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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 10/27/22 Mercer International Inc. 10-Q 9/30/22 80:15M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.83M
2: EX-10.2 Material Contract HTML 2.31M
3: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 30K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 25K
12: R1 Document and Entity Information HTML 79K
13: R2 Interim Consolidated Statements of Operations HTML 91K
14: R3 Interim Consolidated Statements of Comprehensive HTML 57K
Income (Loss)
15: R4 Interim Consolidated Balance Sheets HTML 134K
16: R5 Interim Consolidated Balance Sheets HTML 32K
(Parenthetical)
17: R6 Interim Consolidated Statements of Changes in HTML 75K
Shareholders' Equity
18: R7 Interim Consolidated Statements of Cash Flows HTML 130K
19: R8 The Company and Summary of Significant Accounting HTML 30K
Policies
20: R9 Acquisition of Holzindustrie Torgau KG ("Hit") HTML 84K
21: R10 Business Interruption Insurance HTML 26K
22: R11 Term Deposit HTML 25K
23: R12 Inventories HTML 45K
24: R13 Accounts Payable and Other HTML 72K
25: R14 Debt HTML 143K
26: R15 Pension and Other Post-Retirement Benefit HTML 121K
Obligations
27: R16 Income Taxes HTML 143K
28: R17 Shareholders' Equity HTML 85K
29: R18 Net Income Per Common Share HTML 135K
30: R19 Accumulated Other Comprehensive Loss HTML 163K
31: R20 Related Party Transactions HTML 27K
32: R21 Segment Information HTML 519K
33: R22 Financial Instruments and Fair Value Measurement HTML 88K
34: R23 Commitments and Contingencies HTML 31K
35: R24 The Company and Summary of Significant Accounting HTML 33K
Policies (Policies)
36: R25 Acquisition of Holzindustrie Torgau KG (?Hit?) HTML 83K
(Tables)
37: R26 Inventories (Tables) HTML 46K
38: R27 Accounts Payable and Other (Tables) HTML 72K
39: R28 Debt (Tables) HTML 158K
40: R29 Pension and Other Post-Retirement Benefit HTML 114K
Obligations (Tables)
41: R30 Income Taxes (Tables) HTML 140K
42: R31 Shareholders' Equity (Tables) HTML 85K
43: R32 Net Income Per Common Share (Tables) HTML 133K
44: R33 Accumulated Other Comprehensive Loss (Tables) HTML 162K
45: R34 Segment Information (Tables) HTML 512K
46: R35 Financial Instruments and Fair Value Measurement HTML 83K
(Tables)
47: R36 The Company and Summary of Significant Accounting HTML 29K
Policies - Additional Information (Details)
48: R37 Acquisition of Holzindustrie Torgau KG ("HIT") - HTML 41K
Additional Information (Details)
49: R38 Acquisition of Holzindustrie Torgau KG ("HIT") - HTML 60K
Summary of Preliminary Allocation of Purchase
Price to Estimated Fair Value of Assets Acquired
and Liabilities Assumed (Details)
50: R39 Acquisition of Holzindustrie Torgau KG ("HIT") - HTML 29K
Summary of Preliminary Allocation of Purchase
Price to Estimated Fair Value of Assets Acquired
and Liabilities Assumed (Parenthetical) (Details)
51: R40 Acquisition of Holzindustrie Torgau KG ("HIT") - HTML 30K
Schedule of Unaudited Pro Forma Information
(Details)
52: R41 Business Interruption Insurance - Additional HTML 28K
Information (Details)
53: R42 Term Deposit - Additional Information (Details) HTML 28K
54: R43 Inventories - Components of Inventories (Details) HTML 33K
55: R44 Accounts Payable and Other - Schedule of Accounts HTML 46K
Payable and Other (Details)
56: R45 Debt - Schedule of Debt (Details) HTML 51K
57: R46 Debt - Schedule of Debt (Parenthetical) (Details) HTML 119K
58: R47 Debt - Principal Maturities of Senior Notes and HTML 41K
Credit Arrangements (Details)
59: R48 Debt - Debt Redemption Period for Senior Notes HTML 37K
(Details)
60: R49 Pension and Other Post-Retirement Benefit HTML 45K
Obligations - Schedule of Net Benefit Costs
(Details)
61: R50 Pension and Other Post-Retirement Benefit HTML 28K
Obligations - Additional Information (Details)
62: R51 Income Taxes - Reconciliation of Effective Tax HTML 58K
Rate (Details)
63: R52 Shareholders' Equity - Summary of Dividends HTML 30K
Declared (Details)
64: R53 Shareholders' Equity - Additional Information HTML 75K
(Details)
65: R54 Shareholders' Equity - Summary of Share Activity - HTML 34K
PSU's (Details)
66: R55 Shareholders' Equity - Summarized Restricted Share HTML 38K
Activity (Details)
67: R56 Net Income Per Common Share - Reconciliation of HTML 68K
Basic and Diluted Net Income Per Common Share
(Details)
68: R57 Net Income Per Common Share - Reconciliation of HTML 27K
Basic and Diluted Net Income Per Common Share
(Parenthetical) (Details)
69: R58 Accumulated Other Comprehensive Loss - Schedule of HTML 49K
Change in Accumulated Other Comprehensive Loss by
Components (Details)
70: R59 Related Party Transactions - Additional HTML 40K
Information (Details)
71: R60 Segment Information - Additional Information HTML 60K
(Details)
72: R61 Segment Information - Schedule of Results by HTML 115K
Segment (Details)
73: R62 Segment Information - Schedule of Results by HTML 32K
Segment (Parenthetical) (Details)
74: R63 Financial Instruments and Fair Value Measurement - HTML 45K
Estimated Fair Values of Outstanding Debt
(Details)
75: R64 Financial Instruments and Fair Value Measurement - HTML 36K
Additional Information (Details)
78: XML IDEA XML File -- Filing Summary XML 147K
76: XML XBRL Instance -- merc-10q_20220930_htm XML 4.12M
77: EXCEL IDEA Workbook of Financial Reports XLSX 133K
8: EX-101.CAL XBRL Calculations -- merc-20220930_cal XML 208K
9: EX-101.DEF XBRL Definitions -- merc-20220930_def XML 459K
10: EX-101.LAB XBRL Labels -- merc-20220930_lab XML 1.02M
11: EX-101.PRE XBRL Presentations -- merc-20220930_pre XML 828K
7: EX-101.SCH XBRL Schema -- merc-20220930 XSD 156K
79: JSON XBRL Instance as JSON Data -- MetaLinks 368± 572K
80: ZIP XBRL Zipped Folder -- 0001564590-22-035496-xbrl Zip 469K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
|
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, i 2022 /
OR
|
i ☐ |
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.: i 000-51826
i MERCER INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
|
i Washington |
|
i 47-0956945 |
|
(State or other jurisdiction |
|
(I.R.S. Employer |
|
of incorporation or organization) |
|
Identification No.) |
i Suite 1120, i 700 West Pender Street, i Vancouver, i British Columbia, i Canada, i V6C 1G8
(Address of office)
( i 604) i 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 |
|
i Common Stock, par value $1.00 per share |
|
i MERC |
|
i 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. i Yes ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
i Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES i ☐ NO ☒
The Registrant had i 66,167,191 shares of common stock outstanding as of October 26, 2022.
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
(Unaudited)
FORM 10-Q
QUARTERLY REPORT - PAGE 2
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of U.S. dollars, except per share data)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Revenues |
|
$ |
i 532,814 |
|
|
$ |
i 469,746 |
|
|
$ |
i 1,697,881 |
|
|
$ |
i 1,284,298 |
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
|
i 367,710 |
|
|
|
i 302,221 |
|
|
|
i 1,187,476 |
|
|
|
i 910,244 |
|
|
Cost of sales depreciation and amortization |
|
|
i 32,122 |
|
|
|
i 34,294 |
|
|
|
i 95,223 |
|
|
|
i 97,175 |
|
|
Selling, general and administrative expenses |
|
|
i 24,259 |
|
|
|
i 19,476 |
|
|
|
i 70,077 |
|
|
|
i 60,259 |
|
|
Operating income |
|
|
i 108,723 |
|
|
|
i 113,755 |
|
|
|
i 345,105 |
|
|
|
i 216,620 |
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
( i 17,935 |
) |
|
|
( i 16,882 |
) |
|
|
( i 52,731 |
) |
|
|
( i 53,031 |
) |
|
Loss on early extinguishment of debt |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 30,368 |
) |
|
Other income |
|
|
i 7,252 |
|
|
|
i 4,735 |
|
|
|
i 24,297 |
|
|
|
i 9,118 |
|
|
Total other expenses, net |
|
|
( i 10,683 |
) |
|
|
( i 12,147 |
) |
|
|
( i 28,434 |
) |
|
|
( i 74,281 |
) |
|
Income before income taxes |
|
|
i 98,040 |
|
|
|
i 101,608 |
|
|
|
i 316,671 |
|
|
|
i 142,339 |
|
|
Income tax provision |
|
|
( i 31,294 |
) |
|
|
( i 32,490 |
) |
|
|
( i 89,656 |
) |
|
|
( i 45,873 |
) |
|
Net income |
|
$ |
i 66,746 |
|
|
$ |
i 69,118 |
|
|
$ |
i 227,015 |
|
|
$ |
i 96,466 |
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
i 1.01 |
|
|
$ |
i 1.05 |
|
|
$ |
i 3.43 |
|
|
$ |
i 1.46 |
|
|
Diluted |
|
$ |
i 1.00 |
|
|
$ |
i 1.04 |
|
|
$ |
i 3.41 |
|
|
$ |
i 1.46 |
|
|
Dividends declared per common share |
|
$ |
i 0.075 |
|
|
$ |
i 0.065 |
|
|
$ |
i 0.225 |
|
|
$ |
i 0.195 |
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands of U.S. dollars)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net income |
|
$ |
i 66,746 |
|
|
$ |
i 69,118 |
|
|
$ |
i 227,015 |
|
|
$ |
i 96,466 |
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) related to defined benefit pension plans |
|
|
i 11 |
|
|
|
( i 19 |
) |
|
|
( i 224 |
) |
|
|
i 984 |
|
|
Income tax recovery (provision) |
|
|
— |
|
|
|
— |
|
|
|
i 62 |
|
|
|
( i 681 |
) |
|
Gain (loss) related to defined benefit pension plans, net of tax |
|
|
i 11 |
|
|
|
( i 19 |
) |
|
|
( i 162 |
) |
|
|
i 303 |
|
|
Foreign currency translation adjustment |
|
|
( i 94,781 |
) |
|
|
( i 42,110 |
) |
|
|
( i 189,323 |
) |
|
|
( i 59,676 |
) |
|
Other comprehensive loss, net of taxes |
|
|
( i 94,770 |
) |
|
|
( i 42,129 |
) |
|
|
( i 189,485 |
) |
|
|
( i 59,373 |
) |
|
Total comprehensive income (loss) |
|
$ |
( i 28,024 |
) |
|
$ |
i 26,989 |
|
|
$ |
i 37,530 |
|
|
$ |
i 37,093 |
|
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, |
|
|
|
|||
|
|
|
|
|
2021 |
|
|||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 287,254 |
|
|
$ |
i 345,610 |
|
|
Term deposit |
|
|
i 75,000 |
|
|
|
— |
|
|
Accounts receivable, net |
|
|
i 324,343 |
|
|
|
i 345,345 |
|
|
Inventories |
|
|
i 385,961 |
|
|
|
i 356,731 |
|
|
Prepaid expenses and other |
|
|
i 24,130 |
|
|
|
i 16,619 |
|
|
Total current assets |
|
|
i 1,096,688 |
|
|
|
i 1,064,305 |
|
|
Property, plant and equipment, net |
|
|
i 1,249,056 |
|
|
|
i 1,135,631 |
|
|
Investment in joint ventures |
|
|
i 45,262 |
|
|
|
i 49,651 |
|
|
Amortizable intangible assets, net |
|
|
i 57,406 |
|
|
|
i 47,902 |
|
|
Goodwill |
|
|
i 33,037 |
|
|
|
— |
|
|
Operating lease right-of-use assets |
|
|
i 12,620 |
|
|
|
i 9,712 |
|
|
Pension asset |
|
|
i 3,543 |
|
|
|
i 4,136 |
|
|
Other long-term assets |
|
|
i 46,371 |
|
|
|
i 38,718 |
|
|
Deferred income tax |
|
|
— |
|
|
|
i 1,177 |
|
|
Total assets |
|
$ |
i 2,543,983 |
|
|
$ |
i 2,351,232 |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and other |
|
$ |
i 322,368 |
|
|
$ |
i 282,307 |
|
|
Pension and other post-retirement benefit obligations |
|
|
i 725 |
|
|
|
i 817 |
|
|
Total current liabilities |
|
|
i 323,093 |
|
|
|
i 283,124 |
|
|
Long-term debt |
|
|
i 1,339,086 |
|
|
|
i 1,237,545 |
|
|
Pension and other post-retirement benefit obligations |
|
|
i 18,126 |
|
|
|
i 21,252 |
|
|
Operating lease liabilities |
|
|
i 8,306 |
|
|
|
i 6,574 |
|
|
Other long-term liabilities |
|
|
i 12,163 |
|
|
|
i 13,590 |
|
|
Deferred income tax |
|
|
i 122,860 |
|
|
|
i 95,123 |
|
|
Total liabilities |
|
|
i 1,823,634 |
|
|
|
i 1,657,208 |
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
Common shares $ i i 1 / par value; i i 200,000,000 / authorized; i i 66,167,000 / issued and outstanding (2021 – i i 66,037,000 / ) |
|
|
i 66,132 |
|
|
|
i 65,988 |
|
|
Additional paid-in capital |
|
|
i 351,438 |
|
|
|
i 347,902 |
|
|
Retained earnings |
|
|
i 583,057 |
|
|
|
i 370,927 |
|
|
Accumulated other comprehensive loss |
|
|
( i 280,278 |
) |
|
|
( i 90,793 |
) |
|
Total shareholders’ equity |
|
|
i 720,349 |
|
|
|
i 694,024 |
|
|
Total liabilities and shareholders’ equity |
|
$ |
i 2,543,983 |
|
|
$ |
i 2,351,232 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Subsequent event (Note 10) |
|
|
|
|
|
|
|
|
See accompanying Notes to the Interim Consolidated Financial Statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 4
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of U.S. dollars)
|
|
|
Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Number (thousands of shares) |
|
|
Amount, at Par Value |
|
|
Additional Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Total Shareholders' Equity |
|
||||||
|
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2022 |
|
|
i 66,167 |
|
|
$ |
i 66,132 |
|
|
$ |
i 350,224 |
|
|
$ |
i 521,274 |
|
|
$ |
( i 185,508 |
) |
|
$ |
i 752,122 |
|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 1,214 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,214 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 66,746 |
|
|
|
— |
|
|
|
i 66,746 |
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 4,963 |
) |
|
|
— |
|
|
|
( i 4,963 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 94,770 |
) |
|
|
( i 94,770 |
) |
|
Balance as of September 30, 2022 |
|
|
i 66,167 |
|
|
$ |
i 66,132 |
|
|
$ |
i 351,438 |
|
|
$ |
i 583,057 |
|
|
$ |
( i 280,278 |
) |
|
$ |
i 720,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2021 |
|
|
i 66,037 |
|
|
$ |
i 65,988 |
|
|
$ |
i 347,093 |
|
|
$ |
i 235,872 |
|
|
$ |
( i 44,819 |
) |
|
$ |
i 604,134 |
|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 1,005 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,005 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 69,118 |
|
|
|
— |
|
|
|
i 69,118 |
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 4,292 |
) |
|
|
— |
|
|
|
( i 4,292 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 42,129 |
) |
|
|
( i 42,129 |
) |
|
Balance as of September 30, 2021 |
|
|
i 66,037 |
|
|
$ |
i 65,988 |
|
|
$ |
i 348,098 |
|
|
$ |
i 300,698 |
|
|
$ |
( i 86,948 |
) |
|
$ |
i 627,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
|
i 66,037 |
|
|
$ |
i 65,988 |
|
|
$ |
i 347,902 |
|
|
$ |
i 370,927 |
|
|
$ |
( i 90,793 |
) |
|
$ |
i 694,024 |
|
|
Shares issued on grants of restricted shares |
|
|
i 35 |
|
|
|
i 49 |
|
|
|
( i 49 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares issued on grants of performance share units |
|
|
i 95 |
|
|
|
i 95 |
|
|
|
( i 95 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 3,680 |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,680 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 227,015 |
|
|
|
— |
|
|
|
i 227,015 |
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 14,885 |
) |
|
|
— |
|
|
|
( i 14,885 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 189,485 |
) |
|
|
( i 189,485 |
) |
|
Balance as of September 30, 2022 |
|
|
i 66,167 |
|
|
$ |
i 66,132 |
|
|
$ |
i 351,438 |
|
|
$ |
i 583,057 |
|
|
$ |
( i 280,278 |
) |
|
$ |
i 720,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020 |
|
|
i 65,868 |
|
|
$ |
i 65,800 |
|
|
$ |
i 345,696 |
|
|
$ |
i 217,106 |
|
|
$ |
( i 27,575 |
) |
|
$ |
i 601,027 |
|
|
Shares issued on grants of restricted shares |
|
|
i 49 |
|
|
|
i 68 |
|
|
|
( i 68 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares issued on grants of performance share units |
|
|
i 120 |
|
|
|
i 120 |
|
|
|
( i 120 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 2,590 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,590 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 96,466 |
|
|
|
— |
|
|
|
i 96,466 |
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 12,874 |
) |
|
|
— |
|
|
|
( i 12,874 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 59,373 |
) |
|
|
( i 59,373 |
) |
|
Balance as of September 30, 2021 |
|
|
i 66,037 |
|
|
$ |
i 65,988 |
|
|
$ |
i 348,098 |
|
|
$ |
i 300,698 |
|
|
$ |
( i 86,948 |
) |
|
$ |
i 627,836 |
|
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 |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Cash flows from (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 66,746 |
|
|
$ |
i 69,118 |
|
|
$ |
i 227,015 |
|
|
$ |
i 96,466 |
|
|
Adjustments to reconcile net income to cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
i 32,144 |
|
|
|
i 34,315 |
|
|
|
i 95,288 |
|
|
|
i 97,237 |
|
|
Deferred income tax provision |
|
|
i 620 |
|
|
|
i 5,005 |
|
|
|
i 15,627 |
|
|
|
i 7,485 |
|
|
Loss on early extinguishment of debt |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 30,368 |
|
|
Defined benefit pension plans and other post-retirement benefit plan expense |
|
|
i 424 |
|
|
|
i 879 |
|
|
|
i 1,301 |
|
|
|
i 2,654 |
|
|
Stock compensation expense |
|
|
i 1,214 |
|
|
|
i 1,005 |
|
|
|
i 3,680 |
|
|
|
i 2,590 |
|
|
Foreign exchange transaction gains |
|
|
( i 11,283 |
) |
|
|
( i 5,721 |
) |
|
|
( i 24,702 |
) |
|
|
( i 12,361 |
) |
|
Other |
|
|
( i 3,726 |
) |
|
|
( i 844 |
) |
|
|
( i 4,497 |
) |
|
|
( i 1,104 |
) |
|
Defined benefit pension plans and other post-retirement benefit plan contributions |
|
|
( i 511 |
) |
|
|
( i 1,065 |
) |
|
|
( i 2,905 |
) |
|
|
( i 3,190 |
) |
|
Changes in working capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 17,679 |
) |
|
|
( i 31,441 |
) |
|
|
( i 4,297 |
) |
|
|
( i 27,500 |
) |
|
Inventories |
|
|
( i 8,803 |
) |
|
|
( i 39,512 |
) |
|
|
( i 23,870 |
) |
|
|
( i 82,275 |
) |
|
Accounts payable and accrued expenses |
|
|
i 34,323 |
|
|
|
i 12,180 |
|
|
|
i 37,569 |
|
|
|
i 46,783 |
|
|
Other |
|
|
( i 6,809 |
) |
|
|
( i 3,775 |
) |
|
|
( i 10,198 |
) |
|
|
( i 5,569 |
) |
|
Net cash from (used in) operating activities |
|
|
i 86,660 |
|
|
|
i 40,144 |
|
|
|
i 310,011 |
|
|
|
i 151,584 |
|
|
Cash flows from (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
( i 48,554 |
) |
|
|
( i 38,306 |
) |
|
|
( i 128,875 |
) |
|
|
( i 125,692 |
) |
|
Acquisitions, net of cash acquired (Note 2) |
|
|
( i 257,367 |
) |
|
|
( i 51,258 |
) |
|
|
( i 257,367 |
) |
|
|
( i 51,258 |
) |
|
Insurance proceeds |
|
|
i 1,164 |
|
|
|
i 1,530 |
|
|
|
i 7,574 |
|
|
|
i 21,578 |
|
|
Purchase of term deposit |
|
|
i — |
|
|
|
i — |
|
|
|
( i 75,000 |
) |
|
|
i — |
|
|
Purchase of amortizable intangible assets |
|
|
( i 69 |
) |
|
|
( i 460 |
) |
|
|
( i 154 |
) |
|
|
( i 1,669 |
) |
|
Other |
|
|
i 474 |
|
|
|
i 2,873 |
|
|
|
i 1,126 |
|
|
|
i 2,764 |
|
|
Net cash from (used in) investing activities |
|
|
( i 304,352 |
) |
|
|
( i 85,621 |
) |
|
|
( i 452,696 |
) |
|
|
( i 154,277 |
) |
|
Cash flows from (used in) financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of senior notes |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 824,557 |
) |
|
Proceeds from issuance of senior notes |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 875,000 |
|
|
Proceeds from (repayment of) revolving credit facilities, net |
|
|
i 99,065 |
|
|
|
i 3,967 |
|
|
|
i 116,503 |
|
|
|
( i 53,145 |
) |
|
Dividend payments |
|
|
( i 4,962 |
) |
|
|
( i 4,293 |
) |
|
|
( i 9,922 |
) |
|
|
( i 8,582 |
) |
|
Payment of debt issuance costs |
|
|
( i 1,849 |
) |
|
|
( i 69 |
) |
|
|
( i 3,033 |
) |
|
|
( i 14,483 |
) |
|
Proceeds from government grants |
|
|
i — |
|
|
|
i 361 |
|
|
|
i 1,067 |
|
|
|
i 8,893 |
|
|
Payment of finance lease obligations |
|
|
( i 1,640 |
) |
|
|
( i 2,227 |
) |
|
|
( i 8,246 |
) |
|
|
( i 5,763 |
) |
|
Other |
|
|
( i 27 |
) |
|
|
( i 27 |
) |
|
|
( i 593 |
) |
|
|
i 3,598 |
|
|
Net cash from (used in) financing activities |
|
|
i 90,587 |
|
|
|
( i 2,288 |
) |
|
|
i 95,776 |
|
|
|
( i 19,039 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( i 5,502 |
) |
|
|
i 1,961 |
|
|
|
( i 11,447 |
) |
|
|
( i 636 |
) |
|
Net decrease in cash and cash equivalents |
|
|
( i 132,607 |
) |
|
|
( i 45,804 |
) |
|
|
( i 58,356 |
) |
|
|
( i 22,368 |
) |
|
Cash and cash equivalents, beginning of period |
|
|
i 419,861 |
|
|
|
i 384,534 |
|
|
|
i 345,610 |
|
|
|
i 361,098 |
|
|
Cash and cash equivalents, end of period |
|
$ |
i 287,254 |
|
|
$ |
i 338,730 |
|
|
$ |
i 287,254 |
|
|
$ |
i 338,730 |
|
|
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
i 32,107 |
|
|
$ |
i 32,095 |
|
|
$ |
i 65,344 |
|
|
$ |
i 72,205 |
|
|
Cash paid for income taxes |
|
$ |
i 8,858 |
|
|
$ |
i 9,039 |
|
|
$ |
i 69,351 |
|
|
$ |
i 14,174 |
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Leased production and other equipment |
|
$ |
i — |
|
|
$ |
i 2,215 |
|
|
$ |
i — |
|
|
$ |
i 25,394 |
|
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)
i
Note 1. The Company and Summary of Significant Accounting Policies
i
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 i 100% of its subsidiaries with the exception of the i 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 consolidated balance sheet data as of December 31, 2021 was derived from the Company’s audited Consolidated Financial Statements, but does not contain all of the footnote disclosures from the annual Consolidated Financial Statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States ("GAAP"). The unaudited Interim Consolidated Financial Statements should be read together with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2021. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2021 and contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year.
In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United States dollars ("U.S. dollars" or "$"). The symbol "€" refers to euros and the symbol "C$" refers to Canadian dollars.
/ i
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.
/i
Note 2. Acquisition of Holzindustrie Torgau KG ("HIT")
On i September 30, 2022, the Company acquired all of the issued and outstanding shares of the parent company of HIT for consideration of € i 270.0 million ($ i 263,196) cash. The acquisition results in i 100% ownership of a timber processing and value-add pallet production facility in Torgau, Germany and a wood processing facility in Dahlen, Germany that produces garden products. The acquisition of HIT expands the Company’s solid wood business and further diversifies the Company’s product offerings.
/
FORM 10-Q
QUARTERLY REPORT - PAGE 7
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 2. Acquisition of Holzindustrie Torgau (“HIT”) (continued)
i
The following summarizes the Company’s preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed on the acquisition date:
|
|
|
Purchase Price Allocation |
|
|
|
Cash |
|
$ |
i 5,829 |
|
|
Accounts receivable |
|
|
i 13,632 |
|
|
Inventories |
|
|
i 50,900 |
|
|
Other current assets |
|
|
i 2,760 |
|
|
Property, plant and equipment |
|
|
i 203,849 |
|
|
Amortizable intangible asset, order backlog (a) |
|
|
i 16,020 |
|
|
Goodwill (b) |
|
|
i 33,037 |
|
|
Other long-term assets |
|
|
i 3,934 |
|
|
Total assets acquired |
|
|
i 329,961 |
|
|
Accounts payable and other current liabilities |
|
|
( i 38,907 |
) |
|
Deferred income tax |
|
|
( i 25,370 |
) |
|
Other long-term liabilities |
|
|
( i 2,488 |
) |
|
Total liabilities assumed |
|
|
( i 66,765 |
) |
|
Net assets acquired |
|
$ |
i 263,196 |
|
|
|
|
(a) |
The order backlog will be realized within i one year of the acquisition. |
|
(b) |
The goodwill is primarily for expected synergies from combining the operations of HIT with the Company’s existing German operations. The goodwill is i not deductible for tax purposes. |
The purchase price allocation was based on a preliminary valuation and may be revised as a result of additional information obtained regarding the assets acquired and liabilities assumed, and revisions of provisional estimates of fair value, including, but not limited to, the completion of valuations related to property, plant, and equipment and the identification of intangible assets. The purchase price allocation will be finalized during the 12-month measurement period following the acquisition date.
HIT is a business under GAAP, accordingly the Company began consolidating its results of operations, financial position and cash flows in the consolidated financial statements as of the acquisition date. The amount of HIT’s revenues and net income included in the Interim Consolidated Statements of Operations for the three and nine month periods ended September 30, 2022 was $nil. In the three and nine month periods ended September 30, 2022, $ i i 1,707 / of acquisition related costs were recognized in “Selling, general and administrative expenses” in the Interim Consolidated Statements of Operations.
i
The following unaudited pro forma information represents the Company’s results of operations as if the acquisition of HIT had occurred on January 1, 2021. This pro forma information does not purport to be indicative of the results that would have occurred for the periods presented or that may be expected in the future.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Revenues |
|
$ |
i 612,070 |
|
|
$ |
i 549,641 |
|
|
$ |
i 1,949,215 |
|
|
$ |
i 1,482,063 |
|
|
Net income |
|
$ |
i 83,237 |
|
|
$ |
i 90,331 |
|
|
$ |
i 276,485 |
|
|
$ |
i 122,292 |
|
The unaudited pro forma information had no material nonrecurring adjustments directly attributable to the acquisition.
FORM 10-Q
QUARTERLY REPORT - PAGE 8
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 3. Business Interruption Insurance
In July 2022, a fire occurred in the woodyard of the Stendal mill. In September 2022, the Company received written confirmation from the insurance provider that the business interruption insurance claim related to the fire is covered and the insurance provider paid an initial nonrefundable payment of € i 2.0 million ($ i 1,981). The Company also received € i 1.1 million ($ i 1,164) for property insurance related to the fire. The business interruption and property insurance proceeds have been recorded in “Cost of sales, excluding depreciation and amortization” in the Interim Consolidated Statements of Operations.
/i
Note 4. Term Deposit
On April 4, 2022, the Company purchased a $ i 75,000 term deposit, which was classified as held to maturity and reported at cost. The term deposit had an annual interest rate of i 1.38% and matured on i October 4, 2022. The proceeds were held as cash.
/i
Note 5. Inventories
i
Inventories as of September 30, 2022 and December 31, 2021, were comprised of the following:
|
|
|
September 30, |
|
|
|
|||
|
|
|
|
|
2021 |
|
|||
|
Raw materials |
|
$ |
i 136,833 |
|
|
$ |
i 106,434 |
|
|
Finished goods |
|
|
i 133,324 |
|
|
|
i 140,829 |
|
|
Spare parts and other |
|
|
i 115,804 |
|
|
|
i 109,468 |
|
|
|
|
$ |
i 385,961 |
|
|
$ |
i 356,731 |
|
/ / i
Note 6. Accounts Payable and Other
i
Accounts payable and other as of September 30, 2022 and December 31, 2021, was comprised of the following:
|
|
|
September 30, |
|
|
|
|||
|
|
|
|
|
2021 |
|
|||
|
Trade payables |
|
$ |
i 87,064 |
|
|
$ |
i 58,451 |
|
|
Accrued expenses |
|
|
i 86,874 |
|
|
|
i 76,409 |
|
|
Interest payable |
|
|
i 11,220 |
|
|
|
i 26,506 |
|
|
Income tax payable |
|
|
i 77,423 |
|
|
|
i 56,241 |
|
|
Payroll-related accruals |
|
|
i 26,763 |
|
|
|
i 20,707 |
|
|
Wastewater fee (a) |
|
|
i 7,406 |
|
|
|
i 19,248 |
|
|
Finance lease liability |
|
|
i 6,830 |
|
|
|
i 8,467 |
|
|
Operating lease liability |
|
|
i 4,365 |
|
|
|
i 3,192 |
|
|
Government grants (b) |
|
|
i 2,599 |
|
|
|
i 7,302 |
|
|
Other |
|
|
i 11,824 |
|
|
|
i 5,784 |
|
|
|
|
$ |
i 322,368 |
|
|
$ |
i 282,307 |
|
|
(a) |
The Company is required to pay certain fees based on wastewater emissions at its German mills. Accrued fees can be reduced upon the mills’ demonstration of reduced wastewater emissions. |
|
(b) |
The Canadian mills have a liability for unspent government grants which are required to be used to partially finance greenhouse gas emission reduction and innovation capital projects. The grants are recorded in “Cash and cash equivalents” in the Interim Consolidated Balance Sheets, however, they are considered restricted as they are repayable if the mills do not spend the funds on approved projects. |
FORM 10-Q
QUARTERLY REPORT - PAGE 9
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 7. Debt
i
Debt as of September 30, 2022 and December 31, 2021, was comprised of the following:
|
|
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
Maturity |
|
2022 |
|
|
2021 |
|
||
|
Senior notes (a) |
|
|
|
|
|
|
|
|
|
|
|
i 5.500% senior notes |
|
i 2026 |
|
$ |
i 300,000 |
|
|
$ |
i 300,000 |
|
|
i 5.125% senior notes |
|
i 2029 |
|
|
i 875,000 |
|
|
|
i 875,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit arrangements |
|
|
|
|
|
|
|
|
|
|
|
€ i 300 million German joint revolving credit facility (b) |
|
i 2027 |
|
|
i 97,480 |
|
|
|
i — |
|
|
C$ i 160 million Canadian joint revolving credit facility (c) |
|
i 2027 |
|
|
i 38,666 |
|
|
|
i — |
|
|
C$ i 60 million Peace River revolving credit facility (c) |
|
|
|
|
i — |
|
|
|
i 22,874 |
|
|
C$ i 60 million Celgar revolving credit facility (c) |
|
|
|
|
i — |
|
|
|
i — |
|
|
€ i 2.6 million demand loan (d) |
|
|
|
|
i — |
|
|
|
i — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease liability |
|
|
|
|
i 48,742 |
|
|
|
i 64,041 |
|
|
|
|
|
|
|
i i 1,359,888 / |
|
|
|
i i 1,261,915 / |
|
|
Less: unamortized senior note issuance costs |
|
|
|
|
( i 13,972 |
) |
|
|
( i 15,903 |
) |
|
Less: finance lease liability due within one year |
|
|
|
|
( i 6,830 |
) |
|
|
( i 8,467 |
) |
|
|
|
|
|
$ |
i 1,339,086 |
|
|
$ |
i 1,237,545 |
|
/ i
The maturities of the principal portion of the senior notes and credit arrangements as of September 30, 2022 were as follows:
|
|
|
Senior Notes and Credit Arrangements |
|
|
|
2022 |
|
$ |
i — |
|
|
2023 |
|
|
i — |
|
|
2024 |
|
|
i — |
|
|
2025 |
|
|
i — |
|
|
2026 |
|
|
i 300,000 |
|
|
Thereafter |
|
|
i 1,011,146 |
|
|
|
|
$ |
i 1,311,146 |
|
/
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 September 30, 2022, the Company was in compliance with the terms of its debt agreements.
|
(a) |
In January 2021, the Company issued $ i 875,000 in aggregate principal amount of i 5.125% senior notes which mature on i February 1, 2029 (the “2029 Senior Notes”). The net proceeds from the 2029 Senior Notes issuance was $ i 860,517 after deducting the underwriter’s discount and offering expenses. The net proceeds were used to redeem the outstanding senior notes which were to mature in 2024 and 2025 and for general corporate purposes. In connection with the redemption, the Company recorded a loss on early extinguishment of debt of $ i 30,368 in the Interim Consolidated Statements of Operations. |
The 2029 Senior Notes and the senior notes which mature on i January 15, 2026 (the “2026 Senior Notes” and collectively with the 2029 Senior Notes, the “Senior Notes”) are general unsecured senior obligations of the Company. The Company may redeem all or a part of the Senior Notes upon not less than i 10 days’ or more than i 60 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 10
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 7. Debt (continued)
i
The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the outstanding Senior Notes:
|
2026 Senior Notes |
|
2029 Senior Notes |
||||
|
12 Month Period Beginning |
|
Percentage |
|
12 Month Period Beginning |
|
Percentage |
|
|
i 101.375% |
|
|
i 102.563% |
||
|
January 15, 2023 and thereafter |
|
i 100.000% |
|
|
i 101.281% |
|
|
|
|
|
|
February 1, 2026 and thereafter |
|
i 100.000% |
/
|
(b) |
In September 2022, the Company’s German mills entered into a new € i 300.0 million joint revolving credit facility that matures in September 2027. The new facility replaces the € i 200.0 million joint revolving credit facility. Borrowings under the new facility are unsecured and bear interest at i Euribor plus a variable margin ranging from i 1.30% to i 2.25% dependent on conditions including but not limited to a prescribed leverage ratio. The new facility is sustainability linked whereby the interest rate margin is subject to upward or downward adjustments of up to i 0.05% per annum if the Company achieves, or fails to achieve, certain specified sustainability targets. As of September 30, 2022, approximately € i 100.0 million ($ i 97,480) of this facility was drawn and accruing interest at a rate of i 2.022%, approximately € i 13.5 million ($ i 13,191) of this facility was supporting bank guarantees and approximately € i 186.5 million ($ i 181,769) was available. |
|
(c) |
A C$ i 160.0 million joint revolving credit facility for the Celgar mill, Peace River mill and certain other Canadian subsidiaries that matures in January 2027. The facility is available by way of: (i) Canadian denominated advances, which bear interest at a i designated prime rate per annum; (ii) i banker’s acceptance equivalent loans, which bear interest at the applicable Canadian dollar banker’s acceptance plus i 1.20% to i 1.45% per annum; (iii) dollar denominated base rate advances at the greater of the i federal funds rate plus i 0.50%, an i Adjusted Term SOFR for a one month tenor plus i 1.00% and the i bank’s applicable reference rate for U.S. dollar loans; and (iv) dollar SOFR advances, which bear interest at i Adjusted Term SOFR plus i 1.20% to i 1.45% per annum. As of September 30, 2022, approximately C$ i 53.0 million ($ i 38,666) of this facility was drawn and accruing interest at a rate of i 4.995%, approximately C$ i 1.3 million ($ i 958) was supporting letters of credit and approximately C$ i 105.7 million ($ i 77,104) was available. |
The facility replaced the Peace River and Celgar C$ i i 60.0 / million revolving credit facilities.
|
(d) |
A € i 2.6 million demand loan for the Rosenthal mill that does not have a maturity date. Borrowings under this facility are unsecured and bear interest at the i three-month Euribor plus i 2.50%. As of September 30, 2022, approximately € i 2.6 million ($ i 2,488) of this facility was supporting bank guarantees and approximately $nil was available. |
FORM 10-Q
QUARTERLY REPORT - PAGE 11
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 8. 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. i The components of the net benefit costs for the Celgar and Peace River defined benefit plans, in aggregate for the three and nine month periods ended September 30, 2022 and 2021 were as follows:
|
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
|
|
|
2021 |
|
|||||||||||
|
|
|
Pension |
|
|
Other Post- Retirement Benefits |
|
|
Pension |
|
|
Other Post- Retirement Benefits |
|
||||
|
Service cost |
|
$ |
i 885 |
|
|
$ |
i 47 |
|
|
$ |
i 981 |
|
|
$ |
i 76 |
|
|
Interest cost |
|
|
i 936 |
|
|
|
i 102 |
|
|
|
i 876 |
|
|
|
i 98 |
|
|
Expected return on plan assets |
|
|
( i 1,445 |
) |
|
|
i — |
|
|
|
( i 1,123 |
) |
|
|
i — |
|
|
Amortization of unrecognized items |
|
|
i 72 |
|
|
|
( i 173 |
) |
|
|
i 168 |
|
|
|
( i 197 |
) |
|
Net benefit costs |
|
$ |
i 448 |
|
|
$ |
( i 24 |
) |
|
$ |
i 902 |
|
|
$ |
( i 23 |
) |
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
|
|
|
2021 |
|
|||||||||||
|
|
|
Pension |
|
|
Other Post- Retirement Benefits |
|
|
Pension |
|
|
Other Post- Retirement Benefits |
|
||||
|
Service cost |
|
$ |
i 2,703 |
|
|
$ |
i 145 |
|
|
$ |
i 2,962 |
|
|
$ |
i 228 |
|
|
Interest cost |
|
|
i 2,858 |
|
|
|
i 312 |
|
|
|
i 2,647 |
|
|
|
i 294 |
|
|
Expected return on plan assets |
|
|
( i 4,381 |
) |
|
|
i — |
|
|
|
( i 3,392 |
) |
|
|
i — |
|
|
Amortization of unrecognized items |
|
|
i 191 |
|
|
|
( i 527 |
) |
|
|
i 509 |
|
|
|
( i 594 |
) |
|
Net benefit costs |
|
$ |
i 1,371 |
|
|
$ |
( i 70 |
) |
|
$ |
i 2,726 |
|
|
$ |
( i 72 |
) |
The components of the net benefit costs other than service cost are recorded in "Other income" in the Interim Consolidated Statements of Operations. The amortization of unrecognized items relates to actuarial losses (gains) and prior service costs.
Defined Contribution Plan
Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members and the service accrual ceased. Effective January 1, 2009, the members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan. During the three and nine month periods ended September 30, 2022, the Company made contributions of $ i 405 and $ i 1,066, respectively to this plan (2021 – $ i 226 and $ i 921).
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 nine month periods ended September 30, 2022, the Company made contributions of $ i 175 and $ i 1,824, respectively to this plan (2021 – $ i 625 and $ i 1,949).
/FORM 10-Q
QUARTERLY REPORT - PAGE 12
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 9. Income Taxes
i
Differences between the U.S. Federal statutory and the Company's effective tax rates for the three and nine month periods ended September 30, 2022 and 2021, were as follows:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
U.S. Federal statutory rate |
|
i 21% |
|
|
i 21% |
|
|
i 21% |
|
|
i 21% |
|
||||
|
U.S. Federal statutory rate on income before income taxes |
|
$ |
( i 20,566 |
) |
|
$ |
( i 21,337 |
) |
|
$ |
( i 66,481 |
) |
|
$ |
( i 29,891 |
) |
|
Tax differential on foreign income |
|
|
( i 7,911 |
) |
|
|
( i 7,309 |
) |
|
|
( i 27,961 |
) |
|
|
( i 16,689 |
) |
|
Effect of foreign earnings (a) |
|
|
( i 1,274 |
) |
|
|
i 1,965 |
|
|
|
( i 3,377 |
) |
|
|
( i 4,655 |
) |
|
Valuation allowance (b) |
|
|
i 695 |
|
|
|
( i 1,073 |
) |
|
|
i 1,143 |
|
|
|
( i 12,025 |
) |
|
Foreign exchange on settlement of debt |
|
|
( i 30 |
) |
|
|
— |
|
|
|
i 2,994 |
|
|
|
— |
|
|
Tax benefit of partnership structure |
|
|
i 783 |
|
|
|
i 783 |
|
|
|
i 2,349 |
|
|
|
i 2,349 |
|
|
Non-taxable foreign subsidies |
|
|
i 703 |
|
|
|
i 733 |
|
|
|
i 2,064 |
|
|
|
i 2,224 |
|
|
True-up of prior year taxes |
|
|
( i 2,059 |
) |
|
|
i 2,294 |
|
|
|
( i 465 |
) |
|
|
i 5,418 |
|
|
Annual effective tax rate adjustment |
|
|
( i 3,000 |
) |
|
|
( i 9,000 |
) |
|
|
i 2,000 |
|
|
|
i 9,000 |
|
|
Other, net |
|
|
i 1,365 |
|
|
|
i 454 |
|
|
|
( i 1,922 |
) |
|
|
( i 1,604 |
) |
|
Income tax provision |
|
$ |
( i 31,294 |
) |
|
$ |
( i 32,490 |
) |
|
$ |
( i 89,656 |
) |
|
$ |
( i 45,873 |
) |
|
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax provision |
|
$ |
( i 30,674 |
) |
|
$ |
( i 27,485 |
) |
|
$ |
( i 74,029 |
) |
|
$ |
( i 38,388 |
) |
|
Deferred income tax provision |
|
|
( i 620 |
) |
|
|
( i 5,005 |
) |
|
|
( i 15,627 |
) |
|
|
( i 7,485 |
) |
|
Income tax provision |
|
$ |
( i 31,294 |
) |
|
$ |
( i 32,490 |
) |
|
$ |
( i 89,656 |
) |
|
$ |
( i 45,873 |
) |
|
(a) |
Primarily relates to the impact of the global intangible low-taxed income provision in the Tax Cuts and Jobs Act of 2017. |
|
(b) |
Primarily relates to taxable losses and denied interest expense. |
i
Note 10. Shareholders' Equity
Dividends
i
During the nine month period ended September 30, 2022, the Company’s board of directors declared the following quarterly dividends:
|
Date Declared |
|
Dividend Per Common Share |
|
|
Amount |
|
||
|
|
$ |
i 0.075 |
|
|
$ |
i 4,960 |
|
|
|
|
|
i 0.075 |
|
|
|
i 4,962 |
|
|
|
|
|
i 0.075 |
|
|
|
i 4,963 |
|
|
|
|
|
$ |
i 0.225 |
|
|
$ |
i 14,885 |
|
On October 27, 2022, the Company's board of directors declared a quarterly dividend of $ i 0.075 per common share. Payment of the dividend will be made on i December 29, 2022 to all shareholders of record on i December 21, 2022. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.
/FORM 10-Q
QUARTERLY REPORT - PAGE 13
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 10. Shareholders' Equity (continued)
Stock Based Compensation
In May 2022, the Company adopted an amended and restated stock incentive plan (the “2022 Plan”) which provides for options, restricted stock units (“RSUs” which under the prior plan were called “restricted stock rights”), deferred stock units (“DSUs”), restricted shares, performance shares, performance share units (“PSUs”), and stock appreciation rights to be awarded to employees, consultants and non-employee directors. The 2022 Plan replaced the Company’s 2010 stock incentive plan (the “2010 Plan”). However, the 2010 Plan will govern prior awards until all awards granted under the 2010 Plan have been exercised, forfeited, cancelled, expired, or otherwise terminated in accordance with the terms thereof. The Company may grant up to a maximum of i 2.5 million common shares under the 2022 Plan, plus the number of common shares remaining available for grant pursuant to the 2010 Plan.
During the three and nine month periods ended September 30, 2022, there were i i i i i i i i i no / / / / / / / / issued and outstanding options, performance shares or stock appreciation rights. As of September 30, 2022, after factoring in all allocated shares, there remain approximately i 2.8 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 i three years.
i
The following table summarizes PSU activity during the period:
|
|
|
Number of PSUs |
|
|
|
Outstanding as of January 1, 2022 |
|
|
i 2,754,472 |
|
|
Granted |
|
|
i 1,678,070 |
|
|
Vested and issued |
|
|
( i 94,940 |
) |
|
Forfeited |
|
|
( i 872,172 |
) |
|
Outstanding as of September 30, 2022 |
|
|
i 3,465,430 |
|
/
Restricted Shares, RSUs and DSUs,
Restricted shares, RSUs and DSUs generally vest at the end of i i i one year / / . The fair value is determined based upon the number of shares or units granted and the quoted price of the Company’s common shares on the date of grant.
i
The following table summarizes restricted share, RSU and DSU activity during the period:
|
|
|
Number of Restricted Shares |
|
|
Number of RSUs |
|
|
Number of DSUs |
|
|||
|
Outstanding as of January 1, 2022 |
|
|
i 49,195 |
|
|
|
— |
|
|
|
— |
|
|
Granted |
|
|
i 34,699 |
|
|
|
i 50,000 |
|
|
|
i 15,856 |
|
|
Vested |
|
|
( i 49,195 |
) |
|
|
— |
|
|
|
— |
|
|
Outstanding as of September 30, 2022 |
|
|
i 34,699 |
|
|
|
i 50,000 |
|
|
|
i 15,856 |
|
FORM 10-Q
QUARTERLY REPORT - PAGE 14
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 11. Net Income Per Common Share
i
The reconciliation of basic and diluted net income per common share for the three and nine month periods ended September 30, 2022 and 2021 was as follows:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
i 66,746 |
|
|
$ |
i 69,118 |
|
|
$ |
i 227,015 |
|
|
$ |
i 96,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
i 1.01 |
|
|
$ |
i 1.05 |
|
|
$ |
i 3.43 |
|
|
$ |
i 1.46 |
|
|
Diluted |
|
$ |
i 1.00 |
|
|
$ |
i 1.04 |
|
|
$ |
i 3.41 |
|
|
$ |
i 1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (a) |
|
|
i 66,132,492 |
|
|
|
i 65,988,357 |
|
|
|
i 66,089,104 |
|
|
|
i 65,929,712 |
|
|
Effect of dilutive instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs |
|
|
i 432,142 |
|
|
|
i 317,674 |
|
|
|
i 415,818 |
|
|
|
i 318,404 |
|
|
Restricted shares |
|
|
i 5,254 |
|
|
|
— |
|
|
|
i 19,689 |
|
|
|
i 31,561 |
|
|
RSUs |
|
|
i 12,971 |
|
|
|
— |
|
|
|
i 8,060 |
|
|
|
— |
|
|
DSUs |
|
|
i 6,115 |
|
|
|
— |
|
|
|
i 2,038 |
|
|
|
— |
|
|
Diluted |
|
|
i 66,588,974 |
|
|
|
i 66,306,031 |
|
|
|
i 66,534,709 |
|
|
|
i 66,279,677 |
|
|
(a) |
For the three and nine month periods ended September 30, 2022, the weighted average number of common shares outstanding excludes i i 34,699 / restricted shares which have been granted, but have not vested as of September 30, 2022 (2021 – i i 49,195 / restricted shares). |
The calculation of diluted net income per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net income per common share. For the three and nine month periods ended September 30, 2022 and 2021 there were no anti-dilutive instruments.
/
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)
i
Note 12. Accumulated Other Comprehensive Loss
i
The change in the accumulated other comprehensive loss by component (net of tax) for the three and nine month periods ended September 30, 2022 and 2021 was as follows:
|
|
|
Foreign Currency Translation Adjustment |
|
|
Defined Benefit Pension and Other Post-Retirement Benefit Items |
|
|
Total |
|
|||
|
Three months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2022 |
|
$ |
( i 192,059 |
) |
|
$ |
i 6,551 |
|
|
$ |
( i 185,508 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( i 94,781 |
) |
|
|
i 112 |
|
|
|
( i 94,669 |
) |
|
Amounts reclassified |
|
|
i — |
|
|
|
( i 101 |
) |
|
|
( i 101 |
) |
|
Other comprehensive income (loss) |
|
|
( i 94,781 |
) |
|
|
i 11 |
|
|
|
( i 94,770 |
) |
|
Balance as of September 30, 2022 |
|
$ |
( i 286,840 |
) |
|
$ |
i 6,562 |
|
|
$ |
( i 280,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2021 |
|
$ |
( i 37,144 |
) |
|
$ |
( i 7,675 |
) |
|
$ |
( i 44,819 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( i 42,110 |
) |
|
|
i 10 |
|
|
|
( i 42,100 |
) |
|
Amounts reclassified |
|
|
i — |
|
|
|
( i 29 |
) |
|
|
( i 29 |
) |
|
Other comprehensive loss |
|
|
( i 42,110 |
) |
|
|
( i 19 |
) |
|
|
( i 42,129 |
) |
|
Balance as of September 30, 2021 |
|
$ |
( i 79,254 |
) |
|
$ |
( i 7,694 |
) |
|
$ |
( i 86,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
$ |
( i 97,517 |
) |
|
$ |
i 6,724 |
|
|
$ |
( i 90,793 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( i 189,323 |
) |
|
|
i 174 |
|
|
|
( i 189,149 |
) |
|
Amounts reclassified |
|
|
i — |
|
|
|
( i 336 |
) |
|
|
( i 336 |
) |
|
Other comprehensive loss |
|
|
( i 189,323 |
) |
|
|
( i 162 |
) |
|
|
( i 189,485 |
) |
|
Balance as of September 30, 2022 |
|
$ |
( i 286,840 |
) |
|
$ |
i 6,562 |
|
|
$ |
( i 280,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020 |
|
$ |
( i 19,578 |
) |
|
$ |
( i 7,997 |
) |
|
$ |
( i 27,575 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( i 59,676 |
) |
|
|
i 388 |
|
|
|
( i 59,288 |
) |
|
Amounts reclassified |
|
|
i — |
|
|
|
( i 85 |
) |
|
|
( i 85 |
) |
|
Other comprehensive income (loss) |
|
|
( i 59,676 |
) |
|
|
i 303 |
|
|
|
( i 59,373 |
) |
|
Balance as of September 30, 2021 |
|
$ |
( i 79,254 |
) |
|
$ |
( i 7,694 |
) |
|
$ |
( i 86,948 |
) |
/ / i
Note 13. Related Party Transactions
The Company enters into related party transactions with its joint ventures. For the three and nine month periods ended September 30, 2022, pulp purchases from the Company's i i 50 / % owned Cariboo mill, which are transacted at the Cariboo mill's cost, were $ i 28,550 and $ i 79,817, respectively (2021 – $ i 21,136 and $ i 69,331) and as of September 30, 2022, the Company had a payable balance to the Cariboo mill of $ i 4,348 (December 31, 2021 – receivable of $ i 5,688). For the three and nine month periods ended September 30, 2022, services from the Company's i i 50 / % owned logging and chipping operation, which are transacted at arm's length negotiated prices, were $ i 3,092 and $ i 10,348, respectively (2021 – $ i 2,646 and $ i 7,880) and as of September 30, 2022, the Company had a receivable balance from the operation of $ i 216 (December 31, 2021 – payable of $ i 2,400).
/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)
i
Note 14. Segment Information
The Company is managed based on the primary products it manufactures: pulp and solid wood. Accordingly, the Company's i four pulp mills and its i 50% interest in the Cariboo pulp mill are aggregated into the pulp segment. The Friesau sawmill, the HIT facilities and the cross-laminated timber ("CLT") facility are aggregated into the solid wood segment. Historically the CLT facility was included in corporate and other, but concurrent with the acquisition of HIT on September 30, 2022, the Company reorganized its operating and management structure which included having the CLT facility now being overseen by the same chief operating decision maker as the Friesau sawmill and HIT facilities. The classification of the CLT facility within the solid wood segment has been reflected retrospectively. The Company's sandalwood business is included in corporate and other as it does not meet the criteria to be reported as 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.
i
Information about certain segment data for the three and nine month periods ended September 30, 2022 and 2021, was as follows:
|
Three Months Ended September 30, 2022 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate and Other |
|
|
Consolidated |
|
||||
|
Revenues from external customers |
|
$ |
i 456,657 |
|
|
$ |
i 74,266 |
|
|
$ |
i 1,891 |
|
|
$ |
i 532,814 |
|
|
Operating income (loss) |
|
$ |
i 109,985 |
|
|
$ |
i 2,896 |
|
|
$ |
( i 4,158 |
) |
|
$ |
i 108,723 |
|
|
Depreciation and amortization |
|
$ |
i 28,174 |
|
|
$ |
i 3,733 |
|
|
$ |
i 237 |
|
|
$ |
i 32,144 |
|
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
|
$ |
i 395,459 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 395,459 |
|
|
Lumber |
|
|
i — |
|
|
|
i 61,444 |
|
|
|
i — |
|
|
|
i 61,444 |
|
|
Energy and chemicals |
|
|
i 61,198 |
|
|
|
i 8,111 |
|
|
|
i 1,891 |
|
|
|
i 71,200 |
|
|
Wood residuals |
|
|
i — |
|
|
|
i 4,711 |
|
|
|
i — |
|
|
|
i 4,711 |
|
|
Total revenues |
|
$ |
i 456,657 |
|
|
$ |
i 74,266 |
|
|
$ |
i 1,891 |
|
|
$ |
i 532,814 |
|
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
i 70,029 |
|
|
$ |
i 36,702 |
|
|
$ |
i 577 |
|
|
$ |
i 107,308 |
|
|
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
i 142,607 |
|
|
|
i 21,265 |
|
|
|
i — |
|
|
|
i 163,872 |
|
|
China |
|
|
i 102,158 |
|
|
|
i 277 |
|
|
|
i — |
|
|
|
i 102,435 |
|
|
Other countries |
|
|
i 141,863 |
|
|
|
i 16,022 |
|
|
|
i 1,314 |
|
|
|
i 159,199 |
|
|
|
|
|
i 386,628 |
|
|
|
i 37,564 |
|
|
|
i 1,314 |
|
|
|
i 425,506 |
|
|
Total revenues |
|
$ |
i 456,657 |
|
|
$ |
i 74,266 |
|
|
$ |
i 1,891 |
|
|
$ |
i 532,814 |
|
|
(a) |
Sales are attributed to countries based on the ship-to location provided by the customer. |
/ /
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 14. Segment Information (continued)
|
Three Months Ended September 30, 2021 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate and Other |
|
|
Consolidated |
|
||||
|
Revenues from external customers |
|
$ |
i 396,743 |
|
|
$ |
i 70,723 |
|
|
$ |
i 2,280 |
|
|
$ |
i 469,746 |
|
|
Operating income (loss) |
|
$ |
i 99,918 |
|
|
$ |
i 17,949 |
|
|
$ |
( i 4,112 |
) |
|
$ |
i 113,755 |
|
|
Depreciation and amortization |
|
$ |
i 29,982 |
|
|
$ |
i 4,025 |
|
|
$ |
i 308 |
|
|
$ |
i 34,315 |
|
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
|
$ |
i 374,287 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 374,287 |
|
|
Lumber |
|
|
i — |
|
|
|
i 67,605 |
|
|
|
i — |
|
|
|
i 67,605 |
|
|
Energy and chemicals |
|
|
i 22,456 |
|
|
|
i 1,801 |
|
|
|
i 2,280 |
|
|
|
i 26,537 |
|
|
Wood residuals |
|
|
i — |
|
|
|
i 1,317 |
|
|
|
i — |
|
|
|
i 1,317 |
|
|
Total revenues |
|
$ |
i 396,743 |
|
|
$ |
i 70,723 |
|
|
$ |
i 2,280 |
|
|
$ |
i 469,746 |
|
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
i 48,627 |
|
|
$ |
i 26,812 |
|
|
$ |
i 975 |
|
|
$ |
i 76,414 |
|
|
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
i 125,149 |
|
|
|
i 18,726 |
|
|
|
i — |
|
|
|
i 143,875 |
|
|
China |
|
|
i 100,174 |
|
|
|
i 412 |
|
|
|
i — |
|
|
|
i 100,586 |
|
|
Other countries |
|
|
i 122,793 |
|
|
|
i 24,773 |
|
|
|
i 1,305 |
|
|
|
i 148,871 |
|
|
|
|
|
i 348,116 |
|
|
|
i 43,911 |
|
|
|
i 1,305 |
|
|
|
i 393,332 |
|
|
Total revenues |
|
$ |
i 396,743 |
|
|
$ |
i 70,723 |
|
|
$ |
i 2,280 |
|
|
$ |
i 469,746 |
|
|
(a) |
Sales are attributed to countries based on the ship-to location provided by the customer. |
|
Nine Months Ended September 30, 2022 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate and Other |
|
|
Consolidated |
|
||||
|
Revenues from external customers |
|
$ |
i 1,402,892 |
|
|
$ |
i 290,048 |
|
|
$ |
i 4,941 |
|
|
$ |
i 1,697,881 |
|
|
Operating income (loss) |
|
$ |
i 271,692 |
|
|
$ |
i 84,923 |
|
|
$ |
( i 11,510 |
) |
|
$ |
i 345,105 |
|
|
Depreciation and amortization |
|
$ |
i 82,859 |
|
|
$ |
i 11,719 |
|
|
$ |
i 710 |
|
|
$ |
i 95,288 |
|
|
Total assets (a) |
|
$ |
i 1,669,886 |
|
|
$ |
i 559,567 |
|
|
$ |
i 314,530 |
|
|
$ |
i 2,543,983 |
|
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
|
$ |
i 1,260,949 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 1,260,949 |
|
|
Lumber |
|
|
i — |
|
|
|
i 260,137 |
|
|
|
i — |
|
|
|
i 260,137 |
|
|
Energy and chemicals |
|
|
i 141,943 |
|
|
|
i 18,343 |
|
|
|
i 4,941 |
|
|
|
i 165,227 |
|
|
Wood residuals |
|
|
i — |
|
|
|
i 11,568 |
|
|
|
i — |
|
|
|
i 11,568 |
|
|
Total revenues |
|
$ |
i 1,402,892 |
|
|
$ |
i 290,048 |
|
|
$ |
i 4,941 |
|
|
$ |
i 1,697,881 |
|
|
Revenues by geographical markets (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
i 177,144 |
|
|
$ |
i 157,169 |
|
|
$ |
i 1,023 |
|
|
$ |
i 335,336 |
|
|
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
i 429,269 |
|
|
|
i 67,684 |
|
|
|
i — |
|
|
|
i 496,953 |
|
|
China |
|
|
i 342,513 |
|
|
|
i 629 |
|
|
|
i — |
|
|
|
i 343,142 |
|
|
Other countries |
|
|
i 453,966 |
|
|
|
i 64,566 |
|
|
|
i 3,918 |
|
|
|
i 522,450 |
|
|
|
|
|
i 1,225,748 |
|
|
|
i 132,879 |
|
|
|
i 3,918 |
|
|
|
i 1,362,545 |
|
|
Total revenues |
|
$ |
i 1,402,892 |
|
|
$ |
i 290,048 |
|
|
$ |
i 4,941 |
|
|
$ |
i 1,697,881 |
|
|
(a) |
Total assets for the pulp segment includes the Company's $ i 45,262 investment in joint ventures, primarily for the Cariboo mill. Total assets for the solid wood segment includes $ i 33,037 of goodwill from the acquisition of HIT. |
|
(b) |
Sales are attributed to countries based on the ship-to location provided by the customer. |
FORM 10-Q
QUARTERLY REPORT - PAGE 18
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
Note 14. Segment Information (continued)
|
Nine Months Ended September 30, 2021 |
|
Pulp |
|
|
Solid Wood |
|
|
Corporate and Other |
|
|
Consolidated |
|
||||
|
Revenues from external customers |
|
$ |
i 1,046,748 |
|
|
$ |
i 232,149 |
|
|
$ |
i 5,401 |
|
|
$ |
i 1,284,298 |
|
|
Operating income (loss) |
|
$ |
i 138,552 |
|
|
$ |
i 88,240 |
|
|
$ |
( i 10,172 |
) |
|
$ |
i 216,620 |
|
|
Depreciation and amortization |
|
$ |
i 84,995 |
|
|
$ |
i 11,496 |
|
|
$ |
i 746 |
|
|
$ |
i 97,237 |
|
|
Revenues by major products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp |
|
$ |
i 989,060 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 989,060 |
|
|
Lumber |
|
|
i — |
|
|
|
i 221,201 |
|
|
|
i — |
|
|
|
i 221,201 |
|
|
Energy and chemicals |
|
|
i 57,688 |
|
|
|
i 6,607 |
|
|
|
i 5,401 |
|
|
|
i 69,696 |
|
|
Wood residuals |
|
|
i — |
|
|
|
i 4,341 |
|
|
|
i — |
|
|
|
i 4,341 |
|
|
Total revenues |
|
$ |
i 1,046,748 |
|
|
$ |
i 232,149 |
|
|
$ |
i 5,401 |
|
|
$ |
i 1,284,298 |
|
|
Revenues by geographical markets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
i 128,905 |
|
|
$ |
i 125,514 |
|
|
$ |
i 2,281 |
|
|
$ |
i 256,700 |
|
|
Foreign countries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
i 318,781 |
|
|
|
i 48,265 |
|
|
|
i — |
|
|
|
i 367,046 |
|
|
China |
|
|
i 263,717 |
|
|
|
i 1,258 |
|
|
|
i — |
|
|
|
i 264,975 |
|
|
Other countries |
|
|
i 335,345 |
|
|
|
i 57,112 |
|
|
|
i 3,120 |
|
|
|
i 395,577 |
|
|
|
|
|
i 917,843 |
|
|
|
i 106,635 |
|
|
|
i 3,120 |
|
|
|
i 1,027,598 |
|
|
Total revenues |
|
$ |
i 1,046,748 |
|
|
$ |
i 232,149 |
|
|
$ |
i 5,401 |
|
|
$ |
i 1,284,298 |
|
|
(a) |
Sales are attributed to countries based on the ship-to location provided by the customer. |
As of December 31, 2021, the Company had total assets of $ i 1,882,078 in the pulp segment, $ i 313,354 in the solid wood segment and $ i 155,800 in corporate and other. Total assets for the pulp segment includes the Company's $ i 49,651 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 solid wood segment to the pulp segment for use in pulp production and from the sale of residual fuel from the pulp segment to the solid wood segment for use in energy production. For the three and nine month periods ended September 30, 2022, the pulp segment sold $nil of residual fuel to the solid wood segment (2021 – $ i 88 and $ i 239) and the solid wood segment sold $ i 7,370 and $ i 20,751, respectively of residual fiber to the pulp segment (2021 – $ i 2,536 and $ i 8,369).
FORM 10-Q
QUARTERLY REPORT - PAGE 19
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 15. Financial Instruments and Fair Value Measurement
Due to their short-term maturity, the carrying amounts of cash and cash equivalents, the term deposit, accounts receivable, and accounts payable and other approximates their fair value.
i
The estimated fair values of the Company's outstanding debt under the fair value hierarchy as of September 30, 2022 and December 31, 2021 were as follows:
|
|
|
Fair value measurements as of September 30, 2022 using: |
|
|||||||||||||
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Revolving credit facilities |
|
$ |
i — |
|
|
$ |
i 136,146 |
|
|
$ |
i — |
|
|
$ |
i 136,146 |
|
|
Senior notes |
|
|
i — |
|
|
|
i 978,995 |
|
|
|
i — |
|
|
|
i 978,995 |
|
|
|
|
$ |
i — |
|
|
$ |
i 1,115,141 |
|
|
$ |
i — |
|
|
$ |
i 1,115,141 |
|
|
|
|
Fair value measurements as of December 31, 2021 using: |
|
|||||||||||||
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Revolving credit facilities |
|
$ |
i — |
|
|
$ |
i 22,874 |
|
|
$ |
i — |
|
|
$ |
i 22,874 |
|
|
Senior notes |
|
|
i — |
|
|
|
i 1,197,449 |
|
|
|
i — |
|
|
|
i 1,197,449 |
|
|
|
|
$ |
i — |
|
|
$ |
i 1,220,323 |
|
|
$ |
i — |
|
|
$ |
i 1,220,323 |
|
/
The carrying value of the revolving credit facilities classified as Level 2 approximates the fair value as the variable interest rates reflect current interest rates for financial instruments with similar characteristics and maturities.
The fair value of the senior notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company's senior notes are not carried at fair value in the Interim Consolidated Balance Sheets as of September 30, 2022 or December 31, 2021. However, fair value disclosure is required. The carrying value of the Company's senior notes, net of unamortized note issuance costs, was $ i 1,161,028 as of September 30, 2022 (December 31, 2021 – $ i 1,159,097).
Credit Risk
The Company’s credit risk is primarily attributable to cash held in bank accounts, the term deposit and accounts receivable. The Company maintains cash balances in foreign financial institutions in excess of insured limits. The Company limits its credit exposure on cash held in bank accounts by periodically investing cash in excess of short-term operating requirements and debt obligations in low risk government bonds, or similar debt instruments. The Company’s credit risk associated with 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’ credit history before granting credit and conducts regular reviews of existing 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.
The Company’s exposure to credit losses may increase if its customers production and other costs are adversely affected by inflation. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’s customers are adversely impacted by inflation. As of September 30, 2022, the Company has not had significant credit losses.
The carrying amount of cash and cash equivalents of $ i 287,254, the term deposit of $ i 75,000 and accounts receivable of $ i 324,343 recorded in the Interim Consolidated Balance Sheet, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
/FORM 10-Q
QUARTERLY REPORT - PAGE 20
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of U.S. dollars, except share and per share data)
i
Note 16. 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 Company’s obligation for the proper removal and disposal of asbestos products from the Company’s mills is a conditional asset retirement obligation. As a result of the longevity of the Company’s mills, due in part to the maintenance procedures and the fact that the Company does not have plans for major changes that require the removal of asbestos, the timing of the asbestos removal is indeterminate. As a result, the Company is currently unable to reasonably estimate the fair value of its asbestos removal and disposal obligation. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value. |
|
(c) |
In 2021, the European Commission opened a cartel investigation into the wood pulp sector in Europe to investigate if there was an infringement of European Union competition law. In October 2021, the Commission conducted inspections of major European pulp producers including the Company’s German operations. The Company is cooperating with the investigation. As the matter is currently in the investigation stage, the Company cannot predict the timing of the same and what further actions, if any, the European Commission may pursue or what the outcome of any such actions may be. |
FORM 10-Q
QUARTERLY REPORT - PAGE 21
NON-GAAP FINANCIAL MEASURES
This quarterly report on Form 10-Q contains “non-GAAP financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as “GAAP”. Specifically, we make use of the non-GAAP measure “Operating EBITDA”.
Operating EBITDA is defined as operating income 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, 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 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 22
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In this document: (i) unless the context otherwise requires, references to “we”, “our”, “us”, the “Company” or “Mercer” mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer Inc.” mean the Company excluding its subsidiaries; (iii) information is provided as of September 30, 2022, unless otherwise stated; (iv) our reporting currency is dollars and references to “€” mean euros and “C$” mean Canadian dollars; (v) “ADMTs” refers to air-dried metric tonnes; (vi) “NBSK” refers to northern bleached softwood kraft; (vii) “NBHK” refers to northern bleached hardwood kraft; (viii) “MW” refers to megawatts and “MWh” refers to megawatt hours; (ix) “Mfbm” refers to thousand board feet of lumber and “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 nine months ended September 30, 2022 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, 2021 filed with the Securities and Exchange Commission, referred to as the “SEC”.
Results of Operations
General
On September 30, 2022, we acquired all of the issued and outstanding shares of the parent company of Holzindustrie Torgau KG (“HIT”) for cash consideration of €270.0 million ($263.2 million). Pursuant to the acquisition, we acquired 100% ownership of a timber processing and value-add pallet production facility in Torgau, Germany and a wood processing facility in Dahlen, Germany that produces garden products. The acquisition of HIT expands our solid wood business and further diversifies our product offerings.
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. |
|
|
• |
Solid Wood – consists of the manufacture, sale and distribution of solid wood products, electricity and other wood residuals at the Friesau sawmill, the HIT facilities and our cross-laminated timber (“CLT”) facility. |
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing. Historically the CLT facility was not included in the solid wood segment, but concurrent with the acquisition of HIT, we changed how we manage our operations and now include the CLT facility within our solid wood segment, which has been reflected retrospectively.
Current Market Environment
In the third quarter of 2022, we had strong pulp sales realizations driven by low customer inventory levels. Our lumber sales realizations significantly decreased in both the U.S. and European markets in the third quarter of 2022 due to higher interest rates, concerns over rising inflation and a weaker economic outlook.
Our energy revenues benefitted from both strong demand and higher prices in Germany. In the third quarter of 2022, realized average energy prices in Germany were more than triple those of the comparable quarter of 2021.
FORM 10-Q
QUARTERLY REPORT - PAGE 23
The negative impact of increased key production costs such as fiber, energy and chemicals in the third quarter is expected to continue in the fourth quarter of 2022. In particular fiber costs in Germany increased because of materially higher demand for wood for energy purposes. Our production costs are primarily incurred in euros and Canadian dollars. However, our pulp and a material portion of our lumber sales are priced in dollars. During the third quarter of 2022, the dollar continued to strengthen against the euro and the Canadian dollar. The positive impact of a strengthening dollar on our euro and Canadian dollar denominated costs and expenses partially offset the negative impact of such higher costs. The strengthening of the dollar increased our operating income by approximately $13.8 million when compared to the second quarter of 2022 and increased our operating income by approximately $37.0 million when compared to the third quarter of 2021.
As of September 30, 2022, third party industry quoted NBSK list prices in Europe and North America were approximately $1,500 per ADMT and $1,790 per ADMT, respectively and NBSK net prices in China were approximately $948 per ADMT. Prices for China are net of discounts, allowances and rebates.
Looking into the fourth quarter, we currently expect modestly declining pulp prices as a result of lower demand from our customers due to inflationary pressures negatively impacting paper demand. We expect lumber prices to be generally consistent with the third quarter due to continued economic uncertainty caused by inflation and higher interest rates.
We currently expect continued strong energy demand and prices in Germany in the fourth quarter of 2022. In response to restricted energy supply and price increases primarily resulting from the war in Ukraine, in October, 2022, the Council of the EU implemented by regulation temporary measures which include a mandatory cap on market revenues at €180 per MWh for intra-marginal generators such as renewables, nuclear and lignite producers. The cap applies to both electricity traded in the market as well as bilateral trading. This cap will be in effect from December 1, 2022 to June 30, 2023.
FORM 10-Q
QUARTERLY REPORT - PAGE 24
Summary Financial Highlights
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|||||
|
|
|
(in thousands, other than per share amounts) |
|
|
|||||||||||||
|
Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment revenues |
|
$ |
456,657 |
|
|
$ |
396,743 |
|
|
$ |
1,402,892 |
|
|
$ |
1,046,748 |
|
|
|
Solid wood segment revenues |
|
|
74,266 |
|
|
|
70,723 |
|
|
|
290,048 |
|
|
|
232,149 |
|
|
|
Corporate and other revenues |
|
|
1,891 |
|
|
|
2,280 |
|
|
|
4,941 |
|
|
|
5,401 |
|
|
|
Total revenues |
|
$ |
532,814 |
|
|
$ |
469,746 |
|
|
$ |
1,697,881 |
|
|
$ |
1,284,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment operating income |
|
$ |
109,985 |
|
|
$ |
99,918 |
|
|
$ |
271,692 |
|
|
$ |
138,552 |
|
|
|
Solid wood segment operating income |
|
|
2,896 |
|
|
|
17,949 |
|
|
|
84,923 |
|
|
|
88,240 |
|
|
|
Corporate and other operating loss |
|
|
(4,158 |
) |
|
|
(4,112 |
) |
|
|
(11,510 |
) |
|
|
(10,172 |
) |
|
|
Total operating income |
|
$ |
108,723 |
|
|
$ |
113,755 |
|
|
$ |
345,105 |
|
|
$ |
216,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp segment depreciation and amortization |
|
$ |
28,174 |
|
|
$ |
29,982 |
|
|
$ |
82,859 |
|
|
$ |
84,995 |
|
|
|
Solid wood segment depreciation and amortization |
|
|
3,733 |
|
|
|
4,025 |
|
|
|
11,719 |
|
|
|
11,496 |
|
|
|
Corporate and other depreciation and amortization |
|
|
237 |
|
|
|
308 |
|
|
|
710 |
|
|
|
746 |
|
|
|
Total depreciation and amortization |
|
$ |
32,144 |
|
|
$ |
34,315 |
|
|
$ |
95,288 |
|
|
$ |
97,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EBITDA(1) |
|
$ |
140,867 |
|
|
$ |
148,070 |
|
|
$ |
440,393 |
|
|
$ |
313,857 |
|
|
|
Loss on early extinguishment of debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(30,368 |
) |
(2) |
|
Income tax provision |
|
$ |
(31,294 |
) |
|
$ |
(32,490 |
) |
|
$ |
(89,656 |
) |
|
$ |
(45,873 |
) |
|
|
Net income |
|
$ |
66,746 |
|
|
$ |
69,118 |
|
|
$ |
227,015 |
|
|
$ |
96,466 |
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.01 |
|
|
$ |
1.05 |
|
|
$ |
3.43 |
|
|
$ |
1.46 |
|
|
|
Diluted |
|
$ |
1.00 |
|
|
$ |
1.04 |
|
|
$ |
3.41 |
|
|
$ |
1.46 |
|
|
|
Common shares outstanding at period end |
|
|
66,167 |
|
|
|
66,037 |
|
|
|
66,167 |
|
|
|
66,037 |
|
|
|
(1) |
The following table provides a reconciliation of net income to operating income and Operating EBITDA for the periods indicated: |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Net income |
|
$ |
66,746 |
|
|
$ |
69,118 |
|
|
$ |
227,015 |
|
|
$ |
96,466 |
|
|
Income tax provision |
|
|
31,294 |
|
|
|
32,490 |
|
|
|
89,656 |
|
|
|
45,873 |
|
|
Interest expense |
|
|
17,935 |
|
|
|
16,882 |
|
|
|
52,731 |
|
|
|
53,031 |
|
|
Loss on early extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,368 |
|
|
Other income |
|
|
(7,252 |
) |
|
|
(4,735 |
) |
|
|
(24,297 |
) |
|
|
(9,118 |
) |
|
Operating income |
|
|
108,723 |
|
|
|
113,755 |
|
|
|
345,105 |
|
|
|
216,620 |
|
|
Add: Depreciation and amortization |
|
|
32,144 |
|
|
|
34,315 |
|
|
|
95,288 |
|
|
|
97,237 |
|
|
Operating EBITDA |
|
$ |
140,867 |
|
|
$ |
148,070 |
|
|
$ |
440,393 |
|
|
$ |
313,857 |
|
|
(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 25
Selected Production, Sales and Other Data
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Pulp Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp production ('000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBSK |
|
|
362.9 |
|
|
|
443.0 |
|
|
|
1,216.7 |
|
|
|
1,195.0 |
|
|
NBHK |
|
|
82.1 |
|
|
|
57.8 |
|
|
|
190.4 |
|
|
|
143.9 |
|
|
Annual maintenance downtime ('000 ADMTs) |
|
|
17.3 |
|
|
|
42.8 |
|
|
|
71.5 |
|
|
|
253.7 |
|
|
Annual maintenance downtime (days) |
|
|
17 |
|
|
|
44 |
|
|
|
60 |
|
|
|
188 |
|
|
Pulp sales ('000 ADMTs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBSK |
|
|
356.6 |
|
|
|
402.2 |
|
|
|
1,267.4 |
|
|
|
1,151.3 |
|
|
NBHK |
|
|
69.3 |
|
|
|
45.7 |
|
|
|
185.0 |
|
|
|
145.1 |
|
|
Average NBSK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
1,500 |
|
|
|
1,345 |
|
|
|
1,422 |
|
|
|
1,223 |
|
|
China |
|
|
969 |
|
|
|
832 |
|
|
|
959 |
|
|
|
892 |
|
|
North America |
|
|
1,800 |
|
|
|
1,542 |
|
|
|
1,690 |
|
|
|
1,481 |
|
|
Average NBHK pulp prices ($/ADMT)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
855 |
|
|
|
623 |
|
|
|
779 |
|
|
|
694 |
|
|
North America |
|
|
1,620 |
|
|
|
1,320 |
|
|
|
1,483 |
|
|
|
1,212 |
|
|
Average pulp sales realizations ($/ADMT)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBSK |
|
|
911 |
|
|
|
847 |
|
|
|
865 |
|
|
|
777 |
|
|
NBHK |
|
|
990 |
|
|
|
684 |
|
|
|
858 |
|
|
|
604 |
|
|
Energy production ('000 MWh)(3) |
|
|
484.2 |
|
|
|
464.5 |
|
|
|
1,512.4 |
|
|
|
1,345.6 |
|
|
Energy sales ('000 MWh)(3) |
|
|
174.3 |
|
|
|
185.8 |
|
|
|
568.3 |
|
|
|
517.8 |
|
|
Average energy sales realizations ($/MWh)(3) |
|
|
339 |
|
|
|
114 |
|
|
|
233 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solid Wood Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber production (MMfbm) |
|
|
97.1 |
|
|
|
102.1 |
|
|
|
324.8 |
|
|
|
336.6 |
|
|
Lumber sales (MMfbm) |
|
|
89.8 |
|
|
|
97.7 |
|
|
|
310.7 |
|
|
|
315.3 |
|
|
Average lumber sales realizations ($/Mfbm) |
|
|
605 |
|
|
|
692 |
|
|
|
782 |
|
|
|
702 |
|
|
Energy production and sales ('000 MWh) |
|
|
20.6 |
|
|
|
14.1 |
|
|
|
70.6 |
|
|
|
51.4 |
|
|
Average energy sales realizations ($/MWh) |
|
|
394 |
|
|
|
128 |
|
|
|
260 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Spot Currency Exchange Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ / €(4) |
|
|
1.0066 |
|
|
|
1.1784 |
|
|
|
1.0636 |
|
|
|
1.1958 |
|
|
$ / C$(4) |
|
|
0.7659 |
|
|
|
0.7937 |
|
|
|
0.7796 |
|
|
|
0.7996 |
|
|
(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 September 30, 2022 Compared to Three Months Ended September 30, 2021
Total revenues in the third quarter of 2022 increased by approximately 13% to $532.8 million from $469.7 million in the same quarter of 2021 primarily due to higher energy and pulp sales realizations partially offset by lower sales volumes and lumber sales realizations.
In the third quarter of 2022, energy and chemical revenues increased by approximately 169% to $71.2 million from $26.5 million in the same quarter of 2021 primarily as a result of higher energy prices in Germany, which were more than triple those in the same quarter of 2021. In the third quarter of 2022, our average energy sales realizations in Germany were approximately €388 per MWh compared to about €104 per MWh in the comparative quarter of 2021.
FORM 10-Q
QUARTERLY REPORT - PAGE 26
Costs and expenses in the third quarter of 2022 increased by approximately 19% to $424.1 million from $356.0 million in the third quarter of 2021 driven by higher key production costs, such as fiber, chemicals and energy, and higher freight costs. Such cost increases were partially offset by the positive impact of a stronger dollar on our euro and Canadian dollar denominated costs and expenses.
In the third quarter of 2022, cost of sales depreciation and amortization decreased to $32.1 million from $34.3 million in the same quarter of 2021 due to the positive impact of a stronger dollar.
Selling, general and administrative expenses increased to $24.3 million in the third quarter of 2022 from $19.5 million in the same quarter of 2021 primarily due to costs incurred with respect to the HIT acquisition and higher employee costs.
In the third quarter of 2022, operating income decreased by approximately 4% to $108.7 million from $113.8 million in the same quarter of 2021 primarily due to higher per unit fiber costs, higher other production and freight costs and lower sales volumes partially offset by higher energy and pulp sales realizations and the positive impact of a stronger dollar.
Interest expense in the third quarter of 2022 increased to $17.9 million from $16.9 million in the same quarter of 2021 due to borrowings on our Canadian revolving credit facility.
In the third quarter of 2022, other income was $7.3 million compared to $4.7 million in the same quarter of 2021. Other income in both periods is primarily due to foreign exchange gains, caused by a stronger dollar, on dollar denominated cash held at our operations.
During the third quarter of 2022, we had an income tax provision of $31.3 million or an effective tax rate of 32% and in the comparative quarter of 2021, we had an income tax provision of $32.5 million or an effective tax rate of 32%.
For the third quarter of 2022, net income was $66.7 million, or $1.01 per basic share and $1.00 per diluted share, compared to net income of $69.1 million, or $1.05 per basic share and $1.04 per diluted share in the same quarter of the prior year.
In the third quarter of 2022, Operating EBITDA decreased by approximately 5% to $140.9 million from $148.1 million in the same quarter of 2021 primarily due to higher per unit fiber costs, higher other production and freight costs and lower sales volumes partially offset by higher energy and pulp sales realizations and the positive impact of a stronger dollar.
Operating Results by Business Segment
None of the income or loss items following operating income 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 September 30, 2022 Compared to Three Months Ended September 30, 2021
Selected Financial Information
|
|
|
Three Months Ended September 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Pulp revenues |
|
$ |
395,459 |
|
|
$ |
374,287 |
|
|
Energy and chemical revenues |
|
$ |
61,198 |
|
|
$ |
22,456 |
|
|
Depreciation and amortization |
|
$ |
28,174 |
|
|
$ |
29,982 |
|
|
Operating income |
|
$ |
109,985 |
|
|
$ |
99,918 |
|
Pulp revenues in the third quarter of 2022 increased by approximately 6% to $395.5 million from $374.3 million in the same quarter of 2021 due to higher sales realizations partially offset by lower sales volumes.
FORM 10-Q
QUARTERLY REPORT - PAGE 27
Energy and chemical revenues increased to a record $61.2 million in the third quarter of 2022 from $22.5 million in the same quarter of 2021 due to higher sales realizations. During the third quarter of 2022, we benefitted from strong energy demand and higher energy prices in Germany.
Total pulp production decreased by approximately 11% to 444,970 ADMTs in the third quarter of 2022 from 500,866 ADMTs in the same quarter of 2021 primarily due to lower production at our Stendal mill which had a fire in its woodyard. The fire resulted in the mill being down for most of July and after its restart it has operated at approximately 90% of its capacity. Total lost production in the third quarter of 2022 due to the fire was approximately 50,800 ADMTs. We currently expect to install replacement equipment at our Stendal mill in the fourth quarter of 2022 and first quarter of 2023. We maintain property and business interruption insurance for the Stendal pulp mill and we expect the property damage and business interruption will be covered by such insurance, subject to customary deductibles and limits.
In the third quarter of 2022, our pulp mills had 17 days of annual maintenance downtime (approximately 17,300 ADMTs). In the comparative quarter of 2021, we had 44 days of maintenance downtime (approximately 42,800 ADMTs). In the fourth quarter of 2022, our pulp mills currently have scheduled 14 days of planned annual maintenance downtime (approximately 30,000 ADMTs).
We estimate that annual maintenance downtime in the third quarter of 2022 adversely impacted our operating income by approximately $15.9 million, comprised of approximately $8.3 million in direct out-of-pocket expenses and the balance in reduced production.
Total pulp sales volumes decreased by approximately 5% to 425,854 ADMTs in the third quarter of 2022 from 447,960 ADMTs in the same quarter of 2021 primarily due to lower production.
In the third quarter of 2022, third party industry quoted average list prices for NBSK pulp increased from the same quarter of 2021 primarily as a result of low customer inventory levels. Average third party industry quoted list prices for NBSK pulp in Europe and North America were approximately $1,500 per ADMT and $1,800 per ADMT, respectively, in the third quarter of 2022 compared to approximately $1,345 per ADMT and $1,542 per ADMT, respectively, in the same quarter of 2021. Average third party industry quoted NBSK net prices in China were approximately $969 per ADMT in the third quarter of 2022 compared to approximately $832 per ADMT in the same quarter of 2021.
Prices quoted for China are net of discounts, allowances and rebates whereas quoted prices for Europe and North America are before applicable discounts, allowances and rebates.
Our average NBSK pulp sales realizations increased by approximately 8% to $911 per ADMT in the third quarter of 2022 from approximately $847 per ADMT in the same quarter of 2021.
In the third quarter of 2022 compared to the same quarter of 2021, we had a positive impact of approximately $32.6 million in operating income due to foreign exchange, primarily as a result of the effect of the stronger U.S. dollar on costs and expenses.
Costs and expenses in the third quarter of 2022 increased by approximately 17% to $346.7 million from $296.9 million in the third quarter of 2021 primarily due to higher per unit fiber, chemical, energy and freight costs. The higher costs were partially offset by the positive impact of a stronger dollar and lower pulp sales volumes.
In the third quarter of 2022 per unit fiber costs increased by approximately 32% from the same quarter of 2021 due to higher per unit fiber costs for all of our mills. Our German mills had higher per unit fiber costs as a result of strong demand from other wood consumers such as heating pellet manufacturers. For our Canadian mills, per unit fiber costs increased due to strong demand in the mills' fiber baskets and for our Celgar mill a decrease in the availability of wood chips due to regional sawmill curtailments. We currently expect per unit fiber costs to increase in the fourth quarter of 2022 with an increase in Germany due to continued strong demand for wood for energy purposes and generally flat per unit fiber costs in Canada.
FORM 10-Q
QUARTERLY REPORT - PAGE 28
Transportation costs increased by approximately 28% to $42.7 million in the third quarter of 2022 from $33.4 million in the same quarter of 2021 primarily as a result of higher freight rates partially offset by the positive impact of a stronger dollar and lower pulp sales volumes.
In the third quarter of 2022, depreciation and amortization decreased to $28.2 million from $30.0 million in the same quarter of 2021 due to the positive impact of a stronger dollar.
In the third quarter of 2022, pulp segment operating income increased by approximately 10% to $110.0 million from $99.9 million in the same quarter of 2021 primarily due to higher sales realizations and the positive impact of a stronger dollar, partially offset by higher per unit fiber costs, higher other production and freight costs and lower sales volumes.
Solid Wood Segment – Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Selected Financial Information
|
|
|
Three Months Ended September 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Lumber revenues |
|
$ |
61,444 |
|
|
$ |
67,605 |
|
|
Energy revenues |
|
$ |
8,111 |
|
|
$ |
1,801 |
|
|
Wood residual revenues |
|
$ |
4,711 |
|
|
$ |
1,317 |
|
|
Depreciation and amortization |
|
$ |
3,733 |
|
|
$ |
4,025 |
|
|
Operating income |
|
$ |
2,896 |
|
|
$ |
17,949 |
|
In the third quarter of 2022, lumber revenues decreased by approximately 9% to $61.4 million from $67.6 million in the same quarter of 2021 primarily due to lower sales volumes and sales realizations. In the third quarter of 2022, European realized lumber prices were lower due to weaker demand while U.S. pricing was generally flat compared to the same quarter of 2021. The U.S. market accounted for approximately 54% of our lumber revenues and approximately 47% of our lumber sales volumes. The majority of the balance of our lumber sales were to Europe.
Energy and wood residual revenues in the third quarter of 2022 increased to $12.8 million from $3.1 million in the same quarter of 2021 primarily due to higher sales realizations. In the third quarter of 2022, increased energy sales were driven by strong demand and higher energy prices in Germany and increased wood residual sales realizations are due to the correlation to the higher per unit fiber costs.
In the third quarter of 2022, lumber production decreased by approximately 5% to 97.1 MMfbm from 102.1 MMfbm in the same quarter of 2021 due to scheduled maintenance.
Lumber sales volumes decreased by approximately 8% to 89.8 MMfbm in the third quarter of 2022 from 97.7 MMfbm in the same quarter of 2021 primarily due to lower production.
Average lumber sales realizations decreased by approximately 13% to $605 per Mfbm in the third quarter of 2022 from approximately $692 per Mfbm in the same quarter of 2021 due to lower demand in the European market. Demand in both the European and U.S. markets is being negatively impacted by concerns over rising interest rates, inflationary pressures and a weaker economic outlook.
Fiber costs were approximately 70% of our lumber cash production costs in the third quarter of 2022. In the third quarter of 2022, per unit fiber costs modestly increased compared to the same quarter of 2021. Higher per unit fiber costs in euros due to strong fiber demand in Germany were partially offset by the positive impact of a stronger dollar on our euro denominated fiber costs. We currently expect per unit fiber costs to modestly increase in the fourth quarter of 2022.
In the third quarter of 2022, depreciation and amortization decreased to $3.7 million compared to $4.0 million in the same quarter of 2021 due to the positive impact of a stronger dollar.
FORM 10-Q
QUARTERLY REPORT - PAGE 29
Transportation costs in the third quarter of 2022 increased by approximately 20% to $9.5 million from $7.9 million in the same quarter of 2021 primarily due to higher freight rates.
In the third quarter of 2022, operating income decreased by approximately 84% to $2.9 million from $17.9 million in the same quarter of 2021 primarily due to higher per unit fiber costs and other production costs, lower lumber sales realizations and sales volumes partially offset by higher energy and wood residuals sales realizations.
Consolidated ‑ Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Total revenues for the nine months ended September 30, 2022 increased by approximately 32% to $1,697.9 million from $1,284.3 million in the nine months ended September 30, 2021 primarily due to higher sales realizations and higher pulp sales volumes.
In the nine months ended September 30, 2022, energy and chemical revenues increased by approximately 137% to $165.2 million from $69.7 million in the same period of 2021 primarily as a result of higher energy prices in Germany, which were more than double those in the same period of 2021. In the nine months ended September 30, 2022, our average energy sales realizations in Germany were approximately €241 per MWh compared to about €89 per MWh in the comparative period of 2021.
Costs and expenses in the nine months ended September 30, 2022 increased by approximately 27% to $1,352.8 million from $1,067.7 million in the nine months ended September 30, 2021 primarily due to higher per unit fiber, freight, energy and chemical costs and a higher pulp sales volume partially offset by the positive impact of a stronger dollar on our euro and Canadian dollar denominated costs and expenses.
In the nine months ended September 30, 2022, cost of sales depreciation and amortization modestly decreased to $95.2 million from $97.2 million in the same period of 2021 due to the positive impact of a stronger dollar.
Selling, general and administrative expenses increased by approximately 16% to $70.1 million in the nine months ended September 30, 2022 from $60.3 million in the nine months ended September 30, 2021 primarily due to higher employee costs and costs related to the HIT acquisition.
In the nine months ended September 30, 2022, operating income increased by approximately 59% to $345.1 million from $216.6 million in the nine months ended September 30, 2021 primarily due to higher sales realizations, the positive impact of a stronger dollar and higher pulp sales volumes partially offset by higher per unit fiber costs and higher other production and freight costs.
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 our 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).
Interest expense in the nine months ended September 30, 2022 modestly decreased to $52.7 million from $53.0 million in the nine months ended September 30, 2021 primarily as a result of a lower interest rate for our 2029 Senior Notes partially offset by interest costs on higher borrowings from our revolving credit facilities.
In the nine months ended September 30, 2022, other income increased to $24.3 million from $9.1 million in the same period of 2021. Other income in both periods is primarily due to foreign exchange gains, caused by a stronger dollar, on dollar denominated cash held at our operations.
During the nine months ended September 30, 2022, the provision for income taxes was $89.7 million or an effective tax rate of 28%. In the same period of 2021, the provision for income taxes was $45.9 million or an effective tax rate of 32%.
For the nine months ended September 30, 2022, net income was $227.0 million, or $3.43 per basic share and $3.41 per diluted share compared to $96.5 million, or $1.46 per share, in the same period of 2021.
FORM 10-Q
QUARTERLY REPORT - PAGE 30
In the nine months ended September 30, 2022, Operating EBITDA increased by approximately 40% to $440.4 million from $313.9 million in the same period of 2021 primarily due to higher sales realizations, the positive impact of a stronger dollar and higher pulp sales volumes partially offset by higher per unit fiber costs and higher other production and freight costs.
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 ‑ Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Selected Financial Information
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Pulp revenues |
|
$ |
1,260,949 |
|
|
$ |
989,060 |
|
|
Energy and chemical revenues |
|
$ |
141,943 |
|
|
$ |
57,688 |
|
|
Depreciation and amortization |
|
$ |
82,859 |
|
|
$ |
84,995 |
|
|
Operating income |
|
$ |
271,692 |
|
|
$ |
138,552 |
|
Pulp revenues in the nine months ended September 30, 2022 increased by approximately 27% to $1,260.9 million from $989.1 million in the same period of 2021 due to higher sales realizations and a higher sales volume.
Energy and chemical revenues increased by approximately 146% to $141.9 million in the nine months ended September 30, 2022 from $57.7 million in the same period of 2021 due to higher sales realizations and sales volumes.
Pulp production increased by approximately 5% to 1,407,103 ADMTs in the nine months ended September 30, 2022 from 1,338,918 ADMTs in the same period of 2021 primarily due to lower annual maintenance downtime at our pulp mills. In the nine months ended September 30, 2022, our pulp mills had 60 days of annual maintenance downtime (approximately 71,500 ADMTs) and an additional six days (approximately 8,400 ADMTs) at our Celgar mill due to a slower than planned start up. In July 2022, our Stendal mill had a fire in its woodyard that resulted in the mill being down for most of July and after its restart has operated at approximately 90% of its capacity. Total lost production due to the fire in the nine months ended September 30, 2022 was approximately 50,800 ADMTs. In the nine months ended September 30, 2021, our pulp mills had 188 days of annual maintenance downtime (approximately 253,700 ADMTs).
We estimate that annual maintenance downtime in the nine months ended September 30, 2022 adversely impacted our operating income by approximately $63.6 million, comprised of approximately $43.7 million in direct out-of-pocket expenses and the balance in reduced production.
Pulp sales volumes increased by approximately 12% to 1,452,426 ADMTs in the nine months ended September 30, 2022 from 1,296,406 ADMTs in the same period of 2021 primarily due to higher production and strong demand.
In the nine months ended September 30, 2022, prices for NBSK pulp increased from the same period of 2021, largely as a result of low customer inventory levels. Average list prices for NBSK pulp in Europe and North America were approximately $1,422 per ADMT and $1,690 per ADMT, respectively in the nine months ended September 30, 2022 compared to approximately $1,223 per ADMT and $1,481 per ADMT, respectively, in the same period of 2021. Average NBSK net prices in China were approximately $959 per ADMT in the nine months ended September 30, 2022 compared to approximately $892 per ADMT in the nine months ended September 30, 2021.
Average NBSK pulp sales realizations increased by approximately 11% to $865 per ADMT in the nine months ended September 30, 2022 from approximately $777 per ADMT in the same period of 2021.
FORM 10-Q
QUARTERLY REPORT - PAGE 31
In the nine months ended September 30, 2022, we recorded a positive impact of approximately $78.4 million in operating income due to foreign exchange compared to the same period of 2021, primarily as a result of the effect of the stronger U.S. dollar on costs and expenses.
Costs and expenses in the nine months ended September 30, 2022 increased by approximately 25% to $1,131.2 million from $908.4 million in the nine months ended September 30, 2021 primarily due to higher per unit fiber, energy, chemical and freight costs and a higher pulp sales volume. The higher costs were partially offset by the positive impact of a stronger dollar and in the nine months ended September 30, 2022, we received German regulatory approval to reverse a wastewater fee accrual of $13.3 million as a result of completing certain capital projects.
On average, in the nine months ended September 30, 2022 overall per unit fiber costs increased by approximately 29% from the same period of 2021 due to strong demand in our mills' fiber baskets.
Transportation costs for our pulp segment increased by approximately 42% to $133.8 million in the nine months ended September 30, 2022 from $94.5 million in the same period of 2021 primarily as a result of the increased use of higher cost trucking, higher freight rates and higher sales volumes.
In the nine months ended September 30, 2022, depreciation and amortization modestly decreased to $82.9 million from $85.0 million in the same period of 2021 due to the positive impact of foreign exchange.
In the nine months ended September 30, 2022, pulp segment operating income increased to $271.7 million from $138.6 million in the same period of 2021 primarily due to higher sales realizations, the positive impact of a stronger dollar and higher sales volumes being only partially offset by higher per unit fiber costs and higher other production and freight costs.
Solid Wood Segment ‑ Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Selected Financial Information
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Lumber revenues |
|
$ |
260,137 |
|
|
$ |
221,201 |
|
|
Energy revenues |
|
$ |
18,343 |
|
|
$ |
6,607 |
|
|
Wood residual revenues |
|
$ |
11,568 |
|
|
$ |
4,341 |
|
|
Depreciation and amortization |
|
$ |
11,719 |
|
|
$ |
11,496 |
|
|
Operating income |
|
$ |
84,923 |
|
|
$ |
88,240 |
|
In the nine months ended September 30, 2022, lumber revenues increased by approximately 18% to $260.1 million from $221.2 million in the same period of 2021 primarily due to higher sales realizations. Lumber markets in both the U.S. and Europe were strong in the first half of 2022 but weakened materially later in the period due to concerns over higher interest rates and inflation. The U.S. market accounted for approximately 58% of our lumber revenues and approximately 45% of our lumber sales volumes, while the majority of remaining sales were to Europe.
Energy and wood residual revenues increased to $29.9 million in the nine months ended September 30, 2022 from $10.9 million in the same period of 2021 primarily due to higher sales realizations.
Lumber production decreased by approximately 4% to 324.8 MMfbm in the nine months ended September 30, 2022 from 336.6 MMfbm in the same period of 2021 primarily due to planned maintenance downtime.
Average lumber sales realizations increased by approximately 11% to $782 per Mfbm in the nine months ended September 30, 2022 from approximately $702 per Mfbm in the same period of 2021 primarily due to overall higher average pricing in both the European and U.S. markets. European lumber pricing increased due to steady demand
FORM 10-Q
QUARTERLY REPORT - PAGE 32
with limited supply. U.S. lumber pricing increased due to strong demand at the start of the year from the housing and renovation markets before declining sharply in the later part of the second quarter and the third quarter of 2022.
Fiber costs were approximately 75% of our lumber cash production costs in the nine months ended September 30, 2022. In the nine months ended September 30, 2022 per unit fiber costs increased by approximately 28% from the same period of 2021 as a result of using more green wood and strong demand for sawlogs. In the comparative period of 2021, per unit fiber costs were lower primarily as a result of a large supply of beetle damaged wood.
Transportation costs for our solid wood segment in the nine months ended September 30, 2022 increased by approximately 39% to $33.4 million from $24.0 million in the same period of 2021 primarily due to higher freight rates and a higher proportion of sales to the U.S. market.
In the nine months ended September 30, 2022, depreciation and amortization increased to $11.7 million from $11.5 million in the same period of 2021 primarily due to the completion of capital projects partially offset by the positive impact of a stronger dollar on our euro denominated depreciation expense.
In the nine months ended September 30, 2022, operating income decreased by approximately 4% to $84.9 million from $88.2 million in the same period of 2021 primarily due to higher per unit fiber costs and other production costs and higher transportation costs partially offset by higher sales realizations.
Liquidity and Capital Resources
Summary of Cash Flows
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Net cash from operating activities |
|
$ |
310,011 |
|
|
$ |
151,584 |
|
|
Net cash used in investing activities |
|
|
(452,696 |
) |
|
|
(154,277 |
) |
|
Net cash from (used in) financing activities |
|
|
95,776 |
|
|
|
(19,039 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(11,447 |
) |
|
|
(636 |
) |
|
Net decrease in cash and cash equivalents |
|
$ |
(58,356 |
) |
|
$ |
(22,368 |
) |
In connection with the acquisition of HIT, our principal German subsidiaries entered into a new €300.0 million joint revolving credit facility that matures in September 2027. The new facility replaces the prior €200.0 million joint revolving credit facility. The new facility is sustainability linked whereby the interest rate margin is subject to upward or downward adjustments of up to 0.05% per annum depending on whether we achieve certain specified sustainability targets.
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 $310.0 million in the nine months ended September 30, 2022 compared to $151.6 million in the comparative period of 2021. An increase in accounts receivable excluding non-cash items used cash of $4.3 million in the nine months ended September 30, 2022 and $27.5 million in the same period of 2021. An increase in inventories used cash of $23.9 million in the nine months ended September 30, 2022 and $82.3 million in the same period of 2021. An increase in accounts payable and accrued expenses provided cash of $37.6 million in the nine months ended September 30, 2022 and $46.8 million in the same period of 2021.
Cash Flows from Investing Activities. Investing activities in the nine months ended September 30, 2022 used cash of $452.7 million primarily related to the acquisition of HIT for $257.4 million and capital expenditures of $128.9 million. In addition, we invested $75.0 million into a six month term deposit that matured on October 4, 2022. In the nine months ended September 30, 2022, capital expenditures primarily related to upgrades to the woodrooms at our
FORM 10-Q
QUARTERLY REPORT - PAGE 33
Canadian mills and optimization projects at our German mills. In the nine months ended September 30, 2022, we received the final payment of $6.4 million of insurance proceeds for our property damage claim related to the Peace River recovery boiler and an initial payment of $1.2 million for our property damage claim related to the Stendal fire. Investing activities in the nine months ended September 30, 2021 used cash of $154.3 million comprised primarily of capital expenditures of $125.7 million and $51.3 million for the acquisition of our CLT facility in Spokane, Washington. Capital expenditures related primarily to the Peace River recovery boiler rebuild, which was financed with insurance proceeds of which $21.6 million was received in the nine months ended September 30, 2021.
Cash Flows from Financing Activities. In the nine months ended September 30, 2022, financing activities provided cash of $95.8 million. In the nine months ended September 30, 2022, we borrowed approximately $97.5 million under our new German revolving credit facility to partially finance the acquisition of HIT and $19.0 million under our Canadian revolving credit facility. We also received $1.1 million in government grants to partially finance innovation and greenhouse gas emission reduction capital projects at our Canadian mills. In the nine months ended September 30, 2022, we paid dividends of $9.9 million and debt issuance costs of $3.0 million for the new €300.0 million German revolving credit facility and C$160.0 million Canadian revolving credit facility. In the nine months ended September 30, 2021, financing activities used cash of $19.0 million. In the nine months ended September 30, 2021, we repaid $53.1 million of our credit facilities, received net proceeds from the Refinancing after giving effect to the Redemption of $50.4 million, paid debt issuance costs of $14.5 million in respect of the 2029 Senior Notes and paid $8.6 million of dividends.
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
|
|
|
September 30, |
|
|
|
|||
|
|
|
|
|
2021 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
287,254 |
|
|
$ |
345,610 |
|
|
Term deposit |
|
$ |
75,000 |
|
(1) |
$ |
— |
|
|
Working capital |
|
$ |
773,595 |
|
|
$ |
781,181 |
|
|
Total assets |
|
$ |
2,543,983 |
|
|
$ |
2,351,232 |
|
|
Long-term liabilities |
|
$ |
1,500,541 |
|
|
$ |
1,374,084 |
|
|
Total shareholders' equity |
|
$ |
720,349 |
|
|
$ |
694,024 |
|
|
(1) |
On April 4, 2022, we purchased a $75.0 million term deposit, which had an interest rate of 1.38% and matured on October 4, 2022. |
Sources and Uses of Funds
Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand. Our principal uses of funds consist of operating expenditures, capital expenditures and interest payments on our senior notes.
The following table sets out our total capital expenditures and interest expense for the periods indicated:
|
|
|
Nine Months Ended September 30, |
|
|
|||||
|
|
|
|
|
2021 |
|
|
|||
|
|
|
(in thousands) |
|
|
|||||
|
Capital expenditures |
|
$ |
128,875 |
|
|
$ |
125,692 |
|
(1) |
|
Cash paid for interest expense(2) |
|
$ |
65,344 |
|
|
$ |
72,205 |
|
|
|
Interest expense(3) |
|
$ |
52,731 |
|
|
$ |
53,031 |
|
|
|
(1) |
Includes expenditures for the recovery boiler rebuild at the Peace River mill which were financed with insurance proceeds, of which $21.6 million was received in the nine months ended September 30, 2021. |
|
(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. |
|
(3) |
Interest on our senior notes due 2026 is paid semi-annually in January and July of each year. Interest on our 2029 Senior Notes is paid semi-annually in February and August of each year, commencing August 2021. |
FORM 10-Q
QUARTERLY REPORT - PAGE 34
As of September 30, 2022, we had cash, cash equivalents and a term deposit aggregating $362.3 million and approximately $258.9 million available under our revolving credit facilities and as a result aggregate liquidity of about $621.2 million.
We currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income tax has been provided on such earnings. However, if we were required to repatriate funds to the United States, we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and U.S. tax reform. However, it is currently not practical to estimate the income tax liability that might be incurred if such earnings were remitted to the United States. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the United States.
Based upon the current level of operations and our current expectations for future periods in light of the current economic environment, and in particular, current and expected pulp and lumber pricing and foreign exchange rates, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facilities, will be adequate to finance the capital requirements for our business including the payment of our quarterly dividend during the next 12 months.
In the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets or the issuance of securities.
Debt Covenants
Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements. See our annual report on Form 10-K for the fiscal year ended December 31, 2021.
As of September 30, 2022, we were in full compliance with all of the covenants of our indebtedness.
Off-Balance Sheet Arrangements
As of September 30, 2022, 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 nine months ended September 30, 2022.
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 loss and do not affect our net earnings.
As a result of the strengthening of the dollar versus the euro and Canadian dollar as of September 30, 2022, we recorded a net non-cash decrease of $189.3 million in the carrying value of our net assets, consisting primarily of our property, plant and equipment denominated in euros and Canadian dollars. This non-cash decrease does not affect our net income, Operating EBITDA or cash but is reflected in our other comprehensive loss and as a decrease to our total equity. As a result, our accumulated other comprehensive loss increased to $280.3 million.
FORM 10-Q
QUARTERLY REPORT - PAGE 35
Based upon the exchange rate as of September 30, 2022, the dollar has strengthened by approximately 14% against the euro and 8% against the Canadian dollar since December 31, 2021. See "Quantitative and Qualitative Disclosures about Market Risk".
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, 2021. While all of the significant accounting policies are important to the consolidated financial statements, some of these policies may be viewed as having a high degree of judgment. On an ongoing basis using currently available information, management reviews its estimates, including those related to accounting for, among other things, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.
We have identified certain accounting policies that are the most important to the portrayal of our current financial condition and results of operations.
For information about both our significant and critical accounting policies, see our annual report on Form 10-K for the fiscal year ended December 31, 2021.
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
|
|
• |
Inflation or a sustained increase in our key production and other costs would lead to higher manufacturing costs which could reduce our margins; |
|
|
• |
our business, financial condition and results of operations could be adversely affected by disruptions in the global and European economies caused by Russia's invasion of Ukraine; |
|
|
• |
the ongoing COVID-19 pandemic could materially adversely affect our business, financial position and results of operations; |
|
|
• |
our business is highly cyclical in nature; |
FORM 10-Q
QUARTERLY REPORT - PAGE 36
|
|
• |
cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business; |
|
|
• |
we face intense competition in the forest products industry; |
|
|
• |
our business is subject to risks associated with climate change and social and government responses thereto; |
|
|
• |
if we are unable to offer products certified to globally recognized forestry management and chain of custody standards or meet customers’ product specifications, it could adversely affect our ability to compete; |
|
|
• |
our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements; |
|
|
• |
trends in non-print media and changes in consumer habits regarding the use of paper have and are expected to continue to adversely affect the demand for market pulp; |
|
|
• |
fluctuations in prices and demand for lumber could adversely affect our business; |
|
|
• |
our solid wood segment lumber products are vulnerable to declines in demand due to competing technologies or materials; |
|
|
• |
we have limited control over the operations of the Cariboo mill; |
|
|
• |
we may experience material disruptions to our production; |
|
|
• |
our acquisition of HIT and other 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; |
|
|
• |
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; |
FORM 10-Q
QUARTERLY REPORT - PAGE 37
|
|
• |
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; |
|
|
• |
we are exposed to currency exchange rate fluctuations; |
|
|
• |
political uncertainty, an increase in trade protectionism or geo-political conflict 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 new 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; |
|
|
• |
we participate in German statutory energy programs; |
|
|
• |
our international sales and operations are subject to applicable laws relating to trade, export controls, foreign corrupt practices and competition laws, the violation of which could adversely affect our operation; |
Risks Related to Ownership of our Shares
|
|
• |
the price of our common stock may be volatile; and |
|
|
• |
a small number of our shareholders could significantly influence our business. |
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, 2021. 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
FORM 10-Q
QUARTERLY REPORT - PAGE 38
distinguishing qualities from producer to producer, competition is generally based upon price, which is generally determined by supply relative to demand.
Industry capacity can fluctuate as changing industry conditions can influence producers to idle production capacity or permanently close mills. In addition, to avoid substantial cash costs in idling or closing a mill, some producers will choose to operate at a loss, sometimes even a cash loss, which can prolong weak pricing environments due to oversupply. Oversupply of our products can also result from producers introducing new capacity in response to favorable pricing trends. Certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their pulp production on the market, if market conditions, prices and trends warrant such actions.
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. The third party industry quoted average European list prices for NBSK pulp between 2012 and 2022 have fluctuated between a low of $760 per ADMT in 2012 to a high of $1,500 per ADMT in 2022. In the same period, third party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $700 per ADMT in 2012 to a high of $1,620 per ADMT in 2022.
Our mills and operations voluntarily subject themselves to third-party certification as to compliance with internationally recognized, sustainable management standards because end use paper and lumber customers have shown an increased interest in understanding the origin of products they purchase. Demand for our products could be adversely affected if we, or our suppliers, are unable to achieve compliance, or are perceived by the public as failing to comply, with these standards or if our customers require compliance with alternate standards for which our operations are not certified.
A pulp producer's actual sales price realizations are net of customer discounts, rebates and other selling concessions. Accordingly, prices for pulp and lumber are driven by many factors outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond our control determine the prices for pulp and lumber, prices may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our mills. Therefore, our profitability depends on managing our cost structure, particularly raw materials which represent a significant component of our operating costs and can fluctuate based upon factors beyond our control. If the prices of our products decline, or if prices for our raw materials increase, or both, our results of operations and cash flows could be materially adversely affected.
Costs
Our production costs are influenced by the availability and cost of raw materials, energy and labor, and our plant efficiencies and productivity. Our main raw material is fiber in the form of wood chips, pulp logs and sawlogs. Wood chip, pulp log and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber prices could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy.
Currency
We have manufacturing operations in Germany 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, 2021.
|
ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to as the "Exchange Act"), as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness and there can be no assurance that any design will succeed in achieving its stated goals.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORM 10-Q
QUARTERLY REPORT - PAGE 40
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, 2021. We do not believe that the outcome of such litigation will have a material adverse effect on our business or financial condition.
|
ITEM 1A. |
RISK FACTORS |
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2021 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022.
|
ITEM 2. |
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
|
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
|
ITEM 4. |
MINE SAFETY DISCLOSURES |
None.
|
ITEM 5. |
OTHER INFORMATION |
None.
FORM 10-Q
QUARTERLY REPORT - PAGE 41
|
ITEM 6. |
EXHIBITS |
|
Exhibit No. |
|
Description |
|
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|
|
|
10.1 |
|
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10.2 |
|
|
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|
|
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31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
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32.2* |
|
|
|
|
|
|
|
101 |
|
The following financial information from the Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2022 of Mercer International Inc., formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Interim Consolidated Statements of Operations; (ii) Interim Consolidated Statements of Comprehensive Income (Loss); (iii) Interim Consolidated Balance Sheets; (iv) Interim Consolidated Statements of Changes in Shareholders' Equity; (v) Interim Consolidated Statements of Cash Flows; and (vi) Notes to the Interim Consolidated Financial Statements. |
|
|
|
|
|
104 |
|
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 has been formatted in Inline XBRL. |
|
* |
In accordance with Release No. 33-8212 of the SEC, these Certifications: (i) are "furnished" to the SEC and are not "filed" for the purposes of liability under the Securities Exchange Act of 1934, as amended; and (ii) are not to be subject to automatic incorporation by reference into any of the Company's registration statements filed under the Securities Act of 1933, as amended, for the purposes of liability thereunder or any offering memorandum, unless the Company specifically incorporates them by reference therein. |
FORM 10-Q
QUARTERLY REPORT - PAGE 42
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: |
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Chief Executive Officer |
Date: October 27, 2022
FORM 10-Q
QUARTERLY REPORT - PAGE 43
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/1/29 | ||||
| 2/1/26 | ||||
| 1/15/26 | ||||
| 2/1/25 | ||||
| 2/1/24 | ||||
| 6/30/23 | ||||
| 1/15/23 | ||||
| 12/31/22 | ||||
| 12/29/22 | ||||
| 12/21/22 | ||||
| 12/1/22 | ||||
| Filed on: | 10/27/22 | 8-K | ||
| 10/26/22 | ||||
| 10/4/22 | ||||
| For Period end: | 9/30/22 | 8-K | ||
| 7/28/22 | 10-Q, 8-K | |||
| 6/30/22 | 10-Q | |||
| 4/28/22 | 10-Q, 8-K | |||
| 4/4/22 | ||||
| 3/31/22 | 10-Q | |||
| 2/17/22 | 10-K, 4, 8-K | |||
| 1/15/22 | ||||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 9/30/21 | 10-Q | |||
| 6/30/21 | 10-Q | |||
| 1/1/21 | ||||
| 12/31/20 | 10-K | |||
| 1/1/09 | ||||
| 12/31/08 | 10-K, ARS | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/15/24 Mercer International Inc. 10-K 12/31/23 132:21M Donnelley … Solutions/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 7/28/22 Mercer International Inc. 8-K:1,7,9 7/22/22 12:733K Donnelley … Solutions/FA |