Mercer International Inc. Reports 2013 Second Quarter Results


NEW YORK, Aug. 1, 2013 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI.U) today reported results for the second quarter ended June 30, 2013. Operating EBITDA* in the second quarter of 2013 was €14.0 million ($18.3 million), compared to €32.9 million ($42.2 million) in the second quarter of 2012 and €24.3 million ($32.1 million) in the first quarter of 2013.

For the second quarter of 2013, we had a net loss of €9.9 million ($12.9 million), or €0.18 ($0.24) per share, compared to net income of €1.5 million ($1.9 million), or €0.03 ($0.04) per share, in the second quarter of 2012 and a net loss of €0.4 million ($0.5 million), or €0.01 ($0.01) per share, for the first quarter of 2013.

Summary Financial Highlights

  Q2 Q1 Q2 YTD YTD
   2013   2013   2012   2013   2012 
  (in millions, except per share amounts)
Pulp revenues € 193.7  € 180.1 € 186.0  € 373.8  € 385.5
Energy and chemical revenues  16.5  18.2  18.0  34.6  36.9
Operating income (loss)  (0.8)  9.5  18.3  8.7  34.5
Operating EBITDA  14.0  24.3  32.9  38.3  63.5
Gain on derivative instruments  5.3  4.8  1.3  10.1  2.2
Income tax benefit (provision)  (0.6)  (0.9)  (2.3)  (1.5)  (3.0)
Net income (loss) (1)  (9.9)  (0.4)  1.5   (10.3)   2.7
Net income (loss) per share(1)(2) € (0.18)  € (0.01) € 0.03   (0.19)  € 0.05
Common shares outstanding at period end  55.9  55.8  55.8  55.9  55.8
           
(1) Attributable to common shareholders.        
(2) Per basic and diluted share.        

Summary Operating Highlights

  Q2 Q1 Q2 YTD YTD
   2013   2013   2012   2013   2012 
Pulp production ('000 ADMTs)  349.5   361.2  365.0  710.7  745.4
Scheduled production downtime ('000 ADMTs)  16.0    22.6   16.0  22.6
Pulp sales ('000 ADMTs)  368.3   356.7  349.2  724.9  734.0
Average NBSK pulp list price in Europe ($/ADMT)(1)  857   832  837   844   837
Average NBSK pulp list price in Europe (€/ADMT)  656   630  652   643  645
Average pulp sales realizations (€/ADMT)(2)  520   499  526  509  519
           
(1) Source: RISI pricing report.
(2) Sales realizations after discounts. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
 

* 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.

  Q2 Q1 Q2 YTD YTD
   2013   2013   2012   2013   2012 
Energy production ('000 MWh)   405.8   424.4   425.4  830.2  861.7
Energy sales ('000 MWh)  167.5   173.6   182.7  341.1  365.1
Average Spot Currency Exchange Rates:          
€ / $(3)  0.7655   0.7580  0.7795   0.7619  0.7710
C$ / $(3)  1.0230   1.0087  1.0102   1.0160  1.0056
C$ / €(4)  1.3374   1.3319  1.2959   1.3346  1.3044
           
(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 current quarter, we achieved Operating EBITDA of €14.0 million. In the quarter, the Celgar mill took its annual maintenance shutdown. As a result of weather, equipment and execution issues, the shutdown was four days longer and the startup slower than budgeted. The shutdown negatively impacted our operating income by approximately €11.0 million in the current quarter. Our results also reflect generally weak pulp prices and the continuing strength of the Euro versus the U.S. dollar, partially offset by strong sales. Overall, pulp sales volumes increased by approximately 3% to 368,285 ADMTs during the second quarter of 2013 from 356,660 ADMTs in the prior quarter."

Mr. Lee continued: "Pulp production in the current quarter was approximately 12,000 ADMTs lower than the first quarter of 2013, primarily as a result of lost production from the Celgar mill maintenance shutdown. This also resulted in lower energy production as well as energy and chemical revenues decreasing by approximately 9% to €16.5 million in the current quarter compared to the prior quarter. "

Mr. Lee continued: "Pulp list prices increased marginally in the second quarter of 2013. At the end of the second quarter of 2013, list prices in Europe were approximately $860 per ADMT and in North America and China were approximately $950 and $690 per ADMT, respectively. We are currently expecting demand levels and pricing to have an upward trend in the latter part of 2013. We believe supply and demand levels through the summer should benefit from significant producer maintenance downtime during the summer months. In addition, the announced closure of a Norwegian mill (Tofte) and new tissue capacity coming online in China are expected to keep the supply and demand levels in balance."

Mr. Lee continued: "Fiber costs at our German mills were higher during the second quarter of 2013 due to continuing strong demand from European pellet and board producers, which has been compounded by increased demand for fiber from sawmills and an undersupply of sawlogs. Higher fiber costs in Germany were partially offset by modest price decreases in Canada. Going forward this year, we currently expect fiber costs in Germany to marginally increase before stabilizing and in Canada to decrease moderately."

Mr. Lee continued: "The recent floods in Germany, including areas around Stendal, did not affect our German mills directly, though there were some incremental logistics costs as trucks and trains were forced to re-route, as well as some incremental personnel costs due to higher than usual levels of over-time and some related housing expenses."

Mr. Lee added: "In order to improve its competitiveness, our Celgar mill is reducing its workforce by approximately 85 employees, with the majority of employees leaving the mill over the next 12 months. This action is being taken to reduce the mill's fixed costs. We currently estimate incurring pre-tax charges of approximately $6.0 million to $8.0 million for severance and other personnel related expenses in connection with such reduction. Over 85% of these charges are expected to be recognized by the end of 2013. We currently estimate that our Celgar mill will realize approximately $8.0 million to $10.0 million in annual pre-tax cost savings once the workforce restructuring has been fully implemented. Based upon our planned workforce reduction schedule, we currently expect to realize approximately 80% of such annual cost savings in 2014."

Mr. Lee concluded: "Project Blue Mill at our Stendal mill, designed to increase the mill's annual energy production by 109,000 MWh and annual pulp production by 30,000 ADMTs, remains largely on time and budget. We look forward to realizing revenues and benefits from this project in the last quarter of this year."

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Total revenues for the three months ended June 30, 2013 increased by approximately 3% to €210.1 million ($274.6 million) from €204.1 million ($261.9 million) in the same period in 2012, due to higher pulp revenues. Pulp revenues for the three months ended June 30, 2013 increased to €193.7 million from €186.0 million in the comparative period of 2012, primarily due to higher pulp sales volumes, partially offset by a weaker U.S. dollar relative to the Euro.

Energy and chemical revenues decreased by approximately 8% in the second quarter to €16.5 million from €18.0 million in the same quarter last year, primarily as a result of lower pulp production.

Pulp production decreased by approximately 4% to 349,502 ADMTs in the current quarter from 365,047 ADMTs in the same quarter of 2012, primarily due to decreased pulp production at our Celgar mill. During the second quarter of 2013, our Celgar mill took its annual scheduled major maintenance shutdown. As a result of a combination of a lightning strike at the mill and equipment and execution issues, the shutdown which was planned for 11 days took 15 days instead. Further, the start-up of the mill was slower than budgeted. The shutdown and slower start-up resulted in a loss of approximately 30,300 ADMTs of NBSK pulp production (of which approximately 14,300 ADMTs was unplanned) and a consequential loss of energy production.

We believe the issues with the Celgar maintenance shutdown were isolated and the mill is performing well and operating at pre-shutdown levels. We believe our inventory levels are adequate and anticipate no material customer issues from this event.

Pulp sales volume increased by approximately 5% to 368,285 ADMTs in the current quarter from 349,177 ADMTs in the comparative period of 2012, primarily due to higher sales to Europe and China.

Average pulp sales realizations decreased by approximately 1% to €520 per ADMT in the second quarter of 2013, compared to €526 per ADMT in the same period last year due to a weaker U.S. dollar relative to the Euro, partially offset by higher pulp prices.

Costs and expenses in the second quarter of 2013 increased by approximately 14% to €211.0 million from €185.8 million in the comparative period of 2012, primarily due to higher sales volumes, fiber costs and costs associated with the Celgar mill maintenance shutdown.

On average, our overall per unit fiber costs in the current quarter increased by approximately 6% from the same period in 2012 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

Selling, general and administrative expenses increased to €9.4 million in the second quarter of 2013 from €8.6 million in the second quarter of 2012.

For the second quarter of 2013, we reported an operating loss of €0.8 million, compared to an operating income of €18.3 million in the comparative quarter of 2012, primarily due to the negative impact of the Celgar mill shutdown, higher fiber costs and a weaker U.S. dollar relative to the Euro.

Interest expense in the second quarter of 2013 decreased to €13.1 million from €13.9 million in the comparative quarter of 2012, primarily due to lower debt levels associated with the Stendal mill in the second quarter of 2013.

We recorded a net derivative gain of €5.3 million, which includes a €0.4 million loss related to fixed price pulp swap contracts entered into in the fourth quarter of 2012 and an unrealized gain of approximately €5.7 million on the mark to market adjustment of our Stendal mill's interest rate derivative, compared to a net derivative gain of €1.3 million in the same quarter of last year. 

The noncontrolling shareholder's interest in the Stendal mill's income in the second quarter of 2013 was €0.6 million, compared to €1.6 million in the same quarter last year.

In the second quarter of 2013, Operating EBITDA decreased to €14.0 million from €32.9 million in the second quarter of 2012. 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 €9.9 million, or €0.18 per basic and diluted share, for the second quarter of 2013, which included a net non-cash unrealized gain of €5.7 million on the fixed price pulp swaps and Stendal interest rate derivative, and the negative impact of approximately €11.0 million related to the Celgar mill's maintenance shutdown. In the second quarter of 2012, we reported net income attributable to common shareholders of €1.5 million, or €0.03 per basic and diluted share, which included a net non-cash unrealized gain of €1.3 million on the Stendal interest rate derivative and fixed price pulp swaps.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Total revenues for the six months ended June 30, 2013 decreased to €408.4 million ($536.5 million) from €422.4 million ($548.0 million) in the same period in 2012, due to lower pulp and energy and chemical revenues. Pulp revenues for the six months ended June 30, 2013 decreased to €373.8 million from €385.5 million in the comparative period of 2012, primarily due to lower pulp sales volumes and a weaker U.S. dollar relative to the Euro.

Energy and chemical revenues decreased by approximately 6% to €34.6 million in the first half of 2013 from €36.9 million in the same period last year, primarily as a result of lower pulp production.

Pulp production decreased by approximately 5% to 710,666 ADMTs in the first half of 2013 from 745,389 ADMTs in the same period of 2012, primarily due to decreased pulp production at our Celgar mill. We had 15 days of maintenance downtime at our Celgar mill in the first half of 2013, which, together with a slower startup, resulted in a loss of approximately 30,300 ADMTs of NBSK pulp production.

Pulp sales volumes decreased by approximately 1% to 724,945 ADMTs in the first half of 2013 from 734,003 ADMTs in the comparative period of 2012, primarily due to lower sales to the United States.

Costs and expenses in the first half of 2013 increased by approximately 3% to €399.7 million from €387.9 million in the comparative period of 2012, primarily due to higher fiber costs at our German mills and costs associated with the Celgar maintenance shutdown.

On average, our per unit fiber costs in the first half of 2013 increased by approximately 2% from the same period in 2012.

For the first half of 2013, operating income decreased to €8.7 million from €34.5 million in the comparative period of 2012, primarily due to the combined effect of the Celgar mill's maintenance shutdown and lower pulp sales volumes and higher fiber prices.

Interest expense in the first half of 2013 decreased to €26.3 million from €28.0 million in the comparative period of 2012, primarily due to lower debt levels associated with the Stendal mill.

We recorded a net derivative gain of €10.1 million, which includes a €0.8 million loss related to fixed price pulp swap contracts entered into in the fourth quarter of 2012 and an unrealized gain of approximately €10.9 million on the mark to market adjustment of our Stendal mill's interest rate derivative, compared to a derivative gain of €2.2 million in the same period of last year. 

In the first half of 2013, Operating EBITDA decreased to €38.3 million from €63.5 million in the first half of 2012. (1)

We reported net loss attributable to common shareholders of €10.3 million, or €0.19 per basic and diluted share, for the first half of 2013, which included a net non-cash unrealized gain of €10.4 million on the pulp price and Stendal interest rate derivatives, more than offset by a negative impact of approximately €11.0 million related to the Celgar maintenance shutdown and a non-cash charge for stock compensation of €0.6 million. In the first half of 2012, we reported net income attributable to common shareholders of €2.7 million, or €0.05 per basic and diluted share, which included a non-cash unrealized gain of €2.2 million on the fixed price pulp swaps and Stendal interest rate derivative, partially offset by a non-cash charge for stock compensation of €0.9 million.

_________________

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

Liquidity and Capital Resources

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

  As at June 30, As at December 31,
    2013    2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  € 134,433  € 104,239
Working capital   215,165   208,573
Total assets   1,172,499   1,183,603
Long-term liabilities   771,534   768,253
Total equity   259,837   278,925

As at June 30, 2013, we had approximately €17.7 million and C$17.6 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

On July 22, 2013, we completed our registered public offering of $50.0 million aggregate principal amount of additional 9.5% senior notes due 2017 at an issue price of 104.5% plus accrued interest from June 1, 2013. We used the proceeds to repay the revolving credit facilities of our Rosenthal and Celgar mills and for general corporate purposes.

Our Stendal mill has two amortizing term loan facilities with approximately €449.9 million in total principal outstanding at June 30, 2013. Such facilities are without recourse to the Restricted Group (comprised of Mercer, the Rosenthal and Celgar mills and certain holding subsidiaries) and 80% of the principal amount thereunder is severally guaranteed by German federal and state governments. These facilities require the Stendal mill, among other things, to maintain a stipulated semi-annual leverage ratio and a debt coverage ratio (the "Ratios") and previously report on compliance with such Ratios on September 30, 2013 for the trailing 12-month period ended June 30, 2013.   

We have had ongoing discussions with the agent bank under the Stendal loan facilities to obtain a satisfactory amendment and/or waiver of the Ratios to provide greater flexibility for the Stendal mill. On June 26, 2013, Stendal and the agent bank for the lenders agreed upon a non-binding term sheet which will provide the mill with greater covenant flexibility and the mill engaged the agent bank pursuant to a mandate agreement to seek lender approval to implement the same. Pursuant to the term sheet, concurrent with a successful amendment of the facilities thereunder, we have agreed to invest $20.0 million into Stendal as additional capital. The term sheet is subject to customary conditions and approvals, including lender approval, German governmental approval, our board approval, Stendal shareholder approval and entering into satisfactory definitive legal agreements.

Subsequent to entering into the term sheet, the agent has advised that the lenders agreed to have: (i) the Ratios cover the trailing 12-month period ending on September 30, 2013, instead of June 30, 2013; and (ii) the Stendal mill report on its compliance with the Ratios revised as aforesaid on November 15, 2013.

Currently, based upon our discussions with the agent bank to date, the limited nature of the requested amendment, the Stendal mill's current liquidity (cash on hand, as at June 30, 2013 of approximately €65.0 million, of which €33.0 million is in a debt service reserve account) and the governmental guarantees, we believe we will be able to conclude a satisfactory amendment with Stendal's lenders in the third quarter of 2013; however, we cannot assure you of a successful outcome.

If Stendal's lenders did accelerate and cancel such loan facilities, this would have a material adverse effect on the Stendal mill and our consolidated financial condition, results of operations and liquidity.

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 June 30, As at December 31,
    2013    2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  € 69,467  € 36,714
Working capital   142,029   132,130
Total assets   643,324  644,119
Long-term liabilities   279,788   260,185
Total equity   312,164   335,353

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, August 2, 2013 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through September 1, 2013, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=132043&CompanyID=MERC&e=1&mediaKey=1AE35D7DABC3ECD95E2779DA87354812 or through a link on the Company's 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", "designed", "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.

-FINANCIAL TABLES FOLLOW-

MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Euros)
 
  June 30, December 31,
  2013 2012
ASSETS    
Current assets    
Cash and cash equivalents € 134,433 € 104,239
Receivables  97,028  110,087
Inventories  108,190  118,300
Prepaid expenses and other  12,830  7,907
Deferred income tax  3,812  4,465
Total current assets  356,293  344,998
     
Long-term assets    
Property, plant and equipment  788,818  808,878
Deferred note issuance and other  12,630  12,162
Deferred income tax  14,758  17,565
   816,206  838,605
Total assets € 1,172,499 € 1,183,603
     
LIABILITIES    
Current liabilities    
Accounts payable and other € 96,002 € 89,950
Pension and other post-retirement benefit obligations  780  813
Debt  44,346  45,662
Total current liabilities  141,128  136,425
     
Long-term liabilities    
Debt  680,087  665,741
Unrealized interest rate derivative losses  39,798  50,678
Pension and other post-retirement benefit obligations  31,158  32,141
Capital leases and other  13,599  13,936
Deferred income tax  6,892  5,757
   771,534  768,253
Total liabilities  912,662  904,678
     
EQUITY    
Shareholders' equity    
Share capital  248,923  248,371
Paid-in capital  (3,568)  (3,547)
Retained earnings  15,464  25,800
Accumulated other comprehensive income  14,585  25,181
Total shareholders' equity  275,404  295,805
Noncontrolling interest (deficit)  (15,567)  (16,880)
Total equity  259,837  278,925
Total liabilities and equity € 1,172,499 € 1,183,603
 
 
MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of Euros, except per share data)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
  2013 2012 2013 2012
Revenues        
Pulp € 193,659 € 186,036 € 373,779 € 385,475
Energy and chemicals  16,487  18,026  34,639  36,945
   210,146  204,062  408,418  422,420
Costs and expenses        
Operating costs  186,880  162,617  351,978  340,387
Operating depreciation and amortization  14,744  14,525  29,475  28,812
   8,522  26,920  26,965  53,221
Selling, general and administrative expenses  9,363  8,624  18,258  18,682
Operating income (loss)  (841)  18,296  8,707  34,539
         
Other income (expense)        
Interest expense  (13,139)  (13,863)  (26,287)  (27,996)
Gain on derivative instruments  5,293  1,343  10,113  2,219
Other income (expense)  6  (368)  (64)  (778)
Total other income (expense)  (7,840)  (12,888)  (16,238)  (26,555)
Income (loss) before income taxes  (8,681)  5,408  (7,531)  7,984
Income tax benefit (provision)         
Current  (192)  (6,281)  3,079  (6,337)
Deferred  (433)  4,016  (4,571)  3,340
Net income (loss)  (9,306)  3,143  (9,023)  4,987
Less: net income attributable to noncontrolling interest  (605)  (1,628)  (1,313)  (2,299)
Net income (loss) attributable to common shareholders € (9,911) € 1,515 € (10,336) € 2,688
         
Net income (loss) per share attributable to common shareholders        
Basic and diluted € (0.18) € 0.03 € (0.19) € 0.05
 
 
MERCER INTERNATIONAL INC.
 
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of Euros)
     
  Three Months Ended Six Months Ended
  June 30, June 30,
  2013 2012 2013 2012
Cash flows from (used in) operating activities        
Net income (loss) € (9,306) € 3,143 € (9,023) € 4,987
Adjustments to reconcile net income (loss) to cash flows from operating activities        
Unrealized gain on derivative instruments  (5,681)  (1,343)  (10,376)  (2,219)
Depreciation and amortization  14,810  14,588  29,604  28,938
Deferred income taxes  433  (4,016)  4,571  (3,340)
Stock compensation expense  306  (6)  573  862
Pension and other post-retirement expense, net of funding  212  (41)  333  (55)
Other  970  73  2,153  866
Changes in working capital        
Receivables  21,749  12,338  12,045  15,023
Inventories  2,147  (8,296)  7,893  3,442
Accounts payable and accrued expenses  (1,570)  805  9,027  3,454
Other  (5,708)  (86)  (6,490)  1,338
Net cash from (used in) operating activities  18,362  17,159  40,310  53,296
         
Cash flows from (used in) investing activities        
Purchase of property, plant and equipment  (10,982)  (9,838)  (22,377)  (18,303)
Proceeds on sale of property, plant and equipment  2  113  15  339
Proceeds on maturity of marketable securities  --  2,008  --  2,008
Net cash from (used in) investing activities  (10,980)  (7,717)  (22,362)  (15,956)
         
Cash flows from (used in) financing activities        
Repayment of debt  --  (1,584)  (20,545)  (11,710)
Proceeds from borrowings of debt  7,000  --  17,000  --
Repayment of capital lease obligations  (401)  (448)  (1,101)  (1,059)
Proceeds from (repayment of) credit facilities, net  6,986  (3,759)  12,954  --
Payment of note issuance costs  --  --  --  (1,621)
Proceeds from government grants  3,417  1,692  4,147  2,322
Net cash from (used in) financing activities  17,002  (4,099)  12,455  (12,068)
         
Effect of exchange rate changes on cash and cash equivalents  (615)  1,348  (209)  543
         
Net increase in cash and cash equivalents  23,769  6,691  30,194  25,815
Cash and cash equivalents, beginning of period  110,664  124,196  104,239  105,072
Cash and cash equivalents, end of period € 134,433 € 130,887 € 134,433 € 130,887
 
 
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 unsecured notes requires 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 six months ended June 30, 2013 and 2012, 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.
 
  June 30, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
ASSETS        
Current assets        
Cash and cash equivalents € 69,467  € 64,966  € -- € 134,433 
Receivables  49,674   47,354   --  97,028 
Inventories  64,199   43,991   --  108,190 
Prepaid expenses and other  7,883   4,947   --  12,830 
Deferred income tax  2,178   1,634   --  3,812 
Total current assets  193,401   162,892   --  356,293 
         
Long-term assets        
Property, plant and equipment  327,107   461,711   --  788,818 
Deferred note issuance and other  6,832   5,798   --  12,630 
Deferred income tax  8,876   5,882   --  14,758 
Due from unrestricted group  107,108   --  (107,108)  --
Total assets € 643,324  € 636,283  € (107,108) € 1,172,499 
         
LIABILITIES        
Current liabilities        
Accounts payable and other € 49,504  € 46,498  € -- € 96,002 
Pension and other post-retirement benefit obligations  780   --  --  780 
Debt  1,088   43,258   --  44,346 
Total current liabilities  51,372   89,756   --  141,128 
         
Long-term liabilities        
Debt  235,883   444,204   --  680,087 
Due to restricted group  --  107,108   (107,108)  --
Unrealized interest rate derivative losses  --  39,798   --  39,798 
Pension and other post-retirement benefit obligations  31,158   --  --  31,158 
Capital leases and other  5,855   7,744   --  13,599 
Deferred income tax  6,892   --  --  6,892 
Total liabilities  331,160   688,610   (107,108)  912,662 
         
EQUITY        
Total shareholders' equity (deficit)  312,164   (36,760)  --  275,404 
Noncontrolling interest (deficit)  --  (15,567)  --  (15,567)
Total liabilities and equity € 643,324  € 636,283  € (107,108) € 1,172,499 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)
 
  December 31, 2012
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
ASSETS        
Current assets        
Cash and cash equivalents € 36,714  € 67,525  € -- € 104,239 
Receivables  61,212   48,875   --  110,087 
Inventories  74,786   43,514   --  118,300 
Prepaid expenses and other  5,811   2,096   --  7,907 
Deferred income tax  2,188   2,277   --  4,465 
Total current assets  180,711   164,287   --  344,998 
         
Long-term assets        
Property, plant and equipment  345,311   463,567   --  808,878 
Deferred note issuance and other  6,607   5,555   --  12,162 
Deferred income tax  9,179   8,386   --  17,565 
Due from unrestricted group  102,311   --  (102,311)  --
Total assets € 644,119  € 641,795  € (102,311) € 1,183,603 
         
LIABILITIES        
Current liabilities        
Accounts payable and other € 42,106  € 47,844  € -- € 89,950 
Pension and other post-retirement benefit obligations  813   --  --  813 
Debt  5,662   40,000   --  45,662 
Total current liabilities  48,581   87,844   --  136,425 
         
Long-term liabilities        
Debt  216,214   449,527   --  665,741 
Due to restricted group  --  102,311   (102,311)  --
Unrealized interest rate derivative losses  --  50,678   --  50,678 
Pension and other post-retirement benefit obligations  32,141   --  --  32,141 
Capital leases and other  6,073   7,863   --  13,936 
Deferred income tax  5,757   --  --  5,757 
Total liabilities  308,766   698,223   (102,311)  904,678 
         
EQUITY        
Total shareholders' equity (deficit)  335,353   (39,548)  --  295,805 
Noncontrolling interest (deficit)  --  (16,880)  --  (16,880)
Total liabilities and equity € 644,119  € 641,795  € (102,311) € 1,183,603 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)
 
  Three Months Ended June 30, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp € 105,541  € 88,118  € -- € 193,659 
Energy and chemicals  6,040   10,447   --  16,487 
   111,581   98,565   --  210,146 
         
Operating costs  103,558   83,322   --  186,880 
Operating depreciation and amortization  8,258   6,486   --  14,744 
Selling, general and administrative expenses  5,644   3,719   --  9,363 
   117,460   93,527   --  210,987 
Operating income (loss)  (5,879)  5,038   --  (841)
         
Other income (expense)        
Interest expense  (5,880)  (8,907)  1,648   (13,139)
Gain (loss) on derivative instruments  (422)  5,715   --  5,293 
Other income (expense)  1,620   34   (1,648)  6 
Total other income (expense)  (4,682)  (3,158)  --  (7,840)
Income (loss) before income taxes  (10,561)  1,880   --  (8,681)
Income tax benefit (provision)  (611)  (14)  --  (625)
Net income (loss)  (11,172)  1,866   --  (9,306)
Less: net income attributable to noncontrolling interest  --  (605)  --  (605)
Net income (loss) attributable to common shareholders € (11,172) € 1,261  € -- € (9,911)
   
  Three Months Ended June 30, 2012
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp € 103,745  € 82,291  € -- € 186,036 
Energy and chemicals  6,460   11,566   --  18,026 
   110,205   93,857   --  204,062 
         
Operating costs  94,762   67,855   --  162,617 
Operating depreciation and amortization  7,807   6,718   --  14,525 
Selling, general and administrative expenses  5,406   3,218   --  8,624 
   107,975   77,791   --  185,766 
Operating income (loss)  2,230   16,066   --  18,296 
         
Other income (expense)        
Interest expense  (5,934)  (9,312)  1,383   (13,863)
Gain (loss) on derivative instruments  1,619   (276)  --  1,343 
Other income (expense)  915   100   (1,383)  (368)
Total other income (expense)  (3,400)  (9,488)  --  (12,888)
Income (loss) before income taxes  (1,170)  6,578   --  5,408 
Income tax benefit (provision)  (1,398)  (867)  --  (2,265)
Net income (loss)  (2,568)  5,711   --  3,143 
Less: net income attributable to noncontrolling interest  --  (1,628)  --  (1,628)
Net income (loss) attributable to common shareholders € (2,568) € 4,083  € -- € 1,515 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)
 
  Six Months Ended June 30, 2013
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 205,781  € 167,998  € -- € 373,779 
Energy and chemicals  13,130   21,509   --  34,639 
   218,911   189,507   --  408,418 
         
Operating costs  193,081   158,897   --  351,978 
Operating depreciation and amortization  16,449   13,026   --  29,475 
Selling, general and administrative expenses  11,360   6,898   --  18,258 
   220,890   178,821   --  399,711 
Operating income (loss)  (1,979)  10,686   --  8,707 
         
Other income (expense)        
Interest expense  (11,746)  (17,837)  3,296   (26,287)
Gain (loss) on derivative instruments  (767)  10,880   --  10,113 
Other income (expense)  3,155   77   (3,296)  (64)
Total other income (expense)  (9,358)  (6,880)  --  (16,238)
Income (loss) before income taxes  (11,337)  3,806   --  (7,531)
Income tax benefit (provision)  (1,627)  135   --  (1,492)
Net income (loss)  (12,964)  3,941   --  (9,023)
Less: net income attributable to noncontrolling interest  --  (1,313)  --  (1,313)
Net income (loss) attributable to common shareholders € (12,964) € 2,628  € -- € (10,336)
   
  Six Months Ended June 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp € 213,634  € 171,841  € -- € 385,475 
Energy and chemicals  14,451   22,494   --  36,945 
   228,085   194,335   --  422,420 
         
Operating costs  193,098   147,289   --  340,387 
Operating depreciation and amortization  15,447   13,365   --  28,812 
Selling, general and administrative expenses  11,927   6,755   --  18,682 
   220,472   167,409   --  387,881 
Operating income (loss)  7,613   26,926   --  34,539 
         
Other income (expense)        
Interest expense  (11,744)  (18,976)  2,724   (27,996)
Gain (loss) on derivative instruments  1,619   600   --  2,219 
Other income (expense)  1,740   206   (2,724)  (778)
Total other income (expense)  (8,385)  (18,170)  --  (26,555)
Income (loss) before income taxes  (772)  8,756   --  7,984 
Income tax benefit (provision)  (2,113)  (884)  --  (2,997)
Net income (loss)  (2,885)  7,872   --  4,987 
Less: net income attributable to noncontrolling interest  --  (2,299)  --  (2,299)
Net income (loss) attributable to common shareholders € (2,885) € 5,573  € -- € 2,688 
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Three Months Ended June 30, 2013
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss) € (11,172) € 1,866  € (9,306)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  34   (5,715)  (5,681)
Depreciation and amortization  8,324   6,486   14,810 
Deferred income taxes  433   --  433 
Stock compensation expense  306   --  306 
Pension and other post-retirement expense, net of funding  212   --  212 
Other  290   680   970 
Changes in working capital      
Receivables  18,863   2,886   21,749 
Inventories  5,303   (3,156)  2,147 
Accounts payable and accrued expenses  (1,879)  309   (1,570)
Other(1)  (6,926)  1,218   (5,708)
Net cash from (used in) operating activities  13,788   4,574   18,362 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (2,602)  (8,380)  (10,982)
Proceeds on sale of property, plant and equipment  --  2   2 
Net cash from (used in) investing activities  (2,602)  (8,378)  (10,980)
       
Cash flows from (used in) financing activities      
Proceeds from borrowings of debt  --  7,000   7,000 
Repayment of capital lease obligations  (122)  (279)  (401)
Proceeds from (repayment of) credit facilities, net  6,986   --  6,986 
Proceeds from government grants  --  3,417   3,417 
Net cash from (used in) financing activities  6,864   10,138   17,002 
       
Effect of exchange rate changes on cash and cash equivalents  (615)  --  (615)
       
Net increase in cash and cash equivalents  17,435   6,334   23,769 
Cash and cash equivalents, beginning of period  52,032   58,632   110,664 
Cash and cash equivalents, end of period € 69,467  € 64,966  € 134,433 
       
(1) Includes intercompany related transactions.      
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Three Months Ended June 30, 2012
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss) € (2,568) € 5,711  € 3,143 
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  (1,619)  276   (1,343)
Depreciation and amortization  7,870   6,718   14,588 
Deferred income taxes  1,240   (5,256)  (4,016)
Stock compensation expense  (6)  --  (6)
Pension and other post-retirement expense, net of funding  (41)  --  (41)
Other  (535)  608   73 
Changes in working capital      
Receivables  7,833   4,505   12,338 
Inventories  (1,765)  (6,531)  (8,296)
Accounts payable and accrued expenses  (3,155)  3,960   805 
Other(1)  (1,514)  1,428   (86)
Net cash from (used in) operating activities  5,740   11,419   17,159 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (8,815)  (1,023)  (9,838)
Proceeds on sale of property, plant and equipment  51   62   113 
Proceeds on maturity of marketable securities  2,008   --  2,008 
Net cash from (used in) investing activities  (6,756)  (961)  (7,717)
       
Cash flows from (used in) financing activities      
Repayment of debt  (1,584)  --  (1,584)
Repayment of capital lease obligations  (180)  (268)  (448)
Proceeds from (repayment of) credit facilities, net  (3,759)  --  (3,759)
Proceeds from government grants  1,692   --  1,692 
Net cash from (used in) financing activities  (3,831)  (268)  (4,099)
       
Effect of exchange rate changes on cash and cash equivalents  1,348   --  1,348 
       
Net increase (decrease) in cash and cash equivalents  (3,499)  10,190   6,691 
Cash and cash equivalents, beginning of period  53,595   70,601   124,196 
Cash and cash equivalents, end of period € 50,096  € 80,791  € 130,887 
       
(1) Includes intercompany related transactions.      
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Six Months Ended June 30, 2013
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) € (12,964) € 3,941  € (9,023)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  504   (10,880)  (10,376)
Depreciation and amortization  16,578   13,026   29,604 
Deferred income taxes  1,424   3,147   4,571 
Stock compensation expense  573   --  573 
Pension and other post-retirement expense, net of funding  333   --  333 
Other  703   1,450   2,153 
Changes in working capital      
Receivables  10,524   1,521   12,045 
Inventories  8,370   (477)  7,893 
Accounts payable and accrued expenses  8,626   401   9,027 
Other(1)  (8,640)  2,150   (6,490)
Net cash from (used in) operating activities  26,031   14,279   40,310 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (5,247)  (17,130)  (22,377)
Proceeds on sale of property, plant and equipment  13   2   15 
Net cash from (used in) investing activities  (5,234)  (17,128)  (22,362)
       
Cash flows from (used in) financing activities      
Repayment of debt  (545)  (20,000)  (20,545)
Proceeds from borrowings of debt  --  17,000   17,000 
Repayment of capital lease obligations  (244)  (857)  (1,101)
Proceeds from (repayment of) credit facilities, net  12,954   --  12,954 
Proceeds from government grants  --  4,147   4,147 
Net cash from (used in) financing activities  12,165   290   12,455 
       
Effect of exchange rate changes on cash and cash equivalents  (209)  --  (209)
       
Net increase (decrease) in cash and cash equivalents  32,753   (2,559)  30,194 
Cash and cash equivalents, beginning of period  36,714   67,525   104,239 
Cash and cash equivalents, end of period € 69,467  € 64,966  € 134,433 
        
(1) Includes intercompany related transactions.      
 
 
MERCER INTERNATIONAL INC.
 
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
 
  Six Months Ended June 30, 2012
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) € (2,885) € 7,872  € 4,987 
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  (1,619)  (600)  (2,219)
Depreciation and amortization  15,573   13,365   28,938 
Deferred income taxes  1,916   (5,256)  (3,340)
Stock compensation expense  862   --  862 
Pension and other post-retirement expense, net of funding  (55)  --  (55)
Other  (477)  1,343   866 
Changes in working capital      
Receivables  5,723   9,300   15,023 
Inventories  2,253   1,189   3,442 
Accounts payable and accrued expenses  2,380   1,074   3,454 
Other(1)  (7,988)  9,326   1,338 
Net cash from (used in) operating activities  15,683   37,613   53,296 
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (13,033)  (5,270)  (18,303)
Proceeds on sale of property, plant and equipment  237   102   339 
Proceeds on maturity of marketable securities  2,008   --  2,008 
Net cash from (used in) investing activities  (10,788)  (5,168)  (15,956)
       
Cash flows from (used in) financing activities      
Repayment of debt  (2,127)  (9,583)  (11,710)
Repayment of capital lease obligations  (366)  (693)  (1,059)
Payment of note issuance costs  --  (1,621)  (1,621)
Proceeds from government grants  2,322   --  2,322 
Net cash from (used in) financing activities  (171)  (11,897)  (12,068)
       
Effect of exchange rate changes on cash and cash equivalents  543   --  543 
       
Net increase in cash and cash equivalents  5,267   20,548   25,815 
Cash and cash equivalents, beginning of period  44,829   60,243   105,072 
Cash and cash equivalents, end of period € 50,096  € 80,791  € 130,887 
       
(1) Includes intercompany 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
 June 30, 
Six Months Ended
 June 30, 
   2013   2012   2013   2012 
  (in thousands) (in thousands)
Net income (loss) attributable to common shareholders € (9,911) € 1,515 € (10,336) € 2,688
Net income attributable to noncontrolling interest  605  1,628  1,313  2,299
Income tax provision  625  2,265  1,492  2,997
Interest expense  13,139  13,863  26,287  27,996
Gain on derivative instruments  (5,293)  (1,343)  (10,113)  (2,219)
Other expense (income)  (6)  368  64  778
Operating income (loss)  (841)  18,296  8,707  34,539
Add: Depreciation and amortization  14,810  14,588  29,604  28,938
Operating EBITDA € 13,969 € 32,884 € 38,311 € 63,477
     
 
 
Three Months Ended
 June 30, 
Six Months Ended
 June 30, 
   2013   2012   2013   2012 
  (in thousands) (in thousands)
Restricted Group(1)        
Net loss € (11,172) € (2,568) € (12,964) € (2,885)
Income tax provision  611  1,398  1,627  2,113
Interest expense  5,880  5,934  11,746  11,744
Loss (gain) on derivative instruments  422  (1,619)  767  (1,619)
Other expense (income)  (1,620)  (915)  (3,155)  (1,740)
Operating income (loss)  (5,879)  2,230  (1,979)  7,613
Add: Depreciation and amortization  8,324  7,870  16,578  15,573
Operating EBITDA € 2,445 € 10,100 € 14,599 € 23,186
         
(1) For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.


            

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