NEW YORK, Aug. 8 /CNW/ -- Mercer International Inc.
(Nasdaq: MERC), (TSX: MRI.U) today reported results for the second quarter of
2006.
Summary Selected Highlights
Three Months Ended June 30,
2006 2005
(in thousands)
Results of Operations (unaudited)
Revenues euro 166,705 euro 129,609
Income from operations 10,874 9,201
Operating EBITDA(1) 25,742 23,097
Interest expense 23,112 22,200
Unrealized gain (loss) on derivative instruments 44,690 (69,451)
Unrealized foreign exchange gain (loss) on debt 6,060 (9,806)
Net income (loss) 18,421 (62,151)
Income (loss) per share
Basic 0.56 (1.88)
Diluted 0.45 (1.88)
Other Data
Total pulp sales volume(2) (ADMTs) 329,265 278,752
Mill net pulp price realizations (per ADMT)(3) 453 403
(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 10 of the financial tables included in this press release.
(2) Excluding intercompany sales volumes of 4,871 ADMTs and 4,105 ADMTs of
pulp in the three months ended June 30, 2006 and 2005, respectively.
(3) Excluding revenues from third party transportation activities.
Certain key factors affecting our 2006 second quarter results include:
Revenues increased by over 28% to euro 166.7 million from euro 129.6
million in the comparative period of 2005, primarily due to higher sales
from our Celgar and Stendal pulp mills.
Pulp markets strengthened quarter over quarter. Average list prices for
NBSK pulp in Europe were $665 per ADMT in the second quarter of 2006 and
$618 per ADMT in the first quarter of 2006, compared to $613 per ADMT in
the second quarter of 2005.
Mill net pulp realizations increased to euro 453 per ADMT in the second
quarter of 2006 from euro 425 and euro 413 per ADMT in the first quarter
of 2006 and the fourth quarter of 2005, respectively.
We took scheduled maintenance and strategic capital expenditure downtime
of approximately 30 days at all of our pulp mills, of which 16 days were
at our Rosenthal mill and 8 days were at our Celgar mill. The total
maintenance costs associated with the shutdowns were approximately
euro 4.3 million and were expensed in the quarter. Further, the Stendal
mill underwent testing of various departments and converted some
production to TCF pulp pursuant to the terms of its EPC contract which
curtailed production during such period. This downtime and testing
negatively impacted our production volumes, costs and operating results.
Operating EBITDA was euro 25.7 million in the second quarter compared to
euro 23.1 million in the 2005 comparative quarter as our scheduled
downtime at our pulp mills offset, in part, improvements in pulp
markets. 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 10 of the financial tables included in this press
release.
We recorded an aggregate net unrealized gain of euro 50.8 million on our
outstanding derivatives and foreign exchange gain on our long-term debt
in the second quarter of 2006. In the second quarter of 2005, we had an
aggregate net unrealized loss of euro 79.3 million on our outstanding
derivatives and foreign exchange loss on long-term debt.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "During the second
quarter of 2006:
Pulp markets were stronger than the last and comparative quarter of
2005. NBSK list prices in Europe improved to $690 per ADMT at the end
of the quarter and in Asian markets improved by approximately $50 per
ADMT.
The Stendal mill ramp up is proceeding substantially as scheduled. In
the quarter, it operated above its initial rated capacity and, despite
testing and related matters, production and sales revenues were up by
approximately 13% and 49%, respectively, over the same period of 2005.
Further, Stendal mill net realizations also improved as a result of
higher pulp prices and increased contract sales in Europe.
During the quarter, we had extensive scheduled downtime at our pulp
mills. During this time, the Rosenthal mill installed an additional
brownstock washer and the Celgar mill undertook extensive maintenance,
with over 1,000 workers involved, which should enhance its operating
performance and reliability in the second half of 2006.
Improvements in pulp prices and markets were largely offset by the
scheduled downtime at our pulp mills, higher fiber costs at our German
pulp mills and the impact of the continuing strength of the Canadian
dollar versus the U.S. dollar on our Celgar mill."
Mr. Lee continued: "Looking forward, we are seeing improvements in pulp
prices and demand in all of our markets which we currently believe should
result in further price improvement in the upcoming months. In July 2006,
list NBSK prices increased to approximately $710 per ton in Europe and
approximately $650 per ton in Asia."
Mr. Lee concluded: "With the extensive scheduled mill downtime completed,
we believe we are well-positioned to realize upon the strengthening NBSK pulp
market in the second half of 2006."
Results of Operations -- 2006 Second Quarter
Selected production and sales data for the three months ended June 30,
2006 and 2005 is as follows:
Three Months Ended June 30,
2006 2005
(ADMTs)
Production by Product Class:
Pulp production by mill:
Rosenthal 67,376 81,443
Stendal 139,715 123,738
Celgar 100,651 111,071
Total pulp production 307,742 316,252
Paper production 16,427 17,979
Total production 324,169 334,231
Sales Volume by Product Class:
Pulp sales volume by mill:
Rosenthal 73,010 75,996
Stendal 136,894 102,915
Celgar 119,361 99,841
Total pulp sales volume(1) 329,265 278,752
Paper sales volume 15,482 17,840
Total sales volume(1) 344,747 296,592
Revenues by Product Class: (in thousands)
Pulp revenues by mill:
Rosenthal euro 33,776 euro 31,115
Stendal 60,741 40,345
Celgar 54,514 40,864
Total pulp revenues(1) 149,031 112,324
Paper revenues 16,097 16,097
Total pulp and paper sales
revenues(1) 165,128 128,421
Third party transportation revenues 1,577 1,188
Total sales revenues euro 166,705 euro 129,609
(1) Excluding intercompany sales volumes of 4,871 ADMTs and 4,105 ADMTs of
pulp and intercompany net sales revenues of approximately euro 2.3
million and euro 1.7 million in the three months ended June 30, 2006
and 2005, respectively.
Revenues for the three months ended June 30, 2006 increased to euro 166.7
million from euro 129.6 million in the comparative period of 2005, primarily
due to higher sales from our Celgar and Stendal pulp mills. Pulp sales by
volume increased to 329,265 ADMTs in the second quarter of 2006 from 278,752
ADMTs in the comparative period of 2005.
Cost of sales and general, administrative and other expenses in the second
quarter of 2006 increased to euro 155.8 million from euro 120.4 million in the
comparative period of 2005, primarily as a result of the inclusion of higher
sales from our Celgar and Stendal mills.
For the second quarter of 2006, revenues from our pulp operations
increased to euro 150.6 million from euro 113.5 million in the same period a
year ago. List prices for NBSK pulp in Europe were approximately euro 529
($665) per ADMT in the second quarter of 2006 and euro 514 ($618) per ADMT in
the first quarter of 2006, compared to approximately euro 487 ($613) per ADMT
in the comparative period of last year.
Mill net pulp sales realizations increased to euro 453 per ADMT on average
in the second quarter of 2006 from euro 403 per ADMT in the second quarter of
2005, primarily as a result of higher pulp prices.
During the current quarter, we took an aggregate of approximately 30 days
scheduled maintenance and strategic capital expenditure downtime at our pulp
mills, including 16 days at our Rosenthal mill and 8 days at our Celgar mill.
During this period, our Rosenthal mill completed the installation of an
additional brownstock washer at a cost of approximately euro 9.7 million which
is expected to further improve pulp quality and lower chemical and effluent
costs. The total maintenance costs associated with such shutdown were
approximately euro 4.3 million and were expensed in the current quarter.
Total production volume at our Rosenthal and Celgar mills was down by
approximately 24,000 tons or 13% in the current quarter of 2006 compared to
the same quarter of 2005. The Stendal mill also underwent testing of various
departments and converted some production to TCF pulp pursuant to the terms of
its EPC contract which curtailed production during such period. This downtime
and testing negatively impacted our production volumes, costs and operating
results. During the same period of 2005, we had 12 days of down time at our
pulp mills.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to euro 141.3 million in the second quarter of 2006 from
euro 102.9 million in the comparative period of 2005, primarily as a result of
the inclusion of higher sales from our Celgar and Stendal mills.
Fiber costs at our German pulp mills increased by approximately 8% in the
second quarter of 2006 versus the same quarter of 2005. This resulted from
lower availability because of severe winter conditions in Germany and central
Europe, which caused sawmillers and log harvesters to curtail operations and
increased competition for fiber primarily from renewable energy operations.
The increase in worldwide energy prices has made projects generating energy
from renewable sources such as wood residuals more viable in Europe. As a
result, there has been increased fiber demand and competition in our fiber
base. In the second quarter of 2006, average fiber costs at our Celgar mill
decreased by approximately 23% versus the same quarter of 2005, primarily
because of fluctuations in regional woodchip availability.
In the second quarter of 2006, we recorded a contribution to income from
operations of euro 7.6 million resulting from the sale of emission allowances
compared to euro 6.3 million in the comparative quarter of 2005.
Depreciation for the pulp operations increased to euro 14.6 million in the
second quarter of 2006, from euro 13.4 million in the comparative period of
2005, primarily as a result of depreciation associated with the Celgar mill.
For the second quarter of 2006, our pulp operations generated operating
income of euro 11.5 million, versus operating income of euro 12.4 million in
the comparative quarter of 2005 as scheduled downtime resulted in lower
production and weaker performance largely offset improvements in pulp markets
and Stendal's results. As NBSK pulp is generally quoted in U.S. dollars, the
overall strength of the Canadian dollar versus the U.S. dollar continued to
negatively impact our Celgar mill's sales realizations and results.
Revenues from our paper operations were stable at euro 16.1 million in the
current quarter as well as the same quarter of last year.
Cost of sales and general, administrative and other expenses for the paper
operations in the second quarter of 2006 decreased to euro 15.8 million from
euro 16.9 million in the comparative quarter of 2005.
For the second quarter of 2006, our paper operations generated operating
income of euro 0.4 million, compared to an operating loss of euro 0.8 million
in the second quarter of 2005.
In the second quarter of 2006, we had income from operations of euro 10.9
million, compared to euro 9.2 million in the same quarter last year. Interest
expense in the second quarter of 2006 increased marginally to euro 23.1
million from euro 22.2 million in the year ago period, primarily due to higher
borrowings relating to the Stendal mill.
Stendal entered into certain foreign currency derivatives to swap all of
its long-term bank indebtedness from Euros to U.S. dollars in 2005 and certain
currency forwards. In addition, Stendal previously entered into interest rate
swaps to fix the interest rate on its outstanding bank indebtedness. Due to
the weakening of the U.S. dollar versus the Euro and an increase in long-term
interest rates, we recorded a net unrealized non-cash holding gain of
euro 44.7 million before minority interests upon the marked to market
valuation of such derivatives that were outstanding at the end of the current
quarter, compared to a net non-cash holding loss of euro 69.5 million before
minority interests upon the marked to market valuation of our outstanding
derivatives in the comparative quarter of 2005.
In the second quarter of 2006, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal mill, was
euro 0.4 million, compared to euro 4.9 million in the second quarter of 2005.
We reported net income for the second quarter of 2006 of euro 18.4
million, or euro 0.56 per basic and euro 0.45 per diluted share, which
included an aggregate of euro 50.8 million of unrealized gains on our
outstanding derivatives and a foreign exchange gain on our long-term debt. In
the second quarter of 2005, we reported a net loss of euro 62.2 million, or
euro 1.88 per basic and diluted share, which reflected the net unrealized non-
cash holding losses on our currency and interest rate derivatives of euro 69.5
million and the unrealized non-cash foreign exchange loss on our long-term
debt of euro 9.8 million, partially offset by the non-cash benefit for income
taxes of euro 24.4 million, and interest expense related to our Stendal mill
of euro 14.5 million.
We generated "Operating EBITDA" of euro 25.7 million and euro 23.1 million
in the three months ended June 30, 2006 and 2005, 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
income (loss) to Operating EBITDA, see page 10 of the financial tables
included in this press release.
Earnings Release Call
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 Wednesday,
August 9, 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.mercerint.com/en/newsCurrent.cfm, or at
http://www.videonewswire.com/event.asp?id=35077. Please allow 15 minutes
prior to the call to visit the site and download and install any necessary
audio software. A replay of this call will be available approximately two
hours after the live call ends until August 16, 2006 at 11:59 p.m. (Eastern
Standard Time). The replay number is 800-642-1687, and the passcode is
3961912.
Mercer International Inc. is a global pulp and paper manufacturing
company. To obtain further information on the company, please visit its web
site at http://www.mercerinternational.com.
The preceding includes forward looking statements which involve known and
unknown risks and uncertainties which may cause the Company's actual results
in future periods to differ materially from forecasted results. Among those
factors which could cause actual results to differ materially are the
following: market conditions, competition and other risk factors listed from
time to time in the company's SEC reports.
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2006 and December 31, 2005
(Euros in thousands)
June 30, December 31,
2006 2005
ASSETS
Current Assets
Cash and cash equivalents euro 73,079 euro 83,547
Cash restricted 5,892 7,039
Receivables 87,020 74,315
Inventories 69,544 81,147
Prepaid expenses and other 6,240 5,474
Total current assets 241,775 251,522
Long-Term Assets
Cash restricted 66,537 24,573
Property, plant and equipment 1,008,319 1,024,662
Investments 7,695 6,314
Deferred note issuance and other costs 7,674 8,364
Deferred income tax 38,798 78,381
1,129,023 1,142,294
Total assets euro 1,370,798 euro 1,393,816
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses euro 109,113 euro 112,726
Debt, current portion 75,375 27,601
Total current liabilities 184,488 140,327
Long-Term Liabilities
Debt, less current portion 898,379 922,619
Unrealized foreign exchange rate
derivative loss 11,735 61,979
Unrealized interest rate derivative
losses 42,320 78,646
Pension and other post-retirement
benefit obligations 16,541 17,113
Capital leases and other 9,980 9,945
Deferred income tax 17,428 14,444
996,383 1,104,746
Total liabilities 1,180,871 1,245,073
Minority Interest - -
SHAREHOLDERS' EQUITY
Common shares 181,655 181,586
Additional paid-in capital, stock options 87 14
Deficit (12,961) (47,970)
Accumulated other comprehensive income 21,146 15,113
Total shareholders' equity 189,927 148,743
Total liabilities and shareholders'
equity euro 1,370,798 euro 1,393,816
(1)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands, except per share data)
2006 2005
Revenues euro 325,769 euro 227,502
Costs and expenses:
Cost of sales 298,045 210,167
27,724 17,335
General and administrative expenses (18,591) (15,316)
Sale (purchase) of emission allowances 13,246 6,288
Income from operations 22,379 8,307
Other income (expense)
Interest expense (46,037) (41,463)
Investment income 3,011 981
Unrealized foreign exchange gain (loss)
on debt 12,173 (7,509)
Realized loss on derivative instruments (5,219) (295)
Unrealized gain (loss) on derivative
instruments 90,724 (73,015)
Impairment of investments - (1,645)
Total other income (expense) 54,652 (122,946)
Income (loss) before income taxes and
minority interest 77,031 (114,639)
Income tax (provision) benefit (42,920) 21,412
Income (loss) before minority interest 34,111 (93,227)
Minority interest 898 11,409
Net income (loss) euro 35,009 euro (81,818)
(Deficit) retained earnings, beginning of
period (47,970) 69,176
Deficit, end of period euro (12,961) euro (12,642)
Income (loss) per share
Basic euro 1.06 euro (2.80)
Diluted euro 0.86 euro (2.80)
(2)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands, except per share data)
2006 2005
Revenues euro 166,705 euro 129,609
Costs and expenses:
Cost of sales 153,706 119,178
12,999 10,431
General and administrative expenses (9,733) (7,518)
Sale (purchase) of emission allowances 7,608 6,288
Income from operations 10,874 9,201
Other income (expense)
Interest expense (23,112) (22,200)
Investment income 1,267 806
Unrealized foreign exchange gain (loss)
on debt 6,060 (9,806)
Realized loss on derivative instruments (1,657) -
Unrealized gain (loss) on derivative
instruments 46,347 (69,451)
Total other income (expense) 28,905 (100,651)
Income (loss) before income taxes and
minority interest 39,779 (91,450)
Income tax (provision) benefit (21,807) 24,447
Income (loss) before minority interest 17,972 (67,003)
Minority interest 449 4,852
Net income (loss) euro 18,421 euro (62,151)
(Deficit) retained earnings, beginning of
period (31,382) 49,509
Deficit, end of period euro (12,961) euro (12,642)
Income (loss) per share
Basic euro 0.56 euro (1.88)
Diluted euro 0.45 euro (1.88)
(3)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Six Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Rosenthal Celgar Stendal Total
Pulp Pulp Pulp Pulp
Six Months Ended June 30, 2006
Sales to external
customers euro 68,941 euro 100,811 euro 122,510 euro 292,262
Intersegment net
sales (152) 23 4,688 4,559
68,789 100,834 127,198 296,821
Operating costs 49,453 98,702 95,571 243,726
Operating depreciation
and amortization 7,750 6,291 14,129 28,170
General and
administrative 3,592 4,939 5,940 14,471
(Sale) purchase of
emission allowances (3,651) - (9,595) (13,246)
57,144 109,932 106,045 273,121
Income (loss) from
operations 11,645 (9,098) 21,153 23,700
Interest expense
Investment income
Derivative financial
instruments, net
Unrealized foreign
exchange gain
on debt
Income before
income taxes
and minority
interest
Segment assets euro 332,485 euro 237,175 euro 746,557 euro 1,316,217
Corporate
Other and Consolidated
Paper Eliminations Total
Six Months Ended June 30, 2006
Sales to external customers euro 33,507 euro - euro 325,769
Intersegment net sales 108 (4,667) -
33,615 (4,667) 325,769
Operating costs 29,971 (4,434) 269,263
Operating depreciation and
amortization 456 156 28,782
General and administrative 2,276 1,844 18,591
(Sale) purchase of emission
allowances - - (13,246)
32,703 (2,434) 303,390
Income (loss) from operations 912 (2,233) 22,379
Interest expense (46,037)
Investment income 3,011
Derivative financial instruments, net 85,505
Unrealized foreign exchange gain on debt 12,173
Income before income taxes and minority
interest euro 77,031
Segment assets euro 22,020 euro 32,561 euro 1,370,798
Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp
Six Months Ended
June 30, 2005
Sales to external
customers euro 65,936 euro 48,480 euro 81,606 euro 196,022
Intersegment net
sales - - 3,340 3,340
65,936 48,480 84,946 199,362
Operating costs 47,405 40,554 71,546 159,505
Operating depreciation
and amortization 6,630 4,097 13,454 24,181
General and administrative 3,810 2,837 1,677 8,324
(Sale) purchase of
emission allowances (2,135) - (4,153) (6,288)
55,710 47,488 82,524 185,722
Income (loss) from
operations 10,226 992 2,422 13,640
Interest expense
Investment income
Derivative financial
instruments, net
Unrealized foreign
exchange
loss on debt
Impairment of
investments
Loss before
income taxes
and minority
interest
Segment assets euro 347,935 euro 244,361 euro 906,244 euro 1,498,540
Corporate
Other and Consolidated
Paper Eliminations Total
Six Months Ended
June 30, 2005
Sales to external customers euro 31,480 euro - euro 227,502
Intersegment net sales - (3,340) -
31,480 (3,340) 227,502
Operating costs 29,601 (3,822) 185,284
Operating depreciation and
amortization 379 323 24,883
General and administrative 2,562 4,430 15,316
(Sale) purchase of emission
allowances - - (6,288)
32,542 931 219,195
Income (loss) from
operations (1,062) (4,271) 8,307
Interest expense (41,463)
Investment income 981
Derivative financial
instruments, net (73,310)
Unrealized foreign exchange
loss on debt (7,509)
Impairment of investments (1,645)
Loss before income taxes and
minority interest euro (114,639)
Segment assets euro 24,294 euro 15,995 euro 1,538,829
(1) The results of the Celgar pulp mill are from the date of its
acquisition on February 14, 2005.
(4)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Rosenthal Celgar Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
June 30, 2006
Sales to external
customers euro 34,269 euro 54,514 euro 61,811 euro 150,594
Intersegment net
sales (194) 23 2,373 2,202
34,075 54,537 64,184 152,796
Operating costs 25,466 53,137 47,446 126,049
Operating depreciation
and amortization 4,213 3,277 7,070 14,560
General and
administrative 2,265 2,815 3,183 8,263
(Sale) purchase of
emission allowances (1,884) - (5,724) (7,608)
30,060 59,229 51,975 141,264
Income (loss) from
operations 4,015 (4,692) 12,209 11,532
Interest expense
Investment income
Derivative financial
instruments, net
Unrealized foreign
exchange
gain on debt
Income before income taxes
and minority interest
Corporate
Other and Consolidated
Paper Eliminations Total
Three Months Ended
June 30, 2006
Sales to external customers euro 16,111 euro - euro 166,705
Intersegment net sales 108 (2,310) -
16,219 (2,310) 166,705
Operating costs 14,453 (1,664) 138,838
Operating depreciation and
amortization 230 78 14,868
General and administrative 1,135 335 9,733
(Sale) purchase of emission
allowances - - (7,608)
15,818 (1,251) 155,831
Income (loss) from operations 401 (1,059) 10,874
Interest expense (23,112)
Investment income 1,267
Derivative financial
instruments, net 44,690
Unrealized foreign exchange
gain on debt 6,060
Income before income taxes
and minority interest euro 39,779
Rosenthal Celgar Stendal Total
Pulp Pulp Pulp Pulp
Three Months Ended
June 30, 2005
Sales to external
customers euro 31,840 euro 40,864 euro 40,808 euro 113,512
Intersegment net
sales - - 1,786 1,786
31,840 40,864 42,594 115,298
Operating costs 22,217 35,419 34,411 92,047
Operating depreciation
and amortization 3,362 3,274 6,773 13,409
General and administrative 1,909 1,162 702 3,773
(Sale) purchase of emission
allowances (2,135) - (4,153) (6,288)
25,353 39,855 37,733 102,941
Income (loss) from
operations 6,487 1,009 4,861 12,357
Interest expense
Investment income
Derivative financial
instruments, net
Unrealized foreign exchange
loss on debt
Loss before income taxes and
minority interest
Corporate
Other and Consolidated
Paper Eliminations Total
Three Months Ended June 30,
2005
Sales to external customers euro 16,097 euro - euro 129,609
Intersegment net sales - (1,786) -
16,097 (1,786) 129,609
Operating costs 15,370 (2,135) 105,282
Operating depreciation and
amortization 198 289 13,896
General and administrative 1,326 2,419 7,518
(Sale) purchase of emission
allowances - - (6,288)
16,894 573 120,408
Income (loss) from
operations (797) (2,359) 9,201
Interest expense (22,200)
Investment income 806
Derivative financial
instruments, net (69,451)
Unrealized foreign exchange
loss on debt (9,806)
Loss before income taxes and
minority interest euro (91,450)
(5)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at June 30, 2006
(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." From February 14, 2005, the Restricted Group includes
Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill.
The Restricted Group excludes our paper operations and the Stendal mill.
June 30, 2006
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash
equivalents euro 37,018 euro 36,061 euro - euro 73,079
Cash
restricted - 5,892 - 5,892
Receivables 47,468 39,552 - 87,020
Inventories 36,653 32,891 - 69,544
Prepaid
expenses
and other 3,620 2,620 - 6,240
Total current
assets 124,759 117,016 - 241,775
Cash restricted - 66,537 - 66,537
Property, plant
and equipment 400,046 608,273 - 1,008,319
Other 10,048 5,321 - 15,369
Deferred income
tax 18,149 20,649 - 38,798
Due from
unrestricted
group 49,302 - (49,302) -
Total assets euro 602,304 euro 817,796 euro (49,302) euro 1,370,798
LIABILITIES
Current
liabilities
Accounts
payable
and accrued
expenses euro 43,851 euro 65,262 euro - euro 109,113
Debt, current
portion - 75,375 - 75,375
Total current
liabilities 43,851 140,637 - 184,488
Debt, less
current portion 322,732 575,647 - 898,379
Due to restricted
group - 49,302 (49,302) -
Unrealized
derivative loss - 54,055 - 54,055
Other 21,160 5,361 - 26,521
Deferred income
tax 2,379 15,049 - 17,428
Total liabilities 390,122 840,051 (49,302) 1,180,871
SHAREHOLDERS'
EQUITY
Total shareholders'
equity 212,182 (22,255)(1) - 189,927
(deficit)
Total
liabilities
and
shareholders'
equity euro 602,304 euro 817,796 euro (49,302) euro 1,370,798
(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, 2005
(Euros in thousands)
December 31, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current
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 - 1,024,662
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
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
derivative 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 (deficit) 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.
(7)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Six Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Six Months Ended June 30, 2006
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 169,623 euro 160,813 euro (4,667) euro 325,769
Operating costs 148,388 125,309 (4,434) 269,263
Operating
depreciation and
amortization 14,197 14,585 - 28,782
General and
administrative
expenses 10,375 8,216 - 18,591
(Sale) purchase
of emission
allowances (3,651) (9,595) - (13,246)
169,309 138,515 (4,434) 303,390
Income from
operations 314 22,298 (233) 22,379
Other income
(expense)
Interest expense (16,442) (31,355) 1,760 (46,037)
Investment income 2,119 2,652 (1,760) 3,011
Derivative
financial
instruments, net - 85,505 - 85,505
Unrealized
foreign exchange
gain on debt 12,173 - - 12,173
Total other
(expense)
income (2,150) 56,802 - 54,652
Income (loss)
before income
taxes and
minority
interest (1,836) 79,100 (233) 77,031
Income tax provision (6,905) (36,015) - (42,920)
Income (loss)
before minority
interest (8,741) 43,085 (233) 34,111
Minority interest - 898 - 898
Net income
(loss) euro (8,741) euro 43,983 euro (233) euro 35,009
Six Months Ended June 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 114,416 euro 113,086 euro - euro 227,502
Operating costs 87,260 98,024 - 185,284
Operating
depreciation and
amortization 10,829 13,616 438 24,883
General and
administrative 11,077 4,239 - 15,316
(Sale) purchase
of emission
allowances (2,135) (4,153) - (6,288)
107,031 111,726 438 219,195
Income (loss)
from operations 7,385 1,360 (438) 8,307
Other income (expense)
Interest expense (15,985) (26,571) 1,093 (41,463)
Investment income 1,297 777 (1,093) 981
Derivative
financial
instruments, net (463) (72,847) - (73,310)
Unrealized
foreign
exchange loss
on debt (7,509) - - (7,509)
Impairment of
investments (1,645) - - (1,645)
Total other
expense (24,305) (98,641) - (122,946)
Loss before
income taxes
and minority
interest (16,920) (97,281) (438) (114,639)
Income tax
(provision)
benefit (4,776) 26,188 - 21,412
Loss before
minority
interest (21,696) (71,093) (438) (93,227)
Minority interest - 11,409 - 11,409
Net loss euro (21,696) euro (59,684) euro (438) euro (81,818)
(8)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Three Months Ended June 30, 2006
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 88,612 euro 80,403 euro (2,310) euro 166,705
Operating costs 79,249 61,253 (1,664) 138,838
Operating depreciation and
amortization 7,568 7,300 - 14,868
General and administrative
expenses 5,415 4,318 - 9,733
(Sale) purchase of emission
allowances (1,884) (5,724) - (7,608)
90,348 67,147 (1,664) 155,831
Income (loss) from
operations (1,736) 13,256 (646) 10,874
Other income (expense)
Interest expense (7,979) (16,018) 885 (23,112)
Investment income (142) 2,294 (885) 1,267
Derivative financial
instruments, net 79 44,611 - 44,690
Unrealized foreign exchange
gain on debt 6,060 - - 6,060
Total other (expense)
income (1,982) 30,887 - 28,905
Income (loss) before income
taxes and minority
interest (3,718) 44,143 (646) 39,779
Income tax provision (3,872) (17,935) - (21,807)
Income (loss) before
minority interest (7,590) 26,208 (646) 17,972
Minority interest - 449 - 449
Net income (loss) euro (7,590) euro 26,657 euro (646) euro 18,421
Three Months Ended June 30, 2005
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues euro 72,704 euro 56,905 euro - euro 129,609
Operating costs 57,287 47,995 - 105,282
Operating depreciation
and amortization 6,704 6,971 221 13,896
General and administrative 5,490 2,028 - 7,518
(Sale) purchase of emission
allowances (2,135) (4,153) - (6,288)
67,346 52,841 221 120,408
Income from operations 5,358 4,064 (221) 9,201
Other income (expense)
Interest expense (8,314) (14,585) 699 (22,200)
Investment income 970 467 (631) 806
Derivative financial
instruments, net (358) (69,093) - (69,451)
Unrealized foreign
exchange loss on debt (9,806) - - (9,806)
Impairment of investments (467) - 467 -
Total other income
(expense) (17,975) (83,211) 535 (100,651)
Income (loss) before
income taxes and
minority interest (12,617) (79,147) 314 (91,450)
Income tax (provision)
benefit (1,661) 26,108 - 24,447
Income (loss) before
minority interest (14,278) (53,039) 314 (67,003)
Minority interest - 4,852 - 4,852
Net income (loss) euro (14,278) euro (48,187) euro 314 euro (62,151)
(9)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Six Months and Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Six Months Ended
June 30,
2006 2005(1)
(in thousands)
Net income (loss) euro 35,009 euro (81,818)
Minority interest (898) (11,409)
Income taxes (benefit) 42,920 (21,412)
Interest expense 46,037 41,463
Investment income (3,011) (981)
Derivative financial instruments, net (gain) loss (85,505) 73,310
Foreign exchange (gain) loss on debt (12,173) 7,509
Impairment of investments - 1,645
Income from operations 22,379 8,307
Add: Depreciation and amortization 28,782 24,883
Operating EBITDA(2) euro 51,161 euro 33,190
Three Months Ended
June 30,
2006 2005(1)
(in thousands)
Net income (loss) euro 18,421 euro (62,151)
Minority interest (449) (4,852)
Income taxes (benefit) 21,807 (24,447)
Interest expense 23,112 22,200
Investment income (1,267) (806)
Derivative financial instruments, net (gain) loss (44,690) 69,451
Foreign exchange (gain) loss on debt (6,060) 9,806
Income from operations 10,874 9,201
Add: Depreciation and amortization 14,868 13,896
Operating EBITDA(2) euro 25,742 euro 23,097
(1) The results of the Celgar pulp mill are included from the date of its
acquisition on February 14, 2005.
(2) 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.
(10)
MERCER INTERNATIONAL INC.
COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Six and Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Euros in thousands)
Six Months Ended
June 30,
2006 2005(1)
(in thousands)
Restricted Group
Net loss euro (8,741) euro (21,696)
Income taxes 6,905 4,776
Interest expense 16,442 15,985
Investment and other income (2,119) (1,297)
Derivative financial instruments, net loss - 463
Foreign exchange gain on debt (12,173) 7,509
Impairment of investments - 1,645
Income from operations 314 7,385
Add: Depreciation and amortization 14,197 10,829
Operating EBITDA(2) euro 14,511 euro 18,214
Three Months Ended
June 30,
2006 2005(1)
(in thousands)
Restricted Group
Net loss euro (7,590) euro (14,278)
Income taxes 3,872 1,661
Interest expense 7,979 8,314
Investment and other income 142 (970)
Derivative financial instruments, net loss (79) 358
Foreign exchange gain on debt (6,060) 9,806
Impairment of investments - 467
(Loss) income from operations (1,736) 5,358
Add: Depreciation and amortization 7,568 6,704
Operating EBITDA(2) euro 5,832 euro 12,062
(1) The results of the Celgar pulp mill are included from the date of its
acquisition on February 14, 2005.
(2) Operating EBITDA does not reflect the impact of a number of items that
affect net income (loss), including financing costs and the effect of
derivative instruments. Operating EBITDA is not a measure of
financial performance under accounting principles generally accepted
in the United States, and should not be considered as an alternative
to net income (loss) or income (loss) from operations as a measure of
performance, nor as an alternative to net cash from operating
activities as a measure of liquidity. Operating EBITDA has
significant limitations as an analytical tool, and should not be
considered in isolation, or as a substitute for analysis of our
results as reported under GAAP.
(11)
