NEW YORK, Aug. 9 /CNW/ -- Mercer International Inc.
(Nasdaq: MERCS; TSX: MRI.U) today reported results for the second quarter of
2005.
Summary Selected Highlights
Three Months Ended June 30,
2005 2004
(in thousands)
Results of Operations (unaudited)
Revenues euro 129,609 euro 50,335
Income (loss) from operations 9,201 (978)
Operating EBITDA(1) 23,097 5,336
Interest expense (22,200) (2,366)
Unrealized gain (loss) on derivative
financial instruments, net(2) (69,451) 29,473
Unrealized foreign exchange loss on debt (9,806) -
Income tax (provision) benefit(3) 24,447 (219)
Net income (loss) (62,151) 16,241
Income (loss) per share
Basic (1.88) 0.94
Diluted (1.88) 0.57
Other Data
Total pulp sales volume(4) (ADMTs) 278,752 74,841
Mill net pulp price realizations
(per ADMT) euro 408 euro 471
(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 11
of the financial tables included in this press release.
(2) Non-cash marked to market valuation loss.
(3) Non-cash benefit for income taxes to our deferred income tax asset.
(4) Excluding intercompany sales volumes of 4,105 and 1,540 ADMTs of pulp
in the three months ended June 30, 2005 and 2004, respectively.
Certain key factors affecting our 2005 second quarter results include:
-- Revenues in the second quarter of 2005 increased by euro 79.3 million
over the comparative period of 2004 to euro 129.6 million, primarily
from the inclusion of production and sales from our Stendal and Celgar
pulp mills.
-- Interest expense increased to euro 22.2 million in the second quarter
of 2005 from euro 2.4 million in the comparative period of 2004. The
completion of the Stendal mill resulted in our expensing euro 14.5
million of the associated interest in the second quarter of 2005 versus
capitalizing almost all of such interest expense in the prior period.
In the current quarter, we also had interest expense of euro 5.7
million relating to our $310 million 9.25% senior notes issued in
February 2005.
-- Operating EBITDA increased to euro 23.1 million in the current quarter
from euro 5.3 million in the prior quarter reflecting higher pulp sales
and a contribution to income from operations of euro 6.3 million
resulting from the sale of excess carbon emission credits by our German
pulp mills. 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 11 of the financial tables included in this press release.
-- We recorded net unrealized non-cash holding losses on the marked-to-
market valuation of our interest rate and currency derivatives of euro
20.8 million and euro 48.3 million in the second quarter of 2005 due to
a decline in long-term European interest rates and the strengthening of
the U.S. dollar versus the Euro. We also recorded an unrealized non-
cash foreign exchange loss on our long-term debt of euro 9.8 million.
-- We recorded a non-cash benefit for income taxes of euro 24.4 million in
the second quarter of 2005 to our deferred income tax asset.
-- Pulp markets in Europe were generally stable in the second quarter of
2005. List prices for NBSK pulp in Europe decreased to $613 per ADMT,
but such decrease was partially offset by the strengthening of the U.S.
dollar versus the Euro.
Results of Operations - 2005 Second Quarter
Selected production and sales data for the three months ended June 30,
2005 and 2004 is as follows:
Three Months Ended June 30,
2005 2004
(ADMTs)
Production by Product Class:
Pulp production by mill:
Rosenthal 81,443 80,317
Celgar 111,071 -
Stendal 123,738 -
Total pulp production 316,252 80,317
Paper production 17,979 15,339
Total production 334,231 95,656
Revenues by Product Class: (in thousands)
Pulp revenues by mill:
Rosenthal euro 31,840 euro 36,022
Celgar 40,864 -
Stendal 40,808 927
Total pulp revenues(1) 113,512 36,949
Paper revenues 16,097 13,386
Total revenues(1) euro 129,609 euro 50,335
(1) Excluding intercompany net sales revenues of approximately euro 1.8
million and euro 0.8 million in the three months ended June 30, 2005
and 2004, respectively.
Revenues for the three months ended June 30, 2005 increased to euro 129.6
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 and Celgar mills. Pulp sales by volume were 278,752 ADMTs in the
second quarter of 2005, compared to 74,841 ADMTs in the comparative period of
2004. In the three months ended June 30, 2005, the Stendal and Celgar mills
sold 202,756 ADMTs of NBSK pulp and had sales of euro 81.7 million.
Cost of sales and general, administrative and other expenses in the second
quarter of 2005 increased to euro 120.4 million from euro 51.3 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 second quarter of 2005, revenues from our pulp operations
increased to euro 113.5 million from euro 36.9 million in the same period a
year ago, primarily as a result of the inclusion of production from our
Stendal and Celgar mills. List prices for NBSK pulp in Europe were
approximately euro 487 ($613) per ADMT in the second quarter of 2005, compared
to approximately euro 535 ($645) per ADMT in the comparative period of last
year. The decrease in NBSK pulp prices was partially offset by the
strengthening of the U.S. dollar versus the Euro during the current period.
Pulp sales realizations decreased to euro 408 per ADMT on average in the
second quarter of 2005 from euro 471 per ADMT in the second quarter of 2004,
primarily as a result of lower price realizations of the Stendal and Celgar
mills. The Stendal mill sold pulp at a discounted price as a result of its
start up, which we expect will be eliminated during the year, and the Celgar
mill sells a large portion of its production in Asian markets which had lower
sales prices than European markets.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to euro 102.9 million in the second quarter of 2005 from
euro 34.2 million in the comparative period of 2004, primarily as a result of
the inclusion of euro 77.6 million of operating costs related to the Stendal
and Celgar mills. In the second quarter of 2005, we recorded a contribution
to income from operations of euro 6.3 million resulting from the sale of
excess carbon emission credits by our German pulp mills.
Depreciation for the pulp operations increased to euro 13.4 million in the
current quarter, from euro 5.6 million in the second quarter of 2004,
primarily as a result of the inclusion of euro 10.0 million of depreciation
from the Stendal and Celgar mills.
For the second quarter of 2005, our pulp operations generated operating
income of euro 12.4 million, versus operating income of euro 3.5 million in
the comparative quarter of 2004, primarily as a result of the inclusion of the
results of the Stendal and Celgar mills, the sale of excess carbon emission
credits by our German pulp mills and lower costs and expenses at our Rosenthal
mill.
Revenues from our paper operations in the current quarter were euro 16.1
million, compared with euro 13.4 million in the same quarter of last year. For
the second quarter of 2005, total paper sales volumes were 17,840 ADMTs,
versus 15,383 ADMTs in the comparative quarter of 2004 primarily as a result
of 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 second quarter of 2005 increased to euro 16.9 million from
euro 15.9 million in the comparative quarter of 2004, primarily as a result of
the shift in the product mix.
For the second quarter of 2005, our paper operations generated an
operating loss of euro 0.8 million, compared to an operating loss of euro 2.5
million in the second quarter of 2004.
In the second quarter of 2005, we had income from operations of euro 9.2
million, compared to a loss from operations of euro 1.0 million in the same
quarter last year.
Interest expense in the second quarter of 2005 increased to euro 22.2
million from euro 2.4 million in the year ago period, due to interest expense
of euro 14.5 million relating to the Stendal mill and higher borrowings
resulting primarily from our $310 million senior note issue in February 2005.
In the second quarter of 2004, almost all of the interest associated with the
Stendal mill was capitalized during its construction.
Stendal had entered into certain foreign currency derivatives to swap a
portion of its long-term bank indebtedness from Euros to U.S. dollars and
certain currency forwards in the first quarter of 2005. In the second quarter
of 2005, Stendal entered into foreign currency derivatives to swap the balance
of its long-term indebtedness from Euros to U.S. dollars and a currency
forward. We recorded a net unrealized non-cash holding loss of euro 48.3
million before minority interests upon the marked to market valuation of such
currency derivatives due to the strengthening of the U.S. dollar versus the
Euro at the end of the quarter. In the comparative quarter of 2004, we
recorded a net unrealized non-cash holding gain of euro 13.7 million before
minority interests on the then outstanding currency derivatives of Rosenthal
and Stendal. In the second quarter of 2005, as a result of a decrease in long-
term European interest rates, we also recorded a net unrealized non-cash
holding loss of euro 20.8 million before minority interests on the marked to
market valuation of the Stendal interest rate derivatives versus a net
unrealized non-cash holding gain of euro 15.8 million before minority
interests on the interest rate derivatives of Stendal and Rosenthal in the
second quarter of 2004.
In the second quarter of 2005, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal mill, was euro
4.9 million, compared to euro (10.2) million in the second quarter of 2004.
We reported a net loss for the second quarter of 2005 of euro 62.2
million, or euro 1.88 per basic and diluted share, which reflected the net
unrealized non-cash holding losses on our currency and interest rate
derivatives of euro 69.5 million and the unrealized non-cash foreign exchange
loss on our long-term debt of euro 9.8 million, partially offset by the non-
cash benefit for income taxes of euro 24.4 million, and interest expense
related to our Stendal mill of euro 14.5 million. In the second quarter of
2004, we reported net income of euro 16.2 million, or euro 0.94 per basic
share and euro 0.57 per diluted share.
We generated "Operating EBITDA" of euro 23.1 million and euro 5.3 million
in the three months ended June 30, 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.
Liquidity
As at As at
June 30, December 31,
2005 2004
(in thousands)
(unaudited)
Financial Position
Cash and cash equivalents
euro 105,874 euro 49,568
Cash restricted 37,951 45,295
Receivables 75,344 54,687
Inventories 92,037 52,898
Prepaid expenses and other 7,057 4,961
Accounts payable and accrued expenses 101,399 56,542
Construction costs payable 34,090 65,436
Debt, current portion 97,618 107,090
Working capital (deficit) 85,156(1) (21,659)
Property, plant and equipment 1,109,394 936,035
Total assets 1,538,829 1,255,649
Long-term liabilities 1,125,857(2) 863,840
Shareholders' equity 179,865 162,741
(1) Does not include euro 88.5 million of government grants related to the
Stendal mill from the federal and state governments of Germany, which
we expect to receive in 2005.
(2) Includes euro 28.6 million outstanding under the revolving credit
facilities for the Rosenthal and Celgar mills.
We had good liquidity at June 30, 2005. Certain key factors affecting our
liquidity include:
-- We had unrestricted cash and cash equivalents of euro 105.9 million.
-- The current Stendal construction costs payable of euro 34.1 million
will be paid from restricted cash of euro 38.0 million held for such
purpose.
-- We qualified for investment grants relating to the Stendal mill
totaling approximately euro 88.5 million at June 30, 2005 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
95.0 million of the current portion of our debt of euro 97.6 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 85.2 million at
June 30, 2005.
Results of Operations -- Six Months Ended June 30, 2005
For the six months ended June 30, 2005, revenues increased to euro 227.5
million from euro 100.7 million in the prior period, primarily because of
higher pulp sales. We generated income from operations of euro 8.3 million in
the six months ended June 30, 2005, compared to a loss from operations of euro
2.9 million in the six months ended June 30, 2004. We generated Operating
EBITDA of euro 33.2 million and euro 9.7 million in the six months ended June
30, 2005 and 2004, respectively. For a reconciliation of net income (loss) to
Operating EBITDA, see page 11 of the financial tables included in this press
release. We reported a net loss of euro 81.8 million or euro 2.80 per diluted
share for the six months ended June 30, 2005, compared to a net loss of euro
2.7 million or euro 0.16 per diluted share for the six months ended June 30,
2004, which reflected an unrealized non-cash holding loss of euro 73.2 on our
interest rate and currency derivatives and an unrealized non-cash foreign
exchange loss on our long-term debt of euro 7.5 million, partially offset by
the non-cash benefit for income taxes of euro 21.4 million, and the inclusion
of certain non-capitalized interest of approximately euro 26.3 million related
to the Stendal mill in the current period.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are generally
pleased with the operating performance of our pulp mill facilities in the
quarter. The Celgar mill had very good production of 111,071 ADMTs, the
Stendal mill ramped up production according to plan and the Rosenthal mill
operated at a high rate of efficiency."
Mr. Lee continued: "Pulp prices were softer in the quarter with list
prices in Europe averaging euro 487 per ADMT. Pulp pricing in Asia, and
particularly China where Celgar has a large portion of its sales, remained
weak with prices averaging around euro 390 per ADMT in the quarter."
He further stated: "We currently expect pulp prices to remain around
current levels in the third quarter as a result of the traditional summer
slowdown with demand in China improving in the fourth quarter, which may
permit some price improvement."
He added: "We are pleased with the addition of Eric Heine and David
Cooper, both of whom are senior experienced pulp marketing professionals, to
lead our global pulp marketing strategy. Our added depth and leadership in
our pulp marketing side should permit us to increase our price realizations
over time."
Mr. Lee said: "The recent strengthening of the U.S. dollar versus the Euro
will improve our operating performance as NBSK pulp is priced in U.S. dollars.
A higher dollar generally results in increased Euro revenues."
He further stated: "Our results for the quarter reflect significant non-
cash charges on the marked to market valuation of Stendal's currency
derivatives of euro 48.3 million and its interest rate swap of euro 20.8
million, as well as a non-cash foreign exchange loss on our long-term debt of
euro 9.8 million."
Mr. Lee added: "I am also very pleased to announce that we have recently
approved an approximately C$28.5 million strategic capital plan for our Celgar
mill. The plan provides for additional washers, increases to the mill's
drying capacity and other smaller high return capital improvements. When
completed, the plan is expected to increase the Celgar mill's annual
production capacity to approximately 470,000 ADMTs, reduce operating costs
such as chemicals and energy, improve pulp quality and mill reliability. We
expect the cost of such plan to be met from cash on hand, cash flow from
operations and our existing credit facilities."
Mr. Lee concluded: "We intend to continue to focus on further improving
the efficiency of our mills, including ramping up the Stendal mill to its full
production capacity and integrating and improving our NBSK pulp marketing
activities. We believe this will position us as a leading world class NBSK
pulp production and sales company."
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,
August 9, 2005 at 10:00 AM (Eastern Time). 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=1113630. 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 August 16, 2005 at
11:59 p.m. (Eastern Time). The replay number is (800) 642-1687, and the
passcode is 8411532.
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 JUNE 30, 2005 AND DECEMBER 31, 2004
(Euros in thousands)
June 30, December 31,
2005 2004
ASSETS
Current Assets
Cash and cash equivalents euro 105,874 euro 49,568
Cash restricted 37,951 45,295
Receivables 75,344 54,687
Inventories 92,037 52,898
Prepaid expenses and other 7,057 4,961
Total current assets 318,263 207,409
Long-Term Assets
Cash restricted 19,074 47,538
Property, plant and equipment 1,109,394 936,035
Investments 4,728 5,079
Deferred note issuance and other costs 9,132 5,069
Deferred income tax 78,238 54,519
1,220,566 1,048,240
Total assets euro 1,538,829 euro 1,255,649
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses euro 101,399 euro 56,542
Construction costs payable 34,090 65,436
Debt, current portion 97,618 107,090
Total current liabilities 233,107 229,068
Long-Term Liabilities
Debt, less current portion 952,555 777,272
Unrealized foreign exchange rate derivative
losses 47,685 -
Unrealized interest rate derivative losses 95,946 75,471
Pension and other post-retirement benefit
obligations 15,728 -
Capital leases and other 9,800 9,035
Deferred income tax 4,143 2,062
1,125,857 863,840
Total liabilities 1,358,964 1,092,908
Minority Interest - -
SHAREHOLDERS' EQUITY
Shares of beneficial interest 180,916 83,397
Additional paid-in capital, stock options 14 14
Retained earnings (deficit) (12,642) 69,176
Accumulated other comprehensive income 11,577 10,154
Total shareholders' equity 179,865 162,741
Total liabilities and shareholders'
equity euro 1,538,829 euro 1,255,649
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 227,502 euro 100,651
Costs and expenses:
Cost of sales 210,167 88,628
General and administrative expenses 15,316 14,228
Gain on sale of emission credits (6,288) -
Flooding losses and expenses, less
grant income - 669
Total costs and expenses 219,195 103,525
Income (loss) from operations 8,307 (2,874)
Other income (expense):
Interest expense (41,463) (5,354)
Investment income 981 1,464
Realized loss on derivative financial
instruments (295) -
Unrealized gain (loss) on derivative
financial instruments (73,015) 7,028
Unrealized foreign exchange loss on debt (7,509) -
Impairment of investments (1,645) -
Total other (income) expense (122,946) 3,138
Income (loss) before income taxes and
minority interest (114,639) 264
Income tax (provision) benefit 21,412 (199)
Income (loss) before minority interest (93,227) 65
Minority interest 11,409 (2,790)
Net loss (81,818) (2,725)
Retained earnings, beginning of period 69,176 49,196
Retained earnings (deficit), end of
period euro (12,642) euro 46,471
Loss per share
Basic and diluted euro (2.80) euro (0.16)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 129,609 euro 50,335
Costs and expenses:
Cost of sales 119,178 43,210
General and administrative expenses 7,518 7,687
Gain on sale of emission credits (6,288) -
Flooding losses and expenses, less
grant income - 416
Total costs and expenses 120,408 51,313
Income (loss) from operations 9,201 (978)
Other income (expense):
Interest expense (22,200) (2,366)
Investment income 806 530
Unrealized gain (loss) on derivative
financial instruments (69,451) 29,473
Unrealized foreign exchange loss on debt (9,806) -
Total other income (expense) (100,651) 27,637
Income (loss) before income taxes and
minority interest (91,450) 26,659
Income tax (provision) benefit 24,447 (219)
Income (loss) before minority interest (67,003) 26,440
Minority interest 4,852 (10,199)
Net income (loss) (62,151) 16,241
Retained earnings, beginning of period 49,509 30,230
Retained earnings (deficit), end
of period euro (12,642) euro 46,471
Income (loss) per share
Basic euro (1.88) euro 0.94
Diluted euro (1.88) euro 0.57
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Cash Flows from (used in) Operating
Activities:
Net loss euro (81,818) euro (2,725)
Adjustments to reconcile net loss
to cash flows from operating
activities
Cumulative unrealized losses (gains)
on derivatives 73,015 (7,028)
Depreciation and amortization 25,299 12,607
Unrealized foreign exchange loss on debt 7,509 -
Impairment of investments and securities 1,645 -
Minority interest (11,409) 2,790
Deferred income taxes (21,638) -
Stock compensation expense 72 616
Other 125 204
Changes in current assets and liabilities
Receivables (20,742) (2,489)
Inventories (16,757) (17,995)
Accounts payable and accrued expenses 41,319 12,166
Other (1,835) (1,224)
Net cash used in operating activities (5,233) (3,078)
Cash Flows from (used in) Investing
Activities:
Purchase of property, plant and
equipment (8,493) (117,327)
Acquisition of Celgar pulp mill (146,608) -
Sale of available-for-sale securities - 1,161
Other - 115
Net cash used in investing activities (155,101) (116,051)
Cash Flows from (used in) Financing
Activities:
Cash restricted 35,808 (7,468)
Decrease in construction costs payable (31,346) (22,974)
Proceeds from borrowings of notes
payable and debt 325,195 126,000
Repayment of notes payable and debt (183,691) (14,782)
Proceeds from investment grants 342 28,710
Repayment of capital lease obligations (1,907) (633)
Issuance of shares of beneficial interest 66,645 582
Net cash from financing activities 211,046 109,435
Effect of exchange rate changes on cash and
cash equivalents 5,594 (63)
Net increase (decrease) in cash and
cash equivalents 56,306 (9,757)
Cash and cash equivalents,
beginning of period 49,568 51,993
Cash and cash equivalents, end of period euro 105,874 euro 42,236
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Six Months Ended
June 30, 2005
Sales to external
customers euro 65,936 euro 48,480 euro 81,606 euro 196,022
Intersegment net
sales - - 3,340 3,340
65,936 48,480 84,946 199,362
Operating costs 47,405 40,554 71,546 159,505
Depreciation and
amortization 6,630 4,097 13,454 24,181
General and
administrative 3,810 2,837 1,677 8,324
Emission credits (2,135) - (4,153) (6,288)
55,710 47,488 82,524 185,722
Income (loss) from
operations 10,226 992 2,422 13,640
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 347,935 euro 244,361 euro 906,244 euro 1,498,540
Six Months Ended
June 30, 2004
Sales to external
customers euro 71,031 euro - euro 927 euro 71,958
Intersegment net
sales 1,179 - - 1,179
72,210 - 927 73,137
Operating costs 49,125 - - 49,125
Depreciation and
amortization 11,136 - 12 11,148
General and
administrative 4,636 - 5,448 10,084
Flooding grants,
less losses and
expenses - - - -
64,897 - 5,460 70,357
Income (loss) from
operations 7,313 - (4,533) 2,780
Interest expense
Investment and
other income
Derivative financial
instruments, net
Income before income
taxes and minority
interest
Segment assets euro 365,342 euro - euro 663,193 euro 1,028,535
Corporate,
Other and Consolidated
Paper Eliminations Total
Six Months Ended
June 30, 2005
Sales to external
customers euro 31,480 euro - euro 227,502
Intersegment net sales - (3,340) -
31,480 (3,340) 227,502
Operating costs 29,601 (3,822) 185,284
Depreciation and
amortization 379 323 24,883
General and administrative 2,562 4,430 15,316
Emission credits - - (6,288)
32,542 931 219,195
Income (loss) from
operations (1,062) (4,271) 8,307
Interest expense (41,463)
Investment income 981
Derivative financial
instruments, net (73,310)
Foreign exchange gain
on debt (7,509)
Impairment of investments (1,645)
(122,946)
Loss before income
taxes and minority
interest euro (114,639)
Segment assets euro 24,294 euro 15,995 euro 1,538,829
Six Months Ended
June 30, 2004
Sales to external
customers euro 28,693 euro - euro 100,651
Intersegment net sales - (1,179) -
28,693 (1,179) 100,651
Operating costs 27,213 (317) 76,021
Depreciation and
amortization 1,141 318 12,607
General and administrative 2,643 1,501 14,228
Flooding grants, less
losses and expenses 669 - 669
31,666 1,502 103,525
Income (loss) from
operations (2,973) (2,681) (2,874)
Interest expense (5,354)
Investment and other
income 1,464
Derivative
financial
instruments, net 7,028
3,138
Income before income taxes
and minority interest euro 264
Segment assets euro 28,320 euro (10,899) euro 1,045,956
(1) The results of the Celgar pulp mill are from the date of its
acquisition on February 14, 2005.
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
June 30, 2005
Sales to external
customers euro 31,840 euro 40,864 euro 40,808 euro 113,512
Intersegment
net sales - - 1,786 1,786
31,840 40,864 42,594 115,298
Operating costs 22,217 35,419 34,411 92,047
Depreciation and
amortization 3,362 3,274 6,773 13,409
General and
administrative 1,909 1,162 702 3,773
Emission credits (2,135) - (4,153) (6,288)
25,353 39,855 37,733 102,941
Income (loss)
from operations 6,487 1,009 4,861 12,357
Interest expense
Investment income
Derivative
financial
instruments, net
Foreign exchange
(loss) on debt
Impairment of
investments
Loss before income
taxes and minority
interest
Three Months Ended
June 30, 2004
Sales to external
customers euro 36,022 euro - euro 927 euro 36,949
Intersegment net
sales 750 - - 750
36,772 - 927 37,699
Operating costs 23,318 - - 23,318
Depreciation and
amortization 5,554 - 12 5,566
General and
administrative 2,648 - 2,707 5,355
Flooding grants, less
losses and expenses - - - -
31,520 - 2,719 34,239
Income (loss) from
operations 5,252 - (1,792) 3,460
Interest expense
Investment and other
income
Derivative financial
instruments, net
Income before income
taxes and minority
interest
Corporate,
Other and Consolidated
Paper Eliminations Total
Three Months Ended
June 30, 2005
Sales to external
customers euro 16,097 euro - euro 129,609
Intersegment net sales - (1,786) -
16,097 (1,786) 129,609
Operating costs 15,370 (2,135) 105,282
Depreciation and
amortization 198 289 13,896
General and administrative 1,326 2,419 7,518
Emission credits - - (6,288)
16,894 573 120,408
Income (loss) from
operations (797) (2,359) 9,201
Interest expense (22,200)
Investment income 806
Derivative financial
instruments, net (69,451)
Foreign exchange (loss)
on debt (9,806)
Impairment of investments -
(100,651)
Loss before income taxes
and minority interest euro (91,450)
Three Months Ended
June 30, 2004
Sales to external
customers euro 13,386 euro - euro 50,335
Intersegment net sales - (750) -
13,386 (750) 50,335
Operating costs 13,455 123 36,896
Depreciation and
amortization 589 159 6,314
General and administrative 1,469 863 7,687
Flooding grants, less
losses and expenses 416 - 416
15,929 1,145 51,313
Income (loss) from
operations (2,543) (1,895) (978)
Interest expense (2,366)
Investment and other income 530
Derivative financial
instruments, net 29,473
27,637
Income before income
taxes and minority
interest euro 26,659
(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 June 30, 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 six and three
months ended June 30, 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 six and three months ended
June 30, 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 six and three months ended June 30, 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.
June 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 62,792 euro 43,082 euro - euro 105,874
Cash
restricted - 37,951 - 37,951
Receivables 42,748 32,665 (69) 75,344
Inventories 54,127 37,910 - 92,037
Prepaid expenses
and other 3,631 3,426 - 7,057
Total current
assets 163,298 155,034 (69) 318,263
Cash restricted - 19,074 - 19,074
Property, plant
and equipment 393,047 716,785 (438) 1,109,394
Other 9,741 4,119 - 13,860
Deferred income
tax 22,855 55,383 - 78,238
Due from
unrestricted
group 44,621 - (44,621) -
Total assets euro 633,562 euro 950,395 euro (45,128) euro 1,538,829
LIABILITIES
Current
liabilities
Accounts
payable and
accrued
expenses euro 43,780 euro 57,688 euro (69) euro 101,399
Construction
costs
payable - 34,090 - 34,090
Debt,
current
portion - 97,618 - 97,618
Total current
liabilities 43,780 189,396 (69) 233,107
Debt, less
current
portion 353,033 599,522 - 952,555
Due to
restricted
group - 44,621 (44,621) -
Unrealized
derivatives loss - 143,631 - 143,631
Other 18,555 6,973 - 25,528
Deferred income
tax 1,883 2,260 - 4,143
Total liabilities 417,251 986,403 (44,690) 1,358,964
SHAREHOLDERS' EQUITY
Total
shareholders'
equity 216,311 (36,008)(1) (438) 179,865
Total liabilities
and
shareholders'
equity euro 633,562 euro 950,395 euro (45,128) euro 1,538,829
(1) Shareholders' equity does not include government grants received or
receivable related to the Stendal mill. Shareholders' equity is
impacted by the unrealized non-cash marked to market valuation losses
on derivative financial instruments.
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
interest rate
derivative - 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 Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Six Months Ended June 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 114,416 euro 113,086 euro - euro 227,502
Operating
costs 87,260 98,024 - 185,284
Operating
depreciation
and
amortization 10,829 13,616 438 24,883
General and
administrative 11,077 4,239 - 15,316
Gain on sale of
emission credits (2,135) (4,153) - (6,288)
107,031 111,726 438 219,195
Income (loss)
from
operations 7,385 1,360 (438) 8,307
Other income
(expense)
Interest
expense (15,985) (26,571) 1,093 (41,463)
Investment
income 1,297 777 (1,093) 981
Derivative
financial
instruments,
net (463) (72,847) - (73,310)
Unrealized foreign
exchange loss on
debt (7,509) - - (7,509)
Impairment of
investments (1,645) - - (1,645)
Total other
expense (24,305) (98,641) - (122,946)
Loss before
income taxes
and minority
interest (16,920) (97,281) (438) (114,639)
Income tax
(provision)
benefit (4,776) 26,188 - 21,412
Loss before
minority
interest (21,696) (71,093) (438) (93,227)
Minority interest - 11,409 - 11,409
Net loss euro (21,696) euro (59,684) euro (438) euro (81,818)
Six Months Ended June 30, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 72,210 euro 29,620 euro (1,179) euro 100,651
Operating
costs 48,675 27,213 133 76,021
Operating
depreciation
and
amortization 11,136 1,153 318 12,607
General and
administrative 6,295 8,091 (158) 14,228
Flooding grants,
less losses and
expenses - 669 - 669
66,106 37,126 293 103,525
Income (loss)
from
operations 6,104 (7,506) (1,472) (2,874)
Other income
(expense)
Interest expense (6,023) (452) 1,121 (5,354)
Investment and
other income
(expense) 1,745 (214) (67) 1,464
Derivative
financial
instruments,
net (5,272) 12,300 - 7,028
Total other
expense (9,550) 11,634 1,054 3,138
Income (loss)
before income
taxes and
minority
interest (3,446) 4,128 (418) 264
Income tax
provision (199) - - (199)
Income (loss)
before
minority
interest (3,645) 4,128 (418) 65
Minority
interest - (2,790) - (2,790)
Net income
(loss) euro (3,645) euro 1,338 euro (418) euro (2,725)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Three Months Ended June 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 72,704 euro 56,905 euro - euro 129,609
Operating
costs 57,287 47,995 - 105,282
Operating
depreciation
and
amortization 6,704 6,971 221 13,896
General and
administrative 5,490 2,028 - 7,518
Gain on sale
of emission
credits (2,135) (4,153) - (6,288)
67,346 52,841 221 120,408
Income (loss)
from
operations 5,358 4,064 (221) 9,201
Other income
(expense)
Interest expense (8,314) (14,585) 699 (22,200)
Investment income 970 467 (631) 806
Derivative
financial
instruments, net (358) (69,093) - (69,451)
Unrealized
foreign exchange
loss on debt (9,806) - - (9,806)
Impairment
of investments (467) - 467 -
Total other
income
(expense) (17,975) (83,211) 535 (100,651)
Income (loss)
before income
taxes and
minority
interest (12,617) (79,147) 314 (91,450)
Income tax
(provision)
benefit (1,661) 26,108 - 24,447
Income (loss)
before
minority
interest (14,278) (53,039) 314 (67,003)
Minority
interest - 4,852 - 4,852
Net income
(loss) euro (14,278) euro (48,187) euro 314 euro (62,151)
Three Months Ended June 30, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 36,772 euro 14,313 euro (750) euro 50,335
Operating
costs 23,318 13,455 123 36,896
Operating
depreciation
and
amortization 5,554 601 159 6,314
General and
administrative 3,181 4,176 330 7,687
Flooding grants,
less losses
and expenses - 416 - 416
32,053 18,648 612 51,313
Income (loss)
from
operations 4,719 (4,335) (1,362) (978)
Other income
(expense)
Interest expense (1,947) 114 (533) (2,366)
Derivative
financial
instruments, net (382) 29,855 - 29,473
Investment and
other income
(expense) 639 (364) 255 530
Total other
income (expense) (1,690) 29,605 (278) 27,637
Income (loss)
before income
taxes and
minority
interest 3,029 25,270 (1,640) 26,659
Income tax
provision (199) (20) - (219)
Income (loss)
before
minority
interest 2,830 25,250 (1,640) 26,440
Minority
interest - (10,199) - (10,199)
Net income
(loss) euro 2,830 euro 15,051 euro (1,640) euro 16,241
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Six and Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Six Months Ended
June 30,
2005 2004
Net loss euro (81,818) euro (2,725)
Minority interest (11,409) 2,790
Income taxes (benefit) (21,412) 199
Interest expense 41,463 5,354
Investment income (981) (1,464)
Derivative financial instruments, net 73,310 (7,028)
Foreign exchange loss on debt 7,509 -
Impairment of investments 1,645 -
Income (loss) from operations 8,307 (2,874)
Add: Depreciation and amortization 24,883 12,607
Operating EBITDA(1) euro 33,190 euro 9,733
Three Months Ended
June 30,
2005 2004
Net income (loss) euro (62,151) euro 16,241
Minority interest (4,852) 10,199
Income taxes (benefit) (24,447) 219
Interest expense 22,200 2,366
Investment income (806) (530)
Derivative financial instruments, net 69,451 (29,473)
Foreign exchange loss on debt 9,806 -
Income (loss) from operations 9,201 (978)
Add: Depreciation and amortization 13,896 6,314
Operating EBITDA(1) euro 23,097 euro 5,336
(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.
MERCER INTERNATIONAL INC.
COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Six and Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Six Months Ended
June 30,
2005 2004
Restricted Group(1)
Net loss euro (21,696) euro (3,645)
Income taxes 4,776 199
Interest expense 15,985 6,023
Investment and other income (1,297) (1,745)
Derivative financial instruments, net 463 5,272
Foreign exchange loss on debt 7,509 -
Impairment of investments 1,645 -
Income from operations 7,385 6,104
Add: Depreciation and amortization 10,829 11,136
Operating EBITDA euro 18,214 euro 17,240
(1) The results of the Celgar pulp mill are not included for the six
months ended June 30, 2004.
Three Months Ended
June 30,
2005 2004
Restricted Group(1)
Net income (loss) euro (14,278) euro 2,830
Income taxes 1,661 199
Interest expense 8,314 1,947
Investment and other income (970) (639)
Derivative financial instruments, net 358 382
Foreign exchange loss on debt 9,806 -
Impairment of investments 467 -
Income from operations 5,358 4,719
Add: Depreciation and amortization 6,704 5,554
Operating EBITDA euro 12,062 euro 10,273
(1) The results of the Celgar pulp mill are not included for the three
months ended June 30, 2004.
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