Mercer International Inc. Reports 2004 Third Quarter Results NEW
YORK, Nov. 8 /PRNewswire-FirstCall/ -- Mercer International Inc.
(Nasdaq: MERCS; TSX: MRI.U) today reported results for the third
quarter ended September 30, 2004. Results of Operations - Three
Months Ended September 30, 2004 Total revenues for the three months
ended September 30, 2004 increased to euro 49.1 million from euro
45.8 million in the comparative period of 2003, primarily because
of higher pulp sales. Pulp and paper revenues were euro 47.3
million in the third quarter of 2004, versus euro 43.7 million in
the comparative period of 2003. Costs of pulp and paper sales in
the three months ended September 30, 2004 decreased to euro 39.8
million from euro 45.4 million in the comparative period of 2003,
primarily as a result of lower pulp production costs at our
Rosenthal mill. We started up our Stendal pulp mill in the quarter
ended September 30, 2004. On September 18, 2004, we commenced
expensing all of the costs of the Stendal mill whereas previously
most of its costs, including interest, were capitalized. Pulp sales
increased to euro 34.5 million in the quarter ended September 30,
2004 from euro 30.0 million in the same period a year ago,
primarily as a result of higher prices. List prices for northern
bleached softwood kraft ("NBSK") pulp in Europe were approximately
euro 519 ($635) per tonne in the third quarter of 2004,
approximately euro 535 ($645) per tonne in the second quarter of
2004 and approximately euro 444 ($550) per tonne in the third
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. In the current quarter, our pulp sales by
volume were 73,128 tonnes, compared to 73,747 tonnes in the
comparative period of 2003. In the three months ended September 30,
2004, we did not report any pulp sales revenues from the Stendal
mill. Pulp sales realizations were euro 472 per tonne on average in
the current quarter, compared to euro 471 per tonne in the second
quarter of 2004 and euro 407 per tonne in the three months ended
September 30, 2003. Transportation and other revenues for the pulp
operations were euro 2.2 million in the three months ended
September 30, 2004, compared to euro 2.0 million in the three
months ended September 30, 2003. Cost of sales and general,
administrative and other expenses for the pulp operations were euro
33.4 million in the three months ended September 30, 2004 compared
to euro 35.3 million in the comparative period of 2003, and
included euro 2.5 million of operating costs related to the Stendal
mill. On average, fiber costs for pulp production decreased by
approximately 4.6% compared to the third quarter of last year.
Depreciation for the pulp operations was euro 3.8 million in the
current quarter, versus euro 5.5 million in the year ago period. In
conjunction with establishing the depreciation period for our
Stendal mill, we reviewed the useful life of our Rosenthal mill
and, effective July 1, 2004, increased its estimated useful life
from an initial 15 to 25 years. This change in estimate resulted in
a decrease of euro 2.2 million in cost of sales and net loss, and a
decrease in net loss per share of euro 0.13 for the quarter ended
September 30, 2004. For the three months ended September 30, 2004,
our pulp operations generated operating income of euro 4.0 million,
versus an operating loss of euro 2.6 million in the year ago
period. Paper sales in the three months ended September 30, 2004
were euro 12.8 million, compared to euro 13.7 million in the same
period of last year. Sales of specialty papers in the three months
ended September 30, 2004 and 2003 were euro 8.6 million,
respectively. For the current quarter, total paper sales volumes
were 14,712 tonnes, versus 15,979 tonnes in the comparative period
of last year. On average, prices for specialty papers realized in
the current quarter increased by 2.5%, reflecting a shift in the
product mix. Average prices for our printing papers decreased by
approximately 2.8% reflecting generally weak demand. Cost of sales
and general, administrative and other expenses for the paper
operations in the three months ended September 30, 2004 increased
to euro 20.3 million from euro 14.9 million in the comparative
quarter of 2003, primarily as a result of a non-cash euro 6.0
million impairment charge relating to our paper operations.
Depreciation for the paper operations was euro 0.6 million in the
three months ended September 30, 2004 and 2003, respectively. For
the quarter ended September 30, 2004, our paper operations reported
an operating loss of euro 7.6 million, which included the non-cash
euro 6.0 million impairment charge, compared to an operating loss
of euro 1.1 million in the same period of last year. For the three
months ended September 30, 2004, consolidated general and
administrative expenses increased to euro 7.3 million from euro 4.2
million in the year ago period, primarily as a result of the
inclusion of operating costs related to the Stendal mill. In the
quarter ended September 30, 2004, we reported a loss from
operations of euro 4.8 million, compared to a loss from operations
of euro 5.1 million in the same period last year. Interest expense
in the three months ended September 30, 2004 increased to euro 4.2
million from euro 2.2 million a year ago, due to higher borrowings
resulting primarily from our convertible note issue in October 2003
and the inclusion of interest costs of euro 1.7 relating to the
Stendal mill after September 18, 2004. In the quarter ended
September 30, 2004, the marked to market valuation of
variable-to-fixed-rate interest swaps and forward interest rate and
interest cap contracts entered into by our Stendal and Rosenthal
mills resulted in a net non-cash holding loss of approximately euro
14.1 million before minority interests versus a net gain of euro
5.9 million before minority interest on such interest rate
contracts in the prior period of 2003. In the three months ended
September 30, 2004, we recorded a net non-cash holding gain of
approximately euro 6.0 million before minority interest on the
marked to market valuation of currency swaps and currency forwards
entered into by our Stendal and Rosenthal mills as a result of the
weakening of the U.S. dollar versus the Euro and changes in
interest rates relating to such currencies. In the comparative
period of 2003, we reported a net gain of euro 3.8 million before
minority interests on the then outstanding currency derivatives of
our Rosenthal and Stendal mills. In the current quarter, minority
interest, representing the two minority shareholders' proportionate
interests in the Stendal mill, was euro 6.7 million, compared to
euro (1.9) million in the comparative period of 2003. For the three
months ended September 30, 2004, we reported a net loss of euro 9.9
million, or euro 0.57 per share, which reflected the euro 6.0
million non-cash impairment charge related to our paper operations,
the inclusion of euro 4.2 million of operating and interest costs
related to the Stendal mill and the net non-cash holding loss on
the marked to market valuation of our derivative instruments. In
the comparative period of 2003, we reported net income of euro 0.9
million, or euro 0.05 per basic and diluted share. We generated
Operating EBITDA of euro 5.3 million in the current quarter,
compared to Operating EBITDA of euro 1.1 million in the comparative
period of 2003. 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. At September 30, 2004, our cash and
cash equivalents were euro 42.6 million, compared to euro 52.0
million at December 31, 2003. We also had euro 29.3 million of cash
restricted to pay construction costs payable and euro 19.1 million
of cash restricted in a debt service account, both related to the
Stendal mill. In addition, we had euro 28.5 million of cash
restricted in a debt service account relating to the Rosenthal
mill's loan facility. At September 30, 2004, we had a working
capital deficit of euro 122.5 million, primarily because we had
Stendal construction costs payable of euro 161.0 million for which
we had not yet drawn down under the Stendal project loan facility
and, under our accounting policies, we do not record certain
government grants until they are received. The Stendal construction
costs will be paid pursuant to the Stendal project loan facility in
the ordinary course. As at September 30, 2004, we qualified for
investment grants totaling approximately euro 65.2 million related
to the Stendal mill from federal and state governments in Germany,
which we expect to receive in 2005. Approximately euro 61.2 million
of these grants, when received, will be applied to repay amounts
drawn under a dedicated tranche of the Stendal project loan
facility. These grants are not reported in our income and reduce
the cost base of the assets purchased when they are received. We
expect to qualify for additional investment grants totaling
approximately euro 23.3 million when the Stendal construction costs
have all been substantially paid. Results of Operations -Nine
Months Ended September 30, 2004 For the nine months ended September
30, 2004, revenues increased to euro 153.9 million from euro 144.1
million in the prior period, primarily because of higher pulp
sales. In the nine months ended September 30, 2004, we reported a
loss from operations of euro 7.6 million, which reflected the
inclusion of operating costs of euro 7.9 million related to the
Stendal mill and a non-cash impairment charge of euro 6.0 million
relating to our paper operations. In the comparative period of
2003, we reported an operating loss of euro 2.5 million. We
reported a net loss of euro 12.6 million or euro 0.73 per diluted
share in the nine months ended September 30, 2004, compared to a
net loss of euro 9.2 million or euro 0.54 per diluted share for the
nine months ended September 30, 2003. Stendal Pulp Mill Our Stendal
pulp mill was completed substantially on its planned schedule and
budget in the third quarter of 2004. The mill is currently in the
start- up phase and is undergoing extensive testing and evaluation.
The mill has all of its requisite permits in place to commence
operations and has secured sufficient fiber supplies for the
balance of 2004 and into the first quarter of 2005. At September
30, 2004, the mill had filled in excess of 77% of its overall
staffing requirements. The Stendal mill is currently being
supervised by the contractor using Stendal's personnel to operate
the mill. Stendal commenced the initial production of pulp in the
third quarter of 2004. 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 the Stendal
mill to commence ramping up pulp production and quality so that it
will be producing a significant proportion of saleable kraft pulp
in the fourth 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. In conjunction with the
start-up of the Stendal mill, we built up the fiber and finished
goods inventory at the mill. We expect that as the Stendal mill
ramps up operations, inventory levels at the mill will decrease to
more normalized levels. The mill is currently undergoing extensive
testing and evaluation in connection with its mechanical completion
and to determine whether it satisfies certain stipulated
performance requirements, 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
approximately one week in the fourth quarter of 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: "We are very excited about the completion of the
Stendal pulp mill. The Stendal mill is now producing start-up
quality pulp that is being sold. Although we have experienced minor
difficulties and delays associated with equipment, installation and
integration of processes and systems, we 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." He added: "Our results for the current
quarter reflect continued strength in pulp demand and the overall
weakness of the U.S. dollar versus the Euro. However, seasonally
weaker summer months resulted in a build up of producer inventories
in the quarter and list prices for NBSK pulp in Europe falling to
approximately $605 per tonne by the end of the quarter. Markets for
our paper products remain generally weak." He further added:
"Effective September 18, 2004, we commenced expensing all of the
costs relating to the Stendal mill. Our current quarter results
reflect approximately euro 4.2 million of operating and interest
costs relating to the Stendal mill during a period when we reported
no pulp sales revenues therefrom." Mr. Lee concluded: "The start-up
of the Stendal mill is an important step to our becoming a leading
NBSK market pulp producer and leaves us well positioned for growth
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, November 8, 2004 at
10:00 AM (EST). Listeners can access the conference call live and
archived over the Internet through a link at the company's web site
at http://www.mercerinternational.com/ or at http://phx.corporate-/
ir.net/playerlink.zhtml?c=62074&s=wm&e=962689. 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, 2004 at 11:59 P.M. (EST). The replay number is (800)
642-1687, and the passcode is 1955749. 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
September 30, 2004 and December 31, 2003 (Unaudited) (Euros in
thousands) September 30, December 31, 2004 2003 ASSETS Current
Assets Cash and cash equivalents euro 42,643 euro 51,993 Cash
restricted 29,346 15,187 Receivables 33,003 32,285 Unrealized
foreign exchange derivative gains 899 743 Inventories 59,225 23,909
Prepaid expenses 4,603 4,284 Total current assets 169,719 128,401
Long-Term Assets Cash restricted 47,538 44,180 Property, plant and
equipment 942,249 745,178 Investments 878 1,644 Equity method
investments 3,993 2,309 Deferred note issuance costs 3,908 4,213
Unrealized foreign exchange derivative gains 14,442 - Deferred
income tax 10,000 9,980 Total assets euro 1,192,727 euro 935,905
LIABILITIES Current Liabilities Accounts payable and accrued
expenses euro 64,373 euro 37,414 Construction costs payable 160,952
42,756 Note payable 1,403 1,377 Debt, Stendal 50,000 80,000 Debt,
current portion 15,465 15,801 Total current liabilities 292,193
177,348 Long-Term Liabilities Debt, Stendal 476,301 324,238 Debt,
less current portion 234,317 255,901 Unrealized interest rate
derivative losses 58,874 43,151 Unrealized foreign exchange
derivative losses 594 - Capital leases and other 8,853 2,412 Total
liabilities 1,071,132 803,050 Minority Interest - - SHAREHOLDERS'
EQUITY Shares of beneficial interest 79,736 78,139 Additional
paid-in capital, stock options 14 223 Retained earnings 36,592
49,196 Accumulated other comprehensive income 5,253 5,297 Total
shareholders' equity 121,595 132,855 Total liabilities and
shareholders' equity euro 1,192,727 euro 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
Nine Months Ended September 30, 2004 and 2003 (Unaudited) (Euros in
thousands, except per share data) 2004 2003 Revenues Pulp and paper
euro 145,084 euro 134,935 Transportation 2,134 2,850 Other 6,650
6,351 153,868 144,136 Cost of sales Pulp and paper 131,420 131,838
Transportation 2,222 2,388 133,642 134,226 Gross profit 20,226
9,910 General and administrative expenses (21,182) (12,961)
Settlement expenses - (630) Impairment of capital assets (6,000) -
Flooding losses and expenses, less grant income (669) 1,162 Loss
from operations (7,625) (2,519) Other income (expense) Interest
expense (9,554) (6,887) Investment income 1,679 1,055 Derivative
financial instruments Unrealized loss on interest rate derivatives
(15,825) (22,832) Unrealized and realized gain on foreign exchange
rate derivatives 14,748 19,228 Other - 20 Impairment of
available-for-sale securities - (5,511) Total other income
(expense) (8,952) (14,927) Loss before income taxes and minority
interest (16,577) (17,446) Income tax benefit (expense) 37 (226)
Loss before minority interest (16,540) (17,672) Minority interest
3,936 8,499 Net loss (12,604) (9,173) Retained earnings, beginning
of period 49,196 52,789 Retained earnings, end of period euro
36,592 euro 43,616 Loss per share Basic euro (0.73) euro (0.54)
Diluted euro (0.73) euro (0.54) 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
September 30, 2004 and 2003 (Unaudited) (Euros in thousands, except
per share data) 2004 2003 Revenues Pulp and paper euro 47,316 euro
43,661 Transportation 667 828 Other 1,119 1,333 49,102 45,822 Cost
of sales Pulp and paper 39,752 45,366 Transportation 753 525 40,505
45,891 Gross profit (loss) 8,597 (69) General and administrative
expenses (7,348) (4,231) Settlement expenses - (630) Impairment of
capital assets (6,000) - Flooding losses and expenses, less grant
income - (214) Loss from operations (4,751) (5,144) Other income
(expense) Interest expense (4,200) (2,236) Investment income 215
416 Derivative financial instruments Unrealized gain (loss) on
interest rate derivatives (14,110) 5,933 Unrealized and realized
gain on foreign exchange rate derivatives 6,005 3,806 Other - 9
Total other income (expense) (12,090) 7,928 Income (loss) before
income taxes and minority interest (16,841) 2,784 Income tax
benefit (expense) 236 (28) Income (loss) before minority interest
(16,605) 2,756 Minority interest 6,726 (1,880) Net income (loss)
(9,879) 876 Retained earnings, beginning of period 46,471 42,740
Retained earnings, end of period euro 36,592 euro 43,616 Income
(loss) per share Basic euro (0.57) euro 0.05 Diluted euro (0.57)
euro 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 Nine Months
Ended September 30, 2004 and 2003 (Unaudited) (Euros in thousands)
Rosenthal Pulp Stendal Pulp Total Pulp Nine Months Ended September
30, 2004 Sales to external customers euro 103,743 euro -- euro
103,743 Transportation and other 8,338 600 8,938 Intersegment net
sales 1,822 -- 1,822 113,903 600 114,503 Operating costs 78,773 509
79,282 Depreciation and amortization 14,166 795 14,961 General and
administrative 7,960 6,645 14,605 Impairment of capital assets --
-- -- Flooding grants, less losses and expenses -- -- -- 100,899
7,949 108,848 Income (loss) from operations 13,004 (7,349) 5,655
Interest expense (6,345) (1,888) (8,233) Net loss on derivative
financial instruments (275) (802) (1,077) Other income (expense)
2,327 (453) 1,874 Income (loss) before income taxes and minority
interest euro 8,711 euro (10,492) euro (1,781) Nine Months Ended
September 30, 2003 Sales to external customers euro 92,418 euro --
euro 92,418 Transportation and other 8,249 -- 8,249 Intersegment
net sales 2,178 -- 2,178 102,845 -- 102,845 Operating costs 80,968
-- 80,968 Depreciation and amortization 16,311 -- 16,311 General
and administrative 5,588 1,752 7,340 Settlement expenses -- -- --
Flooding grants, less losses and expenses -- -- -- 102,867 1,752
104,619 Income (loss) from operations (22) (1,752) (1,774) Interest
expense (5,961) (8) (5,969) Net gain (loss) on derivative financial
instruments 18,335 (21,939) (3,604) Impairment of investments
(4,441) -- (4,441) Other income (expense) 1,475 50 1,525 Income
(loss) before income taxes and minority interest euro 9,386 euro
(23,649) euro (14,263) Paper Corporate, Other and Consolidated
Eliminations Total Nine Months Ended September 30, 2004 Sales to
external customers euro 41,341 euro -- euro 145,084 Transportation
and other 314 (468) 8,784 Intersegment net sales -- (1,822) --
41,655 (2,290) 153,868 Operating costs 39,869 (2,210) 116,941
Depreciation and amortization 1,740 -- 16,701 General and
administrative 3,960 2,617 21,182 Impairment of capital assets
6,000 -- 6,000 Flooding grants, less losses and expenses 669 -- 669
52,238 407 161,493 Income (loss) from operations (10,583) (2,697)
(7,625) Interest expense (421) (900) (9,554) Net loss on derivative
financial instruments -- -- (1,077) Other income (expense) 152
(347) 1,679 Income (loss) before income taxes and minority interest
euro (10,852) euro (3,944) euro (16,577) Nine Months Ended
September 30, 2003 Sales to external customers euro 42,517 euro --
euro 134,935 Transportation and other 796 156 9,201 Intersegment
net sales -- (2,178) -- 43,313 (2,022) 144,136 Operating costs
37,581 (2,179) 116,370 Depreciation and amortization 1,545 --
17,856 General and administrative 3,721 1,900 12,961 Settlement
expenses -- 630 630 Flooding grants, less losses and expenses
(1,162) -- (1,162) 41,685 351 146,655 Income (loss) from operations
1,628 (2,373) (2,519) Interest expense (323) (595) (6,887) Net gain
(loss) on derivative financial instruments -- -- (3,604) Impairment
of investments (1,070) -- (5,511) Other income (expense) (51) (399)
1,075 Income (loss) before income taxes and minority interest euro
184 euro (3,367) euro (17,446) Certain reclassifications were made
to the prior period results to confirm to the current period
presentation. MERCER INTERNATIONAL INC. BUSINESS SEGMENT
INFORMATION For the Three Months Ended September 30, 2004 and 2003
(Unaudited) (Euros in thousands) Rosenthal Stendal Total Pulp Pulp
Pulp Three Months Ended September 30, 2004 Sales to external
customers euro 34,517 euro - euro 34,517 Transportation and other
2,575 (327) 2,248 Intersegment net sales 643 - 643 37,735 (327)
37,408 Operating costs 24,702 509 25,211 Depreciation and
amortization 3,030 795 3,825 General and administrative 3,186 1,185
4,371 Impairment of capital assets - - - 30,918 2,489 33,407 Income
(loss) from operations 6,817 (2,816) 4,001 Interest expense (1,953)
(1,720) (3,673) Net gain (loss) on derivative financial instruments
4,997 (13,102) (8,105) Other income (expense) 713 (108) 605 Income
(loss) before income taxes and minority interest euro 10,574
euro(17,746) euro (7,172) Three Months Ended September 30, 2003
Sales to external customers euro 30,004 euro - euro 30,004
Transportation and other 1,993 - 1,993 Intersegment net sales 633 -
633 32,630 - 32,630 Operating costs 27,212 - 27,212 Depreciation
and amortization 5,534 - 5,534 General and administrative 1,611 913
2,524 Settlement expenses - - - Flooding grants, less losses and
expenses - - - 34,357 913 35,270 Loss from operations (1,727) (913)
(2,640) Interest expense (1,978) - (1,978) Net gain on derivative
financial instruments 3,734 6,005 9,739 Other income (expense) 698
(356) 342 Income (loss) before income taxes and minority interest
euro 727 euro 4,736 euro 5,463 Corporate, Other and Consolidated
Paper Eliminations Total Three Months Ended September 30, 2004
Sales to external customers euro 12,799 euro - euro 47,316
Transportation and other (124) (338) 1,786 Intersegment net sales -
(643) - 12,675 (981) 49,102 Operating costs 11,837 (967) 36,081
Depreciation and amortization 599 - 4,424 General and
administrative 1,849 1,128 7,348 Impairment of capital assets 6,000
- 6,000 20,285 161 53,853 Income (loss) from operations (7,610)
(1,142) (4,751) Interest expense (137) (390) (4,200) Net gain
(loss) on derivative financial instruments - - (8,105) Other income
(expense) 21 (411) 215 Income (loss) before income taxes and
minority interest euro (7,726) euro (1,943) euro(16,841) Three
Months Ended September 30, 2003 Sales to external customers euro
13,657 euro - euro 43,661 Transportation and other 236 (68) 2,161
Intersegment net sales - (633) - 13,893 (701) 45,822 Operating
costs 13,223 (634) 39,801 Depreciation and amortization 556 - 6,090
General and administrative 951 756 4,231 Settlement expenses - 630
630 Flooding grants, less losses and expenses 214 - 214 14,944 752
50,966 Loss from operations (1,051) (1,453) (5,144) Interest
expense (120) (138) (2,236) Net gain on derivative financial
instruments - - 9,739 Other income (expense) (379) 462 425 Income
(loss) before income taxes and minority interest euro (1,550) euro
(1,129) euro 2,784 Certain reclassifications were made to the prior
period results to conform to the current period presentation.
MERCER INTERNATIONAL INC. COMPUTATION OF OPERATING EBITDA For the
Quarters Ended September 30, 2004 and 2003 (Euros in thousands) For
the Quarters Ended September 30, 2004 2003 (in thousands) Net
(loss) income euro (9,879) euro 876 Minority interest (6,726) 1,880
Income taxes (236) 28 Interest expense 4,200 2,236 Investment
income (215) (416) Derivative financial instruments 8,105 (9,739)
Other -- (9) Income (loss) from operations (4,751) (5,144) Add:
Depreciation and amortization 4,005 6,254 Impairment charge 6,000
-- Operating EBITDA euro 5,254 euro 1,110 (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) Nine Months Ended Three Months Ended
September 30, September 30, 2004 2003 2004 2003 (Euros in
thousands) Sales by Product Class Pulp(1)(2) euro 103,743 euro
92,418 euro 34,517 euro 30,004 Specialty Papers 28,039 30,185 8,597
8,610 Printing Papers 13,302 12,332 4,202 5,047 Total(1)(2) euro
145,084 euro 134,935 euro 47,316 euro 43,661 (Amount in tonnes)
Sales by Volume Pulp(1)(2) 229,462 221,926 73,128 73,747 Specialty
Papers 28,144 30,420 8,519 8,745 Printing Papers 19,357 16,568
6,193 7,234 Total(1)(2) 276,963 268,914 87,840 89,726 (1) Excluding
intercompany sales volumes of 3,897 tonnes and 5,166 tonnes of pulp
and intercompany net sales revenues of approximately euro 1.8
million and euro 2.2 million in the nine months ended September 30,
2004 and 2003, respectively. (2) Excluding inter-company sales
volumes of 1,348 tonnes and 1,555 tonnes of pulp and intercompany
net sales revenues of approximately euro 0.6 million and euro 0.7
million in the three months ended September 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.; Investors -
Eric Boyriven, Media - Scot Hoffman, both of Financial Dynamics,
+1-212-850-5600, for Mercer International Inc. Web site:
http://www.mercerinternational.com/
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