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Mercer International Inc. Reports 2014 Second Quarter Results

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

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

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

Summary Financial Highlights

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

Summary Operating Highlights

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

* Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 12 of the financial tables included in this press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

President's Comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the second quarter of 2014, Operating EBITDA increased to $41.9 million from $18.2 million in the second quarter of 2013. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 12 of the financial tables included in the press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the six months ended June 30, 2014, Operating EBITDA increased to $100.9 million from $50.3 million in the same period of 2013. See page 12 of the financial tables included in the press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

We reported net income attributable to common shareholders of $21.6 million, or $0.36 per basic and diluted share, for the first half of 2014, which included a non-cash unrealized gain on the interest rate derivative of $5.8 million. In the first half of 2013, the net loss attributable to common shareholders was $13.6 million, or $0.24 per basic and diluted share, which included a total non-cash net unrealized gain of $13.6 million on the Stendal interest rate derivative and fixed price pulp swaps.

Liquidity and Capital Resources

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

As at June 30,
2014
As at December 31,
2013
(in thousands)
Financial Position
Cash and cash equivalents $ 241,023 $ 147,728
Working capital $ 378,810 $ 306,274
Total assets $ 1,608,828 $ 1,548,559
Long-term liabilities $ 1,004,065 $ 1,034,743
Total equity $ 425,613 $ 348,317

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

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

Restricted Group

The following table is a summary of selected financial information for the Restricted Group (which, under the indenture for our 2017 9.5% Senior Notes, is comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills) as at the dates indicated:

As at June 30,
2014
As at December 31,
2013
(in thousands)
Financial Position
Cash and cash equivalents $ 157,418 $ 82,910
Working capital $ 277,973 $ 211,749
Total assets $ 936,001 $ 858,824
Long-term liabilities $ 406,669 $ 394,821
Total equity $ 464,539 $ 412,033

Earnings Release Call

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Friday, August 1, 2014 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through August 31, 2014, over the Internet at http://www.media-server.com/m/p/6jctbeam or through a link on the Company's home page at http://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

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

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

-FINANCIAL TABLES FOLLOW-

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

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands)

The terms of the indenture governing our 9.5% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer International Inc. and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group". As at and during the three and six months ended June 30, 2014 and 2013, the Restricted Group was comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills. The Restricted Group excludes the Stendal mill.

June 30, 2014
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash equivalents $ 157,418 $ 83,605 $ -- $ 241,023
Receivables 69,808 64,941 -- 134,749
Inventories 104,124 60,948 -- 165,072
Prepaid expenses and other 7,810 2,290 -- 10,100
Deferred income tax 3,606 3,410 -- 7,016
Total current assets 342,766 215,194 -- 557,960
Long-term assets
Property, plant and equipment 410,110 596,796 -- 1,006,906
Deferred note issuance costs and other 11,136 9,464 -- 20,600
Deferred income tax 16,522 6,840 -- 23,362
Due from unrestricted group 155,467 -- (155,467) --
Total assets $ 936,001 $ 828,294 $ (155,467) $ 1,608,828
LIABILITIES
Current liabilities
Accounts payable and other $ 63,468 $ 52,175 $ -- $ 115,643
Pension and other post-retirement benefit obligations 1,325 -- -- 1,325
Debt -- 62,182 -- 62,182
Total current liabilities 64,793 114,357 -- 179,150
Long-term liabilities
Debt 336,124 546,319 -- 882,443
Due to restricted group -- 155,467 (155,467) --
Interest rate derivative liability -- 40,447 -- 40,447
Pension and other post-retirement benefit obligations 35,370 -- -- 35,370
Capital leases and other 8,946 10,630 -- 19,576
Deferred income tax 26,229 -- -- 26,229
Total liabilities 471,462 867,220 (155,467) 1,183,215
EQUITY
Total shareholders' equity (deficit) 464,539 (32,495) -- 432,044
Noncontrolling interest (deficit) -- (6,431) -- (6,431)
Total liabilities and equity $ 936,001 $ 828,294 $ (155,467) $ 1,608,828
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands)
December 31, 2013
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
ASSETS
Current assets
Cash and cash equivalents $ 82,910 $ 64,818 $ -- $ 147,728
Receivables 75,987 59,906 -- 135,893
Inventories 93,807 77,101 -- 170,908
Prepaid expenses and other 7,742 3,176 -- 10,918
Deferred income tax 3,273 3,053 -- 6,326
Total current assets 263,719 208,054 -- 471,773
Long-term assets
Property, plant and equipment 420,373 618,258 -- 1,038,631
Deferred note issuance costs and other 10,987 10,011 -- 20,998
Deferred income tax 9,894 7,263 -- 17,157
Due from unrestricted group 153,851 -- (153,851) --
Total assets $ 858,824 $ 843,586 $ (153,851) $ 1,548,559
LIABILITIES
Current liabilities
Accounts payable and other $ 49,891 $ 53,923 $ -- $ 103,814
Pension and other post-retirement benefit obligations 1,330 -- -- 1,330
Debt 749 59,606 -- 60,355
Total current liabilities 51,970 113,529 -- 165,499
Long-term liabilities
Debt 336,382 582,635 -- 919,017
Due to restricted group -- 153,851 (153,851) --
Interest rate derivative liability -- 46,517 -- 46,517
Pension and other post-retirement benefit obligations 35,466 -- -- 35,466
Capital leases and other 8,523 10,770 -- 19,293
Deferred income tax 14,450 -- -- 14,450
Total liabilities 446,791 907,302 (153,851) 1,200,242
EQUITY
Total shareholders' equity (deficit) 412,033 (52,955) -- 359,078
Noncontrolling interest (deficit) -- (10,761) -- (10,761)
Total liabilities and equity $ 858,824 $ 843,586 $ (153,851) $ 1,548,559
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands)
Three Months Ended June 30, 2014
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
Pulp $ 136,632 $ 122,850 $ -- $ 259,482
Energy and chemicals 7,649 18,061 -- 25,710
144,281 140,911 -- 285,192
Operating costs 122,043 108,422 -- 230,465
Operating depreciation and amortization 10,631 9,137 -- 19,768
Selling, general and administrative expenses 8,647 4,291 -- 12,938
141,321 121,850 -- 263,171
Operating income (loss) 2,960 19,061 -- 22,021
Other income (expense)
Interest expense (8,548) (8,757) 140 (17,165)
Gain (loss) on derivative instruments -- 2,549 -- 2,549
Other income (expense) 26 32 (140) (82)
Total other income (expense) (8,522) (6,176) -- (14,698)
Income (loss) before income taxes (5,562) 12,885 -- 7,323
Income tax benefit (provision) (4,033) (525) -- (4,558)
Net income (loss) (9,595) 12,360 -- 2,765
Less: net income attributable to noncontrolling interest -- (2,194) -- (2,194)
Net income (loss) attributable to common shareholders $ (9,595) $ 10,166 $ -- $ 571
Three Months Ended June 30, 2013
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
Pulp $ 137,957 $ 115,209 $ -- $ 253,166
Energy and chemicals 7,886 13,648 -- 21,534
145,843 128,857 -- 274,700
Operating costs 135,425 108,938 -- 244,363
Operating depreciation and amortization 10,791 8,476 -- 19,267
Selling, general and administrative expenses 7,375 4,864 -- 12,239
153,591 122,278 -- 275,869
Operating income (loss) (7,748) 6,579 -- (1,169)
Other income (expense)
Interest expense (7,685) (11,639) 2,154 (17,170)
Gain (loss) on derivative instruments (551) 7,472 -- 6,921
Other income (expense) 2,118 44 (2,154) 8
Total other income (expense) (6,118) (4,123) -- (10,241)
Income (loss) before income taxes (13,866) 2,456 -- (11,410)
Income tax benefit (provision) (795) (20) -- (815)
Net income (loss) (14,661) 2,436 -- (12,225)
Less: net income attributable to noncontrolling interest -- (790) -- (790)
Net income (loss) attributable to common shareholders $ (14,661) $ 1,646 $ -- $ (13,015)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands)
Six Months Ended June 30, 2014
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
Pulp $ 277,429 $ 260,559 $ -- $ 537,988
Energy and chemicals 16,530 36,359 -- 52,889
293,959 296,918 -- 590,877
Operating costs 233,411 233,358 -- 466,769
Operating depreciation and amortization 21,205 18,265 -- 39,470
Selling, general and administrative expenses 15,098 8,276 -- 23,374
269,714 259,899 -- 529,613
Operating income (loss) 24,245 37,019 -- 61,264
Other income (expense)
Interest expense (17,066) (17,829) 280 (34,615)
Gain (loss) on derivative instruments -- 5,777 -- 5,777
Other income (expense) 138 66 (280) (76)
Total other income (expense) (16,928) (11,986) -- (28,914)
Income (loss) before income taxes 7,317 25,033 -- 32,350
Income tax benefit (provision) (5,785) (623) -- (6,408)
Net income (loss) 1,532 24,410 -- 25,942
Less: net income attributable to noncontrolling interest -- (4,330) -- (4,330)
Net income (loss) attributable to common shareholders $ 1,532 $ 20,080 $ -- $ 21,612
Six Months Ended June 30, 2013
Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group
Revenues
Pulp $ 270,307 $ 220,677 $ -- $ 490,984
Energy and chemicals 17,247 28,254 -- 45,501
287,554 248,931 -- 536,485
Operating costs 253,625 208,722 -- 462,347
Operating depreciation and amortization 21,606 17,111 -- 38,717
Selling, general and administrative expenses 14,922 9,061 -- 23,983
290,153 234,894 -- 525,047
Operating income (loss) (2,599) 14,037 -- 11,438
Other income (expense)
Interest expense (15,430) (23,430) 4,330 (34,530)
Gain (loss) on derivative instruments (1,007) 14,292 -- 13,285
Other income (expense) 4,145 101 (4,330) (84)
Total other income (expense) (12,292) (9,037) -- (21,329)
Income (loss) before income taxes (14,891) 5,000 -- (9,891)
Income tax benefit (provision) (2,137) 177 -- (1,960)
Net income (loss) (17,028) 5,177 -- (11,851)
Less: net income attributable to noncontrolling interest -- (1,725) -- (1,725)
Net income (loss) attributable to common shareholders $ (17,028) $ 3,452 $ -- $ (13,576)
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended June 30, 2014
Restricted Unrestricted Consolidated
Group Subsidiaries Group
Cash flows from (used in) operating activities
Net income (loss) $ (9,595) $ 12,360 $ 2,765
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments -- (2,549) (2,549)
Depreciation and amortization 10,714 9,137 19,851
Deferred income taxes 3,153 -- 3,153
Stock compensation expense 600 -- 600
Pension and other post-retirement expense, net of funding 214 -- 214
Other 412 440 852
Changes in working capital
Receivables 4,808 9,709 14,517
Inventories (8,753) (4,637) (13,390)
Accounts payable and accrued expenses (2,397) (5,665) (8,062)
Other(1) 1,529 1,809 3,338
Net cash from (used in) operating activities 685 20,604 21,289
Cash flows from (used in) investing activities
Purchase of property, plant and equipment (5,571) (580) (6,151)
Purchase of intangible assets (229) (486) (715)
Proceeds on sale of property, plant and equipment 81 13 94
Net cash from (used in) investing activities (5,719) (1,053) (6,772)
Cash flows from (used in) financing activities
Proceeds from issuance of shares 53,942 -- 53,942
Repayment of capital lease obligations (202) (330) (532)
Proceeds from government grants -- 761 761
Net cash from (used in) financing activities 53,740 431 54,171
Effect of exchange rate changes on cash and cash equivalents 666 (440) 226
Net increase (decrease) in cash and cash equivalents 49,372 19,542 68,914
Cash and cash equivalents, beginning of period 108,046 64,063 172,109
Cash and cash equivalents, end of period $ 157,418 $ 83,605 $ 241,023
(1) Includes intercompany working capital related transactions.
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended June 30, 2013
Restricted Unrestricted Consolidated
Group Subsidiaries Group
Cash flows from (used in) operating activities
Net income (loss) $ (14,661) $ 2,436 $ (12,225)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments 41 (7,472) (7,431)
Depreciation and amortization 10,878 8,476 19,354
Deferred income taxes 561 (21) 540
Stock compensation expense 396 -- 396
Pension and other post-retirement expense, net of funding 277 -- 277
Other 378 888 1,266
Changes in working capital
Receivables 24,835 3,800 28,635
Inventories 6,945 (4,164) 2,781
Accounts payable and accrued expenses (2,540) 406 (2,134)
Other(1) (9,085) 1,593 (7,492)
Net cash from (used in) operating activities 18,025 5,942 23,967
Cash flows from (used in) investing activities
Purchase of property, plant and equipment (3,401) (10,948) (14,349)
Proceeds on sale of property, plant and equipment -- 3 3
Net cash from (used in) investing activities (3,401) (10,945) (14,346)
Cash flows from (used in) financing activities
Proceeds from borrowings of debt -- 9,090 9,090
Repayment of capital lease obligations (159) (363) (522)
Proceeds from (repayment of) credit facilities, net 9,112 -- 9,112
Proceeds from government grants -- 4,441 4,441
Net cash from (used in) financing activities 8,953 13,168 22,121
Effect of exchange rate changes on cash and cash equivalents (21) 1,061 1,040
Net increase (decrease) in cash and cash equivalents 23,556 9,226 32,782
Cash and cash equivalents, beginning of period 66,820 75,295 142,115
Cash and cash equivalents, end of period $ 90,376 $ 84,521 $ 174,897
(1) Includes intercompany working capital related transactions.
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June 30, 2014
Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities
Net income (loss) $ 1,532 $ 24,410 $ 25,942
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments -- (5,777) (5,777)
Depreciation and amortization 21,373 18,265 39,638
Deferred income taxes 4,881 -- 4,881
Stock compensation expense 331 -- 331
Pension and other post-retirement expense, net of funding 425 -- 425
Other 583 921 1,504
Changes in working capital
Receivables 4,712 (7,527) (2,815)
Inventories (10,342) 15,675 5,333
Accounts payable and accrued expenses 12,286 1,894 14,180
Other(1) (6,563) 3,889 (2,674)
Net cash from (used in) operating activities 29,218 51,750 80,968
Cash flows from (used in) investing activities
Purchase of property, plant and equipment (8,531) (4,186) (12,717)
Purchase of intangible assets (1,203) (1,252) (2,455)
Proceeds on sale of property, plant and equipment 215 58 273
Net cash from (used in) investing activities (9,519) (5,380) (14,899)
Cash flows from (used in) financing activities
Repayment of debt (744) (29,797) (30,541)
Proceeds from issuance of shares 53,942 -- 53,942
Repayment of capital lease obligations (474) (718) (1,192)
Proceeds from sale and lease-back transactions 1,047 -- 1,047
Proceeds from government grants 832 3,226 4,058
Net cash from (used in) financing activities 54,603 (27,289) 27,314
Effect of exchange rate changes on cash and cash equivalents 206 (294) (88)
Net increase (decrease) in cash and cash equivalents 74,508 18,787 93,295
Cash and cash equivalents, beginning of year 82,910 64,818 147,728
Cash and cash equivalents, end of year $ 157,418 $ 83,605 $ 241,023
(1) Includes intercompany working capital related transactions.
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June 30, 2013
Restricted Unrestricted Consolidated
Group Subsidiaries Group
Cash flows from (used in) operating activities
Net income (loss) $ (17,028) $ 5,177 $ (11,851)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments 662 (14,292) (13,630)
Depreciation and amortization 21,776 17,111 38,887
Deferred income taxes 1,870 4,134 6,004
Stock compensation expense 752 -- 752
Pension and other post-retirement expense, net of funding 437 -- 437
Other 923 1,905 2,828
Changes in working capital
Receivables 13,824 1,998 15,822
Inventories 10,995 (627) 10,368
Accounts payable and accrued expenses 11,331 527 11,858
Other(1) (11,349) 2,824 (8,525)
Net cash from (used in) operating activities 34,193 18,757 52,950
Cash flows from (used in) investing activities
Purchase of property, plant and equipment (6,893) (22,501) (29,394)
Proceeds on sale of property, plant and equipment 17 3 20
Net cash from (used in) investing activities (6,876) (22,498) (29,374)
Cash flows from (used in) financing activities
Repayment of debt (736) (25,684) (26,420)
Proceeds from borrowings of debt -- 22,223 22,223
Repayment of capital lease obligations (320) (1,126) (1,446)
Proceeds from (repayment of) credit facilities, net 17,060 -- 17,060
Proceeds from government grants -- 5,413 5,413
Net cash from (used in) financing activities 16,004 826 16,830
Effect of exchange rate changes on cash and cash equivalents (1,352) (1,596) (2,948)
Net increase (decrease) in cash and cash equivalents 41,969 (4,511) 37,458
Cash and cash equivalents, beginning of period 48,407 89,032 137,439
Cash and cash equivalents, end of period $ 90,376 $ 84,521 $ 174,897
(1) Includes intercompany working capital related transactions.

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands)

Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income (loss) as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income (loss) attributable to common shareholders to Operating EBITDA for both the consolidated group and our Restricted Group:

Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
Net income (loss) attributable to common shareholders $ 571 $ (13,015) $ 21,612 $ (13,576)
Net income attributable to noncontrolling interest 2,194 790 4,330 1,725
Income tax provision 4,558 815 6,408 1,960
Interest expense 17,165 17,170 34,615 34,530
(Gain) loss on derivative instruments (2,549) (6,921) (5,777) (13,285)
Other (income) expense 82 (8) 76 84
Operating income (loss) 22,021 (1,169) 61,264 11,438
Add: Depreciation and amortization 19,851 19,354 39,638 38,887
Operating EBITDA $ 41,872 $ 18,185 $ 100,902 $ 50,325
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
Restricted Group
Net income (loss) $ (9,595) $ (14,661) $ 1,532 $ (17,028)
Income tax provision 4,033 795 5,785 2,137
Interest expense 8,548 7,685 17,066 15,430
(Gain) loss on derivative instruments 551 1,007
Other (income) expense (26) (2,118) (138) (4,145)
Operating income (loss) 2,960 (7,748) 24,245 (2,599)
Add: Depreciation and amortization 10,714 10,878 21,373 21,776
Operating EBITDA $ 13,674 $ 3,130 $ 45,618 $ 19,177

CONTACT: APPROVED BY: Jimmy S.H. Lee Chairman, CEO & President (604) 684-1099 David M. Gandossi Executive Vice-President, Chief Financial Officer & Secretary (604) 684-1099

Source:Mercer International Inc.

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