NEW YORK, May 5 /PRNewswire-FirstCall/ -- Mercer International Inc. today reported improved 2008 first quarter results. Revenues and Operating EBITDA in the first quarter of 2008 increased to euro 179.1 million (U.S.$268.8 million) and euro 32.8 million (U.S.$49.4 million) from euro 169.5 million (U.S.$222.1 million) and euro 28.3 million (U.S.$37.1 million), respectively, in the first quarter of 2007, primarily because of higher prices and sales volumes, along with lower wood costs partially offset by a weaker U.S. dollar. Operating EBITDA is defined on page 4 of this press release and reconciled to net income from continuing operations on page 6 of the financial tables in this press release.
Summary Financial Highlights Q1 Q4 Q1 2008 2007 2007 (in millions of Euro, except where otherwise stated) Revenues euro 179.1 euro 167.1 euro 169.5 Operating income from continuing operations 18.6 22.7 14.5 Operating EBITDA 32.8 37.2 28.3 Unrealized gain (loss) on derivative instruments (7.9) 1.4 (0.2) Foreign exchange gain on debt 6.0 3.7 1.3 Net income 2.9 7.3 1.1 Net income per share Basic euro 0.08 euro 0.20 euro 0.03 Diluted euro 0.08 euro 0.18 euro 0.03 Summary Operating Highlights Q1 Q4 Q1 2008 2007 2007 Pulp Production ('000 ADMTs) 360.9 370.1 347.3 Scheduled Production Downtime ('000 ADMTs) 1.5 nil nil Pulp Sales ('000 ADMTs) 348.2 322.9 329.1 NBSK pulp list price in Europe (US$/ADMT) 880 850 757 NBSK pulp list price in Europe (euro/ADMT) 586 587 578 Average pulp sales realizations (euro/ADMT)(1) 510 512 512 Average Spot Currency Exchange Rates: euro / $(2) 0.6666 0.6901 0.7630 C$ / $(2) 1.0015 0.9818 1.1716 C$ / euro(3) 1.5060 1.4230 1.5354 (1) List price, less discounts and commissions. (2) Average Federal Reserve Bank of New York noon spot rate over the reporting period. (3) Average Bank of Canada noon spot rate over the reporting period. President's Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: "A U.S.$30 per ADMT increase in list prices in Europe in the current quarter was largely offset by a 3% weakening of the U.S. dollar versus the Euro compared to the prior quarter." Mr. Lee added: "Fiber costs in Europe were lower over the prior year's quarter because of increased availability from damage to forests from winter storms and production curtailments in the European board industry."
He continued: "As part of our continued focus on energy production and sales, we are pleased to announce that our Board has authorized management to proceed with a new energy project at our Celgar mill to increase its production of "green energy" and optimize its power generation capacity. It is designed to be a high return capital project with an estimated cost of approximately euro 35.0 million. This project will take about two years to complete and includes the installation of a second turbo generator with a design capacity of 48 MW and upgrades to the mill's bark boiler and steam facilities. Upon completion, the project is expected to provide the mill with between approximately 25 to 30 megawatts of incremental power that should be available for sale on a continuous basis. The Company has ordered the generator, which has a delivery lead time of approximately 18 months and costs approximately euro 7.0 million."
Mr. Lee concluded: "In Europe, we currently expect to see continued downward pressure on fiber costs in the second and third quarters of 2008. Offsetting this is the slumping U.S. dollar, which negatively impacts both our revenues and operating margins. NBSK producers implemented a U.S.$20 price increase in April 2008 and we currently expect a further U.S.$20 price increase to be implemented in May 2008.
While the state of the global economy has created some uncertainty, world chemical market pulp demand has increased in 2008 to date and NBSK pulp operating rates are around 97%. As a result, we currently believe that the strength of this demand, along with the near capacity operating rates, should provide a strong basis for further price improvements later in the year."
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Revenues for the three months ended March 31, 2008 increased by 5.7% to euro 179.1 million from euro 169.5 million in the comparative period of 2007, primarily due to higher pulp list prices, in large part offset by a 13% weakening of the U.S. dollar versus the Euro. Although list prices for NBSK pulp in Europe were approximately U.S.$120 higher in the current quarter from the prior year quarter, because of the slumping U.S. dollar, in Euro terms, the increase was only euro 8.
Pulp production was 360,881 ADMTs in the current quarter, compared to 347,256 in the same quarter of 2007 and 370,080 in the prior quarter. In the current quarter, all of our mills generally performed well and our Rosenthal mill had its highest first quarter production ever.
Pulp sales volume increased to 348,176 ADMTs in the first quarter of 2008 from 329,135 ADMTs in the comparative period of 2007. Average pulp sales realizations were euro 510 per ADMT in the first quarter of 2008 compared to euro 512 per ADMT in the first quarter of 2007, as higher prices were offset by the weakening of the U.S. dollar versus the Euro and the Canadian dollar.
Our Celgar mill pulp inventories were about 50% higher in the current quarter from the comparative quarter of 2007, as we and other producers work through a shipment backlog resulting from congestion and slowdowns at the Port of Vancouver in late 2007 which delayed shipments to China. This inventory is generally already committed to customer orders but we do not record the sale until the pulp is loaded. We currently expect to work through such shipping backlog and have our Celgar pulp inventories returned to normalized levels over the next two quarters.
Costs and expenses in the first quarter of 2008 increased to euro 160.5 million from euro 155.8 million in the comparative period of 2007, primarily due to higher production and sales volume.
On average, our fiber costs decreased by approximately 6% in the first quarter of 2008 from the same period of 2007. Our fiber costs in Germany were lower because of increased availability resulting from damage to forests caused by storms in Germany and Austria in the quarter and lower fiber demand caused by production curtailments in the European board industry. Fiber costs at our Celgar mill were also lower in the current quarter from the prior period of 2007 because of various initiatives to increase fiber supply including incremental whole log chipping and woodroom optimization. However, the deterioration of the housing and lumber markets in North America has sharply reduced sawmilling activity and residual chip supply in western Canada. This is expected to put slight upward pressure on the fiber costs for our Celgar mill during the balance of 2008.
During the first quarter of 2008, our raw material inventories were brought down to euro 29.0 million from euro 38.0 million at the end of 2007, as we drew down the large seasonal build up of fiber supply at our German mills following enhanced purchases of storm damaged wood in 2007.
In the current quarter, we had no sales of emission allowances compared to euro 0.7 million in the prior year period. In the current quarter, sales of surplus energy were largely unchanged from the first quarter of 2007.
For the first quarter of 2008, operating income from continuing operations increased by approximately 28% to euro 18.6 million from euro 14.5 million in the comparative quarter of 2007, primarily as a result of higher pulp prices and improved production.
Interest expense in the first quarter of 2008 decreased to euro 16.6 million from euro 20.1 million in the comparative quarter of 2007, primarily due to a lower level of borrowing and the absence of cross-currency swaps which were settled in the first quarter of 2007. During the current quarter, our Stendal mill made its scheduled repayment of euro 16.9 million of principal against its indebtedness.
We recorded an unrealized loss of euro 7.9 million before minority interests on our interest rate derivatives at the end of the current quarter as a result of a decrease in long-term interest rates, compared to a gain of euro 6.6 million on our outstanding foreign currency and interest rate derivatives in the same quarter of last year, of which a euro 6.8 million gain was realized upon the settlement of foreign currency swaps. We recorded unrealized foreign exchange gains of euro 6.0 million and euro 1.3 million on our debt in the current and prior year quarters, respectively.
In the first quarter of 2008, minority interest, representing the minority shareholder's interest in the Stendal mill, was euro 3.2 million, compared to euro 1.0 million in the same quarter of last year.
Operating EBITDA increased by 16% to euro 32.8 million in the first quarter of 2008 from euro 28.3 million in the first quarter of 2007. Operating EBITDA is defined as operating income (loss) from continuing 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, 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 or income 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 income to Operating EBITDA, see page 6 of the financial tables included in this press release.
We reported net income from continuing operations for the first quarter of 2008 of euro 2.9 million, or euro 0.08 per basic and diluted share, as compared to net income from continuing operations of euro 1.1 million, or euro 0.03 per basic and diluted share in the first quarter of 2007.
Earnings Release Call
In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Tuesday, May 6, 2008 at 10:00 AM EDT. Listeners can access the conference call live and archived through June 6, 2008, over the Internet through a link at the Company's web site at http://www.mercerint.com/en/newsCurrent.cfm, or at http://www.videonewswire.com/event.asp?id=47803. 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 May 13, 2008 at 11:59 p.m. (Eastern Daylight Time). The replay number is (800) 642-1687 for domestic callers or (706) 645- 9291 for international callers, and the passcode is 44255548.
Mercer International Inc. is a global pulp manufacturing company. To obtain further information on the company, please visit its web site at http://www.mercerint.com/.
The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.
MERCER INTERNATIONAL INC. INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands of Euros) March 31, December 31, 2008 2007 ASSETS Current Assets Cash and cash equivalents euro 69,735 euro 84,848 Receivables 91,241 89,890 Note receivable, current portion 5,167 5,896 Inventories 97,181 103,610 Prepaid expenses and other 5,019 6,015 Total current assets 268,343 290,259 Long-Term Assets Cash, restricted 33,000 33,000 Property, plant and equipment 903,402 933,258 Investments 72 96 Deferred note issuance and other costs 4,955 5,303 Deferred income tax 18,746 17,624 Note receivable, less current portion 3,536 3,977 963,711 993,258 Total assets euro 1,232,054 euro 1,283,517 LIABILITIES Current Liabilities Accounts payable and accrued expenses euro 74,331 euro 87,000 Pension and other post-retirement benefit obligations, current portion 438 493 Debt, current portion 35,042 34,023 Total current liabilities 109,811 121,516 Long-Term Liabilities Debt, less current portion 773,972 815,832 Unrealized interest rate derivative losses 29,735 21,885 Pension and other post-retirement benefit obligations 17,310 19,983 Capital leases and other 10,754 8,999 Deferred income tax 20,971 18,640 852,742 885,339 Total liabilities 962,553 1,006,855 SHAREHOLDERS' EQUITY Share capital 202,844 202,844 Additional paid-in capital 233 134 Retained earnings 40,288 37,419 Accumulated other comprehensive income 26,136 36,265 Total shareholders' equity 269,501 276,662 Total liabilities and shareholders' equity euro 1,232,054 euro 1,283,517 MERCER INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands of Euros, except per share data) Three Months Ended March 31, 2008 2007 Revenues euro 179,101 euro 169,531 Costs and expenses Operating costs 139,441 133,846 Operating depreciation and amortization 14,121 13,729 25,539 21,956 Selling, general and administrative expenses 6,896 8,206 (Sale) purchase of emission allowances - (727) Operating income from continuing operations 18,643 14,477 Other income (expense) Interest expense (16,620) (20,068) Investment income 310 1,611 Foreign exchange gain on debt 6,031 1,254 Realized gain on derivative instruments - 6,820 Unrealized loss on derivative instruments (7,850) (248) Total other expense (18,129) (10,631) Income before income taxes and minority interest from continuing operations 514 3,846 Income tax benefit (provision) - current 376 (349) - deferred (1,204) (3,452) (Loss) income before minority interest from continuing operations (314) 45 Minority interest 3,183 1,048 Net income from continuing operations 2,869 1,093 Net loss from discontinued operations - (7) Net income 2,869 1,086 Retained earnings, beginning of period 37,419 14,440 Retained earnings, end of period euro 40,288 euro 15,526 Net income from continuing operations per share: Basic and diluted euro 0.08 euro 0.03 Net income per share: Basic and diluted euro 0.08 euro 0.03 MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Balance Sheet (Unaudited) (In thousands of Euros)
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. and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group". As at and during the three months ended March 31, 2008 and 2007, the Restricted Group was comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills. The Restricted Group excludes the Stendal mill.
March 31, 2008 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group ASSETS Current Cash and cash equivalents euro 53,371 euro 16,364 euro - euro 69,735 Receivables 46,791 44,450 - 91,241 Note receivable, current portion 549 4,618 - 5,167 Inventories 64,619 32,562 - 97,181 Prepaid expenses and other 3,800 1,219 - 5,019 Total current assets 169,130 99,213 - 268,343 Cash, restricted - 33,000 - 33,000 Property, plant and equipment 359,497 543,905 - 903,402 Other 5,024 3 - 5,027 Deferred income tax 10,072 8,674 - 18,746 Due from unrestricted group 58,942 - (58,942) - Note receivable, less current portion 3,536 - - 3,536 Total assets euro 606,201 euro 684,795 euro (58,942) euro 1,232,054 LIABILITIES Current Accounts payable and accrued expenses euro 42,487 euro 31,844 euro - euro 74,331 Pension and other post- retirement benefit obligations, current portion 438 - - 438 Debt, current portion - 35,042 - 35,042 Total current liabilities 42,925 66,885 - 109,811 Debt, less current portion 252,236 521,736 - 773,972 Due to restricted group - 58,942 (58,942) - Unrealized derivative loss - 29,735 - 29,735 Pension and other post-retirement benefit obligations 17,310 - - 17,310 Capital leases and other 7,078 3,676 - 10,754 Deferred income tax 6,120 14,851 - 20,971 Total liabilities 325,669 695,826 (58,942) 962,553 SHAREHOLDERS' EQUITY Total shareholders' equity (deficit) 280,532 (11,031) - 269,501 Total liabilities and shareholders' equity euro 606,201 euro 684,795 euro (58,942) euro 1,232,054 MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Balance Sheet (Unaudited) (In thousands of Euros) December 31, 2007 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group ASSETS Current Cash and cash equivalents euro 59,371 euro 25,477 euro - euro 84,848 Receivables 37,482 52,408 - 89,890 Note receivable, current portion 589 5,307 - 5,896 Inventories 63,444 40,166 - 103,610 Prepaid expenses and other 3,714 2,301 - 6,015 Total current assets 164,600 125,659 - 290,259 Cash, restricted - 33,000 - 33,000 Property, plant and equipment 385,569 547,689 - 933,258 Other 5,399 - - 5,399 Deferred income tax 10,852 6,772 - 17,624 Due from unrestricted group 57,457 - (57,457) - Note receivable, less current portion 3,977 - - 3,977 Total assets euro 627,854 euro 713,120 euro (57,457) euro 1,283,517 LIABILITIES Current Accounts payable and accrued expenses euro 43,621 euro 43,379 euro - euro 87,000 Pension and other post- retirement benefit obligations, current portion 493 - - 493 Debt, current portion - 34,023 - 34,023 Total current liabilities 44,114 77,402 - 121,516 Debt, less current portion 273,589 542,243 - 815,832 Due to restricted group - 57,457 (57,457) - Unrealized derivative loss - 21,885 - 21,885 Pension and other post-retirement benefit obligations 19,983 - - 19,983 Capital leases and other 7,033 1,966 - 8,999 Deferred income tax 4,553 14,087 - 18,640 Total liabilities 349,272 715,040 (57,457) 1,006,855 SHAREHOLDERS' EQUITY Total shareholders' equity (deficit) 278,582 (1,920) - 276,662 Total liabilities and shareholders' equity euro 627,854 euro 713,120 euro (57,457) euro 1,283,517 MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Statements of Operations (Unaudited) (In thousands of Euros) Three Months Ended March 31, 2008 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group Revenues euro 101,102 euro 77,999 euro - euro 179,101 Operating costs 77,656 61,785 - 139,441 Operating depreciation and amortization 7,421 6,700 - 14,121 Selling, general and administrative expenses 3,744 3,152 - 6,896 88,821 71,637 - 160,458 Operating income from continuing operations 12,281 6,362 - 18,643 Other income (expense) Interest expense (6,712) (10,867) 959 (16,620) Investment income (expense) 1,736 (467) (959) 310 Foreign exchange gain (loss) on debt 6,627 (596) - 6,031 Derivative financial instruments - (7,850) - (7,850) Total other income (expense) 1,651 (19,780) - (18,129) Income (loss) before income taxes and minority interest from continuing operations 13,932 (13,418) - 514 Income tax benefit (provision) (2,154) 1,326 - (828) Income (loss) before minority interest from continuing operations 11,778 (12,092) - (314) Minority interest - 3,183 - 3,183 Net income (loss) euro 11,778 euro (8,909) euro - euro 2,869 Three Months Ended March 31, 2007 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group Revenues euro 99,933 euro 69,598 euro - euro 169,531 Operating costs 76,930 56,916 - 133,846 Operating depreciation and amortization 6,686 7,043 - 13,729 Selling, general and administrative expenses 4,545 3,661 - 8,206 (Sale) purchase of emission allowances (264) (463) - (727) 87,897 67,157 - 155,054 Operating income from continuing operations 12,036 2,441 - 14,477 Other income (expense) Interest expense (7,458) (13,525) 915 (20,068) Investment income 1,305 1,221 (915) 1,611 Foreign exchange gain on debt 1,254 - - 1,254 Derivative financial instruments, net - 6,572 - 6,572 Total other expense (4,899) (5,732) - (10,631) Income (loss) before income taxes and minority interest from continuing operations 7,137 (3,291) - 3,846 Income tax provision (2,738) (1,063) - (3,801) Income (loss) before minority interest from continuing operations 4,399 (4,354) - 45 Minority interest - 1,048 - 1,048 Net income (loss) from continuing operations 4,399 (3,306) - 1,093 Net loss from discontinued operations - (7) - (7) Net income (loss) euro 4,399 euro (3,313) euro - euro 1,086 MERCER INTERNATIONAL INC. COMPUTATION OF OPERATING EBITDA (Unaudited) (In thousands of Euros) Three Months Ended March 31, 2008 2007 (in thousands) Net income from continuing operations euro 2,869 euro 1,093 Minority interest (3,183) (1,048) Income taxes 828 3,801 Interest expense 16,620 20,068 Investment income (310) (1,611) Unrealized foreign exchange gain on debt (6,031) (1,254) Derivative financial instruments, net 7,850 (6,572) Operating income from continuing operations 18,643 14,477 Add: Depreciation and amortization 14,192 13,792 Operating EBITDA euro 32,835 euro 28,269 (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. COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA (Unaudited) (In thousands of Euros) Three Months Ended March 31, 2008 2007 Restricted Group Net income from continuing operations(1) euro 11,778 euro 4,399 Income taxes 2,154 2,738 Interest expense 6,712 7,458 Investment income (1,736) (1,305) Unrealized foreign exchange gain on debt (6,627) (1,254) Operating income from continuing operations 12,281 12,036 Add: Depreciation and amortization 7,492 6,749 Operating EBITDA(2) euro 19,773 euro 18,785 (1) For the Restricted Group, net income (loss) from continuing operations and net income (loss) are the same. (2) 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.
