NEW YORK, March 3 /CNW/ -- Mercer International Inc.
(Nasdaq: MERC; TSX: MRI.U) today reported results for the fourth quarter and
year ended December 31, 2005.
Summary Selected Highlights
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
(in thousands)
Results of Operations (unaudited)
Revenues euro 137,478 euro 89,201 euro 513,908 euro 237,212
Income (loss) from
operations 145 (10,347) 16,344 (17,972)
Operating EBITDA(1) 13,324 1,580 68,385 17,172
Interest expense Stendal (15,797) (10,302) (56,789) (12,190)
Interest expense other (7,743) (3,893) (30,071) (11,559)
Realized and unrealized
gain (loss) on interest
rate and foreign
currency derivative
financial instruments,
net(2) (1,703) 13,213 (71,763) 12,136
Unrealized foreign
exchange gain (loss) on
debt (2,565) - (4,156) -
Net income (loss) (29,773) 32,584 (117,146) 19,980
Income (loss) per share
Basic (0.90) 1.87 (3.75) 1.15
Diluted (0.90) 1.14 (3.75) 0.89
Other Data
Total pulp sales
volume(3) (ADMTs) 291,046 192,254 1,101,304 421,176
Mill net pulp price
realizations (per
ADMT)(4) euro 413 euro 389 euro 407 euro 423
(1) For a definition of Operating EBITDA, see page 7 of this press
release and for a reconciliation of net income (loss) to Operating
EBITDA, see page 11 of the financial tables included in this press
release.
(2) Unrealized non-cash marked to market valuation gain (loss), except
for a realized loss of euro 2.5 million in the year ended
December 31, 2005.
(3) Excluding intercompany sales volumes of 3,638 ADMTs and 2,859 ADMTs of
pulp in the three months ended December 31, 2005 and 2004,
respectively, and 14,289 ADMTs and 6,756 ADMTs of pulp in the year
ended December 31, 2005 and 2004, respectively.
(4) Excluding revenues from third party transportation activities.
As at As at
December 31, December 31,
2005 2004
(in thousands)
Financial Position (Current)
Cash and cash equivalents euro 83,547 euro 49,568
Cash restricted 7,039 45,295
Receivables 74,315 54,687
Inventories 81,147 52,898
Prepaid expenses and other 5,474 4,961
Accounts payable and accrued expenses (111,513) (56,542)
Construction costs payable (1,213) (65,436)
Debt, current portion (27,601) (107,090)
Working capital (deficit)(1) 111,195 (21,659)
(1) Does not include approximately euro 7.0 million of government grants
in 2005, which we expect to receive in 2006, and approximately
euro 65.9 million of government grants in 2004, all of which we
received in 2005, related to the Stendal mill from the federal and
state governments of Germany.
Certain key factors affecting our 2005 fourth quarter results include:
Revenues increased by euro 48.3 million over the comparative period
of 2004 to euro 137.5 million, primarily due to the inclusion of sales
from our Celgar pulp mill.
Operating EBITDA increased to euro 13.3 million in the fourth quarter
from euro 1.6 million in the comparative quarter of 2004 reflecting
higher pulp sales and a contribution to income from operations of
euro 4.9 million resulting from the sale of emission allowances. For
a definition of Operating EBITDA, see page 7 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.
Interest expense increased to euro 23.5 million in the fourth
quarter of 2005 from euro 14.2 million in the comparative period
of 2004 reflecting higher borrowings associated with the Stendal
mill and interest on our $310 million 9.25% senior notes issued in
February 2005.
The Stendal mill ramp up is proceeding substantially as scheduled. In
the quarter, it operated at approximately 88% of its initial rated
capacity. Its working capital build up, interest expense and start-up
losses have been financed through its project loan facility according
to plan.
We recorded a net loss of euro 1.7 million on our interest rate and
currency derivatives in the fourth quarter of 2005, compared to a net
gain of euro 13.2 million thereon in the comparative period of 2004.
We also recorded an unrealized non-cash foreign exchange loss on our
long-term debt of euro 2.6 million in the current quarter due to the
weakening of the Euro versus the U.S. dollar.
Pulp markets were generally soft, but strengthened marginally from the
third quarter of 2005. Average list prices for NBSK pulp in Europe
were $580 per ADMT in the third quarter of 2005 and $600 per ADMT in
the fourth quarter of 2005, compared to $603 per ADMT in the fourth
quarter of 2004. The decrease in pulp list prices from the fourth
quarter of 2004 was generally offset by the strengthening of the
U.S. dollar versus the Euro.
Certain key factors affecting our results for the year ended December 31,
2005 included:
Revenues in 2005 increased by euro 276.7 million over the comparative
period of 2004 to euro 513.9 million, because of higher sales at our
Stendal mill and the inclusion of results from our Celgar pulp mill
from February 2005.
Operating EBITDA increased to euro 68.4 million in 2005 from
euro 17.2 million in 2004 reflecting higher pulp sales and a
contribution to income from operations of euro 17.3 million resulting
from the sale of emission allowances. For a definition of Operating
EBITDA, see page 7 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.
Interest expense increased to euro 86.9 million in 2005 from
euro 23.7 million in 2004 because of euro 56.8 million of interest
associated with the Stendal mill and euro 20.4 million of interest
relating to our $310 million 9.25% senior notes. In 2004, most of
the interest associated with the Stendal mill was capitalized until
mid-September, when the mill was started up.
We recorded a net loss of euro 71.8 million on our interest rate and
currency derivatives in 2005 (of which euro 69.3 million was an
unrealized non-cash holding loss and euro 2.5 million was a realized
loss), compared to a net gain of euro 12.1 million thereon in 2004
(of which euro 32.3 million was an unrealized non-cash holding loss
and euro 44.4 million was a realized gain).
Pulp markets were generally weak in 2005. Average list prices for
NBSK pulp in Europe decreased to approximately $610 per ADMT from
approximately $616 per ADMT in 2004, but such decrease was partially
offset by the strengthening of the U.S. dollar versus the Euro. The
strengthening of the Canadian dollar from February 14, 2005, the date
of the acquisition of the Celgar mill, by approximately 5.6% versus
the U.S. dollar adversely affected the results of our Celgar mill.
Results of Operations - 2005 Fourth Quarter
Selected production and sales data for the three months ended December 31,
2005 and 2004 is as follows:
Three Months Ended December 31,
2005 2004
(ADMTs)
Production by Product Class:
Pulp production by mill:
Rosenthal 75,935 82,785
Celgar 99,088 -
Stendal 121,249 132,694
Total pulp production 296,272 215,479
Paper production 15,514 14,996
Total production 311,786 230,475
Sales Volume by Product Class:
Pulp sales volume by mill:
Rosenthal 76,599 78,471
Celgar 101,115 -
Stendal 113,332 113,783
Total pulp sales volume(1) 291,046 192,254
Paper sales volume 14,973 14,781
Total sales volume(1) 306,019 207,035
Revenues by Product Class: (in thousands)
Pulp revenues by mill:
Rosenthal euro 34,135 euro 34,190
Celgar 41,755 -
Stendal 47,112 41,673
Total pulp revenues(1) 123,002 75,863
Paper revenues 14,476 13,338
Total revenues(1) euro 137,478 euro 89,201
(1) Excluding intercompany sales volumes of 3,638 ADMTs and 2,859 ADMTs
of pulp and intercompany net sales revenues of approximately
euro 1.6 million and euro 1.0 million in the three months ended
December 31, 2005 and 2004, respectively.
Revenues for the three months ended December 31, 2005 increased to euro
137.5 million from euro 89.2 million in the comparative period of 2004,
primarily due to the inclusion of sales from our Celgar mill. Pulp sales by
volume were 291,046 ADMTs in the fourth quarter of 2005, compared to 192,254
ADMTs in the comparative period of 2004.
Cost of sales and general, administrative and other expenses in the fourth
quarter of 2005 increased to euro 137.3 million from euro 99.5 million in the
comparative period of 2004, primarily as a result of the inclusion of the
results of our Celgar mill.
For the fourth quarter of 2005, revenues from our pulp operations
increased to euro 123.0 million from euro 75.9 million in the same period a
year ago, primarily as a result of the inclusion of sales from our Celgar
mill. List prices for NBSK pulp in Europe were approximately euro 506 ($600)
per ADMT in the fourth quarter of 2005, compared to approximately euro 446
($603) per ADMT in the comparative period of last year.
Pulp sales realizations increased to euro 413 per ADMT on average in the
fourth quarter of 2005 from euro 389 per ADMT in the fourth quarter of 2004,
primarily as the strengthening of the U.S. dollar versus the Euro enabled our
German pulp mills to improve mill net selling prices.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to euro 123.6 million in the fourth quarter of 2005 from
euro 87.6 million in the comparative period of 2004, primarily due to the
inclusion of the results of the Celgar mill. In the fourth quarter of 2005,
we recorded a contribution to income from operations of euro 4.9 million
resulting from the sale of emission allowances.
Depreciation for the pulp operations increased to euro 13.5 million in the
fourth quarter of 2005, from euro 11.8 million in the comparative period of
2004, primarily as a result of depreciation associated with the Celgar mill.
For the fourth quarter of 2005, our pulp operations generated operating
income of euro 1.0 million, versus an operating loss of euro 10.7 million in
the comparative quarter of 2004, primarily due to the higher operating income
at our German pulp mills, partially offset by an operating loss at our Celgar
mill. As NBSK pulp is generally quoted in U.S. dollars, the overall
strengthening of the Canadian dollar versus the U.S. dollar reduced the sales
realizations of our Celgar mill and negatively impacted its results.
Revenues from our paper operations in the current quarter increased to
euro 14.5 million from euro 13.6 million in the same quarter of last year as a
result of higher sales volumes and a change in the product mix.
Cost of sales and general, administrative and other expenses for the paper
operations in the fourth quarter of 2005 increased to euro 14.6 million from
euro 12.8 million in the comparative quarter of 2004.
For the fourth quarter of 2005, our paper operations generated an
operating loss of euro 0.1 million, compared to operating income of euro 0.8
million in the fourth quarter of 2004.
In the fourth quarter of 2005, we had income from operations of euro 0.1
million, compared to a loss from operations of euro 10.3 million in the same
quarter last year. Interest expense in the fourth quarter of 2005 increased to
euro 23.5 million from euro 14.2 million in the year ago period, due to higher
borrowings relating to the Stendal mill and interest on our $310 million
senior note issue completed in February 2005.
Stendal entered into certain foreign currency derivatives to swap all of
its long-term bank indebtedness from Euros to U.S. dollars and certain
currency forwards in 2005. Due to the strengthening of the U.S. dollar versus
the Euro, we recorded a net unrealized non-cash holding loss of euro 13.7
million before minority interests upon the marked to market valuation of such
currency derivatives that were outstanding at the end of the current quarter
and a marginal net loss before minority interests in respect of such currency
derivatives that matured in the quarter. In the comparative quarter of 2004,
we realized a gain of euro 29.7 million before minority interests upon the
settlement of the currency derivatives of Rosenthal and Stendal. In the fourth
quarter of 2005, as a result of an increase in long-term European interest
rates, we also recorded a net unrealized non-cash holding gain of euro 12.0
million before minority interests on the marked to market valuation of the
Stendal interest rate derivatives, compared to a net unrealized non-cash
holding loss of euro 16.5 million before minority interests on the interest
rate derivatives of Stendal and Rosenthal in the fourth quarter of 2004. We
also recorded an unrealized non-cash foreign exchange loss on our long-term
debt of euro 2.6 million in the current quarter due to the weakening of the
Euro versus the U.S. dollar.
In the fourth quarter of 2005, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal mill, was euro
0.6 million, compared to euro (1.5) million in the fourth quarter of 2004.
We reported a net loss for the fourth quarter of 2005 of euro 29.8
million, or euro 0.90 per basic and diluted share, which reflected generally
weak markets, increased interest expense of euro 23.5 million, the net
realized and unrealized loss of euro 1.7 million on our interest rate and
currency derivatives and the unrealized non-cash foreign exchange loss on our
long-term debt of euro 2.6 million. In the fourth quarter of 2004, we reported
net income of euro 32.6 million, or euro 1.87 per basic share and euro 1.14
per diluted share, which included an income tax benefit of euro 44.1 million
relating to a reorganization of certain subsidiary companies.
We generated "Operating EBITDA" of euro 13.3 million and euro 1.6 million
in the three months ended December 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. For a reconciliation of net
loss to Operating EBITDA, see page 11 of the financial tables included in this
press release.
Results of Operations - 2005
Revenues for the year ended December 31, 2005 increased to euro 513.9
million from euro 237.2 million in the comparative period of 2004, because of
higher pulp sales resulting from the inclusion of a full year of results of
our Stendal mill and the results of our Celgar mill from February 2005. Pulp
sales by volume were 1,101,304 ADMTs in 2005, compared to 421,716 ADMTs in
2004.
Cost of sales and general, administrative and other expenses in the year
ended December 31, 2005 increased to euro 497.6 million from euro 255.2
million in the comparative period of 2004, primarily as a result of the
inclusion of a full year's results of our Stendal mill and the results of our
Celgar mill. We commenced expensing all of the costs, including interest,
relating to the Stendal mill effective September 2004 when the mill was
started up, prior to which most of the costs, including interest, relating to
the Stendal mill were capitalized during its construction.
In the year ended December 31, 2005, revenues from our pulp operations
increased to euro 452.4 million from euro 182.5 million in 2004, primarily as
a result of the inclusion of a full year's sales of our Stendal mill and sales
from our Celgar mill. List prices for NBSK pulp in Europe were approximately
euro 490 ($610) per ADMT in 2005, compared to approximately euro 496 ($616)
per ADMT last year. The decrease in NBSK pulp prices was partially offset by
the strengthening of the U.S. dollar versus the Euro in 2005.
Pulp sales realizations decreased to euro 407 per ADMT on average in the
year ended December 31, 2005 from euro 423 per ADMT in 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 ramp up and
the Celgar mill sells a large portion of its production in Asian markets which
had lower prices than European markets.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to euro 434.9 million in the year ended December 31, 2005
from euro 190.4 million in 2004, primarily as a result of euro 322.0 million
of operating costs related to the Stendal and Celgar mills. In the year ended
December 31, 2005, we recorded a contribution to income from operations of
euro 17.3 million resulting from the sale of emission allowances by our German
pulp mills.
Depreciation for the pulp operations increased to euro 50.9 million in the
current period, from euro 26.8 million in 2004, primarily as a result of euro
37.8 million of depreciation from the Stendal and Celgar mills, partially
offset by lower depreciation at the Rosenthal mill.
For the year ended December 31, 2005, the pulp operations generated
operating income of euro 23.9 million, versus an operating loss of euro 5.1
million last year, primarily as a result of higher operating income at our
German pulp mills including income from operations of euro 8.3 million from
our Stendal mill, partially offset by an operating loss at our Celgar mill.
The overall strength of the Canadian dollar versus the U.S. dollar in 2005
negatively impacted the results of our Celgar mill.
Paper sales in the year ended December 31, 2005 were euro 61.5 million,
compared with euro 55.0 million in the same period of last year as a result of
higher sales volumes and a shift in the product mix at our paper mills.
Cost of sales and general, administrative and other expenses for the paper
operations in the year ended December 31, 2005 decreased to euro 63.8 million
from euro 64.7 million in the year ended December 31, 2004.
For the year ended December 31, 2005, our paper operations generated an
operating loss of euro 2.3 million, compared to an operating loss of euro 9.8
million in 2004, which included a non-cash impairment charge of euro 6.0
million in 2004.
In the year ended December 31, 2005, we had income from operations of euro
16.3 million, compared to a loss from operations of euro 18.0 million last
year, primarily as a result of higher income from our German pulp mills.
Interest expense in the year ended December 31, 2005 increased to euro 86.9
million from euro 23.7 million a year ago, due to interest associated with our
$310 million senior note issue completed in February 2005 and higher
borrowings relating to the Stendal mill. We capitalized most of the interest
relating to the Stendal mill prior to its start up in mid-September 2004.
Due to the strengthening of the U.S. dollar versus the Euro in 2005, we
recorded a net unrealized non-cash holding loss of euro 66.1 million before
minority interests upon the marked to market valuation of Stendal's currency
derivatives that were outstanding at the end of the 2005 period and a net
realized loss of euro 2.2 million before minority interests in respect of such
currency derivatives that matured during the period. In 2004, we recorded a
realized gain of euro 44.5 million before minority interests upon the
settlement of the currency derivatives relating to the Stendal and Rosenthal
mills due to the weakening of the U.S. dollar versus the Euro in 2004. In
2005, as a result of a decrease in long-term European interest rates, we also
recorded an unrealized non-cash holding loss of euro 3.2 million before
minority interests on the marked to market valuation of the interest rate
contracts relating to Stendal and a net realized loss of euro 0.3 million
before minority interests upon the settlement of the interest rate contracts
relating to Rosenthal. In 2004, we recorded a net unrealized non-cash holding
loss of euro 32.3 million before minority interests on the marked to market
valuation of the Rosenthal and Stendal interest rate contracts. We also
recorded an unrealized non-cash foreign exchange loss on our long-term debt of
euro 4.2 million in 2005 due to the weakening of the Euro versus the U.S.
dollar.
In the year ended December 31, 2005, minority interest, representing the
two minority shareholders' proportionate interest in the Stendal mill, was
euro 17.7 million, compared to euro 2.5 million in 2004.
In 2005, we recorded an adjustment of euro 1.7 million for the non-cash
impact of other-than-temporary impairment losses on our available-for-sale
securities and a loan receivable.
We reported a net loss for the year ended December 31, 2005 of euro 117.1
million, or euro 3.75 per basic and diluted share, which reflected generally
weak pulp markets, the realized and unrealized net losses on our currency and
interest rate derivatives of euro 71.8 million and interest expense relating
to our Stendal mill of euro 56.8 million, partially offset by a non-cash
benefit for income taxes of euro 10.8 million. In 2004, we reported net income
of euro 20.0 million, or euro 1.15 per basic share and euro 0.89 per diluted
share, which included an income tax benefit of euro 44.2 million relating to
the reorganization of certain of our subsidiary companies.
We generated "Operating EBITDA" of euro 68.4 million and euro 17.2 million
in the years ended December 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. For a definition of
Operating EBITDA, see page 7 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.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "In many respects,
2005 was a milestone year for our Company. During the year:
We ramped up production at our Stendal mill and, in the last quarter,
it operated at approximately 88% of its initial rated capacity. The
production ramp up was largely in line with our plans and, in 2006, we
currently expect it to operate at or slightly better than its initial
rated capacity. The planned increase in production should lower
Stendal's unit costs of production.
In December, we took approximately 11 days of planned downtime at the
Stendal mill for maintenance and to install two new digesters. When
these digesters are fully integrated, they are expected to increase
Stendal's production capacity to in excess of 600,000 ADMTs.
We acquired the Celgar pulp mill with a rated capacity of
approximately 430,000 ADMTs to expand our business, diversify our
operations and revenues and better service our customers. We are
implementing an approximately euro 20.0 million capital plan to
improve efficiency and reliability and reduce its operating costs.
The plan is also expected to increase the Celgar mill's capacity to
approximately 470,000 ADMTs.
We established a new sales and marketing team to coordinate and
supervise our global pulp sales to improve realizations by increasing
our contracted regular business, focus on our most transport logical
customers and better service customers on a global basis. As a result,
in 2006 we are now handling the vast majority of North America pulp
sales directly, increasing our contract business and lowering spot
sales. Further, in 2006 we plan to materially increase our Celgar
mill's pulp sales to the North American market, which generally has
higher pulp prices, by shifting product from certain Asian markets,
which have lower prices.
Mr. Lee continued: "Our fourth quarter results reflect generally soft
pulp markets. List prices for NBSK pulp in Europe were $600 per ADMT in
December and generally lower in Asia. Further, during the quarter, we took
approximately 30 days of planned downtime across our three pulp mills for
regular maintenance which reduced production by 38,159 ADMTs. Also,
improvements in our Celgar mill's production costs were more than offset by
the negative impact on its results from the strength of the Canadian dollar
versus the U.S. dollar. Despite these challenges, we continued our focus on
improving efficiency and cost controls and, during the period, Operating
EBITDA increased to euro 13.3 million from euro 1.6 million in the prior
period."
Mr. Lee continued: "NBSK list prices in Europe started the year at
approximately $635 per tonne and declined to approximately $580 over the year
before recovering somewhat to approximately $600 at year end. Prices in Asia,
and in particular China, were generally much softer. Our non-cash marked to
market loss for the year on our derivative instruments was euro 69.3 million.
For the year, we reported interest expense of euro 86.9 million, which
reflected both interest expense associated with the acquisition of our Celgar
mill and a full year of interest expense related to the Stendal mill. In
2004, substantially all of the interest expense associated with the Stendal
mill was capitalized until mid-September."
Mr. Lee continued: "Looking forward, we are seeing improving pulp demand
in all our markets which should result in some price improvement. List prices
in Europe have now improved to approximately $620 per tonne and producers are
seeking a further $20 per tonne price increase in the first quarter of 2006.
In 2006, current list prices in Asian markets have also increased by
approximately $50 per tonne compared to the 2005 fourth quarter levels."
Mr. Lee further stated: "In addition, the recent continued softness in
pulp markets has resulted in several mill shutdowns which has removed capacity
from the market and other facilities are predicted to potentially be shut
down. We believe that this shakeout of older, smaller and higher cost
facilities will improve pricing and assist us in becoming a preferred supplier
for customers seeking a long-term, stable and reliable supply of NBSK pulp."
Mr. Lee concluded: "By focusing our production on large, modern and
efficient NBSK pulp mills, we believe we are well positioned to realize on any
improvements in NBSK pulp markets and to create value for our stakeholders."
In conjunction with this release, Mercer International will host a
conference call, which will be simultaneously broadcast live over the
Internet. Management will host the call, which is scheduled for Monday, March
6, 2006 at 10:00 AM EST. 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=1195268. 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 March 13, 2006 at 11:59 p.m. (Eastern Standard
Time). The replay number is (800) 642-1687, and the passcode is 4249268.
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.mercerint.com/en/newsCurrent.cfm.
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
December 31, 2005 and 2004
(Euros in thousands)
December 31, December 31,
2005 2004
ASSETS
Current Assets
Cash and cash equivalents euro 83,547 euro 49,568
Cash restricted 7,039 45,295
Receivables 74,315 54,687
Inventories 81,147 52,898
Prepaid expenses and other 5,474 4,961
Total current assets 251,522 207,409
Long-Term Assets
Cash restricted 24,573 47,538
Property, plant and equipment 1,024,662 936,035
Investments 6,314 5,079
Deferred note issuance and other costs 8,364 5,069
Deferred income tax 78,381 54,519
1,142,294 1,048,240
Total assets 1,393,816 1,255,649
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses 111,513 56,542
Construction costs payable 1,213 65,436
Debt, current portion 27,601 107,090
Total current liabilities 140,327 229,068
Long-Term Liabilities
Debt, less current portion 922,619 777,272
Unrealized foreign exchange rate derivative
loss 61,979 -
Unrealized interest rate derivative loss 78,646 75,471
Pension and other post-retirement
benefit obligations 17,113 -
Capital leases and other 9,945 9,035
Deferred income tax 14,444 2,062
1,104,746 863,840
Total liabilities 1,245,073 1,092,908
SHAREHOLDERS' EQUITY
Shares of beneficial interest 181,586 83,397
Additional paid-in capital, stock options 14 14
Retained earnings (deficit) (47,970) 69,176
Accumulated other comprehensive income 15,113 10,154
Total shareholders' equity 148,743 162,741
Total liabilities and
shareholders' equity euro 1,393,816 euro 1,255,649
(1)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 137,478 euro 89,201
Costs and expenses:
Cost of sales 134,240 93,736
3,238 (4,535)
General and administrative expenses (8,032) (5,812)
Sale (purchase) of emission allowances 4,939 -
Income (loss) from operations 145 (10,347)
Other income (expense):
Interest expense (23,540) (14,195)
Investment income 873 1,269
Realized gain on derivative financial
instruments 199 44,467
Unrealized loss on derivative financial
instruments (1,703) (31,254)
Unrealized foreign exchange gain on debt (2,565) -
Total other income (expense) (26,736) 287
Loss before income taxes and minority
interest (26,591) (10,060)
Income tax (provision) benefit (3,780) 44,126
Income (loss) before minority interest (30,371) 34,066
Minority interest 598 (1,482)
Net income (loss)
euro (29,773) 32,584
Income (loss) per share
Basic euro (0.90) euro 1.87
Diluted euro (0.90) euro 1.14
(2)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2005 and 2004
(Euros in thousands, except per share data)
2005 2004
Revenues euro 513,908 euro 237,212
Costs and expenses:
Cost of sales 484,425 221,595
29,483 15,617
General and administrative expenses (30,431) (26,920)
Sale (purchase) of emission allowances 17,292 -
Impairment of capital assets - (6,000)
Flooding losses and expenses, less
grant income - (669)
Income (loss) from operations 16,344 (17,972)
Other income (expense):
Interest expense (86,860) (23,749)
Investment income 2,467 2,948
Unrealized foreign exchange loss on debt (4,156) -
Realized gain (loss) on derivative
financial instruments (2,455) 44,467
Unrealized loss on derivative
financial instruments (69,308) (32,331)
Impairment of investments -
Total other income (expense) (162,011) (8,665)
Loss before income taxes and
minority interest (145,667) (26,637)
Income tax benefit 10,847 44,163
(Loss) income before minority interest (134,820) 17,526
Minority interest 17,674 2,454
Net (loss) income euro (117,146) euro 19,980
Income (loss) per share
Basic euro (3.75) euro 1.15
Diluted euro (3.75) euro 0.89
(3)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Three Months Ended December 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
December 31, 2005
Sales to external
customers euro 34,135 euro 41,755 euro 47,112 euro 123,002
Intersegment net
sales - - 1,629 1,629
34,135 41,755 48,741 124,631
Operating costs 27,034 45,083 38,881 110,998
Operating depreciation
and amortization 2,936 3,452 7,083 13,471
General and
administrative 1,396 650 2,056 4,102
(Sale) purchase of
emission allowances (2,869) - (2,070) (4,939)
28,497 49,185 45,950 123,632
Income (loss) from
operations 5,638 (7,430) 2,791 999
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
December 31, 2004
Sales to external
customers euro 34,190 euro - euro 41,673 euro 75,863
Intersegment net
sales 127 - 885 1,012
34,317 - 42,558 76,875
Operating costs 25,408 - 45,676 71,084
Operating
depreciation
and amortization 3,585 - 7,711 11,812
General and
administrative 2,773 - 2,431 4,688
31,766 - 55,818 87,584
Income (loss) from
operations 2,551 - (13,260) (10,709)
Interest expense
Investment and other
income
Derivative financial
instruments, net
Loss before income
taxes and minority
interest
Corporate,
Other and Consolidated
Paper Eliminations Total
Three Months Ended
December 31, 2005
Sales to external
customers euro 14,476 euro - euro 137,478
Intersegment net sales - (1,629) -
14,476 (1,629) 137,478
Operating costs 12,097 (2,034) 121,061
Operating depreciation
and amortization 289 (581) 13,179
General and administrative 2,200 1,730 8,032
(Sale) purchase of emission
allowances - - (4,939)
14,586 (885) 137,333
Income (loss) from operations (110) (744) 145
Interest expense (23,540)
Investment income 873
Derivative financial
instruments, net (1,504)
Foreign exchange loss on debt (2,565)
Impairment of investments -
(26,736)
Loss before income taxes
and minority interest euro (26,591)
Three Months Ended
December 31, 2004
Sales to external
customers euro 13,572 euro (234) euro 89,201
Intersegment net sales - (1,012) -
13,572 (1,246) 89,201
Operating costs 11,498 (1,289) 81,293
Operating depreciation
and amortization 616 15 11,927
General and administrative 646 478 6,328
12,760 (796) 99,548
Income (loss) from operations 812 (450) (10,347)
Interest expense (14,195)
Investment and other income 1,269
Derivative financial
instruments, net 13,213
287
Loss before income taxes
and minority interest euro (10,060)
(4)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Years Ended December 31, 2005 and 2004
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Year Ended
December 31, 2005
Sales to external
customers euro 137,193 euro 139,213 euro 176,031 euro 452,437
Intersegment
net sales - - 6,308 6,308
137,193 139,213 182,339 458,745
Operating costs 100,180 131,521 151,620 383,321
Operating
depreciation
and amortization 13,109 10,535 27,262 50,906
General and
administrative 6,837 5,935 5,176 17,948
(Sale) purchase
of emission
allowances (7,271) - (10,021) (17,292)
112,855 147,991 174,037 434,883
Income (loss)
from operations 24,338 (8,778) 8,302 23,862
Interest expense
Investment income
Derivative financial
instruments, net
Foreign exchange
loss on debt
Impairment of
investments
(Loss) income
before income
taxes and
minority
interest
Segment assets euro 344,473 euro 260,461 euro 746,346 euro 1,351,280
Year Ended
December 31,
2004
Sales to
external
customers euro 140,203 euro - euro 42,273 euro 182,476
Intersegment
net sales 1,949 - 885 2,834
142,152 - 43,158 185,310
Operating costs 98,113 - 46,185 144,298
Operating
depreciation and
amortization 17,751 - 9,022 26,773
General and
administrative 10,733 - 8,560 19,293
Impairment of assets - - - -
Flooding grants,
less losses and
expenses - - - -
126,597 - 63,767 190,364
Income (loss)
from operations 15,555 - (20,609) (5,054)
Interest expense
Derivative financial
instruments, net
Investment and other
income
Loss before income
taxes and minority
interest
Segment assets euro 394,569 euro - euro 810,267 euro 1,204,836
Corporate,
Other and Consolidated
Paper Eliminations Total
Year Ended
December 31, 2005
Sales to external
customers euro 61,471 euro - euro 513,908
Intersegment net sales - (6,308) -
61,471 (6,308) 513,908
Operating costs 56,976 (7,913) 432,384
Operating depreciation
and amortization 881 254 52,041
General and administrative 5,920 6,563 30,431
(Sale) purchase of emission
allowances - - (17,292)
63,777 (1,096) 497,564
Income (loss) from operations (2,306) (5,212) 16,344
Interest expense (86,860)
Investment income 2,467
Derivative financial
instruments, net (71,763)
Foreign exchange loss on debt (4,156)
Impairment of investments (1,699)
(Loss) income before income
taxes and minority
interest euro (145,667)
Segment assets euro 21,892 euro 20,644 euro 1,393,816
Year Ended
December 31, 2004
Sales to external
customers euro 54,970 euro (234) euro 237,212
Intersegment net sales - (2,834) -
54,970 (3,068) 237,212
Operating costs 51,184 (3,031) 192,451
Operating depreciation
and amortization 2,356 15 29,144
General and administrative 4,532 3,095 26,920
Impairment of assets 6,000 - 6,000
Flooding grants, less
losses and expenses 669 - 669
64,741 79 255,184
Income (loss) from operations (9,771) (3,147) (17,972)
Interest expense (23,749)
Derivative financial
instruments, net 12,136
Investment and other income 2,948
Loss before income taxes
and minority interest euro (26,637)
Segment assets euro 22,735 euro 28,078 euro 1,255,649
(1) The results of the Celgar pulp mill are from the date of its
acquisition on February 14, 2005.
(5)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at December 31, 2005
(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 International Inc. excluding its subsidiaries ("Mercer Inc.") and our
restricted subsidiaries under the indenture, collectively referred to as the
"Restricted Group." As at and during the year ended December 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. As at and during the year ended 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 year ended December 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.
December 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 48,790 euro 34,757 euro - euro 83,547
Cash restricted - 7,039 - 7,039
Receivables 41,349 32,966 - 74,315
Inventories 47,100 34,047 - 81,147
Prepaid expenses
and other 2,940 2,534 - 5,474
Total current assets 140,179 111,343 - 251,522
Cash restricted - 24,573 - 24,573
Property, plant and
equipment 404,151 620,511 - 1,024,66
Other 10,533 4,145 - 14,678
Deferred income tax 24,303 54,078 - 78,381
Due from unrestricted
group 46,412 - (46,412) -
Total assets euro 625,578 euro 814,650 euro(46,412) euro 1,393,816
LIABILITIES
Current liabilities
Accounts payable
and accrued
expenses euro 46,867 euro 64,646 euro - euro 111,513
Construction costs
payable - 1,213 - 1,213
Debt, current portion - 27,601 - 27,601
Total current
liabilities 46,867 93,460 - 140,327
Debt, less current
portion 342,023 580,596 - 922,619
Due to restricted
group - 46,412 (46,412) -
Unrealized derivatives
loss - 140,625 - 140,625
Other 20,722 6,336 - 27,058
Deferred income tax 1,851 12,593 - 14,444
Total liabilities 411,463 880,022 (46,412) 1,245,073
SHAREHOLDERS' EQUITY
Total shareholders'
equity 214,115 (65,372)(1) - 148,743
Total liabilities and
shareholders'
equity euro 625,578 euro 814,650 euro(46,412) euro 1,393,816
(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.
(6)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at December 31, 2004
(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
(7)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended December 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
Three Months Ended December 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 75,890 euro 61,588 euro - euro 137,478
Operating costs 71,655 49,406 - 121,061
Operating depreciation
and amortization 6,467 7,372 (660) 13,179
General and administrative 3,466 4,566 - 8,032
(Sale) purchase of
emission allowances (2,869) (2,070) - (4,939)
Income (loss)
from operations (2,829) 2,314 660 145
Other income (expense)
Interest expense (8,434) (15,972) 866 (23,540)
Investment income 1,429 310 (866) 873
Derivative financial
instruments, net 199 (1,703) - 1,504
Unrealized foreign
exchange loss on debt (2,565) - - (2,565)
Total other expense (9,371) (17,365) - (26,736)
Income (loss)
before income
taxes and
minority interest (12,200) (15,051) 660 (26,591)
Income tax (provision)
benefit 5,460 (11,389) 2,149 (3,780)
Income (loss)
before minority
interest (6,740) (26,440) 2,809 (30,371)
Minority interest - 927 (329) 598
Net income (loss) euro (6,740) (25,513) 2,480 (29,773)
Three Months Ended December 31, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 34,317 euro 56,130 euro (1,246) euro 89,201
Operating costs 25,408 57,174 (1,289) 81,293
Operating depreciation and
amortization 3,600 8,327 - 11,927
General and administrative 3,251 3,077 - 6,328
32,259 68,578 (1,289) 99,548
Income (loss)
from operations 2,058 (12,448) 43 (10,347)
Other income (expense)
Interest expense 233 (11,989) (2,439) (14,195)
Investment income
(expense) 598 1,607 (936) 1,269
Derivative financial
instruments, net 13,517 (304) - 13,213
Total other income
(expense) 14,348 (10,686) (3,375) 287
Income (loss) before
income taxes and
minority interest 16,406 (23,134) (3,332) (10,060)
Income tax benefit 17,198 26,928 - 44,126
Income (loss) before
minority interest 33,604 3,794 (3,332) 34,066
Minority interest - (1,482) - (1,482)
Net income (loss) euro 33,604 euro 2,312 euro (3,332) euro 32,584
(8)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Year Ended December 31, 2005 and 2004
(Euros in thousands)
Year Ended December 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 276,406 euro 243,810 euro(6,308) euro 513,908
Operating costs 230,039 210,258 (7,913) 432,384
Operating depreciation
and amortization 23,898 28,143 - 52,041
General and
administrative 19,025 11,406 - 30,431
Gain on sale of
emission allowances (7,271) (10,021) - (17,292)
Income from
operations 10,715 4,024 1,605 16,344
Other income (expense)
Interest expense (32,352) (57,323) 2,815 (86,860)
Investment income 3,742 1,540 (2,815) 2,497
Derivative financial
instruments, net (295) (71,468) - (71,763)
Unrealized foreign
exchange loss on debt (4,156) - - (4,156)
Impairment of
investments (1,699) - - (1,699)
Total other expense (34,760) (127,251) - (162,011)
Income (loss)
before income
taxes and
minority interest (24,045) (123,227) 1,605 (145,667)
Income tax (provision)
benefit (1,161) 12,008 - 10,847
Income (loss)
before minority
interest (25,206) (111,219) 1,605 (134,820)
Minority interest - 17,674 - 17,674
Net income (loss) euro(25,206) (93,545) 1,605 (117,146)
Year Ended December 31, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
euro 142,152 euro 98,128 euro(3,068) euro 237,212
Operating costs 98,113 97,369 (3,031) 192,451
Operating depreciation and
amortization 17,766 11,378 - 29,144
General and
administrative 13,828 13,092 - 26,920
Impairment of
capital assets - 6,000 - 6,000
Flooding grants, less
losses and expenses - 669 - 669
Income (loss)
from operations 12,445 (30,380) (37) (17,972)
Other income (expense)
Interest expense (10,941) (14,298) 1,490 (23,749)
Investment income 3,132 1,306 (1,490) 2,948
Derivative financial
instruments, net 13,242 (1,106) - 12,136
Total other
income (expense) 5,433 (14,098) - (8,665)
Income (loss)
before income
taxes and
minority interest 17,878 (44,478) (37) (26,637)
Income tax benefit 17,235 26,928 - 44,163
Income (loss)
before minority
interest 35,113 (17,550) (37) 17,526
Minority interest - 2,454 - 2,454
Net income (loss) euro 35,113 euro(15,096) euro (37) euro 19,980
(9)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Quarter and Year Ended December 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
For the For the
Quarter Ended Quarter Ended(1)
December 31, December 31,
2005 2004
Net income (loss) euro (29,773) euro 32,584
Minority interest (598) 1,482
Income taxes (benefit) 3,780 (44,126)
Interest expense 23,540 14,195
Investment income (873) (1,269)
Derivative financial instruments, net 1,504 (13,213)
Foreign exchange loss on debt 2,565 -
Income (loss) from operations 145 (10,347)
Add: Depreciation and amortization 13,179 11,927
Operating EBITDA(2) euro 13,324 euro 1,580
For the For the
Year Ended Year Ended(1)
December 31, December 31,
2005 2004
Net income (loss) euro (117,146) euro 19,980
Minority interest (17,674) (2,454)
Income taxes (benefit) (10,847) (44,163)
Interest expense 86,860 23,749
Investment income (2,467) (2,948)
Derivative financial instruments, net 71,763 (12,136)
Foreign exchange loss on debt 4,156 -
Impairment of investments 1,699 -
Income (loss) from operations 16,344 (17,972)
Add: Depreciation and amortization 52,041 29,144
Impairment charge - 6,000
Operating EBITDA(2) euro 68,385 euro 17,172
(1) The results of the Celgar mill are not included for the three months
and year ended December 31, 2004, respectively.
(2) Operating EBITDA does not reflect the impact of a number of items that
affect the Company's 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 the
Company's results as reported under GAAP.
(10)
MERCER INTERNATIONAL INC.
COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Quarter and Year Ended December 31, 2005 and 2004
(Unaudited)
(Euros in thousands)
For the For the
Quarter Ended Quarter Ended
December 31, December 31,
2005 2004
Restricted Group(1)
Net income (loss) euro (6,740) euro 33,604
Income taxes (benefit) (5,460) (17,198)
Interest expense 8,434 (233)
Investment and other income (1,429) (598)
Derivative financial instruments, net (199) (13,517)
Foreign exchange loss on debt 2,565 -
Income (loss) from operations (2,829) 2,058
Add: Depreciation and amortization 6,467 3,600
Operating EBITDA(2) euro 3,638 euro 5,658
For the For the
Year Ended Year Ended
December 31, December 31,
2005 2004
Restricted Group(1)
Net income (loss) euro (25,206) euro 35,113
Income taxes (benefit) 1,161 (17,235)
Interest expense 32,352 10,941
Investment income (3,742) (3,132)
Derivative financial instruments, net 295 (13,242)
Foreign exchange loss on debt 4,156 -
Impairment of investments 1,699 -
Income from operations 10,715 12,445
Add: Depreciation and amortization 23,898 17,766
Operating EBITDA euro 34,613 euro 30,211
(1) The results of the Celgar pulp mill are not included for the three
months and year ended December 31, 2004, respectively.
(2) Operating EBITDA does not reflect the impact of a number of items that
affect the Company's 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 the
Company's results as reported under GAAP.
(11)
