FOR: MERCER INTERNATIONAL INC.
APPROVED BY: Jimmy S.H. Lee
Chairman & President
(604) 684-1099
David M. Gandossi
Executive Vice-President &
Chief Financial Officer
(604) 684-1099
For Immediate Release
Financial Dynamics
Investors: Eric Boyriven, Alexandra Tramont
Media: Kathleen Tanzy
(212) 850-5600
MERCER INTERNATIONAL INC. REPORTS 2005 SECOND QUARTER RESULTS
NEW YORK, NY, August 9, 2005 -- Mercer International Inc. (NASDAQ: MERCS, TSX: MRI.U) today reported results for the second quarter of 2005.
Summary Selected Highlights
| | | Three Months Ended June 30, | |
| | | 2005 | | 2004 | |
| | | (in thousands) | |
Results of Operations | | (unaudited) | |
| Revenues | | € | 129,609 | | € | 50,335 | |
| Income (loss) from operations | | | 9,201 | | | (978 | ) |
Operating EBITDA(1) | | | 23,097 | | | 5,336 | |
| Interest expense | | | (22,200 | ) | | (2,366 | ) |
Unrealized gain (loss) on derivative financial instruments, net(2) | | | (69,451 | ) | | 29,473 | |
| Unrealized foreign exchange loss on debt | | | (9,806 | ) | | - | |
Income tax (provision) benefit(3) | | | 24,447 | | | (219 | ) |
| Net income (loss) | | | (62,151 | ) | | 16,241 | |
| Income (loss) per share | | | | | | | |
Basic | | | (1.88 | ) | | 0.94 | |
Diluted | | | (1.88 | ) | | 0.57 | |
| | | | | | | | |
Other Data | | | | | | | |
Total pulp sales volume(4) (ADMTs) | | | 278,752 | | | 74,841 | |
Mill net pulp price realizations (per ADMT) | | € | 408 | | € | 471 | |
______________________
| (1) | For a definition of Operating EBITDA, see page 6 of this press release and for a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release. |
| (2) | Non-cash marked to market valuation loss. |
| (3) | Non-cash benefit for income taxes to our deferred income tax asset. |
(4) Excluding intercompany sales volumes of 4,105 and 1,540 ADMTs of pulp in the three months ended June 30, 2005 and 2004, respectively.
Mercer Reports 2005 Second Quarter Results Page 2
Certain key factors affecting our 2005 second quarter results include:
| · | Revenues in the second quarter of 2005 increased by €79.3 million over the comparative period of 2004 to €129.6 million, primarily from the inclusion of production and sales from our Stendal and Celgar pulp mills. |
| · | Interest expense increased to €22.2 million in the second quarter of 2005 from €2.4 million in the comparative period of 2004. The completion of the Stendal mill resulted in our expensing €14.5 million of the associated interest in the second quarter of 2005 versus capitalizing almost all of such interest expense in the prior period. In the current quarter, we also had interest expense of €5.7 million relating to our $310 million 9.25% senior notes issued in February 2005. |
| · | Operating EBITDA increased to €23.1 million in the current quarter from €5.3 million in the prior quarter reflecting higher pulp sales and a contribution to income from operations of €6.3 million resulting from the sale of excess carbon emission credits by our German pulp mills. For a definition of Operating EBITDA, see page 6 of this press release and for a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release. |
| · | We recorded net unrealized non-cash holding losses on the marked-to-market valuation of our interest rate and currency derivatives of €20.8 million and €48.3 million in the second quarter of 2005 due to a decline in long-term European interest rates and the strengthening of the U.S. dollar versus the Euro. We also recorded an unrealized non-cash foreign exchange loss on our long-term debt of €9.8 million. |
| · | We recorded a non-cash benefit for income taxes of €24.4 million in the second quarter of 2005 to our deferred income tax asset. |
| · | Pulp markets in Europe were generally stable in the second quarter of 2005. List prices for NBSK pulp in Europe decreased to $613 per ADMT, but such decrease was partially offset by the strengthening of the U.S. dollar versus the Euro. |
Mercer Reports 2005 Second Quarter Results Page 3
Results of Operations - 2005 Second Quarter
Selected production and sales data for the three months ended June 30, 2005 and 2004 is as follows:
| | | Three Months Ended June 30, | |
| | | 2005 | | 2004 | |
| | | (ADMTs) | |
| Production by Product Class: | | | | | | | |
| Pulp production by mill: | | | | | | | |
Rosenthal | | | 81,443 | | | 80,317 | |
Celgar | | | 111,071 | | | - | |
Stendal | | | 123,738 | | | - | |
Total pulp production | | | 316,252 | | | 80,317 | |
Paper production | | | 17,979 | | | 15,339 | |
Total production | | | 334,231 | | | 95,656 | |
| | | | | | | | |
| Revenues by Product Class: | | (in thousands) |
Pulp revenues by mill: | | | | | | | |
Rosenthal | | € | 31,840 | | € | 36,022 | |
Celgar | | | 40,864 | | | - | |
Stendal | | | 40,808 | | | 927 | |
Total pulp revenues(1) | | | 113,512 | | | 36,949 | |
Paper revenues | | | 16,097 | | | 13,386 | |
Total revenues(1) | | € | 129,609 | | € | 50,335 | |
____________
(1) Excluding intercompany net sales revenues of approximately €1.8 million and €0.8 million in the three months ended June 30, 2005 and 2004, respectively.
Revenues for the three months ended June 30, 2005 increased to €129.6 million from €50.3 million in the comparative period of 2004, primarily because of higher pulp sales resulting from the inclusion of sales from our Stendal and Celgar mills. Pulp sales by volume were 278,752 ADMTs in the second quarter of 2005, compared to 74,841 ADMTs in the comparative period of 2004. In the three months ended June 30, 2005, the Stendal and Celgar mills sold 202,756 ADMTs of NBSK pulp and had sales of €81.7 million.
Cost of sales and general, administrative and other expenses in the second quarter of 2005 increased to €120.4 million from €51.3 million in the comparative period of 2004, primarily as a result of the inclusion of production from our Stendal mill and the operations of the Celgar mill.
For the second quarter of 2005, revenues from our pulp operations increased to €113.5 million from €36.9 million in the same period a year ago, primarily as a result of the inclusion of production from our Stendal and Celgar mills. List prices for NBSK pulp in Europe were approximately €487 ($613) per ADMT in the second quarter of 2005, compared to approximately €535 ($645) per ADMT in the comparative period of last year. The decrease in NBSK pulp prices was partially offset by the strengthening of the U.S. dollar versus the Euro during the current period.
Mercer Reports 2005 Second Quarter Results Page 4
Pulp sales realizations decreased to €408 per ADMT on average in the second quarter of 2005 from €471 per ADMT in the second quarter of 2004, primarily as a result of lower price realizations of the Stendal and Celgar mills. The Stendal mill sold pulp at a discounted price as a result of its start up, which we expect will be eliminated during the year, and the Celgar mill sells a large portion of its production in Asian markets which had lower sales prices than European markets.
Cost of sales and general, administrative and other expenses for the pulp operations increased to €102.9 million in the second quarter of 2005 from €34.2 million in the comparative period of 2004, primarily as a result of the inclusion of €77.6 million of operating costs related to the Stendal and Celgar mills. In the second quarter of 2005, we recorded a contribution to income from operations of €6.3 million resulting from the sale of excess carbon emission credits by our German pulp mills.
Depreciation for the pulp operations increased to €13.4 million in the current quarter, from €5.6 million in the second quarter of 2004, primarily as a result of the inclusion of €10.0 million of depreciation from the Stendal and Celgar mills.
For the second quarter of 2005, our pulp operations generated operating income of €12.4 million, versus operating income of €3.5 million in the comparative quarter of 2004, primarily as a result of the inclusion of the results of the Stendal and Celgar mills, the sale of excess carbon emission credits by our German pulp mills and lower costs and expenses at our Rosenthal mill.
Revenues from our paper operations in the current quarter were €16.1 million, compared with €13.4 million in the same quarter of last year. For the second quarter of 2005, total paper sales volumes were 17,840 ADMTs, versus 15,383 ADMTs in the comparative quarter of 2004 primarily as a result of a shift in the product mix at our paper mills. Average prices realized on our paper products in the current quarter increased slightly, reflecting the shift in the product mix.
Cost of sales and general, administrative and other expenses for the paper operations in the second quarter of 2005 increased to €16.9 million from €15.9 million in the comparative quarter of 2004, primarily as a result of the shift in the product mix.
For the second quarter of 2005, our paper operations generated an operating loss of €0.8 million, compared to an operating loss of €2.5 million in the second quarter of 2004.
Mercer Reports 2005 Second Quarter Results Page 5
In the second quarter of 2005, we had income from operations of €9.2 million, compared to a loss from operations of €1.0 million in the same quarter last year.
Interest expense in the second quarter of 2005 increased to €22.2 million from €2.4 million in the year ago period, due to interest expense of €14.5 million relating to the Stendal mill and higher borrowings resulting primarily from our $310 million senior note issue in February 2005. In the second quarter of 2004, almost all of the interest associated with the Stendal mill was capitalized during its construction.
Stendal had entered into certain foreign currency derivatives to swap a portion of its long-term bank indebtedness from Euros to U.S. dollars and certain currency forwards in the first quarter of 2005. In the second quarter of 2005, Stendal entered into foreign currency derivatives to swap the balance of its long-term indebtedness from Euros to U.S. dollars and a currency forward. We recorded a net unrealized non-cash holding loss of €48.3 million before minority interests upon the marked to market valuation of such currency derivatives due to the strengthening of the U.S. dollar versus the Euro at the end of the quarter. In the comparative quarter of 2004, we recorded a net unrealized non-cash holding gain of €13.7 million before minority interests on the then outstanding currency derivatives of Rosenthal and Stendal. In the second quarter of 2005, as a result of a decrease in long-term European interest rates, we also recorded a net unrealized non-cash holding loss of €20.8 million before minority interests on the marked to market valuation of the Stendal interest rate derivatives versus a net unrealized non-cash holding gain of €15.8 million before minority interests on the interest rate derivatives of Stendal and Rosenthal in the second quarter of 2004.
In the second quarter of 2005, minority interest, representing the two minority shareholders' proportionate interest in the Stendal mill, was €4.9 million, compared to €(10.2) million in the second quarter of 2004.
We reported a net loss for the second quarter of 2005 of €62.2 million, or €1.88 per basic and diluted share, which reflected the net unrealized non-cash holding losses on our currency and interest rate derivatives of €69.5 million and the unrealized non-cash foreign exchange loss on our long-term debt of €9.8 million, partially offset by the non-cash benefit for income taxes of €24.4 million, and interest expense related to our Stendal mill of €14.5 million. In the second quarter of 2004, we reported net income of €16.2 million, or €0.94 per basic share and €0.57 per diluted share.
Mercer Reports 2005 Second Quarter Results �� Page 6
We generated "Operating EBITDA" of €23.1 million and €5.3 million in the three months ended June 30, 2005 and 2004, respectively. Operating EBITDA is defined as income (loss) from operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.
Liquidity
| | | As at June 30, | | As at December 31, | |
| | | 2005 | | 2004 | |
| | | (in thousands) | |
| | | (unaudited) | |
Financial Position Cash and cash equivalents | | € | 105,874 | | € | 49,568 | |
| Cash restricted | | | 37,951 | | | 45,295 | |
| Receivables | | | 75,344 | | | 54,687 | |
| Inventories | | | 92,037 | | | 52,898 | |
| Prepaid expenses and other | | | 7,057 | | | 4,961 | |
| Accounts payable and accrued expenses | | | 101,399 | | | 56,542 | |
| Construction costs payable | | | 34,090 | | | 65,436 | |
| Debt, current portion | | | 97,618 | | | 107,090 | |
| Working capital (deficit) | | | 85,156 | (1) | | (21,659 | ) |
| Property, plant and equipment | | | 1,109,394 | | | 936,035 | |
| Total assets | | | 1,538,829 | | | 1,255,649 | |
| Long-term liabilities | | | 1,125,857 | (2) | | 863,840 | |
| Shareholders' equity | | | 179,865 | | | 162,741 | |
| (1) | Does not include €88.5 million of government grants related to the Stendal mill from the federal and state governments of Germany, which we expect to receive in 2005. |
(2) Includes €28.6 million outstanding under the revolving credit facilities for the Rosenthal and Celgar mills.
Mercer Reports 2005 Second Quarter Results Page 7
We had good liquidity at June 30, 2005. Certain key factors affecting our liquidity include:
| · | We had unrestricted cash and cash equivalents of €105.9 million. |
| · | The current Stendal construction costs payable of €34.1 million will be paid from restricted cash of €38.0 million held for such purpose. |
| · | We qualified for investment grants relating to the Stendal mill totaling approximately €88.5 million at June 30, 2005 from the federal and state governments of Germany, which we expect to receive in 2005. These grants, when received, will be applied to repay the €95.0 million of the current portion of our debt of €97.6 million that has been drawn under a dedicated tranche of the Stendal loan facility. Under our accounting policies, we do not record these government grants until they are received. The balance outstanding under this dedicated tranche of the Stendal loan facility will be substantially paid from VAT credits we expect to receive in the ordinary course. |
| · | Without giving effect to any government grants we expect to receive for the Stendal mill, we had net working capital of €85.2 million at June 30, 2005. |
Results of Operations - Six Months Ended June 30, 2005
For the six months ended June 30, 2005, revenues increased to €227.5 million from €100.7 million in the prior period, primarily because of higher pulp sales. We generated income from operations of €8.3 million in the six months ended June 30, 2005, compared to a loss from operations of €2.9 million in the six months ended June 30, 2004. We generated Operating EBITDA of €33.2 million and €9.7 million in the six months ended June 30, 2005 and 2004, respectively. For a reconciliation of net income (loss) to Operating EBITDA, see page 11 of the financial tables included in this press release. We reported a net loss of €81.8 million or €2.80 per diluted share for the six months ended June 30, 2005, compared to a net loss of €2.7 million or €0.16 per diluted share for the six months ended June 30, 2004, which reflected an unrealized non-cash holding loss of €73.2 on our interest rate and currency derivatives and an unrealized non-cash foreign exchange loss on our long-term debt of €7.5 million, partially offset by the non-cash benefit for income taxes of €21.4 million, and the inclusion of certain non-capitalized interest of approximately €26.3 million related to the Stendal mill in the current period.
President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are generally pleased with the operating performance of our pulp mill facilities in the quarter. The Celgar mill had very good production of 111,071 ADMTs, the Stendal mill ramped up production according to plan and the Rosenthal mill operated at a high rate of efficiency."
Mercer Reports 2005 Second Quarter Results Page 8
Mr. Lee continued: "Pulp prices were softer in the quarter with list prices in Europe averaging €487 per ADMT. Pulp pricing in Asia, and particularly China where Celgar has a large portion of its sales, remained weak with prices averaging around €390 per ADMT in the quarter."
He further stated: "We currently expect pulp prices to remain around current levels in the third quarter as a result of the traditional summer slowdown with demand in China improving in the fourth quarter, which may permit some price improvement."
He added: "We are pleased with the addition of Eric Heine and David Cooper, both of whom are senior experienced pulp marketing professionals, to lead our global pulp marketing strategy. Our added depth and leadership in our pulp marketing side should permit us to increase our price realizations over time."
Mr. Lee said: "The recent strengthening of the U.S. dollar versus the Euro will improve our operating performance as NBSK pulp is priced in U.S. dollars. A higher dollar generally results in increased Euro revenues."
He further stated: "Our results for the quarter reflect significant non-cash charges on the marked to market valuation of Stendal's currency derivatives of €48.3 million and its interest rate swap of €20.8 million, as well as a non-cash foreign exchange loss on our long-term debt of €9.8 million."
Mr. Lee added: "I am also very pleased to announce that we have recently approved an approximately C$28.5 million strategic capital plan for our Celgar mill. The plan provides for additional washers, increases to the mill's drying capacity and other smaller high return capital improvements. When completed, the plan is expected to increase the Celgar mill's annual production capacity to approximately 470,000 ADMTs, reduce operating costs such as chemicals and energy, improve pulp quality and mill reliability. We expect the cost of such plan to be met from cash on hand, cash flow from operations and our existing credit facilities."
Mr. Lee concluded: "We intend to continue to focus on further improving the efficiency of our mills, including ramping up the Stendal mill to its full production capacity and integrating and improving our NBSK pulp marketing activities. We believe this will position us as a leading world class NBSK pulp production and sales company."
Mercer Reports 2005 Second Quarter Results Page 9
In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Tuesday, August 9, 2005 at 10:00 AM (Eastern Time). Listeners can access the conference call live and archived over the Internet through a link at the company's web site athttp://www.mercerinternational.com, or at http://phx.corporate-ir.net/playerlink.zhtml?c=62074&s=wm&e=1113630.Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software. A replay of this call will be available approximately two hours after the live call ends until August 16, 2005 at 11:59 p.m. (Eastern Time). The replay number is (800) 642-1687, and the passcode is 8411532.
Mercer International Inc. is a global pulp and paper manufacturing company. To obtain further information on the company, please visit its web site athttp://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.
-FINANCIAL TABLES FOLLOW-
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2005 AND DECEMBER 31, 2004
(Euros in thousands)
| | | June 30, 2005 | | December 31, 2004 | |
ASSETS | | | | | | | |
| Current Assets | | | | | | | |
Cash and cash equivalents | | € | 105,874 | | € | 49,568 | |
Cash restricted | | | 37,951 | | | 45,295 | |
Receivables | | | 75,344 | | | 54,687 | |
Inventories | | | 92,037 | | | 52,898 | |
Prepaid expenses and other | | | 7,057 | | | 4,961 | |
Total current assets | | | 318,263 | | | 207,409 | |
| Long-Term Assets | | | | | | | |
Cash restricted | | | 19,074 | | | 47,538 | |
Property, plant and equipment | | | 1,109,394 | | | 936,035 | |
Investments | | | 4,728 | | | 5,079 | |
Deferred note issuance and other costs | | | 9,132 | | | 5,069 | |
Deferred income tax | | | 78,238 | | | 54,519 | |
| | | | 1,220,566 | | | 1,048,240 | |
Total assets | | € | 1,538,829 | | € | 1,255,649 | |
LIABILITIES | | | | | | | |
| Current Liabilities | | | | | | | |
Accounts payable and accrued expenses | | € | 101,399 | | € | 56,542 | |
Construction costs payable | | | 34,090 | | | 65,436 | |
Debt, current portion | | | 97,618 | | | 107,090 | |
Total current liabilities | | | 233,107 | | | 229,068 | |
| Long-Term Liabilities | | | | | | | |
Debt, less current portion | | | 952,555 | | | 777,272 | |
Unrealized foreign exchange rate derivative losses | | | 47,685 | | | - | |
Unrealized interest rate derivative losses | | | 95,946 | | | 75,471 | |
Pension and other post-retirement benefit obligations | | | 15,728 | | | - | |
Capital leases and other | | | 9,800 | | | 9,035 | |
Deferred income tax | | | 4,143 | | | 2,062 | |
| | | | 1,125,857 | | | 863,840 | |
Total liabilities | | | 1,358,964 | | | 1,092,908 | |
| Minority Interest | | | - | | | - | |
SHAREHOLDERS' EQUITY | | | |
| Shares of beneficial interest | | | 180,916 | | | 83,397 | |
| Additional paid-in capital, stock options | | | 14 | | | 14 | |
| Retained earnings (deficit) | | | (12,642 | ) | | 69,176 | |
| Accumulated other comprehensive income | | | 11,577 | | | 10,154 | |
Total shareholders' equity | | | 179,865 | | | 162,741 | |
Total liabilities and shareholders' equity | | € | 1,538,829 | | € | 1,255,649 | |
(1)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
| | | 2005 | | 2004 | |
| | | | | | | | |
| Revenues | | € | 227,502 | | € | 100,651 | |
| | | | | | | | |
| Costs and expenses: | | | | | | | |
Cost of sales | | | 210,167 | | | 88,628 | |
General and administrative expenses | | | 15,316 | | | 14,228 | |
Gain on sale of emission credits | | | (6,288 | ) | | - | |
Flooding losses and expenses, less grant income | | | - | | | 669 | |
Total costs and expenses | | | 219,195 | | | 103,525 | |
Income (loss) from operations | | | 8,307 | | | (2,874 | ) |
| | | | | | | | |
| Other income (expense): | | | | | | | |
Interest expense | | | (41,463 | ) | | (5,354 | ) |
Investment income | | | 981 | | | 1,464 | |
Realized loss on derivative financial instruments | | | (295 | ) | | - | |
Unrealized gain (loss) on derivative financial instruments | | | (73,015 | ) | | 7,028 | |
Unrealized foreign exchange loss on debt | | | (7,509 | ) | | - | |
Impairment of investments | | | (1,645 | ) | | - | |
Total other (income) expense | | | (122,946 | ) | | 3,138 | |
| | | | | | | | |
Income (loss) before income taxes and minority interest | | | (114,639 | ) | | 264 | |
| Income tax (provision) benefit | | | 21,412 | | | (199 | ) |
Income (loss) before minority interest | | | (93,227 | ) | | 65 | |
| Minority interest | | | 11,409 | | | (2,790 | ) |
Net loss | | | (81,818 | ) | | (2,725 | ) |
| | | | | | | | |
| Retained earnings, beginning of period | | | 69,176 | | | 49,196 | |
| Retained earnings (deficit), end of period | | € | (12,642 | ) | € | 46,471 | |
| | | | | | | | |
| Loss per share | | | | | | | |
Basic and diluted | | € | (2.80 | ) | € | (0.16 | ) |
(2)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
| | | 2005 | | 2004 | |
| | | | | | | | |
| Revenues | | € | 129,609 | | € | 50,335 | |
| | | | | | | | |
| Costs and expenses: | | | | | | | |
Cost of sales | | | 119,178 | | | 43,210 | |
General and administrative expenses | | | 7,518 | | | 7,687 | |
Gain on sale of emission credits | | | (6,288 | ) | | - | |
Flooding losses and expenses, less grant income | | | - | | | 416 | |
Total costs and expenses | | | 120,408 | | | 51,313 | |
Income (loss) from operations | | | 9,201 | | | (978 | ) |
| | | | | | | | |
| Other income (expense): | | | | | | | |
Interest expense | | | (22,200 | ) | | (2,366 | ) |
Investment income | | | 806 | | | 530 | |
Unrealized gain (loss) on derivative financial instruments | | | (69,451 | ) | | 29,473 | |
Unrealized foreign exchange loss on debt | | | (9,806 | ) | | - | |
Total other income (expense) | | | (100,651 | ) | | 27,637 | |
| | | | | | | | |
Income (loss) before income taxes and minority interest | | | (91,450 | ) | | 26,659 | |
| Income tax (provision) benefit | | | 24,447 | | | (219 | ) |
Income (loss) before minority interest | | | (67,003 | ) | | 26,440 | |
| Minority interest | | | 4,852 | | | (10,199 | ) |
Net income (loss) | | | (62,151 | ) | | 16,241 | |
| | | | | | | | |
| Retained earnings, beginning of period | | | 49,509 | | | 30,230 | |
| Retained earnings (deficit), end of period | | € | (12,642 | ) | € | 46,471 | |
| | | | | | | | |
| Income (loss) per share | | | | | | | |
Basic | | € | (1.88 | ) | € | 0.94 | |
Diluted | | € | (1.88 | ) | € | 0.57 | |
(3)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)
| | | 2005 | | 2004 | |
| Cash Flows from (used in) Operating Activities: | | | | | | | |
Net loss | | € | (81,818 | ) | € | (2,725 | ) |
Adjustments to reconcile net loss to cash flows from operating activities | | | | | | | |
| Cumulative unrealized losses (gains) on derivatives | | | 73,015 | | | (7,028 | ) |
| Depreciation and amortization | | | 25,299 | | | 12,607 | |
| Unrealized foreign exchange loss on debt | | | 7,509 | | | - | |
| Impairment of investments and securities | | | 1,645 | | | - | |
| Minority interest | | | (11,409 | ) | | 2,790 | |
Deferred income taxes | | | (21,638 | ) | | - | |
Stock compensation expense | | | 72 | | | 616 | |
Other | | | 125 | | | 204 | |
| | | | | | | | |
| Changes in current assets and liabilities | | | | | | | |
| Receivables | | | (20,742 | ) | | (2,489 | ) |
| Inventories | | | (16,757 | ) | | (17,995 | ) |
| Accounts payable and accrued expenses | | | 41,319 | | | 12,166 | |
| Other | | | (1,853 | ) | | (1,224 | ) |
| Net cash used in operating activities | | | (5,233 | ) | | (3,078 | ) |
| | | | | | | | |
| Cash Flows from (used in) Investing Activities: | | | | | | | |
| Purchase of property, plant and equipment | | | (8,493 | ) | | (117,327 | ) |
| Acquisition of Celgar pulp mill | | | (146,608 | ) | | - | |
| Sale of available-for-sale securities | | | - | | | 1,161 | |
| Other | | | - | | | 115 | |
| Net cash used in investing activities | | | (155,101 | ) | | (116,051 | ) |
| | | | | | | | |
| Cash Flows from (used in) Financing Activities: | | | | | | | |
| Cash restricted | | | 35,808 | | | (7,468 | ) |
| Decrease in construction costs payable | | | (31,346 | ) | | (22,974 | ) |
| Proceeds from borrowings of notes payable and debt | | | 325,195 | | | 126,000 | |
| Repayment of notes payable and debt | | | (183,691 | ) | | (14,782 | ) |
| Proceeds from investment grants | | | 342 | | | 28,710 | |
| Repayment of capital lease obligations | | | (1,907 | ) | | (633 | ) |
| Issuance of shares of beneficial interest | | | 66,645 | | | 582 | |
Net cash from financing activities | | | 211,046 | | | 109,435 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 5,594 | | | (63 | ) |
| Net increase (decrease) in cash and cash equivalents | | | 56,306 | | | (9,757 | ) |
| Cash and cash equivalents, beginning of period | | | 49,568 | | | 51,993 | |
| Cash and cash equivalents, end of period | | € | 105,874 | | € | 42,236 | |
(4)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | | Rosenthal Pulp | | Celgar(1) Pulp | | Stendal Pulp | | Total Pulp | | Paper | | Corporate, Other and Eliminations | | Consolidated Total | |
Six Months Ended June 30, 2005 | | | | | | | | | | | | | | | | | | | | | | |
| Sales to external customers | | € | 65,936 | | € | 48,480 | | € | 81,606 | | € | 196,022 | | € | 31,480 | | € | - | | € | 227,502 | |
| Intersegment net sales | | | - | | | - | | | 3,340 | | | 3,340 | | | - | | | (3,340 | ) | | - | |
| | | | 65,936 | | | 48,480 | | | 84,946 | | | 199,362 | | | 31,480 | | | (3,340 | ) | | 227,502 | |
| Operating costs | | | 47,405 | | | 40,554 | | | 71,546 | | | 159,505 | | | 29,601 | | | (3,822 | ) | | 185,284 | |
| Depreciation and amortization | | | 6,630 | | | 4,097 | | | 13,454 | | | 24,181 | | | 379 | | | 323 | | | 24,883 | |
| General and administrative | | | 3,810 | | | 2,837 | | | 1,677 | | | 8,324 | | | 2,562 | | | 4,430 | | | 15,316 | |
| Emission credits | | | (2,135 | ) | | - | | | (4,153 | ) | | (6,288 | ) | | - | | | - | | | (6,288 | ) |
| | | | 55,710 | | | 47,488 | | | 82,524 | | | 185,722 | | | 32,542 | | | 931 | | | 219,195 | |
| Income (loss) from operations | | | 10,226 | | | 992 | | | 2,422 | | | 13,640 | | | (1,062 | ) | | (4,271 | ) | | 8,307 | |
| Interest expense | | | | | | | | | | | | | | | | | | | | | (41,463 | ) |
| Investment income | | | | | | | | | | | | | | | | | | | | | 981 | |
| Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | (73,310 | ) |
| Foreign exchange gain on debt | | | | | | | | | | | | | | | | | | | | | (7,509 | ) |
| Impairment of investments | | | | | | | | | | | | | | | | | | | | | (1,645 | ) |
| | | | | | | | | | | | | | | | | | | | | | (122,946 | ) |
| Loss before income taxes and minority interest | | | | | | | | | | | | | | | | | | | | € | (114,639 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Segment assets | | € | 347,935 | | € | 244,361 | | € | 906,244 | | € | 1,498,540 | | € | 24,294 | | € | 15,995 | | € | 1,538,829 | |
Six Months Ended June 30, 2004 | | | | | | | | | | | | | | | | | | | | | | |
| Sales to external customers | | € | 71,031 | | € | - | | € | 927 | | € | 71,958 | | € | 28,693 | | € | - | | € | 100,651 | |
| Intersegment net sales | | | 1,179 | | | - | | | - | | | 1,179 | | | - | | | (1,179 | ) | | - | |
| | | | 72,210 | | | - | | | 927 | | | 73,137 | | | 28,693 | | | (1,179 | ) | | 100,651 | |
| Operating costs | | | 49,125 | | | - | | | - | | | 49,125 | | | 27,213 | | | (317 | ) | | 76,021 | |
| Depreciation and amortization | | | 11,136 | | | - | | | 12 | | | 11,148 | | | 1,141 | | | 318 | | | 12,607 | |
| General and administrative | | | 4,636 | | | - | | | 5,448 | | | 10,084 | | | 2,643 | | | 1,501 | | | 14,228 | |
| Flooding grants, less losses and expenses | | | - | | | - | | | - | | | - | | | 669 | | | - | | | 669 | |
| | | | 64,897 | | | - | | | 5,460 | | | 70,357 | | | 31,666 | | | 1,502 | | | 103,525 | |
| Income (loss) from operations | | | 7,313 | | | - | | | (4,533 | ) | | 2,780 | | | (2,973 | ) | | (2,681 | ) | | (2,874 | ) |
| Interest expense | | | | | | | | | | | | | | | | | | | | | (5,354 | ) |
| Investment and other income | | | | | | | | | | | | | | | | | | | | | 1,464 | |
| Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | 7,028 | |
| | | | | | | | | | | | | | | | | | | | | | 3,138 | |
| Income before income taxes and minority interest | | | | | | | | | | | | | | | | | | | | € | 264 | |
Segment assets | | € | 365,342 | | € | - | | € | 663,193 | | € | 1,028,535 | | € | 28,320 | | € | (10,899 | ) | € | 1,045,956 | |
_________________________
(1) The results of the Celgar pulp mill are from the date of its acquisition on February 14, 2005.
(5)
MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | | Rosenthal Pulp | | Celgar(1) Pulp | | Stendal Pulp | | Total Pulp | | Paper | | Corporate, Other and Eliminations | | Consolidated Total | |
Three Months Ended June 30, 2005 | | | | | | | | | | | | | | | | | | | | | | |
| Sales to external customers | | € | 31,840 | | € | 40,864 | | € | 40,808 | | € | 113,512 | | € | 16,097 | | € | - | | € | 129,609 | |
| Intersegment net sales | | | - | | | - | | | 1,786 | | | 1,786 | | | - | | | (1,786 | ) | | - | |
| | | | 31,840 | | | 40,864 | | | 42,594 | | | 115,298 | | | 16,097 | | | (1,786 | ) | | 129,609 | |
| Operating costs | | | 22,217 | | | 35,419 | | | 34,411 | | | 92,047 | | | 15,370 | | | (2,135 | ) | | 105,282 | |
| Depreciation and amortization | | | 3,362 | | | 3,274 | | | 6,773 | | | 13,409 | | | 198 | | | 289 | | | 13,896 | |
| General and administrative | | | 1,909 | | | 1,162 | | | 702 | | | 3,773 | | | 1,326 | | | 2,419 | | | 7,518 | |
| Emission credits | | | (2,135 | ) | | - | | | (4,153 | ) | | (6,288 | ) | | - | | | - | | | (6,288 | ) |
| | | | 25,353 | | | 39,855 | | | 37,733 | | | 102,941 | | | 16,894 | | | 573 | | | 120,408 | |
| Income (loss) from operations | | | 6,487 | | | 1,009 | | | 4,861 | | | 12,357 | | | (797 | ) | | (2,359 | ) | | 9,201 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | | | | | | (22,200 | ) |
| Investment income | | | | | | | | | | | | | | | | | | | | | 806 | |
| Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | (69,451 | ) |
| Foreign exchange(loss) on debt | | | | | | | | | | | | | | | | | | | | | (9,806 | ) |
| Impairment of investments | | | | | | | | | | | | | | | | | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | (100,651 | ) |
| Loss before income taxes and minority interest | | | | | | | | | | | | | | | | | | | | € | (91,450 | ) |
Three Months Ended June 30, 2004 | | | | | | | | | | | | | | | | | | | | | | |
| Sales to external customers | | € | 36,022 | | € | - | | € | 927 | | € | 36,949 | | € | 13,386 | | € | - | | € | 50,335 | |
| Intersegment net sales | | | 750 | | | - | | | - | | | 750 | | | - | | | (750 | ) | | - | |
| | | | 36,772 | | | - | | | 927 | | | 37,699 | | | 13,386 | | | (750 | ) | | 50,335 | |
| Operating costs | | | 23,318 | | | - | | | - | | | 23,318 | | | 13,455 | | | 123 | | | 36,896 | |
| Depreciation and amortization | | | 5,554 | | | - | | | 12 | | | 5,566 | | | 589 | | | 159 | | | 6,314 | |
| General and administrative | | | 2,648 | | | - | | | 2,707 | | | 5,355 | | | 1,469 | | | 863 | | | 7,687 | |
| Flooding grants, less losses and expenses | | | - | | | - | | | - | | | - | | | 416 | | | - | | | 416 | |
| | | | 31,520 | | | - | | | 2,719 | | | 34,239 | | | 15,929 | | | 1,145 | | | 51,313 | |
| Income (loss) from operations | | | 5,252 | | | - | | | (1,792 | ) | | 3,460 | | | (2,543 | ) | | (1,895 | ) | | (978 | ) |
| Interest expense | | | | | | | | | | | | | | | | | | | | | (2,366 | ) |
| Investment and other income | | | | | | | | | | | | | | | | | | | | | 530 | |
| Derivative financial instruments, net | | | | | | | | | | | | | | | | | | | | | 29,473 | |
| | | | | | | | | | | | | | | | | | | | | | 27,637 | |
| Income before income taxes and minority interest | | | | | | | | | | | | | | | | | | | | € | 26,659 | |
_______________________
(1) The results of the Celgar pulp mill are from the date of its acquisition on February 14, 2005.
(6)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at June 30, 2005
(Unaudited)
(Euros in thousands)
The terms of the indenture governing our 9.25% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer Inc. and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group". As at and during the six and three months ended June 30, 2005, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill from the date of its acquisition on February 14, 2005. During the six and three months ended June 30, 2004 and as at December 31, 2004, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, which was the only member of the Restricted Group with material operations during this period. We acquired the Celgar mill in February 2005 and, as a result, its operations for the six and three months ended June 30, 2004 and financial condition at December 31, 2004 are not included for such periods. The Restricted Group excludes our paper operations and the Stendal mill.
| | | June 30, 2005 | |
| | RestrictedGroup | | UnrestrictedSubsidiaries | | Eliminations | | ConsolidatedGroup | |
ASSETS | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | |
| Cash and cash equivalents | | € | 62,792 | | € | 43,082 | | € | - | | € | 105,874 | |
| Cash restricted | | | - | | | 37,951 | | | - | | | 37,951 | |
| Receivables | | | 42,748 | | | 32,665 | | | (69 | ) | | 75,344 | |
| Inventories | | | 54,127 | | | 37,910 | | | - | | | 92,037 | |
| Prepaid expenses and other | | | 3,631 | | | 3,426 | | | - | | | 7,057 | |
| Total current assets | | | 163,298 | | | 155,034 | | | (69 | ) | | 318,263 | |
| Cash restricted | | | - | | | 19,074 | | | - | | | 19,074 | |
| Property, plant and equipment | | | 393,047 | | | 716,785 | | | (438 | ) | | 1,109,394 | |
| Other | | | 9,741 | | | 4,119 | | | - | | | 13,860 | |
| Deferred income tax | | | 22,855 | | | 55,383 | | | - | | | 78,238 | |
| Due from unrestricted group | | | 44,621 | | | - | | | (44,621 | ) | | - | |
| Total assets | | € | 633,562 | | € | 950,395 | | € | (45,128 | ) | € | 1,538,829 | |
| | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | € | 43,780 | | € | 57,688 | | € | (69 | ) | € | 101,399 | |
| Construction costs payable | | | - | | | 34,090 | | | - | | | 34,090 | |
| Debt, current portion | | | - | | | 97,618 | | | - | | | 97,618 | |
| Total current liabilities | | | 43,780 | | | 189,396 | | | (69 | ) | | 233,107 | |
| | | | | | | | | | | | | | |
| Debt, less current portion | | | 353,033 | | | 599,522 | | | - | | | 952,555 | |
| Due to restricted group | | | - | | | 44,621 | | | (44,621 | ) | | - | |
| Unrealized derivatives loss | | | - | | | 143,631 | | | - | | | 143,631 | |
| Other | | | 18,555 | | | 6,973 | | | - | | | 25,528 | |
| Deferred income tax | | | 1,883 | | | 2,260 | | | - | | | 4,143 | |
| Total liabilities | | | 417,251 | | | 986,403 | | | (44,690 | ) | | 1,358,964 | |
| | | | | | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | | |
| Total shareholders' equity | | | 216,311 | | | (36,008 | ) | (1) | | (438 | ) | | 179,865 | |
| Total liabilities and shareholders' equity | | € | 633,562 | | € | 950,395 | | € | (45,128 | ) | € | 1,538,829 | |
_______________
(1) Shareholders' equity does not include government grants received or receivable related to the Stendal mill. Shareholders' equity is impacted by the unrealized non-cash marked to market valuation losses on derivative financial instruments.
(7)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at December 31, 2004
(Unaudited)
(Euros in thousands)
| | | December 31, 2004 | |
| | Restricted Group | | Unrestricted Subsidiaries | | Eliminations | | Consolidated Group | |
| ASSETS | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | |
| Cash and cash equivalents | | € | 45,487 | | € | 4,081 | | € | - | | € | 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 | | € | 401,321 | | € | 897,996 | | € | (43,668 | ) | € | 1,255,649 | |
| | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | € | 19,615 | | € | 37,091 | | € | (164 | ) | € | 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 | | € | 401,321 | | € | 897,996 | | € | (43,668 | ) | € | 1,255,649 | |
(8)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | | Six Months Ended June 30, 2005 | |
| | Restricted Group | | Unrestricted Subsidiaries | | Eliminations | | Consolidated Group | |
| Revenues | | € | 114,416 | | € | 113,086 | | € | - | | € | 227,502 | |
Operating costs | | | 87,260 | | | 98,024 | | | - | | | 185,284 | |
| Operating depreciation and amortization | | | 10,829 | | | 13,616 | | | 438 | | | 24,883 | |
| General and administrative | | | 11,077 | | | 4,239 | | | - | | | 15,316 | |
| Gain on sale of emission credits | | | (2,135 | ) | | (4,153 | ) | | - | | | (6,288 | ) |
| | | | 107,031 | | | 111,726 | | | 438 | | | 219,195 | |
| Income (loss) from operations | | | 7,385 | | | 1,360 | | | (438 | ) | | 8,307 | |
| Other income (expense) | | | | | | | | | | | | | |
| Interest expense | | | (15,985 | ) | | (26,571 | ) | | 1,093 | | | (41,463 | ) |
| Investment income | | | 1,297 | | | 777 | | | (1,093 | ) | | 981 | |
| Derivative financial instruments, net | | | (463 | ) | | (72,847 | ) | | - | | | (73,310 | ) |
| Unrealized foreign exchange loss on debt | | | (7,509 | ) | | - | | | - | | | (7,509 | ) |
| Impairment of investments | | | (1,645 | ) | | - | | | - | | | (1,645 | ) |
| Total other expense | | | (24,305 | ) | | (98,641 | ) | | - | | | (122,946 | ) |
| Loss before income taxes andminority 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 | | € | (21,696 | ) | € | (59,684 | ) | € | (438 | ) | € | (81,818 | ) |
| | | Six Months Ended June 30, 2004 | |
| | Restricted Group | | Unrestricted Subsidiaries | | Eliminations | | Consolidated Group | |
| Revenues | | € | 72,210 | | € | 29,620 | | € | (1,179 | ) | € | 100,651 | |
Operating costs | | | 48,675 | | | 27,213 | | | 133 | | | 76,021 | |
| Operating depreciation and amortization | | | 11,136 | | | 1,153 | | | 318 | | | 12,607 | |
| General and administrative | | | 6,295 | | | 8,091 | | | (158 | ) | | 14,228 | |
| Flooding grants, less losses and expenses | | | - | | | 669 | | | - | | | 669 | |
| | | | 66,106 | | | 37,126 | | | 293 | | | 103,525 | |
| Income (loss) from operations | | | 6,104 | | | (7,506 | ) | | (1,472 | ) | | (2,874 | ) |
| Other income (expense) | | | | | | | | | | | | | |
| Interest expense | | | (6,023 | ) | | (452 | ) | | 1,121 | | | (5,354 | ) |
| Investment and other income (expense) | | | 1,745 | | | (214 | ) | | (67 | ) | | 1,464 | |
| Derivative financial instruments, net | | | (5,272 | ) | | 12,300 | | | - | | | 7,028 | |
| Total other expense | | | (9,550 | ) | | 11,634 | | | 1,054 | | | 3,138 | |
| Income (loss) before income taxes andminority interest | | | (3,446 | ) | | 4,128 | | | (418 | ) | | 264 | |
| Income tax provision | | | (199 | ) | | - | | | - | | | (199 | ) |
| Income (loss) before minority interest | | | (3,645 | ) | | 4,128 | | | (418 | ) | | 65 | |
| Minority interest | | | - | | | (2,790 | ) | | - | | | (2,790 | ) |
| Net income (loss) | | € | (3,645 | ) | € | 1,338 | | € | (418 | ) | € | (2,725 | ) |
(9)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | | Three Months Ended June 30, 2005 | |
| | Restricted Group | | Unrestricted Subsidiaries | | Eliminations | | Consolidated Group | |
| Revenues | | € | 72,704 | | € | 56,905 | | € | - | | € | 129,609 | |
Operating costs | | | 57,287 | | | 47,995 | | | - | | | 105,282 | |
| Operating depreciation and amortization | | | 6,704 | | | 6,971 | | | 221 | | | 13,896 | |
| General and administrative | | | 5,490 | | | 2,028 | | | - | | | 7,518 | |
| Gain on sale of emission credits | | | (2,135 | ) | | (4,153 | ) | | - | | | (6,288 | ) |
| | | | 67,346 | | | 52,841 | | | 221 | | | 120,408 | |
| Income (loss) from operations | | | 5,358 | | | 4,064 | | | (221 | ) | | 9,201 | |
| Other income (expense) | | | | | | | | | | | | | |
| Interest expense | | | (8,314 | ) | | (14,585 | ) | | 699 | | | (22,200 | ) |
| Investment income | | | 970 | | | 467 | | | (631 | ) | | 806 | |
| Derivative financial instruments, net | | | (358 | ) | | (69,093 | ) | | - | | | (69,451 | ) |
| Unrealized foreign exchange loss on debt | | | (9,806 | ) | | - | | | - | | | (9,806 | ) |
| Impairment of investments | | | (467 | ) | | - | | | 467 | | | - | |
| Total other income (expense) | | | (17,975 | ) | | (83,211 | ) | | 535 | | | (100,651 | ) |
| Income (loss) before income taxes andminority 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) | | € | (14,278 | ) | € | (48,187 | ) | € | 314 | | € | (62,151 | ) |
| | | Three Months Ended June 30, 2004 | |
| | Restricted Group | | Unrestricted Subsidiaries | | Eliminations | | Consolidated Group | |
| Revenues | | € | 36,772 | | € | 14,313 | | € | (750 | ) | € | 50,335 | |
Operating costs | | | 23,318 | | | 13,455 | | | 123 | | | 36,896 | |
| Operating depreciation and amortization | | | 5,554 | | | 601 | | | 159 | | | 6,314 | |
| General and administrative | | | 3,181 | | | 4,176 | | | 330 | | | 7,687 | |
| Flooding grants, less losses and expenses | | | - | | | 416 | | | - | | | 416 | |
| | | | 32,053 | | | 18,648 | | | 612 | | | 51,313 | |
| Income (loss) from operations | | | 4,719 | | | (4,335 | ) | | (1,362 | ) | | (978 | ) |
| Other income (expense) | | | | | | | | | | | | | |
| Interest expense | | | (1,947 | ) | | 114 | | | (533 | ) | | (2,366 | ) |
| Derivative financial instruments, net | | | (382 | ) | | 29,855 | | | - | | | 29,473 | |
| Investment and other income (expense) | | | 639 | | | (364 | ) | | 255 | | | 530 | |
| Total other income (expense) | | | (1,690 | ) | | 29,605 | | | (278 | ) | | 27,637 | |
| Income (loss) before income taxes andminority interest | | | 3,029 | | | 25,270 | | | (1,640 | ) | | 26,659 | |
| Income tax provision | | | (199 | ) | | (20 | ) | | - | | | (219 | ) |
| Income (loss) before minority interest | | | 2,830 | | | 25,250 | | | (1,640 | ) | | 26,440 | |
| Minority interest | | | - | | | (10,199 | ) | | - | | | (10,199 | ) |
| Net income (loss) | | € | 2,830 | | € | 15,051 | | € | (1,640 | ) | € | 16,241 | |
(10)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
For the Six and Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | Six Months Ended June 30, | |
| | | 2005 | | 2004 | |
| Net loss | | € | (81,818 | ) | € | (2,725 | ) |
| Minority interest | | | (11,409 | ) | | 2,790 | |
| Income taxes (benefit) | | | (21,412 | ) | | 199 | |
| Interest expense | | | 41,463 | | | 5,354 | |
| Investment income | | | (981 | ) | | (1,464 | ) |
| Derivative financial instruments, net | | | 73,310 | | | (7,028 | ) |
| Foreign exchange loss on debt | | | 7,509 | | | - | |
| Impairment of investments | | | 1,645 | | | - | |
| Income (loss) from operations | | | 8,307 | | | (2,874 | ) |
| Add: Depreciation and amortization | | | 24,883 | | | 12,607 | |
| Operating EBITDA | | € | 33,190 | | € | 9,733 | |
| | Three Months Ended June 30, | |
| | | 2005 | | 2004 | |
| Net income (loss) | | € | (62,151 | ) | € | 16,241 | |
| Minority interest | | | (4,852 | ) | | 10,199 | |
| Income taxes (benefit) | | | (24,447 | ) | | 219 | |
| Interest expense | | | 22,200 | | | 2,366 | |
| Investment income | | | (806 | ) | | (530 | ) |
| Derivative financial instruments, net | | | 69,451 | | | (29,473 | ) |
| Foreign exchange loss on debt | | | 9,806 | | | - | |
| Income (loss) from operations | | | 9,201 | | | (978 | ) |
| Add: Depreciation and amortization | | | 13,896 | | | 6,314 | |
| Operating EBITDA | | € | 23,097 | | € | 5,336 | |
________________
| (1) | Operating EBITDAdoes 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. |
(11)
MERCER INTERNATIONAL INC.
COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Six and Three Months Ended June 30, 2005 and 2004
(Unaudited)
(Euros in thousands)
| | Six Months Ended June 30, | |
| | | 2005 | | 2004 | |
| Restricted Group(1) | | | | | | | |
| Net loss | | € | (21,696 | ) | € | (3,645 | ) |
| Income taxes | | | 4,776 | | | 199 | |
| Interest expense | | | 15,985 | | | 6,023 | |
| Investment and other income | | | (1,297 | ) | | (1,745 | ) |
| Derivative financial instruments, net | | | 463 | | | 5,272 | |
| Foreign exchange loss on debt | | | 7,509 | | | - | |
| Impairment of investments | | | 1,645 | | | - | |
| Income from operations | | | 7,385 | | | 6,104 | |
| Add: Depreciation and amortization | | | 10,829 | | | 11,136 | |
| Operating EBITDA | | € | 18,214 | | € | 17,240 | |
____________
(1) The results of the Celgar pulp mill are not included for the six months ended June 30, 2004.
| | Three Months Ended June 30, | |
| | | 2005 | | 2004 | |
| Restricted Group(1) | | | | | | | |
| Net income (loss) | | € | (14,278 | ) | € | 2,830 | |
| Income taxes | | | 1,661 | | | 199 | |
| Interest expense | | | 8,314 | | | 1,947 | |
| Investment and other income | | | (970 | ) | | (639 | ) |
| Derivative financial instruments, net | | | 358 | | | 382 | |
| Foreign exchange loss on debt | | | 9,806 | | | - | |
| Impairment of investments | | | 467 | | | - | |
| Income from operations | | | 5,358 | | | 4,719 | |
| Add: Depreciation and amortization | | | 6,704 | | | 5,554 | |
| Operating EBITDA | | € | 12,062 | | € | 10,273 | |
____________
(1) The results of the Celgar pulp mill are not included for the three months ended June 30, 2004.
(12)
# # #
