EXHIBIT 99.1
FOR: MERCER INTERNATIONAL INC.
APPROVED BY: Jimmy S.H. Lee
Chairman & President
(41) 43 344-7070
For Immediate Release
- -----------------------
Financial Dynamics
Investors: Eric Boyriven/Paul Johnson
(212) 850-5600
MERCER INTERNATIONAL INC. REPORTS 2003 THIRD QUARTER RESULTS
NEW YORK, NY, November 14, 2003 -- Mercer International Inc. (Nasdaq:
MERCS; TSX: MRI.U) today reported results for the third quarter ended September
30, 2003.
RESULTS OF OPERATIONS
Total revenues for the third quarter of 2003 were E45.8 million, versus
E56.9 million in the third quarter of 2002 primarily because the current period
does not include the results from the Landqart specialty paper mill. The
Company reorganized its interest in the Landqart mill in December 2002 and now
accounts for it under the equity method. Pulp and paper revenues were E43.7
million in the 2003 third quarter, versus E54.8 million in the third quarter of
2002.
Costs of pulp and paper sales in the third quarter of 2003 were E45.4
million, compared to E47.7 million in the third quarter of 2002. The reduction
in costs versus the year ago period is primarily a result of the exclusion of
results from the Landqart mill.
For the 2003 third quarter, pulp sales totaled E30.0 million, versus total pulp
sales of E30.9 million in the same period a year ago and E31.0 million in the
2003 second quarter. Revenues in the pulp segment reflect lower average pulp
selling prices primarily due to a 12.6% decline of the value of the U.S. Dollar
versus the Euro versus the third quarter of 2002. Average list prices for
Northern Bleached Softwood Kraft Pulp ("NBSK") in Europe were approximately E444
(US$500) per tonne in the third quarter of 2003, versus approximately E484
(US$550) per tonne in the second quarter of 2003 and approximately E486 (US$480)
per tonne in the third quarter of last year. This decrease in average selling
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MERCER INTERNATIONAL REPORTS 2003 THIRD QUARTER RESULTS PAGE 2
prices was offset in part by increased production volumes due to enhanced
operational efficiency. In the 2003 third quarter, Pulp sales by volume
increased to 73,747 tonnes in the current quarter from 67,757 tonnes in the
third quarter of last year and 69,700 tonnes in the second quarter of 2003.
Pulp sales realizations were E407 per tonne on average in the 2003 third
quarter, versus E445 per tonne in the second quarter of 2003 and E456 per tonne
in the third quarter of 2002.
Cost of sales and general, administrative and other expenses for the pulp
operations increased to E33.6 million in the 2003 third quarter from E29.9
million in the third quarter of 2002. On average, per tonne fiber costs for
pulp production decreased by approximately 1.1% compared to the third quarter of
last year. Depreciation for the pulp operations was E5.7 million in the current
quarter, versus E5.4 million a year ago.
For the third quarter of 2003, the Company's pulp operations generated an
operating loss of E1.8 million, versus operating income of E2.5 million in the
year ago period.
As previously noted, results for the Company's paper segment reflect the
exclusion of results from the Landqart specialty paper mill, which were included
in the Company's 2002 third quarter results. Paper sales in the 2003 third
quarter were E13.7 million, compared with E23.9 million in the third quarter of
last year. Sales of specialty papers in the 2003 third quarter were E8.6
million versus E19.8 million in the third quarter of 2002. For the third
quarter of 2003, total paper sales volumes were 15,979 tonnes, versus 20,980
tonnes last year. On average, prices for specialty papers realized in the
current period decreased by approximately 24.2%, reflecting the shift in product
mix after de-consolidation of the Landqart mill. Average prices for the
Company's printing papers remained relatively level with those seen in the year
ago period.
Cost of sales and general, administrative and other expenses for the paper
operations in the third quarter of 2003 were E14.7 million, versus E24.3 million
in the comparative quarter of 2002, primarily as a result of the lower paper
sales. Depreciation for the paper operations was E0.6 million in the 2003 third
quarter, versus E1.3 million a year ago.
For the 2003 third quarter, the Company's paper operations generated an
operating loss of E0.7 million, compared to an operating income of E0.01 million
in the third quarter of last year.
For the third quarter of 2003, consolidated general and administrative
expenses decreased to E4.2 million, compared to E6.0 million in the year
ago period, primarily reflecting the exclusion of the results of the Landqart
mill and lower professional fees in the current year period.
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MERCER INTERNATIONAL REPORTS 2003 THIRD QUARTER RESULTS PAGE 3
In the third quarter of 2003, the Company reported a loss from operations
of E4.3 million, compared to income from operations of E2.0 million in the same
period last year. Interest expense (excluding capitalized interest of E5.3
million in respect of the Stendal project) in the third quarter of 2003 was E2.2
million, compared with E2.7 million a year ago, due primarily to lower borrowing
costs and lower indebtedness.
Pursuant to the E828 million loan facility (the "Stendal Loan Facility")
for the Company's greenfield project (the "Stendal project") to construct
an approximately 552,000 tonne NBSK mill near Stendal, Germany, the Company's
63% owned subsidiary, Zellstoff Stendal GmbH ("Stendal") entered into
variable-to-fixed rate interest swaps for the full term of the facility to
manage the risk exposure with respect to an aggregate maximum amount of
approximately E612.6 million of the principal amount of the Stendal Loan
Facility. Under these swaps, Stendal pays a fixed rate and receives a floating
rate with respect to interest payments calculated on a notional amount. These
swaps manage the exposure to variable cash flow risk from the variable interest
payments under the Stendal Loan Facility. The swaps are marked to market at the
end of each reporting period and all unrealized gains and losses are recognized
in earnings for a reporting period. As a result, a holding gain of E5.4 million
before minority interests was recognized with respect to these swaps in the 2003
third quarter. The Company also entered into a currency forward contract in
connection with the Stendal Loan Facility in the 2003 third quarter, which is
marked to market on a quarterly basis. As a result, a non-cash holding gain of
E0.6 million in relation to this contract was recognized in the 2003 third
quarter.
The Company has also entered into currency swaps to manage its exposure
with respect to an aggregate amount of approximately E192.2 million of the
principal long-term indebtedness of the Rosenthal mill. In addition, the
Company has entered into currency forward contracts, forward interest rate and
interest cap contracts in connection with certain indebtedness relating to
the Rosenthal mill. These derivative instruments are also marked to market at
the end of each reporting period, and all gains and losses are recognized
in earnings for a reporting period. For the third quarter of 2003, the
Company recognized a net gain of E3.7 million from these derivative contracts,
versus a net loss of E4.0 from these derivative contracts in the year ago
period.
Minority interest for the 2003 third quarter was E(1.9)
million, representing the two
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MERCER INTERNATIONAL REPORTS 2003 THIRD QUARTER RESULTS PAGE 4
minority shareholders' proportionate share of income in the Stendal project. In
the third quarter of 2002, minority interest was E8.0 million.
The Company reported net income for the third quarter of 2003 of E0.9
million, or E0.05 per diluted share, versus a net loss of E20.6 million, or
E1.23 per diluted share, a year ago. The Company's results for the third
quarter of 2003 includes a one-time pre-tax charge of approximately E0.6
million related to settlement expenses in respect
of a proxy solicitation and a settlement agreement with Greenlight Capital,
L.L.C.
As the Stendal project is currently under construction and because of its
overall size relative to the Company's other facilities, management uses
consolidated operating results excluding derivative items relating to the
Stendal project to measure the performance and results of the Company's
operating units. Management believes this measure provides meaningful
information on the performance of its operating facilities for a reporting
period. Upon commencement of commercial production, the Stendal project will be
evaluated with the Company's other operating units. Excluding items related to
the Stendal project, the Company would have reported a net loss for the 2003
third quarter of E3.2 million, or E0.19 per diluted share, which was determined
by subtracting both the non-cash holding gain on interest rate swaps of E5.4
million and the non-cash holding gain on currency forward contract of E0.6
million from, and adding minority interest of 1.9 million to, the reported net
income of E0.9 million. This compares with a net loss of E6.6 million, or E0.39
per diluted share, in the third quarter of 2002, when items related to the
Stendal project are excluded, which was determined by adding back the non-cash
holding gain on interest rate swaps of E22.0 million to, and subtracting
minority interest of E8.0 million from, the reported net loss of E20.6 million.
Operating earnings before depreciation and amortization ("Operating
EBITDA") for the third quarter of 2003 was E2.0 million, versus Operating EBITDA
of E8.7 million in the same period a year ago. 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 is not an actual cash cost, and varies widely from company
to company in a manner that management considers largely independent of the
underlying cost efficiency of their operating facilities. Because all companies
do not calculate Operating EBITDA in the same manner, Operating EBITDA as
calculated by the Company may differ from Operating EBITDA as calculated by
other companies.
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Mercer International Reports 2003 Third Quarter Results Page 5
Operating EBITDA does not reflect the impact of a number of items that
affect the Company's net income (loss), including financing costs and the
effect of derivative instruments. Operating EBITDA is not a measure of
financial performance under accounting principles generally accepted in the
United States, and should not be considered as an alternative to net income
(loss) or income (loss) from operations as a measure of performance, nor as an
alternative to net cash from operating activities as a measure of liquidity.
Operating EBITDA has significant limitations as an analytical tool, and should
not be considered in isolation, or as a substitute for analysis of the Company's
results as reported under GAAP.
CONVERTIBLE SENIOR NOTE OFFERING COMPLETED
In early October, the Company announced that it had completed the sale of
$82.5 million aggregate principal amount of convertible senior subordinated
notes due October 15, 2010. The notes bear interest at a rate of 8.5% per annum
and are convertible into the Company's shares of beneficial interest at a
conversion price of $7.75 per share. The net proceeds of the offering were used
to repay in full the principal, related fees and interest under two bridge loan
facilities in the aggregate amount of E65.9 million, and the balance
will be used for working capital and other general corporate purposes.
STENDAL PROJECT STATUS
As of September 30, 2003, progress on the Stendal project was substantially
on schedule and on budget. The Stendal project has advanced to an average stage
of 83% completion. Engineering is 97% complete. Procurement and equipment
delivery is 97% complete, and civil works and mechanical assembly are 85% and
33% complete, respectively.
SHAREHOLDERS' RIGHTS PLAN TO BE REPLACED FOR TWO YEARS
The Company noted that at a recent meeting of the Board of Trustees, the
Board voted to replace the Company's current shareholder rights plan when it
expires at the end of 2003 with a substantially similar rights plan that will be
effective until December 2005. The decision will, among other things, assist in
the fair treatment of all shareholders and permit management to focus on the
successful completion and start-up of the Stendal Project.
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MERCER INTERNATIONAL REPORTS 2003 THIRD QUARTER RESULTS PAGE 6
PRESIDENT'S COMMENTS
Mr. Jimmy S.H. Lee, Chairman and President, stated, "As expected, the
Company's third quarter results reflect the recent softening seen in the pulp
markets, as well as the impact of the current U.S. Dollar/Euro exchange rate,
which combined to impact selling prices for our pulp products in the period. We
were able to somewhat offset these factors with improved operational
efficiencies, which led to higher production volumes, lower unit production
costs, and improved results versus a year ago despite the lower selling prices."
Mr. Lee concluded, "Recently we successfully completed our Convertible
Senior Note offering, which allowed us to refinance our bridge loans related
to the Stendal project. With this refinancing behind us, we have improved
our liquidity, and management and the Board are now fully focused on continuing
to effectively manage our current assets and the successful completion and
start-up of the Stendal project."
In conjunction with this release, Mercer International will host a
conference call, which will be simultaneously broadcast live over the Internet.
Management will host the call, which is scheduled for today, November 14, 2003
at 10:00 AM EST. Listeners can access the conference call live and archived
over the Internet through a link at the Company's web site at
http://www.mercerinternational.com, or at
http://www.firstcallevents.com/service/ajwz393587997gf12.html. Please
allow 15 minutes prior to the call to visit the site and download and install
any necessary audio software. A replay of this call will be available
approximately two hours after the live call ends until November 21, 2003 at
11:59 p.m. (Eastern Standard Time). The replay number is (800) 642-1687, and
the passcode is 3961814.
Mercer International Inc. is a European pulp and paper manufacturing
company. To obtain further information on the Company, please visit its web
site at http://www.mercerinternational.com.
The preceding includes forward looking statements which involve known and
unknown risks and uncertainties which may cause the Company's actual results in
future periods to differ materially from forecasted results. Among those factors
which could cause actual results to differ materially are the following: market
conditions, competition and other risk factors listed from time to time in the
Company's SEC reports.
-FINANCIAL TABLES FOLLOW-
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As at September 30, 2003 and December 31, 2002
(Unaudited)
(Euros in thousands)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents E 17,554 E 30,261
Cash restricted 8,444 9,459
Investments 511 307
Receivables 35,744 28,132
Cumulative unrealized gains on derivatives 20,407 3,792
Inventories 22,929 16,375
Prepaids and other 8,729 7,891
------------- ------------
Total current assets 114,318 96,217
Long-Term Assets
Cash restricted 40,296 38,795
Properties 649,780 441,990
Investments 7,435 5,592
Equity method investment 6,886 7,019
Deferred income taxes 10,043 10,137
------------- ------------
714,440 503,533
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E 828,758 E 599,750
============= ============
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses E 44,971 E 32,866
Construction in progress costs payable 57,771 24,885
Note payable 1,609 832
Note payable, construction in progress 45,000 15,000
Debt, current portion 23,016 16,306
------------- ------------
Total current liabilities 172,367 89,889
Long-Term Liabilities
Debt, construction in progress, less current
portion 287,386 146,485
Debt, less current portion 188,740 205,393
Derivative financial instruments, construction
in progress 52,633 30,108
Other 1,649 2,906
------------- ------------
530,408 384,892
------------- ------------
Total liabilities 702,775 474,781
Minority Interest - -
SHAREHOLDERS' EQUITY
Shares of beneficial interest 78,139 76,995
Additional paid-in capital, stock options 208 -
Accumulated other comprehensive income (loss) 4,020 (4,815)
Retained earnings 43,616 52,789
------------- ------------
125,983 124,969
------------- ------------
E 828,758 E 599,750
============= ============
(1)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For Nine Months Ended September 30, 2003 and 2002
(Unaudited)
(Euros in thousands, except for earnings per share)
2003 2002
---------- ----------
Revenues
Sales of pulp and paper E 134,935 E 174,289
Transportation 2,850 3,885
Other 6,351 4,868
---------- ----------
144,136 183,042
Cost of sales
Pulp and paper 131,838 152,270
Transportation 2,388 3,747
---------- ----------
Gross profit 9,910 27,025
General, administrative and other 12,961 20,400
---------- ----------
(Loss) income from operations (3,051) 6,625
---------- ----------
Other income (expense)
Interest expense (6,887) (10,838)
Investment income (loss) 1,055 (300)
Gain on derivative contracts 18,335 10,855
Loss on derivative contracts, interest rate
swaps, construction in progress (22,525) (22,011)
Gain on derivative contract, currency forward,
construction in progress 586 -
Settlement expense (630) -
Impairment of available-for-sale securities (5,511) -
Other 1,182 223
---------- ----------
Total other expense (14,395) (22,071)
---------- ----------
Loss before income taxes (17,446) (15,446)
Income taxes 226 11
---------- ----------
Loss before minority interest (17,672) (15,457)
Minority interest 8,499 8,016
---------- ----------
Net loss (9,173) (7,441)
Retained earnings, beginning of period 52,789 59,111
---------- ----------
Retained earnings, end of period E 43,616 E 51,670
========== ==========
Loss per share
Basic E (0.54) E (0.44)
========== ==========
Diluted E (0.54) E (0.44)
========== ==========
Weighted average number of shares
Outstanding
Basic 16,887,262 16,794,899
========== ==========
Diluted 16,887,262 16,794,899
========== ==========
(2)
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For Three Months Ended September 30, 2003 and 2002
(Unaudited)
(Euros in thousands, except for earnings per share)
2003 2002
---------- ----------
Revenues
Sales of pulp and paper E 43,661 E 54,754
Transportation 828 1,132
Other 1,333 1,019
---------- ----------
45,822 56,905
Cost of sales
Pulp and paper 45,366 47,667
Transportation 525 1,269
---------- ----------
Gross profit (69) 7,969
General, administrative and other 4,231 6,004
---------- ----------
(Loss) income from operations (4,300) 1,965
---------- ----------
Other income (expense)
Interest expense (2,236) (2,739)
Investment income 416 367
Gain (loss) on derivative contracts 3,734 (4,026)
Gain (loss) on derivative contracts, interest
rate swaps, construction in progress 5,419 (22,011)
Gain on derivative contract, currency forward,
construction in progress 586 -
Settlement expense (630) -
Other (205) (2,169)
---------- ----------
Total other income (expense) 7,084 (30,578)
---------- ----------
Income (loss) before income taxes 2,784 (28,613)
Income taxes 28 -
---------- ----------
Income (loss) before minority interest 2,756 (28,613)
Minority interest (1,880) 8,016
---------- ----------
Net income (loss) 876 (20,597)
Retained earnings, beginning of period 42,740 72,267
---------- ----------
Retained earnings, end of period E 43,616 E 51,670
========== ==========
Income (loss) per share
Basic E 0.05 E (1.23)
========== ==========
Diluted E 0.05 E (1.23)
========== ==========
Weight average number of shares outstanding
Basic 16,911,584 16,794,899
========== ==========
Diluted 16,942,973 16,794,899
========== ==========
(3)
MERCER INTERNATIONAL INC.
RECONCILIATION OF PRO FORMA RESULTS
FOR THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
(EUROS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002
--------- ---------
Net income (loss) reported under GAAP E 876 E(20,597)
Adjustments for:
Loss (Gain) on interest rate swap contracts,
Stendal Project (5,419) 22,011
Gain on currency forward contract,
Stendal Project (586) -
Minority interest 1,880 (8,016)
-------- --------
Pro forma net loss E (3,249) E (6,602)
======== ========
Pro forma loss per share
Basic E (0.19) E (0.39)
======== ========
Diluted E (0.19) E (0.39)
======== ========
(4)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
FOR THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
(EUROS IN THOUSANDS)
2003 2002
--------- ---------
Net income (loss), per income statement E 876 E(20,597)
Add (less): Minority interest 1,880 (8,016)
Income taxes 28 -
Other (income) expense (7,084) 30,578
-------- --------
(Loss) income from operations (4,300) 1,965
Add: depreciation and amortization 6,254 6,742
-------- --------
Operating EBITDA(1) E 1,954 E 8,707
======== ========
(1) Operating EBITDA does not reflect the impact of a number of items that
affect the Company's net income (loss), including financing costs and the
effect of derivative instruments. Operating EBITDA is not a measure
of financial performance under accounting principles generally accepted
in the United States, and should not be considered as an alternative
to net income (loss) or income (loss) from operations as a measure of
performance, nor as an alternative to net cash from operating activities
as a measure of liquidity. Operating EBITDA has significant limitations
as an analytical tool, and should not be considered in isolation, or as
a substitute for analysis of the Company's results as reported under
GAAP.
(5)
MERCER INTERNATIONAL INC.
COMPANY SALES BY PRODUCT CLASS, GEOGRAPHIC AREA AND VOLUME
(UNAUDITED)
For the Nine Months Ended September 30,
2003 2002
-------- --------
(Euros in thousands)
SALES BY PRODUCT CLASS
Pulp(1) E 92,418 E 98,962
Specialty Papers(2) 30,185 60,816
Printing Papers 12,332 14,511
-------- --------
Total(1) E134,935 E174,289
======== ========
SALES BY GEOGRAPHIC AREA
Germany E 60,596 E 70,178
European Union(3) 56,555 56,967
Eastern Europe and Other 17,784 47,144
-------- --------
Total(1) E134,935 E174,289
======== ========
(Amounts in tonnes)
SALES BY VOLUME
Pulp(1) 221,926 217,555
Specialty Papers(2) 30,420 47,135
Printing Papers 16,568 17,922
-------- --------
Total(1) 268,914 282,612
======== ========
(1) Excluding intercompany sales volumes of 5,166 and 8,528 tonnes of pulp
and intercompany net sales revenues of approximately E2.2 million
and E3.9 million in the nine months ended September 30, 2003 and
2002, respectively.
(2) As of December 31, 2002, the Company's interest in Landqart AG is no
longer consolidated and is included in the Company's results on an equity
basis. Accordingly, sales from the Landqart specialty paper mill are
not included in the Company's results for the nine months ended
September 30, 2003, but are included for the nine months ended
September 30, 2002. The Landqart specialty paper mill sold
approximately 13,597 tonnes for approximately E30.4 million in
the nine months ended September 30, 2002.
(3) Not including Germany.
NOTE: One tonne = 1.0160 of one ton.
(6)
MERCER INTERNATIONAL INC.
COMPANY SALES BY PRODUCT CLASS, GEOGRAPHIC AREA AND VOLUME
(UNAUDITED)
For the Quarter Ended September 30,
2003 2002
-------- --------
(Euros in thousands)
SALES BY PRODUCT CLASS
Pulp(1) E 30,004 E 30,878
Specialty Papers(2) 8,610 19,830
Printing Papers 5,047 4,046
-------- --------
Total(1) E 43,661 E 54,754
======== ========
SALES BY GEOGRAPHIC AREA
Germany E 19,682 E 23,253
European Union(3) 18,493 16,797
Eastern Europe and Other 5,486 14,704
--------- --------
Total(1) E 43,661 E 54,754
======== ========
(Amounts in tonnes)
SALES BY VOLUME
Pulp(1) 73,747 67,757
Specialty Papers(2) 8,745 15,265
Printing Papers 7,234 5,715
-------- --------
Total(1) 89,726 88,737
======== ========
(1) Excluding intercompany sales volumes of 1,555 and 2,158 tonnes of pulp
and intercompany net sales revenues of approximately E0.6 million and
E1.0 million in the three months ended September 30, 2003 and 2002,
respectively.
(2) As of December 31, 2002, the Company's interest in Landqart AG is no
longer consolidated and is included in the Company's results on an
equity basis. Accordingly, sales from the Landqart specialty paper
mill are not included in the Company's results for the three months
ended September 30, 2003, but are included for the three months ended
September 30, 2002. The Landqart specialty paper mill sold
approximately 4,537 tonnes for approximately E9.8 million in the
three months ended September 30, 2002.
(3) Not including Germany.
NOTE: One tonne = 1.0160 of one ton.
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