NEW YORK, May 10 /CNW/ -- Mercer International Inc.
(Nasdaq: MERCS, TSX: MRI.U) today reported results for the first quarter of
2005.
Summary Selected Highlights
Three Months Ended March 31,
2005 2004
(in thousands)
(unaudited)
Results of Operations
Revenues euro 50,316 euro 97,893
Loss from operations (894) (1,896)
Operating EBITDA(1) 10,093 4,397
Interest expense (19,263) (2,988)
Derivative financial instruments, net (3,859) (22,445)
Impairment of investments (1,645) -
Income tax (provision) benefit (3,035) 20
Net loss (19,667) (18,966)
Loss per share (basic and diluted) (0.77) (1.11)
(1) For a definition of Operating EBITDA, see page 6 of this press
release and for a reconciliation of net loss to Operating EBITDA, see
page 5 of the financial tables included in this press release.
Three Months Ended March 31,
2005 2004
(ADMTs)
Other Data
Production by Product Class:
Pulp production by mill
Rosenthal 75,872 79,067
Stendal 107,981 -
Celgar 60,762 -
Total pulp production 244,615 79,067
Paper production 15,958 17,068
Total production 260,573 96,135
Sales Volume by Product Class:
Pulp sales volume by mill
Rosenthal 78,804 81,493
Stendal 102,073 -
Celgar 18,347 -
Total pulp sales volume 199,224 81,493
Paper sales volume 16,638 17,406
Total sales volume 215,862 98,899
(per ADMT)
Average Prices:
Pulp(1) euro 490 ($642) euro 464 ($580)
Paper(2) euro 970 euro 917
Mill Net Realizations:
Pulp euro 409 euro 416
Paper euro 924 euro 879
(1) Average list prices for NBSK pulp in Europe.
(2) Average weighted gross prices for the Company's paper products.
Certain key factors affecting our 2005 first quarter results include:
-- Revenues in the current quarter increased by euro 47.6 million over
the prior period of 2004 to euro 97.9 million, primarily from the
inclusion of production and sales from our Stendal pulp mill and, to
a much lesser extent, sales from the newly acquired Celgar mill. In
the current period, sales from the Celgar mill were well below
customary levels as we owned the mill for only six weeks and rebuilt
its finished goods inventory to normalized levels. We did not
purchase any finished goods inventory when we acquired the Celgar
mill in February 2005.
-- Interest expense increased to euro 19.3 million in the current quarter
from euro 3.0 million in the prior quarter of 2004. The completion of
the Stendal mill resulted in our expensing euro 11.8 million of the
associated interest in the current period versus capitalizing almost
all of such interest expense in the comparative period. In the
current quarter, we also had interest expense of euro 2.7 million
relating to our $310 million 9.25% senior notes issued in February
2005.
-- We recorded a net loss of euro 3.9 million on the marked-to-market
valuation of our derivatives in the current quarter primarily due to
the strengthening of the U.S. dollar versus the Euro at the end of the
quarter.
-- During the current quarter, we wrote down the value of certain legacy
investments in the amount of euro 1.6 million which are unrelated to
our operations due to the uncertainty surrounding these investments.
-- We recorded a non-cash provision for income taxes of euro 3.0 million
in the current quarter against our deferred income tax asset.
-- Pulp markets in Europe were generally stable in the first quarter of
2005. List prices for NBSK pulp in Europe increased to $642 per ADMT,
but such increase was partially offset by the continuing overall
weakness of the U.S. dollar versus the Euro.
As at As at
March 31, December 31,
2005 2004
(in thousands)
(unaudited)
Financial Position
Cash and cash equivalents euro 114,096 euro 49,568
Cash restricted 70,421 45,295
Receivables 64,058 54,687
Inventories 81,330 52,898
Prepaid expenses and other 5,481 4,961
Accounts payable and accrued expenses 82,778 56,542
Construction costs payable 67,737 65,436
Debt, current portion 102,269 107,090
Working capital (deficit) 82,602 (21,659)
Property, plant and equipment 1,109,765 936,035
Total assets 1,531,440 1,255,649
Long-term liabilities 1,038,450(1) 863,840
Shareholders' equity 240,206 162,741
(1) Includes euro 25.5 million outstanding under the revolving credit
facilities for the Rosenthal and Celgar mills.
We had good liquidity at March 31, 2005. Certain key factors affecting our
liquidity include:
-- We had unrestricted cash and cash equivalents of euro 114.1 million.
-- The current Stendal construction costs payable of euro 67.7 million
will be paid from restricted cash of euro 70.4 million held for such
purpose.
-- We qualified for investment grants relating to the Stendal mill
totaling approximately euro 65.9 million at March 31, 2005 and expect
to qualify for additional grants totaling euro 22.6 million from the
federal and state governments of Germany, which we expect to receive
in 2005. These grants, when received, will be applied to repay the
euro 100.0 million of the current portion of our debt of euro 102.3
million that has been drawn under a dedicated tranche of the Stendal
loan facility. Under our accounting policies, we do not record these
government grants until they are received. The balance outstanding
under this dedicated tranche of the Stendal loan facility will be
substantially paid from VAT credits we expect to receive in the
ordinary course.
-- Without giving effect to any government grants we expect to receive for
the Stendal mill, we had net working capital of euro 82.6 million at
March 31, 2005.
Results of Operations - 2005 First Quarter
Revenues for the three months ended March 31, 2005 increased to euro 97.9
million from euro 50.3 million in the comparative period of 2004, primarily
because of higher pulp sales resulting from the inclusion of sales from our
Stendal mill. In the three months ended March 31, 2005, the Stendal mill sold
102,073 ADMTs of NBSK pulp and had sales of euro 40.8 million. Pulp sales from
the Celgar mill for the quarter were well below customary levels as we rebuilt
the finished goods inventory at the mill, which we did not purchase as part of
its acquisition, and we only operated the mill for six weeks.
Cost of sales and general, administrative and other expenses in the first
quarter of 2005 increased to euro 98.8 million from euro 52.2 million in the
comparative period of 2004, primarily as a result of the inclusion of
production from our Stendal mill and the operations of the Celgar mill.
For the 2005 first quarter, revenues from our pulp operations increased to
euro 84.1 million from euro 35.4 million in the same period a year ago,
primarily as a result of the inclusion of production from our Stendal mill and
higher pulp prices. List prices for NBSK pulp in Europe were approximately
euro 490 ($642) per ADMT in the first quarter of 2005, approximately euro 464
($580) per ADMT in the first quarter of last year and approximately euro 466
($603) in the fourth quarter of 2004. The increase in NBSK pulp prices was
partially offset by the overall weakness of the U.S. dollar versus the Euro.
Pulp sales by volume were 199,224 ADMTs in the current quarter, 81,493
ADMTs in the comparative quarter of 2004 and 192,254 ADMTs in the fourth
quarter of last year.
Pulp sales realizations decreased to euro 409 per ADMT on average in the
2005 first quarter from euro 416 per ADMT in the 2004 first quarter, primarily
as a result of lower price realizations of the Stendal mill during the quarter
when it sold pulp at a discounted price as a result of its start up. We expect
that such discount will be eliminated during the year. In the first quarter of
2005, producers generally were affected by higher discounts to pulp list
prices than previously.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to euro 82.8 million in the 2005 first quarter from euro
36.1 million in the first quarter of 2004, primarily as a result of the
inclusion of euro 37.1 million of operating costs related to the Stendal mill
and the operations of the Celgar mill.
Depreciation for the pulp operations increased to euro 10.8 million in the
current quarter, from euro 5.6 million in the first quarter of 2004, primarily
as a result of the inclusion of euro 6.7 million of depreciation from the
Stendal mill, partially offset by lower depreciation at the Rosenthal mill.
For the first quarter of 2005, our pulp operations generated operating
income of euro 1.3 million, versus an operating loss of euro 0.7 million in
the first quarter of 2004, primarily as a result of lower operating,
depreciation and other costs at our Rosenthal mill.
Revenues from our paper operations in the current quarter were euro 15.4
million, compared with euro 15.3 million in the same period of last year. For
the first quarter of 2005, total paper sales volumes were 16,638 ADMTs, versus
17,406 ADMTs in the first quarter of 2004 due to a shift in the product mix at
our paper mills. Average prices realized on our paper products in the current
quarter increased slightly, reflecting the shift in the product mix.
Cost of sales and general, administrative and other expenses for the paper
operations in the first quarter of 2005 decreased slightly to euro 15.6
million from euro 15.7 million in the comparative quarter of 2004.
For the 2005 first quarter, our paper operations generated an operating
loss of euro 0.3 million, compared to an operating loss of euro 0.4 million in
the first quarter of 2004.
In the first quarter of 2005, we had a loss from operations of euro 0.9
million, compared to euro 1.9 million in the same period last year, primarily
as a result of operating losses from our Stendal mill.
Interest expense in the first quarter of 2005 increased to euro 19.3
million from euro 3.0 million in the year ago period, due to the expensing of
interest of euro 11.8 million relating to the Stendal mill and higher
borrowings resulting primarily from our $310 million senior note issue in
February 2005. In the first quarter of 2004, substantially all of the interest
associated with the Stendal mill was capitalized.
In the first quarter of 2005, Stendal entered into certain foreign
currency derivatives to swap a portion of its long-term bank debt from Euros
to U.S. dollars and certain currency forwards and we recorded a net non-cash
holding loss of euro 4.1 million before minority interests upon the marked to
market valuation of such derivatives due to the strengthening of the U.S.
dollar versus the Euro at the end of the quarter. In the first quarter of
2004, we recorded a net non-cash holding loss of euro 5.0 million before
minority interests on our then outstanding currency derivatives of Rosenthal
and Stendal. In the first quarter of 2005, we also recorded a marginal net
gain before minority interests on the marked to market valuation of the
Stendal interest rate derivatives and settlement of the Rosenthal interest
rate derivatives versus a net non-cash holding loss thereon of euro 17.5
million before minority interests in the first quarter of 2004.
In the first quarter of 2005, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal mill, was euro
6.6 million, compared to euro 7.4 million in the first quarter of 2004.
On May 6, 2005, our management determined to record, and our Audit
Committee approved, an adjustment of euro 1.6 million for the non-cash impact
of other-than-temporary impairment losses on our available-for-sale securities
and a loan receivable that relate to an investment in a venture company, which
is a legacy investment that we have held since approximately 1996. In April
2005, the venture company proposed to place itself into liquidation. As a
result, management determined to record impairment charges sufficient to
reduce its investment to the net amount estimated to be recovered. We do not
currently expect the impairment charge to result in any future cash
expenditures.
We reported a net loss for the first quarter of 2005 of euro 19.7 million,
or euro 0.77 per basic and diluted share, which reflected the interest expense
related to our Stendal mill of euro 11.8 million, the net losses on our
derivatives of euro 3.9 million and the non-cash impairment charge of euro 1.6
million relating to investments. In the first quarter of 2004, we reported a
net loss of euro 19.0 million, or euro 1.11 per basic and diluted share.
We generated "Operating EBITDA" of euro 10.1 million and euro 4.4 million
in the three months ended March 31, 2005 and 2004, respectively. Operating
EBITDA is defined as income (loss) from operations plus depreciation and
amortization and non-recurring capital asset impairment charges. Management
uses Operating EBITDA as a benchmark measurement of its own operating results,
and as a benchmark relative to its competitors. Management considers it to be
a meaningful supplement to operating income as a performance measure primarily
because depreciation expense and non-recurring capital asset impairment
charges are not an actual cash cost, and depreciation expense varies widely
from company to company in a manner that management considers largely
independent of the underlying cost efficiency of their 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,
nor as an alternative to net cash from operating activities as a measure of
liquidity. 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.
At March 31, 2005, our cash and cash equivalents were euro 114.1 million,
compared to euro 49.6 million at December 31, 2004. We also had euro 70.4
million of cash restricted to pay current Stendal construction costs payable
of euro 67.7 million at March 31, 2005. We also had euro 19.1 million of cash
restricted in a debt service account for the project financing for the Stendal
mill. At March 31, 2005, we qualified for investment grants related to the
Stendal mill totaling approximately euro 65.9 million, and expect to qualify
for additional investment grants totaling euro 22.6 million, from the federal
and state governments of Germany, which we expect to receive in 2005. These
grants, when received, will be applied to repay the amounts drawn under the
current portion of a dedicated tranche of the Stendal loan facility. Under our
accounting policies, we do not record these grants until they are received.
The balance outstanding under this dedicated tranche of the Stendal loan
facility will be substantially paid from VAT credits we expect to receive in
the ordinary course.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are very excited
about the prospects for the Celgar pulp mill which we acquired in February
2005. We believe there are a number of opportunities to enhance its
performance. Sales from the Celgar mill in the first quarter were well below
customary levels as we only owned it for six weeks during the period and the
mill had to rebuild its finished goods inventory which we did not purchase
when we acquired it."
Mr. Lee also stated: "We are generally pleased with the ramp up of our
Stendal mill which is proceeding substantially as planned. Although there were
some minor outages and trips, they were rectified as part of the ramp up. The
mill produced pulp at approximately 82% of its rated capacity in the first
quarter of 2005." He added: "In the first quarter, we delivered an acceptance
certificate and assumed responsibility for the operation of the Stendal mill.
In connection therewith, the main contractor for the mill and certain
suppliers have agreed to implement certain additional measures, which include
the installation of two additional digesters and making improvements to the
NCG boiler and water treatment plant. These additional measures should be
completed by the end of 2005 and increase the production capacity of the
Stendal mill to over 600,000 ADMTs per annum."
Mr. Lee continued: "Our results for the first quarter of 2005 are
reflective of generally stable pulp markets in Europe, the higher production
from our Stendal mill and the partial results of the Celgar mill. Although
NBSK pulp prices in Europe generally improved, such improvements were
partially offset by the overall weakness of the U.S. dollar which fell by
approximately 6.5% versus the Euro since the end of the first quarter of
2004."
Mr. Lee continued: "Currently, European pulp prices reflect reasonable
demand and the general weakness of the U.S. dollar versus the Euro. We are
pleased with the customer acceptance of pulp from the Stendal mill and are
focusing on building long-term customer contracts and eliminating the price
discount associated with its start up."
He added: "Asian pulp markets and, in particular, China, are becoming an
important market for us primarily because of the acquisition of the Celgar
mill. During the current quarter of 2005, pulp demand in China was generally
weak with sales prices generally around the U.S.$540 per ADMT level. In
particular, pulp customers in China substantially curtailed purchases at the
end of the current quarter. We currently expect pulp demand in China to
improve over the next six months, which may permit some price improvement.
Overall, the demand growth expectation for Asia and China is generally high."
Mr. Lee concluded: "This is an exciting time for the Company as we are
building a world-class NBSK pulp production and sales organization. In the
short term, we will be focusing on the continuing ramp up of the Stendal mill,
improving its efficiency and costs, integrating our overall operations and
building the depth and penetration of our NBSK marketing activities."
In conjunction with this release, Mercer International Inc. will host a
conference call, which will be simultaneously broadcast live over the
Internet. Management will host the call, which is scheduled for Tuesday, May
10, 2005 at 10:00 AM ET. Listeners can access the conference call live and
archived over the Internet through a link at the company's web site at
http://www.mercerinternational.com, or at
http://phx.corporate-ir.net/playerlink.zhtml?c=62074&s=wm&e=1050591. Please
allow 15 minutes prior to the call to visit the site and download and install
any necessary audio software. A replay of this call will be available
approximately two hours after the live call ends until May 17, 2005 at 11:59
p.m. (Eastern Time). The replay number is (800) 642-1687, and the passcode is
6170331.
Mercer International Inc. is a global pulp and paper manufacturing
company. To obtain further information on the company, please visit its web
site at http://www.mercerinternational.com.
The preceding includes forward looking statements which involve known and
unknown risks and uncertainties which may cause the company's actual results
in future periods to differ materially from forecasted results. Among those
factors which could cause actual results to differ materially are the
following: market conditions, competition and other risk factors listed from
time to time in the company's SEC reports.
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
(Euros in thousands)
March 31, December 31,
2005 2004
ASSETS
Current Assets
Cash and cash equivalents euro 114,096 euro 49,568
Cash restricted 70,421 45,295
Receivables 64,058 54,687
Inventories 81,330 52,898
Prepaid expenses and other 5,481 4,961
Total current assets 335,386 207,409
Long-Term Assets
Cash restricted 19,074 47,538
Property, plant and equipment 1,109,765 936,035
Investments - 983
Equity method investments 3,967 4,096
Deferred note issuance and other costs 9,459 5,069
Deferred income tax 53,789 54,519
1,196,054 1,048,240
Total assets euro 1,531,440 euro 1,255,649
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses euro 82,778 euro 56,542
Construction costs payable 67,737 65,436
Debt, current portion 102,269 107,090
Total current liabilities 252,784 229,068
Long-Term Liabilities
Debt, less current portion 928,803 777,272
Unrealized foreign exchange rate derivative loss 4,044 -
Unrealized interest rate derivative losses 75,127 75,471
Pension and other post-retirement benefit
obligations 16,622 -
Capital leases and other 9,513 9,035
Deferred income tax 4,341 2,062
1,038,450 863,840
Total liabilities 1,291,234 1,092,908
Minority Interest - -
SHAREHOLDERS' EQUITY
Shares of beneficial interest 180,856 83,397
Additional paid-in capital, stock options 14 14
Retained earnings 49,509 69,176
Accumulated other comprehensive income 9,827 10,154
Total shareholders' equity 240,206 162,741
Total liabilities and shareholders'
equity euro 1,531,440 euro 1,255,649
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 97,893 euro 50,316
Costs and expenses:
Cost of sales 90,989 45,418
General and administrative expenses 7,798 6,541
Flooding losses and expenses, less grant income - 253
Total costs and expenses 98,787 52,212
Loss from operations (894) (1,896)
Other income (expense)
Interest expense (19,263) (2,988)
Investment income 175 934
Derivative financial instruments, net (3,859) (22,445)
Foreign exchange gain on debt 2,297 -
Impairment of investments (1,645) -
Total other expense (22,295) (24,499)
Loss before income taxes and minority
interest (23,189) (26,395)
Income tax (provision) benefit (3,035) 20
Loss before minority interest (26,224) (26,375)
Minority interest 6,557 7,409
Net loss euro (19,667) euro (18,966)
Retained earnings, beginning of period 69,176 49,196
Retained earnings, end of period euro 49,509 euro 30,230
Loss per share
Basic and diluted euro (0.77) euro (1.11)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Cash Flows from (used in) Operating Activities:
Net loss euro (19,667) euro (18,966)
Adjustments to reconcile net loss to cash
flows from operating activities
Cumulative unrealized losses on derivatives 3,754 22,445
Depreciation and amortization 11,161 6,429
Unrealized foreign exchange gain on debt (2,297) -
Impairment of investments 1,645 -
Minority interest (6,557) (7,409)
Deferred income taxes 3,009 (20)
Stock compensation expense 36 596
Other 392 (30)
Changes in current assets and liabilities
Receivables (9,565) 4,014
Inventories (8,463) (3,014)
Accounts payable and accrued expenses 24,609 6,015
Other (401) (1,609)
Net cash from (used in) operating activities (2,344) 8,451
Cash Flows from (used in) Investing Activities:
Purchase of property, plant and equipment,
net of investment grants (4,136) (50,640)
Acquisition of Celgar pulp mill (146,286) -
Sale of available-for-sale securities - 614
Net cash used in investing activities (150,422) (50,026)
Cash Flows from (used in) Financing Activities:
Cash restricted 3,338 (14,664)
Increase in construction costs payable 2,301 (29,371)
Proceeds from borrowings of notes payable
and debt 323,093 90,000
Repayment of notes payable and debt (178,691) (8,384)
Repayment of capital lease obligations (1,147) (243)
Issuance of shares of beneficial interest 66,645 308
Net cash from financing activities 215,539 37,646
Effect of exchange rate changes on cash and
cash equivalents 1,755 72
Net increase (decrease) in cash and cash
equivalents 64,528 (3,857)
Cash and cash equivalents, beginning of period 49,568 51,993
Cash and cash equivalents, end of period euro 114,096 euro 48,136
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
March 31, 2005
Sales to external
customers euro 34,096 euro 7,616 euro 40,798 euro 82,510
Intersegment
net sales - - 1,554 1,554
34,096 7,616 42,352 84,064
Operating costs 25,188 5,135 37,135 67,458
Depreciation and
amortization 3,268 823 6,681 10,772
General and
administrative 1,901 1,675 975 4,551
30,357 7,633 44,791 82,781
Income (loss) from
operations 3,739 (17) (2,439) 1,283
Interest expense
Investment income
Derivative financial
instruments, net
Foreign exchange
gain on debt
Impairment of
investments
Loss before income
taxes and minority
interest
Segment
assets euro 349,865 euro 220,739 euro 915,178 euro 1,485,782
Capital
expenditures euro 594 euro 209 euro 2,460 euro 3,263
Three Months Ended
March 31, 2004
Sales to
external
customers euro 35,009 euro - euro - euro 35,009
Intersegment
net sales 429 - - 429
35,438 - - 35,438
Operating costs 25,807 - - 25,807
Depreciation and
amortization 5,582 - - 5,582
General and
administrative 1,988 - 2,741 4,729
Flooding grants,
less losses and
expenses - - - -
33,377 - 2,741 36,118
Income (loss) from
operations 2,061 - (2,741) (680)
Interest expense
Investment income
Derivative financial instruments, net
Loss before income taxes and
minority interest
Segment
assets euro 369,523 euro - euro 557,672 euro 927,195
Capital
expenditures euro 622 euro - euro 67,924 euro 68,546
Corporate,
Other and Consolidated
Paper Eliminations Total
Three Months Ended March 31, 2005
Sales to external customers euro 15,383 euro - euro 97,893
Intersegment net sales - (1,554) -
15,383 (1,554) 97,893
Operating costs 14,231 (1,687) 80,002
Depreciation and amortization 181 34 10,987
General and administrative 1,236 2,011 7,798
15,648 358 98,787
Income (loss) from operations (265) (1,912) (894)
Interest expense (19,263)
Investment income 175
Derivative financial instruments, net (3,859)
Foreign exchange gain on debt 2,297
Impairment of investments (1,645)
(22,295)
Loss before income taxes and
minority interest euro (23,189)
Segment assets euro 24,911 euro 20,747 euro 1,531,440
Capital expenditures euro 850 euro 23 euro 4,136
Three Months Ended March 31, 2004
Sales to external customers euro 15,307 euro - euro 50,316
Intersegment net sales - (429) -
15,307 (429) 50,316
Operating costs 13,758 (440) 39,125
Depreciation and amortization 552 159 6,293
General and administrative 1,174 638 6,541
Flooding grants, less losses
and expenses 253 - 253
15,737 357 52,212
Income (loss) from operations (430) (786) (1,896)
Interest expense (2,988)
Investment income 934
Derivative financial instruments, net (22,445)
(24,499)
Loss before income taxes and
minority interest euro (26,395)
Segment assets euro 29,444 euro 34,679 euro 991,318
Capital expenditures euro 852 euro 1 euro 69,399
(1) The results of the Celgar pulp mill are from the date of its
acquisition on February 14, 2005.
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at March 31, 2005
(Unaudited)
(Euros in thousands)
The terms of the indenture governing our 9.25% senior unsecured notes
requires that we provide the results of operations and financial condition of
Mercer Inc. and our restricted subsidiaries under the indenture, collectively
referred to as the "Restricted Group". As at and during the three months ended
March 31, 2005, the Restricted Group was comprised of Mercer Inc., certain
holding subsidiaries and Rosenthal, and the Celgar mill from the date of its
acquisition on February 14, 2005. During the three months ended March 31, 2004
and as at December 31, 2004, the Restricted Group was comprised of Mercer
Inc., certain holding subsidiaries and Rosenthal, which was the only member of
the Restricted Group with material operations during this period. We acquired
the Celgar mill in February 2005 and, as a result, its operations for the
three months ended March 31, 2004 and financial condition at December 31, 2004
are not included for such periods. The Restricted Group excludes our paper
operations and the Stendal mill.
March 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 67,457 euro 46,639 euro - euro 114,096
Cash restricted - 70,421 - 70,421
Receivables 30,526 33,532 - 64,058
Inventories 45,106 36,224 - 81,330
Prepaid expenses
and other 2,666 2,815 - 5,481
Total current assets 145,755 189,631 - 335,386
Cash restricted - 19,074 - 19,074
Property, plant and
equipment 390,492 719,273 - 1,109,765
Other 10,049 4,129 (752) 13,426
Deferred income tax 24,206 29,583 - 53,789
Due from unrestricted
group 43,917 - (43,917) -
Total assets euro 614,419 euro 961,690 euro (44,669) euro 1,531,440
LIABILITIES
Current liabilities
Accounts payable
and accrued
expenses euro 36,136 euro 46,642 euro - euro 82,778
Construction
costs payable - 67,737 - 67,737
Debt, current portion - 102,269 - 102,269
Total current
liabilities 36,136 216,648 - 252,784
Debt, less current
portion 328,128 600,675 - 928,803
Due to restricted
group - 43,917 (43,917) -
Unrealized derivatives
loss - 79,171 - 79,171
Other 19,400 6,735 - 26,135
Deferred income tax 1,773 2,568 - 4,341
Total liabilities 385,437 949,714 (43,917) 1,291,234
SHAREHOLDERS' EQUITY
Total shareholders'
equity 228,982 11,976 (752) 240,206
Total liabilities
and shareholders'
equity euro 614,419 euro 961,690 euro (44,669) euro 1,531,440
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at December 31, 2004
(Unaudited)
(Euros in thousands)
December 31, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 45,487 euro 4,081 euro - euro 49,568
Cash restricted - 45,295 - 45,295
Receivables 21,791 33,060 (164) 54,687
Inventories 13,911 38,987 - 52,898
Prepaid expenses and
other 1,995 2,966 - 4,961
Total current assets 83,184 124,389 (164) 207,409
Cash restricted 28,464 19,074 - 47,538
Property, plant and
equipment 213,678 722,394 (37) 936,035
Other 5,936 4,212 - 10,148
Deferred income tax 26,592 27,927 - 54,519
Due from unrestricted
group 43,467 - (43,467) -
Total assets euro 401,321 euro 897,996 euro (43,668) euro 1,255,649
LIABILITIES
Current liabilities
Accounts payable
and accrued
expenses euro 19,615 euro 37,091 euro (164) euro 56,542
Construction
costs payable - 65,436 - 65,436
Debt, current portion 15,089 92,001 - 107,090
Total current
liabilities 34,704 194,528 (164) 229,068
Debt, less current
portion 224,542 552,730 - 777,272
Due to restricted group - 43,467 (43,467) -
Unrealized derivative loss - 75,471 - 75,471
Other 1,878 7,157 - 9,035
Deferred income tax 1,719 343 - 2,062
Total liabilities 262,843 873,696 (43,631) 1,092,908
SHAREHOLDERS' EQUITY
Total shareholders'
equity 138,478 24,300 (37) 162,741
Total liabilities and
shareholders'
equity euro 401,321 euro 897,996 euro (43,668) euro 1,255,649
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
March 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
euro 41,712 euro 56,181 euro - euro 97,893
Operating costs 29,973 50,029 - 80,002
Operating depreciation
and amortization 4,125 6,645 217 10,987
General and administrative 5,587 2,211 - 7,798
39,685 58,885 217 98,787
Income (loss)
from operations 2,027 (2,704) (217) (894)
Other income (expense)
Interest expense (7,671) (11,986) 394 (19,263)
Investment income 328 309 (462) 175
Derivative financial
instruments, net (105) (3,754) - (3,859)
Foreign exchange
gain on debt 2,297 - - 2,297
Impairment
of investments (1,178) - (467) (1,645)
Total other expense (6,329) (15,431) (535) (22,295)
Loss before income
taxes and
minority interest (4,302) (18,135) (752) (23,189)
Income tax provision (3,115) 80 - (3,035)
Loss before
minority interest (7,417) (18,055) (752) (26,224)
Minority interest - 6,557 - 6,557
Net loss euro (7,417) euro(11,498) euro (752) euro (19,667)
March 31, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
euro 35,438 euro 15,307 euro (429) euro 50,316
Operating costs 25,357 13,758 10 39,125
Operating depreciation
and amortization 5,582 552 159 6,293
General and administrative 3,114 3,915 (488) 6,541
Flooding grants, less
losses and expenses - 253 - 253
34,053 18,478 (319) 52,212
Income (loss)
from operations 1,385 (3,171) (110) (1,896)
Other income (expense)
Interest expense (4,076) (566) 1,654 (2,988)
Investment income 1,106 150 (322) 934
Derivative financial
instruments, net (4,890) (17,555) - (22,445)
Total other
income (expense) (7,860) (17,971) 1,332 (24,499)
Income (loss) before
income taxes and
minority interest (6,475) (21,142) 1,222 (26,395)
Income tax benefit - 20 - 20
Income (loss)
before minority
interest (6,475) (21,122) 1,222 (26,375)
Minority interest - 7,409 - 7,409
Net income (loss)
euro (6,475) euro(13,713) euro 1,222 euro (18,966)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Quarters Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
Three Months Ended
March 31,
2005 2004
(in thousands)
Net loss
euro (19,667) euro (18,966)
Minority interest (6,557) (7,409)
Income taxes (benefit) 3,035 (20)
Interest expense 19,263 2,988
Investment income (175) (934)
Derivative financial instruments, net 3,859 22,445
Foreign exchange gain on debt (2,297) -
Impairment of investments 1,645 -
Loss from operations (894) (1,896)
Add: Depreciation and amortization 10,987 6,293
Operating EBITDA(1)
euro 10,093 euro 4,397
(1) 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 accounting principles generally
accepted in the United States, and should not be considered as an
alternative to net income (loss) or income (loss) from operations as
a measure of performance, nor as an alternative to net cash from
operating activities as a measure of liquidity. 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.
COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Quarters Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
Three Months Ended
March 31,
2005 2004
(in thousands)
Restricted Group(1)
Net loss
euro (7,417) euro (6,475)
Income taxes 3,115 -
Interest expense 7,671 4,076
Investment and other income (328) (1,106)
Derivative financial instruments, net 105 4,890
Foreign exchange gain on debt (2,297) -
Impairment of investments 1,178 -
Income from operations 2,027 1,385
Add: Depreciation and amortization 4,125 5,582
Operating EBITDA(2) euro 6,152 euro 6,967
(1) The results of the Celgar pulp mill are not included for the three
months ended March 31, 2004.
(2) Operating EBITDA does not reflect the impact of a number of items that
affect net income (loss), including financing costs and the effect of
derivative instruments. Operating EBITDA is not a measure of
financial performance under accounting principles generally accepted
in the United States, and should not be considered as an alternative
to net income (loss) or income (loss) from operations as a measure of
performance, nor as an alternative to net cash from operating
activities as a measure of liquidity. 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.
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