Mercer International Inc. Reports 2014 Second Quarter Results

By GlobeNewswire,  July 31, 2014, 04:30:00 PM EDT


NEW YORK, July 31, 2014 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI.U) today reported results for the second quarter ended June 30, 2014. Operating EBITDA* in the second quarter of 2014 increased to $41.9 million from $18.2 million in the second quarter of 2013, but declined from $59.0 million in the prior quarter of 2014, primarily as a result of scheduled maintenance downtime.

For the second quarter of 2014, we had net income of $0.6 million, or $0.01 per basic and diluted share, compared to net loss of $13.0 million, or $0.23 per basic and diluted share, in the second quarter of 2013.

On October 1, 2013, we changed our reporting currency from the Euro to the U.S. dollar.

Summary Financial Highlights

  Q2 Q1 Q2 YTD YTD
  2014   2014   2013   2014   2013 
  (in millions, except per share amounts)
Pulp revenues $ 259.5  $ 278.5 $ 253.2 $ 538.0  $ 491.0
Energy and chemical revenues $ 25.7  $ 27.2 $ 21.5 $ 52.9  $ 45.5
Operating income (loss) $ 22.0  $ 39.2 $ (1.2) $ 61.3  $ 11.4
Operating EBITDA $ 41.9  $ 59.0 $ 18.2 $ 100.9  $ 50.3
Gain on derivative instruments $ 2.5  $ 3.2 $ 6.9 $ 5.8  $ 13.3
Income tax benefit (provision) $ (4.6)  $ (1.9) $ (0.8) $ (6.4)  $ (2.0)
Net income (loss)(1) $ 0.6  $ 21.0 $ (13.0) $ 21.6  $ (13.6)
Net income (loss) per share(1)          
Basic $ 0.01  $ 0.38 $ (0.23) $ 0.36  $ (0.24)
Diluted $ 0.01  $ 0.37 $ (0.23) $ 0.36  $ (0.24)
Common shares outstanding at period end  64.3  55.9  55.9  64.3  55.9
           
(1) Attributable to common shareholders.          

Summary Operating Highlights

  Q2 Q1 Q2 YTD YTD
   2014  2014   2013   2014   2013 
Pulp production ('000 ADMTs)  353.8  381.8  349.5  735.6  710.7
Scheduled production downtime ('000 ADMTs)  17.7  ‑  16.0  17.7  16.0
Scheduled production downtime (days)  12  ‑  11  12  11
Pulp sales ('000 ADMTs)  356.8  381.4  368.3  738.1  724.9
Average NBSK pulp list price in Europe ($/ADMT)(1)  925  920  857  923  844
Average pulp sales realizations ($/ADMT)(2)  720  723  679  722  669
Energy production ('000 MWh)  446.2  466.3  405.8  912.5  830.2
Energy sales ('000 MWh)  197.1  201.5  167.5  398.6  341.1
Average Spot Currency Exchange Rates:          
$ / €(3)  1.3716  1.3705  1.3064  1.3711  1.3129
$ / C$(3)  0.9169  0.9065  0.9777  0.9118  0.9845
           
(1) Source: RISI pricing report.
(2) Sales realizations after discounts. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
(3) Average Federal Reserve Bank of New York noon spot rate over the reporting period.

* 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.

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "For the second quarter of 2014, our Operating EBITDA increased by approximately 130% to $41.9 million from $18.2 million in the comparative quarter of 2013. Our Operating EBITDA decreased by approximately 29% from $59.0 million in the first quarter of 2014 primarily as a result of 12 days of scheduled maintenance downtime at our Celgar and Stendal mills which we estimate adversely impacted Operating EBITDA by approximately $18.4 million, comprised of approximately $13.0 million in direct out-of-pocket expenses and the balance for reduced production. Many of our competitors that report their financial results using "IFRS" capitalize their direct costs of maintenance shutdowns."

Mr. Lee continued: "In the current quarter, our German mills achieved near record production levels and sales volumes increased compared to the same period in 2013 due to generally strong demand in Europe. After strong sales in the last two months of the current quarter, our Celgar mill's sales volumes decreased compared to the same period in 2013, due to weaker demand from China and lower production. Our results also reflect the continuing strength of the Euro, partially offset by a weak Canadian dollar." 

Mr. Lee added: "In the current quarter, our Celgar mill took ten days of scheduled maintenance downtime, or approximately 14,000 ADMTs.  Our Stendal mill took two days of scheduled maintenance downtime, or approximately 3,700 ADMTs. Going forward, our Rosenthal mill's 12-day annual maintenance shutdown is scheduled for the third quarter of 2014 and our Stendal mill will have a further two-day scheduled maintenance shutdown in the fourth quarter."

Mr. Lee continued: "In the second quarter of 2014, energy production at our mills increased by approximately 10% compared to the same period in 2013. Energy and chemical revenues increased by approximately 20% in the current quarter from the same period of 2013. We currently expect energy and chemical revenues to remain consistent in the third quarter of 2014."

Mr. Lee continued: "NBSK list prices in Europe and North America were essentially flat during the second quarter of 2014 compared to the prior quarter due to steady demand. List prices in China, however, declined by approximately 4% in the second quarter of 2014 from the prior quarter of 2014, due to market expectations that declining hardwood prices would pressure NBSK prices. At the end of the current quarter, list pulp prices in Europe and North America were approximately $925 per ADMT and $1,030 per ADMT, respectively, while list prices in China had decreased to $720 per ADMT. We currently expect list prices to remain flat during the summer months in Europe and North America with modest increases beginning in the fourth quarter." 

Mr. Lee continued: "The NBSK pulp market remained generally under-balanced at approximately 25 days' supply at the end of the current quarter. During the quarter, world producer inventories declined by three days from the end of the first quarter of 2014. We currently expect producer maintenance and other mill downtime to keep the NBSK pulp market generally firm in the near term."

Mr. Lee continued: "On average, our overall per unit fiber costs in the current quarter decreased by approximately 5% from the same period in 2013. Timber harvesting was steady through the quarter and sawmills ran at high rates which led to a good supply of pulpwood and residual chips. In addition, less demand pressure on German timber due to the availability of storm damaged wood in Eastern Europe resulted in moderately lower German wood costs in the quarter. For the next quarter of 2014, we currently expect our overall fiber costs to remain stable, with modest increases in Canada being offset by slightly lower prices in Germany." 

Mr. Lee concluded: "Overall, our mills operated generally well in the current quarter. This, along with generally favorable markets and prices, let us generate solid results, despite the continuing weakness of the U.S. dollar relative to the Euro and our scheduled maintenance in the current quarter. Going forward, our Celgar mill should continue to benefit from the decline of the Canadian dollar versus the U.S. dollar and our Rosenthal mill will benefit from the completion of a capital project to enable it to produce and sell tall oil, a chemical by-product. We believe these factors should help position us to further build value for our stakeholders in the second half of 2014."

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Total revenues for the three months ended June 30, 2014 increased by approximately 4% to $285.2 million from $274.7 million in the same period in 2013, due to higher pulp prices and higher energy sales volumes.

Pulp revenues for the three months ended June 30, 2014 increased by approximately 2% to $259.5 million from $253.2 million in the comparative quarter of 2013, due to higher price realizations, partially offset by lower sales volumes.

Energy and chemical revenues increased by approximately 20% to $25.7 million in the second quarter of 2014 from $21.5 million in the same quarter last year, primarily because of higher energy sales volume resulting from Project Blue Mill coming online at our Stendal mill at the end of 2013.

Pulp production increased by approximately 1% to 353,803 ADMTs in the current quarter from 349,502 ADMTs in the same quarter of 2013. We had an aggregate of 12 days (approximately 17,700 ADMTs) of scheduled maintenance downtime at our Stendal and Celgar mills in the second quarter of 2014.

Our Rosenthal mill's annual maintenance shutdown is scheduled for the third quarter and our Stendal mill is scheduled to have a second two-day maintenance shutdown in the fourth quarter.

Pulp sales volumes decreased by approximately 3% to 356,755 ADMTs in the current quarter from 368,285 ADMTs in the comparative quarter, primarily due to weaker demand from China and lower production at our Celgar mill.

Average pulp sales realizations increased by approximately 6% to $720 per ADMT in the second quarter of 2014, compared to $679 per ADMT in the same period last year primarily due to higher pulp prices.

Costs and expenses in the second quarter of 2014 decreased by approximately 5% to $263.2 million from $275.9 million in the comparative period of 2013, primarily due to lower fiber costs and lower sales volumes.

On average, our overall per unit fiber costs in the current quarter decreased by approximately 5% from the same period in 2013.

For the second quarter of 2014, our operating income increased to $22.0 million from an operating loss of $1.2 million in the comparative quarter of 2013, primarily due to higher pulp sales realizations and lower fiber costs, partially offset by a weaker U.S. dollar relative to the Euro.

Interest expense was $17.2 million in the second quarter of 2014 and 2013, respectively.

We recorded a derivative gain of $2.5 million on the mark to market adjustment of our Stendal mill's interest rate derivative, compared to a net derivative gain of $6.9 million in the same quarter of last year.

The noncontrolling shareholder's interest in the Stendal mill's net income in the second quarter of 2014 was $2.2 million, compared to $0.8 million in the same quarter last year. 

In the second quarter of 2014, Operating EBITDA increased to $41.9 million from $18.2 million in the second quarter of 2013. 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 net income attributable to common shareholders of $0.6 million, or $0.01 per basic and diluted share, for the second quarter of 2014, which included a non-cash unrealized gain on the interest rate derivative of $2.5 million. In the second quarter of 2013, the net loss attributable to common shareholders was $13.0 million, or $0.23 per basic and diluted share, which included a total non-cash net unrealized gain of $7.4 million on the Stendal interest rate derivative and fixed price pulp swaps.

On April 2, 2014, we completed our registered public offering of 8,050,000 shares of our common stock at $7.15 per share and realized net proceeds of approximately $53.6 million therefrom.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Total revenues for the six months ended June 30, 2014 increased by approximately 10% to $590.9 million from $536.5 million in the same period in 2013, due to higher pulp and energy revenues.

Pulp revenues for the six months ended June 30, 2014 increased by approximately 10% to $538.0 million from $491.0 million in the comparative period of 2013, due to higher pulp price realizations.

Energy and chemical revenues increased by approximately 16% to $52.9 million in the first half of 2014 from $45.5 million in the same period last year, primarily because of higher energy sales volume resulting from Project Blue Mill coming online at our Stendal mill at the end of 2013.

Pulp production increased by approximately 4% to 735,588 ADMTs in the first half of 2014 from 710,666 ADMTs in the same period of 2013. We had an aggregate of 12 days (approximately 17,700 ADMTs) of scheduled maintenance downtime at our Stendal and Celgar mills in the first half of 2014.

Pulp sales volumes increased by approximately 2% to 738,110 ADMTs in the first half of 2014 from 724,945 ADMTs in the comparative period of 2013, primarily due to higher sales in North America.

Average pulp sales realizations increased by approximately 8% to $722 per ADMT in the first half of 2014, compared to $669 per ADMT in the comparative period of 2013, primarily due to higher pulp prices.

Costs and expenses in the first half of 2014 increased by approximately 1% to $529.6 million from $525.0 million in the comparative period of 2013, primarily due to the impact of a weaker U.S. dollar relative to the Euro, partially offset by lower fiber costs.

On average, our overall per unit fiber costs in the first half of 2014 decreased by approximately 1% from the same period in 2013.

In the first half of 2014, our operating income increased to $61.3 million from $11.4 million in the comparative period of 2013, primarily due to higher sales realizations and sales volumes and lower fiber costs. 

Interest expense in the first half of 2014 increased marginally to $34.6 million from $34.5 million in the comparative period of 2013.

We recorded a derivative gain of $5.8 million on the mark to market adjustment of our Stendal mill's interest rate derivative, compared to a net derivative gain of $13.3 million in the same period of last year.

In the six months ended June 30, 2014, Operating EBITDA increased to $100.9 million from $50.3 million in the same period of 2013. 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 net income attributable to common shareholders of $21.6 million, or $0.36 per basic and diluted share, for the first half of 2014, which included a non-cash unrealized gain on the interest rate derivative of $5.8 million. In the first half of 2013, the net loss attributable to common shareholders was $13.6 million, or $0.24 per basic and diluted share, which included a total non-cash net unrealized gain of $13.6 million on the Stendal interest rate derivative and fixed price pulp swaps.

Liquidity and Capital Resources

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

  As at June 30,

2014 
As at December 31,

  2013 
  (in thousands)
Financial Position    
Cash and cash equivalents  $ 241,023  $ 147,728
Working capital  $ 378,810  $ 306,274
Total assets  $ 1,608,828  $ 1,548,559
Long-term liabilities  $ 1,004,065  $ 1,034,743
Total equity  $ 425,613  $ 348,317

As at June 30, 2014, we had approximately €28.4 million and C$38.3 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

In July 2014, our Stendal mill received lenders' approval to amend its two term credit facilities to provide greater financial flexibility to Stendal. Such amendments include, among other things, loosening the financial covenant ratios Stendal must meet and reducing the scheduled principal repayments under the Stendal project loan by 50% while retaining its current "cash sweep". In connection with such amendments, we will provide Stendal with additional capital of $20.0 million. The amendments are subject to customary closing conditions, including, among others, execution and delivery of definitive agreements.

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,

 2014 
As at December 31,

  2013 
  (in thousands)
Financial Position    
Cash and cash equivalents  $ 157,418  $ 82,910
Working capital  $ 277,973  $ 211,749
Total assets  $ 936,001  $ 858,824
Long-term liabilities  $ 406,669  $ 394,821
Total equity  $ 464,539  $ 412,033

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 1, 2014 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through August 31, 2014, over the Internet at http://www.media-server.com/m/p/6jctbeam 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)
 
  June 30, December 31,
  2014 2013
ASSETS    
Current assets    
Cash and cash equivalents $ 241,023 $ 147,728
Receivables  134,749  135,893
Inventories  165,072  170,908
Prepaid expenses and other  10,100  10,918
Deferred income tax  7,016  6,326
Total current assets  557,960  471,773
     
Long-term assets    
Property, plant and equipment  1,006,906  1,038,631
Deferred note issuance costs and other  20,600  20,998
Deferred income tax  23,362  17,157
   1,050,868  1,076,786
Total assets $ 1,608,828 $ 1,548,559
     
LIABILITIES    
Current liabilities    
Accounts payable and other $ 115,643 $ 103,814
Pension and other post-retirement benefit obligations  1,325  1,330
Debt  62,182  60,355
Total current liabilities  179,150  165,499
     
Long-term liabilities    
Debt  882,443  919,017
Interest rate derivative liability  40,447  46,517
Pension and other post-retirement benefit obligations  35,370  35,466
Capital leases and other  19,576  19,293
Deferred income tax  26,229  14,450
   1,004,065  1,034,743
Total liabilities  1,183,215  1,200,242
     
EQUITY    
Shareholders' equity    
Share capital  386,081  328,549
Paid-in capital  (15,356)  (11,756)
Retained earnings  32,427  10,815
Accumulated other comprehensive income  28,892  31,470
Total shareholders' equity  432,044  359,078
Noncontrolling interest (deficit)  (6,431)  (10,761)
Total equity  425,613  348,317
Total liabilities and equity $ 1,608,828 $ 1,548,559
     
 
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
  2014 2013 2014 2013
Revenues        
Pulp $ 259,482 $ 253,166 $ 537,988 $ 490,984
Energy and chemicals  25,710  21,534  52,889  45,501
   285,192  274,700  590,877  536,485
Costs and expenses        
Operating costs  230,465  244,363  466,769  462,347
Operating depreciation and amortization  19,768  19,267  39,470  38,717
   34,959  11,070  84,638  35,421
Selling, general and administrative expenses  12,938  12,239  23,374  23,983
Operating income (loss)  22,021  (1,169)  61,264  11,438
         
Other income (expense)        
Interest expense  (17,165)  (17,170)  (34,615)  (34,530)
Gain (loss) on derivative instruments  2,549  6,921  5,777  13,285
Other income (expense)  (82)  8  (76)  (84)
Total other income (expense)  (14,698)  (10,241)  (28,914)  (21,329)
Income (loss) before income taxes  7,323  (11,410)  32,350  (9,891)
Income tax benefit (provision)        
Current  (1,405)  (275)  (1,527)  4,044
Deferred  (3,153)  (540)  (4,881)  (6,004)
Net income (loss)  2,765  (12,225)  25,942  (11,851)
Less: net income attributable to noncontrolling interest  (2,194)  (790)  (4,330)  (1,725)
Net income (loss) attributable to common shareholders $ 571 $ (13,015) $ 21,612 $ (13,576)
         
Net income (loss) per share attributable to common shareholders      
Basic and diluted $ 0.01 $ (0.23) $ 0.36 $ (0.24)
 
 
MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
  2014 2013 2014 2013
Cash flows from (used in) operating activities        
Net income (loss) $ 2,765 $ (12,225) $ 25,942 $ (11,851)
Adjustments to reconcile net income (loss) to cash flows from operating activities        
Unrealized loss (gain) on derivative instruments  (2,549)  (7,431)  (5,777)  (13,630)
Depreciation and amortization  19,851  19,354  39,638  38,887
Deferred income taxes  3,153  540  4,881  6,004
Stock compensation expense  600  396  331  752
Pension and other post-retirement expense, net of funding  214  277  425  437
Other  852  1,266  1,504  2,828
Changes in working capital        
Receivables  14,517  28,635  (2,815)  15,822
Inventories  (13,390)  2,781  5,333  10,368
Accounts payable and accrued expenses  (8,062)  (2,134)  14,180  11,858
Other  3,338  (7,492)  (2,674)  (8,525)
Net cash from (used in) operating activities  21,289  23,967  80,968  52,950
         
Cash flows from (used in) investing activities        
Purchase of property, plant and equipment  (6,151)  (14,349)  (12,717)  (29,394)
Purchase of intangible assets  (715)  --  (2,455)  --
Proceeds on sale of property, plant and equipment  94 3  273  20
Net cash from (used in) investing activities  (6,772)  (14,346)  (14,899)  (29,374)
         
Cash flows from (used in) financing activities        
Repayment of debt  --  --  (30,541)  (26,420)
Proceeds from borrowings of debt  --  9,090  --  22,223
Proceeds from issuance of shares  53,942  --  53,942  --
Repayment of capital lease obligations  (532)  (522)  (1,192)  (1,446)
Proceeds from sale and lease-back transactions  --  --  1,047  --
Proceeds from (repayment of) credit facilities, net  --  9,112  --  17,060
Proceeds from government grants  761  4,441  4,058  5,413
Net cash from (used in) financing activities  54,171  22,121  27,314  16,830
         
Effect of exchange rate changes on cash and cash equivalents  226  1,040  (88)  (2,948)
         
Net increase (decrease) in cash and cash equivalents  68,914  32,782  93,295  37,458
Cash and cash equivalents, beginning of period  172,109  142,115  147,728  137,439
Cash and cash equivalents, end of period $ 241,023 $ 174,897 $ 241,023 $ 174,897

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands)

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, 2014 and 2013, 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, 2014
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
ASSETS        
Current assets        
Cash and cash equivalents $ 157,418 $ 83,605 $ -- $ 241,023
Receivables  69,808  64,941  --  134,749
Inventories  104,124  60,948  --  165,072
Prepaid expenses and other  7,810  2,290  --  10,100
Deferred income tax  3,606  3,410  --  7,016
Total current assets  342,766  215,194  --  557,960
         
Long-term assets        
Property, plant and equipment  410,110  596,796  --  1,006,906
Deferred note issuance costs and other  11,136  9,464  --  20,600
Deferred income tax  16,522  6,840  --  23,362
Due from unrestricted group  155,467  --  (155,467)  --
Total assets  $ 936,001  $ 828,294 $ (155,467) $ 1,608,828
         
LIABILITIES        
Current liabilities        
Accounts payable and other $ 63,468 $ 52,175 $ -- $ 115,643
Pension and other post-retirement benefit obligations  1,325  --  --  1,325
Debt  --  62,182  --  62,182
Total current liabilities  64,793  114,357  --  179,150
         
Long-term liabilities        
Debt  336,124  546,319  --  882,443
Due to restricted group  --  155,467  (155,467)  --
Interest rate derivative liability  --  40,447  --  40,447
Pension and other post-retirement benefit obligations  35,370  --  --  35,370
Capital leases and other  8,946  10,630  --  19,576
Deferred income tax  26,229  --  --  26,229
Total liabilities  471,462  867,220  (155,467)  1,183,215
         
EQUITY        
Total shareholders' equity (deficit)  464,539  (32,495)  --  432,044
Noncontrolling interest (deficit)  --  (6,431)  --  (6,431)
Total liabilities and equity $ 936,001 $ 828,294 $ (155,467) $ 1,608,828
 
 
MERCER INTERNATIONAL INC.  
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands)
 
  December 31, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
ASSETS        
Current assets        
Cash and cash equivalents $ 82,910 $ 64,818 $ -- $ 147,728
Receivables  75,987  59,906  --  135,893
Inventories  93,807  77,101  --  170,908
Prepaid expenses and other  7,742  3,176  --  10,918
Deferred income tax  3,273  3,053  --  6,326
Total current assets  263,719  208,054  --  471,773
         
Long-term assets        
Property, plant and equipment  420,373  618,258  --  1,038,631
Deferred note issuance costs and other  10,987  10,011  --  20,998
Deferred income tax  9,894  7,263  --  17,157
Due from unrestricted group  153,851  --  (153,851)  --
Total assets $ 858,824  $ 843,586 $ (153,851)  $ 1,548,559
         
LIABILITIES        
Current liabilities        
Accounts payable and other $ 49,891 $ 53,923 $ -- $ 103,814
Pension and other post-retirement benefit obligations  1,330  --  --  1,330
Debt  749  59,606  --  60,355
Total current liabilities  51,970  113,529  --  165,499
         
Long-term liabilities        
Debt  336,382  582,635  --  919,017
Due to restricted group  --  153,851  (153,851)  --
Interest rate derivative liability  --  46,517  --  46,517
Pension and other post-retirement benefit obligations  35,466  --  --  35,466
Capital leases and other  8,523  10,770  --  19,293
Deferred income tax  14,450  --  --  14,450
Total liabilities  446,791  907,302  (153,851)  1,200,242
         
EQUITY        
Total shareholders' equity (deficit)  412,033  (52,955)  --  359,078
Noncontrolling interest (deficit)  --  (10,761)  --  (10,761)
Total liabilities and equity $ 858,824 $ 843,586 $ (153,851) $ 1,548,559
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands)
 
  Three Months Ended June 30, 2014
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp $ 136,632  $ 122,850  $ -- $ 259,482 
Energy and chemicals  7,649   18,061   --  25,710 
   144,281   140,911   --  285,192 
Operating costs  122,043   108,422   --  230,465 
Operating depreciation and amortization  10,631   9,137   --  19,768 
Selling, general and administrative expenses  8,647   4,291   --  12,938 
   141,321   121,850   --  263,171 
Operating income (loss)  2,960   19,061   --  22,021 
         
Other income (expense)        
Interest expense  (8,548)  (8,757)  140   (17,165)
Gain (loss) on derivative instruments  --  2,549   --  2,549 
Other income (expense)  26   32   (140)  (82)
Total other income (expense)  (8,522)  (6,176)  --  (14,698)
Income (loss) before income taxes  (5,562)  12,885   --  7,323 
Income tax benefit (provision)  (4,033)  (525)  --  (4,558)
Net income (loss)  (9,595)  12,360   --  2,765 
Less: net income attributable to noncontrolling interest  --  (2,194)  --  (2,194)
Net income (loss) attributable to common shareholders $ (9,595) $ 10,166  $ -- $ 571 
   
  Three Months Ended June 30, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp $ 137,957  $ 115,209  $ -- $ 253,166 
Energy and chemicals  7,886   13,648   --  21,534 
   145,843   128,857   --  274,700 
Operating costs  135,425   108,938   --  244,363 
Operating depreciation and amortization  10,791   8,476   --  19,267 
Selling, general and administrative expenses  7,375   4,864   --  12,239 
   153,591   122,278   --  275,869 
Operating income (loss)  (7,748)  6,579   --  (1,169)
         
Other income (expense)        
Interest expense  (7,685)  (11,639)  2,154   (17,170)
Gain (loss) on derivative instruments  (551)  7,472   --  6,921 
Other income (expense)  2,118   44   (2,154)  8 
Total other income (expense)  (6,118)  (4,123)  --  (10,241)
Income (loss) before income taxes  (13,866)  2,456   --  (11,410)
Income tax benefit (provision)  (795)  (20)  --  (815)
Net income (loss)  (14,661)  2,436   --  (12,225)
Less: net income attributable to noncontrolling interest  --  (790)  --  (790)
Net income (loss) attributable to common shareholders $ (14,661) $ 1,646  $ -- $ (13,015)
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands)
 
  Six Months Ended June 30, 2014
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp $ 277,429  $ 260,559  $ -- $ 537,988 
Energy and chemicals  16,530   36,359   --  52,889 
   293,959   296,918   --  590,877 
Operating costs  233,411   233,358   --  466,769 
Operating depreciation and amortization  21,205   18,265   --  39,470 
Selling, general and administrative expenses  15,098   8,276   --  23,374 
   269,714   259,899   --  529,613 
Operating income (loss)  24,245   37,019   --  61,264 
         
Other income (expense)        
Interest expense  (17,066)  (17,829)  280   (34,615)
Gain (loss) on derivative instruments  --  5,777   --  5,777 
Other income (expense)  138   66   (280)  (76)
Total other income (expense)  (16,928)  (11,986)  --  (28,914)
Income (loss) before income taxes  7,317   25,033   --  32,350 
Income tax benefit (provision)  (5,785)  (623)  --  (6,408)
Net income (loss)  1,532   24,410   --  25,942 
Less: net income attributable to noncontrolling interest  --  (4,330)  --  (4,330)
Net income (loss) attributable to common shareholders $ 1,532  $ 20,080  $ -- $ 21,612 
   
  Six Months Ended June 30, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp $ 270,307  $ 220,677  $ -- $ 490,984 
Energy and chemicals  17,247   28,254   --  45,501 
   287,554   248,931   --  536,485 
Operating costs  253,625   208,722   --  462,347 
Operating depreciation and amortization  21,606   17,111   --  38,717 
Selling, general and administrative expenses  14,922   9,061   --  23,983 
   290,153   234,894   --  525,047 
Operating income (loss)  (2,599)  14,037   --  11,438 
         
Other income (expense)        
Interest expense  (15,430)  (23,430)  4,330   (34,530)
Gain (loss) on derivative instruments  (1,007)  14,292   --  13,285 
Other income (expense)  4,145   101   (4,330)  (84)
Total other income (expense)  (12,292)  (9,037)  --  (21,329)
Income (loss) before income taxes  (14,891)  5,000   --  (9,891)
Income tax benefit (provision)  (2,137)  177   --  (1,960)
Net income (loss)  (17,028)  5,177   --  (11,851)
Less: net income attributable to noncontrolling interest  --  (1,725)  --  (1,725)
Net income (loss) attributable to common shareholders $ (17,028) $ 3,452  $ -- $ (13,576)
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
 
  Three Months Ended June 30, 2014
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss) $ (9,595) $ 12,360 $ 2,765
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  --  (2,549)  (2,549)
Depreciation and amortization  10,714  9,137  19,851
Deferred income taxes  3,153  --  3,153
Stock compensation expense  600  --  600
Pension and other post-retirement expense, net of funding  214  --  214
Other  412  440  852
Changes in working capital      
Receivables  4,808  9,709  14,517
Inventories  (8,753)  (4,637)  (13,390)
Accounts payable and accrued expenses  (2,397)  (5,665)  (8,062)
Other(1)  1,529  1,809  3,338
Net cash from (used in) operating activities  685  20,604  21,289
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (5,571)  (580)  (6,151)
Purchase of intangible assets  (229)  (486)  (715)
Proceeds on sale of property, plant and equipment  81  13  94
Net cash from (used in) investing activities  (5,719)  (1,053)  (6,772)
       
Cash flows from (used in) financing activities      
Proceeds from issuance of shares  53,942  --  53,942
Repayment of capital lease obligations  (202)  (330)  (532)
Proceeds from government grants  --  761  761
Net cash from (used in) financing activities  53,740  431  54,171
       
Effect of exchange rate changes on cash and cash equivalents  666  (440)  226
Net increase (decrease) in cash and cash equivalents  49,372  19,542  68,914
Cash and cash equivalents, beginning of period  108,046  64,063  172,109
Cash and cash equivalents, end of period $ 157,418 $ 83,605 $ 241,023
       
(1) Includes intercompany working capital related transactions.
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited) 
(In thousands) 
 
  Three Months Ended June 30, 2013
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss) $ (14,661) $ 2,436 $ (12,225)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  41  (7,472)  (7,431)
Depreciation and amortization  10,878  8,476  19,354
Deferred income taxes  561  (21)  540
Stock compensation expense  396  --  396
Pension and other post-retirement expense, net of funding  277  --  277
Other  378  888  1,266
Changes in working capital      
Receivables  24,835  3,800  28,635
Inventories  6,945  (4,164)  2,781
Accounts payable and accrued expenses  (2,540)  406  (2,134)
Other(1)  (9,085)  1,593  (7,492)
Net cash from (used in) operating activities  18,025  5,942  23,967
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (3,401)  (10,948)  (14,349)
Proceeds on sale of property, plant and equipment  --  3  3
Net cash from (used in) investing activities  (3,401)  (10,945)  (14,346)
       
Cash flows from (used in) financing activities      
Proceeds from borrowings of debt  --  9,090  9,090
Repayment of capital lease obligations  (159)  (363)  (522)
Proceeds from (repayment of) credit facilities, net  9,112  --  9,112
Proceeds from government grants  --  4,441  4,441
Net cash from (used in) financing activities  8,953  13,168  22,121
       
Effect of exchange rate changes on cash and cash equivalents  (21)  1,061  1,040
Net increase (decrease) in cash and cash equivalents  23,556  9,226  32,782
Cash and cash equivalents, beginning of period  66,820  75,295  142,115
Cash and cash equivalents, end of period $ 90,376 $ 84,521 $ 174,897
       
(1) Includes intercompany working capital related transactions.
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
 
  Six Months Ended June 30, 2014
  Restricted

Group
Unrestricted

Subsidiaries
Consolidated

Group
Cash flows from (used in) operating activities      
Net income (loss) $ 1,532 $ 24,410 $ 25,942
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  --  (5,777)  (5,777)
Depreciation and amortization  21,373  18,265  39,638
Deferred income taxes  4,881  --  4,881
Stock compensation expense  331  --  331
Pension and other post-retirement expense, net of funding  425  --  425
Other  583  921  1,504
Changes in working capital      
Receivables  4,712  (7,527)  (2,815)
Inventories  (10,342)  15,675  5,333
Accounts payable and accrued expenses  12,286  1,894  14,180
Other(1)  (6,563)  3,889  (2,674)
Net cash from (used in) operating activities  29,218  51,750  80,968
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (8,531)  (4,186)  (12,717)
Purchase of intangible assets  (1,203)  (1,252)  (2,455)
Proceeds on sale of property, plant and equipment  215  58  273
Net cash from (used in) investing activities  (9,519)  (5,380)  (14,899)
       
Cash flows from (used in) financing activities      
Repayment of debt  (744)  (29,797)  (30,541)
Proceeds from issuance of shares  53,942  --  53,942
Repayment of capital lease obligations  (474)  (718)  (1,192)
Proceeds from sale and lease-back transactions  1,047  --  1,047
Proceeds from government grants  832  3,226  4,058
Net cash from (used in) financing activities  54,603  (27,289)  27,314
       
Effect of exchange rate changes on cash and cash equivalents  206  (294)  (88)
Net increase (decrease) in cash and cash equivalents  74,508  18,787  93,295
Cash and cash equivalents, beginning of year  82,910  64,818  147,728
Cash and cash equivalents, end of year $ 157,418 $ 83,605 $ 241,023
       
(1) Includes intercompany working capital related transactions.
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
 
  Six Months Ended June 30, 2013
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss) $ (17,028) $ 5,177 $ (11,851)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  662  (14,292)  (13,630)
Depreciation and amortization  21,776  17,111  38,887
Deferred income taxes  1,870  4,134  6,004
Stock compensation expense  752  --  752
Pension and other post-retirement expense, net of funding  437  --  437
Other  923  1,905  2,828
Changes in working capital      
Receivables  13,824  1,998  15,822
Inventories  10,995  (627)  10,368
Accounts payable and accrued expenses  11,331  527  11,858
Other(1)  (11,349)  2,824  (8,525)
Net cash from (used in) operating activities  34,193  18,757  52,950
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (6,893)  (22,501)  (29,394)
Proceeds on sale of property, plant and equipment  17  3  20
Net cash from (used in) investing activities  (6,876)  (22,498)  (29,374)
       
Cash flows from (used in) financing activities      
Repayment of debt  (736)  (25,684)  (26,420)
Proceeds from borrowings of debt  --  22,223  22,223
Repayment of capital lease obligations  (320)  (1,126)  (1,446)
Proceeds from (repayment of) credit facilities, net  17,060  --  17,060
Proceeds from government grants  --  5,413  5,413
Net cash from (used in) financing activities  16,004  826  16,830
       
Effect of exchange rate changes on cash and cash equivalents  (1,352)  (1,596)  (2,948)
Net increase (decrease) in cash and cash equivalents  41,969  (4,511)  37,458
Cash and cash equivalents, beginning of period  48,407  89,032  137,439
Cash and cash equivalents, end of period $ 90,376 $ 84,521 $ 174,897
       
(1) Includes intercompany working capital related transactions.

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA

(Unaudited)

(In thousands)

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, 
    2014    2013    2014    2013 
Net income (loss) attributable to common shareholders  $ 571  $ (13,015)  $ 21,612  $ (13,576)
Net income attributable to noncontrolling interest   2,194  790   4,330  1,725
Income tax provision   4,558  815   6,408  1,960
Interest expense   17,165  17,170   34,615  34,530
(Gain) loss on derivative instruments   (2,549)  (6,921)   (5,777)  (13,285)
Other (income) expense   82   (8)   76   84
Operating income (loss)   22,021  (1,169)   61,264  11,438
Add: Depreciation and amortization   19,851   19,354   39,638   38,887
Operating EBITDA  $ 41,872  $ 18,185  $ 100,902  $ 50,325
         
  Three Months Ended

  June 30, 
Six Months Ended

  June 30, 
    2014    2013    2014    2013 
Restricted Group        
Net income (loss)  $ (9,595)  $ (14,661)  $ 1,532  $ (17,028)
Income tax provision   4,033  795   5,785   2,137
Interest expense   8,548  7,685   17,066   15,430
(Gain) loss on derivative instruments   ‑   551   ‑   1,007
Other (income) expense   (26)   (2,118)   (138)   (4,145)
Operating income (loss)   2,960  (7,748)   24,245   (2,599)
Add: Depreciation and amortization   10,714   10,878   21,373   21,776
Operating EBITDA  $ 13,674  $ 3,130  $ 45,618  $ 19,177
CONTACT: APPROVED BY:

         Jimmy S.H. Lee
         Chairman, CEO & President
         (604) 684-1099

         David M. Gandossi
         Executive Vice-President,
         Chief Financial Officer & Secretary
         (604) 684-1099

Source: Mercer International Inc.

This article appears in: News Headlines

Referenced Stocks: MERC


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