UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 000-51826
MERCER INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Washington
47-0956945
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
Suite 1120, 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8
(Address of office)
(604) 684-1099
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
MERC
NASDAQ Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The Registrant had 66,870,774 shares of common stock outstanding as of April 29, 2025.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2025
(Unaudited)
QUARTERLY REPORT - PAGE 2
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share data)
Three Months Ended March 31,
2025
2024
Revenues
$
506,974
553,430
Costs and expenses
Cost of sales, excluding depreciation and amortization
430,247
458,182
Cost of sales depreciation and amortization
40,290
40,350
Selling, general and administrative expenses
29,704
31,701
Loss on disposal of investment in joint venture
—
23,645
Operating income (loss)
6,733
(448
)
Other income (expenses)
Interest expense
(28,155
(27,559
(185
4,939
Total other expenses, net
(28,340
(22,620
Loss before income taxes
(21,607
(23,068
Income tax recovery (provision)
(732
6,365
Net loss
(22,339
(16,703
Net loss per common share
Basic
(0.33
(0.25
Diluted
Dividends declared per common share
0.075
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)
Other comprehensive income (loss)
Loss related to defined benefit pension plans
(262
(83
Income tax provision
(90
Loss related to defined benefit pension plans, net of tax
(173
Foreign currency translation adjustments
34,337
(37,469
Other comprehensive income (loss), net of tax
34,075
(37,642
Total comprehensive income (loss)
11,736
(54,345
See accompanying Notes to the Interim Consolidated Financial Statements.
QUARTERLY REPORT - PAGE 3
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
March 31,2025
December 31,2024
ASSETS
Current assets
Cash and cash equivalents
181,473
184,925
Accounts receivable, net
345,839
327,345
Inventories
379,633
361,682
Prepaid expenses and other
43,157
17,601
Assets classified as held for sale
19,685
18,451
Total current assets
969,787
910,004
Property, plant and equipment, net
1,267,568
1,254,715
Amortizable intangible assets, net
49,868
49,829
Operating lease right-of-use assets
6,761
7,598
Pension asset
8,263
9,378
Deferred income tax assets
19,793
17,778
Other long-term assets
14,127
13,630
Total assets
2,336,167
2,262,932
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other
290,560
248,661
Pension and other post-retirement benefit obligations
732
Liabilities associated with assets held for sale
7,090
7,145
Total current liabilities
298,382
256,538
Long-term debt
1,503,203
1,473,986
11,572
11,134
Operating lease liabilities
4,154
4,793
Deferred income tax liabilities
69,477
74,772
Other long-term liabilities
12,028
11,934
Total liabilities
1,898,816
1,833,157
Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 66,871,000 issued and outstanding (2024 – 66,871,000)
66,850
Additional paid-in capital
363,637
362,782
Retained earnings
203,558
230,912
Accumulated other comprehensive loss
(196,694
(230,769
Total shareholders’ equity
437,351
429,775
Total liabilities and shareholders’ equity
Commitments and contingencies (Note 14)
Subsequent event (Note 8)
QUARTERLY REPORT - PAGE 4
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common shares
Three Months Ended March 31:
Number(thousands of shares)
Amount,at ParValue
AdditionalPaid-inCapital
RetainedEarnings
AccumulatedOtherComprehensiveLoss
TotalShareholders'Equity
Balance as of December 31, 2024
66,871
Stock compensation expense
855
Dividends declared
(5,015
Other comprehensive income
Balance as of March 31, 2025
Balance as of December 31, 2023
66,525
66,471
359,497
336,113
(126,671
635,410
Shares issued on grants of performance share units
325
(325
1,769
(5,014
Disposal of investment in joint venture
(4,181
Other comprehensive loss
Balance as of March 31, 2024
66,796
360,941
314,396
(168,494
573,639
QUARTERLY REPORT - PAGE 5
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from (used in) operating activities
Adjustments to reconcile net loss to cash flows from operating activities
Depreciation and amortization
40,355
40,404
Deferred income tax recovery
(9,506
(13,426
Defined benefit pension plans and other post-retirement benefit plan expense
169
210
1,006
2,029
Foreign exchange transaction losses (gains)
8,418
(3,449
Other
1,628
727
Defined benefit pension plans and other post-retirement benefit plan contributions
(329
Changes in working capital
Accounts receivable
(16,798
(63,729
(6,891
89
Accounts payable and accrued expenses
28,432
2,390
(27,463
(1,052
Net cash from (used in) operating activities
(2,989
(29,194
Cash flows from (used in) investing activities
Purchase of property, plant and equipment
(20,082
(18,461
222
977
Net cash from (used in) investing activities
(19,860
(17,484
Cash flows from (used in) financing activities
Proceeds from revolving credit facilities, net
21,754
9,125
Payment of finance lease obligations
(2,508
(2,189
(115
Net cash from (used in) financing activities
19,246
6,821
Effect of exchange rate changes on cash and cash equivalents
151
137
Net decrease in cash and cash equivalents
(3,452
(39,720
Cash and cash equivalents, beginning of period
313,992
Cash and cash equivalents, end of period
274,272
Supplemental cash flow disclosure:
Cash paid for interest
25,026
34,716
Cash paid for income taxes
16,912
8,173
Supplemental schedule of non-cash investing and financing activities:
Leased production and other equipment
1,388
4,514
QUARTERLY REPORT - PAGE 6
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. (“Mercer Inc.”) and all of its subsidiaries (collectively the “Company”). Mercer Inc. owns 100% of its subsidiaries. The Company's shares of common stock are quoted and listed for trading on the NASDAQ Global Select Market.
The Interim Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The consolidated balance sheet information as of December 31, 2024 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, 2024. 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, 2024 and contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year.
In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United States dollars (“U.S. dollars” or “$”). The symbol “€” refers to euros and the symbol “C$” refers to Canadian dollars.
Use of Estimates
Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.
New Accounting Pronouncements
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, which requires additional disaggregation of the reconciliation between the statutory and effective tax rate for an entity and of income taxes paid. The amendments improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company continues to assess the impact of ASU 2023-09.
QUARTERLY REPORT - PAGE 7
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, which expands disclosures about specific expense categories presented on the face of the income statement and addresses requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) in commonly presented expense captions (such as cost of sales, selling, general and administrative expenses). ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods thereafter with early adoption permitted. The Company is currently assessing the impact of ASU 2024-03.
Note 2. Assets and Liabilities Classified as Held for Sale
The Company continues to actively market the sandalwood business and expects a sale to occur within the next 12 months. Accordingly, the assets and associated liabilities of the business, referred to as the “disposal group”, continues to be classified as held for sale.
The disposal group’s estimated fair value was determined using Level 3 inputs based on preliminary indicative offers from third parties. The following summarizes the major classes of assets and liabilities classified as held for sale as of March 31, 2025.
2,344
2,194
19,878
3,204
Operating lease right-of-use-assets
4,930
Sandalwood tree plantations
24,603
Impairment reserve
(40,215
Impact of changes in foreign exchange rate
2,747
2,281
4,809
Note 3. Inventories
Inventories as of March 31, 2025 and December 31, 2024, were comprised of the following:
Raw materials
152,747
131,396
Finished goods
93,812
101,121
Spare parts and other
133,074
129,165
QUARTERLY REPORT - PAGE 8
Note 4. Accounts Payable and Other
Accounts payable and other as of March 31, 2025 and December 31, 2024, was comprised of the following:
March 31,
December 31,
Trade payables
70,527
53,610
Accrued expenses
96,893
73,755
Interest payable
34,879
33,312
Income tax payable
24,521
30,459
Payroll-related accruals
25,092
24,100
Wastewater fee (a)
7,115
6,324
Finance lease liability
10,011
9,415
Operating lease liability
2,674
2,874
18,848
14,812
Note 5. Debt
Debt as of March 31, 2025 and December 31, 2024, was comprised of the following:
Maturity
Senior notes (a)
12.875% senior notes
2028
400,000
5.125% senior notes
2029
875,000
Credit arrangements
€370.1 million German joint revolving credit facility (b)
2027
186,559
168,822
C$160.0 million Canadian joint revolving credit facility (c)
11,478
347
€2.6 million demand loan (d)
48,601
48,214
1,521,638
1,492,383
Less: unamortized senior note issuance costs
(8,424
(8,982
Less: finance lease liability due within one year
(10,011
(9,415
The maturities of the principal portion of the senior notes and credit arrangements as of March 31, 2025 were as follows:
Senior Notes and Credit Arrangements
2026
198,037
1,473,037
QUARTERLY REPORT - PAGE 9
Certain of the Company's debt instruments were issued under agreements which, among other things, may limit its ability and the ability of its subsidiaries to make certain payments, including dividends. These limitations are subject to specific exceptions. As of March 31, 2025, the Company was in compliance with the terms of its debt agreements.
The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the Senior Notes:
2028 Senior Notes
2029 Senior Notes
12 Month Period Beginning
Percentage
October 1, 2025
106.438%
February 1, 2025
101.281%
October 1, 2026
103.219%
February 1, 2026 and thereafter
100.000%
October 1, 2027 and thereafter
QUARTERLY REPORT - PAGE 10
Note 6. Pension and Other Post-Retirement Benefit Obligations
Defined Benefit Plans
Pension benefits are based on employees' earnings and years of service. The defined benefit plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. The components of the net benefit costs for the Celgar and Peace River defined benefit plans, in aggregate for the three months ended March 31, 2025 and 2024 were as follows:
Pension
Other Post-RetirementBenefits
Service cost
647
34
697
32
Interest cost
980
108
117
Expected return on plan assets
(1,338
(1,533
Amortization of unrecognized items
(81
(181
124
(207
Net benefit costs (gains)
208
(39
268
(58
The components of the net benefit costs (gains) other than service cost are recorded in “Other income (expenses)” in the Interim Consolidated Statements of Operations. The amortization of unrecognized items relates to actuarial losses (gains) and prior service costs.
Defined Contribution Plan
Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members and the service accrual ceased. Effective January 1, 2009, the members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan. During the three months ended March 31, 2025, the Company made contributions of $211 to this plan (2024 – $320).
Multiemployer Plan
The Company participates in a multiemployer plan for the hourly-paid employees at the Celgar mill. The contributions to the plan are determined based on a percentage of pensionable earnings pursuant to a collective bargaining agreement. The Company has no current or future contribution obligations in excess of the contractual contributions. During the three months ended March 31, 2025, the Company made contributions of $706 to this plan (2024 – $521).
QUARTERLY REPORT - PAGE 11
Note 7. Income Taxes
Differences between the U.S. Federal statutory rate and the Company's effective tax rate for the three months ended March 31, 2025 and 2024 were as follows:
Three Months EndedMarch 31,
U.S. Federal statutory rate
21%
Income tax recovery using U.S. Federal statutory rate on loss before income taxes
4,537
4,844
Tax differential on foreign income
(927
(587
Effect of foreign earnings (a)
(3,413
Valuation allowance
(7,242
(2,608
True-up of prior year taxes
751
1,236
Annual effective tax rate adjustment
6,200
1,700
Change in tax rate
(403
1,460
Other, net
(235
320
Comprised of:
Current income tax provision
(10,238
(7,061
9,506
13,426
Note 8. Shareholders' Equity
Dividends
During the three months ended March 31, 2025, the Company's board of directors declared the following quarterly dividend:
Date Declared
Dividend Per Common Share
Amount
February 20, 2025
5,015
On May 1, 2025, the Company's board of directors declared a quarterly dividend of $0.075 per common share. Payment of the dividend will be made on July 3, 2025 to all shareholders of record on June 26, 2025. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.
Stock Based Compensation
The Company's stock incentive plan consists of stock options, restricted stock units (“RSUs”), deferred stock units (“DSUs”), restricted shares, performance shares, performance share units (“PSUs”) and stock appreciation rights. During the three months ended March 31, 2025, there were no issued and outstanding stock options, RSUs, performance shares or stock appreciation rights. As of March 31, 2025, after factoring in all allocated shares, there remain approximately 347 thousand common shares available for grant.
QUARTERLY REPORT - PAGE 12
The following table summarizes PSU activity during the period:
Number of PSUs
Outstanding as of January 1, 2025
4,379,461
Granted
2,241,640
Forfeited
(1,452,061
Outstanding as of March 31, 2025
5,169,040
Note 9. Net loss Per Common Share
The reconciliation of basic and diluted net loss per common share for the three months ended March 31, 2025 and 2024 was as follows:
Basic and diluted
Weighted average number of common shares outstanding:
Basic (a)
66,893,083
66,641,990
The calculation of diluted net loss per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net loss per common share. Instruments excluded from the calculation of net loss per common share because they were anti-dilutive for the three months ended March 31, 2025 and 2024 were as follows:
PSUs
4,851,497
Restricted shares
21,054
54,227
Unvested Equity DSUs
50,397
44,914
QUARTERLY REPORT - PAGE 13
Note 10. Accumulated Other Comprehensive Loss
The change in the accumulated other comprehensive loss by component (net of tax) for the three months ended March 31, 2025 and 2024 was as follows:
Foreign Currency Translation Adjustments
Defined Benefit Pension and Other Post-Retirement Benefit Items
Total
(249,997
19,228
Other comprehensive income before reclassifications
Amounts reclassified
(215,660
18,966
(145,605
18,934
Other comprehensive loss before reclassifications
(37,559
(183,074
14,580
Note 11. Related Party Transactions
For the three months ended March 31, 2025, services from the Company's 50% owned logging and chipping operation were $2,969 (2024 – $3,124) and as of March 31, 2025, the Company had a payable balance to the operation of $404 (December 31, 2024 – receivable of $348).
For the three months ended March 31, 2025, services from the Company's 26% owned wood purchasing operation were $2,229 (2024 – $948) and as of March 31, 2025, the Company had a receivable balance from the operation of $111 (December 31, 2024 – $50).
Note 12. Segment Information
The Company is managed based on the primary products it manufactures: pulp and solid wood. The Company's four pulp mills are aggregated into the pulp segment. The Friesau sawmill, the Torgau facility and the mass timber facilities are aggregated into the solid wood segment. The operating results for the pulp and solid wood segments are regularly reviewed by the Company’s CODM to assess segment performance and to make decisions about resource allocation. The Company’s CODM is the Chief Executive Officer.
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 the pulp production process and from the sale of residual fuel from the pulp segment to the solid wood segment for use in energy production.
QUARTERLY REPORT - PAGE 14
Change in segment measure of profit or loss
In 2024, the Company changed its segment measure from operating income (loss) to net income (loss) before interest, tax, depreciation and amortization and impairments of long-lived assets (“Segment Operating EBITDA”). The CODM uses Segment Operating EBITDA as the primary measure in assessing the operating performance of each reportable segment through periodic reviews and comparison of segment operating trends and identifying strategies to improve the allocation of resources amongst the reportable segments. Segment Operating EBITDA is different from operating income (loss) as it excludes depreciation and amortization and impairment of long-lived assets, as those items are not considered indicative of ongoing core operations. Comparative periods have been recast to conform with the current period’s presentation.
Total assets and the income or loss items following Segment Operating EBITDA, other than depreciation, amortization and impairment of long-lived assets, are not allocated to the segments, as those items are reviewed separately by management.
Information about certain segment data for the three months ended March 31, 2025 and 2024 was as follows:
Three Months Ended March 31, 2025
Pulp
Solid Wood
Total of Segments (a)
Revenues from external customers
381,080
122,720
503,800
Intersegment revenues
344
10,021
10,365
381,424
132,741
514,165
Less segment expenses:
Fiber
138,284
66,368
Maintenance (b)
41,966
9,193
Freight
35,432
13,324
Labor (c)
24,193
14,647
Chemicals
28,061
Energy
14,407
8,424
Other (d)
49,209
21,077
Segment Operating EBITDA
49,872
(292
49,580
13,760
6,281
20,041
Reconciliation to loss before income taxes
Total of segments’ Segment Operating EBITDA
Segment depreciation and amortization
(28,222
(11,960
(40,182
Other expenses
Corporate expenses and eliminations
(2,665
Consolidated loss before income taxes
QUARTERLY REPORT - PAGE 15
Corporate and Other
Consolidated
Revenues from external customers by major products
356,964
Lumber
65,386
Energy and chemicals
24,116
4,866
3,174
32,156
Manufactured products (a)
18,824
Pallets
23,177
Biofuels (b)
9,224
Wood residuals
1,243
Total revenues from external customers
Revenues from external customers by geography (c)
U.S.
38,848
47,310
642
86,800
Foreign countries
Germany
77,058
46,629
161
123,848
China
137,570
393
137,963
Other countries
127,604
28,388
2,371
158,363
342,232
75,410
2,532
420,174
QUARTERLY REPORT - PAGE 16
Three Months Ended March 31, 2024
432,404
119,023
551,427
160
9,722
9,882
432,564
128,745
561,309
150,786
63,603
22,718
11,036
43,684
13,381
22,720
14,122
33,398
20,464
6,792
Purchase of pulp from CPP (d)
19,707
Other (e)
50,622
20,706
68,465
(895
67,570
9,421
9,005
18,426
(27,373
(12,811
(40,184
(23,645
Other income
(4,189
QUARTERLY REPORT - PAGE 17
408,295
55,882
24,109
4,838
2,003
30,950
16,713
28,020
11,254
2,316
37,589
44,195
908
82,692
79,524
54,076
141
133,741
182,799
809
183,608
132,492
19,943
954
153,389
394,815
74,828
1,095
470,738
Note 13. Financial Instruments and Fair Value Measurement
Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and other approximates their fair value. The estimated fair values of the Company's outstanding debt under the fair value hierarchy as of March 31, 2025 and December 31, 2024 were as follows:
Fair value measurements as of
March 31, 2025 using:
Description
Level 1
Level 2
Level 3
Revolving credit facilities
Senior notes
1,173,106
1,371,143
December 31, 2024 using:
169,169
1,186,921
1,356,090
The carrying value of the revolving credit facilities classified as Level 2 approximates the fair value as the variable interest rates reflect current interest rates for financial instruments with similar characteristics and maturities.
The fair value of the senior notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company's senior notes are not carried at fair value in the Interim Consolidated Balance Sheets as of March 31, 2025 or December 31, 2024. However, fair value disclosure is required. The carrying value of the Company's senior notes, net of unamortized note issuance costs, was $1,266,576 as of March 31, 2025 (December 31, 2024 – $1,266,018).
QUARTERLY REPORT - PAGE 18
Credit Risk
The Company’s exposure to credit losses may increase if its customers' production and other costs are adversely affected by inflation, interest rate levels and tariffs. 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, interest rate levels and tariffs. As of March 31, 2025, the Company has not had significant credit losses.
As of March 31, 2025, the carrying amount of cash and cash equivalents of $181,473 and accounts receivable of $345,839 recorded in the Interim Consolidated Balance Sheet, net of any allowances for losses, represent the Company’s maximum exposure to credit risk.
Note 14. Commitments and Contingencies
QUARTERLY REPORT - PAGE 19
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 financial measure “Operating EBITDA”.
We define Operating EBITDA as operating income (loss) plus depreciation and amortization and long-lived asset impairment charges. We use Operating EBITDA as a benchmark measurement of our own operating results and as a benchmark relative to our competitors. We consider it to be a meaningful supplement to operating income (loss) as a performance measure primarily because depreciation expense and long-lived 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 loss, including financing costs, income taxes 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 loss or operating income (loss) as a measure of performance, or as an alternative to net cash from (used in) operating activities as a measure of liquidity. Operating EBITDA is an internal measure and therefore may not be comparable to other companies.
Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Operating EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt; (iv) the impact of realized or marked to market changes in our derivative positions, which can be substantial; and (v) the impact of 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.
Operating EBITDA is a non-GAAP financial measure at the consolidated level and is considered different from Operating EBITDA at the segment level, referred to as “Segment Operating EBITDA”, which is our single measure of segment profit or loss presented in our financial statements under GAAP. For more information on Segment Operating EBITDA, refer to the segment information note within our consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this document: (i) unless the context otherwise requires, references to “we”, “our”, “us”, the “Company” or “Mercer” mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer Inc.” mean the Company excluding its subsidiaries; (iii) information is provided as of March 31, 2025, unless otherwise stated; (iv) our reporting currency is dollars and references to “€” mean euros and “C$” mean Canadian dollars; (v) “ADMTs” mean air-dried metric tonnes; (vi) “CLT” mean cross-laminated timber; (vii) “glulam” mean glue-laminated timber; (viii) “m3” mean cubic meters; (ix) “NBSK” mean northern bleached softwood kraft; (x) “NBHK” mean northern bleached hardwood kraft; (xi) “MW” mean megawatts and “MWh” mean megawatt hours; (xii) “Mfbm” mean thousand board feet of lumber and “MMfbm” mean million board feet of lumber; and (xiii) our lumber metrics are converted from m3 to Mfbm using a conversion ratio of 1.6 m3 of lumber equaling one Mfbm, which is the ratio commonly used in the industry.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.
The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, 2025 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, 2024 filed with the Securities and Exchange Commission, referred to as the “SEC”.
Results of Operations
General
We have two reportable operating segments:
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.
Current Market Environment
In the first quarter of 2025, our NBSK pulp sales realizations remained strong in all of our key markets, driven by continued stable demand and ongoing supply constraints, compared to the fourth quarter of 2024. In the first quarter of 2025, our lumber sales realizations increased in both the U.S. and European markets compared to the fourth quarter of 2024 as a result of reduced supply and steady demand.
As of March 31, 2025, the third-party industry quoted NBSK pulp list price in Europe and North America were approximately $1,595 per ADMT and $1,805 per ADMT, respectively, and the third-party industry quoted NBSK pulp net price in China was approximately $798 per ADMT. Prices for China are net of discounts, allowances and rebates.
We currently expect pulp prices in Europe and North America to modestly increase in the second quarter of 2025 due to continued stable demand and ongoing supply constraints. In China, we currently expect lower pulp prices, particularly for NBHK pulp, in the second quarter of 2025 as a result of the weakened economic environment.
In the second quarter of 2025, we currently expect lumber prices to modestly decrease in the U.S. as a result of the impact of the current economic environment on customer demand. In Europe, we currently expect lumber prices to
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slightly increase in the second quarter of 2025 due to higher per unit fiber costs. In the second quarter of 2025, we currently expect pallet prices to remain flat due to continued weak economic conditions in Europe and mass timber prices to remain relatively stable.
Per unit fiber costs for the pulp segment were relatively steady in the first quarter of 2025 compared to the fourth quarter of 2024. For the second quarter of 2025, we currently expect per unit fiber costs for our German pulp mills to be higher due to strong demand and reduced supply and for our Canadian pulp mills to be relatively stable.
Per unit fiber costs for the solid wood segment increased in the first quarter of 2025 compared to the fourth quarter of 2024 due to strong demand in Germany. For the second quarter of 2025, we currently expect higher per unit fiber costs for our solid wood segment due to continued strong demand.
Demand and pricing for our products may be further impacted by ongoing developments in international trade policies, including tariffs proposed or imposed by the United States on goods originating from Canada, the European Union and other countries, and related countermeasures. During the first quarter of 2025, there was no material impact from tariffs on our costs and revenues. See Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2024 for further information.
Summary Financial Highlights
(in thousands, other than per share amounts)
Statement of Operations Data
Pulp segment
Solid wood segment
Corporate and other
Total revenues
Pulp Segment Operating EBITDA(1)
Solid wood Segment Operating EBITDA(1)
(2,492
(3,969
Operating EBITDA(2)
47,088
63,601
Common shares outstanding at period end
(in thousands)
Income tax provision (recovery)
(6,365
28,155
27,559
Other expenses (income)
185
(4,939
Add: Depreciation and amortization
Add: Loss on disposal of investment in joint venture
Operating EBITDA
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Selected Production, Sales and Other Data
Pulp Segment
Pulp production ('000 ADMTs)
NBSK
370.4
453.2
NBHK
88.5
85.7
Annual maintenance downtime ('000 ADMTs)
29.7
Annual maintenance downtime (days)
22
Pulp sales ('000 ADMTs)
388.1
488.2
89.8
77.5
Average NBSK pulp prices ($/ADMT)(1)
Europe
1,550
1,400
793
745
North America
1,753
1,440
Average NBHK pulp prices ($/ADMT)(1)
578
662
1,268
1,223
Average pulp sales realizations ($/ADMT)(2)
783
570
631
Energy production ('000 MWh)(3)
527.1
576.4
Energy sales ('000 MWh)(3)
198.7
220.6
Average energy sales realizations ($/MWh)(3)
88
Solid Wood Segment
Production (MMfbm)
128.0
127.0
Sales (MMfbm)
130.9
121.4
Average sales realizations ($/Mfbm)
499
460
Production and sales ('000 MWh)
36.0
38.7
Average sales realizations ($/MWh)
135
125
Manufactured products(4)
Production ('000 m3)
7.1
7.2
Sales ('000 m3)
5.9
4.0
Average sales realizations ($/m3)
2,832
3,644
Production ('000 units)
2,096.4
3,056.3
Sales ('000 units)
2,128.8
2,916.3
Average sales realizations ($/unit)
11
10
Biofuels(5)
Production ('000 tonnes)
44.5
37.9
Sales ('000 tonnes)
40.3
48.2
Average sales realizations ($/tonne)
229
234
Average Spot Currency Exchange Rates
$ / €(6)
1.0531
1.0855
$ / C$(6)
0.6969
0.7415
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Consolidated – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Total revenues for the first quarter of 2025 decreased by approximately 8% to $507.0 million from $553.4 million in the same quarter of 2024 primarily due to lower pulp sales volumes partially offset by higher pulp and lumber sales realizations.
Costs and expenses in the first quarter of 2025 decreased by approximately 10% to $500.2 million from $553.9 million in the same quarter of 2024 primarily as a result of lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime at our Celgar mill and higher per unit fiber costs. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
In the first quarter of 2025, cost of sales depreciation and amortization was relatively flat at $40.3 million compared to $40.4 million in the same quarter of 2024.
Selling, general and administrative expenses decreased by approximately 6% to $29.7 million in the first quarter of 2025 from $31.7 million in the same quarter of 2024 primarily as a result of decreased selling costs due to lower pulp sales volumes.
In the first quarter of 2025, we had a positive foreign exchange impact of approximately $9.7 million on operating income compared to the same quarter of 2024 primarily as a result of the effect of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.
In the first quarter of 2025, our operating income was $6.7 million compared to an operating loss of $0.4 million in the same quarter of 2024. The increase was primarily due to higher pulp and lumber sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime and higher per unit fiber costs. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
Interest expense in the first quarter of 2025 was relatively flat at $28.2 million compared to $27.6 million in the same quarter of 2024.
In the first quarter of 2025, other expenses was $0.2 million compared to other income of $4.9 million in the same quarter of 2024. Other expenses in the first quarter of 2025 primarily consisted of foreign exchange losses on dollar denominated cash held at our operations as the dollar weakened against the euro at the end of the period mostly offset by interest earned on cash in the quarter. In the same quarter of 2024, other income primarily consisted of interest earned on cash and foreign exchange gains on dollar denominated cash held at our operations.
During the first quarter of 2025, we had an income tax provision of $0.7 million on a loss before income tax of $21.6 million as we do not recognize a tax recovery for certain entities which we do not expect to realize a tax benefit. In the same quarter of 2024, we had an income tax recovery of $6.4 million, or an effective tax rate of 28%.
In the first quarter of 2025, our net loss was $22.3 million, or $0.33 per share, compared to $16.7 million, or $0.25 per share in the same quarter of 2024. The net loss in the first quarter of 2024 included the non-cash loss of $23.6 million, or $0.35 per share, recognized in connection with the dissolution of the CPP joint venture.
In the first quarter of 2025, Operating EBITDA decreased by approximately 26% to $47.1 million from $63.6 million in the same quarter of 2024 primarily as a result of higher planned maintenance downtime and higher per unit fiber costs partially offset by higher pulp and lumber sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.
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Pulp Segment – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Selected Financial Information
Pulp revenues
Energy and chemical revenues
Segment Operating EBITDA(1)
Pulp segment revenues, comprised of pulp, energy and chemical revenues, in the first quarter of 2025 decreased by approximately 12% to $381.1 million from $432.4 million in the same quarter of 2024 primarily due to lower pulp revenues.
Pulp revenues in the first quarter of 2025 decreased by approximately 13% to $357.0 million from $408.3 million in the same quarter of 2024 as a result of lower sales volumes partially offset by higher sales realizations.
Energy and chemical revenues in the first quarter of 2025 and 2024 were flat at $24.1 million.
Total pulp production in the first quarter of 2025 decreased by approximately 15% to 458,909 ADMTs from 538,907 ADMTs in the same quarter of 2024 primarily as a result of the dissolution of the CPP joint venture in the first quarter of 2024 and the 22 days of planned annual maintenance downtime (approximately 29,700 ADMTs) at our Celgar mill in the first quarter of 2025. In the first quarter of 2024, we had no planned annual maintenance downtime.
We estimate that annual maintenance downtime in the first quarter of 2025 adversely impacted our Segment Operating EBITDA by approximately $29.5 million, comprised of approximately $21.5 million in direct out-of-pocket expenses and the balance in reduced production.
In the second quarter of 2025, we currently expect a total of 21 days of annual maintenance downtime (approximately 30,100 ADMTs) at our pulp mills.
Total pulp sales volumes in the first quarter of 2025 decreased by approximately 16% to 477,879 ADMTs from 565,664 ADMTs in the same quarter of 2024 primarily due to lower production.
In the first quarter of 2025, third-party industry quoted average list prices for NBSK pulp in Europe and North America and third-party industry quoted average net prices for NBSK pulp in China increased from the same quarter of 2024 primarily due to stable demand and supply constraints. Average list prices for NBSK pulp in Europe and North America were approximately $1,550 per ADMT and $1,753 per ADMT, respectively, in the first quarter of 2025 compared to approximately $1,400 per ADMT and $1,440 per ADMT, respectively, in the same quarter of 2024. Average NBSK net prices in China were approximately $793 per ADMT in the first quarter of 2025 compared to approximately $745 per ADMT in the same quarter of 2024. 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.
In the first quarter of 2025, third-party industry quoted average list prices for NBHK pulp increased in North America from the same quarter of 2024 due to stronger demand. Third-party industry quoted average net prices for NBHK pulp decreased in China in the first quarter of 2025 from the same quarter of 2024 as the market absorbed increased hardwood capacity. Third-party industry quoted average list prices for NBHK pulp in North America were approximately $1,268 per ADMT in the first quarter of 2025 compared to approximately $1,223 per ADMT in the same quarter of 2024. Third-party industry quoted average net prices for NBHK pulp in China were approximately $578 per ADMT in the first quarter of 2025 compared to approximately $662 per ADMT in the same quarter of 2024.
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Our average NBSK pulp sales realizations in the first quarter of 2025 increased by approximately 7% to $783 per ADMT from $732 per ADMT in the same quarter of 2024 due to higher list prices in all of our key markets. In the first quarter of 2025, average NBHK pulp sales realizations decreased by approximately 10% to $570 per ADMT from $631 per ADMT in the same quarter of 2024 due to lower net prices in China.
In the first quarter of 2025, we had a positive foreign exchange impact of approximately $7.3 million on Segment Operating EBITDA compared to the same quarter of 2024 primarily as a result of the effect of a stronger dollar on our Canadian dollar and euro denominated costs and expenses compared to the same quarter of 2024.
Costs and expenses in the first quarter of 2025 decreased by approximately 13% to $360.9 million from $416.5 million in the same quarter of 2024 primarily as a result of lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses partially offset by higher planned maintenance downtime. In the first quarter of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
Overall average per unit fiber costs in the first quarter of 2025 were relatively steady compared to the same quarter of 2024. We completed a wood room upgrade at our Celgar mill during the first quarter of 2025. The project was designed to reduce our dependence on sawmill residuals and lower our per unit fiber costs. For the second quarter of 2025, we currently expect per unit fiber costs for our German pulp mills to be higher due to strong demand and reduced supply and for our Canadian pulp mills to be relatively stable.
Transportation costs for our pulp segment in the first quarter of 2025 decreased by approximately 19% to $35.4 million from $43.7 million in the same quarter of 2024 driven by lower pulp sales volumes partially offset by higher freight rates.
In the first quarter of 2025, Segment Operating EBITDA for the pulp segment decreased by approximately 27% to $49.9 million from $68.5 million in the same quarter of 2024 primarily as a result of higher planned maintenance downtime partially offset by higher pulp sales realizations and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.
Solid Wood Segment – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Lumber revenues
Energy revenues
Manufactured products revenues(1)
Pallet revenues
Biofuels revenues(2)
Wood residuals revenues
Segment Operating EBITDA(3)
Solid wood segment revenues in the first quarter of 2025 modestly increased to $122.7 million from $119.0 million in the same quarter of 2024 as a result of higher lumber and manufactured products revenues partially offset by lower revenues from our other products.
Lumber revenues in the first quarter of 2025 increased by approximately 17% to $65.4 million from $55.9 million in the same quarter of 2024 primarily due to higher sales realizations and sales volumes.
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Energy, biofuels and wood residuals revenues in the first quarter of 2025 decreased by approximately 17% to $15.3 million from $18.4 million in the same quarter of 2024 primarily as a result of lower sales volumes.
In the first quarter of 2025, manufactured products revenues increased by approximately 13% to $18.8 million from $16.7 million in the same quarter of 2024 primarily due to timing of mass timber projects in progress.
Pallet revenues in the first quarter of 2025 decreased by approximately 17% to $23.2 million from $28.0 million in the same quarter of 2024 primarily due to lower sales volumes as weak economic conditions in Europe continue to negatively impact demand.
Lumber production in the first quarter of 2025 was relatively flat at 128.0 MMfbm compared to 127.0 MMfbm in the same quarter of 2024.
Lumber sales volumes in the first quarter of 2025 increased by approximately 8% to 130.9 MMfbm from 121.4 MMfbm in the same quarter of 2024 primarily due to timing of sales.
Average lumber sales realizations in the first quarter of 2025 increased by approximately 8% to $499 per Mfbm from $460 per Mfbm in the same quarter of 2024 driven by lower supply and stronger demand in both the U.S. and European markets. The U.S. market accounted for approximately 47% of our lumber revenues and approximately 39% of our lumber sales volumes in the first quarter of 2025. The majority of the balance of our lumber sales were to Europe.
Manufactured products sales realizations decreased by approximately 22% to $2,832 per m3 in the first quarter of 2025 from $3,644 per m3 in the same quarter of 2024 as the high-interest rate environment negatively impacted demand.
Fiber costs were approximately 80% of our lumber cash production costs in the first quarter of 2025. In the first quarter of 2025, per unit fiber costs for lumber production increased by approximately 12% compared to the same quarter of 2024 driven by strong demand. For the second quarter of 2025, we currently expect higher per unit fiber costs due to continued strong demand.
Transportation costs for our solid wood segment in the first quarter of 2025 were flat at $13.3 million compared to $13.4 million in the same quarter of 2024.
In the first quarter of 2025, Segment Operating EBITDA for the solid wood segment was negative $0.3 million compared to negative $0.9 million in the same quarter of 2024 primarily due to higher lumber sales realizations partially offset by higher per unit fiber costs.
Liquidity and Capital Resources
Summary of Cash Flows
Net cash used in operating activities
Net cash used in investing activities
Net cash from financing activities
We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for production costs, such as fiber, chemicals and energy costs, and other material operating costs for maintenance, freight and labor. 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.
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Cash Flows from (used in) Operating Activities. In the three months ended March 31, 2025, cash used in operating activities was $3.0 million compared to $29.2 million in the same quarter of 2024. An increase in accounts receivable used cash of $16.8 million in the three months ended March 31, 2025 and $63.7 million in the same quarter of 2024. An increase in inventories used cash of $6.9 million in the three months ended March 31, 2025 and a decrease in inventories provided cash of $0.1 million in the same quarter of 2024. An increase in accounts payable and accrued expenses provided cash of $28.4 million in the three months ended March 31, 2025 and $2.4 million in the same quarter of 2024. An increase in prepaid expenses and other used cash of $27.5 million in the three months ended March 31, 2025, primarily related to prepaid interest payments on our senior notes due 2028, and $1.1 million in the same quarter of 2024.
Cash Flows from (used in) Investing Activities. In the three months ended March 31, 2025, investing activities used cash of $19.9 million. In the three months ended March 31, 2025, we incurred $20.1 million of capital expenditures primarily related to completion of the wood room project at our Celgar mill, log yard upgrades and other strategic projects at our Torgau facility and maintenance projects across all mills and facilities.
In the three months ended March 31, 2024, investing activities used cash of $17.5 million. In the three months ended March 31, 2024 we incurred $18.5 million of capital expenditures primarily related to optimization projects at our Mercer Spokane facility and maintenance projects across all mills and facilities.
Cash Flows from (used in) Financing Activities. In the three months ended March 31, 2025, financing activities provided cash of $19.2 million. In the three months ended March 31, 2025, we borrowed approximately $21.8 million under our revolving credit facilities.
In the three months ended March 31, 2024, financing activities provided cash of $6.8 million. In the three months ended March 31, 2025 we borrowed approximately $9.1 million under our revolving credit facilities.
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
Working capital
671,405
653,466
Long-term liabilities
1,600,434
1,576,619
Total shareholders' equity
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.
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The following table sets out our total capital expenditures and interest expense for the periods indicated:
Capital expenditures
20,082
18,461
Cash paid for interest expense(1)
Interest expense(2)
As of March 31, 2025, we had cash and cash equivalents of $181.5 million, approximately $289.2 million available under our revolving credit facilities and aggregate liquidity of about $470.7 million.
We have reduced our planned capital expenditures for fiscal 2025 and currently expect them to be between $90.0 million to $100.0 million.
We currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income tax has been provided on such earnings. However, if we were required to repatriate funds to the U.S., 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 U.S. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the U.S.
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, 2024.
As of March 31, 2025, we were in full compliance with all of the covenants of our indebtedness.
Contractual Obligations and Commitments
There were no material changes outside the ordinary course to any of our material contractual obligations during the three months ended March 31, 2025.
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.
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Equity accounts are translated using historical exchange rates. Unrealized gains or losses from these translations are recorded in other comprehensive income (loss) and do not affect our net earnings.
As a result of a weaker dollar versus the euro as of March 31, 2025, we recorded a non-cash increase of $34.3 million in the carrying value of our net assets denominated in euros, consisting primarily of our property, plant and equipment. This non-cash increase does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as an increase to our total equity. As a result, our accumulated other comprehensive loss decreased to $196.7 million.
Based upon the exchange rate as of March 31, 2025, the dollar was relatively flat against the Canadian dollar and weakened by approximately 4% against the euro since December 31, 2024. 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, 2024. 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, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.
For information about our significant and critical accounting policies, see our annual report on Form 10-K for the fiscal year ended December 31, 2024.
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
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Risks Related to our Debt
Risks Related to Macroeconomic Conditions
Legal and Regulatory Risks
Risks Related to Ownership of our Shares
Given these uncertainties, you should not place undue reliance on our forward-looking statements. The foregoing review of important factors is not exhaustive or necessarily in order of importance and should be read in conjunction with the risks and assumptions including those set forth under “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024 and in the other reports and documents we have filed with or furnished to the SEC. 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.
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Cyclical Nature of Business
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 macroeconomic conditions and levels of industry capacity. Pulp and lumber are commodities that are generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is primarily 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 macroeconomic conditions and has been closely tied to overall business activity. Pulp and lumber prices have been and are likely to continue to be volatile and can fluctuate widely over time.
The third-party industry quoted average European list prices for NBSK pulp between 2016 and 2025 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,635 per ADMT in 2024. In the same period, third-party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $820 per ADMT in 2016 to a high of $1,620 per ADMT in 2022.
As a key construction material, the pricing and demand for lumber is also significantly influenced by the number of housing starts, especially in the U.S. In the U.S., third-party industry quoted monthly average western spruce/pine/fir (WSPF) 2 x 4 #2&Btr prices between 2016 and 2025 have fluctuated between a low of $259 per Mfbm in 2016 to a high of $1,604 per Mfbm in 2021. Similarly, the demand for CLT and glulam is primarily driven by the wood construction market and increased government policies focused on a low-carbon economy.
Our mills and operations voluntarily subject themselves to third-party certifications in 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.
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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, sawlogs and lumber. Wood chip, pulp log and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber prices could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy.
Currency
We have manufacturing operations in Germany, Canada and the U.S. 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.
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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 "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in our annual report on Form 10-K for the fiscal year ended December 31, 2024.
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.
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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, 2024. 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, 2024.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
Exhibit No.
31.1
Section 302 Certification of Chief Executive Officer
31.2
Section 302 Certification of Chief Financial Officer
32.1*
Section 906 Certification of Chief Executive Officer
32.2*
Section 906 Certification of Chief Financial Officer
101
The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 of Mercer International Inc., formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Interim Consolidated Statements of Operations; (ii) Interim Consolidated Statements of Comprehensive Income (Loss); (iii) Interim Consolidated Balance Sheets; (iv) Interim Consolidated Statements of Changes in Shareholders' Equity; (v) Interim Consolidated Statements of Cash Flows; and (vi) Notes to the Interim Consolidated Financial Statements.
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 has been formatted in iXBRL.
* 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.
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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, hereunto duly authorized.
By:
/s/ Juan Carlos Bueno
Juan Carlos Bueno
Chief Executive Officer
Date: May 1, 2025
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