þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Washington | 47-0956945 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
Large Accelerated Filer o | Accelerated Filer þ | Non-Accelerated Filer o | Smaller Reporting Company o |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
| 127,758 | | 99,022 | ||||
Marketable securities (Note 4) |
4,013 | | ||||||
Receivables |
110,296 | 121,709 | ||||||
Inventories (Note 5) |
128,041 | 102,219 | ||||||
Prepaid expenses and other |
9,907 | 11,360 | ||||||
Deferred income tax |
24,951 | 22,570 | ||||||
Total current assets |
404,966 | 356,880 | ||||||
Long-term assets |
||||||||
Property, plant and equipment |
815,727 | 846,767 | ||||||
Deferred note issuance and other |
9,943 | 11,082 | ||||||
Note receivable |
| 1,346 | ||||||
825,670 | 859,195 | |||||||
Total assets |
| 1,230,636 | | 1,216,075 | ||||
LIABILITIES |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued expenses |
| 109,845 | | 84,873 | ||||
Pension and other post-retirement benefit obligations (Note 8) |
694 | 728 | ||||||
Debt (Note 6) |
25,671 | 39,596 | ||||||
Total current liabilities |
136,210 | 125,197 | ||||||
Long-term liabilities |
||||||||
Debt (Note 6) |
707,040 | 782,328 | ||||||
Unrealized interest rate derivative losses (Notes 7 and 10) |
51,553 | 50,973 | ||||||
Pension and other post-retirement benefit obligations (Note 8) |
23,010 | 24,236 | ||||||
Capital leases and other |
11,857 | 12,010 | ||||||
Deferred income tax |
14,413 | 7,768 | ||||||
807,873 | 877,315 | |||||||
Total liabilities |
| 944,083 | | 1,002,512 | ||||
EQUITY |
||||||||
Shareholders equity |
||||||||
Share capital (Note 9) |
247,642 | 219,211 | ||||||
Paid-in capital |
(5,308 | ) | (3,899 | ) | ||||
Retained earnings (deficit) |
39,786 | (10,956 | ) | |||||
Accumulated other comprehensive income (loss) |
21,762 | 31,712 | ||||||
Total shareholders equity |
303,882 | 236,068 | ||||||
Noncontrolling interest (deficit) |
(17,329 | ) | (22,505 | ) | ||||
Total equity |
286,553 | 213,563 | ||||||
Total liabilities and equity |
| 1,230,636 | | 1,216,075 | ||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
Pulp |
| 190,426 | | 224,697 | | 618,158 | | 624,111 | ||||||||
Energy |
14,352 | 9,721 | 41,970 | 30,783 | ||||||||||||
204,778 | 234,418 | 660,128 | 654,894 | |||||||||||||
Costs and expenses |
||||||||||||||||
Operating costs |
146,885 | 162,293 | 482,775 | 470,977 | ||||||||||||
Operating depreciation and amortization |
13,832 | 13,987 | 41,777 | 41,817 | ||||||||||||
44,061 | 58,138 | 135,576 | 142,100 | |||||||||||||
Selling, general and administrative expenses |
8,754 | 6,894 | 27,616 | 24,944 | ||||||||||||
Purchase (sale) of emission allowances |
| (167 | ) | (202 | ) | (167 | ) | |||||||||
Operating income (loss) |
35,307 | 51,411 | 108,162 | 117,323 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(14,117 | ) | (17,820 | ) | (44,906 | ) | (51,141 | ) | ||||||||
Investment income (loss) |
270 | 93 | 733 | 304 | ||||||||||||
Foreign exchange gain (loss) on debt |
(181 | ) | 9,927 | 1,272 | (4,675 | ) | ||||||||||
Gain (loss) on extinguishment of debt (Note 6) |
(69 | ) | | (69 | ) | (929 | ) | |||||||||
Gain (loss) on derivative instruments (Note 7) |
(10,484 | ) | 485 | (580 | ) | (10,523 | ) | |||||||||
Total other income (expense) |
(24,581 | ) | (7,315 | ) | (43,550 | ) | (66,964 | ) | ||||||||
Income (loss) before income taxes |
10,726 | 44,096 | 64,612 | 50,359 | ||||||||||||
Income tax benefit (provision) current |
(1,557 | ) | (2,227 | ) | (3,854 | ) | (3,750 | ) | ||||||||
deferred |
(1,567 | ) | 9,382 | (3,707 | ) | 9,382 | ||||||||||
Net income (loss) |
7,602 | 51,251 | 57,051 | 55,991 | ||||||||||||
Less: net loss (income) attributable to noncontrolling interest |
838 | (5,116 | ) | (5,175 | ) | (5,001 | ) | |||||||||
Net income (loss) attributable to common shareholders |
| 8,440 | | 46,135 | | 51,876 | | 50,990 | ||||||||
Net income (loss) per share attributable to common shareholders
(Note 3) |
||||||||||||||||
Basic |
| 0.15 | | 1.17 | | 1.07 | | 1.36 | ||||||||
Diluted |
| 0.15 | | 0.82 | | 0.92 | | 0.93 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) attributable to common shareholders |
| 8,440 | | 46,135 | | 51,876 | | 50,990 | ||||||||
Retained earnings (deficit), beginning of period |
32,480 | (92,380 | ) | (10,956 | ) | (97,235 | ) | |||||||||
40,920 | (46,245 | ) | 40,920 | (46,245 | ) | |||||||||||
Retirement of treasury shares |
(1,134 | ) | | (1,134 | ) | | ||||||||||
Retained earnings (deficit), end of period |
| 39,786 | | (46,245 | ) | | 39,786 | | (46,245 | ) | ||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) |
| 7,602 | | 51,251 | | 57,051 | | 55,991 | ||||||||
Other comprehensive income (loss), net of taxes |
||||||||||||||||
Foreign currency translation adjustment |
(12,913 | ) | (134 | ) | (10,313 | ) | 2,809 | |||||||||
Pension income (expense) |
(20 | ) | 317 | 383 | (282 | ) | ||||||||||
Unrealized gains (losses) on securities arising during the period |
(20 | ) | (29 | ) | (20 | ) | (11 | ) | ||||||||
Other comprehensive income (loss), net of taxes |
(12,953 | ) | 154 | (9,950 | ) | 2,516 | ||||||||||
Total comprehensive income (loss) |
(5,351 | ) | 51,405 | 47,101 | 58,507 | |||||||||||
Comprehensive loss (income) attributable to noncontrolling interest |
838 | (5,116 | ) | (5,175 | ) | (5,001 | ) | |||||||||
Comprehensive income (loss) attributable to common shareholders |
| (4,513 | ) | | 46,289 | | 41,926 | | 53,506 | |||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cash flows from (used in) operating activities |
||||||||||||||||
Net income (loss) attributable to common shareholders |
| 8,440 | | 46,135 | | 51,876 | | 50,990 | ||||||||
Adjustments to reconcile net income (loss) attributable
to common shareholders to cash flows from operating
activities |
||||||||||||||||
Loss (gain) on derivative instruments |
10,484 | (485 | ) | 580 | 10,523 | |||||||||||
Foreign exchange loss (gain) on debt |
181 | (9,927 | ) | (1,272 | ) | 4,675 | ||||||||||
Loss (gain) on extinguishment of debt |
69 | | 69 | 929 | ||||||||||||
Depreciation and amortization |
13,893 | 14,055 | 41,960 | 42,052 | ||||||||||||
Accretion expense (income) |
(168 | ) | 1,111 | 591 | 2,056 | |||||||||||
Noncontrolling interest |
(838 | ) | 5,116 | 5,175 | 5,001 | |||||||||||
Deferred income taxes |
1,567 | (9,382 | ) | 3,707 | (9,382 | ) | ||||||||||
Stock compensation expense |
305 | 540 | 2,844 | 1,273 | ||||||||||||
Pension and other post-retirement expense, net of
funding |
(95 | ) | 96 | (102 | ) | 428 | ||||||||||
Other |
359 | 989 | 1,962 | 2,836 | ||||||||||||
Changes in current assets and liabilities |
||||||||||||||||
Receivables |
(9,452 | ) | 19,591 | 3,248 | (26,351 | ) | ||||||||||
Inventories |
(23,776 | ) | (26,005 | ) | (27,862 | ) | (36,988 | ) | ||||||||
Accounts payable and accrued expenses |
318 | 1,814 | 24,873 | 15,146 | ||||||||||||
Other |
(752 | ) | (4,883 | ) | 92 | (5,477 | ) | |||||||||
Net cash from (used in) operating activities |
535 | 38,765 | 107,741 | 57,711 | ||||||||||||
Cash flows from (used in) investing activities |
||||||||||||||||
Purchase of property, plant and equipment |
(10,297 | ) | (8,484 | ) | (26,122 | ) | (28,876 | ) | ||||||||
Proceeds on sale of property, plant and equipment |
1,564 | 28 | 1,944 | 577 | ||||||||||||
Note receivable |
2,064 | 216 | 2,835 | 711 | ||||||||||||
Purchase of marketable securities |
(4,018 | ) | | (4,018 | ) | | ||||||||||
Net cash from (used in) investing activities |
(10,687 | ) | (8,240 | ) | (25,361 | ) | (27,588 | ) | ||||||||
Cash flows from (used in) financing activities |
||||||||||||||||
Repayment of notes payable and debt |
(12,160 | ) | (6,211 | ) | (42,511 | ) | (14,461 | ) | ||||||||
Repayment of capital lease obligations |
(776 | ) | (638 | ) | (2,269 | ) | (2,245 | ) | ||||||||
Proceeds from borrowings of notes payable and debt |
| | | 840 | ||||||||||||
Proceeds from (repayment of) credit facilities, net |
| (4,057 | ) | (14,652 | ) | 1,493 | ||||||||||
Proceeds from government grants |
4,470 | 6,778 | 13,419 | 17,337 | ||||||||||||
Purchase of treasury shares |
(7,477 | ) | | (7,477 | ) | | ||||||||||
Net cash from (used in) financing activities |
(15,943 | ) | (4,128 | ) | (53,490 | ) | 2,964 | |||||||||
Effect of exchange rate changes on cash and cash equivalents |
2,058 | (3,416 | ) | (154 | ) | 748 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
(24,037 | ) | 22,981 | 28,736 | 33,835 | |||||||||||
Cash and cash equivalents, beginning of period |
151,795 | 62,145 | 99,022 | 51,291 | ||||||||||||
Cash and cash equivalents, end of period |
| 127,758 | | 85,126 | | 127,758 | | 85,126 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Supplemental disclosure of cash flow information |
||||||||||||||||
Cash paid during the period for |
||||||||||||||||
Interest |
| 5,822 | | 17,402 | | 35,742 | | 46,435 | ||||||||
Income taxes |
1,389 | 412 | 1,725 | 441 | ||||||||||||
Supplemental schedule of non-cash investing and
financing activities |
||||||||||||||||
Acquisition of production and other
equipment under capital lease obligations |
| 973 | | 429 | | 1,246 | | 959 | ||||||||
Decrease in accounts payable relating to
investing activities |
1,530 | 4,986 | 7,906 | 1,283 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) attributable to common shareholders basic |
| 8,440 | | 46,135 | | 51,876 | | 50,990 | ||||||||
Interest on convertible notes, net of tax |
40 | 571 | 789 | 2,011 | ||||||||||||
Net income (loss) attributable to common shareholders
diluted |
| 8,480 | | 46,706 | | 52,665 | | 53,001 | ||||||||
Net income (loss) per share attributable to common
shareholders |
||||||||||||||||
Basic |
| 0.15 | | 1.17 | | 1.07 | | 1.36 | ||||||||
Diluted |
| 0.15 | | 0.82 | | 0.92 | | 0.93 | ||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic(1) |
55,141,780 | 39,446,447 | 48,289,039 | 37,383,444 | ||||||||||||
Effect of dilutive instruments: |
||||||||||||||||
Performance shares |
158,023 | 455,609 | 543,383 | 453,780 | ||||||||||||
Restricted shares |
| 7,220 | 65,917 | 15,232 | ||||||||||||
Stock options and awards |
46,953 | | 69,602 | | ||||||||||||
Convertible notes |
1,219,468 | 17,113,010 | 8,260,848 | 19,167,690 | ||||||||||||
Diluted |
56,566,224 | 57,022,286 | 57,228,789 | 57,020,146 | ||||||||||||
(1) | The basic weighted average number of shares excludes performance shares and restricted shares
which have been issued, but have not vested as at September 30, 2011 and 2010. |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
September 30, 2011 | Cost | Gains | Losses | Value | ||||||||||||
Current |
||||||||||||||||
0.5% German federal government bonds due June 2012
|
| 2,008 | | | | (2 | ) | | 2,006 | |||||||
0.75% German federal government bonds due September 2012
|
2,010 | | (3 | ) | 2,007 | |||||||||||
| 4,018 | | | | (5 | ) | | 4,013 | ||||||||
Long-term |
||||||||||||||||
Equity securities
|
| 63 | | 130 | | (15 | ) | | 178 | |||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2010 | Cost | Gains | Losses | Value | ||||||||||||
Long-term |
||||||||||||||||
Equity securities |
| 63 | | 213 | | (1 | ) | | 275 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Raw materials |
| 41,023 | | 47,179 | ||||
Finished goods |
55,334 | 27,127 | ||||||
Work in process and other |
31,684 | 27,913 | ||||||
| 128,041 | | 102,219 | |||||
September 30, 2011 | December 31, 2010 | |||||||
Note payable to bank, included
in a total loan credit facility
of 827,950 to finance the
construction related to the
Stendal mill (a) |
| 477,490 | | 500,657 | ||||
Senior notes due February 2013,
interest at 9.25% accrued and
payable semi-annually, unsecured
(b) |
| 15,341 | ||||||
Senior notes due December 2017,
interest at 9.50% accrued and
payable semi-annually, unsecured
(c) |
219,818 | 224,031 | ||||||
Subordinated convertible notes
due January 2012, interest at
8.5% accrued and payable
semi-annually (d) |
| 31,707 | ||||||
Credit agreement with a lender
with respect to a revolving
credit facility of C$40 million
(e) |
| 15,016 | ||||||
Loan payable to the
noncontrolling shareholder of
the Stendal mill (f) |
32,684 | 31,365 | ||||||
Credit agreement with a bank
with respect to a revolving
credit facility of 25,000 (g) |
| | ||||||
Investment loan agreement
with a lender with respect to
the wash press project at the
Rosenthal mill of 4,351 (h) |
2,719 | 3,807 | ||||||
Credit agreement with a bank
with respect to a revolving
credit facility of 3,500 (i) |
| | ||||||
732,711 | 821,924 | |||||||
Less: current portion |
(25,671 | ) | (39,596 | ) | ||||
Debt, less current portion |
| 707,040 | | 782,328 | ||||
Matures | Amount | |||
2011 |
| | ||
2012 |
25,671 | |||
2013 |
41,088 | |||
2014 |
40,543 | |||
2015 |
44,000 | |||
Thereafter |
581,409 | |||
| 732,711 | |||
(a) | Note payable to bank, included in a total loan facility of 827,950 to finance the
construction related to the Stendal mill (Stendal Loan Facility), interest at rates varying
from Euribor plus 0.90% to Euribor plus 1.69% (rates on amounts of borrowing at September 30,
2011 range from 2.65% to 3.55%), principal due in required installments beginning September
30, 2006 until September 30, 2017, collateralized by the assets of the Stendal mill, with 48%
and 32% guaranteed by the Federal Republic of Germany and the State of Saxony-Anhalt,
respectively, of up to 417,490 of outstanding principal, subject to a debt service reserve
account (DSRA) required to pay amounts due in the following twelve months under the terms of
the Stendal Loan Facility; payment of dividends is only permitted if certain cash flow
requirements are met. See Note 7 Derivative Transactions for a discussion of the Companys
variable-to-fixed interest rate swaps. |
On March 13, 2009, the Company finalized an agreement with its lenders to amend its Stendal Loan
Facility. The amendment deferred approximately 164,000 of scheduled principal payments until
the maturity date, September 30, 2017. The amendment also provided for a 100% cash sweep,
referred to as the Cash Sweep, of any cash, in excess of a 15,000 working capital reserve and
the guarantee amount, as discussed in Note 11, held by Stendal which will be used first to fund
the DSRA to a level sufficient to service the amounts due and payable under the Stendal Loan
Facility during the then following 12 months, which means the DSRA is Fully Funded, and second
to prepay the deferred principal amounts. As at September 30, 2011, the DSRA balance was
approximately 28,400 and increased to approximately 31,700 in October 2011. |
(b) | In February 2005, the Company issued $310 million of senior notes due February 2013 (2013
Notes), which bore interest at 9.25%, accrued and payable semi-annually, and were unsecured. |
On November 17, 2010, the Company used the proceeds from a private offering of $300 million
senior notes due 2017, described in Note 6(c) below, and cash on hand to complete a tender offer
to repurchase approximately $289 million aggregate principal amount of its 2013 Notes. Pursuant
to the FASBs Accounting Standards Codification No. 405, Liabilities Extinguishment of
Liabilities (ASC 405-20), the Company concluded that the tendering of the 2013 Notes met the
definition of a debt extinguishment. In connection with this tender offer and pursuant to FASBs
Accounting Standards Codification No. 470-50, Debt-Modifications and Extinguishments (ASC
470-50), the Company recorded a loss of approximately 7,500 to the Gain (loss) on
extinguishment of debt line in the Interim Consolidated Statement of Operations which included
the tender premium paid and the write-off of unamortized debt issue costs. |
On February 15, 2011, the Company redeemed for cash all of its outstanding 2013 Notes, for a
price equal to 100% of the principal amount of $20.5 million, plus accrued and unpaid interest
to, but not including February 15, 2011. In total, the Company paid approximately $21.5 million
(15,900) in connection with the redemption of the 2013 Notes. |
(c) | On November 17, 2010, the Company completed a private offering of $300 million in aggregate
principal amount of senior notes due 2017 (2017 Notes). The proceeds from this offering were
used to finance the tender offer and consent solicitation for approximately $289 million of
the Companys 2013 Notes (see Note 6(b)). The 2017 Notes were issued at a price of 100% of
their principal amount. The 2017 Notes will mature on December 1, 2017 and bear interest at
9.50% which is accrued and payable semi-annually. |
In August 2011, the Companys Board of Directors authorized the purchase of up to $25.0 million
of the Companys 2017 Notes from time to time, over a period ending August 2012. During August
2011, the Company purchased approximately $4.4 million of its outstanding 2017 Notes, which in
aggregate, were purchased at a nominal discount to the principal amount thereof, plus accrued
and unpaid interest to, but not including the repurchase date. Pursuant to ASC 470-50, the
Company recognized a loss of approximately 69 on the extinguishment of these notes, in the
Gain (loss) on extinguishment of debt line in the Interim Consolidated Statement of
Operations, mainly relating to the write-off of unamortized debt issuance costs. (See Note 12
Subsequent Event). |
The 2017 Notes are general unsecured senior obligations of the Company. The 2017 Notes rank
equal in right of payment with all existing and future indebtedness of the Company and senior in
right of payment to any current or future subordinated indebtedness of the Company. The 2017
Notes are effectively junior in right of payment to all borrowings of the Companys restricted
subsidiaries, including borrowings under the Companys credit agreements which are secured by
certain assets of its restricted subsidiaries. |
The Company may redeem all or a part of the 2017 Notes, upon not less than 30 days or more than
60 days notice, at the redemption prices (expressed as percentages of principal amount) equal
to 104.75% for the twelve-month period beginning on December 1, 2014, 102.38% for the
twelve-month period beginning on December 1, 2015, and 100.00% beginning on December 1, 2016,
and at any time thereafter, plus accrued and unpaid interest. |
(d) | In December 2009, the Company exchanged approximately $43.3 million of Subordinated
Convertible Notes due October 2010 (the 2010 Notes) through two private exchange agreements
with the holders thereof for approximately $43.8 million of Subordinated Convertible Notes due
January 2012 (the 2012 Notes). On January 22, 2010, through an exchange offer with the
remaining holders of the 2010 Notes, the Company exchanged a further $21.7 million of 2010
Notes for approximately $22.0 million of the Companys 2012 Notes. The Company recognized both exchange transactions of the Subordinated Convertible Notes
as extinguishments of debt in accordance with ASC 470-50, because the fair value of the embedded
conversion option changed by more than 10% in both transactions. During 2010, the Company
recognized a loss of 929 as a result of the January 22, 2010 exchange. The loss was determined
using the fair market value prevailing at the time of the transaction, and yielded an effective
interest rate of approximately 3% on the January 22, 2010 exchange. |
The 2012 Notes bore interest at 8.50%, accrued and payable semi-annually, were
convertible at any time by the holder into common shares of the Company at $3.30 per share and
were unsecured. The Company could redeem for cash all or a portion of the 2012 Notes on or
after July 15, 2011 at 100% of the principal amount plus accrued interest up to the redemption
date. During the nine months ended September 30, 2011, approximately $44.4 million of 2012
Notes were converted into 13,446,679 common shares and the Company paid approximately $1.5
million of accrued and unpaid interest. Pursuant to the 2012 Notes indenture, on July 15,
2011, the nominal amount of remaining 2012 Notes were redeemed by the Company on July 15, 2011
at par plus accrued and unpaid interest to, but not including, July 15, 2011. In accordance
with FASBs Accounting Standards Codification No. 470-20, Debt Debt with Conversions and
Other Options (ASC 470-20), the Company recorded the carrying amount of the converted 2012
Notes, which included approximately 800 of unamortized discount, as an increase to share
capital. |
(e) | Credit agreement with respect to a revolving credit facility of C$40.0 million for the Celgar
mill. The credit agreement matures May 2013. Borrowings under the credit agreement are
collateralized by the mills inventory and receivables and are restricted by a borrowing base
calculated on the mills inventory and receivables. Canadian dollar denominated amounts bear
interest at bankers acceptance plus 3.75% or Canadian prime plus 2.00%. U.S. dollar
denominated amounts bear interest at LIBOR plus 3.75% or U.S. base plus 2.00%. The Company
fully repaid this facility on March 30, 2011. As at September 30, 2011, approximately C$2.1
million of this facility was supporting letters of credit, leaving approximately C$37.9
million available. |
(f) | A loan payable by the Stendal mill to its noncontrolling shareholder bears interest at 7.00%,
and is accrued semi-annually. The loan payable is unsecured, subordinated to all liabilities
of the Stendal mill, non-recourse to the Company and its restricted subsidiaries, and is due
in 2017. The balance includes principal and accrued interest. During the first quarter of
2010, the noncontrolling shareholder converted 6,275 of accrued interest into a capital
contribution. |
(g) | A 25,000 working capital facility at the Rosenthal mill that matures in December 2012.
Borrowings under the facility are collateralized by the mills inventory and receivables and
bear interest at Euribor plus 3.50%. As at September 30, 2011, approximately 2,200 of this
facility was supporting bank guarantees leaving approximately 22,800 available. |
(h) | A four-year amortizing investment loan agreement with a lender relating to the new wash press
at the Rosenthal mill with a total facility of 4,351 bearing interest at the rate of Euribor
plus 2.75% that matures August 2013. Borrowings under this agreement are secured by the new
wash press equipment. As at September 30, 2011, this facility was drawn by 2,719 and was
accruing interest at a rate of 4.57%. |
(i) | On February 8, 2010 the Rosenthal mill finalized a credit agreement with a lender for a
3,500 facility maturing in December 2012. Borrowings under this facility bear interest
at the rate of the 3-month Euribor plus 3.50% and are secured by certain land at the
Rosenthal mill. As at September 30, 2011, this facility was undrawn. |
Three Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Post- | Post- | |||||||||||||||
Pension | Retirement | Pension | Retirement | |||||||||||||
Benefits | Benefits | Benefits | Benefits | |||||||||||||
Service cost |
| 22 | | 117 | | 21 | | 100 | ||||||||
Interest cost |
376 | 203 | 425 | 196 | ||||||||||||
Expected return on plan assets |
(385 | ) | | (398 | ) | | ||||||||||
Recognized net loss (gain) |
127 | (17 | ) | 111 | (79 | ) | ||||||||||
Net periodic benefit cost |
| 140 | | 303 | | 159 | | 217 | ||||||||
Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Post- | Post- | |||||||||||||||
Pension | Retirement | Pension | Retirement | |||||||||||||
Benefits | Benefits | Benefits | Benefits | |||||||||||||
Service cost |
| 65 | | 352 | | 61 | | 294 | ||||||||
Interest cost |
1,134 | 612 | 1,257 | 580 | ||||||||||||
Expected return on plan assets |
(1,163 | ) | | (1,175 | ) | | ||||||||||
Recognized net loss (gain) |
383 | (52 | ) | 329 | (233 | ) | ||||||||||
Net periodic benefit cost |
| 419 | | 912 | | 472 | | 641 | ||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Cash and cash equivalents |
| 127,758 | | 127,758 | | 99,022 | | 99,022 | ||||||||
Marketable securities |
4,191 | 4,191 | 275 | 275 | ||||||||||||
Receivables |
110,296 | 110,296 | 121,709 | 121,709 | ||||||||||||
Note receivable |
| | 2,978 | 2,978 | ||||||||||||
Accounts payable and accrued expenses |
109,845 | 109,845 | 84,873 | 84,873 | ||||||||||||
Debt |
732,711 | 707,620 | 821,924 | 847,875 | ||||||||||||
Interest rate derivative contract liability |
51,553 | 51,553 | 50,973 | 50,973 |
Fair value measurements at September 30, 2011 using: | ||||||||||||||||
Quoted prices | ||||||||||||||||
in active markets | Significant other | Significant | ||||||||||||||
for identical assets | observable inputs | unobservable inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Assets |
||||||||||||||||
Marketable securities (a) |
||||||||||||||||
German federal
government
bonds |
| 4,013 | | | | | | 4,013 | ||||||||
Exchange traded
equities |
178 | | | 178 | ||||||||||||
Total |
| 4,191 | | | | | | 4,191 | ||||||||
Liabilities |
||||||||||||||||
Derivatives (b) |
||||||||||||||||
Interest rate swap |
| | | 51,553 | | | | 51,553 | ||||||||
(a) | Based on observable market data. |
|
(b) | Based on observable inputs for the liability (yield curves observable at specific intervals). |
September 30, 2011 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
ASSETS |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
| 60,426 | | 67,332 | | | | 127,758 | ||||||||
Marketable securities |
4,013 | | | 4,013 | ||||||||||||
Receivables |
60,639 | 49,657 | | 110,296 | ||||||||||||
Inventories |
71,404 | 56,637 | | 128,041 | ||||||||||||
Prepaid expenses and other |
6,309 | 3,598 | | 9,907 | ||||||||||||
Deferred income tax |
24,951 | | | 24,951 | ||||||||||||
Total current assets |
227,742 | 177,224 | | 404,966 | ||||||||||||
Long-term assets |
||||||||||||||||
Property, plant and equipment |
345,077 | 470,650 | | 815,727 | ||||||||||||
Deferred note issuance and other |
6,229 | 3,714 | | 9,943 | ||||||||||||
Due from unrestricted group |
86,623 | | (86,623 | ) | | |||||||||||
Total assets |
| 665,671 | | 651,588 | | (86,623 | ) | | 1,230,636 | |||||||
LIABILITIES |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable and accrued expenses |
| 56,258 | | 53,587 | | | | 109,845 | ||||||||
Pension and other post-retirement
benefit obligations |
694 | | | 694 | ||||||||||||
Debt |
1,088 | 24,583 | | 25,671 | ||||||||||||
Total current liabilities |
58,040 | 78,170 | | 136,210 | ||||||||||||
Long-term liabilities |
||||||||||||||||
Debt |
221,449 | 485,591 | | 707,040 | ||||||||||||
Due to restricted group |
| 86,623 | (86,623 | ) | | |||||||||||
Unrealized interest rate derivative losses |
| 51,553 | | 51,553 | ||||||||||||
Pension and other post-retirement
benefit obligations |
23,010 | | | 23,010 | ||||||||||||
Capital leases and other |
6,557 | 5,300 | | 11,857 | ||||||||||||
Deferred income tax |
14,413 | | | 14,413 | ||||||||||||
Total liabilities |
323,469 | 707,237 | (86,623 | ) | 944,083 | |||||||||||
EQUITY |
||||||||||||||||
Total shareholders equity (deficit) |
342,202 | (38,320 | ) | | 303,882 | |||||||||||
Noncontrolling interest (deficit) |
| (17,329 | ) | | (17,329 | ) | ||||||||||
Total liabilities and equity |
| 665,671 | | 651,588 | | (86,623 | ) | | 1,230,636 | |||||||
December 31, 2010 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
ASSETS |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
| 50,654 | | 48,368 | | | | 99,022 | ||||||||
Receivables |
70,865 | 50,844 | | 121,709 | ||||||||||||
Inventories |
60,910 | 41,309 | | 102,219 | ||||||||||||
Prepaid expenses and other |
6,840 | 4,520 | | 11,360 | ||||||||||||
Deferred income tax |
22,570 | | | 22,570 | ||||||||||||
Total current assets |
211,839 | 145,041 | | 356,880 | ||||||||||||
Long-term assets |
||||||||||||||||
Property, plant and equipment |
362,274 | 484,493 | | 846,767 | ||||||||||||
Deferred note issuance and other |
6,903 | 4,179 | | 11,082 | ||||||||||||
Due from unrestricted group |
80,582 | | (80,582 | ) | | |||||||||||
Note receivable |
1,346 | | | 1,346 | ||||||||||||
Total assets |
| 662,944 | | 633,713 | | (80,582 | ) | | 1,216,075 | |||||||
LIABILITIES |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable and accrued expenses |
| 44,015 | | 40,858 | | | | 84,873 | ||||||||
Pension and other post-retirement benefit
obligations |
728 | | | 728 | ||||||||||||
Debt |
16,429 | 23,167 | | 39,596 | ||||||||||||
Total current liabilities |
61,172 | 64,025 | | 125,197 | ||||||||||||
Long-term liabilities |
||||||||||||||||
Debt |
273,473 | 508,855 | | 782,328 | ||||||||||||
Due to restricted group |
| 80,582 | (80,582 | ) | | |||||||||||
Unrealized interest rate derivative losses |
| 50,973 | | 50,973 | ||||||||||||
Pension and other post-retirement benefit
obligations |
24,236 | | | 24,236 | ||||||||||||
Capital leases and other |
7,154 | 4,856 | | 12,010 | ||||||||||||
Deferred income tax |
7,768 | | | 7,768 | ||||||||||||
Total liabilities |
373,803 | 709,291 | (80,582 | ) | 1,002,512 | |||||||||||
EQUITY |
||||||||||||||||
Total shareholders equity (deficit) |
289,141 | (53,073 | ) | | 236,068 | |||||||||||
Noncontrolling interest (deficit) |
| (22,505 | ) | | (22,505 | ) | ||||||||||
Total liabilities and equity |
| 662,944 | | 633,713 | | (80,582 | ) | | 1,216,075 | |||||||
Three Months Ended September 30, 2011 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
Revenues |
||||||||||||||||
Pulp |
| 111,634 | | 78,792 | | | | 190,426 | ||||||||
Energy |
6,121 | 8,231 | | 14,352 | ||||||||||||
117,755 | 87,023 | | 204,778 | |||||||||||||
Operating costs |
85,962 | 60,923 | | 146,885 | ||||||||||||
Operating depreciation and amortization |
7,364 | 6,468 | | 13,832 | ||||||||||||
Selling, general and administrative expenses and other |
6,080 | 2,674 | | 8,754 | ||||||||||||
99,406 | 70,065 | | 169,471 | |||||||||||||
Operating income (loss) |
18,349 | 16,958 | | 35,307 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(5,496 | ) | (9,869 | ) | 1,248 | (14,117 | ) | |||||||||
Investment income (loss) |
1,334 | 184 | (1,248 | ) | 270 | |||||||||||
Foreign exchange gain (loss) on debt |
(181 | ) | | | (181 | ) | ||||||||||
Gain (loss) on extinguishment of debt |
(69 | ) | | | (69 | ) | ||||||||||
Gain (loss) on derivative instruments |
| (10,484 | ) | | (10,484 | ) | ||||||||||
Total other income (expense) |
(4,412 | ) | (20,169 | ) | | (24,581 | ) | |||||||||
Income (loss) before income taxes |
13,937 | (3,211 | ) | | 10,726 | |||||||||||
Income tax benefit (provision) |
(2,566 | ) | (558 | ) | | (3,124 | ) | |||||||||
Net income (loss) |
11,371 | (3,769 | ) | | 7,602 | |||||||||||
Less: net loss (income) attributable to
noncontrolling interest |
| 838 | | 838 | ||||||||||||
Net income (loss) attributable to common shareholders |
| 11,371 | | (2,931 | ) | | | | 8,440 | |||||||
Three Months Ended September 30, 2010 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
Revenues |
||||||||||||||||
Pulp |
| 123,518 | | 101,179 | | | | 224,697 | ||||||||
Energy |
1,535 | 8,186 | | 9,721 | ||||||||||||
125,053 | 109,365 | | 234,418 | |||||||||||||
Operating costs |
91,528 | 70,765 | | 162,293 | ||||||||||||
Operating depreciation and amortization |
7,514 | 6,473 | | 13,987 | ||||||||||||
Selling, general and administrative expenses and other |
3,221 | 3,506 | | 6,727 | ||||||||||||
102,263 | 80,744 | | 183,007 | |||||||||||||
Operating income (loss) |
22,790 | 28,621 | | 51,411 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(8,796 | ) | (10,213 | ) | 1,189 | (17,820 | ) | |||||||||
Investment income (loss) |
1,246 | 36 | (1,189 | ) | 93 | |||||||||||
Foreign exchange gain (loss) on debt |
9,927 | | | 9,927 | ||||||||||||
Gain (loss) on derivative instruments |
| 485 | | 485 | ||||||||||||
Total other income (expense) |
2,377 | (9,692 | ) | | (7,315 | ) | ||||||||||
Income (loss) before income taxes |
25,167 | 18,929 | | 44,096 | ||||||||||||
Income tax benefit (provision) |
8,849 | (1,694 | ) | | 7,155 | |||||||||||
Net income (loss) |
34,016 | 17,235 | | 51,251 | ||||||||||||
Less: net loss (income) attributable to
noncontrolling interest |
| (5,116 | ) | | (5,116 | ) | ||||||||||
Net income (loss) attributable to common shareholders |
| 34,016 | | 12,119 | | | | 46,135 | ||||||||
Nine Months Ended September 30, 2011 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
Revenues |
||||||||||||||||
Pulp |
| 352,098 | | 266,060 | | | | 618,158 | ||||||||
Energy |
17,668 | 24,302 | | 41,970 | ||||||||||||
369,766 | 290,362 | | 660,128 | |||||||||||||
Operating costs |
272,162 | 210,613 | | 482,775 | ||||||||||||
Operating depreciation and amortization |
22,379 | 19,398 | | 41,777 | ||||||||||||
Selling, general and administrative expenses and other |
17,572 | 9,842 | | 27,414 | ||||||||||||
312,113 | 239,853 | | 551,966 | |||||||||||||
Operating income (loss) |
57,653 | 50,509 | | 108,162 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(19,202 | ) | (29,404 | ) | 3,700 | (44,906 | ) | |||||||||
Investment income (loss) |
3,918 | 515 | (3,700 | ) | 733 | |||||||||||
Foreign exchange gain (loss) on debt |
1,272 | | | 1,272 | ||||||||||||
Gain (loss) on extinguishment of debt |
(69 | ) | | | (69 | ) | ||||||||||
Gain (loss) on derivative instruments |
| (580 | ) | | (580 | ) | ||||||||||
Total other income (expense) |
(14,081 | ) | (29,469 | ) | | (43,550 | ) | |||||||||
Income (loss) before income taxes |
43,572 | 21,040 | | 64,612 | ||||||||||||
Income tax benefit (provision) |
(5,941 | ) | (1,620 | ) | | (7,561 | ) | |||||||||
Net income (loss) |
37,631 | 19,420 | | 57,051 | ||||||||||||
Less: net loss (income) attributable to
noncontrolling interest |
| (5,175 | ) | | (5,175 | ) | ||||||||||
Net income (loss) attributable to common shareholders |
| 37,631 | | 14,245 | | | | 51,876 | ||||||||
Nine Months Ended September 30, 2010 | ||||||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||||||
Group | Subsidiaries | Eliminations | Group | |||||||||||||
Revenues |
||||||||||||||||
Pulp |
| 354,775 | | 269,336 | | | | 624,111 | ||||||||
Energy |
8,750 | 22,033 | | 30,783 | ||||||||||||
363,525 | 291,369 | | 654,894 | |||||||||||||
Operating costs |
269,063 | 201,914 | | 470,977 | ||||||||||||
Operating depreciation and amortization |
22,355 | 19,462 | | 41,817 | ||||||||||||
Selling, general and administrative expenses and other |
14,792 | 9,985 | | 24,777 | ||||||||||||
306,210 | 231,361 | | 537,571 | |||||||||||||
Operating income (loss) |
57,315 | 60,008 | | 117,323 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(24,073 | ) | (30,593 | ) | 3,525 | (51,141 | ) | |||||||||
Investment income (loss) |
3,770 | 59 | (3,525 | ) | 304 | |||||||||||
Foreign exchange gain (loss) on debt |
(4,675 | ) | | | (4,675 | ) | ||||||||||
Gain (loss) on extinguishment of debt |
(929 | ) | | | (929 | ) | ||||||||||
Gain (loss) on derivative instruments |
| (10,523 | ) | | (10,523 | ) | ||||||||||
Total other income (expense) |
(25,907 | ) | (41,057 | ) | | (66,964 | ) | |||||||||
Income (loss) before income taxes |
31,408 | 18,951 | | 50,359 | ||||||||||||
Income tax benefit (provision) |
8,354 | (2,722 | ) | | 5,632 | |||||||||||
Net income (loss) |
39,762 | 16,229 | | 55,991 | ||||||||||||
Less: net loss (income) attributable to
noncontrolling interest |
| (5,001 | ) | | (5,001 | ) | ||||||||||
Net income (loss) attributable to common shareholders |
| 39,762 | | 11,228 | | | | 50,990 | ||||||||
Three Months Ended September 30, 2011 | ||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||
Group | Group | Group | ||||||||||
Cash flows from (used in) operating activities |
||||||||||||
Net income (loss) attributable to common shareholders |
| 11,371 | | (2,931 | ) | | 8,440 | |||||
Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activities |
||||||||||||
Loss (gain) on derivative instruments |
| 10,484 | 10,484 | |||||||||
Foreign exchange loss (gain) on debt |
181 | | 181 | |||||||||
Loss (gain) on extinguishment of debt |
69 | | 69 | |||||||||
Depreciation and amortization |
7,425 | 6,468 | 13,893 | |||||||||
Accretion expense (income) |
(168 | ) | | (168 | ) | |||||||
Noncontrolling interest |
| (838 | ) | (838 | ) | |||||||
Deferred income taxes |
1,567 | | 1,567 | |||||||||
Stock compensation expense |
305 | | 305 | |||||||||
Pension and other post-retirement expense, net of funding |
(95 | ) | | (95 | ) | |||||||
Other |
209 | 150 | 359 | |||||||||
Changes in current assets and liabilities |
||||||||||||
Receivables |
(12,224 | ) | 2,772 | (9,452 | ) | |||||||
Inventories |
(14,899 | ) | (8,877 | ) | (23,776 | ) | ||||||
Accounts payable and accrued expenses |
(1,704 | ) | 2,022 | 318 | ||||||||
Other(1) |
(4,020 | ) | 3,268 | (752 | ) | |||||||
Net cash from (used in) operating activities |
(11,983 | ) | 12,518 | 535 | ||||||||
Cash flows from (used in) investing activities |
||||||||||||
Purchase of property, plant and equipment |
(7,859 | ) | (2,438 | ) | (10,297 | ) | ||||||
Proceeds on sale of property, plant and equipment |
76 | 1,488 | 1,564 | |||||||||
Note receivable |
2,064 | | 2,064 | |||||||||
Purchase of marketable securities |
(4,018 | ) | | (4,018 | ) | |||||||
Net cash from (used in) investing activities |
(9,737 | ) | (950 | ) | (10,687 | ) | ||||||
Cash flows from (used in) financing activities |
||||||||||||
Repayment of notes payable and debt |
(3,576 | ) | (8,584 | ) | (12,160 | ) | ||||||
Repayment of capital lease obligations |
(270 | ) | (506 | ) | (776 | ) | ||||||
Proceeds from government grants |
4,470 | | 4,470 | |||||||||
Purchase of treasury shares |
(7,477 | ) | | (7,477 | ) | |||||||
Net cash from (used in) financing activities |
(6,853 | ) | (9,090 | ) | (15,943 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
2,058 | | 2,058 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(26,515 | ) | 2,478 | (24,037 | ) | |||||||
Cash and cash equivalents, beginning of period |
86,941 | 64,854 | 151,795 | |||||||||
Cash and cash equivalents, end of period |
| 60,426 | | 67,332 | | 127,758 | ||||||
(1) | Includes intercompany working capital related transactions. |
Three Months Ended September 30, 2010 | ||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||
Group | Group | Group | ||||||||||
Cash flows from (used in) operating activities |
||||||||||||
Net income (loss) attributable to common shareholders |
| 34,016 | | 12,119 | | 46,135 | ||||||
Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activities |
||||||||||||
Loss (gain) on derivative instruments |
| (485 | ) | (485 | ) | |||||||
Foreign exchange loss (gain) on debt |
(9,927 | ) | | (9,927 | ) | |||||||
Depreciation and amortization |
7,582 | 6,473 | 14,055 | |||||||||
Accretion expense (income) |
1,111 | | 1,111 | |||||||||
Noncontrolling interest |
| 5,116 | 5,116 | |||||||||
Deferred income taxes |
(9,382 | ) | | (9,382 | ) | |||||||
Stock compensation expense |
540 | | 540 | |||||||||
Pension and other post-retirement expense, net of funding |
96 | | 96 | |||||||||
Other |
286 | 703 | 989 | |||||||||
Changes in current assets and liabilities |
||||||||||||
Receivables |
13,790 | 5,801 | 19,591 | |||||||||
Inventories |
(13,209 | ) | (12,796 | ) | (26,005 | ) | ||||||
Accounts payable and accrued expenses |
(2,127 | ) | 3,941 | 1,814 | ||||||||
Other(1) |
(4,242 | ) | (641 | ) | (4,883 | ) | ||||||
Net cash from (used in) operating activities |
18,534 | 20,231 | 38,765 | |||||||||
Cash flows from (used in) investing activities |
||||||||||||
Purchase of property, plant and equipment |
(8,392 | ) | (92 | ) | (8,484 | ) | ||||||
Proceeds on sale of property, plant and equipment |
27 | 1 | 28 | |||||||||
Notes receivable |
216 | | 216 | |||||||||
Net cash from (used in) investing activities |
(8,149 | ) | (91 | ) | (8,240 | ) | ||||||
Cash flows from (used in) financing activities |
||||||||||||
Repayment of notes payable and debt |
(544 | ) | (5,667 | ) | (6,211 | ) | ||||||
Repayment of capital lease obligations |
(220 | ) | (418 | ) | (638 | ) | ||||||
Proceeds from (repayment of) credit facilities, net |
(4,057 | ) | | (4,057 | ) | |||||||
Proceeds from government grants |
6,778 | | 6,778 | |||||||||
Net cash from (used in) financing activities |
1,957 | (6,085 | ) | (4,128 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
(3,416 | ) | | (3,416 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
8,926 | 14,055 | 22,981 | |||||||||
Cash and cash equivalents, beginning of period |
39,485 | 22,660 | 62,145 | |||||||||
Cash and cash equivalents, end of period |
| 48,411 | | 36,715 | | 85,126 | ||||||
(1) | Includes intercompany working capital related transactions. |
Nine Months Ended September 30, 2011 | ||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||
Group | Group | Group | ||||||||||
Cash flows from (used in) operating activities |
||||||||||||
Net income (loss) attributable to common shareholders |
| 37,631 | | 14,245 | | 51,876 | ||||||
Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activities |
||||||||||||
Loss (gain) on derivative instruments |
| 580 | 580 | |||||||||
Foreign exchange loss (gain) on debt |
(1,272 | ) | | (1,272 | ) | |||||||
Loss (gain) on extinguishment of debt |
69 | | 69 | |||||||||
Depreciation and amortization |
22,562 | 19,398 | 41,960 | |||||||||
Accretion expense (income) |
591 | | 591 | |||||||||
Noncontrolling interest |
| 5,175 | 5,175 | |||||||||
Deferred income taxes |
3,707 | | 3,707 | |||||||||
Stock compensation expense |
2,844 | | 2,844 | |||||||||
Pension and other post-retirement expense, net of funding |
(102 | ) | | (102 | ) | |||||||
Other |
574 | 1,388 | 1,962 | |||||||||
Changes in current assets and liabilities |
||||||||||||
Receivables |
2,007 | 1,241 | 3,248 | |||||||||
Inventories |
(12,534 | ) | (15,328 | ) | (27,862 | ) | ||||||
Accounts payable and accrued expenses |
11,979 | 12,894 | 24,873 | |||||||||
Other(1) |
(7,889 | ) | 7,981 | 92 | ||||||||
Net cash from (used in) operating activities |
60,167 | 47,574 | 107,741 | |||||||||
Cash flows from (used in) investing activities |
||||||||||||
Purchase of property, plant and equipment |
(19,860 | ) | (6,262 | ) | (26,122 | ) | ||||||
Proceeds on sale of property, plant and equipment |
95 | 1,849 | 1,944 | |||||||||
Note receivable |
2,835 | | 2,835 | |||||||||
Purchase of marketable securities |
(4,018 | ) | | (4,018 | ) | |||||||
Net cash from (used in) investing activities |
(20,948 | ) | (4,413 | ) | (25,361 | ) | ||||||
Cash flows from (used in) financing activities |
||||||||||||
Repayment of notes payable and debt |
(19,344 | ) | (23,167 | ) | (42,511 | ) | ||||||
Repayment of capital lease obligations |
(1,131 | ) | (1,138 | ) | (2,269 | ) | ||||||
Proceeds from (repayment of) credit facilities, net |
(14,652 | ) | | (14,652 | ) | |||||||
Proceeds from government grants |
13,311 | 108 | 13,419 | |||||||||
Purchase of treasury shares |
(7,477 | ) | | (7,477 | ) | |||||||
Net cash from (used in) financing activities |
(29,293 | ) | (24,197 | ) | (53,490 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(154 | ) | | (154 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
9,772 | 18,964 | 28,736 | |||||||||
Cash and cash equivalents, beginning of period |
50,654 | 48,368 | 99,022 | |||||||||
Cash and cash equivalents, end of period |
| 60,426 | | 67,332 | | 127,758 | ||||||
(1) | Includes intercompany working capital related transactions. |
Nine Months Ended September 30, 2010 | ||||||||||||
Restricted | Unrestricted | Consolidated | ||||||||||
Group | Group | Group | ||||||||||
Cash flows from (used in) operating activities |
||||||||||||
Net income (loss) attributable to common shareholders |
| 39,762 | | 11,228 | | 50,990 | ||||||
Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activities |
||||||||||||
Loss (gain) on derivative instruments |
| 10,523 | 10,523 | |||||||||
Foreign exchange loss (gain) on debt |
4,675 | | 4,675 | |||||||||
Loss (gain) on extinguishment of debt |
929 | | 929 | |||||||||
Depreciation and amortization |
22,590 | 19,462 | 42,052 | |||||||||
Accretion expense (income) |
2,056 | | 2,056 | |||||||||
Noncontrolling interest |
| 5,001 | 5,001 | |||||||||
Deferred income taxes |
(9,382 | ) | | (9,382 | ) | |||||||
Stock compensation expense |
1,273 | | 1,273 | |||||||||
Pension and other post-retirement expense, net of funding |
428 | | 428 | |||||||||
Other |
856 | 1,980 | 2,836 | |||||||||
Changes in current assets and liabilities |
||||||||||||
Receivables |
(12,778 | ) | (13,573 | ) | (26,351 | ) | ||||||
Inventories |
(12,592 | ) | (24,396 | ) | (36,988 | ) | ||||||
Accounts payable and accrued expenses |
5,595 | 9,551 | 15,146 | |||||||||
Other(1) |
(8,040 | ) | 2,563 | (5,477 | ) | |||||||
Net cash from (used in) operating activities |
35,372 | 22,339 | 57,711 | |||||||||
Cash flows from (used in) investing activities |
||||||||||||
Purchase of property, plant and equipment |
(27,467 | ) | (1,409 | ) | (28,876 | ) | ||||||
Proceeds on sale of property, plant and equipment |
90 | 487 | 577 | |||||||||
Note receivable |
711 | | 711 | |||||||||
Net cash from (used in) investing activities |
(26,666 | ) | (922 | ) | (27,588 | ) | ||||||
Cash flows from (used in) financing activities |
||||||||||||
Repayment of notes payable and debt |
(544 | ) | (13,917 | ) | (14,461 | ) | ||||||
Repayment of capital lease obligations |
(804 | ) | (1,441 | ) | (2,245 | ) | ||||||
Proceeds from borrowings of notes payable and debt |
840 | | 840 | |||||||||
Proceeds from (repayment of) credit facilities, net |
1,493 | | 1,493 | |||||||||
Proceeds from government grants |
17,337 | | 17,337 | |||||||||
Net cash from (used in) financing activities |
18,322 | (15,358 | ) | 2,964 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
748 | | 748 | |||||||||
Net increase (decrease) in cash and cash equivalents |
27,776 | 6,059 | 33,835 | |||||||||
Cash and cash equivalents, beginning of period |
20,635 | 30,656 | 51,291 | |||||||||
Cash and cash equivalents, end of period |
| 48,411 | | 36,715 | | 85,126 | ||||||
(1) | Includes intercompany working capital related transactions. |
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Pulp Production (000 ADMTs) |
362.3 | 380.9 | 1,088.8 | 1,070.0 | ||||||||||||
Scheduled Production Downtime (000 ADMTs) |
8.3 | 8.3 | 24.5 | 43.5 | ||||||||||||
Pulp Sales (000 ADMTs) |
321.3 | 344.8 | 1,027.9 | 1,042.6 | ||||||||||||
Pulp Revenues (in millions) |
| 190.4 | | 224.7 | | 618.2 | | 624.1 | ||||||||
Average NBSK pulp list prices in Europe ($/ADMT) |
$ | 980 | $ | 980 | $ | 986 | $ | 932 | ||||||||
Average NBSK pulp list prices in Europe (/ADMT) |
| 694 | | 758 | | 701 | | 708 | ||||||||
Average pulp sales realizations (/ADMT)(1) |
| 584 | | 642 | | 592 | | 590 | ||||||||
Energy Production (000 MWh) |
402.5 | 330.8 | 1,230.9 | 1,051.1 | ||||||||||||
Energy Sales (000 MWh) |
149.3 | 119.1 | 483.1 | 370.3 | ||||||||||||
Energy Revenue (in millions) |
| 14.4 | | 9.7 | | 42.0 | | 30.8 | ||||||||
Average energy sales realizations (/MWh) |
| 96 | | 82 | | 87 | | 83 | ||||||||
Average Spot Currency Exchange Rates |
||||||||||||||||
/ $(2) |
0.7084 | 0.7729 | 0.7110 | 0.7608 | ||||||||||||
C$ / $(2) |
0.9803 | 1.0385 | 0.9778 | 1.0358 | ||||||||||||
C$ / (3) |
1.3835 | 1.3438 | 1.3752 | 1.3639 |
(1) | Average realized pulp prices for the periods indicated reflect customer discounts and pulp
price movements between the order and shipment date. |
|
(2) | Average Federal Reserve Bank of New York noon spot rate over the reporting period. |
|
(3) | Average Bank of Canada noon spot rates over the reporting period. |
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Net income attributable to common shareholders |
| 8,440 | | 46,135 | ||||
Net income (loss) attributable to noncontrolling interest |
(838 | ) | 5,116 | |||||
Income taxes (benefits) |
3,124 | (7,155 | ) | |||||
Interest expense |
14,117 | 17,820 | ||||||
Investment income |
(270 | ) | (93 | ) | ||||
Foreign exchange (gain) loss on debt |
181 | (9,927 | ) | |||||
Loss on extinguishment of debt |
69 | | ||||||
Loss (gain) on derivative financial instruments |
10,484 | (485 | ) | |||||
Operating income |
35,307 | 51,411 | ||||||
Add: Depreciation and amortization |
13,893 | 14,055 | ||||||
Operating EBITDA |
| 49,200 | | 65,466 | ||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Net income attributable to common shareholders |
| 51,876 | | 50,990 | ||||
Net income attributable to noncontrolling interest |
5,175 | 5,001 | ||||||
Income taxes (benefits) |
7,561 | (5,632 | ) | |||||
Interest expense |
44,906 | 51,141 | ||||||
Investment income |
(733 | ) | (304 | ) | ||||
Foreign exchange (gain) loss on debt |
(1,272 | ) | 4,675 | |||||
Loss on extinguishment of debt |
69 | 929 | ||||||
Loss on derivative instruments |
580 | 10,523 | ||||||
Operating income |
108,162 | 117,323 | ||||||
Add: Depreciation and amortization |
41,960 | 42,052 | ||||||
Operating EBITDA |
| 150,122 | | 159,375 | ||||
As at | As at | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Financial Position |
||||||||
Cash and cash equivalents |
| 127,758 | | 99,022 | ||||
Marketable securities(1) |
4,191 | 275 | ||||||
Working capital |
268,756 | 231,683 | ||||||
Property, plant and equipment |
815,727 | 846,767 | ||||||
Total assets |
1,230,636 | 1,216,075 | ||||||
Long-term liabilities |
807,873 | 877,315 | ||||||
Total equity |
286,553 | 213,563 |
(1) | Principally comprised of German federal government bonds with a maturity of less than one year. |
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Restricted Group(1) |
||||||||
Net income |
| 11,371 | | 34,016 | ||||
Income taxes (benefits) |
2,566 | (8,849 | ) | |||||
Interest expense |
5,496 | 8,796 | ||||||
Investment income |
(1,334 | ) | (1,246 | ) | ||||
Foreign exchange (gain) loss on debt |
181 | (9,927 | ) | |||||
Loss on extinguishment of debt |
69 | | ||||||
Operating income |
18,349 | 22,790 | ||||||
Add: Depreciation and amortization |
7,425 | 7,582 | ||||||
Operating EBITDA |
| 25,774 | | 30,372 | ||||
(1) | See Note 13 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. |
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Restricted Group(1) |
||||||||
Net income |
| 37,631 | | 39,762 | ||||
Income taxes (benefits) |
5,941 | (8,354 | ) | |||||
Interest expense |
19,202 | 24,073 | ||||||
Investment income |
(3,918 | ) | (3,770 | ) | ||||
Foreign exchange (gain) loss on debt |
(1,272 | ) | 4,675 | |||||
Loss on extinguishment of debt |
69 | 929 | ||||||
Operating income |
57,653 | 57,315 | ||||||
Add: Depreciation and amortization |
22,562 | 22,590 | ||||||
Operating EBITDA |
| 80,215 | | 79,905 | ||||
(1) | See Note 13 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. |
As at | As at | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Restricted Group Financial Position(1) |
||||||||
Cash and cash equivalents |
| 60,426 | | 50,654 | ||||
Marketable securities(2) |
4,191 | 275 | ||||||
Working capital |
169,702 | 150,667 | ||||||
Property, plant and equipment |
345,077 | 362,274 | ||||||
Total assets |
665,671 | 662,944 | ||||||
Long-term liabilities |
265,429 | 312,631 | ||||||
Total equity |
342,202 | 289,141 |
(1) | See Note 13 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. |
|
(2) | Principally comprised of German federal government bonds with a maturity of less than one
year. |
| the highly cyclical nature of our business; |
||
| our level of indebtedness could negatively impact our financial condition and
results of operations; |
||
| a weak global economy could adversely affect our business and financial results and
have a material adverse effect on our liquidity and capital resources; |
||
| in a weak pulp price and demand environment there can be no assurance that we will
be able to generate sufficient cash flows, to service, repay or refinance debt; |
||
| cyclical fluctuations in the price and supply of our raw materials could adversely
affect our business; |
||
| we operate in highly competitive markets; |
||
| we are exposed to currency exchange rate and interest rate fluctuations; |
| increases in our capital expenditures or maintenance costs could have a material
adverse effect on our cash flow and our ability to satisfy our debt obligations; |
||
| we use derivatives to manage certain risks which has caused significant fluctuations
in our operating results; |
||
| we are subject to extensive environmental regulation and we could have environmental
liabilities at our facilities; |
||
| our business is subject to risks associated with climate change and social
government responses thereto; |
||
| we are subject to risks related to our employees; |
||
| we rely on German federal and state government grants and guarantees; |
||
| risks relating to our participation in the European Union Emissions Trading Scheme
and the application of Germanys Renewable Energy Resources Act; |
||
| we are dependent on key personnel; |
||
| we may experience material disruptions to our production; |
||
| we may incur losses as a result of unforeseen or catastrophic events, including the
emergence of a pandemic, terrorist attacks or natural disasters; |
||
| our insurance coverage may not be adequate; and |
||
| we rely on third parties for transportation services. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit | ||||
No. | Description | |||
31.1 | Section 302 Certification of Chief Executive Officer |
|||
31.2 | Section 302 Certification of Chief Financial Officer |
|||
32.1 | * | Section 906 Certification of Chief Executive Officer |
||
32.2 | * | Section 906 Certification of Chief Financial Officer |
* | In accordance with Release 33-8212 of the Commission, these Certifications: (i) are
furnished to the Commission and are not filed for the purposes of liability under the
Securities Exchange Act of 1934, as amended; and (ii) are not to be subject to automatic
incorporation by reference into any of the Companys registration statements filed under the
Securities Act of 1933, as amended for the purposes of liability thereunder or any offering
memorandum, unless the Company specifically incorporates them by reference therein. |
MERCER INTERNATIONAL INC. |
||||
By: | /s/ David M. Gandossi | |||
David M. Gandossi | ||||
Secretary and Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Mercer International Inc. (the
Registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the periods presented in this
report; |
4. | The Registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the Registrant, including its consolidated subsidiaries, is made known to us by
others with those entities, particularly during the period in which this report is being
prepared; |
||
b) | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
||
c) | Evaluated the effectiveness of the Registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
||
d) | Disclosed in this report any change in the Registrants internal control over financial
reporting that occurred during the Registrants most recent fiscal quarter (the
Registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal control
over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors (or persons performing the equivalent
functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the Registrants ability to record, process, summarize and report financial information;
and |
||
b) | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the Registrants internal control over financial reporting. |
/s/ Jimmy S.H. Lee | ||||
Jimmy S.H. Lee | ||||
Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Mercer International Inc. (the
Registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the periods presented in this
report; |
4. | The Registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the Registrant, including its consolidated subsidiaries, is made known to us by
others with those entities, particularly during the period in which this report is being
prepared; |
||
b) | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
||
c) | Evaluated the effectiveness of the Registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
||
d) | Disclosed in this report any change in the Registrants internal control over financial
reporting that occurred during the Registrants most recent fiscal quarter (the
Registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal control
over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors (or persons performing the equivalent
functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the Registrants ability to record, process, summarize and report financial information;
and |
||
b) | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the Registrants internal control over financial reporting. |
/s/ David M. Gandossi | ||||
David M. Gandossi | ||||
Chief Financial Officer |
(1) | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended
September 30, 2011 (the Report) fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
||
(2) | the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
/s/ Jimmy S.H. Lee | ||||
Jimmy S.H. Lee | ||||
Chief Executive Officer |
(1) | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended
September 30, 2011 (the Report) fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
||
(2) | the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
/s/ David M. Gandossi | ||||
David M. Gandossi | ||||
Chief Financial Officer |
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) (EUR €) In Thousands | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net Income (Loss) Attributable to Parent [Abstract] | ||||
Net income (loss) attributable to common shareholders | € 8,440 | € 46,135 | € 51,876 | € 50,990 |
Retained earnings (deficit), beginning of period | 32,480 | (92,380) | (10,956) | (97,235) |
Retirement of treasury shares | (1,134) | 0 | (1,134) | 0 |
Retained earnings (deficit), end of period | € 39,786 | € (46,245) | € 39,786 | € (46,245) |
Document and Entity Information | 3 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 04, 2011 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | MERC | |
Entity Registrant Name | MERCER INTERNATIONAL INC. | |
Entity Central Index Key | 0001333274 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 55,779,204 |
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Debt | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Note 6. Debt Debt consists of the following:
The Company made principal repayments under these facilities of 42,511 during the nine months ended September 30, 2011 (2010 – 14,461). As of September 30, 2011, the principal maturities of debt are as follows:
Certain of the Company's debt instruments were issued under an indenture which, among other things, restricts Mercer Inc.'s ability and the ability of its restricted subsidiaries to make certain payments. These limitations are subject to other important qualifications and exceptions. As at September 30, 2011, the Company was in compliance with the terms of the indenture.
|
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies |
Note 11. Commitments and Contingencies The Company is involved in certain legal actions and claims arising in the ordinary course of business. While the outcome of these legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claim which is pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company. Pursuant to an arbitration proceeding with the general construction contractor of the Stendal mill regarding certain warranty claims, the Company acted upon a bank guarantee for defect liability on civil works that was about to expire as provided in the engineering, procurement, and construction contract. On January 28, 2011, the Company received approximately 10,000 (the "Guarantee Amount"), which is intended to compensate the Company for remediation work that is required at the Stendal mill, but it is less than the amount claimed by the Company under the arbitration. The Guarantee Amount was recognized as an increase in cash, and a corresponding increase in accounts payable. Since receiving the 10,000 Guarantee Amount, the Company has recorded approximately 1,400 of costs for remediation work at the Stendal mill, which leaves approximately 8,600 remaining for future remediation work. As the arbitration proceeding remains ongoing, there is no certainty that the Company will be successful with its claims or whether the costs recorded to date will qualify as eligible expenditures. |
Stock-Based Compensation | 9 Months Ended |
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Sep. 30, 2011 | |
Stock-Based Compensation [Abstract] | |
Stock-Based Compensation |
Note 2. Stock-Based Compensation In June 2010, the Company adopted a new stock incentive plan (the "2010 Plan") which provides for options, restricted stock rights, restricted shares, performance shares, performance share units and stock appreciation rights to be awarded to employees, consultants and non-employee directors. As at September 30, 2011, after factoring in all allocated shares, there remain approximately 1.1 million common shares available for grant pursuant to the 2010 Plan. Performance Shares Grants of performance shares comprise rights to receive shares at a future date that are contingent on the Company and the grantee achieving certain performance objectives. In February 2011, the Company awarded a total of 812,573 performance shares to employees of the Company, the majority of which vest using a partial vesting schedule between 2014 and 2016; 50% are scheduled to vest on January 1, 2014, 25% are scheduled to vest on January 1, 2015, and the remaining 25% are scheduled to vest on January 1, 2016. There were nil performance shares which had vested, been forfeited, or been cancelled during the three and nine months ended September 30, 2011. Expense recognized for the three and nine month periods ended September 30, 2011 was 13 and 771, respectively. Performance shares are expensed each reporting period based on their fair value, which is then amortized to reflect the time elapsed in the vesting period. The fair value of the performance shares is determined based upon the targeted number of shares awarded and the quoted price of the Company's shares at the reporting date. The target number of shares is determined using management's best estimate. The final determination of the number of shares to be granted will be made by the Board of Directors. Between February and March 2011, the Company granted and issued a total of 474,728 common shares under its performance share plan, which were originally awarded in 2008 and vested on December 31, 2010. Pursuant to the accounting guidance in FASB's Accounting Standards Codification No. 718, Compensation – Stock Compensation, the Company adjusted the number of performance shares awarded to employees to the number granted by the Board of Directors, and accordingly adjusted compensation cost based on the fair value of Mercer's common shares at the grant date. As a result, the Company recognized approximately 1,420 of stock compensation expense associated with the final determination of these performance shares in the three months ended March 31, 2011. Restricted Shares The fair value of restricted shares is determined based upon the number of shares granted and the quoted price of the Company's shares on the date of grant. Restricted shares generally vest over a one year period, except as noted below. Expense is recognized on a straight-line basis over the vesting period. During the three months ended June 30, 2011, 38,000 restricted shares were granted and issued to directors of the Company (2010 – 56,000). During the three months ended March 31, 2011, 200,000 (2010 – nil) restricted shares were granted and issued to the Chief Executive Officer of the Company, which vest in equal amounts over a five year period commencing in 2012. During the three and nine months ended September 30, 2011, no restricted shares were cancelled or forfeited (2010 – nil and nil), and nil and 56,000 restricted shares had vested, respectively (2010 – 21,000 and 21,000). As at September 30, 2011, the total number of unvested restricted shares was 238,000 (2010 – 56,000). Expense recognized for the three and nine month periods ended September 30, 2011 was 295 and 691, respectively (2010 – 60 and 83). As at September 30, 2011, the total remaining unrecognized compensation cost related to restricted shares amounted to approximately 1,642 (2010 – 148), which will be amortized over the remaining vesting periods. Stock Options During the three and nine month periods ended September 30, 2011 and 2010, no options were granted, exercised or cancelled, and nil and 15,000 options expired, respectively (2010 – nil and 738,334). The aggregate intrinsic value of options outstanding and currently exercisable as at September 30, 2011 was $0.28 per option. Stock compensation expense recognized for stock options for the three and nine month periods ended September 30, 2011 was nil (2010 – nil). All stock options have fully vested. |
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Pension and Other Post-Retirement Benefit Obligations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension and Other Post-retirement Benefits Obligations | Note 8. Pension and Other Post-Retirement Benefit Obligations Included in pension and other post-retirement benefit obligations are amounts related to the Company's Celgar and Rosenthal mills. The largest component of this obligation is with respect to the Celgar mill which maintains a defined benefit pension plan and post-retirement benefit plans for certain employees ("Celgar Plans"). Pension benefits are based on employees' earnings and years of service. The Celgar Plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. Pension contributions during the three and nine month periods ended September 30, 2011 totaled 534 and 1,429, respectively (2010 – 280 and 677). Effective December 31, 2008, the defined benefit plan was closed to new members. In addition, the defined benefit service accrual ceased on December 31, 2008, and members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan effective January 1, 2009.
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Restricted Group Supplemental Disclosure | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Restricted Group Supplemental Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Group Supplemental Disclosure | Note 13. Restricted Group Supplemental Disclosure The terms of the indenture governing our 9.5% senior unsecured notes require that we provide the results of operations and financial condition of Mercer International Inc. and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group". As at and during the three and nine months ended September 30, 2011 and 2010, 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. Combined Condensed Balance Sheets
Combined Condensed Balance Sheets
Combined Condensed Statements of Operations
Combined Condensed Statements of Operations
Combined Condensed Statements of Cash Flows
(1) Includes intercompany working capital related transactions. Combined Condensed Statements of Cash Flows
(1) Includes intercompany working capital related transactions. Combined Condensed Statements of Cash Flows
(1) Includes intercompany working capital related transactions. Combined Condensed Statement of Cash Flows
(1) Includes intercompany working capital related transactions.
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Share Capital | 9 Months Ended |
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Sep. 30, 2011 | |
Share Capital [Abstract] | |
Share Capital |
Note 9. Share Capital Common shares The Company has authorized 200,000,000 common shares (2010 – 200,000,000) with a par value of $1 per share. During the nine months ended September 30, 2011, 13,446,679 common shares were issued as a result of certain holders of the 2012 Notes exercising their conversion option (see Note 6(d) –Debt). In addition, 358,268 shares were issued to employees of the Company as part of the stock based performance awards and 238,000 restricted shares were issued to the Chief Executive Officer and directors of the Company. During the three months ended September 30, 2011, the Company repurchased and retired 1,263,401 common shares. These retired shares are now included in the Company's pool of authorized but unissued common shares. As at September 30, 2011 and December 31, 2010, the Company had 55,779,204 and 42,999,658 common shares issued and outstanding, respectively. Share Repurchase Program In August 2011, the Company's Board of Directors authorized a share and debt repurchase program (the "Program") to repurchase up to $25.0 million worth of the Company's outstanding common shares and up to $25.0 million in aggregate principal amount of the Company's 2017 Notes from time to time over a period ending August 2012. During the three months ended September 30, 2011, the Company repurchased 1,263,401 of its common shares at an aggregate cost of approximately $10.6 million. The Company recorded these as treasury shares, and accounted for the repurchase using the Cost Method as outlined in FASB's Accounting Standards Codification No. 505-30, Equity –Treasury Stock ("ASC 505-30"). The Company retired all such purchased shares prior to September 30, 2011. The retired shares had a carrying value of approximately 6,342. Upon the formal retirement of such shares and in accordance with ASC 505-30, the Company reduced its share capital based on the average cost of the common shares and reduced the treasury share account based on the repurchase price. The difference between the repurchase price and the original issue value was recorded as a reduction to retained earnings. The Company may make additional repurchases of common shares under its Program, depending on prevailing market conditions, alternate uses of capital, and other factors. Whether and when to initiate a purchase of common shares and the amount of common shares purchased is at the Company's discretion. As at September 30, 2011, the Company has an authorized amount of approximately $14.4 million left to repurchase its common shares, and has no treasury shares outstanding. Preferred shares The Company has authorized 50,000,000 preferred shares (2010 – 50,000,000) with $1 par value issuable in series, of which 2,000,000 shares have been designated as Series A. The preferred shares may be issued in one or more series and with such designations and preferences for each series as shall be stated in the resolutions providing for the designation and issue of each such series adopted by the Board of Directors of the Company. The Board of Directors is authorized by the Company's articles of incorporation to determine the voting, dividend, redemption and liquidation preferences pertaining to each such series. As at September 30, 2011, no preferred shares had been issued by the Company. |
Derivative Transactions | 9 Months Ended |
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Sep. 30, 2011 | |
Derivative Transactions [Abstract] | |
Derivative Transactions | Note 7. Derivative Transactions The Company is exposed to certain market risks relating to its ongoing business. The Company seeks to manage these risks through internal risk management policies as well as, from time to time, the use of derivatives. Currently, the only risk managed using derivative instruments is interest rate risk. During 2004, the Company entered into certain variable-to-fixed interest rate swaps in connection with the Stendal Loan Facility with respect to an aggregate maximum principal amount of approximately 612,600 of the total indebtedness under the Stendal Loan Facility. Under the remaining interest rate swap, the Company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. Currently, the contract has an aggregate notional amount of 426,518 at a fixed interest rate of 5.28% and it matures October 2017 (generally matching the maturity of the Stendal Loan Facility). The Company substantially converted the Stendal Loan Facility from a variable interest rate loan into a fixed interest rate loan, thereby reducing interest rate uncertainty. The Company recognized an unrealized loss of 10,484 and a loss of 580 on the interest rate swap for the three and nine months ended September 30, 2011, respectively (2010 – a gain of 485 and loss of 10,523), in the "Gain (loss) on derivative instruments" line in the Interim Consolidated Statements of Operations and Interim Consolidated Statements of Cash Flows. Derivative instruments are required to be measured at their fair value. Accordingly, the fair value of the interest rate swap is presented in the "Unrealized interest rate derivative losses" line in the Interim Consolidated Balance Sheets, which currently amounts to a cumulative unrealized loss of 51,553 (2010 – 50,973). The interest rate derivative contract is with the same bank that holds the Stendal Loan Facility and the Company does not anticipate non-performance by the bank. |
Net Income (Loss) Per Share Attributable To Common Shareholders | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net Income (Loss) Per Share Attributable To Common Shareholders [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Per Share Attributable To Common Shareholders | Note 3. Net Income (Loss) Per Share Attributable to Common Shareholders
The calculation of diluted net income (loss) per share attributable to common shareholders does not assume the exercise of any instruments that would have an anti-dilutive effect on earnings per share. Restricted shares excluded from the calculation of diluted income (loss) per share attributable to common shareholders because they are anti-dilutive represented 238,000 shares for the three month period ended September 30, 2011. The diluted net income (loss) per share calculation for the three and nine month periods ended September 30, 2010 excluded 190,000 shares related to stock options, as the exercise price of these options was greater than their average market value, which would result in an anti-dilutive effect on diluted earnings per share. |
Marketable Securities | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Marketable Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities | Note 4. Marketable Securities The Company's marketable securities at September 30, 2011 and December 31, 2010 are summarized as follows:
In order to maintain the Company's liquidity requirements and manage risk while ensuring a reasonable return, the Company invests in low risk and highly liquid marketable securities that are classified as available-for-sale investments and accordingly carried at fair value. The Company recognizes any gross unrealized gains or losses through the "Accumulated other comprehensive income (loss)" line, and records investments in long-term marketable securities within the "Deferred note issuance and other" line in the Interim Consolidated Balance Sheet. As at September 30, 2011, the Company had invested in German federal government bonds, with contractual maturities of less than one year. These bonds are highly liquid and are considered low risk debt securities. The Company also had nominal amounts invested in equity securities. The Company reviews for other-than-temporary losses on a regular basis and has considered the gross unrealized losses indicated above to be temporary in nature. |
Subsequent Event | 9 Months Ended |
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Sep. 30, 2011 | |
Subsequent Event [Abstract] | |
Subsequent Event |
Note 12. Subsequent Event In October 2011, the Company purchased approximately $9.3 million of the outstanding 2017 Notes, at a nominal discount to the principal amount thereof, plus accrued and unpaid interest to, but not including the repurchase date.
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Inventories | 9 Months Ended | ||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||
Inventories [Abstract] | |||||||||||||||||||||||||||||||
Inventories | Note 5. Inventories
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (EUR €) In Thousands | 3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Statement of Income and Comprehensive Income [Abstract] | ||||
Net income (loss) | € 7,602 | € 51,251 | € 57,051 | € 55,991 |
Other comprehensive income (loss), net of taxes | ||||
Foreign currency translation adjustment | (12,913) | (134) | (10,313) | 2,809 |
Pension income (expense) | (20) | 317 | 383 | (282) |
Unrealized gains (losses) on securities arising during the period | (20) | (29) | (20) | (11) |
Other comprehensive income (loss), net of taxes | (12,953) | 154 | (9,950) | 2,516 |
Total comprehensive income (loss) | (5,351) | 51,405 | 47,101 | 58,507 |
Loss (income) attributable to noncontrolling interest | 838 | (5,116) | (5,175) | (5,001) |
Comprehensive income (loss) attributable to common shareholders | € (4,513) | € 46,289 | € 41,926 | € 53,506 |
The Company And Summary Of Significant Accounting Policies | 9 Months Ended |
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Sep. 30, 2011 | |
The Company And Summary Of Significant Accounting Policies [Abstract] | |
The Company And Summary Of Significant Accounting Policies |
Note 1. The Company and Summary of Significant Accounting Policies Basis of Presentation The interim consolidated financial statements contained herein include the accounts of Mercer International Inc. ("Mercer Inc.") and its wholly-owned and majority-owned subsidiaries (collectively the "Company"). Mercer Inc.'s common shares are quoted and listed for trading on both the NASDAQ Global Market and the Toronto Stock Exchange. The interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). The year-end consolidated balance sheet data was derived from audited financial statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States ("GAAP"). The interim consolidated financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's latest annual report on Form 10-K for the fiscal year ended December 31, 2010. In the opinion of the Company, the unaudited interim consolidated financial statements contained herein contain all adjustments necessary to fairly present the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year. The Company has three pulp mills that are aggregated into one reportable business segment, market pulp. Accordingly, the results presented are those of the reportable business segment. Certain prior year amounts in the interim consolidated financial statements have been reclassified to conform to the current year presentation. In these interim consolidated financial statements, unless otherwise indicated, all amounts are expressed in Euros (""). The term "U.S. dollars" and the symbol "$" refer to United States dollars. The symbol "C$" refers to Canadian dollars. Use of Estimates Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, doubtful accounts and reserves, depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, derivative financial instruments, environmental conservation and legal liabilities, asset retirement obligations, pensions and post-retirement benefit obligations, income taxes, contingencies, and inventory obsolescence and provisions. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2011-04, Fair Value Measurements ("ASU 2011-04"), which expands the existing disclosure requirements for fair value measurements (particularly for Level 3 inputs) defined under Accounting Standards Codification No. 820, Fair Value Measurement ("ASC 820"), and makes other amendments. Many of the amendments to ASC 820 are being made to eliminate wording differences between GAAP and International Financial Reporting Standards and are not intended to result in a change in the application of the requirements of ASC 820. However, some of the amendments clarify the application of existing fair value measurement requirements and others change certain requirements for measuring fair value and could change how the fair value measurement guidance in ASC 820 is applied. The measurement and disclosure requirements of ASU 2011-04 are effective for reporting periods beginning after December 15, 2011 and are to be applied prospectively. The Company does not expect that the adoption of this new guidance will have a material impact on the consolidated financial statements or related note disclosures. In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income ("ASU 2011-05"), which revises the manner in which entities present comprehensive income in their financial statements. The new guidance amends Accounting Standards Codification No. 220, Comprehensive Income, and gives reporting entities the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the two-statement approach, which the Company currently uses, the first statement includes components of net income, and the second statement includes components of other comprehensive income. ASU 2011-05 does not change the items that must be reported in other comprehensive income. This new guidance is effective for reporting periods beginning after December 15, 2011 and is to be applied retrospectively. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements or related note disclosures. |
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Financial Instruments | Note 10. Financial Instruments
The fair value of financial instruments at September 30, 2011 and December 31, 2010 is summarized as follows:
The carrying value of cash and cash equivalents, notes receivable and accounts payable and accrued expenses approximates the fair value due to the immediate or short-term maturity of these financial instruments. The carrying value of receivables approximates the fair value due to their short-term nature and historical collectability. The fair value of debt reflects recent market transactions and discounted cash flow estimates. The fair value of the interest rate derivative is calculated by discounting the future interest rate payments using a yield curve derived by a recognized financial institution. Marketable securities are recorded at fair value based on recent transactions. The fair value methodologies and, as a result, the fair value of the Company's investments and derivative instruments are determined based on the fair value hierarchy provided in FASB's Accounting Standards Codification No. 820, Fair Value Measurements ("ASC 820"). The fair value hierarchy per ASC 820 is as follows: Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities. Level 2 – Valuations based on observable inputs in active markets for similar assets and liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates. Level 3 – Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts. The Company classified its marketable securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market. Level 1 investments include exchange-traded equities and German federal government bonds. The Company classified the German federal government bonds as available for sale as it is not certain these investments will be held until maturity, nor does the Company intend to actually trade these investments. The Company's derivatives are classified within Level 2 of the valuation hierarchy, as they are traded on the over-the-counter market and are valued using internal models that use as their basis readily observable market inputs, such as forward interest rates. The valuation techniques used by the Company are based upon observable inputs. Observable inputs reflect market data obtained from independent sources. In addition, the Company considered the risk of non-performance of the obligor, which in some cases reflects the Company's own credit risk, in determining the fair value of the derivative instruments. The counterparty to our interest rate swap derivative is a multi-national financial institution. The following table presents a summary of the Company's outstanding financial instruments and their estimated fair values under the hierarchy defined in ASC 820:
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