EX-99.1 2 o16670exv99w1.htm EXHIBIT 99.1 Press Release dated May 10, 2005
 

EXHIBIT 99.1

         
  FOR:   MERCER INTERNATIONAL INC.
 
        
  APPROVED BY:   Jimmy S.H. Lee
      Chairman & President
      (604) 684-1099
 
        
      David M. Gandossi
      Executive Vice-President &
      Chief Financial Officer
      (604) 684-1099
For Immediate Release
        
      Financial Dynamics
      Investors: Eric Boyriven
      Media: Scot Hoffman
      (212) 850-5600

MERCER INTERNATIONAL INC. REPORTS 2005 FIRST QUARTER RESULTS

NEW YORK, NY, May 10, 2005 — Mercer International Inc. (NASDAQ: MERCS, TSX: MRI.U) today reported results for the first quarter of 2005.

Summary Selected Highlights

                 
    Three Months Ended March 31,  
    2005     2004  
    (in thousands)  
    (unaudited)  
Results of Operations
                
Revenues
   € 97,893     € 50,316  
Loss from operations
     (894 )     (1,896 )
Operating EBITDA(1)
     10,093       4,397  
Interest expense
     (19,263 )     (2,988 )
Derivative financial instruments, net
     (3,859 )     (22,445 )
Impairment of investments
     (1,645 )     —  
Income tax (provision) benefit
     (3,035 )     20  
Net loss
     (19,667 )     (18,966 )
Loss per share (basic and diluted)
     (0.77 )     (1.11 )

(1)   For a definition of Operating EBITDA, see page 6 of this press release and for a reconciliation of net loss to Operating EBITDA, see page 5 of the financial tables included in this press release.
                 
    Three Months Ended March 31,  
    2005     2004  
    (ADMTs)  
Other Data
                
Production by Product Class:
                
Pulp production by mill
                
Rosenthal
     75,872       79,067  
Stendal
     107,981       —  
Celgar
     60,762       —  
 
            
Total pulp production
     244,615       79,067  
Paper production
     15,958       17,068  
 
            
Total production
     260,573       96,135  
 
            

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Mercer Reports 2005 First Quarter Results   Page 2
                 
    Three Months Ended March 31,  
    2005     2004  
    (ADMTs)  
 
                
Sales Volume by Product Class:
                
Pulp sales volume by mill
                
Rosenthal
     78,804       81,493  
Stendal
     102,073       —  
Celgar
     18,347       —  
 
            
Total pulp sales volume
     199,224       81,493  
Paper sales volume
     16,638       17,406  
 
            
Total sales volume
     215,862       98,899  
 
            
 
    (per ADMT)
Average Prices:
                
Pulp(1)
   € 490 ($642 )   € 464 ($580 )
Paper(2)
   € 970     € 917  
Mill Net Realizations:
                
Pulp
   € 409     € 416  
Paper
   € 924     € 879  

(1)   Average list prices for NBSK pulp in Europe.
 
(2)   Average weighted gross prices for the Company’s paper products.

Certain key factors affecting our 2005 first quarter results include:

  •   Revenues in the current quarter increased by €47.6 million over the prior period of 2004 to €97.9 million, primarily from the inclusion of production and sales from our Stendal pulp mill and, to a much lesser extent, sales from the newly acquired Celgar mill. In the current period, sales from the Celgar mill were well below customary levels as we owned the mill for only six weeks and rebuilt its finished goods inventory to normalized levels. We did not purchase any finished goods inventory when we acquired the Celgar mill in February 2005.

  •   Interest expense increased to €19.3 million in the current quarter from €3.0 million in the prior quarter of 2004. The completion of the Stendal mill resulted in our expensing €11.8 million of the associated interest in the current period versus capitalizing almost all of such interest expense in the comparative period. In the current quarter, we also had interest expense of €2.7 million relating to our $310 million 9.25% senior notes issued in February 2005.

  •   We recorded a net loss of €3.9 million on the marked-to-market valuation of our derivatives in the current quarter primarily due to the strengthening of the U.S. dollar versus the Euro at the end of the quarter.

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Mercer Reports 2005 First Quarter Results   Page 3

  •   During the current quarter, we wrote down the value of certain legacy investments in the amount of €1.6 million which are unrelated to our operations due to the uncertainty surrounding these investments.

  •   We recorded a non-cash provision for income taxes of €3.0 million in the current quarter against our deferred income tax asset.

  •   Pulp markets in Europe were generally stable in the first quarter of 2005. List prices for NBSK pulp in Europe increased to $642 per ADMT, but such increase was partially offset by the continuing overall weakness of the U.S. dollar versus the Euro.

                 
    As at     As at  
    March 31,     December 31,  
    2005     2004  
    (in thousands)  
    (unaudited)  
 
                
Financial Position
                
Cash and cash equivalents
   € 114,096     € 49,568  
Cash restricted
     70,421       45,295  
Receivables
     64,058       54,687  
Inventories
     81,330       52,898  
Prepaid expenses and other
     5,481       4,961  
Accounts payable and accrued expenses
     82,778       56,542  
Construction costs payable
     67,737       65,436  
Debt, current portion
     102,269       107,090  
Working capital (deficit)
     82,602       (21,659 )
Property, plant and equipment
     1,109,765       936,035  
Total assets
     1,531,440       1,255,649  
Long-term liabilities
     1,038,450 (1)     863,840  
Shareholders’ equity
     240,206       162,741  

(1)   Includes €25.5 million outstanding under the revolving credit facilities for the Rosenthal and Celgar mills.

We had good liquidity at March 31, 2005. Certain key factors affecting our liquidity include:

  •   We had unrestricted cash and cash equivalents of €114.1 million.

  •   The current Stendal construction costs payable of €67.7 million will be paid from restricted cash of €70.4 million held for such purpose.

  •   We qualified for investment grants relating to the Stendal mill totaling approximately €65.9 million at March 31, 2005 and expect to qualify for additional grants totaling €22.6 million from the federal and state governments of Germany, which we expect to receive in 2005. These grants, when received, will be applied to repay the €100.0 million of the current portion of our debt of €102.3 million that has been drawn under a dedicated tranche of the Stendal loan facility. Under our accounting policies, we do not record these government grants until they are received. The balance outstanding under this

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Mercer Reports 2005 First Quarter Results   Page 4

      dedicated tranche of the Stendal loan facility will be substantially paid from VAT credits we expect to receive in the ordinary course.

  •   Without giving effect to any government grants we expect to receive for the Stendal mill, we had net working capital of €82.6 million at March 31, 2005.

Results of Operations — 2005 First Quarter

     Revenues for the three months ended March 31, 2005 increased to €97.9 million from €50.3 million in the comparative period of 2004, primarily because of higher pulp sales resulting from the inclusion of sales from our Stendal mill. In the three months ended March 31, 2005, the Stendal mill sold 102,073 ADMTs of NBSK pulp and had sales of €40.8 million. Pulp sales from the Celgar mill for the quarter were well below customary levels as we rebuilt the finished goods inventory at the mill, which we did not purchase as part of its acquisition, and we only operated the mill for six weeks.

     Cost of sales and general, administrative and other expenses in the first quarter of 2005 increased to €98.8 million from €52.2 million in the comparative period of 2004, primarily as a result of the inclusion of production from our Stendal mill and the operations of the Celgar mill.

     For the 2005 first quarter, revenues from our pulp operations increased to €84.1 million from €35.4 million in the same period a year ago, primarily as a result of the inclusion of production from our Stendal mill and higher pulp prices. List prices for NBSK pulp in Europe were approximately €490 ($642) per ADMT in the first quarter of 2005, approximately €464 ($580) per ADMT in the first quarter of last year and approximately €466 ($603) in the fourth quarter of 2004. The increase in NBSK pulp prices was partially offset by the overall weakness of the U.S. dollar versus the Euro. Pulp sales by volume were 199,224 ADMTs in the current quarter, 81,493 ADMTs in the comparative quarter of 2004 and 192,254 ADMTs in the fourth quarter of last year.

     Pulp sales realizations decreased to €409 per ADMT on average in the 2005 first quarter from €416 per ADMT in the 2004 first quarter, primarily as a result of lower price realizations of the Stendal mill during the quarter when it sold pulp at a discounted price as a result of its start up. We expect that such discount will be eliminated during the year. In the first quarter of 2005, producers generally were affected by higher discounts to pulp list prices than previously.

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Mercer Reports 2005 First Quarter Results   Page 5

     Cost of sales and general, administrative and other expenses for the pulp operations increased to €82.8 million in the 2005 first quarter from €36.1 million in the first quarter of 2004, primarily as a result of the inclusion of €37.1 million of operating costs related to the Stendal mill and the operations of the Celgar mill.

     Depreciation for the pulp operations increased to €10.8 million in the current quarter, from €5.6 million in the first quarter of 2004, primarily as a result of the inclusion of €6.7 million of depreciation from the Stendal mill, partially offset by lower depreciation at the Rosenthal mill.

     For the first quarter of 2005, our pulp operations generated operating income of €1.3 million, versus an operating loss of €0.7 million in the first quarter of 2004, primarily as a result of lower operating, depreciation and other costs at our Rosenthal mill.

     Revenues from our paper operations in the current quarter were €15.4 million, compared with €15.3 million in the same period of last year. For the first quarter of 2005, total paper sales volumes were 16,638 ADMTs, versus 17,406 ADMTs in the first quarter of 2004 due to a shift in the product mix at our paper mills. Average prices realized on our paper products in the current quarter increased slightly, reflecting the shift in the product mix.

     Cost of sales and general, administrative and other expenses for the paper operations in the first quarter of 2005 decreased slightly to €15.6 million from €15.7 million in the comparative quarter of 2004.

     For the 2005 first quarter, our paper operations generated an operating loss of €0.3 million, compared to an operating loss of €0.4 million in the first quarter of 2004.

     In the first quarter of 2005, we had a loss from operations of €0.9 million, compared to €1.9 million in the same period last year, primarily as a result of operating losses from our Stendal mill.

     Interest expense in the first quarter of 2005 increased to €19.3 million from €3.0 million in the year ago period, due to the expensing of interest of €11.8 million relating to the Stendal mill and higher borrowings resulting primarily from our $310 million senior note issue in February 2005. In the first quarter of 2004, substantially all of the interest associated with the Stendal mill was capitalized.

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Mercer Reports 2005 First Quarter Results   Page 6

     In the first quarter of 2005, Stendal entered into certain foreign currency derivatives to swap a portion of its long-term bank debt from Euros to U.S. dollars and certain currency forwards and we recorded a net non-cash holding loss of €4.1 million before minority interests upon the marked to market valuation of such derivatives due to the strengthening of the U.S. dollar versus the Euro at the end of the quarter. In the first quarter of 2004, we recorded a net non-cash holding loss of €5.0 million before minority interests on our then outstanding currency derivatives of Rosenthal and Stendal. In the first quarter of 2005, we also recorded a marginal net gain before minority interests on the marked to market valuation of the Stendal interest rate derivatives and settlement of the Rosenthal interest rate derivatives versus a net non-cash holding loss thereon of €17.5 million before minority interests in the first quarter of 2004.

     In the first quarter of 2005, minority interest, representing the two minority shareholders’ proportionate interest in the Stendal mill, was €6.6 million, compared to €7.4 million in the first quarter of 2004.

     On May 6, 2005, our management determined to record, and our Audit Committee approved, an adjustment of €1.6 million for the non-cash impact of other-than-temporary impairment losses on our available-for-sale securities and a loan receivable that relate to an investment in a venture company, which is a legacy investment that we have held since approximately 1996. In April 2005, the venture company proposed to place itself into liquidation. As a result, management determined to record impairment charges sufficient to reduce its investment to the net amount estimated to be recovered. We do not currently expect the impairment charge to result in any future cash expenditures.

     We reported a net loss for the first quarter of 2005 of €19.7 million, or €0.77 per basic and diluted share, which reflected the interest expense related to our Stendal mill of €11.8 million, the net losses on our derivatives of €3.9 million and the non-cash impairment charge of €1.6 million relating to investments. In the first quarter of 2004, we reported a net loss of €19.0 million, or €1.11 per basic and diluted share.

     We generated “Operating EBITDA” of €10.1 million and €4.4 million in the three months ended March 31, 2005 and 2004, respectively. Operating EBITDA is defined as income (loss) from operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income

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Mercer Reports 2005 First Quarter Results   Page 7

as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

     Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

     At March 31, 2005, our cash and cash equivalents were €114.1 million, compared to €49.6 million at December 31, 2004. We also had €70.4 million of cash restricted to pay current Stendal construction costs payable of €67.7 million at March 31, 2005. We also had €19.1 million of cash restricted in a debt service account for the project financing for the Stendal mill. At March 31, 2005, we qualified for investment grants related to the Stendal mill totaling approximately €65.9 million, and expect to qualify for additional investment grants totaling €22.6 million, from the federal and state governments of Germany, which we expect to receive in 2005. These grants, when received, will be applied to repay the amounts drawn under the current portion of a dedicated tranche of the Stendal loan facility. Under our accounting policies, we do not record these grants until they are received. The balance outstanding under this dedicated tranche of the Stendal loan facility will be substantially paid from VAT credits we expect to receive in the ordinary course.

President’s Comments

     Mr. Jimmy S.H. Lee, President and Chairman, stated: “We are very excited about the prospects for the Celgar pulp mill which we acquired in February 2005. We believe there are a number of opportunities to enhance its performance. Sales from the Celgar mill in the first quarter were well below customary levels as we only owned it for six weeks during the period and the mill had to rebuild its finished goods inventory which we did not purchase when we acquired it.”

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Mercer Reports 2005 First Quarter Results   Page 8

     Mr. Lee also stated: “We are generally pleased with the ramp up of our Stendal mill which is proceeding substantially as planned. Although there were some minor outages and trips, they were rectified as part of the ramp up. The mill produced pulp at approximately 82% of its rated capacity in the first quarter of 2005.” He added: “In the first quarter, we delivered an acceptance certificate and assumed responsibility for the operation of the Stendal mill. In connection therewith, the main contractor for the mill and certain suppliers have agreed to implement certain additional measures, which include the installation of two additional digesters and making improvements to the NCG boiler and water treatment plant. These additional measures should be completed by the end of 2005 and increase the production capacity of the Stendal mill to over 600,000 ADMTs per annum.”

     Mr. Lee continued: “Our results for the first quarter of 2005 are reflective of generally stable pulp markets in Europe, the higher production from our Stendal mill and the partial results of the Celgar mill. Although NBSK pulp prices in Europe generally improved, such improvements were partially offset by the overall weakness of the U.S. dollar which fell by approximately 6.5% versus the Euro since the end of the first quarter of 2004.”

     Mr. Lee continued: “Currently, European pulp prices reflect reasonable demand and the general weakness of the U.S. dollar versus the Euro. We are pleased with the customer acceptance of pulp from the Stendal mill and are focusing on building long-term customer contracts and eliminating the price discount associated with its start up.”

     He added: “Asian pulp markets and, in particular, China, are becoming an important market for us primarily because of the acquisition of the Celgar mill. During the current quarter of 2005, pulp demand in China was generally weak with sales prices generally around the U.S.$540 per ADMT level. In particular, pulp customers in China substantially curtailed purchases at the end of the current quarter. We currently expect pulp demand in China to improve over the next six months, which may permit some price improvement. Overall, the demand growth expectation for Asia and China is generally high.”

     Mr. Lee concluded: “This is an exciting time for the Company as we are building a world-class NBSK pulp production and sales organization. In the short term, we will be focusing on the continuing ramp up of the Stendal mill, improving its efficiency and costs, integrating our overall operations and building the depth and penetration of our NBSK marketing activities.”

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Mercer Reports 2005 First Quarter Results   Page 9

     In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Tuesday, May 10, 2005 at 10:00 AM EST. Listeners can access the conference call live and archived over the Internet through a link at the company’s web site at http://www.mercerinternational.com, or at http://phx.corporate-ir.net/playerlink.zhtml?c=62074&s=wm&e=1050591. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software. A replay of this call will be available approximately two hours after the live call ends until May 17, 2005 at 11:59 p.m. (Eastern Standard Time). The replay number is (800) 642-1687, and the passcode is 6170331.

     Mercer International Inc. is a global pulp and paper manufacturing company. To obtain further information on the company, please visit its web site at http://www.mercerinternational.com.

     The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause the company’s actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: market conditions, competition and other risk factors listed from time to time in the company’s SEC reports.

-FINANCIAL TABLES FOLLOW-

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MERCER INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
(Euros in thousands)

                 
    March 31,     December 31,  
    2005     2004  
ASSETS
                
Current Assets
                
Cash and cash equivalents
   € 114,096     € 49,568  
Cash restricted
     70,421       45,295  
Receivables
     64,058       54,687  
Inventories
     81,330       52,898  
Prepaid expenses and other
     5,481       4,961  
 
            
Total current assets
     335,386       207,409  
 
                
Long-Term Assets
                
Cash restricted
     19,074       47,538  
Property, plant and equipment
     1,109,765       936,035  
Investments
     —       983  
Equity method investments
     3,967       4,096  
Deferred note issuance and other costs
     9,459       5,069  
Deferred income tax
     53,789       54,519  
 
            
 
     1,196,054       1,048,240  
 
            
Total assets
   € 1,531,440     € 1,255,649  
 
            
 
                
LIABILITIES
                
Current Liabilities
                
Accounts payable and accrued expenses
   € 82,778     € 56,542  
Construction costs payable
     67,737       65,436  
Debt, current portion
     102,269       107,090  
 
            
Total current liabilities
     252,784       229,068  
 
                
Long-Term Liabilities
                
Debt, less current portion
     928,803       777,272  
Unrealized foreign exchange rate derivative loss
     4,044       —  
Unrealized interest rate derivative losses
     75,127       75,471  
Pension and other post-retirement benefit obligations
     16,622       —  
Capital leases and other
     9,513       9,035  
Deferred income tax
     4,341       2,062  
 
            
 
     1,038,450       863,840  
 
            
Total liabilities
     1,291,234       1,092,908  
Minority Interest
     —       —  
 
                
SHAREHOLDERS’ EQUITY
                
Shares of beneficial interest
     180,856       83,397  
Additional paid-in capital, stock options
     14       14  
Retained earnings
     49,509       69,176  
Accumulated other comprehensive income
     9,827       10,154  
 
            
Total shareholders’ equity
     240,206       162,741  
 
            
Total liabilities and shareholders’ equity
   € 1,531,440     € 1,255,649  
 
            

(1)

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)

                 
    2005     2004  
 
                
Revenues
   € 97,893     € 50,316  
 
            
 
                
Costs and expenses:
                
Cost of sales
     90,989       45,418  
General and administrative expenses
     7,798       6,541  
Flooding losses and expenses, less grant income
     —       253  
 
            
Total costs and expenses
     98,787       52,212  
 
            
Loss from operations
     (894 )     (1,896 )
 
            
 
                
Other income (expense)
                
Interest expense
     (19,263 )     (2,988 )
Investment income
     175       934  
Derivative financial instruments, net
     (3,859 )     (22,445 )
Foreign exchange gain on debt
     2,297       —  
Impairment of investments
     (1,645 )     —  
 
            
Total other expense
     (22,295 )     (24,499 )
 
            
 
                
Loss before income taxes and minority interest
     (23,189 )     (26,395 )
Income tax (provision) benefit
     (3,035 )     20  
 
            
Loss before minority interest
     (26,224 )     (26,375 )
Minority interest
     6,557       7,409  
 
            
Net loss
   € (19,667 )   € (18,966 )
 
                
Retained earnings, beginning of period
     69,176       49,196  
 
            
Retained earnings, end of period
   € 49,509     € 30,230  
 
            
Loss per share
                
Basic and diluted
   € (0.77 )   € (1.11 )
 
            

(2)

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands, except per share data)

                 
    2005     2004  
Cash Flows from (used in) Operating Activities:
                
Net loss
   € (19,667 )   € (18,966 )
Adjustments to reconcile net loss to cash flows from operating activities
                
Cumulative unrealized losses on derivatives
     3,754       22,445  
Depreciation and amortization
     11,161       6,429  
Unrealized foreign exchange gain on debt
     (2,297 )     —  
Impairment of investments
     1,645       —  
Minority interest
     (6,557 )     (7,409 )
Deferred income taxes
     3,009       (20 )
Stock compensation expense
     36       596  
Other
     392       (30 )
 
                
Changes in current assets and liabilities
                
Receivables
     (9,565 )     4,014  
Inventories
     (8,463 )     (3,014 )
Accounts payable and accrued expenses
     24,609       6,015  
Other
     (401 )     (1,609 )
 
            
Net cash from (used in) operating activities
     (2,344 )     8,451  
 
                
Cash Flows from (used in) Investing Activities:
                
Purchase of property, plant and equipment, net of investment grants
     (4,136 )     (50,640 )
Acquisition of Celgar pulp mill
     (146,286 )     —  
Sale of available-for-sale securities
     —       614  
 
            
Net cash used in investing activities
     (150,422 )     (50,026 )
 
                
Cash Flows from (used in) Financing Activities:
                
Cash restricted
     3,338       (14,664 )
Increase in construction costs payable
     2,301       (29,371 )
Proceeds from borrowings of notes payable and debt
     323,093       90,000  
Repayment of notes payable and debt
     (178,691 )     (8,384 )
Repayment of capital lease obligations
     (1,147 )     (243 )
Issuance of shares of beneficial interest
     66,645       308  
 
            
Net cash from financing activities
     215,539       37,646  
 
                
Effect of exchange rate changes on cash and cash equivalents
     1,755       72  
 
            
Net increase (decrease) in cash and cash equivalents
     64,528       (3,857 )
Cash and cash equivalents, beginning of period
     49,568       51,993  
 
            
Cash and cash equivalents, end of period
   € 114,096     € 48,136  
 
            

(3)

-more-

 

 

MERCER INTERNATIONAL INC.

BUSINESS SEGMENT INFORMATION
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)

                                                         
                                            Corporate,        
    Rosenthal     Celgar(1)     Stendal     Total             Other and     Consolidated  
    Pulp     Pulp     Pulp     Pulp     Paper     Eliminations     Total  
Three Months Ended March 31, 2005
                                                        
Sales to external customers
   € 34,096     € 7,616     € 40,798     € 82,510     € 15,383     € —     € 97,893  
Intersegment net sales
     —       —       1,554       1,554       —       (1,554 )     —  
 
                                          
 
     34,096       7,616       42,352       84,064       15,383       (1,554 )     97,893  
 
                                          
Operating costs
     25,188       5,135       37,135       67,458       14,231       (1,687 )     80,002  
Depreciation and amortization
     3,268       823       6,681       10,772       181       34       10,987  
General and administrative
     1,901       1,675       975       4,551       1,236       2,011       7,798  
 
                                          
 
     30,357       7,633       44,791       82,781       15,648       358       98,787  
 
                                          
Income (loss) from operations
     3,739       (17 )     (2,439 )     1,283       (265 )     (1,912 )     (894 )
 
                                                        
Interest expense
                                                     (19,263 )
Investment income
                                                     175  
Derivative financial instruments, net
                                                     (3,859 )
Foreign exchange gain on debt
                                                     2,297  
Impairment of investments
                                                     (1,645 )
 
                                                      
 
                                                     (22,295 )
 
                                                      
 
                                                        
Loss before income taxes and minority interest
                                                   € (23,189 )
 
                                                      
 
Segment assets
   € 349,865     € 220,739     € 915,178     € 1,485,782     € 24,911     € 20,747     € 1,531,440  
 
                                          
Capital expenditures
   € 594     € 209     € 2,460     € 3,263     € 850     € 23     € 4,136  
 
                                          
 
                                                        
Three Months Ended March 31, 2004
                                                        
Sales to external customers
   € 35,009     € —     € —     € 35,009     € 15,307     € —     € 50,316  
Intersegment net sales
     429       —       —       429       —       (429 )     —  
 
                                          
 
     35,438       —       —       35,438       15,307       (429 )     50,316  
 
                                          
Operating costs
     25,807       —       —       25,807       13,758       (440 )     39,125  
Depreciation and amortization
     5,582       —       —       5,582       552       159       6,293  
General and administrative
     1,988       —       2,741       4,729       1,174       638       6,541  
Flooding grants, less losses and expenses
     —       —       —       —       253       —       253  
 
                                          
 
     33,377       —       2,741       36,118       15,737       357       52,212  
 
                                          
Income (loss) from operations
     2,061       —       (2,741 )     (680 )     (430 )     (786 )     (1,896 )
 
                                                        
Interest expense
                                                     (2,988 )
Investment income
                                                     934  
Derivative financial instruments, net
                                                     (22,445 )
 
                                                      
 
                                                     (24,499 )
 
                                                      
 
                                                        
Loss before income taxes and minority interest
                                                   € (26,395 )
 
                                                      
Segment assets
   € 369,523     € —     € 557,672     € 927,195     € 29,444     € 34,679     € 991,318  
 
                                          
Capital expenditures
   € 622     € —     € 67,924     € 68,546     € 852     € 1     € 69,399  
 
                                          

(1)   The results of the Celgar pulp mill are from the date of its acquisition on February 14, 2005.

(4)

-more-

 

 

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at March 31, 2005
(Unaudited)
(Euros in thousands)

The terms of the indenture governing our 9.25% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer Inc. and our restricted subsidiaries under the indenture, collectively referred to as the “Restricted Group”. As at and during the three months ended March 31, 2005, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill from the date of its acquisition on February 14, 2005. During the three months ended March 31, 2004 and as at December 31, 2004, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, which was the only member of the Restricted Group with material operations during this period. We acquired the Celgar mill in February 2005 and, as a result, its operations for the three months ended March 31, 2004 and financial condition at December 31, 2004 are not included for such periods. The Restricted Group excludes our paper operations and the Stendal mill.

                                 
    March 31, 2005  
    Restricted     Unrestricted             Consolidated  
    Group     Subsidiaries     Eliminations     Group  
ASSETS
                                
Current assets
                                
Cash and cash equivalents
   € 67,457     € 46,639     € —     € 114,096  
Cash restricted
     —       70,421       —       70,421  
Receivables
     30,526       33,532       —       64,058  
Inventories
     45,106       36,224       —       81,330  
Prepaid expenses and other
     2,666       2,815       —       5,481  
 
                        
Total current assets
     145,755       189,631       —       335,386  
Cash restricted
     —       19,074       —       19,074  
Property, plant and equipment
     390,492       719,273       —       1,109,765  
Other
     10,049       4,129       (752 )     13,426  
Deferred income tax
     24,206       29,583       —       53,789  
Due from unrestricted group
     43,917       —       (43,917 )     —  
 
                        
Total assets
   € 614,419     € 961,690     € (44,669 )   € 1,531,440  
 
                        
 
                                
LIABILITIES
                                
Current liabilities
                                
Accounts payable and accrued expenses
   € 36,136     € 46,642     € —     € 82,778  
Construction costs payable
     —       67,737       —       67,737  
Debt, current portion
     —       102,269       —       102,269  
 
                        
Total current liabilities
     36,136       216,648       —       252,784  
 
                                
Debt, less current portion
     328,128       600,675       —       928,803  
Due to restricted group
     —       43,917       (43,917 )     —  
Unrealized derivatives loss
     —       79,171       —       79,171  
Other
     19,400       6,735       —       26,135  
Deferred income tax
     1,773       2,568       —       4,341  
 
                        
Total liabilities
     385,437       949,714       (43,917 )     1,291,234  
 
                        
 
                                
SHAREHOLDERS’ EQUITY
                                
Total shareholders’ equity
     228,982       11,976       (752 )     240,206  
 
                        
Total liabilities and shareholders’ equity
   € 614,419     € 961,690     € (44,669 )   € 1,531,440  
 
                        

(5)

 

 

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at December 31, 2004
(Unaudited)
(Euros in thousands)

                                 
    December 31, 2004  
    Restricted     Unrestricted             Consolidated  
    Group     Subsidiaries     Eliminations     Group  
ASSETS
                                
Current assets
                                
Cash and cash equivalents
   € 45,487     € 4,081     € —     € 49,568  
Cash restricted
     —       45,295       —       45,295  
Receivables
     21,791       33,060       (164 )     54,687  
Inventories
     13,911       38,987       —       52,898  
Prepaid expenses and other
     1,995       2,966       —       4,961  
 
                        
Total current assets
     83,184       124,389       (164 )     207,409  
Cash restricted
     28,464       19,074       —       47,538  
Property, plant and equipment
     213,678       722,394       (37 )     936,035  
Other
     5,936       4,212       —       10,148  
Deferred income tax
     26,592       27,927       —       54,519  
Due from unrestricted group
     43,467       —       (43,467 )     —  
 
                        
Total assets
   € 401,321     € 897,996     € (43,668 )   € 1,255,649  
 
                        
 
                                
LIABILITIES
                                
Current liabilities
                                
Accounts payable and accrued expenses
   € 19,615     € 37,091     € (164 )   € 56,542  
Construction costs payable
     —       65,436       —       65,436  
Debt, current portion
     15,089       92,001       —       107,090  
 
                        
Total current liabilities
     34,704       194,528       (164 )     229,068  
Debt, less current portion
     224,542       552,730       —       777,272  
Due to restricted group
     —       43,467       (43,467 )     —  
Unrealized derivative loss
     —       75,471       —       75,471  
Other
     1,878       7,157       —       9,035  
Deferred income tax
     1,719       343       —       2,062  
 
                        
Total liabilities
     262,843       873,696       (43,631 )     1,092,908  
 
                        
 
                                
SHAREHOLDERS’ EQUITY
                                
Total shareholders’ equity
     138,478       24,300       (37 )     162,741  
 
                        
Total liabilities and shareholders’ equity
   € 401,321     € 897,996     € (43,668 )   € 1,255,649  
 
                        

(6)

 

 

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)

                                 
    March 31, 2005  
    Restricted     Unrestricted             Consolidated  
    Group     Subsidiaries     Eliminations     Group  
 
Revenues
   € 41,712     € 56,181     € —     € 97,893  
 
                        
 
                                
Operating costs
     29,973       50,029       —       80,002  
Operating depreciation and amortization
     4,125       6,645       217       10,987  
General and administrative
     5,587       2,211       —       7,798  
 
                        
 
     39,685       58,885       217       98,787  
 
                        
Income (loss) from operations
     2,027       (2,704 )     (217 )     (894 )
 
                        
 
                                
Other income (expense)
                                
Interest expense
     (7,671 )     (11,986 )     394       (19,263 )
Investment income
     328       309       (462 )     175  
Derivative financial instruments, net
     (105 )     (3,754 )     —       (3,859 )
Foreign exchange gain on debt
     2,297       —       —       2,297  
Impairment of investments
     (1,178 )     —       (467 )     (1,645 )
 
                        
Total other expense
     (6,329 )     (15,431 )     (535 )     (22,295 )
 
                        
Loss before income taxes and minority interest
     (4,302 )     (18,135 )     (752 )     (23,189 )
Income tax provision
     (3,115 )     80       —       (3,035 )
 
                        
Loss before minority interest
     (7,417 )     (18,055 )     (752 )     (26,224 )
Minority interest
     —       6,557       —       6,557  
 
                        
Net loss
   € (7,417 )   € (11,498 )   € (752 )   € (19,667 )
 
                        
                                 
    March 31, 2004  
    Restricted     Unrestricted             Consolidated  
    Group     Subsidiaries     Eliminations     Group  
 
Revenues
   € 35,438     € 15,307     € (429 )   € 50,316  
 
                        
 
                                
Operating costs
     25,357       13,758       10       39,125  
Operating depreciation and amortization
     5,582       552       159       6,293  
General and administrative
     3,114       3,915       (488 )     6,541  
Flooding grants, less losses and expenses
     —       253       —       253  
 
                        
 
     34,053       18,478       (319 )     52,212  
 
                        
Income (loss) from operations
     1,385       (3,171 )     (110 )     (1,896 )
 
                        
 
                                
Other income (expense)
                                
Interest expense
     (4,076 )     (566 )     1,654       (2,988 )
Investment income
     1,106       150       (322 )     934  
Derivative financial instruments, net
     (4,890 )     (17,555 )     —       (22,445 )
 
                        
Total other income (expense)
     (7,860 )     (17,971 )     1,332       (24,499 )
 
                        
Income (loss) before income taxes and minority interest
     (6,475 )     (21,142 )     1,222       (26,395 )
Income tax benefit
     —       20       —       20  
 
                        
Income (loss) before minority interest
     (6,475 )     (21,122 )     1,222       (26,375 )
Minority interest
     —       7,409       —       7,409  
 
                        
Net income (loss)
   € (6,475 )   € (13,713 )   € 1,222     € (18,966 )
 
                        

(7)

 

 

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
For the Quarters Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)

                 
    Three Months Ended  
    March 31,  
    2005     2004  
    (in thousands)  
 
                
Net loss
   € (19,667 )   € (18,966 )
Minority interest
     (6,557 )     (7,409 )
Income taxes (benefit)
     3,035       (20 )
Interest expense
     19,263       2,988  
Investment income
     (175 )     (934 )
Derivative financial instruments, net
     3,859       22,445  
Foreign exchange gain on debt
     (2,297 )     —  
Impairment of investments
     1,645       —  
 
            
Loss from operations
     (894 )     (1,896 )
Add: Depreciation and amortization
     10,987       6,293  
 
            
Operating EBITDA(1)
   € 10,093     € 4,397  
 
            

(1)   Operating EBITDA does not reflect the impact of a number of items that affect net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.



MERCER INTERNATIONAL INC.

COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Quarters Ended March 31, 2005 and 2004
(Unaudited)
(Euros in thousands)

                 
    Three Months Ended  
    March 31,  
    2005     2004  
    (in thousands)  
Restricted Group(1)
                
Net loss
   € (7,417 )   € (6,475 )
Income taxes
     3,115       —  
Interest expense
     7,671       4,076  
Investment and other income
     (328 )     (1,106 )
Derivative financial instruments, net
     105       4,890  
Foreign exchange gain on debt
     (2,297 )     —  
Impairment of investments
     1,178       —  
 
            
Income from operations
     2,027       1,385  
Add: Depreciation and amortization
     4,125       5,582  
 
            
Operating EBITDA
   € 6,152     € 6,967  
 
            

(1)   The results of the Celgar pulp mill are not included for the three months ended March 31, 2004.
 
 
    
 		      
 		      
 		      
 		  
(2)   Operating EBITDA does not reflect the impact of a number of items that affect net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

(8)

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