UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020


☐	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


~~Washington~~		47-0956945
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		~~(I.R.S. Employer~~ Identification No.)

Suite 1120, 700 West Pender Street,

Vancouver, British Columbia, Canada, V6C 1G8

(Address of office)

(604)684-1099

(~~Registrant’s~~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 theSecurities 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 RegulationS-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, anon-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of ~~“large~~"large accelerated ~~filer”~~filer", ~~“accelerated filer”,“non-accelerated~~ ~~filer”~~"accelerated filer", ~~“smaller~~"non-accelerated filer", "smaller reporting ~~company”~~company" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule12b-2 of the Exchange Act.

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 Rule12b-2 of the Exchange Act). YES ☐ NO ☒

~~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~~

The Registrant had ~~65,651,056~~65,799,946 shares of common stock outstanding as at ~~May 1, 2019.~~ April 29, 2020.

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, ~~2019~~2020

(Unaudited)

FORM 10-Q

QUARTERLY REPORT - PAGE 2

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Revenues	$	483,950		$	367,903		$	350,599		$	483,950
Costs and expenses
Cost of sales, excluding depreciation and amortization		343,033			254,285			276,056			343,033
Cost of sales depreciation and amortization		30,136			23,209			32,911			30,136
Selling, general and administrative expenses		17,229			14,361			17,570			17,229

Operating income		93,552			76,048			24,062			93,552

Other income (expenses)
Interest expense		(18,551	)		(12,115	)		(20,084	)		(18,551	)
Loss on settlement of debt (Note 5(a))		—			(21,515	)
Legal cost award		—			(6,951	)
Other income (expenses)		1,039			(237	)		(2,026	)		1,039

Total other expenses, net		(17,512	)		(40,818	)		(22,110	)		(17,512	)

Income before provision for income taxes		76,040			35,230			1,952			76,040
Provision for income taxes		(24,424	)		(9,581	)		(5,344	)		(24,424	)

Net income	$	51,616		$	25,649

Net income per common share
Net income (loss)							$	(3,392	)	$	51,616
Net income (loss) per common share
Basic	$	0.79		$	0.39		$	(0.05	)	$	0.79
Diluted	$	0.78		$	0.39		$	(0.05	)	$	0.78
Dividends declared per common share	$	0.125		$	0.125		$	0.1375		$	0.1250

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands of U.S. dollars)

   Three Months Ended March 31,
   2019 2018
Net income
   $ 51,616 $ 25,649
Other comprehensive income (loss), net of taxes

Foreign currency translation adjustment
   (3,851 ) 16,285
Change in unrecognized losses and prior service costs related to defined benefit pension plans, net of taxes of $6 (2018 - $nil)
   60 (154 )
Change in unrealized gains/losses on marketable securities, net of taxes of $nil in all periods
   (21 ) 1


Other comprehensive income (loss), net of taxes
   (3,812 ) 16,132


Total comprehensive income
   $ 47,804 $ 41,781

	Three Months Ended March 31,
	2020			2019
Net income (loss)	$	(3,392	)	$	51,616
Other comprehensive income (loss), net of taxes
Foreign currency translation adjustment		(74,994	)		(3,872	)
Change in unrecognized losses and prior service costs related to defined benefit pension plans, net of tax of $nil (2019 - $6)		6			60
Other comprehensive loss, net of taxes		(74,988	)		(3,812	)
Total comprehensive income (loss)	$	(78,380	)	$	47,804

~~The~~

See accompanying ~~notes are an integral part of these interim consolidated financial statements.~~

Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 3

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

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


	March 31,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
ASSETS
Current assets
Cash and cash equivalents	$	233,234		$	240,491		$	286,526		$	351,085
Accounts receivable		308,573			252,692
Accounts receivable, net								221,921			208,740
Inventories		282,308			303,813			269,812			272,599
Prepaid expenses and other		19,636			13,703			10,294			12,273

Total current assets		843,751			810,699			788,553			844,697
Property, plant and equipment, net		1,021,957			1,029,257			1,020,345			1,074,242
Investment in joint ventures		56,049			62,574			48,188			53,122
Intangible assets, net		55,721			53,927
Amortizable intangible assets, net								48,957			53,371
Operating leaseright-of-use assets		14,581			—			11,866			13,004
Other long-term assets		19,985			17,904			32,848			26,038
Deferred income tax		1,351			1,374			1,232			1,246

Total assets	$	2,013,395		$	1,975,735		$	1,951,989		$	2,065,720

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other	$	211,377		$	194,484		$	184,447		$	255,544
Pension and other post-retirement benefit obligations		879			904			696			768

Total current liabilities		212,256			195,388			185,143			256,312
Debt		1,007,774			1,041,389			1,136,454			1,087,932
Pension and other post-retirement benefit obligations		26,052			25,829			23,157			25,489
Finance lease liabilities		23,604			24,669			37,537			31,103
Operating lease liabilities		12,145			—			9,436			10,520
Other long-term liabilities		14,118			13,924			13,323			14,114
Deferred income tax		96,764			93,107			84,171			89,847

Total liabilities		1,392,713			1,394,306			1,489,221			1,515,317

Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 65,651,000 issued and outstanding (2018 – 65,202,000)		65,620			65,171
Common shares $1 par value; 200,000,000 authorized; 65,800,000 issued and outstanding (2019 – 65,629,000)								65,769			65,598
Additionalpaid-in capital		341,644			342,438			344,753			344,994
Retained earnings		345,400			301,990			243,794			256,371
Accumulated other comprehensive loss		(131,982	)		(128,170	)		(191,548	)		(116,560	)

Total shareholders’ equity		620,682			581,429			462,768			550,403

Total liabilities and shareholders’ equity	$	2,013,395		$	1,975,735		$	1,951,989		$	2,065,720

Commitments and contingencies (Note 14)
Subsequent events (Note 8)
Commitments and contingencies (Note 13)
Subsequent events (Note 7,14)

~~The~~

See accompanying ~~notes are an integral part of these interim consolidated financial statements.~~

Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 4

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN ~~SHAREHOLDERS’~~SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands of U.S. dollars)

																	Common shares
	Common Shares																Number (thousands of shares)			Amount, at Par Value			Additional Paid -in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Three Months Ended March 31:
Balance as of December 31, 2019																		65,629		$	65,598		$	344,994		$	256,371		$	(116,560	)	$	550,403
Shares issued on grants of performance share units																		195			195			(195	)		—			—			—
Stock compensation recovery																		—			—			(46	)		—			—			(46	)
Net loss																		—			—			—			(3,392	)		—			(3,392	)
Dividends declared																		—			—			—			(9,047	)		—			(9,047	)
Repurchase of common shares																		(24	)		(24	)		—			(138	)		—			(162	)
Other comprehensive loss																		—			—			—			—			(74,988	)		(74,988	)
Balance as of March 31, 2020																		65,800		$	65,769		$	344,753		$	243,794		$	(191,548	)	$	462,768
	Number (thousands of shares)		Amount, at Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance December 31, 2018		65,202	$	65,171	$	342,438		$	301,990		$	(128,170	)	$	581,429
Balance as of December 31, 2018																		65,202		$	65,171		$	342,438		$	301,990		$	(128,170	)	$	581,429
Shares issued on grants of performance share units		449		449		(449	)		—			—			—			449			449			(449	)		—			—			—
Stock compensation expense (recovery)		—		—		(345	)		—			—			(345	)
Stock compensation recovery																		—			—			(345	)		—			—			(345	)
Net income		—		—		—			51,616			—			51,616			—			—			—			51,616			—			51,616
Dividends declared		—		—		—			(8,206	)		—			(8,206	)		—			—			—			(8,206	)		—			(8,206	)
Other comprehensive loss		—		—		—			—			(3,812	)		(3,812	)		—			—			—			—			(3,812	)		(3,812	)

Balance March 31, 2019		65,651	$	65,620	$	341,644		$	345,400		$	(131,982	)	$	620,682

Balance December 31, 2017		65,017	$	64,974	$	338,695		$	205,998		$	(59,001	)	$	550,666
Shares issued on grants of performance share units		153		153		(153	)		—			—			—
Stock compensation expense (recovery)		—		—		193			—			—			193
Net income		—		—		—			25,649			—			25,649
Dividends declared		—		—		—			(8,146	)		—			(8,146	)
Other comprehensive income		—		—		—			—			16,132			16,132

Balance March 31, 2018		65,170	$	65,127	$	338,735		$	223,501		$	(42,869	)	$	584,494

Balance as of March 31, 2019																		65,651		$	65,620		$	341,644		$	345,400		$	(131,982	)	$	620,682

~~The~~

See accompanying ~~notes are an integral part of these interim consolidated financial statements.~~

Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 5

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of U.S. dollars)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash flows from (used in) operating activities
Net income	$	51,616		$	25,649
Adjustments to reconcile net income to cash flows from operating activities
Net income (loss)							$	(3,392	)	$	51,616
Adjustments to reconcile net income (loss) to cash flows from operating activities
Depreciation and amortization		30,247			23,319			32,946			30,247
Deferred income tax provision		3,639			4,812
Loss on settlement of debt		—			21,515
Deferred income tax provision (benefit)								(1,331	)		3,639
Inventory impairment								5,734			—
Defined benefit pension plans and other post-retirement benefit plan expense		856			439			762			856
Stock compensation expense (recovery)		(345	)		193
Stock compensation recovery								(46	)		(345	)
Foreign exchange transaction gains								(6,144	)		(263	)
Other		441			820			(497	)		704
Defined benefit pension plans and other post-retirement benefit plan contributions		(1,158	)		(45	)		(915	)		(1,158	)
Changes in working capital
Accounts receivable		(56,353	)		(5,132	)		(20,926	)		(56,353	)
Inventories		21,141			(6,822	)		(18,120	)		21,141
Accounts payable and accrued expenses		(173	)		18,027			(57,660	)		(173	)
Other		(7,725	)		(6,398	)		(253	)		(7,725	)

Net cash from (used in) operating activities		42,186			76,377			(69,842	)		42,186

Cash flows from (used in) investing activities
Purchase of property, plant and equipment		(19,389	)		(16,184	)		(23,018	)		(19,389	)
Purchase of intangible assets		(316	)		(167	)
Purchase of amortizable intangible assets								(438	)		(316	)
Other		(261	)		—			51			(261	)

Net cash from (used in) investing activities		(19,966	)		(16,351	)		(23,405	)		(19,966	)

Cash flows from (used in) financing activities
Redemption of senior notes		—			(317,439	)
Proceeds from (repayment of) revolving credit facilities, net		(33,672	)		20,071			51,260			(33,672	)
Dividend payments		—			(8,127	)		(9,047	)		—
Repurchase of common shares								(162	)		—
Payment of debt issuance costs		(509	)		(1,390	)		—			(509	)
Proceeds from government grants		6,320			—			—			6,320
Other		(862	)		(848	)		(9,801	)		(862	)

Net cash from (used in) financing activities		(28,723	)		(307,733	)		32,250			(28,723	)

Effect of exchange rate changes on cash and cash equivalents		(754	)		535			(3,562	)		(754	)

Net decrease in cash and cash equivalents		(7,257	)		(247,172	)		(64,559	)		(7,257	)
Cash and cash equivalents, beginning of period		240,491			460,738			351,085			240,491

Cash and cash equivalents, end of period	$	233,234		$	213,566		$	286,526		$	233,234

Supplemental cash flow disclosure
Cash paid for interest	$	16,983		$	11,272
Cash paid for income taxes	$	23,613		$	1,478

~~The~~

Supplemental cash flow disclosure

Cash paid for interest

$
37,278

$
16,983

Cash paid for income taxes

$
12,974

$
23,613

Supplemental schedule of non-cash investing and financing activities:

Leased production equipment

$
8,994

$
—

See accompanying ~~notes are an integral part of these interim consolidated financial statements.~~Notes to the Interim Consolidated Financial Statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 6

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1. The Company and Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. (“("Mercer Inc.”") and all of its subsidiaries (collectively the ~~“Company”~~"Company"). Mercer Inc. owns 100% of the economic interest in its subsidiaries with the exception of the 50% joint venture interest in the Cariboo mill with West Fraser Mills Ltd., which is accounted for using the equity method. The ~~Company’s~~Company's shares of common stock are quoted and listed for trading on the NASDAQ Global 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”~~"SEC"). Theyear-end Consolidated Balance Sheet data was derived from audited financial statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States ~~(“GAAP”~~("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~~Company's latest Annual Report onForm ~~10-K~~10‑K for the fiscal year ended December 31, ~~2018.~~2019. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis (except for the change in policy referred to below) with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2019 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”~~dollars" or ~~“$”~~"$"). The symbol ~~“€”~~"€" refers to euros and the symbol ~~“C$”~~"C$" refers to Canadian dollars.

Use of Estimates

Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.

Impact of COVID-19 Pandemic

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is in its early stages and information is rapidly evolving. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on our business.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these Interim Consolidated Financial Statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

FORM 10-Q

QUARTERLY REPORT - PAGE 7

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1. The Company and Summary of Significant Accounting Policies (continued)

New Accounting Pronouncements

Accounting Pronouncements ~~Implemented~~Adopted

In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) ~~established Topic 842, Leases, by issuing~~issued Accounting Standards Update (“ASU”)~~2016-02,~~ ~~Leases,~~ 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which ~~requires lessees~~replaces the current incurred loss impairment method with a method that reflects expected credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, which provides entities with targeted transition relief that is intended to ~~recognize virtually all leases~~increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. These updates were effective for financial statements issued after December 15, 2019. The Company adopted these updates on January 1, 2020 using the modified-retrospective approach. The adoption of these updates did not have an impact on the ~~balance sheet, by recording aright-of-use~~ ~~asset~~Interim Consolidated Financial Statements as the Company’s credit risk associated with its sales is currently managed through the purchase of credit insurance, letters of credit and ~~corresponding liability. Additionally, the update also requires additional disclosures in regards~~setting credit limits prior to the ~~nature, timing~~sale. The Company reviews new customers’ credit history before granting credit and ~~uncertainty~~conducts regular reviews of existing customers’ credit performance. The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality.

The Company’s exposure to credit losses may increase if its customers are adversely affected by the COVID-19 pandemic. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows ~~arising from leases. Topic 842 was subsequently amended~~of the Company’s customers are adversely impacted by the COVID-19 pandemic.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU~~2018-01,~~ ~~Land Easement Practical Expedient~~ 2019-12, Income Taxes – Simplifying the Accounting for ~~Transition~~Income Taxes, which removes certain exceptions for investments, intraperiod tax allocations and interim calculations, and adds guidance to ~~Topic 842; ASU2018-10,~~ ~~Codification Improvements to Topic 842, Leases; and ASU2018-11,~~ ~~Leases: Targeted Improvements. These updates are~~reduce complexity in accounting for income taxes. This update is effective for financial statements issued for fiscal years beginning after December 15, ~~2018.~~2020, with early adoption permitted. The Company ~~adopted these updates on January 1, 2019 using~~is currently evaluating the ~~modified retrospective method and used the effective date as the date~~impact of ~~initial application. Consequently, financial information~~this update but believes it will not ~~be updated before January 1, 2019.~~have a significant impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new ~~standard~~guidance provides ~~a number of~~ optional ~~practical~~ expedients ~~in transition~~and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the ~~Company elected to use all of them on adoption.~~optional expedients provided by the new standard.

~~Adoption of the standard resulted in recognition ofright-of-use~~ assets and lease liabilities for operating leases of $14,581 as at March 31, 2019. The standard did not impact the Interim Consolidated Statements of Operations or the Interim Consolidated Statements of Cash Flows. The Company’s lease disclosure has been included in the Lease Commitments Note.

FORM 10-Q

QUARTERLY REPORT - PAGE 78

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~~Inventories

Inventories as of ~~Mercer Peace River (“MPR”)~~

OnMarch 31, 2020 and December ~~10, 2018, the Company acquired all~~31, 2019, were comprised of the issued and outstanding shares of MPR for cash consideration of $344,588, subject to certain customary working capital adjustments. The acquisition results in 100% ownership of a bleached kraft pulp mill in Peace River, Alberta, a 50% joint venture interest in the Cariboo Pulp and Paper Company (“CPP”), an NBSK pulp mill, in Quesnel, British Columbia, and a 50% interest in a logging and chipping operation for the areas underlying MPR’s forest management agreements and timber allocations. The acquisition of MPR expands the Company’s presence in Asia and adds northern bleached hardwood kraft to its product mix.

~~The following summarizes the Company’s allocation of the preliminary purchase price to the fair value of the assets acquired and liabilities assumed from MPR at the acquisition date:~~following:

   Purchase Price
Allocation
Current assets
   $ 135,305
Property, plant and equipment
   212,894
Investment in joint ventures
   54,697
Amortizable intangible assets, timber cutting rights (a)
   37,634
Other long-term assets
   392


Total assets acquired
   440,922
Current liabilities
   35,578
Pension obligations
   9,747
Deferred income tax
   47,912
Other long-term liabilities
   3,097


Total liabilities assumed
   96,334


Net assets acquired
   $ 344,588

	March 31,		December 31,
	2020		2019
Raw materials	$	86,198	$	99,754
Finished goods		88,915		77,815
Spare parts and other		94,699		95,030
	$	269,812	$	272,599

~~(a)~~

The timber cutting rights are being amortized on a straight line basis over 30 years. The fair value of the timber cutting rights was determined through the market approach utilizing comparable market data. The values were then discounted at a rate of 12% for 30 years to arrive at the fair value.

~~The purchase price allocation was based on a preliminary valuation and may be revised~~For the three months ended March 31, 2020, as a result of ~~additional information obtained regarding~~low pulp prices and high fiber costs for the ~~assets acquired~~Canadian mills, the Company recorded inventory impairment charges of $5,734 at certain Canadian mills (2019 – $nil). These charges were recorded in “Cost of sales, excluding depreciation and ~~liabilities assumed, and revisions~~amortization” in the Interim Consolidated Statements of ~~provisional estimates~~Operations. As of ~~fair value, including, but not limited to, the completion of valuations related to property, plant and equipment and the identification of intangible assets. During the three month period ended~~ March 31, ~~2019 immaterial adjustments were made to the purchase price allocation to reflect the most current valuations~~2020, $3,681 of the ~~assets. The purchase price will be finalized during~~write-down was recorded in raw materials inventory and $2,053 of the~~12-month~~ ~~measurement period following~~ write-down was recorded in finished goods inventory. As of December 31, 2019, the ~~acquisition date.~~

~~Note 3. Inventories~~

   March 31,
2019    December 31,
2018
Raw materials
   $ 89,126    $ 103,983
Finished goods
   103,370    114,304
Spare parts and other
   89,812    85,526




   $ 282,308    $ 303,813

~~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~~Company recorded a $3,500 write-down in raw materials inventory and ~~per share data)~~a $5,700 write-down in finished goods inventory.

Note 4.3. Accounts Payable and Other

   March 31,    December 31,
   2019    2018
Trade payables
   $ 39,579    $ 36,333
Accrued expenses
   106,103    95,936
Interest payable
   17,170    16,861
Income tax payable
   28,799    29,818
Legal cost award payable
   —      6,951
Dividends payable
   8,206    —
Other
   11,520    8,585




   $ 211,377    $ 194,484

Accounts payable and other as of March 31, 2020 and December 31, 2019, was comprised of the following:

	March 31,		December 31,
	2020		2019
Trade payables	$	62,652	$	73,721
Accrued expenses		87,091		111,696
Interest payable		14,902		33,198
Income tax payable		10,337		28,080
Other		9,465		8,849
	$	184,447	$	255,544

Note 5.4. Debt

   March 31,    December 31,
   2019    2018
2022 Senior Notes, principal amount, $100,000 (a)
   $ 98,987    $ 98,918
2024 Senior Notes, principal amount, $250,000 (a)
   246,344    246,154
2025 Senior Notes, principal amount, $350,000 (a)
   342,969    342,761
2026 Senior Notes, principal amount, $300,000 (a)
   294,779    294,588
Credit arrangements

€200 million joint revolving credit facility (b)
   —      58,968
C$60 million revolving credit facility (c)
   24,695
C$40 million revolving credit facility (d)
   —      —
€2.6 million demand loan (e)
   —      —




   $ 1,007,774    $ 1,041,389

~~As at~~Debt as of March 31, 2020 and December 31, 2019, ~~the maturities~~was comprised of the ~~principal portion of debt were as follows:~~following:

2019
                       $ —
2020
      —
2021
      —
2022
      100,000
2023
      —
Thereafter
      924,695


      $ 1,024,695

	March 31,		December 31,
	2020		2019
2024 Senior Notes, principal amount $250,000 (a)	$	247,100	$	246,911
2025 Senior Notes, principal amount $550,000 (a)		545,875		545,665
2026 Senior Notes, principal amount $300,000 (a)		295,548		295,356
Credit arrangements
€200 million joint revolving credit facility (b)		—		—
C$60 million revolving credit facility (c)		23,261		—
C$40 million revolving credit facility (d)		24,670		—
€2.6 million demand loan (e)		—		—
	$	1,136,454	$	1,087,932

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 5.4. Debt (continued)

The maturities of the principal portion of debt as of March 31, 2020 were as follows:

2020	$	—
2021		—
2022		—
2023		24,670
2024		273,261
Thereafter		850,000
	$	1,147,931

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 atof March 31, ~~2019,~~2020, the Company was in compliance with the terms of its debt agreements.

(a)

In 2018, the Company issued $350,000 in aggregate principal amount of 7.375% senior notes which mature on January 15, 2025 ~~(“2025~~(the “2025 Senior Notes”). The 2025 Senior Notes were issued at a price of 100% of their principal amount. The net proceeds of the ~~offerings~~offering were $342,682 after deducting the underwriter’s discount and offering expenses. The net proceeds together with cash on hand were used to finance the acquisition of ~~MPR.~~Mercer Peace River Pulp Ltd. (“MPR”).

In October 2019, the Company issued an additional $200,000 in aggregate principal amount of 2025 Senior Notes at a price of 102.75% of their principal amount for a yield to worst of 6.435%. The net proceeds of the offering were $202,063 after deducting the underwriter’s discount and offering expenses. The net proceeds were used to redeem $100,000 of remaining aggregate principal amount of outstanding senior notes due 2022 (the "2022 Notes") and for general corporate purposes.

In 2017, the Company issued $300,000 in aggregate principal amount of 5.50% senior notes which mature on January 15, 2026 ~~(“2026~~(the “2026 Senior Notes”). The 2026 Senior Notes were issued at a price of 100% of their principal amount. The net proceeds of the offering were $293,795 after deducting the underwriter’s discount and offering expenses.

In 2018, the ~~Company used the~~ net proceeds, ~~of the 2026 Senior Notes,~~ together with cash on hand, were used to ~~purchase~~redeem $300,000 in aggregate principal amount of the 2022 Senior ~~Notes (herein defined below). In connection with this redemption the Company recorded a loss on settlement of debt of $21,515 in the Interim Consolidated Statement of Operations.~~Notes.

In 2017, the Company issued $250,000 in aggregate principal amount of 6.50% senior notes which mature on February 1, 2024 ~~(“2024~~(the “2024 Senior Notes” and collectively with the 2025 Senior Notes and 2026 Senior Notes, the “Senior Notes”). The 2024 Senior Notes were issued at a price of 100% of their principal amount. The net proceeds of the ~~offerings~~offering were $244,711 after deducting the underwriter’s discount and offering expenses. The net proceeds, together with cash on hand, were used to redeem $227,000 of remaining aggregate principal amount of outstanding senior notes due 2019, to finance the acquisition of the Friesau ~~sawmill~~mill and for general working capital purposes.

In 2014, the Company issued $400,000 in aggregate principal amount of 7.75% senior notes which mature on December 1, 2022 (“2022 Senior Notes” and collectively with the 2024 Senior Notes, 2025 Senior Notes and 2026 Senior Notes, the “Senior Notes”).

The Senior Notes are general unsecured senior obligations of the Company. They rank equal in right of payment with all existing and future unsecured senior indebtedness of the Company and are senior in right of payment to any current or future subordinated indebtedness of the Company. The Senior Notes are effectively junior in right of payment to all existing and future secured indebtedness, to the extent of the assets securing such indebtedness, and all indebtedness and liabilities of the Company’s subsidiaries.

The Company may redeem all or a part of the 2025 Senior Notes or 2026 Senior Notes, upon not less than 10 days’ or more than 60 days’ notice and the Company may redeem all or a part of the 2024 Senior Notes, ~~or 2022 Senior Notes,~~ upon not less than 30 days’ or more than 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 5.4. Debt (continued)

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

2022 Senior Notes

2024 Senior Notes

2025 Senior Notes

2026 Senior Notes

12 Month Period
Beginning
   Percentage
12 Month Period
Beginning
   Percentage
12 Month Period
Beginning
   Percentage
12 Month Period
Beginning
   Percentage
December 1, 2018
   103.875 % February 1, 2020    103.250 % January 15, 2021    103.688 % January 15, 2021    102.750 %
December 1, 2019
   101.938 % February 1, 2021    101.625 % January 15, 2022    101.844 % January 15, 2022    101.375 %
December 1, 2020
and thereafter
   100.000 % February 1, 2022 and thereafter    100.000 % January 15, 2023 and thereafter    100.000 % January 15, 2023 and thereafter    100.000 %

2024 Senior Notes				2025 Senior Notes				2026 Senior Notes
12 Month Period Beginning	Percentage			12 Month Period Beginning	Percentage			12 Month Period Beginning	Percentage
February 1, 2020		103.250	%	January 15, 2021		103.688	%	January 15, 2021		102.750	%
February 1, 2021		101.625	%	January 15, 2022		101.844	%	January 15, 2022		101.375	%
February 1, 2022 and thereafter		100.000	%	January 15, 2023 and thereafter		100.000	%	January 15, 2023 and thereafter		100.000	%

(b)

A €200.0 million joint revolving credit facility with all of the ~~Company’s~~Company's German mills that matures in December 2023. Borrowings under the facility are unsecured and bear interest at Euribor plus a variable margin ranging from 1.05% to 2.00% dependent on conditions including but not limited to a prescribed leverage ratio. As atof March 31, ~~2019,~~2020, approximately ~~€11.6~~€9.0 million ($~~13,057)~~9,846) of this facility was supporting bank guarantees leaving approximately ~~€188.4~~€191.0 million ($~~211,643)~~209,274) available.

(c)

~~In 2019, MPR entered into a~~A C$60.0 million revolving credit facility for MPR that matures in February 2024. The facility is available by way of: (i) Canadian denominated advances, which bear interest at a designated prime rate per annum; (ii) banker’s acceptance equivalent loans, which bear interest at the applicable Canadian dollar banker’s acceptance plus 1.25% to 1.50% per annum; (iii) dollar denominated base rate advances at the greater of the federal funds rate plus 0.50%, a designated LIBOR rate plus 1.00% and the bank’s applicable reference rate for U.S. dollar loans; and (iv) dollar LIBOR advances, which bear interest at LIBOR plus 1.25% to 1.50% per annum. ~~The~~Borrowings under the facility ~~is secured~~are collateralized by, among other things, the mill’s inventories and ~~receivables.~~accounts receivable. As atof March 31, ~~2019,~~2020, approximately C$33.0 million ($~~24,695)~~23,261) of this facility was drawn and accruing interest at a rate of ~~3.23%~~2.80% and approximately C$~~0.9~~1.0 million ($~~657)~~690) was supporting letters of credit leaving approximately C$~~26.1~~26.0 million ($~~19,548)~~18,341) available.

(d)

A C$40.0 million revolving credit facility atfor the Celgar mill that matures in July 2023. Borrowings under the facility are collateralized by the ~~mill’s inventory,~~mill's inventories, accounts receivable, general intangibles and capital assets and are restricted by a borrowing base calculated on the ~~mill’s inventory~~mill's inventories and accounts receivable. When the borrowing capacity is less than 25% of the total facility the Canadian dollar denominated amounts bear interest at bankers acceptance plus 1.50% or Canadian prime and the U.S. dollar denominated amounts bear interest at LIBOR plus 1.50% or U.S. base. When the borrowing capacity is greater than or equal to 25% of the total facility, the respective bankers acceptance or LIBOR margins are reduced by 0.25% and the Canadian ~~Prime~~prime or U.S. base margins are reduced by 0.125%. As atof March 31, ~~2019,~~2020, approximately C$35.0 million ($24,670) of this facility was drawn and accruing interest at a rate of 2.68% and approximately C$1.7 million ($~~1,271)~~1,197) was supporting letters of credit leaving approximately C$~~38.3~~3.3 million ($~~28,662)~~2,327) available.

(e)

A €2.6 million demand loan at the Rosenthal mill that does not have a maturity date. Borrowings under this facility are unsecured and bear interest at the rate of the three-month Euribor plus 2.50%. As atof March 31, ~~2019,~~2020, approximately €2.6 million ($~~2,867)~~2,796) of this facility was supporting bank guarantees leaving approximately $nil 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)

Note 6.5. Pension and Other Post-Retirement Benefit Obligations

Defined Benefit Plans

~~Included in pension and other post-retirement benefit obligations are amounts related to Celgar and from the date of acquisition MPR.~~

Pension benefits are based on ~~employees’~~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 MPR defined benefit plans, in aggregate for the three month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Three Months Ended March 31,												Three Months Ended March 31,
	2019						2018						2020						2019
	Pension			Other Post- Retirement Benefits			Pension			Other Post- Retirement Benefits			Pension			Other Post- Retirement Benefits			Pension			Other Post- Retirement Benefits
Service cost	$	716		$	68		$	26		$	120		$	849		$	64		$	716		$	68
Interest cost		877			137			323			182			840			96			877			137
Expected return on plan assets		(1,002	)		—			(393	)		—			(1,093	)		—			(1,002	)		—
Amortization of unrecognized items		215			(155	)		234			(53	)		228			(222	)		215			(155	)

Net benefit costs	$	806		$	50		$	190		$	249		$	824		$	(62	)	$	806		$	50

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

Defined Contribution ~~Plans~~Plan

Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members. In addition, the related defined benefit service accrual ceased on December 31, 2008, and members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan effective January 1, 2009. ~~MPR also has defined contribution plans available to most of its employees.~~ During the three month period ended March 31, ~~2019,~~2020, the Company made contributions of ~~$448 (2018~~$413 (2019 – ~~$218).~~$448), to this plan.

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. ~~Contributions during~~During the three month period ended March 31, ~~2019 totaled $323 (2018~~2020, the Company made contributions of $451 (2019 – ~~$487).~~

$323), to this plan.

FORM 10-Q

QUARTERLY REPORT - PAGE 12

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 7.6. Income Taxes

Differences between the U.S. Federal statutory and the ~~Company’s~~Company's effective rates for the three ~~months~~month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, were as follows:


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
U.S. Federal statutory rate		21%			21%		21%			21%
U.S. Federal statutory rate on income before provision for income taxes	$	(15,968	)	$	(7,398	)	$	(410	)	$	(15,968	)
Tax differential on foreign income		(5,916	)		(4,589	)		(1,219	)		(5,916	)
Effect of foreign earnings⁽¹⁾		(11,887	)		(2,717	)
Effect of foreign earnings (a)								(1,575	)		(11,887	)
Valuation allowance		8,341			18,245			4			8,341
Adjustment to uncertain tax position		—			(16,677	)
Tax benefit of partnership structure		958			897			935			958
Non-taxable foreign subsidies		368			756			686			368
True-up of prior year taxes		1,275			2,610			(1,222	)		1,275
Other		(1,595	)		(708	)		(2,543	)		(1,595	)
							$	(5,344	)	$	(24,424	)
	$	(24,424	)	$	(9,581	)

Comprised of:
Current income tax provision	$	(20,785	)	$	(4,769	)	$	(6,675	)	$	(20,785	)
Deferred income tax provision		(3,639	)		(4,812	)
Deferred income tax benefit (provision)								1,331			(3,639	)
							$	(5,344	)	$	(24,424	)
	$	(24,424	)	$	(9,581	)

~~(1)~~

(a)

~~Includes~~Primarily due to the impact of the global intangiblelow-taxed income provision in the Tax Cuts and Jobs Act of 2017.

Note ~~8. Shareholders’~~7. Shareholders' Equity

Dividends

In February ~~2019,~~2020, the ~~Company’s board of directors declared a quarterly dividend of $0.125 per common share. Payment of the dividend was made on April 3, 2019 to all shareholders of record on March 27, 2019.~~

~~In May 2019, the Company’s~~Company's board of directors declared a quarterly dividend of $0.1375 per common share. Payment of the dividend was made on April 1, 2020 to all shareholders of record on March 25, 2020.

In April 2020, the Company's board of directors declared a quarterly dividend of $0.065 per common share. Payment of the dividend will be made on July ~~3, 2019~~7, 2020 to all shareholders of record on June ~~24, 2019.~~25, 2020. Future dividends are subject to approval by the board of directors and may be adjusted as business and industry conditions warrant.

~~Common Stock~~

Share Repurchase Program

In May 2019, the Company’s board of directors authorized a common stock repurchase program under which the Company may repurchase up to $50,000 of its shares ~~over the next 12 months.~~

~~Stock Based Compensation~~

The Company has a stock incentive plan which provides for options, restricted stock rights, restricted shares, performance shares, performance share units (“PSUs”) and stock appreciation rights to be awarded to employees, consultants and~~non-employee~~ ~~directors.~~until May 2020. During the three month period ended March 31, 2019, there were no issued and outstanding options, restricted stock rights, performance shares or stock appreciation rights. As at March 31, 2019, after factoring in all allocated shares, there remain approximately 2.6 million2020, the Company paid $162 to acquire 23,584 common shares ~~available for grant.~~at an average repurchase price of $6.84. The shares were retired upon repurchase.

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 ~~8. Shareholders’~~7. Shareholders' Equity (continued)

Stock Based Compensation

In June 2010, the Company adopted a stock incentive plan which provides for options, restricted stock rights, restricted shares, performance shares, performance share units ("PSUs") and stock appreciation rights to be awarded to employees, consultants and non-employee directors. During the three month period ended March 31, 2020, there were 0 issued and outstanding options, restricted stock rights, performance shares or stock appreciation rights. As of March 31, 2020, after factoring in all allocated shares, there remain approximately 1.8 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 three years. For the three month period ended March 31, ~~2019,~~2020, the Company recognized a recovery of ~~$475~~$159 related to PSUs ~~(2018 expense~~(2019 – ~~$64)~~a recovery of $475).

The following table summarizes PSU activity during the period:


		Number of PSUs
Outstanding as atof January 1, ~~2019~~2020	1,764,976		~~2,036,008~~
Granted	1,140,834		~~641,206~~
Vested and issued	(194,948		~~(449,395~~	)
Forfeited			~~(462,843~~	)
				(301,686	)
Outstanding as atof March 31, ~~2019~~2020			~~1,764,976~~
				2,409,176

Restricted Shares

Restricted shares generally vest at the end of one year. ~~Expense recognized for~~For the three month period ended March 31, ~~2019 was $130 (2018 – $129)~~2020, the Company recognized an expense of $113 related to restricted shares (2019 - $130). As atof March 31, ~~2019,~~2020, the total remaining unrecognized compensation cost related to restricted shares amounted to approximately ~~$87~~$75 which will be amortized over the remaining vesting periods.

~~Note 9. Net Income Per Common Share~~

   Three Months Ended March 31,
   2019    2018
Net income

Basic and diluted
   $ 51,616    $ 25,649
Net income per common share

Basic
   $ 0.79    $ 0.39
Diluted
   $ 0.78    $ 0.39
Weighted average number of common shares outstanding:

Basic⁽¹⁾
   65,400,222    65,050,275
Effect of dilutive shares:

PSUs
   490,814    492,031
Restricted shares
   20,102    32,515




Diluted
   65,911,138    65,574,821

~~(1)~~

For the three month period ended March 31, 2019, the basic weighted average number of common shares outstanding excludes 31,130 restricted shares which have been issued, but have not vested as at March 31, 2019 (2018 – 43,635 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. There were no anti-dilutive instruments for the three month periods ended March 31, 2019 and 2018.

FORM 10-Q

QUARTERLY REPORT - PAGE 14

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 8. Net Income (Loss) Per Common Share

The reconciliation of basic and diluted net income (loss) per common share for the three month periods ended March 31, 2020 and 2019 was as follows:

	Three Months Ended March 31,
	2020			2019
Net income (loss)
Basic and diluted	$	(3,392	)	$	51,616

Net income (loss) per common share
Basic	$	(0.05	)	$	0.79
Diluted	$	(0.05	)	$	0.78

Weighted average number of common shares outstanding:
Basic (a)		65,694,460			65,400,222
Effect of dilutive instruments:
PSUs		—			490,814
Restricted shares		—			20,102
Diluted		65,694,460			65,911,138

(a)	For the three month period ended March 31, 2020, the basic weighted average number of common shares outstanding excludes 31,405 restricted shares which have been issued, but have not vested as of March 31, 2020 (2019 – 31,130 restricted shares).

The calculation of diluted net income (loss) per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net income (loss) per common share. Instruments excluded from the calculation of net income (loss) per common share because they were anti-dilutive for the three month periods ended March 31, 2020 and 2019 were as follows:

	Three Months Ended March 31,
	2020		2019
PSUs		2,409,176		—
Restricted shares		31,405		—

Note ~~10.~~9. Accumulated Other Comprehensive Loss

The change in the accumulated other comprehensive loss by component (net of tax) for the three month period ended March 31, 2020 was as follows:

   Foreign
Currency
Translation
Adjustment    Defined Benefit
Pension and
Other Post-
Retirement
Benefit Items    Unrealized
Gains / Losses
on Marketable
Securities    Total
Balance as at January 1, 2019
   $ (127,003 )    $ (1,170 )    $ 3    $ (128,170 )
Other comprehensive loss before reclassifications
   (3,851 )    —      (21 )    (3,872 )
Amounts reclassified from accumulated other comprehensive loss
   —      60    —      60








Other comprehensive income (loss)
   (3,851 )    60    (21 )    (3,812 )








Balance as at March 31, 2019
   $ (130,854 )    $ (1,110 )    $ (18 )    $ (131,982 )

	Foreign Currency Translation Adjustment			Defined Benefit Pension and Other Post- Retirement Benefit Items			Total
Balance as of January 1, 2020	$	(114,709	)	$	(1,851	)	$	(116,560	)
Other comprehensive loss before reclassifications		(74,994	)		—			(74,994	)
Amounts reclassified from accumulated other comprehensive loss		—			6			6
Other comprehensive income (loss), net of taxes		(74,994	)		6			(74,988	)
Balance as of March 31, 2020	$	(189,703	)	$	(1,845	)	$	(191,548	)

FORM 10-Q

QUARTERLY REPORT - PAGE 15

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 10. Related Party Transactions

The Company enters into related party transactions with its joint ventures. For the three month period ended March 31, 2020, pulp purchases from the Company’s 50% owned Cariboo mill, which are transacted at the Cariboo mill’s cost, were $19,594 (2019 – $24,633) and as of March 31, 2020 the Company had a payable balance to the Cariboo mill of $1,725 (December 31, 2019 – a receivable balance of $3,462). For the three month period ended March 31, 2020, services from the Company’s 50% owned logging and chipping operation, which are transacted at arm’s length negotiated prices, were $6,543 (2019 – $5,794) and as of March 31, 2020 the Company had a payable balance to the operation of $3,383 (December 31, 2019 – $1,151).

Note 11. Business Segment Information

The Company is managed based on the primary products it manufactures: pulp and wood products. Accordingly, the ~~Company’s four~~Company's 4 pulp mills and its 50% interest in the ~~CPP~~Cariboo mill are aggregated into the pulp business segment, and the Friesau sawmill is a separate reportable business segment, wood products. The ~~Company’s~~Company's sandalwood business is included in Corporate and Other as it does not meet the criteria to be reported as a separate segment.

None of the income or loss items following operating income in the ~~Company’s~~Company's Interim Consolidated ~~Statement~~Statements of Operations are allocated to the segments, as those items are reviewed separately by management.

Information about certain segment data for the three month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, was as follows:


Three Months Ended March 31, 2019	Pulp		Wood Products		Corporate and Other			Consolidated
Three Months Ended March 31, 2020										Pulp		Wood Products		Corporate and Other			Consolidated
Revenues from external customers	$	436,474	$	44,439	$	3,037		$	483,950	$	303,605	$	45,778	$	1,216		$	350,599
Operating income (loss)	$	93,520	$	1,620	$	(1,588	)	$	93,552	$	21,439	$	5,555	$	(2,932	)	$	24,062
Depreciation and amortization	$	28,023	$	1,911	$	313		$	30,247	$	30,371	$	2,377	$	198		$	32,946
Total assets⁽¹⁾	$	1,782,453	$	81,397	$	149,545		$	2,013,395
Total assets (a)										$	1,716,808	$	93,288	$	141,893		$	1,951,989
Revenues by major products
Pulp	$	413,313	$	—	$	—		$	413,313	$	278,948	$	—	$	—		$	278,948
Lumber		—		39,163		—			39,163		—		40,986		—			40,986
Energy and chemicals		23,161		2,666		3,037			28,864		24,657		2,631		1,216			28,504
Wood residuals		—		2,610		—			2,610		—		2,161		—			2,161

Total revenues	$	436,474	$	44,439	$	3,037		$	483,950	$	303,605	$	45,778	$	1,216		$	350,599

Revenues by geographical markets
Revenues by geographical markets (b)
U.S.	$	54,568	$	13,292	$	—		$	67,860	$	33,867	$	17,622	$	—		$	51,489
Germany		132,189		14,916		—			147,105		89,672		14,903		—			104,575
China		115,319		—		—			115,319		85,548		—		—			85,548
Other countries		134,398		16,231		3,037			153,666		94,518		13,253		1,216			108,987

Total revenues	$	436,474	$	44,439	$	3,037		$	483,950	$	303,605	$	45,778	$	1,216		$	350,599

~~(1)~~

(a)

Total assets for the pulp segment includes the ~~Company’s $56,049~~Company's $48,188 investment in joint ventures, primarily for the ~~CPP~~Cariboo mill.

(b)	Sales are attributed to countries based on the ship-to location provided by the customer.

FORM 10-Q

QUARTERLY REPORT - PAGE 1516

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 11. Business Segment Information (continued)

Three Months Ended March 31, 2019	Pulp		Wood Products		Corporate and Other			Consolidated
Revenues from external customers	$	436,474	$	44,439	$	3,037		$	483,950
Operating income (loss)	$	93,520	$	1,620	$	(1,588	)	$	93,552
Depreciation and amortization	$	28,023	$	1,911	$	313		$	30,247
Revenues by major products
Pulp	$	413,313	$	—	$	—		$	413,313
Lumber		—		39,163		—			39,163
Energy and chemicals		23,161		2,666		3,037			28,864
Wood residuals		—		2,610		—			2,610
Total revenues	$	436,474	$	44,439	$	3,037		$	483,950
Revenues by geographical markets (a)
U.S.	$	54,568	$	13,292	$	—		$	67,860
Germany		132,189		14,916		—			147,105
China		115,319		—		—			115,319
Other countries		134,398		16,231		3,037			153,666
Total revenues	$	436,474	$	44,439	$	3,037		$	483,950

Three Months Ended March 31, 2018
   Pulp    Wood
Products    Corporate
and Other    Consolidated
Revenues from external customers
   $ 314,235    $ 53,668    $ —      $ 367,903
Operating income (loss)
   $ 74,054    $ 2,982    $ (988 )    $ 76,048
Depreciation and amortization
   $ 21,523    $ 1,686    $ 110    $ 23,319
Revenues by major products

Pulp
   $ 290,551    $ —      $ —      $ 290,551
Lumber
   —      48,168    —      48,168
Energy and chemicals
   23,684    2,781    —      26,465
Wood residuals
   —      2,719    —      2,719








Total revenues
   $ 314,235    $ 53,668    $ —      $ 367,903








Revenues by geographical markets

U.S.
   $ 5,650    $ 16,405    $ —      $ 22,055
Germany
   124,738    21,766    —      146,504
China
   84,481    —      —      84,481
Other countries
   99,366    15,497    —      114,863








Total revenues
   $ 314,235    $ 53,668    $ —      $ 367,903

(a)	Sales are attributed to countries based on the ship-to location provided by the customer.

As atof December 31, ~~2018,~~2019, the Company had total assets of ~~$1,698,071~~$1,782,105 in the pulp segment, ~~$131,754~~$83,102 in the wood products segment and ~~$145,910~~$200,513 in corporate and other. Total assets for the pulp segment includes the Company's $53,122 investment in joint ventures, primarily for the Cariboo mill.

Revenues between segments are accounted for at prices that approximate fair value. These include revenues from the sale of residual fiber from the wood products segment to the pulp segment for use in the pulp production process and from the sale of residual fuel from the pulp segment to the wood products segment for use in energy production. For the three month period ended March 31, ~~2019,~~2020, the pulp segment sold ~~$256~~$182 of residual fuel to the wood products segment ~~(2018~~(2019 – ~~$354)~~$256) and the wood products segment sold ~~$5,407~~$3,836 of residual fiber to the pulp segment ~~(2018~~(2019 – ~~$4,949)~~$5,407).

~~The Company purchases~~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 sells pulp produced by the 50% owned CPP mill. The pulp purchases are transacted at the CPP mill’s cost. For the three month period ended March 31, 2019, the Company purchased $24,633 of pulp (2018—$nil) and as at March 31, 2019 had a balance owing to the CPP mill of $2,653 (December 31, 2018—$1,347). The Company also purchases fiber from its 50% owned logging operation. For the three month period ended March 31, 2019, the Company purchased $5,794 of fiber (2018—$nil) and as at March 31, 2019 had a balance owing to the logging operation of $2,884 (December 31, 2018—$2,343).per share data)

Note 12. Financial Instruments and Fair Value Measurement

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and other approximates their fair value.

The estimated fair values of the Company’s outstanding debt under the fair value hierarchy as of March 31, 2020 and December 31, 2019 were as follows:

	Fair value measurements as of March 31, 2020 using:
Description	Level 1		Level 2		Level 3		Total
Revolving credit facilities	$	—	$	47,931	$	—	$	47,931
Senior Notes		—		898,336		—		898,336
	$	—	$	946,267	$	—	$	946,267

Fair value measurements as of

December 31, 2019 using:

Description

Level 1

Level 2

Level 3

Total

Senior Notes

—

1,156,673

—

1,156,673

The carrying value of the revolving credit facilities classified as Level 2 approximates ~~their~~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 on the Interim Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019. However, fair value disclosure is required. The carrying value of the Company’s Senior Notes, net of note issuance costs and premium is $1,088,523 as of March 31, 2020 (December 31, 2019 – $1,087,932).

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 16~~

~~MERCER INTERNATIONAL INC.~~

~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

~~Note 12. Financial Instruments and Fair Value Measurement (continued)~~Credit Risk

The ~~following tables present a summary of the Company’s outstanding financial instruments and their estimated fair values under the fair value hierarchy:~~

   Fair value measurements as at March 31, 2019 using:
Description    Level 1    Level 2    Level 3    Total
Revolving credit facility
   $ —      $ 24,695    $ —      $ 24,695
Senior notes
   —      1,021,125    —      1,021,125








   $ —      $ 1,045,820    $ —      $ 1,045,820








   Fair value measurements as at December 31, 2018 using:
Description    Level 1    Level 2    Level 3    Total
Revolving credit facility
   $ —      $ 58,968    $ —      $ 58,968
Senior notes
   —      965,000    —      965,000








   $ —      $ 1,023,968    $ —      $ 1,023,968

~~Credit Risk~~

~~The Company’s~~Company's credit risk is primarily attributable to cash held in bank accounts and accounts receivable. The Company maintains cash balances in foreign financial institutions in excess of insured limits. The Company limits its credit exposure on cash held in bank accounts by periodically investing cash in excess of short-term operating requirements and debt obligations in low risk government bonds, or similar debt instruments. The ~~Company’s~~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, the U.S. and Italy.

The Company’s exposure to credit losses may increase if its customers are adversely affected by the COVID-19 pandemic. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’s customers are adversely impacted by the COVID-19 pandemic.

The carrying amount of cash and cash equivalents of ~~$233,234~~$286,526 and accounts receivable of ~~$308,573~~$221,921 recorded in the Interim Consolidated Balance Sheet, net of any allowances for losses, represents the ~~Company’s~~Company's maximum exposure to credit risk.

~~Note 13. Lease Commitments~~

The Company has finance leases primarily for rail cars and production equipment. The rail cars primarily have a remaining lease term of nine years with annual renewal options thereafter. The production equipment has a remaining lease term of eight years. The Company has operating leases primarily for land to support the sandalwood tree plantations and for offices. The land leases have remaining terms of six to 13 years with options to renew for up to six years. The office leases have remaining terms of four to eight years with options to renew primarily for an additional five years. A majority of the operating leases are subject to annual changes to the Consumer Price Index (“CPI”). Changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. A~~100-basis-point~~ ~~increase in CPI would not have a material impact on lease costs.~~

FORM 10-Q

QUARTERLY REPORT - PAGE 1718

MERCER INTERNATIONAL INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

~~Note 13. Lease Commitments (continued)~~

~~The components of lease expense were as follows:~~

   Three Months Ended March 31,
   2019    2018
Lease cost:

Operating lease cost
   $ 932    $ 850
Finance lease cost:

Amortization ofright-of-use assets
   881    853
Interest on lease liabilities
   366    234




Total lease cost
   $ 2,179    $ 1,937

~~Supplemental cash flow information related to leases were as follows:~~

   Three Months Ended March 31,
   2019    2018
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
   $ 932    $ 850
Operating cash flows from finance leases
   $ 366    $ 234
Financing cash flows from finance leases
   $    862    $    848

~~Other information related to leases is as follows:~~

   Three Months Ended March 31,
   2019 2018
Weighted average remaining lease term:

Operating leases
   7 years 5 years
Finance leases
   9 years 10 years
Weighted average discount rate:

Operating leases
   6 %
Finance leases
   5 % 5 %

The discount rates used to calculate the present value of the minimum lease payments is the incremental borrowing rate that the subsidiary entering into the lease would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

~~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 13. Lease Commitments (continued)~~

~~Supplemental balance sheet information related to leases were as follows:~~

   March 31,
2019    December 31,
2018
Operating Leases

Operating leaseright-of-use assets
   $ 14,581

Other current liabilities
   $ 2,436
Operating lease liabilities
   12,145



Total operating lease liabilities
   $ 14,581




Finance Leases

Property and equipment, gross
   $ 43,625    $ 44,756
Accumulated depreciation
   (16,223 )    (15,963 )




Property and equipment, net
   $ 27,402    $ 28,793





Other current liabilities
   $ 4,597    $ 4,911
Finance lease liabilities
   23,604    24,669




Total finance lease liabilities
   $ 28,201    $ 29,580

~~As at March 31, 2019, maturities of lease liabilities were as follows:~~

   Finance
Leases    Operating
Leases
2019
   $ 4,943    $ 2,683
2020
   3,512    3,197
2021
   3,383    2,919
2022
   3,216    2,734
2023
   3,346    2,054
Thereafter
   16,707    4,777




Total lease payments
   35,107    18,364
Less: imputed interest
   (6,906 )    (3,783 )




Total lease liability
   $ 28,201    $ 14,581

As at March 31, 2019, the Company has additional finance leases for rail cars that have not yet commenced. The leases have a term of 12 years with annual renewal options thereafter. The total payments over the term of the leases will be approximately $19,600. The leases will commence in 2019.

~~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)~~

Note ~~14.~~13. Commitments and Contingencies

(a)

The Company is involved in legal actions and claims arising in the ordinary course of business. While the outcome of any legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claims which are pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

(b)

The Company is subject to regulations that require the handling and disposal of asbestos in a prescribed manner if a property undergoes a major renovation or demolition. Otherwise, the Company is not required to remove asbestos from its facilities. Generally asbestos is found on steam and condensate piping systems as well as certain cladding on buildings and in building insulation throughout older facilities. The ~~Company’s~~Company's obligation for the proper removal and disposal of asbestos products from the ~~Company’s~~Company's mills is a conditional asset retirement obligation. As a result of the longevity of the ~~Company’s~~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.

Note 14. Subsequent Event

On April 20, 2020, the Company’s 50% owned joint venture Cariboo pulp mill announced approximately four weeks of downtime which will result in a reduction of NBSK production of approximately 30,000 tonnes of which Mercer’s share is 15,000 tonnes. The downtime is in connection with reduced fiber availability resulting from regional sawmill downtime. The cogeneration facility at the Cariboo mill is continuing to operate during such downtime.

FORM 10-Q

QUARTERLY REPORT - PAGE 2019

NON-GAAP FINANCIAL MEASURES

This quarterly report on Form10-Q contains~~“non-GAAP~~ "non-GAAP financial ~~measures”~~measures", that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as ~~“GAAP”~~"GAAP". Specifically, we make use of thenon-GAAP measure ~~“Operating EBITDA”~~"Operating EBITDA".

Operating EBITDA is defined as operating income (loss) plus depreciation and amortization andnon-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 andnon-recurring capital asset impairment charges are not actual cash costs, and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, or as an alternative to net cash from 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 ofnon-recurring impairment charges against our investments or assets. Because of these limitations, Operating EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.

FORM 10-Q

QUARTERLY REPORT - PAGE 2120

ITEM 2.

~~MANAGEMENT’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this document: (i) unless the context otherwise requires, references to ~~“we”~~"we", ~~“our”~~"our", ~~“us”~~"us", the ~~“Company”~~"Company" or ~~“Mercer”~~"Mercer" mean Mercer International Inc. and its subsidiaries; (ii) references to ~~“Mercer~~"Mercer Inc.”" mean the Company excluding its subsidiaries; (iii) information is provided as of March 31, ~~2019,~~2020, unless otherwise stated; (iv) our reporting currency is dollars and references to ~~“€”~~"€" mean euros and ~~“C$”~~"C$" mean Canadian dollars; (v) ~~“ADMTs”~~"ADMTs" refers toair-dried metric tonnes; (vi) ~~��NBSK”~~"NBSK" refers to northern bleached softwood kraft; (vii) ~~“NBHK”~~"NBHK" refers to northern bleached hardwood kraft; (viii) ~~“MW”~~"MW" refers to megawatts and ~~“MWh”~~"MWh" refers to megawatt hours; (ix) ~~“Mfbm”~~"Mfbm" refers to thousand board feet of lumber and ~~“MMfbm”~~"MMfbm" mean million board feet of lumber; and (x) our lumber metrics are converted from cubic meters to Mfbm using a conversion ratio of 1.6 cubic meters to one Mfbm, which is the ratio commonly used in the industry.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.

The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, ~~2019~~2020 should be read in conjunction with our ~~interim consolidated financial statements~~Interim Consolidated Financial Statements and related notes included in this quarterly report, as well as our most recent annual report on Form10-K for the fiscal year ended December 31, ~~2018~~2019 filed with the Securities and Exchange Commission, referred to as the ~~“SEC”~~"SEC".

Results of Operations

General

We have two reportable operating segments:

~~Pulp~~ ~~– consists of the manufacture, sale and distribution of pulp, electricity and otherby-products~~ ~~at our pulp mills.~~
•
Pulp – consists of the manufacture, sale and distribution of pulp, electricity and other by-products at our pulp mills.

~~Wood Products~~ ~~– consists of the manufacture, sale and distribution of lumber, electricity and other wood residuals at the Friesau sawmill.~~
•
Wood Products – consists of the manufacture, sale and distribution of lumber, electricity and other wood residuals at the Friesau sawmill.

Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.

On December 10, 2018 we acquired Mercer Peace River Pulp Ltd. (“MPR”) which operates the Peace River mill in Alberta and has a 50% joint venture interest in the Cariboo mill in British Columbia. The Peace River mill is a swing mill that produces both NBSK and NBHK.

Current Market Environment

InThe current COVID-19 pandemic has resulted in significant widespread global infections and fatalities. It has also materially adversely affected global economic activity, caused significant market volatility and resulted in numerous governments declaring emergencies and implementing measures, such as travel bans, quarantines, business closures, shelter-in-place and other restrictions. See "Part II. Other Information - Item 1A. Risk Factors - The COVID-19 pandemic could materially adversely affect our business, financial position and results of operations".

Our products are an important constituent of many pandemic related high demand goods such as tissue and cleaning products and certain personal protective equipment. Accordingly, we have implemented a number of new and important health and safety measures at our operations both to protect our employees and to allow our mills to operate responsibly and efficiently. We are constantly monitoring our operations and guidance from governmental and health organizations to ensure we take appropriate and necessary actions to protect our people.

During the first quarter of ~~2019,~~2020, pulp prices ~~declined~~modestly increased from the fourth quarter of ~~2018 due to lower overall demand~~2019 as a result of steady demand. Overall in ~~China~~the current quarter, our average NBSK pulp sales realizations declined by about 3% from the fourth quarter of 2019, as the modest price improvements were staggered and ~~a buildup in pulp producer inventories. In China, demand from tissue producers was steady but there was a decline in demand from paper and packaging producers.~~

will not be fully implemented until the second quarter of 2020.

FORM 10-Q

QUARTERLY REPORT - PAGE 2221

~~Overall, our average NBSK pulp sales realizations were approximately 9% lower in the first quarter of 2019 compared to the fourth quarter of 2018.~~

At the end of the current quarter, NBSK list prices in Europe ~~China~~ and North America were approximately ~~$1,070, $730 and $1,355~~$840 per ADMT ~~respectively~~ and $1,135 per ADMT, respectively. Commencing in 2020 only net prices (which are net of discounts, allowances and rebates) are published for China. At the end of the current quarter, NBSK net prices in China were approximately $580 per ADMT. NBHK list prices in ~~China and~~ North America were approximately ~~$700 and $1,160~~$890 per ADMT ~~respectively.~~and NBHK net prices in China were approximately $455 per ADMT.

~~Our integration~~Although there is a great deal of ~~MPR~~global business uncertainty resulting from the COVID-19 pandemic and its effect and societal responses are evolving and can change quickly, in the second quarter we are currently expecting to see steady pulp demand from tissue and hygiene producers but a weakening in demand from our printing and writing paper producers.

On the pulp supply side, in the upcoming quarter, we are currently expecting certain mills to curtail production as a result of fiber shortages resulting from sawmill downtime. Further, some pulp mills have announced some sporadic production curtailments resulting from COVID-19. Additionally, various pulp mills globally have delayed their annual maintenance schedules as a result of the current pandemic. This is ~~proceeding well and according~~expected to ~~plan.~~curtail production in the later part of the year or early part of next year.

In the second quarter of ~~2019,~~2020, our ~~50% joint venture Cariboo mill has 12~~pulp mills have six days of scheduled maintenance downtime, ~~(which will reduce our production by~~or approximately ~~5,800 ADMTs).~~

We9,700 ADMTs. However, these shuts may be deferred if there is a lack of contractor availability as a result of the current pandemic. Our Peace River mill is also currently ~~expect pulp markets~~scheduled to ~~moderately strengthen with improving pricing~~have five days of annual maintenance downtime in the ~~second half of the year. We believe that, in the second~~fourth quarter of 2019, pulp producer inventories will decline due to continued steady demand in Europe and North America, moderately higher demand from paper producers in China and scheduled producer downtime. At the end of March 2019, world NBSK producer inventories were about 37 days’ supply.2020.

In the first quarter of ~~2019, U.S.~~2020, lumber markets ~~modestly recovered due to increased~~overall were stable and lumber sales realizations were flat from the fourth quarter of 2019 as strong demand ~~after strong declines~~and higher pricing in the U.S. market offset lower lumber sales realizations in the European market resulting from the supply of lumber processed from beetle damaged wood. We currently expect weakening lumber markets and lower sales price realizations in the second ~~half of 2018. In the first~~ quarter of ~~2019, European lumber pricing declined~~2020 due to a drop in housing starts and business slowdowns and disruptions resulting from the ~~continuation of beetle and storm damaged wood entering the market which obtains lower prices.~~

COVID-19 pandemic in our major markets.

FORM 10-Q

QUARTERLY REPORT - PAGE 2322

Summary Financial Highlights


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
	(in thousands, other than per share amounts)						(in thousands, other than per share amounts)
Statement of Operations Data
Pulp segment revenues	$	436,474		$	314,235		$	303,605		$	436,474
Wood products segment revenues		44,439			53,668			45,778			44,439
Corporate and other revenues		3,037			—			1,216			3,037

Total revenues	$	483,950		$	367,903		$	350,599		$	483,950

Pulp segment operating income	$	93,520		$	74,054		$	21,439		$	93,520
Wood products segment operating income		1,620			2,982			5,555			1,620
Corporate and other operating loss		(1,588	)		(988	)		(2,932	)		(1,588	)

Total operating income	$	93,552		$	76,048		$	24,062		$	93,552

Pulp segment depreciation and amortization	$	28,023		$	21,523		$	30,371		$	28,023
Wood products segment depreciation and amortization		1,911			1,686			2,377			1,911
Corporate and other depreciation and amortization		313			110			198			313

Total depreciation and amortization	$	30,247		$	23,319		$	32,946		$	30,247

Operating EBITDA⁽¹⁾	$	123,799		$	99,367		$	57,008		$	123,799
Loss on settlement of debt	$	—		$	(21,515	)⁽²⁾
Legal cost award	$	—		$	(6,951	)
Provision for income taxes	$	(24,424	)	$	(9,581	)	$	(5,344	)	$	(24,424	)
Net income	$	51,616		$	25,649
Net income per common share
Net income (loss)							$	(3,392	)	$	51,616
Net income (loss) per common share
Basic	$	0.79		$	0.39		$	(0.05	)	$	0.79
Diluted	$	0.78		$	0.39		$	(0.05	)	$	0.78
Common shares outstanding at period end		65,651			65,171			65,800			65,651

(1)	The following table provides a reconciliation of net income (loss) to operating income and Operating EBITDA for the periods indicated:

   Three Months Ended
March 31,
   2019    2018
   (in thousands)
Net income
   $ 51,616    $ 25,649
Provision for income taxes
   24,424    9,581
Interest expense
   18,551    12,115
Loss on settlement of debt
   —      21,515
Legal cost award
   —      6,951
Other (income) expenses
�� (1,039 )    237




Operating income
   93,552    76,048
Add: Depreciation and amortization
   30,247    23,319




Operating EBITDA
   $ 123,799    $ 99,367

~~(2)~~

~~Redemption of 7.75% senior notes due 2022, referred to as the “2022 Senior Notes”.~~

	Three Months Ended March 31,
	2020			2019
	(in thousands)
Net income (loss)	$	(3,392	)	$	51,616
Provision for income taxes		5,344			24,424
Interest expense		20,084			18,551
Other (income) expenses		2,026			(1,039	)
Operating income		24,062			93,552
Add: Depreciation and amortization		32,946			30,247
Operating EBITDA	$	57,008		$	123,799

FORM 10-Q

QUARTERLY REPORT - PAGE 2423

Selected Production, Sales and Other Data


	Three Months Ended March 31,					Three Months Ended March 31,
	2019			2018		2020		2019
Pulp Segment
Pulp production (‘000 ADMTs)
Pulp production ('000 ADMTs)
NBSK		460.6			364.5		455.2		460.6
NBHK		78.6					78.9		78.6
Annual maintenance downtime (‘000 ADMTs)		—			—
Annual maintenance downtime ('000 ADMTs)							2.3		—
Annual maintenance downtime (days)		—			—		2		—
Pulp sales (‘000 ADMTs)
Pulp sales ('000 ADMTs)
NBSK		466.9			367.1		438.3		466.9
NBHK		87.8					66.0		87.8
Average NBSK pulp list prices ($/ADMT)⁽¹⁾
Average NBSK pulp prices ($/ADMT)⁽¹⁾
Europe		1,105			1,097		833		1,105
China		710			910		573		700
North America		1,380			1,233		1,127		1,380
Average NBHK pulp list prices ($/ADMT)⁽¹⁾
Average NBHK pulp prices ($/ADMT)⁽¹⁾
China		687			798		460		695
North America		1,180			1,077		890		1,180
Average pulp sales realizations ($/ADMT)⁽²⁾
NBSK		757			783		561		757
NBHK		656					468		656
Energy production (‘000 MWh)		560.5	⁽³⁾		438.0
Energy sales (‘000 MWh)		211.8	⁽³⁾		175.7
Average energy sales realizations ($/MWh)		94			107
Energy production ('000 MWh)⁽³⁾							578.4		560.5
Energy sales ('000 MWh)⁽³⁾							231.7		211.8
Average energy sales realizations ($/MWh)⁽³⁾							95		94

Wood Products Segment
Lumber production (MMfbm)		110.7			102.7		116.4		110.7
Lumber sales (MMfbm)		109.2			115.1		117.7		109.2
Average lumber sales realizations ($/Mfbm)		359			418		348		359
Energy production and sales (‘000 MWh)		22.4			20.6
Energy production and sales ('000 MWh)							22.8		22.4
Average energy sales realizations ($/MWh)		119			135		116		119

Average Spot Currency Exchange Rates
$ / €⁽⁴⁾		1.1354			1.2289		1.1022		1.1354
$ / C$⁽⁴⁾		0.7521			0.7904		0.7438		0.7521

(1)	Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. Effective January 2020, the RISI pricing report does not provide list prices for China.

(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)	~~Excludes energy production and sales relating to~~Does not include our 50% joint venture interest in the Cariboo mill, which is accounted for ~~as an~~using the equity ~~investment.~~method.

(4)	AverageFederal Reserve Bank of New York Noon Buying Rates over the reporting period.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 25~~

Consolidated -‑ Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Total revenues for the three months ended March 31, ~~2019 increased~~2020 decreased by approximately ~~32%~~28% to ~~$484.0~~$350.6 million from ~~$367.9~~$484.0 million in the same quarter of ~~2018~~2019 primarily due to ~~the inclusion of the results of MPR~~lower sales realizations and ~~higher~~lower pulp sales ~~volumes partially offset by lower product sales realizations.~~volumes.

Costs and expenses in the current quarter ~~increased~~decreased by approximately ~~34%~~16% to ~~$390.4~~$326.5 million from ~~$291.9~~$390.4 million in the first quarter of ~~2018~~2019 primarily due to ~~the inclusion of MPR and higher~~lower pulp sales ~~volumes partially offset by~~volume, lower per unit fiber costs and the positive impact of a stronger dollar against the Canadian dollar and euro primarily on the dollar denominated cash and receivables held at our ~~euro denominated costs.~~operations.

In the first quarter of ~~2019,~~2020, cost of sales depreciation and amortization increased to ~~$30.1~~$32.9 million from ~~$23.2~~$30.1 million in the same quarter of ~~2018.~~2019.

FORM 10-Q

QUARTERLY REPORT - PAGE 24

Selling, general and administrative expenses increased to ~~$17.2~~$17.6 million in the first quarter of ~~2019~~2020 from ~~$14.4~~$17.2 million in the same quarter of ~~2018 primarily due to the inclusion of MPR.~~2019.

In the first quarter of ~~2019,~~2020, our operating income ~~increased~~decreased by approximately ~~23%~~74% to ~~$93.6~~$24.1 million from ~~$76.0~~$93.6 million in the same quarter of ~~2018~~2019 primarily due to ~~the inclusion of MPR, the net positive impact of a stronger dollar and higher~~lower pulp sales ~~volumes.~~

In the first quarter of 2018, we redeemed $300.0 million of our 2022 Senior Notes at a cost, including premium, of $317.4 million and recorded a loss on such redemption of $21.5 million (being $0.33realizations partially offset by lower per ~~share).~~unit fiber costs.

Interest expense in the current quarter increased to ~~$18.6~~$20.1 million from ~~$12.1~~$18.6 million in the same quarter of ~~2018~~2019 primarily as a result of the net issuance in ~~December 2018~~October 2019 of ~~$350.0~~an additional $100.0 million of our ~~7.375%~~ senior ~~notes due in 2025 (“2025 Senior Notes”) to finance the acquisition of MPR.~~

In the first quarter of 2018, we recognized an expense of $7.0 million, or $0.11 per share, in connection with the legal cost award against us in our prior claim under the North American Free Trade Agreement.notes.

During the first quarter of 2020, the provision for income taxes was $5.3 million primarily due to income before tax for our German entities only partially offset by tax recoveries for our Canadian entities. In the comparative quarter of 2019, the provision for income ~~tax expense increased to~~taxes was $24.4 million ~~from $9.6 million in the same quarter of 2018~~ due to higher income.

For the first quarter of ~~2019,~~2020, our net loss was $3.4 million, or $0.05 per share compared to net income ~~increased to~~of $51.6 million, or $0.79 per basic share and $0.78 per diluted share, ~~from $25.6 million, or $0.39 per share,~~ in the same quarter of ~~2018.~~2019.

In the first quarter of ~~2019,~~2020, Operating EBITDA ~~increased~~decreased by approximately ~~25%~~54% to ~~$123.8~~$57.0 million from ~~$99.4~~$123.8 million in the same quarter of ~~2018~~2019 primarily due to ~~the inclusion of MPR~~lower pulp sales realizations partially offset by lower per unit fiber costs and the positive impact of a stronger dollar versus the euro and ~~higher pulp sales volumes partially offset by lower product sales realizations.~~Canadian dollar.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 26~~

Operating Results by Business Segment

None of the income or loss items following operating income in our Interim Consolidated ~~Statement~~Statements of Operations are allocated to our segments, since those items are reviewed separately by management.

Pulp Segment- ‑ Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Selected Financial Information


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
	(in thousands)				(in thousands)
Pulp revenues	$	413,313	$	290,551	$	278,948	$	413,313
Energy and chemical revenues	$	23,161	$	23,684	$	24,657	$	23,161
Depreciation and amortization	$	28,023	$	21,523	$	30,371	$	28,023
Operating income	$	93,520	$	74,054	$	21,439	$	93,520

Pulp revenues in the first quarter of ~~2019 increased~~2020 decreased by approximately ~~42%~~33% to ~~$413.3~~$278.9 million from ~~$290.6~~$413.3 million in the same quarter of ~~2018~~2019 due to ~~the inclusion of MPR and higher sales volumes partially offset by~~ lower sales ~~realizations.~~realizations and sales volumes.

Energy and chemical revenues ~~decreased~~increased by approximately 2%6% to ~~$23.2~~$24.7 million in the first quarter of ~~2019~~2020 from ~~$23.7~~$23.2 million in the same quarter of ~~2018 primarily~~2019 due to ~~lower chemical yields from processing storm and beetle damaged wood and the negative impact of a stronger dollar on~~higher production at our ~~euro denominated sales partially offset by higher energy sales volumes.~~Celgar mill.

NBSK pulp production ~~increased by approximately 26%~~modestly declined to ~~460,613~~455,192 ADMTs in the current quarter from ~~364,486~~460,613 ADMTs in the same quarter of ~~2018,~~2019 primarily due to ~~strong overall~~two days of annual maintenance downtime (approximately 2,300 ADMTs) in the current quarter and no downtime in the same quarter of 2019.

We estimate that annual maintenance downtime in the current quarter adversely impacted our operating ~~performance and~~income by approximately $1.0 million.

In the ~~inclusion~~second quarter of ~~MPR.~~2020, our pulp mills have six days of annual maintenance downtime or approximately 9,700 ADMTs.

FORM 10-Q

QUARTERLY REPORT - PAGE 25

NBSK pulp sales volumes ~~increasedby~~decreasedby approximately ~~27%~~6% to ~~466,893~~438,326 ADMTs in the current quarter from ~~367,074~~466,893 ADMTs in the same quarter of ~~2018. In~~2019 primarily due to logistics issues early in the current quarter ~~we also sold 87,848 ADMTs of NBHK pulp.~~related to closures, restrictions and other effects related to the COVID-19 pandemic.

In the current quarter of 2020, prices for NBSK pulp decreased from the same quarter of 2019, largely as a result of high producer inventory levels and market uncertainty as COVID-19 spread through China. Average list prices for NBSK pulp in Europe and North America increased from the same quarter of 2018 largely as a result of overall steady demand. In China list prices for NBSK pulp decreased from the same quarter of 2018 as a result of reduced overall demand. Average list prices for NBSK pulp in Europe were approximately ~~$1,105~~$833 per ADMT and $1,127 per ADMT, respectively in the first quarter of ~~2019~~2020 compared to approximately ~~$1,097 per ADMT in the same quarter of 2018. Average list prices for NBSK pulp in China and North America were approximately $710~~$1,105 per ADMT and $1,380 per ADMT, respectively, in the same quarter of 2019. NBSK net prices in China were approximately $573 per ADMT in the current quarter compared to approximately ~~$910~~$700 per ADMT ~~and $1,233 per ADMT, respectively,~~ in the same quarter of ~~2018.~~2019.

Average NBSK pulp sales realizations decreased by approximately 3%26% to ~~$757~~$561 per ADMT in the first quarter of ~~2019~~2020 from approximately ~~$783~~$757 per ADMT in the same quarter of ~~2018 due to~~2019.

Certain of our Canadian mills recorded a non-cash write down of our inventory carrying values of $5.7 million as a result of lower ~~prices in China. The NBHK~~ pulp sales realizations inand high fiber costs.

In the current quarter ~~were $656 per ADMT.~~

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 27~~

~~The stronger~~of 2020 as a result of the effect of the strengthening dollar ~~versus~~against the Canadian dollar and euro primarily on the dollar denominated cash and receivables held at our mills, we recorded a positive impact of approximately $17.1 million in ~~the current quarter~~operating income due to foreign exchange compared to the same quarter of ~~the prior year decreased the dollar cost of our euro denominated costs and expenses and contributed to a positive foreign exchange impact of approximately $15.3 million on operating income.~~2019.

Costs and expenses ~~for our pulp segment~~ in the current quarter ~~increased~~decreased by approximately ~~43%~~18% to ~~$343.2~~$282.3 million from ~~$240.5~~$343.2 million in the first quarter of ~~2018~~2019 primarily due to ~~the inclusion of MPR and higher~~lower pulp sales volumes, ~~partially offset by~~ the positive impact of a stronger dollar ~~on our euro denominated~~and lower per unit fiber costs.

In the first quarter of ~~2019, pulp segment~~2020, depreciation and amortization increased to ~~$28.0~~$30.4 million from ~~$21.5~~$28.0 million in the same quarter of ~~2018.~~2019.

On average, in the current quarter overall per unit fiber costs decreased by ~~about 6%~~approximately 12% from the same quarter of ~~2018~~2019 primarily due to ~~the positive impact of a stronger dollar on~~lower per unit fiber costs for our ~~euro and Canadian dollar denominated fiber costs.~~German mills. In the current quarter, ~~the~~per unit fiber ~~market~~costs for our German mills ~~was stable~~declined due to the continued availability of ~~storm and~~ beetle damaged wood. For our Canadian mills, per unit fiber costs ~~remained~~were flat but at historically high levels due to ~~continued~~ strong demand for fiber in ~~Celgar’s~~the mills’ fiber procurement ~~area.~~areas. We currently expect ~~generally lower~~stable per unit fiber costs in the second quarter of ~~2019.~~2020.

Transportation costs for our pulp segment ~~increased by approximately 90%~~decreased to ~~$37.9~~$35.6 million in the current quarter from ~~$19.9~~$37.9 million in the same quarter of 2019 primarily as a result of ~~the inclusion of MPR.~~lower sales volumes.

In the first quarter of ~~2019,~~2020, pulp segment operating income ~~increased by approximately 26%~~decreased to ~~$93.5~~$21.4 million from ~~$74.1~~$93.5 million in the same quarter of ~~2018 primarily due to~~2019 as lower pulp sales realizations were only partially offset by the positive impact of a stronger dollar ~~the inclusion of MPR~~ and ~~higher pulp sales volumes partially offset by~~ lower ~~product sales realizations.~~per unit fiber costs.

Wood Products Segment- ‑ Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Selected Financial Information


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
	(in thousands)				(in thousands)
Lumber revenues	$	39,163	$	48,168	$	40,986	$	39,163
Energy revenues	$	2,666	$	2,781	$	2,631	$	2,666
Wood residual revenues	$	2,610	$	2,719	$	2,161	$	2,610
Depreciation and amortization	$	1,911	$	1,686	$	2,377	$	1,911
Operating income	$	1,620	$	2,982	$	5,555	$	1,620

FORM 10-Q

QUARTERLY REPORT - PAGE 26

In the first quarter of ~~2019~~2020, lumber revenues ~~decreased by approximately 19%~~increased 5% to $41.0 million from $39.2 million ~~from $48.2 million primarily~~in the same quarter of 2019 due to higher sales volumes partially offset by lower sales ~~realizations and volumes.~~realizations. In the current quarter approximately ~~28%~~31% of sales volumes were in the U.S. market and the majority of remaining sales were to Europe.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 28~~

Energy and wood residual revenues decreased ~~by approximately 4%~~9% to ~~$5.3~~$4.8 million in the first quarter of ~~2019~~2020 from ~~$5.5~~$5.3 million in the same quarter of ~~2018~~2019 primarily due to ~~the negative impact of a weaker euro on our euro denominated sales.~~lower sales realizations for wood residuals.

~~Production~~Lumber production increased by approximately 8%5% to ~~110.7~~a record 116.4 MMfbm ~~of lumber~~ in the current quarter of 2020 from ~~102.7~~110.7 MMfbm in the same quarter of ~~2018~~2019 primarily due to ~~steady operating performance.~~capital improvements.

Average lumber sales realizations decreased by approximately ~~14%~~3% to ~~$359~~$348 per Mfbm in the first quarter of ~~2019~~2020 from approximately ~~$418~~$359 per Mfbm in the same quarter of ~~2018~~2019 primarily due to ~~a weaker U.S. lumber market. U.S. lumber pricing declined as record~~lower pricing in ~~2018 resulted~~Europe partially offset by higher pricing in ~~increased supply and high customer inventory levels.~~the U.S. market. European lumber pricing ~~also~~ declined due to an increase in the supply of lumber processed from beetle ~~and storm~~ damaged wood which generally obtains lower prices. U.S. lumber pricing increased due to strong demand during the current quarter.

Fiber costs ~~are~~were approximately ~~80%~~70% of our lumber cash production ~~costs.~~costs in the current quarter. In the current quarter per unit fiber costs decreased by approximately ~~21%~~25% from the same quarter of ~~2018~~2019 primarily due to the availability of lower cost ~~storm and~~ beetle damaged ~~wood and the positive impact of a stronger dollar on our euro denominated fiber costs.~~wood. We currently expect ~~modestly lower~~stable per unit fiber costs in the second quarter of ~~2019 as a result~~2020 because of the continuing availability of ~~storm~~beetle damaged wood.

In the first quarter of ~~2019, wood products~~2020, lumber segment depreciation and amortization increased to ~~$1.9~~$2.4 million from ~~$1.7~~$1.9 million in the same quarter of ~~2018~~2019 primarily due to the completion of capital ~~improvements at the mill.~~projects.

Transportation costs for our wood products segment in the first quarter of 2020 increased by approximately 5%10% to ~~$6.2~~$6.8 million ~~in the current quarter of 2019~~ from ~~$5.9~~$6.2 million in the same quarter of ~~2018.~~2019 due to higher lumber sales volumes.

In the first quarter of ~~2019,~~2020, our wood products segment had record operating income of ~~$1.6~~$5.6 million compared to ~~$3.0~~$1.6 million in the same quarter of ~~2018~~2019 primarily due to arecord production and lower ~~realized sales price partially offset by the positive impact of a stronger dollar on our euro denominated costs and expenses.~~per unit fiber costs.

Liquidity and Capital Resources

Summary of Cash Flows

   Three Months Ended
March 31,
   2019    2018
   (in thousands)
Net cash from operating activities
   $ 42,186    $ 76,377
Net cash used in investing activities
   (19,966 )    (16,351 )
Net cash used in financing activities
   (28,723 )    (307,733 )⁽¹⁾
Effect of exchange rate changes on cash and cash equivalents
   (754 )    535




Net decrease in cash and cash equivalents
   $ (7,257 )    $ (247,172 )

~~(1)~~

~~Includes cash of $317.4 million used for the redemption of $300.0 million of 2022 Senior Notes.~~

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 29~~

	Three Months Ended March 31,
	2020			2019
	(in thousands)
Net cash from (used in) operating activities	$	(69,842	)	$	42,186
Net cash used in investing activities		(23,405	)		(19,966	)
Net cash from (used in) financing activities		32,250			(28,723	)
Effect of exchange rate changes on cash and cash equivalents		(3,562	)		(754	)
Net decrease in cash and cash equivalents	$	(64,559	)	$	(7,257	)

We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, labor ~~fiber, chemicals~~ and ~~debt service.~~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.InCash used in operating activities was $69.8 million in the ~~first quarter of 2019,~~three months ended March 31, 2020 compared to cash provided by operating activities ~~declined to~~of $42.2 ~~million from $76.4~~ million in the ~~same~~comparative period of ~~2018 primarily due to a net increase in working capital.~~2019. An increase in accounts receivable used cash of ~~$56.4~~$20.9 million in the three months ended March 31, ~~2019~~2020 compared to ~~$5.1~~$56.4 million in the same period of ~~2018. A decrease~~2019. An increase in inventories ~~provided~~used cash of ~~$21.1~~$18.1 million in the three months ended March 31, ~~2019~~2020 compared to ~~an increase~~a decrease in inventories ~~using~~providing cash of ~~$6.8~~$21.1 million in the same period of ~~2018.~~2019. A decrease in accounts payable and accrued expenses used cash of ~~$0.2~~$57.7 million in the three months ended March 31, ~~2019~~2020 compared to ~~an increase in accounts payable and accrued expenses providing cash of $18.0~~$0.2 million in the same period of ~~2018.~~2019.

FORM 10-Q

QUARTERLY REPORT - PAGE 27

Cash Flows from Investing Activities.Investing activities in the three months ended March 31, 2020usedcash of $23.4 million primarily related to capital expenditures of $23.0 million. In the three months ended March 31, 2020, capital expenditures included the planer line replacement project and other upgrades at our Friesau sawmill, additional land for fiber storage at the Stendal mill and optimization projects at the Celgar mill. In the three months ended March 31, 2019, ~~usedcash~~investing activities used cash of $20.0 million primarily related to capital expenditures ~~including~~of $19.4 million. In the three months ended March 31, 2019, capital expenditures included the planer line replacement project at our Friesau sawmill, wastewater improvement projects at our German pulp mills and large maintenance projects at our Celgar mill.

Cash Flows from Financing Activities.In thethree months ended March 31, 2020, financing activities provided cash of $32.3 million primarily from $51.3 million of borrowings under our revolving credit facilities. In the three months ended March 31, ~~2018, capital expenditures used cash~~2020 we paid dividends of $16.2 million primarily related to large maintenance projects and improvements to the digester performance at our Celgar mill, the replacement of mobile equipment and saw line optimization at our Friesau sawmill and various other smaller projects.

~~Cash Flows from Financing Activities.~~$9.0 million. In the three months ended March 31, 2019, financing activities used cash of $28.7 million primarily to repay $33.7 million of revolving credit facilities. In the three months ended March 31, 2019, we received $6.3 million of government grants to finance greenhouse gas reduction capital projects at the Peace River mill. In the same period of 2018, financing activities used cash of $307.7 million primarily in connection with the redemption of the 2022 Senior Notes, which used cash of $317.4 million. In the three months ended March 31, 2018, we drew $20.1 million on our revolving credit facilities primarily to finance wood procurement activities and paid a dividend of $8.1 million.

In December 2018, certain of our German subsidiaries entered into a €200 million revolving credit facility, referred to as the “German Facility”, which consolidated and replaced prior existing revolving credit facilities. Pursuant to such facility, in March 2019 our German subsidiaries entered into a cash pooling arrangement which permits cash withdrawals based upon the subsidiaries aggregate operating cash balances deposited with the agent for the German Facility. The net balance of the withdrawals and the aggregate cash deposits are used by the agent to determine such subsidiaries’ net interest income. Our Interim Consolidated Balance Sheets reflect cash, net of bank overdrafts under such pooling arrangement.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 30~~

Balance Sheet Data

The following table is a summary of selected financial information as at the dates indicated:

   March 31,    December 31,
   2019    2018
   (in thousands)
Financial Position

Cash and cash equivalents
   $ 233,234    $ 240,491
Working capital
   $ 631,495    $ 615,311
Total assets
   $ 2,013,395    $ 1,975,735
Long-term liabilities
   $ 1,180,457    $ 1,198,918
Total equity
   $ 620,682    $ 581,429

~~Primarily as a result of the strengthening of the dollar versus the euro as at March 31, 2019, we recorded a netnon-cash~~ ~~decrease in the carrying value of our net assets, consisting primarily of our fixed assets denominated in euros. This netnon-cash~~ ~~decrease of approximately $3.9 million does not affect our net income, Operating EBITDA or cash flows but is reflected in our other comprehensive loss and as a decrease to our total equity.~~

	March 31,		December 31,
	2020		2019
	(in thousands)
Cash and cash equivalents	$	286,526	$	351,085
Working capital	$	603,410	$	588,385
Total assets	$	1,951,989	$	2,065,720
Long-term liabilities	$	1,304,078	$	1,259,005
Total equity	$	462,768	$	550,403

Sources and Uses of Funds

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand. Our principal ~~operating~~ uses of funds consist of operating ~~expenses,~~expenditures, capital expenditures and ~~semi-annual~~ interest payments on our ~~outstanding~~ senior notes.

The following table sets out our total capital expenditures and interest expense for the periods indicated:


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
	(in thousands)				(in thousands)
Capital expenditures	$	19,389	$	16,184	$	23,018	$	19,389
Cash paid for interest expense⁽¹⁾	$	16,983	$	11,272	$	37,278	$	16,983
Interest expense⁽²⁾	$	18,551	$	12,115	$	20,084	$	18,551

(1)	Amounts differ from interest expense which includesnon-cash items. See supplemental disclosure of cash flow information from our Interim Consolidated ~~Statement~~Statements of Cash Flows included in this report.

(2)

Interest on our senior notes due 2022 ~~Senior Notes is~~was paid semi-annually in June and December of each ~~year and interest~~year. In October 2019, we redeemed the remaining $100.0 million of our senior notes due 2022. Interest on our senior notes due in 2024 is paid semi-annually in February and August of each year. Interest on our senior notes due 2025 ~~Senior Notes~~ and on our senior notes due in 2026 is paid semi-annually in January and July of each year, commencing in July 2019 ~~and July 2018, respectively.~~for our senior notes due 2025.

FORM 10-Q

QUARTERLY REPORT - PAGE 28

As a result of the global and financial uncertainty resulting from the COVID-19 pandemic, we are working to lower our costs and working capital usage and conservatively managing liquidity. As a result, we have reduced our planned 2020 capital expenditures, excluding amounts being financed by government grants and expected insurance proceeds, to about $90 million and reduced our quarterly dividend to $0.065 per share.

As at March 31, ~~2019~~2020 our cash and cash equivalents ~~decreased~~were $286.5 million compared to ~~$233.2 million from $240.5~~$351.1 million at the end of ~~2018.~~2019. As at March 31, ~~2019,~~2020, we had approximately ~~$259.9~~$229.9 million available under our revolving credit facilities. As of March 31, 2020, our cash and cash equivalents and availability under our revolving credit facilities provide liquidity of about $516.5 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.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 31~~

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 Form10-K for the fiscal year ended December 31, ~~2018.~~2019.

As at March 31, ~~2019,~~2020, we were in full compliance with all of the covenants of our indebtedness.

Off-Balance Sheet Arrangements

At March 31, ~~2019,~~2020, we did not have anyoff-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of RegulationS-K).

Contractual Obligations and Commitments

There were no material changes outside the ordinary course to any of our material contractual obligations during the three months ended March 31, ~~2019.~~2020.

Foreign Currency

As a majority of our assets, liabilities and expenditures are held or denominated in euros or Canadian dollars, our consolidated financial results are subject to foreign currency exchange rate fluctuations.

We translate foreign denominated assets and liabilities into dollars at the rate of exchange on the balance sheet date. Equity accounts are translated using historical exchange rates. Unrealized gains or losses from these translations are recorded in other comprehensive income (loss) and do not affect our net earnings.

FORM 10-Q

QUARTERLY REPORT - PAGE 29

As a result of the strengthening of the dollar versus the Canadian dollar and euro as at March 31, ~~2019,~~2020, we recorded a ~~net~~non-cash decrease of ~~$3.9~~$75.0 million in the carrying value of our net assets, consisting primarily of our fixed assets denominated in Canadian dollars and euros. This non-cash decrease does not affect our net income (loss), 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 ~~$132.0~~$191.5 million.

Based upon the exchange rate as at March 31, ~~2019,~~2020, the dollar has strengthened by approximately 8% against the Canadian dollar and 2% against the euro ~~and weakened by approximately 2% against the Canadian dollar~~ since December 31, ~~2018.~~2019. See ~~“Quantitative~~"Quantitative and Qualitative Disclosures about Market ~~Risk”~~Risk".

Credit Rating of Senior Notes

~~FORM 10-Q~~We and our Senior Notes are rated by Standard & Poor's Rating Services, referred to as "S&P", and Moody's Investors Service, Inc., referred to as "Moody's".

~~QUARTERLY REPORT - PAGE 32~~Moody's rating on our Senior Notes is Ba3 and its outlook is stable. In April 2020, S&P reduced its rating on our Senior Notes to B+ from BB- and its outlook to negative from stable. Its recovery rating remained unchanged at "3". Credit ratings are not recommendations to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of the recording of assets, liabilities, revenues, and expenses in the consolidated financial statements and accompanying note disclosures. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increases, these judgments become even more subjective and complex.

Our significant accounting policies are disclosed in Note 1 to our audited annual financial statements included in our annual report on Form10-K for the fiscal year ended December 31, ~~2018.~~2019. 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 Form10-K for the fiscal year ended December 31, ~~2018.~~2019.

FORM 10-Q

QUARTERLY REPORT - PAGE 30

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”~~"forward-looking statements" within the meaning of thePrivate 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”~~"expects", ~~“anticipates”~~"anticipates", ~~“intends”~~"intends", ~~“plans”~~"plans", ~~“believes”~~"believes", ~~“seeks”~~"seeks", ~~“estimates”~~"estimates", or words of similar meaning, or future or conditional verbs, such as ~~“will”~~"will", ~~“should”~~"should", ~~“could”~~"could", or ~~“may”~~"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:

~~our business is highly cyclical in nature;~~

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;

•

our business is highly cyclical in nature;

•

the COVID-19 pandemic could materially adversely affect our business, financial position and results of operations;

•

our level of indebtedness could negatively impact our financial condition, results of operations and liquidity;

•

cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business;

•

we face intense competition in our markets;

•

we are exposed to currency exchange rate fluctuations;

•

political uncertainty and an increase in trade protectionism could have a material adverse effect on global macro-economic activities and trade and adversely affect our business, results of operations and financial condition;

•

our business is subject to risks associated with climate change and social and government responses thereto;

•

our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements;

•

future acquisitions may result in additional risks and uncertainties in our business;

•

we have limited control over the operations of the Cariboo mill;

•

fluctuations in prices and demand for lumber could adversely affect our business;

•

adverse housing market conditions may increase the credit risk from customers of our wood products segment;

•

our wood products segment lumber products are vulnerable to declines in demand due to competing technologies or materials;

•

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;

FORM 10-Q

QUARTERLY REPORT - PAGE 3331

~~our level of indebtedness could negatively impact our financial condition, results of operations and liquidity;~~

~~cyclical fluctuations in the price and supply of our raw materials, particularly fiber, could adversely affect our business;~~
•
we sell surplus energy pursuant to statutory energy programs in Germany and electricity purchase agreements with a utility in Western Canada;

~~we face intense competition in our markets;~~
•
we may experience material disruptions to our production;

~~we are exposed to currency exchange rate fluctuations;~~
•
we are subject to risks related to our employees;

political uncertainty, the rise of populist political parties and an increase in trade protectionism could have a material adverse effect on global macro-economic activities and trade and adversely affect our business, results of operations and financial condition;
•
we are dependent on key personnel;

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;
•
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 business is subject to risks associated with climate change and social and government responses thereto;~~
•
we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters;

~~our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for such capital requirements;~~
•
our insurance coverage may not be adequate;

~~our acquisition of MPR and other future acquisitions may result in additional risks and uncertainties in our business;~~
•
we rely on third parties for transportation services;

~~the operations of MPR are subject to their own risks, which we may not be able to manage successfully;~~
•
we periodically use derivatives to manage certain risks which could cause significant fluctuations in our operating results;

~~we may not be able to enhance the operating performance and financial results or lower the costs of MPR’s operations as planned;~~
•
failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business;

~~fluctuations in prices and demand for lumber could adversely affect our business;~~
•
the price of our common stock may be volatile;

~~adverse housing market conditions may increase the credit risk from customers of our wood products segment;~~
•
a small number of our shareholders could significantly influence our business;

~~our wood products segment lumber products are vulnerable to declines in demand due to competing technologies or materials;~~
•
our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations; and

~~we participate in German statutory energy programs;~~

~~we are subject to risks related to our employees;~~

~~we are dependent on key personnel;~~

~~we may experience material disruptions to our production;~~

~~if our long-lived assets become impaired, we may be required to recordnon-cash~~ ~~impairment charges that could have a material impact on our results of operations;~~

~~we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters;~~

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 34~~

~~our insurance coverage may not be adequate;~~

~~we rely on third parties for transportation services;~~

~~we periodically use derivatives to manage certain risks which could cause significant fluctuations in our operating results;~~

~~failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business;~~

~~the price of our common stock may be volatile;~~

~~a small number of our shareholders could significantly influence our business;~~

our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations; and

~~we are exposed to interest rate fluctuations.~~

•

we are exposed to interest rate fluctuations.

Given these uncertainties, you should not place undue reliance on our forward-looking statements. The ~~forgoing~~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 Form10-K for the fiscal year ended December 31, ~~2018.~~2019. We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.

Cyclical Nature of Business

Revenues

The pulp and lumber businesses are highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can materially affect prices. Pulp and lumber markets are sensitive to cyclical changes in the global economy, industry capacity and foreign exchange rates, all of which can have a significant influence on selling prices and our operating results. The length and magnitude of industry cycles have varied over time but generally reflect changes in macro-economic conditions and levels of industry capacity. Pulp and lumber are commodities that are generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is generally determined by supply relative to demand.

Industry capacity can fluctuate as changing industry conditions can influence producers to idle production capacity or permanently close mills. In addition, to avoid substantial cash costs in idling or closing a mill, some producers will choose to operate at a loss, sometimes even a cash loss, which can prolong weak pricing environments due to oversupply. Oversupply of our products can also result from producers introducing new capacity in response to

FORM 10-Q

QUARTERLY REPORT - PAGE 32

favorable pricing trends. Certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their ~~NBSK~~ pulp production on the market, if market conditions, prices and trends warrant such actions.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 35~~

Demand for each of pulp and lumber has historically been determined primarily by general global macro-economic conditions and has been closely tied to overall business activity. Pulp prices have been and are likely to continue to be volatile and can fluctuate widely over time. Between ~~2009~~2010 and 2019, European list prices for NBSK pulp have fluctuated between a low of approximately ~~$575~~$760 per ADMT in ~~2009~~2012 to a high of $1,230 per ADMT in 2018. In the same period, the average North American NBHK price has fluctuated between a low of ~~$520~~$700 per ADMT in ~~2009~~2012 to a high of ~~$1,215~~$1,235 per ADMT in 2018.

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 ~~producer’s~~pulp producer's actual sales price realizations are ~~list prices~~ net of customer discounts, rebates and other selling concessions. ~~Over the last three years, these types of selling concessions have increased as producers compete for customers and sales.~~

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.

~~FORM 10-Q~~

~~QUARTERLY REPORT - PAGE 36~~

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 3733

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 Form10-K for the fiscal year ended December 31, ~~2018.~~

2019.

FORM 10-Q

QUARTERLY REPORT - PAGE 3834

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 Rules13a-15(e) and15d-15(e) under theSecurities Exchange Act of 1934,, as amended, referred to as the ~~“Exchange Act”~~"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 Rules13a-15(f) and15d-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 3935

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 Form10-K for the fiscal year ended December 31, ~~2018.~~2019. 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~~Other than as set out below, there have been no material changes to the factors disclosed in Item 1A. Risk Factors in our annual report on Form10-K for the fiscal year ended December 31, ~~2018.~~2019.

The COVID-19 pandemic could materially adversely affect our business, financial position and results of operations.

The outbreak of COVID-19 in China in December 2019 and the subsequent spread of the virus globally through the first quarter of 2020 has resulted in significant and widespread infections and fatalities. In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic. The rapid spread of the virus has resulted in various federal, state and provincial governments declaring emergency measures and the implementation of numerous measures to attempt to contain the virus, including travel bans and restrictions, quarantines, business closures, shelter in place orders and other shutdowns and restrictions.

The impact of the pandemic and the global response thereto has, among other things, significantly disrupted global economic activity, negatively impacted gross domestic product and caused significant volatility in financial markets, with various countries already reporting significant declines in gross domestic product and business activity and material increases in unemployment. While various countries, including the United States, Germany, Canada and China have implemented stimulus packages and other fiscal measures to attempt to reduce the impact of the pandemic on their economies, the impact of the pandemic on global economic activity and markets both in the short and longer term is uncertain at this time.

As demand for our products has principally historically been determined by general global macro-economic activities, demand and prices for our products have historically decreased substantially during economic slowdowns. A significant economic downturn may adversely affect our sales and profitability and may also adversely affect our customers and suppliers. Additionally, significant disruptions and volatility in financial markets could have a negative impact on our ability to access capital in the future.

Our products are an important constituent of many pandemic related high demand goods such as tissue and cleaning products and certain personal protective equipment. However, our mills could experience disruptions, downtime and closures in the future as a result of changes to existing government response measures, outbreaks of the virus among our employees or operations or disruptions to raw material supplies or access to logistics networks.

The magnitude and duration of the disruption and resulting decline in business activity resulting from the COVID-19 pandemic is currently uncertain. The extent to which the COVID-19pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

•

the duration and scope of the pandemic;

•

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

•

the impact of the pandemic on economic activity and actions taken in response;

•

the effect on our customers’ demand for pulp and wood products;

FORM 10-Q

QUARTERLY REPORT - PAGE 36

•

our vendors' ability to supply us with raw materials;

•

the availability of logistics networks and our ability to ship our products to customers;

•

the ability of our customers to pay for our products; and

•

any closures of our and our customers’ facilities and offices.

The effect of the pandemic, including remote working arrangements for employees, may also increase the risk of cyberattacks on, and other material breaches of, our and our third party service providers' information technology systems.

Any of these events could cause or contribute to the risks and uncertainties enumerated in our annual report on Form 10-K for the year ended December 31, 2019 and could materially adversely affect our business, financial position and results of operations.

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In May 2019, our board of directors authorized a common stock repurchase program under which we may purchase up to $50 million of our shares until May 2020. Repurchases may be made from time to time under the program through open market or in privately negotiated transactions, through block trades or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. The repurchase program is subject to market conditions, applicable legal requirements and other factors. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or terminated at any time.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
March 1 - March 31, 2020		23,584	$	6.84		23,584	$	49,084,880

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION

None.

FORM 10-Q

QUARTERLY REPORT - PAGE 4037

ITEM 6.

EXHIBITS

Exhibit No.		Description
~~Exhibit No.~~		~~Description~~

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 ~~statements~~information from the ~~Company’s~~Quarterly Report on Form10-Q for the fiscal period ended March 31, ~~2019,~~2020 of Mercer International Inc., formatted in ~~XBRL:~~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’~~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, 2020, has been formatted in Inline XBRL.

In accordance with ReleaseNo. 33-8212 of the SEC, these Certifications: (i) are ~~“furnished”~~"furnished" to the SEC and are not ~~“filed”~~"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~~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 4138


MERCER INTERNATIONAL INC.

	By:	/s/ David M. Gandossi
		David M. Gandossi
		Chief Executive Officer and President

Large ~~Accelerated Filer~~ accelerated filer

Accelerated ~~Filer~~filer

~~Non-Accelerated Filer~~Non-accelerated filer

Smaller ~~Reporting Company~~reporting company

Emerging ~~Growth Company~~growth company