pocket expenses and the balance in reduced production.production (exclusive of business interruption insurance proceeds).
NBSK pulp sales volumes decreased by approximately 9%13% to 1,230,825749,070 ADMTs in the nine months ended September 30, 2020first half of 2021 from 1,356,584860,912 ADMTs in the same period of 20192020 primarily due to lower production.
In the nine months ended September 30, 2020,first half of 2021, prices for NBSK pulp decreasedincreased from the same period of 2019,2020, largely as a result of high producerstrong demand and low customer inventory levels and market uncertainty due to the COVID-19 pandemic.levels. Average list prices for NBSK pulp in Europe and North America were approximately $841$1,163 per ADMT and $1,139$1,450 per ADMT, respectively in the nine months ended September 30, 2020first half of 2021 compared to approximately $987$842 per ADMT and $1,281$1,143 per ADMT, respectively, in the same period of 2019.2020. Average NBSK net prices in China were approximately $572$922 per ADMT in the nine months ended September 30, 2020first half of 2021 compared to approximately $628$573 per ADMT in the nine months ended September 30, 2019.first half of 2020.
Average NBSK pulp sales realizations decreasedincreased by approximately 18%30% to $565$739 per ADMT in the nine months ended September 30, 2020first half of 2021 from approximately $689$567 per ADMT in the same period of 2019.2020.
In the nine months ended September 30, 2020, our Canadian mills recorded non-cash write downsfirst half of our inventory carrying values of $26.0 million as a result of lower pulp sales realizations and high fiber costs. In the same period of 2019 our Canadian mills recorded a non-cash write down of our inventory carrying values of $13.8 million.
In the nine months ended September 30, 2020,2021, primarily as a result of the effect of the strengtheningweakening dollar on our Canadian dollar and euro denominated costs and expenses, we recorded a positivenegative impact of approximately $5.8$54.8 million in operating income due to foreign exchange compared to the same period of 2019.2020.
Costs and expenses in the nine months ended September 30, 2020 decreasedfirst half of 2021 increased by approximately 16%7% to $843.7$611.5 million from $1,009.6$572.4 million in the nine months ended September 30, 2019first half of 2020 primarily due to higher maintenance costs and the negative impact of a weaker dollar partially offset by lower pulp sales volumes and per unit fiber costs and maintenance costs. In the nine months ended September 30, 2020 we have received approximately $8.0 million of wage assistance under a Canadian government wage subsidy program.
In the nine months ended September 30, 2020, depreciation and amortization decreased to $85.8 million from $87.6 million in the same period of 2019.
On average, in the nine months ended September 30, 2020first half of 2021 overall per unit fiber costs decreased by approximately 13%5% from the same period of 20192020 due to lower per unit fiber costs atfor all of our mills. In the nine months ended September 30, 2020,first half of 2021, per unit fiber costs for our German mills declined due to the continued availability of beetle damaged wood. For our Canadian mills, per unit fiber costs declined due to improved chip supply as a result of increased sawmill activity but remained at historically high levels due to strong demand for fiber in the mills’ fiber procurement areas.activity.
Transportation costs for our pulp segment decreased to $102.8$61.1 million in the nine months ended September 30, 2020first half of 2021 from $111.4$70.2 million in the same period of 20192020 primarily as a result of lower pulp sales volumes.
In the nine months ended September 30, 2020, pulp segment operating incomefirst half of 2021, depreciation and amortization decreased to $33.3$55.0 million from $157.2$57.6 million in the same period of 20192020.
In the first half of 2021, pulp segment operating income increased by approximately 31% to $38.6 million from $29.5 million in the same period of 2020 as lowerhigher pulp sales realizations and pulp sales volumeslower per unit fiber costs were only partially offset by higher maintenance costs, the positivenegative impact of lower per unit fiber costsa weaker dollar and lower maintenance costs.pulp and energy sales volumes.
FORM 10-Q
QUARTERLY REPORT - PAGE 3028
Wood Products Segment – Nine‑ Six Months Ended SeptemberJune 30, 20202021 Compared to NineSix Months Ended SeptemberJune 30, 20192020
Selected Financial Information
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Lumber revenues |
| $ | 132,209 |
|
| $ | 107,172 |
|
| $ | 153,596 |
|
| $ | 78,597 |
|
Energy revenues |
| $ | 7,486 |
|
| $ | 7,075 |
|
| $ | 4,806 |
|
| $ | 5,260 |
|
Wood residual revenues |
| $ | 4,863 |
|
| $ | 6,102 |
|
| $ | 3,024 |
|
| $ | 3,648 |
|
Depreciation and amortization |
| $ | 8,627 |
|
| $ | 5,937 |
|
| $ | 7,471 |
|
| $ | 5,181 |
|
Operating income |
| $ | 21,845 |
|
| $ | 2,075 |
|
| $ | 70,291 |
|
| $ | 9,882 |
|
In the nine months ended September 30, 2020,first half of 2021, lumber revenues increased approximately 23% to $132.2$153.6 million from $107.2$78.6 million in the same period of 20192020 due to higher sales volumesrealizations. In the first half of 2021, both the U.S. and a higher realized sales price. Overall, in the nine months ended September 30, 2020, U.S.European markets were strong withstrong. The U.S. market accounted for approximately 50%64% of our lumber revenues and 36%approximately 41% of our lumber sales volumes, to such market. Thewhile the majority of the balance of our lumberremaining sales were to Europe.
Energy and wood residual revenues decreased by approximately 7%12% to $12.3$7.8 million in the nine months ended September 30, 2020first half of 2021 from $13.2$8.9 million in the same period of 20192020 primarily due to lower sales realizations for wood residuals.
Lumber production increased by approximately 6%2% to 326.6234.5 MMfbm in the nine months ended September 30, 2020first half of 2021 from 308.0229.8 MMfbm in the same period of 20192020 primarily due to capital improvements. In the nine months ended September 30, 2020, our mill had approximately ten days of planned downtime for our sawmill upgrade project.
Average lumber sales realizations increased by approximately 10% to $383$706 per Mfbm in the nine months ended September 30, 2020first half of 2021 from approximately $348$347 per Mfbm in the same period of 20192020 primarily due to higher pricing in the U.S. market resulting fromand European markets. U.S. lumber pricing increased due to strong demand only partially offset by lower pricing in Europe.from the housing and renovation markets. European lumber pricing declinedincreased due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.steady demand with limited supply.
Fiber costs were approximately 70%75% of our lumber cash production costs in the nine months ended September 30, 2020.first half of 2021. In the nine months ended September 30, 2020first half of 2021 per unit fiber costs decreasedincreased by approximately 21%18% from the same period of 20192020 primarily due to the availabilitynegative impact of lower cost beetle damaged wood. We currently expect stable per unita weaker dollar on our euro denominated fiber costs in the fourth quarter of 2020 due to the continuing availability of beetle damaged wood. and strong demand for sawlogs.
In the nine months ended September 30, 2020,first half of 2021, depreciation and amortization increased to $8.6$7.5 million from $5.9$5.2 million in the same period of 20192020 primarily due to the completion of capital projects.
Transportation costs for our wood products segment in the nine months ended September 30, 2020first half of 2021 increased by approximately 24%15% to $22.0$16.1 million from $17.7$14.0 million in the same period of 20192020 primarily due to higher sales volumes to the U.S.negative impact of a weaker dollar on our euro denominated transportations costs.
In the nine months ended September 30, 2020,first half of 2021, our wood products segment had operating income of $21.8$70.3 million compared to $2.1$9.9 million in the same period of 20192020 primarily due to a higher lumber realized sales price, lower per unit fiber costs and strong production.
FORM 10-Q
QUARTERLY REPORT - PAGE 31
price.
Liquidity and Capital Resources
Summary of Cash Flows
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Net cash from operating activities |
| $ | 22,751 |
|
| $ | 187,768 |
| ||||||||
Net cash from (used in) operating activities |
| $ | 111,440 |
|
| $ | (5,737 | ) | ||||||||
Net cash used in investing activities |
|
| (46,345 | ) |
|
| (82,308 | ) |
|
| (68,656 | ) |
|
| (44,242 | ) |
Net cash from (used in) financing activities |
|
| 18,438 |
|
|
| (79,712 | ) |
|
| (16,751 | ) |
|
| 4,902 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (349 | ) |
|
| (1,340 | ) |
|
| (2,597 | ) |
|
| (2,674 | ) |
Net increase (decrease) in cash and cash equivalents |
| $ | (5,505 | ) |
| $ | 24,408 |
|
| $ | 23,436 |
|
| $ | (47,751 | ) |
FORM 10-Q
QUARTERLY REPORT - PAGE 29
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.
Cash Flows from Operating Activities. Cash provided by operating activities was $22.8$111.4 million in the ninesix months ended SeptemberJune 30, 20202021 compared to $187.8cash used in operating activities of $5.7 million in the comparative period of 2019. A2020. In the first half of 2021, a decrease in accounts receivable provided cash of $11.2$3.9 million in the nine months ended September 30, 2020 compared to $17.2an increase in accounts receivable using cash of $6.0 million in the same period of 2019. An2020. In the first half of 2021, an increase in inventories used cash of $20.4$42.8 million in the ninesix months ended SeptemberJune 30, 20202021 compared to a decrease in inventories providing cash of $15.7$6.7 million in the same period of 2019. A2020. An increase in accounts payable and accrued expenses provided cash of $34.6 million compared to a decrease in accounts payable and accrued expenses usedusing cash of $54.0 million in the nine months ended September 30, 2020 compared to $12.7$49.8 million in the same period of 2019.2020.
Cash Flows from Investing Activities. Investing activities in the ninesix months ended SeptemberJune 30, 20202021 used cash of $46.3 million primarily related to$68.7 million. In the first half of 2021, capital expenditures of $59.2were $87.4 million and $9.4 million for other investments partially offset byincluded the Peace River recovery boiler rebuild, which was financed with insurance proceeds of $21.5$20.0 million, fromcapacity expansion projects at the saleStendal mill, the substantial completion of such investments. In the nine months ended September 30, 2020, capital expenditures included the Phase II expansion and optimization project at our Friesau sawmill additional land for fiber storage at the Stendal mill and other smaller maintenance and optimization projects. In the ninesix months ended SeptemberJune 30, 2019,2020, investing activities used cash of $82.3$44.2 million primarily related to capital expenditures of $81.4 million. In the nine months ended September 30, 2019, capital expenditures included improvements to the bale line and a turpentine extraction project at our Celgar mill, the planer line replacement project at our Friesau sawmill and wastewater improvement projects at our German pulp mills.expenditures.
Cash Flows from Financing Activities. In the ninefirst half of 2021, financing activities used cash of $16.8 million. In the six months ended SeptemberJune 30, 2021, we repaid $57.1 million of our credit facilities, received net proceeds from the Refinancing after giving effect to the Redemption of $50.4 million, we paid note issuance costs of $14.4 million related to the issuance of the 2029 Senior Notes and paid $4.3 million of dividends. In the six months ended June 30, 2021, we received $8.5 million in government grants to partially finance innovation and greenhouse gas emission reduction capital projects at our Canadian mills. In thefirst half of 2020, financing activities provided cash of $18.4$4.9 million primarily from $34.4$25.6 million of borrowings under our revolving credit facilities. In the ninesix months ended SeptemberJune 30, 2020 we paid dividends of $13.3$9.0 million and used $0.2 million to repurchase common shares. In the nine months ended September 30, 2019, financing activities used cash of $79.7 million primarily to repay $58.4 million under our revolving credit facilities. In the nine months ended September 30, 2019, we received $6.5 million of government grants related to our Peace River mill, paid dividends of $17.2 million and used $0.8 million to repurchase common shares.
FORM 10-Q
QUARTERLY REPORT - PAGE 32
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Cash and cash equivalents |
| $ | 345,580 |
|
| $ | 351,085 |
|
| $ | 384,534 |
|
| $ | 361,098 |
|
Working capital |
| $ | 633,764 |
|
| $ | 588,385 |
|
| $ | 672,237 |
|
| $ | 663,056 |
|
Total assets |
| $ | 2,044,735 |
|
| $ | 2,065,720 |
|
| $ | 2,214,698 |
|
| $ | 2,129,126 |
|
Long-term liabilities |
| $ | 1,293,312 |
|
| $ | 1,259,005 |
|
| $ | 1,345,200 |
|
| $ | 1,316,303 |
|
Total equity |
| $ | 550,707 |
|
| $ | 550,403 |
| ||||||||
Total shareholders' equity |
| $ | 604,134 |
|
| $ | 601,027 |
|
FORM 10-Q
QUARTERLY REPORT - PAGE 30
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.
FORM 10-Q
QUARTERLY REPORT - PAGE 33
The following table sets out our total capital expenditures and interest expense for the periods indicated:
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Capital expenditures |
| $ | 59,201 |
|
| $ | 81,417 |
|
| $ | 87,386 |
|
| $ | 44,562 |
|
Cash paid for interest expense |
| $ | 76,257 |
|
| $ | 55,742 |
|
| $ | 40,110 |
|
| $ | 38,228 |
|
Interest expense |
| $ | 60,056 |
|
| $ | 55,103 |
|
| $ | 36,149 |
|
| $ | 40,192 |
|
(1) | Includes expenditures for the recovery boiler rebuild at the Peace River mill which is financed with insurance proceeds of $20.0 million. |
(2) | Amounts differ from interest expense which includes non-cash items. See supplemental disclosure of cash flow information from our Interim Consolidated Statements of Cash Flows included in this report. |
| Interest on our |
As of SeptemberJune 30, 20202021 we had cash and cash equivalents of $345.6$384.5 million and approximately $255.0$310.4 million available under our revolving credit facilities and as a result aggregate liquidity of about $600.6$694.9 million.
As of June 30, 2021, we have received approximately $15.8 million in government grants to partially finance greenhouse gas emission reduction capital projects and innovation at our Canadian mills. These projects include upgrades to the woodrooms at such mills which are also expected to reduce fiber costs. As a result of such new woodroom projects, our expected 2021 capital expenditures, excluding amounts financed by government grants and expected insurance proceeds, will be approximately $185 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.
FORM 10-Q
QUARTERLY REPORT - PAGE 31
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, 2019.2020.
As of SeptemberJune 30, 2020,2021, we were in full compliance with all of the covenants of our indebtedness.
Off-Balance Sheet Arrangements
At SeptemberJune 30, 2020,2021, 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 ninesix months ended SeptemberJune 30, 2020.
FORM 10-Q
QUARTERLY REPORT - PAGE 34
2021.
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 weakeningstrengthening of the dollar versus the euro as of SeptemberJune 30, 2020,2021, we recorded a net non-cash increasedecrease of $21.5$17.6 million in the carrying value of our net assets, consisting primarily of our fixed assets denominated in euros. This non-cash increasedecrease does not affect our net income (loss), Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as an increasea decrease to our total equity. As a result, our accumulated other comprehensive loss decreasedincreased to $95.0$44.8 million.
Based upon the exchange rate as of SeptemberJune 30, 2020,2021, the dollar has weakenedstrengthened by approximately 4%3% against the euro and has strengthenedweakened by approximately 3% against the Canadian dollar since December 31, 2019.2020. See "Quantitative and Qualitative Disclosures about Market Risk".
Credit Rating of Senior Notes
We and our Senior Notes are rated by Standard & Poor's Rating Services, referred to as "S&P", and Moody's Investors Service, Inc., referred to as "Moody's"“S&P”.
In July 2020 Moody'sJune 2021, S&P revised its outlook to stable from negative and confirmed its rating on our Seniorsenior Notes is Ba3 and its outlook is stable. In April 2020, S&P reduced its rating on our Senior Notes to B+ from BB- and its outlook to negative from stable.. Its recovery rating remained unchanged at "3"“3”. Credit ratings are not recommendations to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of 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, 2019.2020. While all of the significant accounting
FORM 10-Q
QUARTERLY REPORT - PAGE 32
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.
FORM 10-Q
QUARTERLY REPORT - PAGE 35
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, 2019.2020.
FORM 10-Q
QUARTERLY REPORT - PAGE 36
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
| • | the COVID-19 pandemic could materially adversely affect our business, financial position and results of operations; |
• | our business is highly cyclical in nature; |
| • | cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business; |
• | we face intense competition in our markets; |
• | our business is subject to risks associated with climate change and social and government responses thereto; |
• | our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements; |
• | we have limited control over the operations of the Cariboo mill; |
• | fluctuations in prices and demand for lumber could adversely affect our business; |
• | adverse housing market conditions may increase the credit risk from customers of our wood products segment; |
FORM 10-Q
QUARTERLY REPORT - PAGE 33
• | our wood products segment lumber products are vulnerable to declines in demand due to competing technologies or materials; |
• | we may experience material disruptions to our production; |
• | future acquisitions may result in additional risks and uncertainties in our business; |
• | we are subject to risks related to our employees; |
• | we are dependent on key personnel; |
• | if our long-lived assets become impaired, we may be required to record non-cash impairment charges that could have a material impact on our results of operations; |
• | our insurance coverage may not be adequate; |
• | we rely on third parties for transportation services; |
• | we periodically use derivatives to manage certain risks which could cause significant fluctuations in our operating results; |
• | failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business; |
Risks Related to our Debt
• | our level of indebtedness could negatively impact our financial condition, results of operations and liquidity; |
• | changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect our cost of financing and have an adverse effect on the market price of our securities; |
• | we are exposed to interest rate fluctuations; |
Risks Related to Macro-economic Conditions
• | a weakening of the global economy, including capital and credit markets, could adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources; |
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| we are exposed to currency exchange rate fluctuations; |
| • | political uncertainty and an increase in trade protectionism could have a material adverse effect on global macro-economic activities and trade and adversely affect our business, results of operations and financial condition; |
| • | we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters; |
Legal and Regulatory Risks
• | we are subject to extensive environmental regulation and we could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations; |
FORM 10-Q
QUARTERLY REPORT - PAGE 34
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FORM 10-Q
QUARTERLY REPORT - PAGE 37
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| our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations; |
Risks Related to Ownership of our Shares
• | the price of our common stock may be volatile; and |
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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, 2019.2020. 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
FORM 10-Q
QUARTERLY REPORT - PAGE 38
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.
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 prices have been and are likely to continue to be volatile and can fluctuate widely over time. Between 20102011 and 2019,2021, European list prices for NBSK pulp have fluctuated between a low of approximately $760 per ADMT in 2012 to a high of $1,230$1,345 per ADMT in 2018.2021. In the same period, the average North American NBHK price has fluctuated between a low of $700 per ADMT in 2012 to a high of $1,235$1,350 per ADMT in 2018.2021.
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.
FORM 10-Q
QUARTERLY REPORT - PAGE 35
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 and Canada. 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 39
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, 2019.
FORM 10-Q
QUARTERLY REPORT - PAGE 40
2020.
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.
FORM 10-Q
QUARTERLY REPORT - PAGE 36
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 4137
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, 2019.2020. 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 |
Other than as set out below, thereThere 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, 2019.
The COVID-19 pandemic could materially adversely affect our business, financial position and results of operations.
The outbreak of COVID-19 in late 2019 initially in China and its subsequent spread globally through 2020 has resulted in significant and widespread global infections and fatalities. In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic. The rapid spread of the virus has resulted in various federal, state and provincial governments declaring emergency measures and the implementation of numerous measures to attempt to contain the virus, including travel bans and restrictions, quarantines, business closures, shelter in place orders and other shutdowns and restrictions.
The impact of the pandemic and the global response thereto has, among other things, significantly disrupted global economic activity, negatively impacted gross domestic product and caused significant volatility in financial markets, with various countries already reporting significant declines in gross domestic product and business activity and material increases in unemployment. While various countries, including the United States, Germany, Canada and China have implemented stimulus packages and other fiscal measures to attempt to reduce the impact of the pandemic on their economies, the impact of the pandemic on global economic activity and markets both in the short and longer term is uncertain at this time.
As demand for our products has principally historically been determined by general global macro-economic activities, demand and prices for our products have historically decreased substantially during economic slowdowns. A significant economic downturn may adversely affect our sales and profitability and may also adversely affect our customers and suppliers. Additionally, significant disruptions and volatility in financial markets could have a negative impact on our ability to access capital in the future.
In mid-2020, many countries eased restrictions on economic and social activities to, among other things, reopen their economies by allowing businesses to restart and encourage economic recovery. The results of such economic measures and the reopening have varied from country to country.
Recently there has been a widespread increase or "second wave" in reported infections including in Europe and the United States. In response, various countries including in Europe have announced the re-imposition of some restrictions on social, business and other activities. Currently we are unable to predict the impact of the recent resurgence in infections, the extent of measures governments may take in response thereto, including imposing some or all prior or new restrictive measures, including business closures. Further, we are currently unable to predict the overall impact of such resurgence on global economic activity or the pace of any economic recovery.
Our products are an important constituent of many pandemic related high demand goods such as tissue and cleaning products and certain personal protective equipment. However, our mills could experience disruptions, downtime and closures in the future as a result of changes to existing government response measures, outbreaks of the virus among our employees or operations or disruptions to raw material supplies or access to logistics networks.
The magnitude and duration of the disruption and resulting decline in business activity resulting from the COVID-19 pandemic is currently uncertain. The extent to which the COVID-19pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:
FORM 10-Q
QUARTERLY REPORT - PAGE 42
2020.
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The effect of the pandemic, including remote working arrangements for employees, has also increased the risk of cyberattacks on, and other material breaches of, our and our third party service providers' information technology systems.
Any of these events could cause or contribute to the risks and uncertainties enumerated in our annual report on Form 10-K for the year ended December 31, 2019 and could materially adversely affect our business, financial position and results of operations.
ITEM 2. | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In May 2019, our board of directors authorized a common stock repurchase program, under which we may purchase up to $50 million of our shares, which expired in May 2020. Repurchases may be made from time to time under the program through open market or in privately negotiated transactions, through block trades or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. The repurchase program was subject to market conditions, applicable legal requirements and other factors.None.
Period |
| Total Number of Shares Purchased |
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| Average Price Paid Per Share |
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| Total Number of Shares Purchased as Part of a Publicly Announced Program |
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| Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program |
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March 1 - March 31, 2020 |
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| 23,584 |
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| $ | 6.84 |
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| 23,584 |
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| $ | 49,084,880 |
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
FORM 10-Q
QUARTERLY REPORT - PAGE 43
ITEM 4. | MINE SAFETY DISCLOSURES |
None.
ITEM 5. | OTHER INFORMATION |
None.
FORM 10-Q
QUARTERLY REPORT - PAGE 4438
ITEM 6. | EXHIBITS |
Exhibit No. |
| Description |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101 |
| The following financial information from the Quarterly Report on Form 10-Q for the fiscal period ended |
104 |
| The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended |
* | 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 4539
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. | ||
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| By: |
| /s/ David M. Gandossi |
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| David M. Gandossi |
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| Chief Executive Officer and President |
Date: OctoberJuly 29, 20202021
FORM 10-Q
QUARTERLY REPORT - PAGE 4640