NEW YORK, NY, Nov. 7 /CNW/ -- Mercer International Inc.
(Nasdaq: MERCS, TSX: MRI.U) today reported results for the third quarter of
2005.
Summary Selected Highlights
Three Months Ended September 30,
2005 2004
(in thousands)
Results of Operations (unaudited)
Revenues euro 148,928 euro 47,360
Income (loss) from operations 7,892 (4,751)
Operating EBITDA(1) 21,871 5,254
Interest expense (21,911) (4,200)
Realized and unrealized gain (loss) on
derivative financial instruments, net(2) 3,051 (8,105)
Unrealized foreign exchange gain on debt 5,918 -
Net loss (5,555) (9,879)
Loss per share, basic and diluted (0.17) (0.57)
Other Data
Total pulp sales volume(3) (ADMTs) 332,282 73,128
Mill net pulp price realizations
(per ADMT) euro 398 euro 472
(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) Unrealized non-cash marked to market valuation gain (loss), except for
a realized loss of euro 0.3 million in the three months ended
September 30, 2005.
(3) Excluding intercompany sales volumes of 3,057 ADMTs and 1,348 ADMTs of
pulp in the three months ended September 30, 2005 and 2004,
respectively.
Certain key factors affecting our 2005 third quarter results include:
Revenues in the third quarter of 2005 increased by euro 101.6 million
over the comparative period of 2004 to euro 148.9 million, primarily
from the inclusion of production and sales from our Stendal and Celgar
pulp mills.
Operating EBITDA increased to euro 21.9 million in the current quarter
from euro 5.3 million in the prior quarter of 2004 reflecting higher
pulp sales and a contribution to income from operations of euro 6.1
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.
Interest expense increased to euro 21.9 million in the third quarter of
2005 from euro 4.2 million in the comparative period of 2004 and
included euro 14.7 million of interest associated with the Stendal mill.
In the prior period of 2004, most of the interest associated with the
Stendal mill was capitalized. Interest expense in the current quarter
included euro 6.0 million of interest relating to our $310 million 9.25%
senior notes issued in February 2005.
We recorded a net gain of euro 3.1 million on our interest rate and
currency derivatives in the third quarter of 2005 (of which euro 3.4
million was an unrealized non-cash holding gain and euro 0.3 million was
a realized loss), compared to a net unrealized non-cash holding loss of
euro 8.1 million thereon in the comparative period of 2004. We also
recorded an unrealized non-cash foreign exchange gain on our long-term
debt of euro 5.9 million in the current quarter due to the strengthening
of the Canadian dollar versus the U.S. dollar.
Pulp markets softened in the third quarter of 2005. Average list prices
for NBSK pulp in Europe decreased to $580 per ADMT from $635 per ADMT in
the prior period of 2004, but such decrease was partially offset by the
strengthening of the U.S. dollar versus the Euro.
Results of Operations - 2005 Third Quarter
Selected production and sales data for the three months ended September
30, 2005 and 2004 is as follows:
Three Months Ended September 30,
2005 2004
(ADMTs)
Production by Product Class:
Pulp production by mill:
Rosenthal 83,350 71,847
Celgar 118,035 -
Stendal 126,202 -
Total pulp production 327,587 71,847
Paper production 16,064 15,354
Total production 343,651 87,201
Sales Volume by Product Class:
Pulp sales volume by mill:
Rosenthal 86,772 73,128
Celgar 125,079 -
Stendal 120,431 -
Total pulp sales volume(1) 332,282 73,128
Paper sales volume 16,928 14,712
Total sales volume(1) 349,210 87,840
Revenues by Product Class: (in thousands)
Pulp revenues by mill:
Rosenthal euro 37,122 euro 34,982
Celgar 48,978 -
Stendal 47,313 (327)
Total pulp revenues(1) 133,413 34,655
Paper revenues 15,515 12,705
Total revenues(1) euro 148,928 euro 47,360
(1) Excluding intercompany sales volumes of 3,057 ADMTs and 1,348 ADMTs of
pulp and intercompany net sales revenues of approximately euro 1.3
million and euro 0.6 million in the three months ended September 30,
2005 and 2004, respectively.
Revenues for the three months ended September 30, 2005 increased to euro
148.9 million from euro 47.4 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 332,282 ADMTs in
the third quarter of 2005, compared to 73,128 ADMTs in the comparative period
of 2004. In the three months ended September 30, 2005, the Stendal and Celgar
mills sold 245,510 ADMTs of NBSK pulp and had sales of euro 96.3 million.
Cost of sales and general, administrative and other expenses in the third
quarter of 2005 increased to euro 141.0 million from euro 52.1 million in the
comparative period of 2004, primarily as a result of the inclusion of
production from our Stendal and Celgar mills. We commenced expensing all of
the costs, including interest, relating to the Stendal mill effective
September 2004, prior to which most of the costs, including interest, relating
to the Stendal mill were capitalized during its construction.
For the third quarter of 2005, revenues from our pulp operations increased
to euro 133.4 million from euro 34.7 million in the same period a year ago,
primarily as a result of the inclusion of sales from our Stendal and Celgar
mills. List prices for NBSK pulp in Europe were approximately euro 476 ($580)
per ADMT in the third quarter of 2005, compared to approximately euro 519
($635) 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 398 per ADMT on average in the
third quarter of 2005 from euro 472 per ADMT in the third 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 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 125.5 million in the third quarter of 2005 from
euro 32.4 million in the comparative period of 2004, primarily as a result of
the inclusion of euro 96.9 million of operating costs related to the Stendal
and Celgar mills. In the third quarter of 2005, we recorded a contribution to
income from operations of euro 6.1 million resulting from the sale of excess
carbon emission credits by our German pulp mills.
Depreciation for the pulp operations increased to euro 13.3 million in the
current quarter, from euro 3.8 million in the third quarter of 2004, primarily
as a result of the inclusion of euro 9.7 million of depreciation from the
Stendal and Celgar mills.
For the third quarter of 2005, our pulp operations generated operating
income of euro 9.2 million, versus operating income of euro 2.9 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 increased to
euro 15.5 million from euro 12.7 million in the same quarter of last year as a
result of higher sales volumes.
Cost of sales and general, administrative and other expenses for the paper
operations in the third quarter of 2005 decreased to euro 16.6 million from
euro 20.3 million in the comparative quarter of 2004, primarily as a result of
a shift in the product mix at our paper mills.
For the third quarter of 2005, our paper operations generated an operating
loss of euro 1.1 million, compared to an operating loss of euro 7.6 million in
the third quarter of 2004.
In the third quarter of 2005, we had income from operations of euro 7.9
million, compared to a loss from operations of euro 4.8 million in the same
quarter last year.
Interest expense in the third quarter of 2005 increased to euro 21.9
million from euro 4.2 million in the year ago period, due to interest expense
of euro 14.7 million relating to the Stendal mill and higher borrowings
resulting primarily from our $310 million senior note issue in February 2005.
In the third quarter of 2004, most of the interest associated with the Stendal
mill was capitalized.
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. We recorded a net unrealized non-cash holding loss
of euro 1.9 million before minority interests upon the marked to market
valuation of such currency derivatives that were outstanding at the end of the
quarter and a net loss of euro 0.3 million before minority interests in
respect of such derivatives that matured in the quarter, due to the
strengthening of the U.S. dollar versus the Euro. In the comparative quarter
of 2004, we recorded a net unrealized non-cash holding gain of euro 6.0
million before minority interests on the then outstanding currency derivatives
of Rosenthal and Stendal. In the third 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 5.3 million before minority interests
on the marked to market valuation of the Stendal interest rate derivatives
versus a net unrealized non-cash holding loss of euro 14.1 million before
minority interests on the interest rate derivatives of Stendal and Rosenthal
in the third quarter of 2004. We also recorded an unrealized non-cash foreign
exchange gain on our long-term debt of euro 5.9 million in the current quarter
due to the strengthening of the Canadian dollar versus the U.S. dollar.
In the third quarter of 2005, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal mill, was euro
5.7 million, compared to euro 6.7 million in the third quarter of 2004.
We reported a net loss for the third quarter of 2005 of euro 5.6 million,
or euro 0.17 per basic and diluted share, which reflected the inclusion of
interest expense related to our Stendal mill of euro 14.7 million and the net
realized and unrealized gain of euro 3.1 million on our interest rate and
currency derivatives and the unrealized non-cash foreign exchange gain on our
long-term debt of euro 5.9 million. In the third quarter of 2004, we reported
a net loss of euro 9.9 million, or euro 0.57 per basic and diluted share.
We generated "Operating EBITDA" of euro 21.9 million and euro 5.3 million
in the three months ended September 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. For a reconciliation of net
loss to Operating EBITDA, see page 11 of the financial tables included in this
press release.
Liquidity
As at As at
September 30, December 31,
2005 2004
(in thousands)
(unaudited)
Financial Position
Cash and cash equivalents euro 89,039 euro 49,568
Cash restricted 7,646 45,295
Receivables 75,696 54,687
Inventories 85,678 52,898
Prepaid expenses and other 6,446 4,961
Accounts payable and accrued expenses 94,702 56,542
Construction costs payable 1,088 65,436
Debt, current portion 37,135 107,090
Working capital (deficit) 131,580(1) (21,659)
Property, plant and equipment 1,031,879 936,035
Total assets 1,409,237 1,255,649
Long-term liabilities 1,097,347(2) 863,840
Shareholders' equity 178,965 162,741
(1) Does not include euro 10.6 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 16.7 million outstanding under the revolving credit
facilities for the Rosenthal and Celgar mills.
We had good liquidity at September 30, 2005. Certain key factors
affecting our liquidity include:
We had unrestricted cash and cash equivalents of euro 89.0 million.
The current Stendal construction costs payable of euro 1.1 million will
be paid from restricted cash of euro 7.6 million held for such purpose.
We qualified for investment grants relating to the Stendal mill totaling
approximately euro 10.6 million at September 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 part of the euro
35.5 million of the current portion of our debt 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 131.6 million at
September 30, 2005.
Results of Operations - Nine Months Ended September 30, 2005
For the nine months ended September 30, 2005, revenues increased to euro
376.4 million from euro 148.0 million in the prior period, because of higher
pulp sales. We generated income from operations of euro 16.2 million in the
nine months ended September 30, 2005, compared to a loss from operations of
euro 7.6 million in the nine months ended September 30, 2004. We generated
Operating EBITDA of euro 55.1 million and euro 15.6 million in the nine months
ended September 30, 2005 and 2004, respectively. For a reconciliation of net
loss to Operating EBITDA, see page 11 of the financial tables included in this
press release. We reported a net loss of euro 87.4 million or euro 2.86 per
diluted share for the nine months ended September 30, 2005, compared to a net
loss of euro 12.6 million or euro 0.73 per diluted share for the nine months
ended September 30, 2004, which reflected the inclusion of certain non-
capitalized interest of approximately euro 41.0 million related to the Stendal
mill, the net realized and unrealized non-cash holding loss of euro 70.1
million on our interest rate and currency derivatives and the unrealized non-
cash foreign exchange loss on our long-term debt of euro 1.6 million,
partially offset by a non-cash benefit for income taxes of euro 14.6 million.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "During the current
quarter, we had a three fold increase in revenues to approximately euro 148.9
million reflecting the acquisition of our Celgar mill and the ramp-up of our
Stendal mill. Both our Rosenthal and Celgar mills had good production in the
quarter and Stendal continues to ramp-up substantially on plan. We currently
expect to take regular planned down-time at our pulp mills in the fourth
quarter for maintenance and other improvements, which is expected to reduce
our overall production for the quarter by approximately 35,000 ADMTs of pulp.
During this down-time, the Stendal mill will also tie in two new digesters
which will increase its production capacity in 2006."
"Despite generally soft pulp markets, our Operating EBITDA increased
sharply to approximately euro 21.9 million and our net loss decreased in the
quarter. We believe this improvement reflects our strategy of focusing on
operating modern, large and efficient production facilities."
Mr. Lee continued: "Pulp prices were softer in the quarter with list
prices in Europe averaging around euro 476 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 410 per ADMT in the quarter."
He further stated: "We are, however, seeing some pulp price improvement
through the partial implementation of the October price increase." Mr. Lee
said: "As NBSK pulp is priced in U.S. dollars, the recent strengthening of
the U.S. dollar versus the Euro improved the operating results of our German
pulp mills, although this was partially offset by the weakening of the U.S.
dollar versus the Canadian dollar. A higher dollar generally results in
increased Euro revenues."
Mr. Lee also said: "At September 30, 2005, our balance sheet reflected
the receipt of government grants relating to the Stendal mill being applied to
the related debt and paying construction costs related to the Stendal mill
from restricted cash. As a result, our working capital increased to
approximately euro 131.6 million at the end of the third quarter of 2005 from
a working capital deficit of approximately euro 21.7 million at the end of the
prior quarter of 2004."
Mr. Lee concluded: "We continue to make good progress on integrating and
coordinating our global NBSK pulp marketing activities. We believe this
progress coupled with our focus on production efficiencies and costs, will
help us achieve our overall strategy of being a leading NBSK pulp producer and
build value for our stakeholders."
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,
November 8, 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=1159175. 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 November 15, 2005 at
11:59 p.m. (Eastern Time). The replay number is (800) 642-1687, and the
passcode is 2160034.
Mercer International Inc. is a global pulp and paper manufacturing
company. Our production facilities are located in Germany and Canada. Our
shares are quoted for trading on the Nasdaq National Market (MERCS) and listed
for trading on the Toronto Stock Exchange (MRI.U), and we also have
outstanding 8.5% convertible subordinated notes and 9.25% senior notes. 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 and other filings.
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
(Euros in thousands)
September 30, December 31,
2005 2004
ASSETS
Current Assets
Cash and cash equivalents euro 89,039 euro 49,568
Cash restricted 7,646 45,295
Receivables 75,696 54,687
Inventories 85,678 52,898
Prepaid expenses and other 6,446 4,961
Total current assets 264,505 207,409
Long-Term Assets
Cash restricted 24,537 47,538
Property, plant and equipment 1,031,879 936,035
Investments 4,664 5,079
Deferred note issuance and other costs 8,903 5,069
Deferred income tax 74,749 54,519
1,144,732 1,048,240
Total assets euro 1,409,237 euro 1,255,649
LIABILITIES
Current Liabilities
Accounts payable and accrued
expenses euro 94,702 euro 56,542
Construction costs payable 1,088 65,436
Debt, current portion 37,135 107,090
Total current liabilities 132,925 229,068
Long-Term Liabilities
Debt, less current portion 923,144 777,272
Unrealized foreign exchange rate
derivative losses 49,346 -
Unrealized interest rate derivative losses 90,637 75,471
Pension and other post-retirement
benefit obligations 17,008 -
Capital leases and other 9,562 9,035
Deferred income tax 7,650 2,062
1,097,347 863,840
Total liabilities 1,230,272 1,092,908
Minority Interest - -
SHAREHOLDERS' EQUITY
Shares of beneficial interest 181,600 83,397
Additional paid-in capital, stock options 14 14
Retained earnings (deficit) (18,197) 69,176
Accumulated other comprehensive income 15,548 10,154
Total shareholders' equity 178,965 162,741
Total liabilities and shareholders'
equity euro 1,409,237 euro 1,255,649
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 376,430 euro 148,011
Costs and expenses:
Cost of sales 350,185 127,859
General and administrative expenses 22,399 21,108
Gain on sale of emission credits (12,353) -
Impairment of capital assets - 6,000
Flooding losses and expenses, less grant
income - 669
Total costs and expenses 360,231 155,636
Income (loss) from operations 16,199 (7,625)
Other income (expense):
Interest expense (63,320) (9,554)
Investment income 1,594 1,679
Realized loss on derivative financial
instruments (2,455) -
Unrealized loss on derivative financial
instruments (67,804) (1,077)
Unrealized foreign exchange loss on debt (1,591) -
Impairment of investments (1,699) -
Total other income (expense) (135,275) (8,952)
Loss before income taxes and minority
interest (119,076) (16,577)
Income tax benefit 14,627 37
Loss before minority interest (104,449) (16,540)
Minority interest 17,076 3,936
Net loss (87,373) (12,604)
Retained earnings, beginning of period 69,176 49,196
Retained earnings (deficit), end of
period euro (18,197) euro 36,592
Loss per share
Basic and diluted euro (2.86) euro (0.73)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
2005 2004
Revenues euro 148,928 euro 47,360
Costs and expenses:
Cost of sales 140,018 39,231
General and administrative expenses 7,083 6,880
Gain on sale of emission credits (6,065) -
Impairment of capital assets - 6,000
Total costs and expenses 141,036 52,111
Income (loss) from operations 7,892 (4,751)
Other income (expense):
Interest expense (21,911) (4,200)
Investment income 613 215
Realized loss on derivative financial
instruments (284) -
Unrealized gain (loss) on derivative financial
instruments 3,335 (8,105)
Unrealized foreign exchange gain on debt 5,918 -
Total other income (expense) (12,329) (12,090)
Loss before income taxes and minority
interest (4,437) (16,841)
Income tax (provision) benefit (6,785) 236
Loss before minority interest (11,222) (16,605)
Minority interest 5,667 6,726
Net loss (5,555) (9,879)
Retained earnings (deficit), beginning of
period (12,642) 46,471
Retained earnings (deficit), end of
period euro (18,197) euro 36,592
Loss per share
Basic and diluted euro (0.17) euro (0.57)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
2005 2004
Cash Flows from (used in) Operating
Activities:
Net loss euro (87,373) euro (12,604)
Adjustments to reconcile net loss to
cash flows from operating activities
Unrealized losses on derivatives 67,804 1,077
Depreciation and amortization 39,599 17,217
Unrealized foreign exchange loss on debt 1,591 -
Impairment of capital assets - 6,000
Impairment of investments and securities 1,699 -
Minority interest (17,076) (3,936)
Deferred income taxes (14,642) -
Stock compensation expense 330 690
Other 144 1,139
Changes in current assets and liabilities
Receivables (20,428) (2,056)
Inventories (9,581) (35,825)
Accounts payable and accrued expenses 33,765 26,331
Other (1,435) 782
Net cash used in operating activities (5,603) (1,185)
Cash Flows from (used in) Investing Activities:
Cash restricted 60,650 (17,517)
Purchase of property, plant and equipment (18,646) (241,825)
Acquisition of Celgar pulp mill (146,608) -
Sale of available-for-sale securities - 1,161
Other - 115
Net cash used in investing activities (104,604) (258,066)
Cash Flows from (used in) Financing Activities:
Increase (decrease) in construction costs
payable (64,348) 118,196
Proceeds from borrowings of notes payable
and debt 311,792 126,000
Repayment of notes payable and debt (261,691) (21,886)
Proceeds from investment grants 78,595 28,710
Repayment of capital lease obligations (2,930) (1,781)
Issuance of shares of beneficial interest 67,329 582
Net cash from financing activities 128,747 249,821
Effect of exchange rate changes on cash and
cash equivalents 20,931 80
Net increase (decrease) in cash and cash
equivalents 39,471 (9,350)
Cash and cash equivalents, beginning of
period 49,568 51,993
Cash and cash equivalents, end of period euro 89,039 euro 42,643
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Nine Months Ended
September 30, 2005
Sales to external
customers euro 103,058 euro 97,458 euro 128,919 euro 329,435
Intersegment
net sales - - 4,679 4,679
103,058 97,458 133,598 334,114
Operating costs 73,146 86,438 112,739 272,323
Depreciation and
amortization 10,173 7,083 20,179 37,435
General and
administrative 5,441 5,285 3,120 13,846
Emission credits (4,402) - (7,951) (12,353)
84,358 98,806 128,087 311,251
Income (loss) from
operations 18,700 (1,348) 5,511 22,863
Interest expense
Investment income
Derivative financial
instruments, net
Foreign exchange loss
on debt
Impairment of
investments
Loss before income taxes
and minority interest
Segment assets euro 341,732 euro 251,918 euro 787,388 euro 1,381,038
Nine Months Ended
September 30, 2004
Sales to
external
customers euro 106,013 euro - euro 600 euro 106,613
Intersegment
net sales 1,822 - - 1,822
107,835 - 600 108,435
Operating costs 72,705 - 509 73,214
Depreciation and
amortization 14,166 - 795 14,961
General and
administrative 7,960 - 6,645 14,605
Impairment of assets - - - -
Flooding grants,
less losses and
expenses - - - -
94,831 - 7,949 102,780
Income (loss) from
operations 13,004 - (7,349) 5,655
Interest expense
Investment and
other income
Derivative financial
instruments, net
Loss before income
taxes and minority
interest
Segment assets euro 384,764 euro - euro 773,081 euro 1,157,845
Corporate,
Other and Consolidated
Paper Eliminations Total
Nine Months Ended
September 30, 2005
Sales to external
customers euro 46,995 euro - euro 376,430
Intersegment net sales - (4,679) -
46,995 (4,679) 376,430
Operating costs 44,879 (5,879) 311,323
Depreciation and amortization 592 835 38,862
General and administrative 3,720 4,833 22,399
Emission credits - - (12,353)
49,191 (211) 360,231
Income (loss) from operations (2,196) (4,468) 16,199
Interest expense (63,320)
Investment income 1,594
Derivative financial
instruments, net (70,259)
Foreign exchange loss
on debt (1,591)
Impairment of investments (1,699)
(135,275)
Loss before income taxes
and minority interest euro (119,076)
Segment assets euro 22,783 euro 5,416 euro 1,409,237
Nine Months Ended
September 30, 2004
Sales to external
customers euro 41,398 euro - euro 148,011
Intersegment net sales - (1,822) -
41,398 (1,822) 148,011
Operating costs 39,686 (1,742) 111,158
Depreciation and
amortization 1,740 - 16,701
General and administrative 3,886 2,617 21,108
Impairment of assets 6,000 - 6,000
Flooding grants, less losses
and expenses 669 - 669
51,981 875 155,636
Income (loss) from
operations (10,583) (2,697) (7,625)
Interest expense (9,554)
Investment and other income 1,679
Derivative financial
instruments, net (1,077)
(8,952)
Loss before income taxes
and minority interest euro (16,577)
Segment assets euro 31,699 euro 3,183 euro 1,192,727
(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 September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
September 30, 2005
Sales to
external
customers euro 37,122 euro 48,978 euro 47,313 euro 133,413
Intersegment
net sales - - 1,339 1,339
37,122 48,978 48,652 134,752
Operating costs 25,741 45,884 41,193 112,818
Depreciation and
amortization 3,543 2,986 6,725 13,254
General and
administrative 1,631 2,448 1,443 5,522
Emission credits (2,267) - (3,798) (6,065)
28,648 51,318 45,563 125,529
Income (loss) from
operations 8,474 (2,340) 3,089 9,223
Interest expense
Investment income
Derivative
financial
instruments, net
Foreign exchange
gain on debt
Loss before income
taxes and
minority
interest
Three Months Ended
September 30, 2004
Sales to external
customers euro 34,982 euro - euro (327) euro 34,655
Intersegment
net sales 643 - - 643
35,625 - (327) 35,298
Operating costs 23,580 - 509 24,089
Depreciation and
amortization 3,030 - 783 3,813
General and
administrative 3,324 - 1,197 4,521
Impairment of assets - - - -
Flooding grants,
less losses and
expenses - - - -
29,934 - 2,489 32,423
Income (loss) from
operations 5,691 - (2,816) 2,875
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
September 30, 2005
Sales to external
customers euro 15,532 euro - euro 148,928
Intersegment net sales - (1,339) -
15,515 (1,339) 148,928
Operating costs 15,278 (2,057) 126,039
Depreciation and
amortization 213 512 13,979
General and administrative 1,158 403 7,083
Emission credits - - (6,065)
16,649 (1,142) 141,036
Income (loss) from
operations (1,134) (197) 7,892
Interest expense (21,911)
Investment income 613
Derivative financial
instruments, net 3,051
Foreign exchange gain
on debt 5,918
(12,329)
Loss before income taxes
and minority interest euro (4,437)
Three Months Ended
September 30, 2004
Sales to external
customers euro 12,705 euro - euro 47,360
Intersegment net sales - (643) -
12,705 (643) 47,360
Operating costs 12,473 (1,425) 35,137
Depreciation and
amortization 599 (318) 4,094
General and administrative 1,243 1,116 6,880
Impairment of assets 6,000 - 6,000
Flooding grants, less
losses and expenses - - -
20,315 (627) 52,111
Income (loss) from
operations (7,610) (16) (4,751)
Interest expense (4,200)
Investment and other income 215
Derivative financial
instruments, net (8,105)
(12,090)
Loss before income
taxes and minority
interest euro (16,841)
(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 September 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 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 nine and three months ended September
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 nine and three months ended
September 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 nine and three months ended September 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.
September 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 52,566 euro 36,473 euro - euro 89,039
Cash restricted - 7,646 - 7,646
Receivables 40,758 35,113 (175) 75,696
Inventories 50,875 34,803 - 85,678
Prepaid expenses
and other 3,968 2,478 - 6,446
Total current
assets 148,167 116,513 (175) 264,505
Cash restricted - 24,537 - 24,537
Property, plant and
equipment 397,071 635,468 (660) 1,031,879
Other 9,483 4,084 - 13,567
Deferred income tax 21,516 53,233 - 74,749
Due from
unrestricted
group 45,473 - (45,473) -
Total assets euro 621,710 euro 833,835 euro (46,308) euro 1,409,237
LIABILITIES
Current liabilities
Accounts payable
and accrued
expenses euro 36,128 euro 58,749 euro (175) euro 94,702
Construction
costs payable - 1,088 - 1,088
Debt, current
portion - 37,135 - 37,135
Total current
liabilities 36,128 96,972 (175) 132,925
Debt, less current
portion 342,221 580,923 - 923,144
Due to restricted
group - 45,473 (45,473) -
Unrealized derivatives
loss - 139,983 - 139,983
Other 20,152 6,418 - 26,570
Deferred income tax 3,845 3,805 - 7,650
Total liabilities 402,346 873,574 (45,648) 1,230,272
SHAREHOLDERS' EQUITY
Total shareholders'
equity 219,364 (39,739)(1) (660) 178,965
Total liabilities
and shareholders'
equity euro 621,710 euro 833,835 euro (46,308) euro 1,409,237
(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 Nine Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Nine Months Ended September 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 200,516 euro 175,914 euro - euro 376,430
Operating costs 158,384 152,939 - 311,323
Operating
depreciation
and amortization 17,431 20,771 660 38,862
General and
administrative 15,559 6,840 - 22,399
Gain on sale of
emission credits (4,402) (7,951) - (12,353)
186,972 172,599 660 360,231
Income (loss)
from
operations 13,544 3,315 (660) 16,199
Other income
(expense)
Interest expense (23,918) (41,351) 1,949 (63,320)
Investment
income 2,313 1,230 (1,949) 1,594
Derivative
financial
instruments, net (494) (69,765) - (70,259)
Unrealized foreign
exchange loss
on debt (1,591) - - (1,591)
Impairment of
investments (1,699) - - (1,699)
Total other
expense (25,389) (109,886) - (135,275)
Loss before income
taxes and
minority
interest (11,845) (106,571) (660) (119,076)
Income tax
(provision)
benefit (7,867) 22,494 - 14,627
Loss before
minority
interest (19,712) (84,077) (660) (104,449)
Minority interest - 17,076 - 17,076
Net loss euro (19,712) euro (67,001) euro (660) euro (87,373)
Nine Months Ended September 30, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 107,835 euro 41,998 euro (1,822) euro 148,011
Operating
costs 72,255 40,195 (1,292) 111,158
Operating
depreciation
and
amortization 14,166 2,535 - 16,701
General and
administrative 11,027 10,531 (450) 21,108
Impairment of
assets - 6,000 - 6,000
Flooding grants,
less losses and
expenses - 669 - 669
97,448 59,930 (1,742) 155,636
Income (loss)
from
operations 10,387 (17,932) (80) (7,625)
Other income
(expense)
Interest
expense (11,174) (2,309) 3,929 (9,554)
Investment
income 2,534 (301) (554) 1,679
Derivative
financial
instruments,
net (102) (15,723) - (15,825)
Unrealized foreign
exchange loss
on debt (173) 14,921 - 14,748
Total other
expense (8,915) (3,412) 3,375 (8,952)
Loss before
income taxes
and minority
interest 1,472 (21,344) 3,295 (16,577)
Income tax
(provision)
benefit 37 - - 37
Loss before
minority
interest 1,509 (21,344) 3,295 (16,540)
Minority
interest - 3,936 - 3,936
Net income
(loss) euro 1,509 euro (17,408) euro 3,295 euro (12,604)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Three Months Ended September 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 86,100 euro 62,828 euro - euro 148,928
Operating costs 71,124 54,915 - 126,039
Operating
depreciation
and amortization 6,602 7,155 222 13,979
General and
administrative 4,482 2,601 - 7,083
Gain on sale of
emission credits (2,267) (3,798) - (6,065)
79,941 60,873 222 141,036
Income (loss)
from operations 6,159 1,955 (222) 7,892
Other income
(expense)
Interest expense (7,987) (14,780) 856 (21,911)
Investment income 1,016 453 (856) 613
Derivative
financial
instruments, net (31) 3,082 - 3,051
Unrealized foreign
exchange gain on
debt 5,918 - - 5,918
Total other income
(expense) (1,084) (11,245) - (12,329)
Income (loss)
before income
taxes and
minority interest 5,075 (9,290) (222) (4,437)
Income tax
(provision)
benefit (3,091) (3,694) - (6,785)
Income (loss)
before minority
interest 1,984 (12,984) (222) (11,222)
Minority interest - 5,667 - 5,667
Net income
(loss) euro 1,984 euro (7,317) euro(222) euro (5,555)
Three Months Ended September 30, 2004
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 35,625 euro 12,378 euro(643) euro 47,360
Operating
costs 23,580 12,982 (1,425) 35,137
Operating
depreciation
and
amortization 3,030 1,382 (318) 4,094
General and
administrative 4,732 2,440 (292) 6,880
Impairment of
assets - 6,000 - 6,000
31,342 22,804 (2,035) 52,111
Income (loss)
from
operations 4,283 (10,426) 1,392 (4,751)
Other income
(expense)
Interest expense (5,151) (1,857) 2,808 (4,200)
Investment income 789 (87) (487) 215
Derivative
financial
instruments, net 4,712 (14,157) - (9,445)
Unrealized foreign
exchange gain on
debt 285 1,055 - 1,340
Total other income
(expense) 635 (15,046) 2,321 (12,090)
Income (loss)
before income
taxes and
minority
interest 4,918 (25,472) 3,713 (16,841)
Income tax
(provision)
benefit 236 - - 236
Income (loss)
before minority
interest 5,154 (25,472) 3,713 (16,605)
Minority interest - 6,726 - 6,726
Net income
(loss) euro 5,154 euro (18,746) euro 3,713 euro (9,879)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Nine and Three Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Nine Months Ended
September 30,
2005 2004
Net loss euro (87,373) euro(12,604)
Minority interest (17,076) (3,936)
Income taxes (benefit) (14,627) (37)
Interest expense 63,320 9,554
Investment income (1,594) (1,679)
Derivative financial instruments, net 70,259 1,077
Foreign exchange loss on debt 1,591 -
Impairment of investments 1,699 -
Income (loss) from operations 16,199 (7,625)
Add: Depreciation and amortization 38,862 17,217
Impairment charge - 6,000
Operating EBITDA euro 55,061 euro 15,592
Three Months Ended
September 30,
2005 2004
Net loss euro (5,555) euro (9,879)
Minority interest (5,667) (6,726)
Income taxes (benefit) 6,785 (236)
Interest expense 21,911 4,200
Investment income (613) (215)
Derivative financial instruments, net (3,051) 8,105
Foreign exchange loss on debt (5,918) -
Income (loss) from operations 7,892 (4,751)
Add: Depreciation and amortization 13,979 4,005
Impairment charge - 6,000
Operating EBITDA euro 21,871 euro 5,254
(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 Nine and Three Months Ended September 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
Nine Months Ended
September 30,
2005 2004
Restricted Group(1)
Net income (loss) euro (19,712) euro 1,509
Income taxes 7,867 (37)
Interest expense 23,918 11,174
Investment and other income (2,313) (2,534)
Derivative financial instruments, net 494 102
Foreign exchange loss on debt 1,591 173
Impairment of investments 1,699 -
Income from operations 13,544 10,387
Add: Depreciation and amortization 17,431 14,166
Operating EBITDA euro 30,975 euro 24,553
(1) The results of the Celgar pulp mill are not included for the nine
months ended September 30, 2004.
Three Months Ended
September 30,
2005 2004
Restricted Group(1)
Net income euro 1,984 euro 5,154
Income taxes 3,091 (236)
Interest expense 7,987 5,151
Investment and other income (1,016) (789)
Derivative financial instruments, net 31 (4,712)
Foreign exchange (gain) loss on debt (5,918) (285)
Income from operations 6,159 4,283
Add: Depreciation and amortization 6,602 3,030
Operating EBITDA euro 12,761 euro 7,313
(1) The results of the Celgar pulp mill are not included for the three
months ended September 30, 2004.
