Mercer International Inc. Reports 2004 Second Quarter Results NEW
YORK, Aug. 9 /PRNewswire-FirstCall/ -- Mercer International Inc.
(NASDAQ:MERCSNASDAQ:TSX:NASDAQ:MRI.U) today reported results for
the second quarter ended June 30, 2004. Results of Operations -
Three Months Ended June 30, 2004 Total revenues for the three
months ended June 30, 2004 increased to 51.8 million euros from
47.9 million euros in the comparative period of 2003, primarily
because of higher pulp sales. Pulp and paper revenues were 48.5
million euros in the second quarter of 2004, versus 45.0 million
euros in the comparative period of 2003. Costs of pulp and paper
sales in the three months ended June 30, 2004 increased to 44.0
million euros from 41.5 million euros in the comparative period of
2003, primarily a result of increased pulp sales volumes. For the
three months ended June 30, 2004, pulp sales increased to 35.3
million euros from 31.0 million euros in the same period a year
ago. List prices for Northern Bleached Softwood Kraft Pulp ("NBSK")
in Europe were approximately 535 euros ($645) per tonne in the
second quarter of 2004, approximately 464 euros ($580) per tonne in
the first quarter of 2004 and approximately 484 euros ($550) per
tonne in the second quarter of last year. The increase in NBSK pulp
prices was partially offset by the weakness of the U.S. dollar
versus the Euro in the current period. Increased production volumes
due to enhanced operational efficiency lead to higher pulp
revenues. In the current quarter, pulp sales by volume were 74,841
tonnes, compared to 69,700 tonnes in the comparative period of
2003. Pulp sales realizations were 471 euros per tonne on average
in the current quarter, compared to 416 euros per tonne in the
first quarter of 2004 and 445 euros per tonne in the three months
ended June 30, 2003. Transportation and other revenues for the pulp
operations were 4.4 million euros in the three months ended June
30, 2004, compared to 2.4 million euros in the comparative quarter
of last year. Cost of sales and general, administrative and other
expenses for the pulp operations increased to 36.9 million euros in
the three months ended June 30, 2004 from 31.8 million euros in the
comparative period of 2003, primarily as a result of the inclusion
of certain non-capitalized expenses of approximately 2.3 million
euros related to the Stendal mill. On average, per tonne fiber
costs for pulp production decreased by approximately 2.8% compared
to the second quarter of last year. Depreciation for the pulp
operations was 5.6 million euros in the current quarter, versus 5.5
million euros in the year ago period. For the three months ended
June 30, 2004, our pulp operations generated operating income of
3.6 million euros, versus operating income of 2.3 million euros in
the year ago period. Paper sales in the three months ended June 30,
2004 were 13.2 million euros, compared with 14.0 million euros in
the same period of last year. Sales of specialty papers in the
three months ended June 30, 2004 were 8.6 million euros versus 10.5
million euros in the three months ended June 30, 2003, primarily as
a result of a shift in the product mix. For the current quarter,
total paper sales volumes were 15,383 tonnes, versus 15,302 tonnes
in the comparative period of last year. On average, prices for
specialty papers realized in the current quarter decreased
slightly, reflecting a shift in the product mix. Average prices for
our printing papers decreased by approximately 6.0% reflecting
generally weak demand. Cost of sales and general, administrative
and other expenses for the paper operations in the three months
ended June 30, 2004 increased to 15.1 million euros from 14.9
million euros in the comparative quarter of 2003, primarily as a
result of higher paper sales volumes. Depreciation for the paper
operations was 0.6 million euros in the three months ended June 30,
2004, compared to 0.5 million euros in the same period last year.
For the three months ended June 30, 2004, our paper operations
generated an operating loss of 2.1 million euros, compared to 1.1
million euros in the same period of last year. For the three months
ended June 30, 2004, consolidated general and administrative
expenses increased to 7.3 million euros from 3.9 million euros in
the year ago period, primarily as a result of the inclusion of
certain non- capitalized expenses related to the Stendal mill. In
the three months ended June 30, 2004, we reported a loss from
operations of 0.6 million euros, compared to income from operations
of 1.4 million euros in the same period last year. Interest expense
(excluding capitalized interest of 10.4 million euros relating to
the Stendal pulp mill) in the three months ended June 30, 2004
increased to 2.4 million euros from 2.2 million euros a year ago,
due to higher borrowings resulting primarily from our convertible
note issue in October 2003. Our 63%-owned subsidiary, Zellstoff
Stendal GmbH ("Stendal"), had previously entered into
variable-to-fixed rate interest swaps to manage the interest risk
exposure with respect to approximately 612.6 million euros under
its project loan facility (the "Stendal Loan Facility") relating to
our newly constructed 552,000 tonne NBSK pulp mill near Stendal,
Germany (the "Stendal project"). In addition, our wholly-owned
subsidiary that operates the Rosenthal mill ("Rosenthal") had
previously entered into forward interest rate and interest cap
contracts in connection with a portion of the indebtedness relating
to the Rosenthal mill. In the three months ended June 30, 2004, the
marked to market valuation of these interest rate contracts
resulted in a net non-cash holding gain of approximately 15.8
million euros before minority interests, primarily as a result of
an increase in long-term interest rates during the period. In the
comparable period of 2003, we recorded a net loss of 18.1 million
euros before minority interests on such interest rate contracts.
Rosenthal had previously entered into two currency swaps to convert
all of its long-term indebtedness under its project loan facility
into U.S. dollars as well as a currency forward. Stendal had also
entered into a currency swap to convert approximately one-half of
its indebtedness under its project loan facility into U.S. dollars
as well as a currency forward. In the three months ended June 30,
2004, we recorded a net non-cash holding gain of approximately 13.7
million euros before minority interests on the valuation of these
currency derivatives as a result of a weakening of the U.S. dollar
versus the Euro and changes in interest rates related to such
currencies, versus a net non-cash holding gain of 13.3 million
euros before minority interests on Rosenthal's then outstanding
currency derivatives in the year ago period. Stendal did not have
any currency derivatives outstanding during the prior period. In
the current quarter, minority interest, representing the two
minority shareholders' proportionate interest in the Stendal
project, was (10.2) million euros, compared to 6.5 million euros in
the comparative period of 2003. Our results for the current period
include an adjustment of 0.4 million euros relating primarily to
the valuation of certain assets at the paper operations made
obsolete as a result of a change in the product mix. We reported
net income for the three months ended June 30, 2004 of 16.2 million
euros, or 0.94 euros per basic share and 0.57 euros per diluted
share, versus net income of 0.9 million euros, or 0.05 euros per
basic and diluted share, a year ago. As the Stendal project is
currently under construction and because of its overall size
relative to our other facilities, management uses consolidated
operating results excluding items relating to the Stendal project
to measure the performance and results of our operating units.
Management believes this measure provides meaningful information
for it and security holders on the performance of our operating
facilities for a reporting period. Upon commencement of commercial
production, the Stendal project will be evaluated with our other
operating units. For the three months ended June 30, 2004, we
reported net income of 16.2 million euros or 0.57 euros per share
on a diluted basis. If we had excluded items relating to the
Stendal project by subtracting the gain on derivative financial
instruments of 15.8 million euros on the Stendal interest rate
swaps, 14.0 million euros on the currency swap and currency forward
relating to the Stendal Loan Facility and other income of 0.3
million euros related to the Stendal mill from, and adding minority
interest of 10.2 million euros and general and administrative
expenses of 2.3 million euros relating to the Stendal mill to, the
reported net income of 16.2 million euros, we would have reported a
net loss of 1.4 million euros or 0.08 euros per share on a diluted
basis. For the three months ended June 30, 2003, we reported net
income of 0.9 million euros or 0.05 euros per share on a diluted
basis. If we had excluded items relating to the Stendal project by
adding the loss on derivative financial instruments of 17.6 million
euros on the Stendal interest rate swaps and general and
administrative expenses of 0.8 million euros related to the Stendal
mill to, and subtracting minority interests of 6.5 million euros
and other income of 0.3 million euros related to the Stendal mill
from, the reported net loss of 0.9 million euros, we would have
reported net income of 12.4 million euros or 0.74 euros per share
on a diluted basis. This measure 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 generally
accepted accounting principles in the United States ("GAAP"). We
generated "Operating EBITDA" of 5.7 million euros in the current
period, compared to Operating EBITDA of 7.3 million euros in the
comparative period of 2003. The decrease from the prior period
results is primarily as a result of the inclusion of certain
non-capitalized expenses of 2.3 million euros related to the
Stendal mill in the current period. Operating EBITDA is defined as
income (loss) from operations plus depreciation and amortization.
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 is not an actual cash cost, and varies widely
from company to company in a manner that management considers
largely independent of the underlying cost efficiency of their
operating facilities. In addition, we believe Operating EBITDA is
commonly used by securities analysts, investors and other
interested parties to evaluate our financial performance. Operating
EBITDA does not reflect the impact of a number of items that affect
our net income (loss), including financing costs and the effect of
derivative instruments. Operating EBITDA is not a measure of
financial performance under GAAP, and should not be considered as
an alternative to net income (loss) or income (loss) from
operations as a measure of performance, nor as an alternative to
net cash from operating activities as a measure of liquidity.
Operating EBITDA has significant limitations as an analytical tool,
and should not be considered in isolation, or as a substitute for
analysis of our results as reported under GAAP. At June 30, 2004,
our cash and cash equivalents were 42.2 million euros, compared to
52.0 million euros at the December 31, 2003. We also had 20.9
million euros of cash restricted to pay construction in progress
costs payable and 19.1 million euros of cash restricted in a debt
service account, both related to the Stendal project. In addition,
we had 26.9 million euros of cash restricted in a debt service
account relating to the Rosenthal mill's project loan facility. At
June 30, 2004, we had a working capital deficit of 19.8 million
euros, primarily because we pre-finance certain governmental grants
which we expect to receive under a dedicated tranche of the Stendal
Loan Facility but, under our accounting policies, do not record
these grants until they are received, as well as Stendal
construction in progress costs payable for which we had not drawn
down under such facility. At June 30, 2004, we qualified for
investment grants totaling approximately 100.6 million euros from
the federal and state governments of Germany, of which we expect to
receive 74.1 million euros in 2004 and the balance subsequently.
The grants are not reported in our income and reduce the cost basis
of the assets purchased when they are received. At June 30, 2004,
we had Stendal construction in progress costs payable of 19.8
million euros, which will be paid pursuant to the Stendal Loan
Facility in the ordinary course. Results of Operations - Six Months
Ended June 30, 2004 For the six months ended June 30, 2004,
revenues increased to 104.8 million euros from 98.3 million euros
in the prior period, primarily because of higher pulp sales. We
generated a loss from operations of 2.5 million euros in the six
months ended June 30, 2004, compared to income from operations of
2.6 million euros in the six months ended June 30, 2003, primarily
as a result of the inclusion of certain non-capitalized expenses of
approximately 5.4 million euros related to the Stendal mill in the
current period. We reported a net loss of 2.7 million euros or 0.16
euros per diluted share, compared to a net loss of 10.0 million
euros or 0.60 euros per diluted share for the six months ended June
30, 2003. Stendal Project Status Construction of the Stendal pulp
mill was completed substantially on its planned schedule and budget
in the last week of July 2004. Such completion means that the
construction and installation of equipment and works are
essentially finished and operational testing, checks and approvals
are occurring so that continuous production from the mill can
commence. At the end of July 2004, the mill had all of its
requisite permits in place to commence operations and had secured
sufficient fiber supplies for the balance of 2004 and into the
first quarter of 2005. At July 31, 2004, the mill had filled in
excess of 71% of its overall staffing requirements. The balance of
the hiring will occur in affiliated activities such as harvesting
and transportation and will be completed through 2004 and 2005 as
the mill ramps up operations. The Stendal mill is currently being
supervised by the contractor using Stendal's personnel to operate
the mill. Stendal commenced feeding wood chips to the digester at
the end of July 2004 and commenced the initial production of pulp.
The initial pulp produced was off-grade pulp, which was primarily
sold into the recycled fiber, corrugated board and similar markets.
The mill is currently producing "start-up quality" pulp. The prices
realized on the sale of off-grade and start-up quality pulp are
lower than the selling price for on-grade NBSK pulp. Under our
current start-up plan, we expect Stendal to commence ramping up
pulp production and quality so that the Stendal mill will be
producing a significant proportion of saleable kraft pulp by the
end of the third quarter of 2004. Pursuant to our start up plan, we
expect that the mill would be operating at approximately 80% of its
design capacity by the end of 2004. During the start-up period of
the Stendal mill, the mill will undergo extensive testing and
evaluation to determine whether mechanical completion has occurred
and, following several months of start-up operations, whether
certain performance requirements have been met, referred to as the
"Acceptance Test". The Acceptance Test requires that the mill
continuously produces pulp for a 72-hour period in compliance with
specified operational, quality and environmental requirements.
Following completion of such testing, if the requisite performance
requirements are met, we are required to provide the contractor
with an acceptance certificate. Once we deliver the acceptance
certificate, we assume responsibility for the operation of the
mill, subject to the contractor's warranty obligations. Under the
current start-up plan, we expect that the contractor will shut down
the mill for a two or three-week period in October 2004 for the
completion of any adjustments, installations and the replacement of
any equipment that may be required in order to fulfill its
obligations under the construction contract. We also expect that,
in the latter part of 2004, the Stendal mill will be shut down for
a few days for fine tuning and cleaning so that the contractor may
commence trials for the Acceptance Test. Our planned start up of
the Stendal mill is subject to risks commonly associated with the
start up of large greenfield industrial projects which could result
in the Stendal mill experiencing operating difficulties or delays
in the start-up period and the Stendal mill may not achieve our
planned production, timing, quality or cost projections. These
risks include, without limitation, equipment failures or damage,
errors or miscalculations in engineering, design specifications or
equipment manufacturing, faulty construction or workmanship,
defective equipment or installation, human error, industrial
accidents, weather conditions, failure to comply with environmental
and other permits, and complex integration of processes and
equipment. President's Comments Mr. Jimmy S. H. Lee, President and
Chairman, stated, "Our results for the second quarter of 2004
reflect improving pulp demand and prices and the overall weakness
of the U.S. dollar versus the Euro. In the quarter, pulp prices and
demand steadily improved with list prices for NBSK pulp in Europe
reaching approximately $645 per tonne by the end of the quarter.
Such price improvements were, in part, offset by the weakness of
the U.S. dollar versus the Euro during the quarter. Markets for our
paper products remained generally weak." He noted, "We are very
excited about the completion of the Stendal pulp mill,
substantially on time and budget. Our second quarter results
included approximately 2.3 million euros of general and
administrative costs relating to the Stendal mill that are not
capitalized." Mr. Lee added, "The Stendal mill has been started up
and it is now producing start-up quality pulp that is being sold.
During the start up to date, we have experienced minor difficulties
and delays associated with equipment, installation and integration
of processes and systems but are generally pleased with the same.
Our current expectation is that the Stendal pulp mill should
achieve a steady state of saleable pulp production in the fourth
quarter of 2004." Mr. Lee concluded, "The completion of the Stendal
pulp mill and the current firmness shown in pulp markets leaves us
well positioned for growth in the remainder of 2004 and into next
year." In conjunction with this release, Mercer International will
host a conference call, which will be simultaneously broadcast live
over the Internet. Management will host the call, which is
scheduled for Monday, August 9, 2004 at 10:00 AM (EDT). 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://www.firstcallevents.com/service/ajwz407725525gf12.html.
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 August 16, 2004 at 11:59 P.M. (EDT). The replay number
is (800) 642-1687, and the passcode is 8398183. Mercer
International Inc. is a European pulp and paper manufacturing
company. To obtain further information on the company, please visit
its web site at http://www.mercerinternational.com/. The preceding
includes forward looking statements which involve known and unknown
risks and uncertainties which may cause the company's actual
results in future periods to differ materially from forecasted
results. Among those factors which could cause actual results to
differ materially are the following: market conditions, competition
and other risk factors listed from time to time in the company's
SEC reports. MERCER INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and December 31, 2003 (Unaudited) (Euros in
thousands) June 30, December 31, 2004 2003 ASSETS Current Assets
Cash and cash equivalents euros 42,236 euros 51,993 Cash restricted
20,887 15,187 Receivables 32,386 32,285 Unrealized foreign exchange
derivative gains 783 743 Inventories 41,904 23,909 Prepaid expenses
5,675 4,284 Total current assets 143,871 128,401 Long-Term Assets
Cash restricted 45,948 44,180 Property, plant and equipment 823,017
745,178 Investments 844 1,644 Equity method investments 4,378 2,309
Deferred note issuance costs 4,072 4,213 Unrealized foreign
exchange derivative gains 13,826 - Deferred income tax 10,000 9,980
Total assets euros 1,045,956 euros 935,905 LIABILITIES Current
Liabilities Accounts payable and accrued expenses euros 49,140
euros 37,414 Construction in progress costs payable 19,782 42,756
Note payable 1,002 1,377 Debt, construction in progress 78,700
80,000 Debt, current portion 15,009 15,801 Total current
liabilities 163,633 177,348 Long-Term Liabilities Debt,
construction in progress 454,328 324,238 Debt, less current portion
244,533 255,901 Unrealized interest rate derivative losses 44,717
43,151 Unrealized foreign exchange derivative losses 4,665 -
Capital leases and other 4,664 2,412 Total liabilities 916,540
803,050 Minority Interest - - SHAREHOLDERS' EQUITY Shares of
beneficial interest 79,736 78,139 Additional paid-in capital, stock
options 14 223 Retained earnings 46,471 49,196 Accumulated other
comprehensive income 3,195 5,297 Total shareholders' equity 129,416
132,855 Total liabilities and shareholders' equity euros 1,045,956
euros 935,905 Certain reclassifications were made to the prior
period results to conform to the current period presentation.
MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS For the Six Months Ended June 30, 2004 and 2003
(Unaudited) (Euros in thousands, except per share data) 2004 2003
Revenues Pulp and paper euros 97,768 euros 91,274 Transportation
1,467 2,022 Other 5,531 5,018 104,766 98,314 Cost of sales Pulp and
paper 90,664 86,472 Transportation 1,469 1,863 92,133 88,335 Gross
profit 12,633 9,979 General and administrative expenses (14,434)
(8,730) Flooding losses and expenses, less grant income (669) 1,376
(Loss) income from operations (2,470) 2,625 Other income (expense)
Interest expense (5,354) (4,651) Investment income 1,464 639
Derivative financial instruments Unrealized gain (loss),
construction in progress financing 12,300 (27,944) Unrealized and
realized net (losses) gains, other (5,272) 14,601 Other (404) 11
Impairment of available-for-sale securities - (5,511) Total other
income (expense) 2,734 (22,855) Income (loss) before income taxes
and minority interest 264 (20,230) Income tax benefit (expense)
(199) (198) Income (loss) before minority interest 65 (20,428)
Minority interest (2,790) 10,379 Net loss (2,725) (10,049) Retained
earnings, beginning of period 49,196 52,789 Retained earnings, end
of period euros 46,471 euros 42,740 Loss per share Basic euros
(0.16) euros (0.60) Diluted euros (0.16) euros (0.60) Certain
reclassifications were made to the prior period results to conform
to the current period presentation. MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS For the
Three Months Ended June 30, 2004 and 2003 (Unaudited) (Euros in
thousands, except per share data) 2004 2003 Revenues Pulp and paper
euros 48,535 euros 45,041 Transportation 732 980 Other 2,577 1,892
51,844 47,913 Cost of sales Pulp and paper 43,987 41,472
Transportation 743 797 44,730 42,269 Gross profit 7,114 5,644
General and administrative expenses (7,272) (3,923) Flooding losses
and expenses, less grant income (416) (353) (Loss) income from
operations (574) 1,368 Other income (expense) Interest expense
(2,366) (2,188) Investment income 530 102 Derivative financial
instruments Unrealized gain (loss), construction in progress
financing 29,855 (17,582) Unrealized and realized net (losses)
gains, other (382) 12,805 Other (404) 11 Total other income
(expense) 27,233 (6,852) Income (loss) before income taxes and
minority interest 26,659 (5,484) Income tax benefit (expense) (219)
(186) Income (loss) before minority interest 26,440 (5,670)
Minority interest (10,199) 6,543 Net income 16,241 873 Retained
earnings, beginning of period 30,230 41,867 Retained earnings, end
of period euros 46,471 euros 42,740 Income per share Basic euros
0.94 euros 0.05 Diluted euros 0.57 euros 0.05 Certain
reclassifications were made to the prior period results to conform
to the current period presentation. MERCER INTERNATIONAL INC.
BUSINESS SEGMENT INFORMATION For the Six Months Ended June 30, 2004
and 2003 (Unaudited) (Euros in thousands) Active Rosenthal
Production Pulp Paper Segments Six Months Ended June 30, 2004 Sales
to external customers euros 69,226 euros 28,542 euros 97,768
Transportation and other 6,889 438 7,327 Intersegment net sales
1,179 - 1,179 77,294 28,980 106,274 Operating costs 54,071 27,028
81,099 Depreciation and amortization 11,136 1,141 12,277 General
and administrative 4,774 2,711 7,485 Flooding grants, less losses
and expenses - 669 669 69,981 31,549 101,530 (Loss) income from
operations 7,313 (2,569) 4,744 Interest expense (4,392) (284)
(4,676) Unrealized net gain (loss) on derivative financial
instruments (5,272) - (5,272) Investment income 1,614 (273) 1,341
(Loss) income before income taxes and minority interest euros (737)
euros (3,126) euros (3,863) Six Months Ended June 30, 2003 Sales to
external customers euros 62,414 euros 28,860 euros 91,274
Transportation and other 6,256 560 6,816 Intersegment net sales
1,545 - 1,545 70,215 29,420 99,635 Operating costs 53,756 24,358
78,114 Depreciation and amortization 10,777 989 11,766 General and
administrative 3,977 2,770 6,747 Flooding grants, less losses and
expenses - (1,376) (1,376) 68,510 26,741 95,251 (Loss) income from
operations 1,705 2,679 4,384 Interest expense (3,983) (203) (4,186)
Net gain (loss) on derivative financial instruments 14,601 - 14,601
Impairment of investments (4,441) (1,070) (5,511) Investment income
777 328 1,105 (Loss) income before income taxes and minority
interest euros 8,659 euros 1,734 euros 10,393 Stendal Pulp
Corporate, Construction Other and Consolidated in Progress
Eliminations Total Six Months Ended June 30, 2004 Sales to external
customers euros - euros - euros 97,768 Transportation and other 927
(1,256) 6,998 Intersegment net sales - (1,179) - 927 (2,435)
104,766 Operating costs - (1,243) 79,856 Depreciation and
amortization 12 318 12,607 General and administrative 5,448 1,171
14,104 Flooding grants, less losses and expenses - - 669 5,460 246
107,236 (Loss) income from operations (4,533) (2,681) (2,470)
Interest expense (168) (510) (5,354) Unrealized net gain (loss) on
derivative financial instruments 12,300 - 7,028 Investment income
(345) 64 1,060 (Loss) income before income taxes and minority
interest euros 7,254 euros (3,127) euros 264 Six Months Ended June
30, 2003 Sales to external customers euros - euros - euros 91,274
Transportation and other - 224 7,040 Intersegment net sales -
(1,545) - - (1,321) 98,314 Operating costs - (1,545) 76,569
Depreciation and amortization 93 22 11,881 General and
administrative 746 1,122 8,615 Flooding grants, less losses and
expenses - - (1,376) 839 (401) 95,689 (Loss) income from operations
(839) (920) 2,625 Interest expense (8) (457) (4,651) Net gain
(loss) on derivative financial instruments (27,944) - (13,343)
Impairment of investments - - (5,511) Investment income 406 (861)
650 (Loss) income before income taxes and minority interest euros
(28,385) euros (2,238) euros (20,230) Certain reclassifications
were made to the prior period results to conform to the current
period presentation. MERCER INTERNATIONAL INC. BUSINESS SEGMENT
INFORMATION For the Three Months Ended June 30, 2004 and 2003
(Unaudited) (Euros in thousands) Active Rosenthal Production Pulp
Paper Segments Three Months Ended June 30, 2004 Sales to external
customers euros 35,286 euros 13,249 euros 48,535 Transportation and
other 3,892 137 4,029 Intersegment net sales 750 - 750 39,928
13,386 53,314 Operating costs 26,349 13,050 39,399 Depreciation and
amortization 5,554 589 6,143 General and administrative 2,665 1,472
4,137 Flooding grants, less losses and expenses - 416 416 34,568
15,527 50,095 (Loss) income from operations 5,360 (2,141) 3,219
Interest expense (1,943) (139) (2,082) Unrealized net gain (loss)
on derivative financial instruments (382) - (382) Investment income
629 (278) 351 (Loss) income before income taxes and minority
interest euros 3,664 euros (2,558) euros 1,106 Three Months Ended
June 30, 2003 Sales to external customers euros 31,029 euros 14,012
euros 45,041 Transportation and other 2,446 150 2,596 Intersegment
net sales 675 - 675 34,150 14,162 48,312 Operating costs 23,787
13,300 37,087 Depreciation and amortization 5,393 464 5,857 General
and administrative 1,905 1,161 3,066 Flooding grants, less losses
and expenses - 353 353 31,085 15,278 46,363 (Loss) income from
operations 3,065 (1,116) 1,949 Interest expense (949) (111) (1,060)
Net gain (loss) on derivative financial instruments 12,805 - 12,805
Impairment of investments (4,441) (1,070) (5,511) Investment income
386 317 703 (Loss) income before income taxes and minority interest
euros 10,865 euros (1,979) euros 8,886 Stendal Pulp Corporate,
Construction Other and Consolidated in Progress Eliminations Total
Three Months Ended June 30, 2004 Sales to external customers euros
- euros - euros 48,535 Transportation and other 536 (1,256) 3,309
Intersegment net sales - (750) - 536 (2,006) 51,844 Operating costs
- (812) 38,587 Depreciation and amortization 12 159 6,314 General
and administrative 2,316 648 7,101 Flooding grants, less losses and
expenses - - 416 2,328 (5) 52,418 (Loss) income from operations
(1,792) (2,001) (574) Interest expense (111) (173) (2,366)
Unrealized net gain (loss) on derivative financial instruments
29,855 - 29,473 Investment income (124) (101) 126 (Loss) income
before income taxes and minority interest euros 27,828 euros
(2,275) euros 26,659 Three Months Ended June 30, 2003 Sales to
external customers euros - euros - euros 45,041 Transportation and
other - 276 2,872 Intersegment net sales - (675) - - (399) 47,913
Operating costs - (675) 36,412 Depreciation and amortization 93 22
5,972 General and administrative 668 75 3,809 Flooding grants, less
losses and expenses - - 353 761 (578) 46,546 (Loss) income from
operations (761) 179 1,367 Interest expense (8) (1,120) (2,188) Net
gain (loss) on derivative financial instruments (17,582) - (4,777)
Impairment of investments - 5,511 - Investment income 260 (850) 114
(Loss) income before income taxes and minority interest euros
(18,090) euros 3,720 euros (5,484) Certain reclassifications were
made to the prior period results to conform to the current period
presentation. MERCER INTERNATIONAL INC. RECONCILIATION OF PRO FORMA
RESULTS For the Quarters Ended June 30, 2004 and 2003 (Euros in
thousands, except per share data) For the Quarter Ended For the
Quarter Ended June 30, 2004 June 30, 2003 (unaudited) Net income
reported under GAAP euros 16,241 euros 873 Adjustments for Stendal
project: Gain (loss) on interest rate swap contracts (15,827)
17,582 Gain on currency derivatives (14,028) - General and
administrative expenses 2,328 761 Other income (301) (252) Minority
interest 10,199 (6,543) Pro forma net (loss) income euros (1,388)
euros 12,421 Pro forma (loss) income per share Basic euros (0.08)
euros 0.74 Diluted euros (0.08) euros 0.74 MERCER INTERNATIONAL
INC. COMPUTATION OF OPERATING EBITDA For the Quarters Ended June
30, 2004 and 2003 (Euros in thousands) For the Quarters Ended June
30, 2004 2003 (unaudited) Net income euros 16,241 euros 873
Minority interest 10,199 (6,543) Income taxes 219 186 Interest
expense 2,366 2,188 Investment income (530) (102) Derivative
financial instruments (29,473) 4,777 Other 404 (11) (Loss) income
from operations (574) 1,368 Add: Depreciation and amortization
6,314 5,972 Operating EBITDA (1) euros 5,740 euros 7,340 (1)
Operating EBITDA does not reflect the impact of a number of items
that affect the company's 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 the company's results as reported under GAAP. COMPANY
SALES BY PRODUCT CLASS AND VOLUME (Unaudited) Six Months Ended
Three Months Ended June 30, June 30, 2004 2003 2004 2003 (Euros in
thousands) Sales by Product Class Pulp(1)(2) euros 69,226 euros
62,414 euros 35,286 euros 31,029 Specialty Papers 19,442 21,575
8,577 10,519 Printing Papers 9,100 7,285 4,672 3,493 Total(1)(2)
euros 97,768 euros 91,274 euros 48,535 euros 45,041 (Amount in
tonnes) Sales by Volume Pulp(1)(2) 156,334 148,179 74,841 69,700
Specialty Papers 19,625 21,675 8,587 10,359 Printing Papers 13,164
9,334 6,796 4,763 Total(1)(2) 189,123 179,188 90,224 85,002 (1)
Excluding intercompany sales of 2,549 tonnes and 3,611 tonnes of
pulp and intercompany net sales revenues of approximately 1.2
million euros and 1.5 million euros in the six months ended June
30, 2004 and 2003, respectively. (2) Excluding intercompany sales
of 1,540 tonnes and 1,482 tonnes of pulp and intercompany net sales
revenues of approximately ?0.8 million and 0.6 million euros in the
three months ended June 30, 2004 and 2003, respectively. NOTE: One
tonne = 1.0160 of one ton. DATASOURCE: Mercer International Inc.
CONTACT: Jimmy S. H. Lee, Chairman & Chief Executive Officer
+41-43-344-7070, or David M. Gandossi, Executive Vice-President
& Chief Financial Officer, +1-604-684-1099, both of Mercer
International Inc.; or Investors, Eric Boyriven or Kellie Nugent,
or Media, Scot Hoffman, all of Financial Dynamics, +1-212-850-5600,
all for Mercer International Inc. Web site:
http://www.mercerinternational.com/
http://www.firstcallevents.com/service/ajwz407725525gf12.html
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