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8-K - 8-K - MERCER INTERNATIONAL INC.d720336d8k.htm

Exhibit 99.1

 

LOGO

LOGO

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS STRONG 2014 FIRST QUARTER RESULTS

NEW YORK, NY, May 1, 2014 - Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported strong results for the first quarter ended March 31, 2014. Operating EBITDA* in the first quarter of 2014 increased markedly to $59.0 million from $32.1 million in the first quarter of 2013 and $27.2 million in the fourth quarter of 2013.

For the first quarter of 2014, our net income increased materially to $21.0 million, or $0.38 per basic and $0.37 per diluted share, from a net loss of $0.6 million, or $0.01 per basic and diluted share, in the first quarter of 2013.

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

Summary Financial Highlights

 

     Q1
2014
     Q4
2013
    Q1
2013
 
     (in millions, except per share amounts)  

Pulp revenues

   $ 278.5       $ 258.5      $ 237.8   

Energy and chemical revenues

     27.2         24.1        24.0   

Operating income

     39.2         6.9        12.6   

Operating EBITDA

     59.0         27.2        32.1   

Gain on derivative instruments

     3.2         3.8        6.4   

Income tax provision

     1.9         6.0        1.1   

Net income (loss)(1)

     21.0         (9.8     (0.6

Net income (loss) per share(1)

       

Basic

     0.38         (0.18     (0.01

Diluted

     0.37         (0.18     (0.01

Common shares outstanding at period end

     55.9         55.9        55.8   

 

(1) Attributable to common shareholders.

Summary Operating Highlights

 

     Q1
2014
     Q4
2013
     Q1
2013
 

Pulp production (‘000 ADMTs)

     381.8         364.8         361.2   

Scheduled production downtime (‘000 ADMTs)

     —           22.4         —     

Pulp sales (‘000 ADMTs)

     381.4         358.6         356.7   

Average NBSK pulp list price in Europe ($/ADMT)(1)

     920         902         832   

Average pulp sales realizations ($/ADMT)(2)

     723         713         659   

Energy production (‘000 MWh)

     466.3         435.8         424.4   

Energy sales (‘000 MWh)

     201.5         172.5         173.6   

Average Spot Currency Exchange Rates:

        

$ / €(3)

     1.3705         1.3619         1.3196   

$ / C$(3)

     0.9065         0.9530         0.9916   

 

(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 9 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 first quarter of 2014, our Operating EBITDA increased by approximately 84% and 117% from the comparative and fourth quarters of 2013, respectively. In the current quarter, our mills performed very well and sales volumes increased due to generally strong demand, despite lower than budgeted sales from our Celgar mill in March, primarily due to the work stoppage at Port Metro Vancouver.”

Mr. Lee continued: “Our Stendal mill completed Project Blue Mill in the last quarter of 2013 and is now realizing its benefits in terms of both increased pulp and energy production. In the first quarter of 2014, we had record quarterly production with the Stendal mill having its second best production quarter, while our Rosenthal and Celgar mills also had strong production quarters. Overall, energy production at our mills increased by approximately 10% compared to the same period in 2013 and we had record energy sales volumes. Energy and chemical revenues increased by approximately 13% in the first quarter of 2014 compared to the same period of 2013. We had no scheduled maintenance downtime at any of our mills in the first quarter of 2014.”

Mr. Lee added: “In March 2014, the since settled work stoppage at Port Metro Vancouver, combined with railcar limitations, caused approximately 21,000 ADMTs of NBSK pulp that we had planned to ship in March 2014 to be delayed into the second quarter of 2014.”

Mr. Lee continued: “NBSK list prices continued to increase slowly through the first quarter of 2014 due to steady demand. At the end of the current quarter, list pulp prices in Europe were approximately $925 per ADMT, while list prices in North America and China had marginally increased to $1,030 and $760 per ADMT, respectively. We currently expect some very modest downward price pressure in China in the next quarter but currently expect prices to further improve over the balance of the year.”

Mr. Lee continued: “The NBSK pulp market remained generally balanced at approximately 28 days’ supply at the end of the current quarter. During March, world producer inventories declined by one day, despite shipping delays from Western Canada. We currently expect producer spring maintenance and other mill downtime to keep the NBSK pulp market generally steady in the near term.”

Mr. Lee continued: “On average, our overall per unit fiber costs in the current quarter increased by approximately 4% from the same period in 2013 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada. Due to a warm winter in Germany, timber harvesting increased and demand from pellet producers decreased, leading to an increase in the supply of wood chips and a better supply of logs. As a result, fiber prices in Germany are currently trending moderately downward. Fiber costs at our Celgar mill decreased compared to the same quarter in the prior year as a result of strong sawmill activity in the region. For the

 

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next quarter of 2014, we currently expect fiber costs in Germany to decrease moderately and to remain largely unchanged in Canada.”

Mr. Lee added: “We have scheduled maintenance downtime of ten days, or approximately 14,000 ADMTs, for our Celgar mill in the second quarter and 12 days, or approximately 12,000 ADMTs, for our Rosenthal mill in the third quarter. Our Stendal mill is not scheduled to have major maintenance downtime in 2014. Instead, in the second and fourth quarters of 2014, our Stendal mill will have two two-day maintenance shutdowns, or approximately 3,600 ADMTs for each shutdown.”

Mr. Lee concluded: “We are pleased with our mills’ operating performance in the current quarter. This, along with generally favorable markets and prices, let us generate strong results, despite the continuing weakness of the U.S. dollar to the Euro and the delay in shipments resulting primarily from the Port Metro Vancouver work stoppage. Going forward, our Celgar mill should continue to benefit from the decline of the Canadian dollar versus the U.S. dollar and realize lower fixed costs as a result of its workforce reduction and other initiatives. In addition, in 2014, our Rosenthal mill expects to complete a capital project to enable it to produce and sell tall oil, a chemical by-product. Our recently completed equity issue will provide us with greater operational and financial flexibility. We believe these factors should help position us to further build value for our stakeholders in fiscal 2014.”

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Total revenues for the three months ended March 31, 2014 increased by approximately 17% to $305.7 million from $261.8 million in the same period in 2013, due to higher pulp and energy sales volumes and higher pulp prices. Pulp revenues for the current quarter increased by approximately 17% to $278.5 million from $237.8 million in the comparative quarter of 2013, primarily due to higher sales volumes and price realizations.

Energy and chemical revenues increased by approximately 13% to $27.2 million in the first quarter of 2014 from $24.0 million in the same quarter last year, primarily because of higher production and sales resulting from Project Blue Mill coming online at our Stendal mill at the end of 2013.

Average list prices for NBSK pulp in Europe were approximately $920 per ADMT in the current quarter, compared to approximately $832 per ADMT in the same quarter last year. In the first quarter of 2014, average pulp sales realizations increased by approximately 10% to $723 per ADMT from approximately $659 per ADMT in the same quarter last year, primarily due to higher pulp prices.

Pulp production increased by approximately 6% to 381,785 ADMTs in the current quarter from 361,164 ADMTs in the same quarter of 2013. We have ten days (approximately 14,000 ADMTs) of maintenance downtime scheduled for our Celgar mill in the second quarter of 2014 in order to perform annual maintenance. Our Stendal mill will have a scheduled two-day maintenance shutdown (approximately 3,600 ADMTs) in the second quarter of 2014.

 

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Pulp sales volumes increased by approximately 7% to 381,355 ADMTs in the current quarter from 356,660 ADMTs in the comparative quarter, primarily due to generally strong demand in all our markets.

In the first quarter of 2014, a strike by truckers at Port Metro Vancouver, as well as railcar limitations, caused a delay in shipping of approximately 21,000 ADMTs of pulp from the current quarter to the second quarter of 2014.

Costs and expenses in the first quarter of 2014 increased by approximately 7% to $266.4 million from $249.2 million in the comparative period of 2013, primarily due to higher sales volumes.

On average, our overall per unit fiber costs in the current quarter increased by approximately 4% from the same period in 2013 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

For the first quarter of 2014, our operating income increased over three-fold to $39.2 million from $12.6 million in the comparative quarter of 2013, primarily due to higher pulp sales realizations.

Interest expense in the first quarter of 2014 marginally increased to $17.5 million from $17.4 million in the comparative quarter of 2013.

We recorded a derivative gain of $3.2 million on the mark to market adjustment of our Stendal mill’s interest rate derivative in the current quarter, compared to a net derivative gain of $6.4 million in the same quarter of last year.

During the current quarter, we recorded an income tax expense of $1.9 million, compared to a net income tax expense of $1.1 million in the same quarter of 2013.

The noncontrolling shareholder’s interest in the Stendal mill’s net income in the first quarter of 2014 was $2.1 million, compared to $0.9 million in the same quarter last year.

We reported net income attributable to common shareholders of $21.0 million, or $0.38 per basic and $0.37 per diluted share, for the first quarter of 2014, which included a non-cash unrealized gain of $3.2 million on the Stendal interest rate derivative. In the first quarter of 2013, the net loss attributable to common shareholders was $0.6 million, or $0.01 per basic and diluted share, which included a total non-cash net unrealized gain of $6.2 million on the Stendal interest rate derivative and fixed price pulp swaps.

 

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Liquidity and Capital Resources

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

 

     As at March 31,
2014
    As at December 31,
2013
 
     (in thousands)  

Financial Position

    

Cash and cash equivalents

   $ 172,109 (1)    $ 147,728   

Working capital

     310,294 (1)      306,274   

Total assets

     1,546,673 (1)      1,548,559   

Long-term liabilities

     999,707        1,034,743   

Total equity

     362,140 (1)      348,317   

 

(1) Does not include net proceeds of approximately $53.6 million from our equity issue in April, 2014.

As at March 31, 2014, we had approximately €28.4 million and C$38.3 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

In March 2014, our Stendal mill received a waiver under its two term credit facilities to: postpone the testing date of its Senior Debt/EBITDA cover ratio to September 30, 2014 from June 30, 2014 and report thereon by November 15, 2014; extend the date by which a portion of the net proceeds of our recent equity offering must be contributed to Stendal to November 17, 2014; and confirm that any such contributed capital shall qualify as an “equity cure” in the event that the Stendal mill is not in compliance with prescribed financial ratio covenants.

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.

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 March 31,
2014
    As at December 31,
2013
 
     (in thousands)  

Financial Position

    

Cash and cash equivalents

   $ 108,046 (1)    $ 82,910   

Working capital

     229,271 (1)      211,749   

Total assets

     873,581 (1)      858,824   

Long-term liabilities

     395,777        394,821   

Total equity

     413,725 (1)      412,033   

 

(1) Does not include net proceeds of approximately $53.6 million from our equity issue in April, 2014.

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, May 2, 2014 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through June 2, 2014, over the Internet at http://www.media-server.com/m/p/oj7szvju or through a link on the Company’s

 

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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.

 

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

-FINANCIAL TABLES FOLLOW-

 

Page 6


MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands of U.S. dollars)

 

     March 31,
2014
    December 31,
2013
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 172,109      $ 147,728   

Receivables

     149,062        135,893   

Inventories

     149,889        170,908   

Prepaid expenses and other

     17,513        10,918   

Deferred income tax

     6,547        6,326   
  

 

 

   

 

 

 

Total current assets

     495,120        471,773   
  

 

 

   

 

 

 

Long-term assets

    

Property, plant and equipment

     1,014,511        1,038,631   

Deferred note issuance costs and other

     20,112        20,998   

Deferred income tax

     16,930        17,157   
  

 

 

   

 

 

 
     1,051,553        1,076,786   
  

 

 

   

 

 

 

Total assets

   $ 1,546,673      $ 1,548,559   
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities

    

Accounts payable and other

   $ 120,973      $ 103,814   

Pension and other post-retirement benefit obligations

     1,280        1,330   

Debt

     62,573        60,355   
  

 

 

   

 

 

 

Total current liabilities

     184,826        165,499   
  

 

 

   

 

 

 

Long-term liabilities

    

Debt

     885,994        919,017   

Interest rate derivative liability

     43,262        46,517   

Pension and other post-retirement benefit obligations

     34,344        35,466   

Capital leases and other

     19,926        19,293   

Deferred income tax

     16,181        14,450   
  

 

 

   

 

 

 
     999,707        1,034,743   
  

 

 

   

 

 

 

Total liabilities

     1,184,533        1,200,242   
  

 

 

   

 

 

 

EQUITY

    

Shareholders’ equity

    

Share capital

     329,063        328,549   

Paid-in capital

     (12,539     (11,756

Retained earnings

     31,856        10,815   

Accumulated other comprehensive income

     22,385        31,470   
  

 

 

   

 

 

 

Total shareholders’ equity

     370,765        359,078   
  

 

 

   

 

 

 

Noncontrolling interest (deficit)

     (8,625     (10,761
  

 

 

   

 

 

 

Total equity

     362,140        348,317   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,546,673      $ 1,548,559   
  

 

 

   

 

 

 

 

 

(1)


MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands of U.S. dollars, except per share data)

 

     Three Months Ended
March 31,
 
     2014     2013  

Revenues

    

Pulp

   $ 278,506      $ 237,818   

Energy and chemicals

     27,179        23,967   
  

 

 

   

 

 

 
     305,685        261,785   

Costs and expenses

    

Operating costs

     236,304        217,984   

Operating depreciation and amortization

     19,702        19,450   
  

 

 

   

 

 

 
     49,679        24,351   

Selling, general and administrative expenses

     10,436        11,744   
  

 

 

   

 

 

 

Operating income

     39,243        12,607   
  

 

 

   

 

 

 

Other income (expense)

    

Interest expense

     (17,450     (17,360

Gain (loss) on derivative instruments

     3,228        6,364   

Other income (expense)

     6        (92
  

 

 

   

 

 

 

Total other income (expense)

     (14,216     (11,088
  

 

 

   

 

 

 

Income (loss) before income taxes

     25,027        1,519   

Income tax benefit (provision)

    

Current

     (122     4,319   

Deferred

     (1,728     (5,464
  

 

 

   

 

 

 

Net income (loss)

     23,177        374   

Less: net income attributable to noncontrolling interest

     (2,136     (935
  

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

   $ 21,041      $ (561
  

 

 

   

 

 

 

Net income (loss) per share attributable to common shareholders

    

Basic

   $ 0.38      $ (0.01

Diluted

   $ 0.37      $ (0.01

 

 

(2)


MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of U.S. dollars)

 

     Three Months Ended
March 31,
 
     2014     2013  

Cash flows from (used in) operating activities

    

Net income (loss)

   $ 23,177      $ 374   

Adjustments to reconcile net income (loss) to cash flows from operating activities

    

Unrealized loss (gain) on derivative instruments

     (3,228     (6,199

Depreciation and amortization

     19,787        19,533   

Deferred income taxes

     1,728        5,464   

Stock compensation expense

     (269     356   

Pension and other post-retirement expense, net of funding

     211        160   

Other

     652        1,562   

Changes in working capital

    

Receivables

     (17,332     (12,813

Inventories

     18,723        7,587   

Accounts payable and accrued expenses

     22,242        13,992   

Other

     (6,012     (1,033
  

 

 

   

 

 

 

Net cash from (used in) operating activities

     59,679        28,983   
  

 

 

   

 

 

 

Cash flows from (used in) investing activities

    

Purchase of property, plant and equipment

     (6,566     (15,045

Purchase of intangible assets

     (1,740     —     

Proceeds on sale of property, plant and equipment

     179        17   
  

 

 

   

 

 

 

Net cash from (used in) investing activities

     (8,127     (15,028
  

 

 

   

 

 

 

Cash flows from (used in) financing activities

    

Repayment of debt

     (30,541     (26,420

Proceeds from borrowings of debt

     —          13,133   

Repayment of capital lease obligations

     (660     (924

Proceeds from sale and lease-back transactions

     1,047        —     

Proceeds from (repayment of) credit facilities, net

     —          7,948   

Proceeds from government grants

     3,297        972   
  

 

 

   

 

 

 

Net cash from (used in) financing activities

     (26,857     (5,291
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (314     (3,988
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     24,381        4,676   

Cash and cash equivalents, beginning of period

     147,728        137,439   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 172,109      $ 142,115   
  

 

 

   

 

 

 

 

 

(3)


MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands of U.S. dollars)

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 months ended March 31, 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.

 

     March 31, 2014  
     Restricted
Group
     Unrestricted
Subsidiaries
    Eliminations     Consolidated
Group
 

ASSETS

         

Current assets

         

Cash and cash equivalents

   $ 108,046       $ 64,063      $ —        $ 172,109   

Receivables

     73,801         75,261        —          149,062   

Inventories

     93,226         56,663        —          149,889   

Prepaid expenses and other

     15,005         2,508        —          17,513   

Deferred income tax

     3,272         3,275        —          6,547   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     293,350         201,770        —          495,120   

Long-term assets

         

Property, plant and equipment

     404,647         609,864        —          1,014,511   

Deferred note issuance costs and other

     10,702         9,410        —          20,112   

Deferred income tax

     9,890         7,040        —          16,930   

Due from unrestricted group

     154,992         —          (154,992     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 873,581       $ 828,084      $ (154,992   $ 1,546,673   
  

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES

         

Current liabilities

         

Accounts payable and other

   $ 62,799       $ 58,174      $ —        $ 120,973   

Pension and other post-retirement benefit obligations

     1,280         —          —          1,280   

Debt

     —           62,573        —          62,573   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     64,079         120,747        —          184,826   

Long-term liabilities

         

Debt

     336,253         549,741        —          885,994   

Due to restricted group

     —           154,992        (154,992     —     

Interest rate derivative liability

     —           43,262        —          43,262   

Pension and other post-retirement benefit obligations

     34,344         —          —          34,344   

Capital leases and other

     8,999         10,927        —          19,926   

Deferred income tax

     16,181         —          —          16,181   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     459,856         879,669        (154,992     1,184,533   
  

 

 

    

 

 

   

 

 

   

 

 

 

EQUITY

         

Total shareholders’ equity (deficit)

     413,725         (42,960     —          370,765   

Noncontrolling interest (deficit)

     —           (8,625     —          (8,625
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 873,581       $ 828,084      $ (154,992   $ 1,546,673   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

 

(4)


MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands of U.S. dollars)

 

     December 31, 2013  
     Restricted
Group
     Unrestricted
Subsidiaries
    Eliminations     Consolidated
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   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(5)


MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Operations

(Unaudited)

(In thousands of U.S. dollars)

 

     Three Months Ended March 31, 2014  
     Restricted
Group
    Unrestricted
Subsidiaries
    Eliminations     Consolidated
Group
 

Revenues

        

Pulp

   $ 140,797     $ 137,709     $ —        $ 278,506  

Energy and chemicals

     8,881       18,298       —          27,179  
  

 

 

   

 

 

   

 

 

   

 

 

 
     149,678       156,007       —          305,685  

Operating costs

     111,368       124,936       —          236,304  

Operating depreciation and amortization

     10,574       9,128       —          19,702  

Selling, general and administrative expenses

     6,451       3,985       —          10,436  
  

 

 

   

 

 

   

 

 

   

 

 

 
     128,393       138,049       —          266,442  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     21,285       17,958       —          39,243  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Interest expense

     (8,518     (9,072     140       (17,450

Gain (loss) on derivative instruments

     —          3,228       —          3,228  

Other income (expense)

     112       34       (140     6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (8,406     (5,810     —          (14,216
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     12,879       12,148       —          25,027  

Income tax benefit (provision)

     (1,752     (98     —          (1,850
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     11,127       12,050       —          23,177  

Less: net income attributable to noncontrolling interest

     —          (2,136     —          (2,136
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

   $ 11,127     $ 9,914     $ —        $ 21,041  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended March 31, 2013  
     Restricted
Group
    Unrestricted
Subsidiaries
    Eliminations     Consolidated
Group
 

Revenues

        

Pulp

   $ 132,350     $ 105,468     $ —        $ 237,818  

Energy and chemicals

     9,361       14,606       —          23,967  
  

 

 

   

 

 

   

 

 

   

 

 

 
     141,711       120,074       —          261,785  

Operating costs

     118,200       99,784       —          217,984  

Operating depreciation and amortization

     10,815       8,635       —          19,450  

Selling, general and administrative expenses

     7,547       4,197       —          11,744  
  

 

 

   

 

 

   

 

 

   

 

 

 
     136,562       112,616       —          249,178  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     5,149       7,458       —          12,607  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Interest expense

     (7,745     (11,791     2,176       (17,360

Gain (loss) on derivative instruments

     (456     6,820       —          6,364  

Other income (expense)

     2,027       57       (2,176     (92
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (6,174     (4,914     —          (11,088
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (1,025     2,544       —          1,519  

Income tax benefit (provision)

     (1,342     197       —          (1,145
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,367     2,741       —          374  

Less: net income attributable to noncontrolling interest

     —          (935     —          (935
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

   $ (2,367   $ 1,806     $ —        $ (561
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(6)


MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)

 

     Three Months Ended March 31, 2014  
     Restricted
Group
    Unrestricted
Subsidiaries
    Consolidated
Group
 

Cash flows from (used in) operating activities

      

Net income (loss)

   $ 11,127      $ 12,050      $ 23,177   

Adjustments to reconcile net income (loss) to cash flows from operating activities

      

Unrealized loss (gain) on derivative instruments

     —          (3,228     (3,228

Depreciation and amortization

     10,659        9,128        19,787   

Deferred income taxes

     1,728        —          1,728   

Stock compensation expense

     (269     —          (269

Pension and other post-retirement expense, net of funding

     211        —          211   

Other

     171        481        652   

Changes in working capital

      

Receivables

     (96     (17,236     (17,332

Inventories

     (1,589     20,312        18,723   

Accounts payable and accrued expenses

     14,683        7,559        22,242   

Other(1)

     (8,092     2,080        (6,012
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) operating activities

     28,533        31,146        59,679   
  

 

 

   

 

 

   

 

 

 

Cash flows from (used in) investing activities

      

Purchase of property, plant and equipment

     (2,960     (3,606     (6,566

Purchase of intangible assets

     (974     (766     (1,740

Proceeds on sale of property, plant and equipment

     134        45        179   
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) investing activities

     (3,800     (4,327     (8,127
  

 

 

   

 

 

   

 

 

 

Cash flows from (used in) financing activities

      

Repayment of debt

     (744     (29,797     (30,541

Repayment of capital lease obligations

     (272     (388     (660

Proceeds from sale and lease-back transactions

     1,047        —          1,047   

Proceeds from government grants

     832        2,465        3,297   
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) financing activities

     863        (27,720     (26,857
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (460     146        (314
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     25,136        (755     24,381   

Cash and cash equivalents, beginning of period

     82,910        64,818        147,728   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 108,046      $ 64,063      $ 172,109   
  

 

 

   

 

 

   

 

 

 

 

(1) Includes intercompany working capital related transactions.

 

(7)


MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)

 

     Three Months Ended March 31, 2013  
     Restricted
Group
    Unrestricted
Subsidiaries
    Consolidated
Group
 

Cash flows from (used in) operating activities

      

Net income (loss)

   $ (2,367   $ 2,741      $ 374   

Adjustments to reconcile net income (loss) to cash flows from operating activities

      

Unrealized loss (gain) on derivative instruments

     621        (6,820     (6,199

Depreciation and amortization

     10,898        8,635        19,533   

Deferred income taxes

     1,309        4,155        5,464   

Stock compensation expense

     356        —          356   

Pension and other post-retirement expense, net of funding

     160        —          160   

Other

     545        1,017        1,562   

Changes in working capital

      

Receivables

     (11,011     (1,802     (12,813

Inventories

     4,050        3,537        7,587   

Accounts payable and accrued expenses

     13,871        121        13,992   

Other(1)

     (2,264     1,231        (1,033
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) operating activities

     16,168        12,815        28,983   
  

 

 

   

 

 

   

 

 

 

Cash flows from (used in) investing activities

      

Purchase of property, plant and equipment

     (3,492     (11,553     (15,045

Proceeds on sale of property, plant and equipment

     17        —          17   
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) investing activities

     (3,475     (11,553     (15,028
  

 

 

   

 

 

   

 

 

 

Cash flows from (used in) financing activities

      

Repayment of debt

     (736     (25,684     (26,420

Proceeds from borrowings of debt

     —          13,133        13,133   

Repayment of capital lease obligations

     (161     (763     (924

Proceeds from (repayment of) credit facilities, net

     7,948        —          7,948   

Proceeds from government grants

     —          972        972   
  

 

 

   

 

 

   

 

 

 

Net cash from (used in) financing activities

     7,051        (12,342     (5,291
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1,331     (2,657     (3,988
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     18,413        (13,737     4,676   

Cash and cash equivalents, beginning of period

     48,407        89,032        137,439   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 66,820      $ 75,295      $ 142,115   
  

 

 

   

 

 

   

 

 

 

 

(1) Includes intercompany working capital related transactions.

 

(8)


MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA

(Unaudited)

(In thousands of U.S. dollars)

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
March 31,
 
     2014     2013  

Net income (loss) attributable to common shareholders

   $ 21,041      $ (561

Net income attributable to noncontrolling interest

     2,136        935   

Income tax provision

     1,850        1,145   

Interest expense

     17,450        17,360   

(Gain) loss on derivative instruments

     (3,228     (6,364

Other (income) expense

     (6     92   
  

 

 

   

 

 

 

Operating income

     39,243        12,607   

Add: Depreciation and amortization

     19,787        19,533   
  

 

 

   

 

 

 

Operating EBITDA

   $ 59,030      $ 32,140   
  

 

 

   

 

 

 

 

     Three Months Ended
March 31,
 
     2014     2013  

Restricted Group(1)

    

Net income (loss) attributable to common shareholders

   $ 11,127      $ (2,367

Income tax provision

     1,752        1,342   

Interest expense

     8,518        7,745   

(Gain) loss on derivative instruments

     —          456   

Other (income) expense

     (112     (2,027
  

 

 

   

 

 

 

Operating income

     21,285        5,149   

Add: Depreciation and amortization

     10,659        10,898   
  

 

 

   

 

 

 

Operating EBITDA

   $ 31,944      $ 16,047   
  

 

 

   

 

 

 

 

(1) For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.

(9)

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