NEW YORK, NY, Nov. 7 /PRNewswire-FirstCall/ -- Mercer International
Inc. (NASDAQ:MERCSNASDAQ:TSX:NASDAQ:MRI.U) today reported results
for the third quarter of 2005. Summary Selected Highlights Three
Months Ended September 30, 2005 2004 (in thousands) Results of
Operations (unaudited) Revenues euro 148,928 euro 47,360 Income
(loss) from operations 7,892 (4,751) Operating EBITDA(1) 21,871
5,254 Interest expense (21,911) (4,200) Realized and unrealized
gain (loss) on derivative financial instruments, net(2) 3,051
(8,105) Unrealized foreign exchange gain on debt 5,918 - Net loss
(5,555) (9,879) Loss per share, basic and diluted (0.17) (0.57)
Other Data Total pulp sales volume(3) (ADMTs) 332,282 73,128 Mill
net pulp price realizations (per ADMT) euro 398 euro 472 (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
11 of the financial tables included in this press release. (2)
Unrealized non-cash marked to market valuation gain (loss), except
for a realized loss of euro 0.3 million in the three months ended
September 30, 2005. (3) Excluding intercompany sales volumes of
3,057 ADMTs and 1,348 ADMTs of pulp in the three months ended
September 30, 2005 and 2004, respectively. Certain key factors
affecting our 2005 third quarter results include: * Revenues in the
third quarter of 2005 increased by euro 101.6 million over the
comparative period of 2004 to euro 148.9 million, primarily from
the inclusion of production and sales from our Stendal and Celgar
pulp mills. * Operating EBITDA increased to euro 21.9 million in
the current quarter from euro 5.3 million in the prior quarter of
2004 reflecting higher pulp sales and a contribution to income from
operations of euro 6.1 million resulting from the sale of excess
carbon emission credits by our German pulp mills. 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 11 of the
financial tables included in this press release. * Interest expense
increased to euro 21.9 million in the third quarter of 2005 from
euro 4.2 million in the comparative period of 2004 and included
euro 14.7 million of interest associated with the Stendal mill. In
the prior period of 2004, most of the interest associated with the
Stendal mill was capitalized. Interest expense in the current
quarter included euro 6.0 million of interest relating to our $310
million 9.25% senior notes issued in February 2005. * We recorded a
net gain of euro 3.1 million on our interest rate and currency
derivatives in the third quarter of 2005 (of which euro 3.4 million
was an unrealized non-cash holding gain and euro 0.3 million was a
realized loss), compared to a net unrealized non-cash holding loss
of euro 8.1 million thereon in the comparative period of 2004. We
also recorded an unrealized non-cash foreign exchange gain on our
long-term debt of euro 5.9 million in the current quarter due to
the strengthening of the Canadian dollar versus the U.S. dollar. *
Pulp markets softened in the third quarter of 2005. Average list
prices for NBSK pulp in Europe decreased to $580 per ADMT from $635
per ADMT in the prior period of 2004, but such decrease was
partially offset by the strengthening of the U.S. dollar versus the
Euro. Results of Operations - 2005 Third Quarter Selected
production and sales data for the three months ended September 30,
2005 and 2004 is as follows: Three Months Ended September 30, 2005
2004 (ADMTs) Production by Product Class: Pulp production by mill:
Rosenthal 83,350 71,847 Celgar 118,035 - Stendal 126,202 - Total
pulp production 327,587 71,847 Paper production 16,064 15,354 Total
production 343,651 87,201 Sales Volume by Product Class: Pulp sales
volume by mill: Rosenthal 86,772 73,128 Celgar 125,079 - Stendal
120,431 - Total pulp sales volume(1) 332,282 73,128 Paper sales
volume 16,928 14,712 Total sales volume(1) 349,210 87,840 Revenues
by Product Class: (in thousands) Pulp revenues by mill: Rosenthal
euro 37,122 euro 34,982 Celgar 48,978 - Stendal 47,313 (327) Total
pulp revenues(1) 133,413 34,655 Paper revenues 15,515 12,705 Total
revenues(1) euro 148,928 euro 47,360 (1) Excluding intercompany
sales volumes of 3,057 ADMTs and 1,348 ADMTs of pulp and
intercompany net sales revenues of approximately euro 1.3 million
and euro 0.6 million in the three months ended September 30, 2005
and 2004, respectively. Revenues for the three months ended
September 30, 2005 increased to euro 148.9 million from euro 47.4
million in the comparative period of 2004, primarily because of
higher pulp sales resulting from the inclusion of sales from our
Stendal and Celgar mills. Pulp sales by volume were 332,282 ADMTs
in the third quarter of 2005, compared to 73,128 ADMTs in the
comparative period of 2004. In the three months ended September 30,
2005, the Stendal and Celgar mills sold 245,510 ADMTs of NBSK pulp
and had sales of euro 96.3 million. Cost of sales and general,
administrative and other expenses in the third quarter of 2005
increased to euro 141.0 million from euro 52.1 million in the
comparative period of 2004, primarily as a result of the inclusion
of production from our Stendal and Celgar mills. We commenced
expensing all of the costs, including interest, relating to the
Stendal mill effective September 2004, prior to which most of the
costs, including interest, relating to the Stendal mill were
capitalized during its construction. For the third quarter of 2005,
revenues from our pulp operations increased to euro 133.4 million
from euro 34.7 million in the same period a year ago, primarily as
a result of the inclusion of sales from our Stendal and Celgar
mills. List prices for NBSK pulp in Europe were approximately euro
476 ($580) per ADMT in the third quarter of 2005, compared to
approximately euro 519 ($635) per ADMT in the comparative period of
last year. The decrease in NBSK pulp prices was partially offset by
the strengthening of the U.S. dollar versus the Euro during the
current period. Pulp sales realizations decreased to euro 398 per
ADMT on average in the third quarter of 2005 from euro 472 per ADMT
in the third quarter of 2004, primarily as a result of lower price
realizations of the Stendal and Celgar mills. The Stendal mill sold
pulp at a discounted price as a result of its start up and the
Celgar mill sells a large portion of its production in Asian
markets which had lower sales prices than European markets. Cost of
sales and general, administrative and other expenses for the pulp
operations increased to euro 125.5 million in the third quarter of
2005 from euro 32.4 million in the comparative period of 2004,
primarily as a result of the inclusion of euro 96.9 million of
operating costs related to the Stendal and Celgar mills. In the
third quarter of 2005, we recorded a contribution to income from
operations of euro 6.1 million resulting from the sale of excess
carbon emission credits by our German pulp mills. Depreciation for
the pulp operations increased to euro 13.3 million in the current
quarter, from euro 3.8 million in the third quarter of 2004,
primarily as a result of the inclusion of euro 9.7 million of
depreciation from the Stendal and Celgar mills. For the third
quarter of 2005, our pulp operations generated operating income of
euro 9.2 million, versus operating income of euro 2.9 million in
the comparative quarter of 2004, primarily as a result of the
inclusion of the results of the Stendal and Celgar mills, the sale
of excess carbon emission credits by our German pulp mills and
lower costs and expenses at our Rosenthal mill. Revenues from our
paper operations in the current quarter increased to euro 15.5
million from euro 12.7 million in the same quarter of last year as
a result of higher sales volumes. Cost of sales and general,
administrative and other expenses for the paper operations in the
third quarter of 2005 decreased to euro 16.6 million from euro 20.3
million in the comparative quarter of 2004, primarily as a result
of a shift in the product mix at our paper mills. For the third
quarter of 2005, our paper operations generated an operating loss
of euro 1.1 million, compared to an operating loss of euro 7.6
million in the third quarter of 2004. In the third quarter of 2005,
we had income from operations of euro 7.9 million, compared to a
loss from operations of euro 4.8 million in the same quarter last
year. Interest expense in the third quarter of 2005 increased to
euro 21.9 million from euro 4.2 million in the year ago period, due
to interest expense of euro 14.7 million relating to the Stendal
mill and higher borrowings resulting primarily from our $310
million senior note issue in February 2005. In the third quarter of
2004, most of the interest associated with the Stendal mill was
capitalized. Stendal entered into certain foreign currency
derivatives to swap all of its long-term bank indebtedness from
Euros to U.S. dollars and certain currency forwards in 2005. We
recorded a net unrealized non-cash holding loss of euro 1.9 million
before minority interests upon the marked to market valuation of
such currency derivatives that were outstanding at the end of the
quarter and a net loss of euro 0.3 million before minority
interests in respect of such derivatives that matured in the
quarter, due to the strengthening of the U.S. dollar versus the
Euro. In the comparative quarter of 2004, we recorded a net
unrealized non-cash holding gain of euro 6.0 million before
minority interests on the then outstanding currency derivatives of
Rosenthal and Stendal. In the third quarter of 2005, as a result of
an increase in long-term European interest rates, we also recorded
a net unrealized non-cash holding gain of euro 5.3 million before
minority interests on the marked to market valuation of the Stendal
interest rate derivatives versus a net unrealized non-cash holding
loss of euro 14.1 million before minority interests on the interest
rate derivatives of Stendal and Rosenthal in the third quarter of
2004. We also recorded an unrealized non-cash foreign exchange gain
on our long-term debt of euro 5.9 million in the current quarter
due to the strengthening of the Canadian dollar versus the U.S.
dollar. In the third quarter of 2005, minority interest,
representing the two minority shareholders' proportionate interest
in the Stendal mill, was euro 5.7 million, compared to euro 6.7
million in the third quarter of 2004. We reported a net loss for
the third quarter of 2005 of euro 5.6 million, or euro 0.17 per
basic and diluted share, which reflected the inclusion of interest
expense related to our Stendal mill of euro 14.7 million and the
net realized and unrealized gain of euro 3.1 million on our
interest rate and currency derivatives and the unrealized non-cash
foreign exchange gain on our long-term debt of euro 5.9 million. In
the third quarter of 2004, we reported a net loss of euro 9.9
million, or euro 0.57 per basic and diluted share. We generated
"Operating EBITDA" of euro 21.9 million and euro 5.3 million in the
three months ended September 30, 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 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. For a reconciliation of net loss to
Operating EBITDA, see page 11 of the financial tables included in
this press release. Liquidity As at As at September 30, December
31, 2005 2004 (in thousands) (unaudited) Financial Position Cash
and cash equivalents euro 89,039 euro 49,568 Cash restricted 7,646
45,295 Receivables 75,696 54,687 Inventories 85,678 52,898 Prepaid
expenses and other 6,446 4,961 Accounts payable and accrued
expenses 94,702 56,542 Construction costs payable 1,088 65,436
Debt, current portion 37,135 107,090 Working capital (deficit)
131,580(1) (21,659) Property, plant and equipment 1,031,879 936,035
Total assets 1,409,237 1,255,649 Long-term liabilities 1,097,347(2)
863,840 Shareholders' equity 178,965 162,741 (1) Does not include
euro 10.6 million of government grants related to the Stendal mill
from the federal and state governments of Germany, which we expect
to receive in 2005. (2) Includes euro 16.7 million outstanding
under the revolving credit facilities for the Rosenthal and Celgar
mills. We had good liquidity at September 30, 2005. Certain key
factors affecting our liquidity include: * We had unrestricted cash
and cash equivalents of euro 89.0 million. * The current Stendal
construction costs payable of euro 1.1 million will be paid from
restricted cash of euro 7.6 million held for such purpose. * We
qualified for investment grants relating to the Stendal mill
totaling approximately euro 10.6 million at September 30, 2005 from
the federal and state governments of Germany, which we expect to
receive in 2005. These grants, when received, will be applied to
repay part of the euro 35.5 million of the current portion of our
debt 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 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 euro 131.6 million at September 30, 2005.
Results of Operations - Nine Months Ended September 30, 2005 For
the nine months ended September 30, 2005, revenues increased to
euro 376.4 million from euro 148.0 million in the prior period,
because of higher pulp sales. We generated income from operations
of euro 16.2 million in the nine months ended September 30, 2005,
compared to a loss from operations of euro 7.6 million in the nine
months ended September 30, 2004. We generated Operating EBITDA of
euro 55.1 million and euro 15.6 million in the nine months ended
September 30, 2005 and 2004, respectively. For a reconciliation of
net loss to Operating EBITDA, see page 11 of the financial tables
included in this press release. We reported a net loss of euro 87.4
million or euro 2.86 per diluted share for the nine months ended
September 30, 2005, compared to a net loss of euro 12.6 million or
euro 0.73 per diluted share for the nine months ended September 30,
2004, which reflected the inclusion of certain non- capitalized
interest of approximately euro 41.0 million related to the Stendal
mill, the net realized and unrealized non-cash holding loss of euro
70.1 million on our interest rate and currency derivatives and the
unrealized non- cash foreign exchange loss on our long-term debt of
euro 1.6 million, partially offset by a non-cash benefit for income
taxes of euro 14.6 million. President's Comments Mr. Jimmy S.H.
Lee, President and Chairman, stated: "During the current quarter,
we had a three fold increase in revenues to approximately euro
148.9 million reflecting the acquisition of our Celgar mill and the
ramp-up of our Stendal mill. Both our Rosenthal and Celgar mills
had good production in the quarter and Stendal continues to ramp-up
substantially on plan. We currently expect to take regular planned
down-time at our pulp mills in the fourth quarter for maintenance
and other improvements, which is expected to reduce our overall
production for the quarter by approximately 35,000 ADMTs of pulp.
During this down-time, the Stendal mill will also tie in two new
digesters which will increase its production capacity in 2006."
"Despite generally soft pulp markets, our Operating EBITDA
increased sharply to approximately euro 21.9 million and our net
loss decreased in the quarter. We believe this improvement reflects
our strategy of focusing on operating modern, large and efficient
production facilities." Mr. Lee continued: "Pulp prices were softer
in the quarter with list prices in Europe averaging around euro 476
per ADMT. Pulp pricing in Asia, and particularly China where Celgar
has a large portion of its sales, remained weak with prices
averaging around euro 410 per ADMT in the quarter." He further
stated: "We are, however, seeing some pulp price improvement
through the partial implementation of the October price increase."
Mr. Lee said: "As NBSK pulp is priced in U.S. dollars, the recent
strengthening of the U.S. dollar versus the Euro improved the
operating results of our German pulp mills, although this was
partially offset by the weakening of the U.S. dollar versus the
Canadian dollar. A higher dollar generally results in increased
Euro revenues." Mr. Lee also said: "At September 30, 2005, our
balance sheet reflected the receipt of government grants relating
to the Stendal mill being applied to the related debt and paying
construction costs related to the Stendal mill from restricted
cash. As a result, our working capital increased to approximately
euro 131.6 million at the end of the third quarter of 2005 from a
working capital deficit of approximately euro 21.7 million at the
end of the prior quarter of 2004." Mr. Lee concluded: "We continue
to make good progress on integrating and coordinating our global
NBSK pulp marketing activities. We believe this progress coupled
with our focus on production efficiencies and costs, will help us
achieve our overall strategy of being a leading NBSK pulp producer
and build value for our stakeholders." 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,
November 8, 2005 at 10:00 AM (Eastern Time). 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=1159175.
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 November 15, 2005 at 11:59 p.m. (Eastern Time). The
replay number is (800) 642-1687, and the passcode is 2160034.
Mercer International Inc. is a global pulp and paper manufacturing
company. Our production facilities are located in Germany and
Canada. Our shares are quoted for trading on the Nasdaq National
Market (MERCS) and listed for trading on the Toronto Stock Exchange
(MRI.U), and we also have outstanding 8.5% convertible subordinated
notes and 9.25% senior notes. 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 and
other filings. MERCER INTERNATIONAL INC. CONSOLIDATED BALANCE
SHEETS AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004 (Euros in
thousands) September 30, December 31, 2005 2004 ASSETS Current
Assets Cash and cash equivalents euro 89,039 euro 49,568 Cash
restricted 7,646 45,295 Receivables 75,696 54,687 Inventories
85,678 52,898 Prepaid expenses and other 6,446 4,961 Total current
assets 264,505 207,409 Long-Term Assets Cash restricted 24,537
47,538 Property, plant and equipment 1,031,879 936,035 Investments
4,664 5,079 Deferred note issuance and other costs 8,903 5,069
Deferred income tax 74,749 54,519 1,144,732 1,048,240 Total assets
euro 1,409,237 euro 1,255,649 LIABILITIES Current Liabilities
Accounts payable and accrued expenses euro 94,702 euro 56,542
Construction costs payable 1,088 65,436 Debt, current portion
37,135 107,090 Total current liabilities 132,925 229,068 Long-Term
Liabilities Debt, less current portion 923,144 777,272 Unrealized
foreign exchange rate derivative losses 49,346 - Unrealized
interest rate derivative losses 90,637 75,471 Pension and other
post-retirement benefit obligations 17,008 - Capital leases and
other 9,562 9,035 Deferred income tax 7,650 2,062 1,097,347 863,840
Total liabilities 1,230,272 1,092,908 Minority Interest - -
SHAREHOLDERS' EQUITY Shares of beneficial interest 181,600 83,397
Additional paid-in capital, stock options 14 14 Retained earnings
(deficit) (18,197) 69,176 Accumulated other comprehensive income
15,548 10,154 Total shareholders' equity 178,965 162,741 Total
liabilities and shareholders' equity euro 1,409,237 euro 1,255,649
MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS For
the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
(Euros in thousands, except per share data) 2005 2004 Revenues euro
376,430 euro 148,011 Costs and expenses: Cost of sales 350,185
127,859 General and administrative expenses 22,399 21,108 Gain on
sale of emission credits (12,353) - Impairment of capital assets -
6,000 Flooding losses and expenses, less grant income - 669 Total
costs and expenses 360,231 155,636 Income (loss) from operations
16,199 (7,625) Other income (expense): Interest expense (63,320)
(9,554) Investment income 1,594 1,679 Realized loss on derivative
financial instruments (2,455) - Unrealized loss on derivative
financial instruments (67,804) (1,077) Unrealized foreign exchange
loss on debt (1,591) - Impairment of investments (1,699) - Total
other income (expense) (135,275) (8,952) Loss before income taxes
and minority interest (119,076) (16,577) Income tax benefit 14,627
37 Loss before minority interest (104,449) (16,540) Minority
interest 17,076 3,936 Net loss (87,373) (12,604) Retained earnings,
beginning of period 69,176 49,196 Retained earnings (deficit), end
of period euro (18,197) euro 36,592 Loss per share Basic and
diluted euro (2.86) euro (0.73) MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended
September 30, 2005 and 2004 (Unaudited) (Euros in thousands, except
per share data) 2005 2004 Revenues euro 148,928 euro 47,360 Costs
and expenses: Cost of sales 140,018 39,231 General and
administrative expenses 7,083 6,880 Gain on sale of emission
credits (6,065) - Impairment of capital assets - 6,000 Total costs
and expenses 141,036 52,111 Income (loss) from operations 7,892
(4,751) Other income (expense): Interest expense (21,911) (4,200)
Investment income 613 215 Realized loss on derivative financial
instruments (284) - Unrealized gain (loss) on derivative financial
instruments 3,335 (8,105) Unrealized foreign exchange gain on debt
5,918 - Total other income (expense) (12,329) (12,090) Loss before
income taxes and minority interest (4,437) (16,841) Income tax
(provision) benefit (6,785) 236 Loss before minority interest
(11,222) (16,605) Minority interest 5,667 6,726 Net loss (5,555)
(9,879) Retained earnings (deficit), beginning of period (12,642)
46,471 Retained earnings (deficit), end of period euro (18,197)
euro 36,592 Loss per share Basic and diluted euro (0.17) euro
(0.57) MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS For the Nine Months Ended September 30, 2005 and 2004
(Unaudited) (Euros in thousands) 2005 2004 Cash Flows from (used
in) Operating Activities: Net loss euro (87,373) euro (12,604)
Adjustments to reconcile net loss to cash flows from operating
activities Unrealized losses on derivatives 67,804 1,077
Depreciation and amortization 39,599 17,217 Unrealized foreign
exchange loss on debt 1,591 - Impairment of capital assets - 6,000
Impairment of investments and securities 1,699 - Minority interest
(17,076) (3,936) Deferred income taxes (14,642) - Stock
compensation expense 330 690 Other 144 1,139 Changes in current
assets and liabilities Receivables (20,428) (2,056) Inventories
(9,581) (35,825) Accounts payable and accrued expenses 33,765
26,331 Other (1,435) 782 Net cash used in operating activities
(5,603) (1,185) Cash Flows from (used in) Investing Activities:
Cash restricted 60,650 (17,517) Purchase of property, plant and
equipment (18,646) (241,825) Acquisition of Celgar pulp mill
(146,608) - Sale of available-for-sale securities - 1,161 Other -
115 Net cash used in investing activities (104,604) (258,066) Cash
Flows from (used in) Financing Activities: Increase (decrease) in
construction costs payable (64,348) 118,196 Proceeds from
borrowings of notes payable and debt 311,792 126,000 Repayment of
notes payable and debt (261,691) (21,886) Proceeds from investment
grants 78,595 28,710 Repayment of capital lease obligations (2,930)
(1,781) Issuance of shares of beneficial interest 67,329 582 Net
cash from financing activities 128,747 249,821 Effect of exchange
rate changes on cash and cash equivalents 20,931 80 Net increase
(decrease) in cash and cash equivalents 39,471 (9,350) Cash and
cash equivalents, beginning of period 49,568 51,993 Cash and cash
equivalents, end of period euro 89,039 euro 42,643 MERCER
INTERNATIONAL INC. BUSINESS SEGMENT INFORMATION For the Nine Months
Ended September 30, 2005 and 2004 (Unaudited) (Euros in thousands)
Rosenthal Celgar(1) Stendal Total Pulp Pulp Pulp Pulp Nine Months
Ended September 30, 2005 Sales to external customers euro 103,058
euro 97,458 euro 128,919 euro 329,435 Intersegment net sales - -
4,679 4,679 103,058 97,458 133,598 334,114 Operating costs 73,146
86,438 112,739 272,323 Depreciation and amortization 10,173 7,083
20,179 37,435 General and administrative 5,441 5,285 3,120 13,846
Emission credits (4,402) - (7,951) (12,353) 84,358 98,806 128,087
311,251 Income (loss) from operations 18,700 (1,348) 5,511 22,863
Interest expense Investment income Derivative financial
instruments, net Foreign exchange loss on debt Impairment of
investments Loss before income taxes and minority interest Segment
assets euro 341,732 euro 251,918 euro 787,388 euro 1,381,038 Nine
Months Ended September 30, 2004 Sales to external customers euro
106,013 euro - euro 600 euro 106,613 Intersegment net sales 1,822 -
- 1,822 107,835 - 600 108,435 Operating costs 72,705 - 509 73,214
Depreciation and amortization 14,166 - 795 14,961 General and
administrative 7,960 - 6,645 14,605 Impairment of assets - - - -
Flooding grants, less losses and expenses - - - - 94,831 - 7,949
102,780 Income (loss) from operations 13,004 - (7,349) 5,655
Interest expense Investment and other income Derivative financial
instruments, net Loss before income taxes and minority interest
Segment assets euro 384,764 euro - euro 773,081 euro 1,157,845
Corporate, Other and Consolidated Paper Eliminations Total Nine
Months Ended September 30, 2005 Sales to external customers euro
46,995 euro - euro 376,430 Intersegment net sales - (4,679) -
46,995 (4,679) 376,430 Operating costs 44,879 (5,879) 311,323
Depreciation and amortization 592 835 38,862 General and
administrative 3,720 4,833 22,399 Emission credits - - (12,353)
49,191 (211) 360,231 Income (loss) from operations (2,196) (4,468)
16,199 Interest expense (63,320) Investment income 1,594 Derivative
financial instruments, net (70,259) Foreign exchange loss on debt
(1,591) Impairment of investments (1,699) (135,275) Loss before
income taxes and minority interest euro (119,076) Segment assets
euro 22,783 euro 5,416 euro 1,409,237 Nine Months Ended September
30, 2004 Sales to external customers euro 41,398 euro - euro
148,011 Intersegment net sales - (1,822) - 41,398 (1,822) 148,011
Operating costs 39,686 (1,742) 111,158 Depreciation and
amortization 1,740 - 16,701 General and administrative 3,886 2,617
21,108 Impairment of assets 6,000 - 6,000 Flooding grants, less
losses and expenses 669 - 669 51,981 875 155,636 Income (loss) from
operations (10,583) (2,697) (7,625) Interest expense (9,554)
Investment and other income 1,679 Derivative financial instruments,
net (1,077) (8,952) Loss before income taxes and minority interest
euro (16,577) Segment assets euro 31,699 euro 3,183 euro 1,192,727
(1) The results of the Celgar pulp mill are from the date of its
acquisition on February 14, 2005. MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION For the Three Months Ended September
30, 2005 and 2004 (Unaudited) (Euros in thousands) Rosenthal
Celgar(1) Stendal Total Pulp Pulp Pulp Pulp Three Months Ended
September 30, 2005 Sales to external customers euro 37,122 euro
48,978 euro 47,313 euro 133,413 Intersegment net sales - - 1,339
1,339 37,122 48,978 48,652 134,752 Operating costs 25,741 45,884
41,193 112,818 Depreciation and amortization 3,543 2,986 6,725
13,254 General and administrative 1,631 2,448 1,443 5,522 Emission
credits (2,267) - (3,798) (6,065) 28,648 51,318 45,563 125,529
Income (loss) from operations 8,474 (2,340) 3,089 9,223 Interest
expense Investment income Derivative financial instruments, net
Foreign exchange gain on debt Loss before income taxes and minority
interest Three Months Ended September 30, 2004 Sales to external
customers euro 34,982 euro - euro (327) euro 34,655 Intersegment
net sales 643 - - 643 35,625 - (327) 35,298 Operating costs 23,580
- 509 24,089 Depreciation and amortization 3,030 - 783 3,813
General and administrative 3,324 - 1,197 4,521 Impairment of assets
- - - - Flooding grants, less losses and expenses - - - - 29,934 -
2,489 32,423 Income (loss) from operations 5,691 - (2,816) 2,875
Interest expense Investment and other income Derivative financial
instruments, net Loss before income taxes and minority interest
Corporate, Other and Consolidated Paper Eliminations Total Three
Months Ended September 30, 2005 Sales to external customers euro
15,532 euro - euro 148,928 Intersegment net sales - (1,339) -
15,515 (1,339) 148,928 Operating costs 15,278 (2,057) 126,039
Depreciation and amortization 213 512 13,979 General and
administrative 1,158 403 7,083 Emission credits - - (6,065) 16,649
(1,142) 141,036 Income (loss) from operations (1,134) (197) 7,892
Interest expense (21,911) Investment income 613 Derivative
financial instruments, net 3,051 Foreign exchange gain on debt
5,918 (12,329) Loss before income taxes and minority interest euro
(4,437) Three Months Ended September 30, 2004 Sales to external
customers euro 12,705 euro - euro 47,360 Intersegment net sales -
(643) - 12,705 (643) 47,360 Operating costs 12,473 (1,425) 35,137
Depreciation and amortization 599 (318) 4,094 General and
administrative 1,243 1,116 6,880 Impairment of assets 6,000 - 6,000
Flooding grants, less losses and expenses - - - 20,315 (627) 52,111
Income (loss) from operations (7,610) (16) (4,751) Interest expense
(4,200) Investment and other income 215 Derivative financial
instruments, net (8,105) (12,090) Loss before income taxes and
minority interest euro (16,841) (1) The results of the Celgar pulp
mill are from the date of its acquisition on February 14, 2005.
MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet As at September 30, 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
International Inc. excluding its subsidiaries ("Mercer Inc.") and
our restricted subsidiaries under the indenture, collectively
referred to as the "Restricted Group". As at and during the nine
and three months ended September 30, 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 nine and three months ended September
30, 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 nine and
three months ended September 30, 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. September
30, 2005 Restricted Unrestricted Consolidated Group Subsidiaries
Eliminations Group ASSETS Current assets Cash and cash equivalents
euro 52,566 euro 36,473 euro - euro 89,039 Cash restricted - 7,646
- 7,646 Receivables 40,758 35,113 (175) 75,696 Inventories 50,875
34,803 - 85,678 Prepaid expenses and other 3,968 2,478 - 6,446
Total current assets 148,167 116,513 (175) 264,505 Cash restricted
- 24,537 - 24,537 Property, plant and equipment 397,071 635,468
(660) 1,031,879 Other 9,483 4,084 - 13,567 Deferred income tax
21,516 53,233 - 74,749 Due from unrestricted group 45,473 -
(45,473) - Total assets euro 621,710 euro 833,835 euro (46,308)
euro 1,409,237 LIABILITIES Current liabilities Accounts payable and
accrued expenses euro 36,128 euro 58,749 euro (175) euro 94,702
Construction costs payable - 1,088 - 1,088 Debt, current portion -
37,135 - 37,135 Total current liabilities 36,128 96,972 (175)
132,925 Debt, less current portion 342,221 580,923 - 923,144 Due to
restricted group - 45,473 (45,473) - Unrealized derivatives loss -
139,983 - 139,983 Other 20,152 6,418 - 26,570 Deferred income tax
3,845 3,805 - 7,650 Total liabilities 402,346 873,574 (45,648)
1,230,272 SHAREHOLDERS' EQUITY Total shareholders' equity 219,364
(39,739)(1) (660) 178,965 Total liabilities and shareholders'
equity euro 621,710 euro 833,835 euro (46,308) euro 1,409,237 (1)
Shareholders' equity does not include government grants received or
receivable related to the Stendal mill. Shareholders' equity is
impacted by the unrealized non-cash marked to market valuation
losses on derivative financial instruments. 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 euro 45,487 euro 4,081 euro - euro 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 euro 401,321 euro 897,996
euro (43,668) euro 1,255,649 LIABILITIES Current liabilities
Accounts payable and accrued expenses euro 19,615 euro 37,091 euro
(164) euro 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 interest rate derivative - 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 euro 401,321 euro 897,996 euro
(43,668) euro 1,255,649 MERCER INTERNATIONAL INC. RESTRICTED GROUP
SUPPLEMENTAL DISCLOSURE Combined Condensed Statements of Operations
For the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
(Euros in thousands) Nine Months Ended September 30, 2005
Restricted Unrestricted Consolidated Group Subsidiaries
Eliminations Group Revenues euro 200,516 euro 175,914 euro - euro
376,430 Operating costs 158,384 152,939 - 311,323 Operating
depreciation and amortization 17,431 20,771 660 38,862 General and
administrative 15,559 6,840 - 22,399 Gain on sale of emission
credits (4,402) (7,951) - (12,353) 186,972 172,599 660 360,231
Income (loss) from operations 13,544 3,315 (660) 16,199 Other
income (expense) Interest expense (23,918) (41,351) 1,949 (63,320)
Investment income 2,313 1,230 (1,949) 1,594 Derivative financial
instruments, net (494) (69,765) - (70,259) Unrealized foreign
exchange loss on debt (1,591) - - (1,591) Impairment of investments
(1,699) - - (1,699) Total other expense (25,389) (109,886) -
(135,275) Loss before income taxes and minority interest (11,845)
(106,571) (660) (119,076) Income tax (provision) benefit (7,867)
22,494 - 14,627 Loss before minority interest (19,712) (84,077)
(660) (104,449) Minority interest - 17,076 - 17,076 Net loss euro
(19,712) euro (67,001) euro (660) euro (87,373) Nine Months Ended
September 30, 2004 Restricted Unrestricted Consolidated Group
Subsidiaries Eliminations Group Revenues euro 107,835 euro 41,998
euro (1,822) euro 148,011 Operating costs 72,255 40,195 (1,292)
111,158 Operating depreciation and amortization 14,166 2,535 -
16,701 General and administrative 11,027 10,531 (450) 21,108
Impairment of assets - 6,000 - 6,000 Flooding grants, less losses
and expenses - 669 - 669 97,448 59,930 (1,742) 155,636 Income
(loss) from operations 10,387 (17,932) (80) (7,625) Other income
(expense) Interest expense (11,174) (2,309) 3,929 (9,554)
Investment income 2,534 (301) (554) 1,679 Derivative financial
instruments, net (102) (15,723) - (15,825) Unrealized foreign
exchange loss on debt (173) 14,921 - 14,748 Total other expense
(8,915) (3,412) 3,375 (8,952) Loss before income taxes and minority
interest 1,472 (21,344) 3,295 (16,577) Income tax (provision)
benefit 37 - - 37 Loss before minority interest 1,509 (21,344)
3,295 (16,540) Minority interest - 3,936 - 3,936 Net income (loss)
euro 1,509 euro (17,408) euro 3,295 euro (12,604) MERCER
INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations For the Three Months
Ended September 30, 2005 and 2004 (Unaudited) (Euros in thousands)
Three Months Ended September 30, 2005 Restricted Unrestricted
Consolidated Group Subsidiaries Eliminations Group Revenues euro
86,100 euro 62,828 euro - euro 148,928 Operating costs 71,124
54,915 - 126,039 Operating depreciation and amortization 6,602
7,155 222 13,979 General and administrative 4,482 2,601 - 7,083
Gain on sale of emission credits (2,267) (3,798) - (6,065) 79,941
60,873 222 141,036 Income (loss) from operations 6,159 1,955 (222)
7,892 Other income (expense) Interest expense (7,987) (14,780) 856
(21,911) Investment income 1,016 453 (856) 613 Derivative financial
instruments, net (31) 3,082 - 3,051 Unrealized foreign exchange
gain on debt 5,918 - - 5,918 Total other income (expense) (1,084)
(11,245) - (12,329) Income (loss) before income taxes and minority
interest 5,075 (9,290) (222) (4,437) Income tax (provision) benefit
(3,091) (3,694) - (6,785) Income (loss) before minority interest
1,984 (12,984) (222) (11,222) Minority interest - 5,667 - 5,667 Net
income (loss) euro 1,984 euro (7,317) euro(222) euro (5,555) Three
Months Ended September 30, 2004 Restricted Unrestricted
Consolidated Group Subsidiaries Eliminations Group Revenues euro
35,625 euro 12,378 euro(643) euro 47,360 Operating costs 23,580
12,982 (1,425) 35,137 Operating depreciation and amortization 3,030
1,382 (318) 4,094 General and administrative 4,732 2,440 (292)
6,880 Impairment of assets - 6,000 - 6,000 31,342 22,804 (2,035)
52,111 Income (loss) from operations 4,283 (10,426) 1,392 (4,751)
Other income (expense) Interest expense (5,151) (1,857) 2,808
(4,200) Investment income 789 (87) (487) 215 Derivative financial
instruments, net 4,712 (14,157) - (9,445) Unrealized foreign
exchange gain on debt 285 1,055 - 1,340 Total other income
(expense) 635 (15,046) 2,321 (12,090) Income (loss) before income
taxes and minority interest 4,918 (25,472) 3,713 (16,841) Income
tax (provision) benefit 236 - - 236 Income (loss) before minority
interest 5,154 (25,472) 3,713 (16,605) Minority interest - 6,726 -
6,726 Net income (loss) euro 5,154 euro (18,746) euro 3,713 euro
(9,879) MERCER INTERNATIONAL INC. COMPUTATION OF OPERATING EBITDA
For the Nine and Three Months Ended September 30, 2005 and 2004
(Unaudited) (Euros in thousands) Nine Months Ended September 30,
2005 2004 Net loss euro (87,373) euro(12,604) Minority interest
(17,076) (3,936) Income taxes (benefit) (14,627) (37) Interest
expense 63,320 9,554 Investment income (1,594) (1,679) Derivative
financial instruments, net 70,259 1,077 Foreign exchange loss on
debt 1,591 - Impairment of investments 1,699 - Income (loss) from
operations 16,199 (7,625) Add: Depreciation and amortization 38,862
17,217 Impairment charge - 6,000 Operating EBITDA euro 55,061 euro
15,592 Three Months Ended September 30, 2005 2004 Net loss euro
(5,555) euro (9,879) Minority interest (5,667) (6,726) Income taxes
(benefit) 6,785 (236) Interest expense 21,911 4,200 Investment
income (613) (215) Derivative financial instruments, net (3,051)
8,105 Foreign exchange loss on debt (5,918) - Income (loss) from
operations 7,892 (4,751) Add: Depreciation and amortization 13,979
4,005 Impairment charge - 6,000 Operating EBITDA euro 21,871 euro
5,254 (1) 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 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 Nine and Three Months Ended September 30, 2005 and 2004
(Unaudited) (Euros in thousands) Nine Months Ended September 30,
2005 2004 Restricted Group(1) Net income (loss) euro (19,712) euro
1,509 Income taxes 7,867 (37) Interest expense 23,918 11,174
Investment and other income (2,313) (2,534) Derivative financial
instruments, net 494 102 Foreign exchange loss on debt 1,591 173
Impairment of investments 1,699 - Income from operations 13,544
10,387 Add: Depreciation and amortization 17,431 14,166 Operating
EBITDA euro 30,975 euro 24,553 (1) The results of the Celgar pulp
mill are not included for the nine months ended September 30, 2004.
Three Months Ended September 30, 2005 2004 Restricted Group(1) Net
income euro 1,984 euro 5,154 Income taxes 3,091 (236) Interest
expense 7,987 5,151 Investment and other income (1,016) (789)
Derivative financial instruments, net 31 (4,712) Foreign exchange
(gain) loss on debt (5,918) (285) Income from operations 6,159
4,283 Add: Depreciation and amortization 6,602 3,030 Operating
EBITDA euro 12,761 euro 7,313 (1) The results of the Celgar pulp
mill are not included for the three months ended September 30,
2004. DATASOURCE: Mercer International Inc. CONTACT: Jimmy S.H.
Lee, Chairman & President, +1-604-684-1099, or David M.
Gandossi, Executive Vice-President & Chief Financial Officer,
+1-604-684-1099, both of Mercer International Inc.; or Investors:
Eric Boyriven, or Alexandra Tramont, or Media: Alecia Pulman,
+1-212-850-5600, all of Financial Dynamics, for Mercer
International Inc. Web site: http://www.mercerinternational.com/
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