Market Overview

Mercer International Inc. Reports 2012 Third Quarter Results

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NEW YORK, Nov. 1, 2012 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) (TSX:MRI.U) today reported results for the third quarter ended September 30, 2012. Operating EBITDA* in the third quarter of 2012 was €22.3 million ($27.9 million), compared to €49.2 million ($69.5 million) in the third quarter of 2011 and €32.9 million ($42.2 million) in the second quarter of 2012.

For the third quarter of 2012, we had a net loss of €9.7 million ($12.1 million), or €0.17 ($0.21) per basic share, compared to net income of €8.4 million ($11.9 million), or €0.15 ($0.21) per basic share, in the third quarter of 2011 and net income of €1.5 million ($1.9 million), or €0.03 ($0.04) per basic share, for the second quarter of 2012.

Summary Financial Highlights

 
  Q3 Q2 Q3 YTD YTD
   2012   2012   2011   2012   2011 
  (in millions of Euros, other than per share amounts)
Pulp revenues € 205.1 € 186.0 € 190.4 € 590.6  € 618.2
Energy and chemical revenues  18.2  18.0  16.6  55.1   49.7
Operating income  7.2  18.3  35.3  41.8   108.2
Operating EBITDA  22.3  32.9  49.2  85.7  150.1
Gain (loss) on derivative instruments  (0.9)  1.3  (10.5)  1.3  (0.6)
Foreign exchange gain (loss) on debt  --  --  (0.2)  --  1.3
Income tax benefit (provision)  (1.9)  (2.3)  (3.1)  (4.9)  (7.6)
Net income (loss)(1)  (9.7)  1.5  8.4  (7.0)  51.9
Net income (loss) per share(1)          
 Basic € (0.17) € 0.03 € 0.15 € (0.13)  € 1.07
 Diluted € (0.17) € 0.03 € 0.15 € (0.13)  € 0.92
Common shares outstanding at period end (000s)  55,816  55,816  55,779  55,816  55,779
           
(1)     Attributable to common shareholders.          

Summary Operating Highlights

  Q3 Q2 Q3 YTD YTD
   2012   2012   2011   2012   2011 
Pulp production ('000 ADMTs)  373.4  365.0  362.3  1,118.8  1,088.8
Scheduled production downtime ('000 ADMTs)  10.2  22.6  8.3  32.8  24.5
Pulp sales ('000 ADMTs)  404.3  349.2  321.3  1,138.3  1,027.9
Average NBSK pulp list price in Europe ($/ADMT)(1)  777  837  980  817  986
Average NBSK pulp list price in Europe (€/ADMT)  620  652  694  637   701
Average pulp sales realizations (€/ADMT)(2)  501  526  584  512   592
           
(1)     Source: RISI pricing report.          
(2)     Average realized pulp prices for the periods indicated reflect customer discounts and pulp price movements between the order and shipment date.          
* Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 12 of the financial tables included in this press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.          
  Q3 Q2 Q3 YTD YTD
   2012   2012   2011   2012   2011 
Energy production ('000 MWh)  436.5  425.4  402.5  1,298.2   1,230.9
Energy sales ('000 MWh)  181.3  182.7  149.3  546.4  483.1
Average spot currency exchange rates:          
€ / $(3)  0.7999  0.7795  0.7084  0.7807  0.7110
C$ / $(3)  0.9954  1.0102  0.9803  1.0022   0.9778
C$ / €(4)  1.2452  1.2959  1.3835  1.2847   1.3752
           
(3)     Average Federal Reserve Bank of New York noon spot rate over the reporting period.          
(4)     Average Bank of Canada noon spot rate over the reporting period.          

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "During the third quarter of 2012, NBSK pulp prices remained generally weak. Despite this, we generated Operating EBITDA of €22.3 million, primarily as a result of strong pulp sales volumes and energy sales in the quarter."

Mr. Lee continued: "During the third quarter, pulp prices declined due to traditionally slower demand in the summer months and continued global economic uncertainty. Overall, on average, list prices in Europe were down by approximately 7% and 21% from the prior and comparative quarter, respectively. At the end of the recent quarter, list prices were approximately $760, $830 and $640 per ADMT in Europe, North America and China, respectively. During the current quarter, pulp sales volumes hit record levels and were approximately 83,000 ADMTs higher than the same quarter of 2011. Both our Celgar and Stendal mills realized upon increased demand from China in the latter part of the current quarter and re-balanced their inventory levels. We currently anticipate a gradual improvement in NBSK pulp prices in the medium term as a result of improving demand and the relatively low level of current NBSK inventories globally."

Mr. Lee added: "During the third quarter of 2012, energy sales volumes increased by 21% to 181,332 MWh in 2012 from 149,276 MWh in 2011. Additionally, we continue to implement Project Blue Mill, which is designed to increase our Stendal mill's annual energy production by 109,000 MWh and annual pulp production by 30,000 ADMTs."

Mr. Lee continued: "On average, our per unit fiber costs declined by approximately 9% in the current quarter from the same quarter of 2011, primarily because of lower costs at our German mills. Overall, we currently anticipate our fiber costs will increase marginally in the fourth quarter of 2012."

Mr. Lee concluded: "Although NBSK pulp markets remain generally weak, we expect pulp prices to gradually strengthen in the fourth quarter and into 2013. We believe that our continued focus on renewable energy and strong mill operating performance positions us well to realize upon higher pulp prices."

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Total revenues for the three months ended September 30, 2012 increased to €223.3 million ($279.6 million) from €207.1 million ($292.4 million) in the same period in 2011. Pulp revenues for the three months ended September 30, 2012 increased to €205.1 million from €190.4 million in the comparative period of 2011, primarily due to record pulp sales volumes and a stronger U.S. dollar relative to the Euro, partially offset by lower average pulp realizations.

Energy and chemical revenues increased by approximately 10% in the third quarter to €18.2 million from €16.6 million in the same quarter last year, as a result of higher sales volumes at all of our mills.  

Pulp production increased to 373,369 ADMTs in the current quarter from 362,330 ADMTs in the same quarter of 2011, due to increased production at our Rosenthal and Stendal mills. We took seven days (approximately 10,200 ADMTs) of scheduled maintenance downtime at our Celgar mill in the third quarter of 2012.

Pulp sales volumes increased by approximately 26% and 16% to a record 404,301 ADMTs in the current quarter from 321,338 ADMTs and 349,177 ADMTs in the comparative and prior quarters, respectively, primarily as a result of significantly higher sales to China. During the current quarter, our Celgar and Stendal mills ramped up sales volumes to realize upon increased demand from China in the latter part of the quarter and re-balanced their inventory levels. Average pulp sales realizations decreased by 14% to €501 ($627) per ADMT in the third quarter of 2012, compared to €584 ($824) per ADMT in the same period last year, due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro. 

Costs and expenses in the third quarter of 2012 increased by 26% to €216.1 million from €171.8 million in the comparative period of 2011, primarily due to a 26% increase in sales volumes.

On average, our per unit fiber costs in the current quarter decreased by approximately 9% from the same period in 2011, due to lower fiber costs in Germany caused by reduced demand from other residual fiber users. Fiber costs at our Celgar mill were slightly higher, primarily due to increased demand for fiber. As we move into the fourth quarter, we currently expect fiber prices for our German mills to increase slightly because of seasonal demand and to decline slightly at our Celgar mill due to increased regional sawmill activity.

Selling, general and administrative expenses increased to €10.0 million in the third quarter of 2012, compared to €8.8 million in the third quarter of 2011, primarily as a result of higher stock compensation and selling costs.

For the third quarter of 2012, operating income decreased to €7.2 million from €35.3 million in the comparative quarter of 2011, primarily due to lower average pulp realizations, partially offset by a stronger U.S. dollar relative to the Euro and lower fiber costs.

Interest expense in the third quarter of 2012 and 2011 was unchanged at €14.1 million.

Our Stendal mill recorded an unrealized loss of €1.2 million on the interest rate derivative in the current quarter, compared to an unrealized loss of €10.5 million in the same quarter of last year. We also recorded a gain of approximately €0.3 million related to a fixed price pulp swap contract entered into in the second quarter of 2012.

In the third quarter of 2012, the noncontrolling shareholder's interest in the Stendal mill's income was €0.6 million, compared to a loss of €0.8 million in the same quarter last year.

In the third quarter of 2012, Operating EBITDA decreased to €22.3 million from €49.2 million in the third quarter of 2011. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 12 of the financial tables included in the press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

We reported a net loss attributable to common shareholders of €9.7 million, or €0.17 per basic and diluted share, for the third quarter of 2012, compared to net income of €8.4 million, or €0.15 per basic and diluted share, in the third quarter of 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Total revenues for the nine months ended September 30, 2012 decreased to €645.7 million ($827.9 million) from €667.9 million ($939.5 million) in the same period of 2011. Pulp revenues for the nine months ended September 30, 2012 decreased to €590.6 million from €618.2 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by higher sales volumes and a stronger U.S. dollar relative to the Euro.

Energy and chemical revenues increased by approximately 11% in the nine months ended September 30, 2012 to a record €55.1 million from €49.7 million in the same period last year, as a result of strong production at all of our mills.

Pulp sales volumes increased by approximately 11% to 1,138,304 ADMTs in the nine months ended September 30, 2012 from 1,027,918 ADMTs in the comparative period of 2011, primarily as a result of a significant increase in sales to China. During the third quarter of 2012, our Celgar and Stendal mills ramped up sales volumes to take advantage of increased demand from China in the latter part of the third quarter and re-balanced their inventory levels.

Costs and expenses in the nine months ended September 30, 2012 increased by approximately 8% to €603.9 million, compared to €559.7 million in the same period of 2011, primarily due to an 11% increase in sales volumes, partially offset by reduced fiber costs.

On average, our per unit fiber costs in the nine months ended September 30, 2012 decreased by approximately 6% from the same period of 2011, primarily due to lower fiber costs in Germany caused by decreased demand.

For the nine months ended September 30, 2012, operating income decreased to €41.8 million from €108.2 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro and lower fiber costs.

Interest expense in the nine months ended September 30, 2012 decreased to €42.1 million from €44.9 million in the comparative period of 2011, primarily due to lower debt levels associated with the Stendal mill and the conversion of our remaining convertible notes in 2011.

In the nine months ended September 30, 2012, Operating EBITDA decreased to €85.7 million from €150.1 million in the same period of 2011.(1)

We reported a net loss attributable to common shareholders of €7.0 million, or €0.13 per basic and diluted share, for the nine months ended September 30, 2012, which included a total non-cash unrealized gain of €0.8 million on the pulp price and Stendal interest rate derivatives, more than offset by a non-cash charge for stock compensation of €1.8 million. In the nine months ended September 30, 2011, we reported net income attributable to common shareholders of €51.9 million, or €1.07 per basic and €0.92 per diluted share, which included a non-cash unrealized loss of €0.6 million on the Stendal interest rate derivative, a €1.3 million non-cash foreign exchange gain on certain of our foreign currency denominated debt and a non-cash charge for stock compensation of €2.8 million.

_________________________

(1) See page 12 of the financial tables included in the press release for our definition of Operating EBITDA, limitations on its use as an analytical tool and a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

Liquidity and Capital Resources

The following table is a summary of selected financial information as at the dates indicated:

       
  As at September 30, As at December 31,  
    2012    2011   
  (in thousands)
Financial Position      
Cash and cash equivalents  € 126,169  € 105,072  
Marketable securities   190  12,372 (1)
Working capital   220,480   247,159  
Property, plant and equipment   815,661   820,974  
Total assets   1,220,739   1,217,250  
Long-term liabilities   775,041   807,641  
Total equity   288,784   283,542  
       
(1)     Principally comprised of German federal government bonds with a maturity of less than one year.      

As at September 30, 2012, we had approximately €26.4 million and C$36.3 million available under our Rosenthal and Celgar facilities, respectively. As at September 30, 2012, approximately €452.9 million was outstanding under our Stendal mill's loan facility, compared to €477.5 million as at December 31, 2011.

Restricted Group

The following table is a summary of selected financial information for the Restricted Group (which, under the indenture for our 2017 9.5% Senior Notes, is comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills) as at the dates indicated:

       
  As at September 30, As at December 31,  
    2012    2011   
  (in thousands)
Financial Position      
Cash and cash equivalents  € 55,023  € 44,829  
Marketable securities   190  12,372 (1)
Working capital   135,654  149,973  
Property, plant and equipment   356,302  353,925  
Total assets   671,448  658,844  
Long-term liabilities   265,923  262,770  
Total equity   340,974  344,415  
       
(1)     Principally comprised of German federal government bonds with a maturity of less than one year.      

Earnings Release Call

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 Friday, November 2, 2012 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through December 2, 2012, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=119185&CompanyID=MERC&e=1&mediaKey=1AE35D7DABC3ECD95E2779DA87354812 or through a link on our home page at http://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global pulp manufacturing company. To obtain further information on the company, please visit its web site at http://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

 
MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Euros)
 
  September 30, December 31,
  2012 2011
ASSETS    
Current assets    
Cash and cash equivalents € 126,169 € 105,072
Marketable securities  --  12,216
Receivables  118,631  120,487
Inventories  113,355  120,539
Prepaid expenses and other  10,203  8,162
Deferred income tax  9,036  6,750
Total current assets  377,394  373,226
     
Long-term assets    
Property, plant and equipment  815,661  820,974
Deferred note issuance and other  11,924  10,763
Deferred income tax  15,760  12,287
   843,345  844,024
Total assets € 1,220,739 € 1,217,250
     
LIABILITIES    
Current liabilities    
Accounts payable and other € 115,037 € 99,640
Pension and other post-retirement benefit obligations  789  756
Debt  41,088  25,671
Total current liabilities  156,914  126,067
     
Long-term liabilities    
Debt  670,792  708,415
Unrealized interest rate derivative losses  53,027  52,391
Pension and other post-retirement benefit obligations  32,388  31,197
Capital leases and other  13,399  13,053
Deferred income tax  5,435  2,585
   775,041  807,641
Total liabilities  931,955  933,708
     
EQUITY    
Shareholders' equity    
Share capital  248,371  247,642
Paid-in capital  (3,954)  (4,857)
Retained earnings  30,961  37,985
Accumulated other comprehensive income  29,115  21,346
Total shareholders' equity  304,493  302,116
Noncontrolling deficit  (15,709)  (18,574)
Total equity  288,784  283,542
Total liabilities and equity  € 1,220,739  € 1,217,250
 
MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of Euros, except per share data)
 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2012 2011 2012 2011
Revenues        
Pulp € 205,122 € 190,426 € 590,597 € 618,158
Energy and chemicals  18,153  16,639  55,098  49,732
   223,275  207,065  645,695  667,890
Costs and expenses        
Operating costs  191,083  149,172  531,470  490,537
Operating depreciation and amortization  14,972  13,832  43,784  41,777
   17,220  44,061  70,441  135,576
Selling, general and administrative expenses  10,006  8,754  28,688  27,414
Operating income  7,214  35,307  41,753  108,162
         
Other income (expense)        
Interest expense  (14,084)  (14,117)  (42,080)  (44,906)
Gain (loss) on derivative instruments  (883)  (10,484)  1,336  (580)
Foreign exchange gain (loss) on debt  --  (181)  --  1,272
Other income (expense)  517  201  (261)  664
Total other income (expense)  (14,450)  (24,581)  (41,005)  (43,550)
Income (loss) before income taxes  (7,236)  10,726  748  64,612
Income tax benefit (provision)         
Current  (870)  (1,557)  (7,207)  (3,854)
Deferred  (1,040)  (1,567)  2,300  (3,707)
Net income (loss)  (9,146)  7,602  (4,159)  57,051
Less: net loss (income) attributable to noncontrolling interest  (566)  838  (2,865)  (5,175)
Net income (loss) attributable to common shareholders € (9,712) € 8,440 € (7,024) € 51,876
         
Net income (loss) per share attributable to common shareholders        
Basic € (0.17) € 0.15 € (0.13) € 1.07
Diluted € (0.17) € 0.15 € (0.13) € 0.92
 
MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of Euros)
 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2012 2011 2012 2011
Cash flows from (used in) operating activities        
Net income (loss) attributable to common shareholders € (9,712) € 8,440 € (7,024) € 51,876
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities        
Loss (gain) on derivative instruments  883  10,484  (1,336)  580
Foreign exchange loss (gain) on debt  --  181  --  (1,272)
Depreciation and amortization  15,054  13,893  43,992  41,960
Noncontrolling interest  566  (838)  2,865  5,175
Deferred income taxes  1,040  1,567  (2,300)  3,707
Stock compensation expense  891  305  1,753  2,844
Pension and other post-retirement expense, net of funding  (73)  (95)  (128)  (102)
Other  1,412  260  2,278  2,622
Changes in current assets and liabilities        
Receivables  (14,122)  (9,452)  901  3,248
Inventories  5,834  (23,776)  9,276  (27,862)
Accounts payable and accrued expenses  9,692  318  13,146  24,873
Other  (2,239)  (752)  (901)  92
Net cash from (used in) operating activities  9,226  535  62,522  107,741
         
Cash flows from (used in) investing activities        
Purchase of property, plant and equipment  (9,152)  (10,297)  (27,455)  (26,122)
Proceeds on sale of property, plant and equipment  48  1,564  387  1,944
Purchase of marketable securities  --  (4,018)  --  (4,018)
Proceeds on maturity of marketable securities  10,213  --  12,221  --
Note receivable  --  2,064  --  2,835
Net cash from (used in) investing activities  1,109  (10,687)  (14,847)  (25,361)
         
Cash flows from (used in) financing activities        
Repayment of notes payable and debt  (15,544)  (12,160)  (27,254)  (42,511)
Repayment of capital lease obligations  (508)  (776)  (1,567)  (2,269)
Repayment of credit facilities, net  --  --  --  (14,652)
Payment of note issuance costs  --  --  (1,621)  --
Proceeds from government grants  778  4,470  3,100  13,419
Purchase of treasury shares  --  (7,477)  --  (7,477)
Net cash from (used in) financing activities  (15,274)  (15,943)  (27,342)  (53,490)
         
Effect of exchange rate changes on cash and cash equivalents  221  2,058  764  (154)
         
Net increase (decrease) in cash and cash equivalents  (4,718)  (24,037)  21,097  28,736
Cash and cash equivalents, beginning of period  130,887  151,795  105,072  99,022
Cash and cash equivalents, end of period € 126,169 € 127,758 € 126,169 € 127,758
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)
 
The terms of the indenture governing our 9.5% Senior Notes require that we provide the results of operations and financial condition of Mercer International Inc. and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group". As at and during the three and nine months ended September 30, 2012 and 2011, the Restricted Group was comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills. The Restricted Group excludes the Stendal mill.
 
 
  September 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
ASSETS        
Current assets        
Cash and cash equivalents € 55,023  € 71,146  € -- € 126,169 
Receivables  62,313   56,318   --  118,631 
Inventories  69,838   43,517   --  113,355 
Prepaid expenses and other  7,730   2,473   --  10,203 
Deferred income tax  5,301   3,735   --  9,036 
Total current assets  200,205   177,189   --  377,394 
         
Long-term assets        
Property, plant and equipment  356,302   459,359   --  815,661 
Deferred note issuance and other  6,077   5,847   --  11,924 
Deferred income tax  8,873   6,887   --  15,760 
Due from unrestricted group  99,991   --  (99,991)  --
Total assets € 671,448  € 649,282  € (99,991)  €1,220,739 
         
LIABILITIES        
Current liabilities        
Accounts payable and other € 62,674  € 52,363  € -- € 115,037 
Pension and other post-retirement benefit obligations  789   --  --  789 
Debt  1,088   40,000   --  41,088 
Total current liabilities  64,551   92,363   --  156,914 
         
Long-term liabilities        
Debt  221,733   449,059   --  670,792 
Due to restricted group  --  99,991   (99,991)  --
Unrealized interest rate derivative losses  --  53,027   --  53,027 
Pension and other post-retirement benefit obligations  32,388   --  --  32,388 
Capital leases and other  6,367   7,032   --  13,399 
Deferred income tax  5,435   --  --  5,435 
Total liabilities  330,474   701,472   (99,991)  931,955 
         
EQUITY        
Total shareholders' equity (deficit)  340,974   (36,481)  --  304,493 
Noncontrolling deficit  --  (15,709)  --  (15,709)
Total liabilities and equity € 671,448  € 649,282  € (99,991) € 1,220,739 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)
 
  December 31, 2011
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
ASSETS        
Current assets        
Cash and cash equivalents € 44,829  € 60,243  € -- € 105,072 
Marketable securities  12,216   --  --  12,216 
Receivables  62,697   57,790   --  120,487 
Inventories  71,692   48,847   --  120,539 
Prepaid expenses and other  5,019   3,143   --  8,162 
Deferred income tax  5,179   1,571   --  6,750 
Total current assets  201,632   171,594   --  373,226 
         
Long-term assets        
Property, plant and equipment  353,925   467,049   --  820,974 
Deferred note issuance and other  5,971   4,792   --  10,763 
Deferred income tax  8,492   3,795   --  12,287 
Due from unrestricted group  88,824   --  (88,824)  --
Total assets € 658,844  € 647,230  € (88,824) € 1,217,250 
         
LIABILITIES        
Current liabilities        
Accounts payable and other € 49,815  € 49,825  € -- € 99,640 
Pension and other post-retirement benefit obligations  756   --  --  756 
Debt  1,088   24,583   --  25,671 
Total current liabilities  51,659   74,408   --  126,067 
         
Long-term liabilities        
Debt  222,384   486,031   --  708,415 
Due to restricted group  --  88,824   (88,824)  --
Unrealized interest rate derivative losses  --  52,391   --  52,391 
Pension and other post-retirement benefit obligations  31,197   --  --  31,197 
Capital leases and other  6,604   6,449   --  13,053 
Deferred income tax  2,585   --  --  2,585 
Total liabilities  314,429   708,103   (88,824)  933,708 
         
EQUITY        
Total shareholders' equity (deficit)  344,415   (42,299)  --  302,116 
Noncontrolling deficit  --  (18,574)  --  (18,574)
Total liabilities and equity € 658,844  € 647,230  € (88,824) € 1,217,250 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)
 
  Three Months Ended September 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 112,777  € 92,345  € -- € 205,122 
Energy and chemicals  6,960   11,193   --  18,153 
   119,737   103,538   --  223,275 
         
Operating costs  109,815   81,268   --  191,083 
Operating depreciation and amortization  8,303   6,669   --  14,972 
Selling, general and administrative expenses  6,392   3,614   --  10,006 
   124,510   91,551   --  216,061 
Operating income (loss)  (4,773)  11,987   --  7,214 
         
Other income (expense)        
Interest expense  (6,010)  (9,473)  1,399   (14,084)
Gain (loss) on derivative instruments  353   (1,236)  --  (883)
Other income (expense)  1,665   251   (1,399)  517 
Total other income (expense)  (3,992)  (10,458)  --  (14,450)
Income (loss) before income taxes  (8,765)  1,529   --  (7,236)
Income tax provision  (1,192)  (718)  --  (1,910)
Net income (loss)  (9,957)  811   --  (9,146)
Less: net income attributable to noncontrolling interest  --  (566)  --  (566)
Net income (loss) attributable to common shareholders € (9,957) € 245  € -- € (9,712)
         
         
  Three Months Ended September 30, 2011
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 111,634  € 78,792  € -- € 190,426 
Energy and chemicals  6,121   10,518   --  16,639 
   117,755   89,310   --  207,065 
         
Operating costs  85,962   63,210   --  149,172 
Operating depreciation and amortization  7,364   6,468   --  13,832 
Selling, general and administrative expenses  6,080   2,674   --  8,754 
   99,406   72,352   --  171,758 
Operating income  18,349   16,958   --  35,307 
         
Other income (expense)        
Interest expense  (5,496)  (9,869)  1,248   (14,117)
Gain (loss) on derivative instruments  --  (10,484)  --  (10,484)
Foreign exchange loss on debt  (181)  --  --  (181)
Other income (expense)  1,265   184   (1,248)  201 
Total other income (expense)  (4,412)  (20,169)  --  (24,581)
Income (loss) before income taxes  13,937   (3,211)  --  10,726 
Income tax provision  (2,566)  (558)  --  (3,124)
Net income (loss)  11,371   (3,769)  --  7,602 
Less: net loss attributable to noncontrolling interest  --  838   --  838 
Net income (loss) attributable to common shareholders € 11,371  € (2,931) € -- € 8,440 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)
 
  Nine Months Ended September 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 326,411  € 264,186  € -- € 590,597 
Energy and chemicals  21,411   33,687   --  55,098 
   347,822   297,873   --  645,695 
         
Operating costs  302,913   228,557   --  531,470 
Operating depreciation and amortization  23,750   20,034   --  43,784 
Selling, general and administrative expenses  18,319   10,369   --  28,688 
   344,982   258,960   --  603,942 
Operating income  2,840   38,913   --  41,753 
         
Other income (expense)        
Interest expense  (17,754)  (28,449)  4,123   (42,080)
Gain (loss) on derivative instruments  1,972   (636)  --  1,336 
Other income (expense)  3,405   457   (4,123)  (261)
Total other income (expense)  (12,377)  (28,628)  --  (41,005)
Income (loss) before income taxes  (9,537)  10,285   --  748 
Income tax provision  (3,305)  (1,602)  --  (4,907)
Net income (loss)  (12,842)  8,683   --  (4,159)
Less: net income attributable to noncontrolling interest  --  (2,865)  --  (2,865)
Net income (loss) attributable to common shareholders € (12,842) € 5,818  € -- € (7,024)
   
  Nine Months Ended September 30, 2011
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 352,098  € 266,060  € -- € 618,158 
Energy and chemicals  17,668   32,064   --  49,732 
   369,766   298,124   --  667,890 
         
Operating costs  272,162   218,375   --  490,537 
Operating depreciation and amortization  22,379   19,398   --  41,777 
Selling, general and administrative expenses  17,572   9,842   --  27,414 
   312,113   247,615   --  559,728 
Operating income  57,653   50,509   --  108,162 
         
Other income (expense)        
Interest expense  (19,202)  (29,404)  3,700   (44,906)
Gain (loss) on derivative instruments  --  (580)  --  (580)
Foreign exchange gain on debt  1,272   --  --  1,272 
Other income (expense)  3,849   515   (3,700)  664 
Total other income (expense)  (14,081)  (29,469)  --  (43,550)
Income (loss) before income taxes  43,572   21,040   --  64,612 
Income tax provision  (5,941)  (1,620)  --  (7,561)
Net income (loss)  37,631   19,420   --  57,051 
Less: net income attributable to noncontrolling interest  --  (5,175)  --  (5,175)
Net income (loss) attributable to common shareholders € 37,631  € 14,245  € -- € 51,876 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Three months ended September 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) attributable to common shareholders € (9,957) € 245  € (9,712)
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities      
Loss (gain) on derivative instruments  (353)  1,236   883 
Depreciation and amortization  8,385   6,669   15,054 
Noncontrolling interest  --  566   566 
Deferred income taxes  1,040   --  1,040 
Stock compensation expense  891   --  891 
Pension and other post-retirement expense, net of funding  (73)  --  (73)
Other  543   869   1,412 
Changes in current assets and liabilities      
Receivables  (6,130)  (7,992)  (14,122)
Inventories  1,693   4,141   5,834 
Accounts payable and accrued expenses  9,800   (108)  9,692 
Other(1)  (4,225)  1,986   (2,239)
Net cash from (used in) operating activities  1,614   7,612   9,226 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (6,380)  (2,772)  (9,152)
Proceeds on sale of property, plant and equipment  37   11   48 
Proceeds on maturity of marketable securities  10,213   --  10,213 
Net cash from (used in) investing activities  3,870   (2,761)  1,109 
       
Cash flows from (used in) financing activities      
Repayment of notes payable and debt  (544)  (15,000)  (15,544)
Repayment of capital lease obligations  (234)  (274)  (508)
Proceeds from government grants  --  778   778 
Net cash from (used in) financing activities  (778)  (14,496)  (15,274)
       
Effect of exchange rate changes on cash and cash equivalents  221   --  221 
       
Net increase (decrease) in cash and cash equivalents  4,927   (9,645)  (4,718)
Cash and cash equivalents, beginning of period  50,096   80,791   130,887 
Cash and cash equivalents, end of period € 55,023  € 71,146  € 126,169 
       
(1)     Includes intercompany working capital related transactions.
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Three months ended September 30, 2011
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) attributable to common shareholders € 11,371  € (2,931) € 8,440 
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities      
Loss (gain) on derivative instruments  --  10,484   10,484 
Foreign exchange loss on debt  181   --  181 
Depreciation and amortization  7,425   6,468   13,893 
Noncontrolling interest  --  (838)  (838)
Deferred income taxes  1,567   --  1,567 
Stock compensation expense  305   --  305 
Pension and other post-retirement expense, net of funding  (95)  --  (95)
Other  110   150   260 
Changes in current assets and liabilities      
Receivables  (12,224)  2,772   (9,452)
Inventories  (14,899)  (8,877)  (23,776)
Accounts payable and accrued expenses  (1,704)  2,022   318 
Other(1)  (4,020)  3,268   (752)
Net cash from (used in) operating activities  (11,983)  12,518   535 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (7,859)  (2,438)  (10,297)
Proceeds on sale of property, plant and equipment  76   1,488   1,564 
Purchase of marketable securities  (4,018)  --  (4,018)
Note receivable  2,064   --  2,064 
Net cash from (used in) investing activities  (9,737)  (950)  (10,687)
       
Cash flows from (used in) financing activities      
Repayment of notes payable and debt  (3,576)  (8,584)  (12,160)
Repayment of capital lease obligations  (270)  (506)  (776)
Proceeds from government grants  4,470   --  4,470 
Purchase of treasury shares  (7,477)  --  (7,477)
Net cash from (used in) financing activities  (6,853)  (9,090)  (15,943)
       
Effect of exchange rate changes on cash and cash equivalents  2,058   --  2,058 
       
Net increase (decrease) in cash and cash equivalents  (26,515)  2,478   (24,037)
Cash and cash equivalents, beginning of period  86,941   64,854   151,795 
Cash and cash equivalents, end of period € 60,426  € 67,332  € 127,758 
       
(1)     Includes intercompany working capital related transactions.
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Nine months ended September 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) attributable to common shareholders € (12,842) € 5,818  € (7,024)
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities      
Loss (gain) on derivative instruments  (1,972)  636   (1,336)
Depreciation and amortization  23,958   20,034   43,992 
Noncontrolling interest  --  2,865   2,865 
Deferred income taxes  2,956   (5,256)  (2,300)
Stock compensation expense  1,753   --  1,753 
Pension and other post-retirement expense, net of funding  (128)  --  (128)
Other  66   2,212   2,278 
Changes in current assets and liabilities      
Receivables  (407)  1,308   901 
Inventories  3,946   5,330   9,276 
Accounts payable and accrued expenses  12,180   966   13,146 
Other(1)  (12,213)  11,312   (901)
Net cash from (used in) operating activities  17,297   45,225   62,522 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (19,413)  (8,042)  (27,455)
Proceeds on sale of property, plant and equipment  274   113   387 
Proceeds on maturity of marketable securities  12,221   --  12,221 
Net cash from (used in) investing activities  (6,918)  (7,929)  (14,847)
       
Cash flows from (used in) financing activities      
Repayment of notes payable and debt  (2,671)  (24,583)  (27,254)
Repayment of capital lease obligations  (600)  (967)  (1,567)
Payment of note issuance costs  --  (1,621)  (1,621)
Proceeds from government grants  2,322   778   3,100 
Net cash from (used in) financing activities  (949)  (26,393)  (27,342)
       
Effect of exchange rate changes on cash and cash equivalents  764   --  764 
       
Net increase (decrease) in cash and cash equivalents  10,194   10,903   21,097 
Cash and cash equivalents, beginning of period  44,829   60,243   105,072 
Cash and cash equivalents, end of period € 55,023  € 71,146  € 126,169 
       
(1)     Includes intercompany working capital related transactions.
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Nine months ended September 30, 2011
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) attributable to common shareholders € 37,631  € 14,245  € 51,876 
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities      
Loss (gain) on derivative instruments  --  580   580 
Foreign exchange gain on debt  (1,272)  --  (1,272)
Depreciation and amortization  22,562   19,398   41,960 
Noncontrolling interest  --  5,175   5,175 
Deferred income taxes  3,707   --  3,707 
Stock compensation expense  2,844   --  2,844 
Pension and other post-retirement expense, net of funding  (102)  --  (102)
Other  1,234   1,388   2,622 
Changes in current assets and liabilities      
Receivables  2,007   1,241   3,248 
Inventories  (12,534)  (15,328)  (27,862)
Accounts payable and accrued expenses  11,979   12,894   24,873 
Other(1)  (7,889)  7,981   92 
Net cash from (used in) operating activities  60,167   47,574   107,741 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (19,860)  (6,262)  (26,122)
Proceeds on sale of property, plant and equipment  95   1,849   1,944 
Purchase of marketable securities  (4,018)  --  (4,018)
Note receivable  2,835   --  2,835 
Net cash from (used in) investing activities  (20,948)  (4,413)  (25,361)
       
Cash flows from (used in) financing activities      
Repayment of notes payable and debt  (19,344)  (23,167)  (42,511)
Repayment of capital lease obligations  (1,131)  (1,138)  (2,269)
Repayment of credit facilities, net  (14,652)  --  (14,652)
Proceeds from government grants  13,311   108   13,419 
Purchase of treasury shares  (7,477)  --  (7,477)
Net cash from (used in) financing activities  (29,293)  (24,197)  (53,490)
       
Effect of exchange rate changes on cash and cash equivalents  (154)  --  (154)
       
Net increase (decrease) in cash and cash equivalents  9,772   18,964   28,736 
Cash and cash equivalents, beginning of period  50,654   48,368   99,022 
Cash and cash equivalents, end of period € 60,426  € 67,332  € 127,758 
       
(1)      Includes intercompany working capital related transactions.
 
MERCER INTERNATIONAL INC.
 
COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands of Euros)
 
Operating EBITDA is defined as operating income (loss) 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 (loss) 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.  The following tables set forth the net income (loss) attributable to common shareholders to Operating EBITDA for both the consolidated group and our Restricted Group:
 
 
  
Three Months Ended
 September 30, 
Nine Months Ended
 September 30, 
   2012   2011   2012   2011 
  (in thousands) (in thousands)
Net income (loss) attributable to common shareholders € (9,712) € 8,440 € (7,024) € 51,876
Net income (loss) attributable to noncontrolling interest  566  (838)  2,865  5,175
Income tax provision  1,910  3,124  4,907  7,561
Interest expense  14,084  14,117  42,080  44,906
Loss (gain) on derivative instruments  883  10,484  (1,336)  580
Foreign exchange loss (gain) on debt  --  181  --  (1,272)
Other expense (income)  (517)  (201)  261  (664)
Operating income  7,214  35,307  41,753  108,162
Add: Depreciation and amortization  15,054  13,893  43,992  41,960
Operating EBITDA € 22,268 € 49,200 € 85,745 € 150,122
     
     
 
 
Three Months Ended
 September 30, 
Nine Months Ended
 September 30, 
   2012   2011   2012   2011 
  (in thousands) (in thousands)
Restricted Group        
Net income (loss)(1) € (9,957) € 11,371 € (12,842) € 37,631
Income tax provision  1,192  2,566  3,305  5,941
Interest expense  6,010  5,496  17,754  19,202
Gain on derivative instruments  (353)  --  (1,972)  --
Foreign exchange loss (gain) on debt  --  181  --  (1,272)
Other expense (income)  (1,665)  (1,265)  (3,405)  (3,849)
Operating income (loss)  (4,773)  18,349  2,840  57,653
Add: Depreciation and amortization  8,385  7,425  23,958  22,562
Operating EBITDA € 3,612 € 25,774 € 26,798 € 80,215
         
(1)     For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.
 
CONTACT: APPROVED BY: Jimmy S.H. Lee Chairman, CEO & President (604) 684-1099 David M. Gandossi Executive Vice-President, Chief Financial Officer & Secretary (604) 684-1099

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