NEW YORK, Aug. 9 /PRNewswire-FirstCall/ -- Mercer International
Inc. (Nasdaq: MERCS; TSX: MRI.U) today reported results for the
second quarter of 2005. Summary Selected Highlights Three Months
Ended June 30, 2005 2004 (in thousands) Results of Operations
(unaudited) Revenues euro 129,609 euro 50,335 Income (loss) from
operations 9,201 (978) Operating EBITDA(1) 23,097 5,336 Interest
expense (22,200) (2,366) Unrealized gain (loss) on derivative
financial instruments, net(2) (69,451) 29,473 Unrealized foreign
exchange loss on debt (9,806) - Income tax (provision) benefit(3)
24,447 (219) Net income (loss) (62,151) 16,241 Income (loss) per
share Basic (1.88) 0.94 Diluted (1.88) 0.57 Other Data Total pulp
sales volume(4) (ADMTs) 278,752 74,841 Mill net pulp price
realizations (per ADMT) euro 408 euro 471 (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) Non-cash
marked to market valuation loss. (3) Non-cash benefit for income
taxes to our deferred income tax asset. (4) Excluding intercompany
sales volumes of 4,105 and 1,540 ADMTs of pulp in the three months
ended June 30, 2005 and 2004, respectively. Certain key factors
affecting our 2005 second quarter results include: -- Revenues in
the second quarter of 2005 increased by euro 79.3 million over the
comparative period of 2004 to euro 129.6 million, primarily from
the inclusion of production and sales from our Stendal and Celgar
pulp mills. -- Interest expense increased to euro 22.2 million in
the second quarter of 2005 from euro 2.4 million in the comparative
period of 2004. The completion of the Stendal mill resulted in our
expensing euro 14.5 million of the associated interest in the
second quarter of 2005 versus capitalizing almost all of such
interest expense in the prior period. In the current quarter, we
also had interest expense of euro 5.7 million relating to our $310
million 9.25% senior notes issued in February 2005. -- Operating
EBITDA increased to euro 23.1 million in the current quarter from
euro 5.3 million in the prior quarter reflecting higher pulp sales
and a contribution to income from operations of euro 6.3 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. -- We recorded net unrealized non-cash holding
losses on the marked-to- market valuation of our interest rate and
currency derivatives of euro 20.8 million and euro 48.3 million in
the second quarter of 2005 due to a decline in long-term European
interest rates and the strengthening of the U.S. dollar versus the
Euro. We also recorded an unrealized non- cash foreign exchange
loss on our long-term debt of euro 9.8 million. -- We recorded a
non-cash benefit for income taxes of euro 24.4 million in the
second quarter of 2005 to our deferred income tax asset. -- Pulp
markets in Europe were generally stable in the second quarter of
2005. List prices for NBSK pulp in Europe decreased to $613 per
ADMT, but such decrease was partially offset by the strengthening
of the U.S. dollar versus the Euro. Results of Operations - 2005
Second Quarter Selected production and sales data for the three
months ended June 30, 2005 and 2004 is as follows: Three Months
Ended June 30, 2005 2004 (ADMTs) Production by Product Class: Pulp
production by mill: Rosenthal 81,443 80,317 Celgar 111,071 -
Stendal 123,738 - Total pulp production 316,252 80,317 Paper
production 17,979 15,339 Total production 334,231 95,656 Revenues
by Product Class: (in thousands) Pulp revenues by mill: Rosenthal
euro 31,840 euro 36,022 Celgar 40,864 - Stendal 40,808 927 Total
pulp revenues(1) 113,512 36,949 Paper revenues 16,097 13,386 Total
revenues(1) euro 129,609 euro 50,335 (1) Excluding intercompany net
sales revenues of approximately euro 1.8 million and euro 0.8
million in the three months ended June 30, 2005 and 2004,
respectively. Revenues for the three months ended June 30, 2005
increased to euro 129.6 million from euro 50.3 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 278,752 ADMTs in the second
quarter of 2005, compared to 74,841 ADMTs in the comparative period
of 2004. In the three months ended June 30, 2005, the Stendal and
Celgar mills sold 202,756 ADMTs of NBSK pulp and had sales of euro
81.7 million. Cost of sales and general, administrative and other
expenses in the second quarter of 2005 increased to euro 120.4
million from euro 51.3 million in the comparative period of 2004,
primarily as a result of the inclusion of production from our
Stendal mill and the operations of the Celgar mill. For the second
quarter of 2005, revenues from our pulp operations increased to
euro 113.5 million from euro 36.9 million in the same period a year
ago, primarily as a result of the inclusion of production from our
Stendal and Celgar mills. List prices for NBSK pulp in Europe were
approximately euro 487 ($613) per ADMT in the second quarter of
2005, compared to approximately euro 535 ($645) 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 408 per ADMT on average in the second quarter of
2005 from euro 471 per ADMT in the second 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, which we expect will be eliminated
during the year, 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 102.9
million in the second quarter of 2005 from euro 34.2 million in the
comparative period of 2004, primarily as a result of the inclusion
of euro 77.6 million of operating costs related to the Stendal and
Celgar mills. In the second quarter of 2005, we recorded a
contribution to income from operations of euro 6.3 million
resulting from the sale of excess carbon emission credits by our
German pulp mills. Depreciation for the pulp operations increased
to euro 13.4 million in the current quarter, from euro 5.6 million
in the second quarter of 2004, primarily as a result of the
inclusion of euro 10.0 million of depreciation from the Stendal and
Celgar mills. For the second quarter of 2005, our pulp operations
generated operating income of euro 12.4 million, versus operating
income of euro 3.5 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 were euro 16.1 million, compared with euro 13.4
million in the same quarter of last year. For the second quarter of
2005, total paper sales volumes were 17,840 ADMTs, versus 15,383
ADMTs in the comparative quarter of 2004 primarily as a result of a
shift in the product mix at our paper mills. Average prices
realized on our paper products in the current quarter increased
slightly, reflecting the shift in the product mix. Cost of sales
and general, administrative and other expenses for the paper
operations in the second quarter of 2005 increased to euro 16.9
million from euro 15.9 million in the comparative quarter of 2004,
primarily as a result of the shift in the product mix. For the
second quarter of 2005, our paper operations generated an operating
loss of euro 0.8 million, compared to an operating loss of euro 2.5
million in the second quarter of 2004. In the second quarter of
2005, we had income from operations of euro 9.2 million, compared
to a loss from operations of euro 1.0 million in the same quarter
last year. Interest expense in the second quarter of 2005 increased
to euro 22.2 million from euro 2.4 million in the year ago period,
due to interest expense of euro 14.5 million relating to the
Stendal mill and higher borrowings resulting primarily from our
$310 million senior note issue in February 2005. In the second
quarter of 2004, almost all of the interest associated with the
Stendal mill was capitalized during its construction. Stendal had
entered into certain foreign currency derivatives to swap a portion
of its long-term bank indebtedness from Euros to U.S. dollars and
certain currency forwards in the first quarter of 2005. In the
second quarter of 2005, Stendal entered into foreign currency
derivatives to swap the balance of its long-term indebtedness from
Euros to U.S. dollars and a currency forward. We recorded a net
unrealized non-cash holding loss of euro 48.3 million before
minority interests upon the marked to market valuation of such
currency derivatives due to the strengthening of the U.S. dollar
versus the Euro at the end of the quarter. In the comparative
quarter of 2004, we recorded a net unrealized non-cash holding gain
of euro 13.7 million before minority interests on the then
outstanding currency derivatives of Rosenthal and Stendal. In the
second quarter of 2005, as a result of a decrease in long- term
European interest rates, we also recorded a net unrealized non-cash
holding loss of euro 20.8 million before minority interests on the
marked to market valuation of the Stendal interest rate derivatives
versus a net unrealized non-cash holding gain of euro 15.8 million
before minority interests on the interest rate derivatives of
Stendal and Rosenthal in the second quarter of 2004. In the second
quarter of 2005, minority interest, representing the two minority
shareholders' proportionate interest in the Stendal mill, was euro
4.9 million, compared to euro (10.2) million in the second quarter
of 2004. We reported a net loss for the second quarter of 2005 of
euro 62.2 million, or euro 1.88 per basic and diluted share, which
reflected the net unrealized non-cash holding losses on our
currency and interest rate derivatives of euro 69.5 million and the
unrealized non-cash foreign exchange loss on our long-term debt of
euro 9.8 million, partially offset by the non- cash benefit for
income taxes of euro 24.4 million, and interest expense related to
our Stendal mill of euro 14.5 million. In the second quarter of
2004, we reported net income of euro 16.2 million, or euro 0.94 per
basic share and euro 0.57 per diluted share. We generated
"Operating EBITDA" of euro 23.1 million and euro 5.3 million in the
three months ended June 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. Liquidity As at As at June 30,
December 31, 2005 2004 (in thousands) (unaudited) Financial
Position Cash and cash equivalents euro 105,874 euro 49,568 Cash
restricted 37,951 45,295 Receivables 75,344 54,687 Inventories
92,037 52,898 Prepaid expenses and other 7,057 4,961 Accounts
payable and accrued expenses 101,399 56,542 Construction costs
payable 34,090 65,436 Debt, current portion 97,618 107,090 Working
capital (deficit) 85,156(1) (21,659) Property, plant and equipment
1,109,394 936,035 Total assets 1,538,829 1,255,649 Long-term
liabilities 1,125,857(2) 863,840 Shareholders' equity 179,865
162,741 (1) Does not include euro 88.5 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
28.6 million outstanding under the revolving credit facilities for
the Rosenthal and Celgar mills. We had good liquidity at June 30,
2005. Certain key factors affecting our liquidity include: -- We
had unrestricted cash and cash equivalents of euro 105.9 million.
-- The current Stendal construction costs payable of euro 34.1
million will be paid from restricted cash of euro 38.0 million held
for such purpose. -- We qualified for investment grants relating to
the Stendal mill totaling approximately euro 88.5 million at June
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 the euro 95.0 million of the current portion of
our debt of euro 97.6 million 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 85.2 million at
June 30, 2005. Results of Operations -- Six Months Ended June 30,
2005 For the six months ended June 30, 2005, revenues increased to
euro 227.5 million from euro 100.7 million in the prior period,
primarily because of higher pulp sales. We generated income from
operations of euro 8.3 million in the six months ended June 30,
2005, compared to a loss from operations of euro 2.9 million in the
six months ended June 30, 2004. We generated Operating EBITDA of
euro 33.2 million and euro 9.7 million in the six months ended June
30, 2005 and 2004, respectively. For a reconciliation of net income
(loss) to Operating EBITDA, see page 11 of the financial tables
included in this press release. We reported a net loss of euro 81.8
million or euro 2.80 per diluted share for the six months ended
June 30, 2005, compared to a net loss of euro 2.7 million or euro
0.16 per diluted share for the six months ended June 30, 2004,
which reflected an unrealized non-cash holding loss of euro 73.2 on
our interest rate and currency derivatives and an unrealized
non-cash foreign exchange loss on our long-term debt of euro 7.5
million, partially offset by the non-cash benefit for income taxes
of euro 21.4 million, and the inclusion of certain non-capitalized
interest of approximately euro 26.3 million related to the Stendal
mill in the current period. President's Comments Mr. Jimmy S.H.
Lee, President and Chairman, stated: "We are generally pleased with
the operating performance of our pulp mill facilities in the
quarter. The Celgar mill had very good production of 111,071 ADMTs,
the Stendal mill ramped up production according to plan and the
Rosenthal mill operated at a high rate of efficiency." Mr. Lee
continued: "Pulp prices were softer in the quarter with list prices
in Europe averaging euro 487 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 390 per ADMT in the
quarter." He further stated: "We currently expect pulp prices to
remain around current levels in the third quarter as a result of
the traditional summer slowdown with demand in China improving in
the fourth quarter, which may permit some price improvement." He
added: "We are pleased with the addition of Eric Heine and David
Cooper, both of whom are senior experienced pulp marketing
professionals, to lead our global pulp marketing strategy. Our
added depth and leadership in our pulp marketing side should permit
us to increase our price realizations over time." Mr. Lee said:
"The recent strengthening of the U.S. dollar versus the Euro will
improve our operating performance as NBSK pulp is priced in U.S.
dollars. A higher dollar generally results in increased Euro
revenues." He further stated: "Our results for the quarter reflect
significant non- cash charges on the marked to market valuation of
Stendal's currency derivatives of euro 48.3 million and its
interest rate swap of euro 20.8 million, as well as a non-cash
foreign exchange loss on our long-term debt of euro 9.8 million."
Mr. Lee added: "I am also very pleased to announce that we have
recently approved an approximately C$28.5 million strategic capital
plan for our Celgar mill. The plan provides for additional washers,
increases to the mill's drying capacity and other smaller high
return capital improvements. When completed, the plan is expected
to increase the Celgar mill's annual production capacity to
approximately 470,000 ADMTs, reduce operating costs such as
chemicals and energy, improve pulp quality and mill reliability. We
expect the cost of such plan to be met from cash on hand, cash flow
from operations and our existing credit facilities." Mr. Lee
concluded: "We intend to continue to focus on further improving the
efficiency of our mills, including ramping up the Stendal mill to
its full production capacity and integrating and improving our NBSK
pulp marketing activities. We believe this will position us as a
leading world class NBSK pulp production and sales company." 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, August 9, 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=1113630.
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, 2005 at 11:59 p.m. (Eastern Time). The replay
number is (800) 642-1687, and the passcode is 8411532. Mercer
International Inc. is a global 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, 2005 AND DECEMBER 31, 2004 (Euros in thousands) June
30, December 31, 2005 2004 ASSETS Current Assets Cash and cash
equivalents euro 105,874 euro 49,568 Cash restricted 37,951 45,295
Receivables 75,344 54,687 Inventories 92,037 52,898 Prepaid
expenses and other 7,057 4,961 Total current assets 318,263 207,409
Long-Term Assets Cash restricted 19,074 47,538 Property, plant and
equipment 1,109,394 936,035 Investments 4,728 5,079 Deferred note
issuance and other costs 9,132 5,069 Deferred income tax 78,238
54,519 1,220,566 1,048,240 Total assets euro 1,538,829 euro
1,255,649 LIABILITIES Current Liabilities Accounts payable and
accrued expenses euro 101,399 euro 56,542 Construction costs
payable 34,090 65,436 Debt, current portion 97,618 107,090 Total
current liabilities 233,107 229,068 Long-Term Liabilities Debt,
less current portion 952,555 777,272 Unrealized foreign exchange
rate derivative losses 47,685 - Unrealized interest rate derivative
losses 95,946 75,471 Pension and other post-retirement benefit
obligations 15,728 - Capital leases and other 9,800 9,035 Deferred
income tax 4,143 2,062 1,125,857 863,840 Total liabilities
1,358,964 1,092,908 Minority Interest - - SHAREHOLDERS' EQUITY
Shares of beneficial interest 180,916 83,397 Additional paid-in
capital, stock options 14 14 Retained earnings (deficit) (12,642)
69,176 Accumulated other comprehensive income 11,577 10,154 Total
shareholders' equity 179,865 162,741 Total liabilities and
shareholders' equity euro 1,538,829 euro 1,255,649 MERCER
INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the
Six Months Ended June 30, 2005 and 2004 (Unaudited) (Euros in
thousands, except per share data) 2005 2004 Revenues euro 227,502
euro 100,651 Costs and expenses: Cost of sales 210,167 88,628
General and administrative expenses 15,316 14,228 Gain on sale of
emission credits (6,288) - Flooding losses and expenses, less grant
income - 669 Total costs and expenses 219,195 103,525 Income (loss)
from operations 8,307 (2,874) Other income (expense): Interest
expense (41,463) (5,354) Investment income 981 1,464 Realized loss
on derivative financial instruments (295) - Unrealized gain (loss)
on derivative financial instruments (73,015) 7,028 Unrealized
foreign exchange loss on debt (7,509) - Impairment of investments
(1,645) - Total other (income) expense (122,946) 3,138 Income
(loss) before income taxes and minority interest (114,639) 264
Income tax (provision) benefit 21,412 (199) Income (loss) before
minority interest (93,227) 65 Minority interest 11,409 (2,790) Net
loss (81,818) (2,725) Retained earnings, beginning of period 69,176
49,196 Retained earnings (deficit), end of period euro (12,642)
euro 46,471 Loss per share Basic and diluted euro (2.80) euro
(0.16) MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF
OPERATIONS For the Three Months Ended June 30, 2005 and 2004
(Unaudited) (Euros in thousands, except per share data) 2005 2004
Revenues euro 129,609 euro 50,335 Costs and expenses: Cost of sales
119,178 43,210 General and administrative expenses 7,518 7,687 Gain
on sale of emission credits (6,288) - Flooding losses and expenses,
less grant income - 416 Total costs and expenses 120,408 51,313
Income (loss) from operations 9,201 (978) Other income (expense):
Interest expense (22,200) (2,366) Investment income 806 530
Unrealized gain (loss) on derivative financial instruments (69,451)
29,473 Unrealized foreign exchange loss on debt (9,806) - Total
other income (expense) (100,651) 27,637 Income (loss) before income
taxes and minority interest (91,450) 26,659 Income tax (provision)
benefit 24,447 (219) Income (loss) before minority interest
(67,003) 26,440 Minority interest 4,852 (10,199) Net income (loss)
(62,151) 16,241 Retained earnings, beginning of period 49,509
30,230 Retained earnings (deficit), end of period euro (12,642)
euro 46,471 Income (loss) per share Basic euro (1.88) euro 0.94
Diluted euro (1.88) euro 0.57 MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June
30, 2005 and 2004 (Unaudited) (Euros in thousands, except per share
data) 2005 2004 Cash Flows from (used in) Operating Activities: Net
loss euro (81,818) euro (2,725) Adjustments to reconcile net loss
to cash flows from operating activities Cumulative unrealized
losses (gains) on derivatives 73,015 (7,028) Depreciation and
amortization 25,299 12,607 Unrealized foreign exchange loss on debt
7,509 - Impairment of investments and securities 1,645 - Minority
interest (11,409) 2,790 Deferred income taxes (21,638) - Stock
compensation expense 72 616 Other 125 204 Changes in current assets
and liabilities Receivables (20,742) (2,489) Inventories (16,757)
(17,995) Accounts payable and accrued expenses 41,319 12,166 Other
(1,835) (1,224) Net cash used in operating activities (5,233)
(3,078) Cash Flows from (used in) Investing Activities: Purchase of
property, plant and equipment (8,493) (117,327) Acquisition of
Celgar pulp mill (146,608) - Sale of available-for-sale securities
- 1,161 Other - 115 Net cash used in investing activities (155,101)
(116,051) Cash Flows from (used in) Financing Activities: Cash
restricted 35,808 (7,468) Decrease in construction costs payable
(31,346) (22,974) Proceeds from borrowings of notes payable and
debt 325,195 126,000 Repayment of notes payable and debt (183,691)
(14,782) Proceeds from investment grants 342 28,710 Repayment of
capital lease obligations (1,907) (633) Issuance of shares of
beneficial interest 66,645 582 Net cash from financing activities
211,046 109,435 Effect of exchange rate changes on cash and cash
equivalents 5,594 (63) Net increase (decrease) in cash and cash
equivalents 56,306 (9,757) Cash and cash equivalents, beginning of
period 49,568 51,993 Cash and cash equivalents, end of period euro
105,874 euro 42,236 MERCER INTERNATIONAL INC. BUSINESS SEGMENT
INFORMATION For the Six Months Ended June 30, 2005 and 2004
(Unaudited) (Euros in thousands) Rosenthal Celgar(1) Stendal Total
Pulp Pulp Pulp Pulp Six Months Ended June 30, 2005 Sales to
external customers euro 65,936 euro 48,480 euro 81,606 euro 196,022
Intersegment net sales - - 3,340 3,340 65,936 48,480 84,946 199,362
Operating costs 47,405 40,554 71,546 159,505 Depreciation and
amortization 6,630 4,097 13,454 24,181 General and administrative
3,810 2,837 1,677 8,324 Emission credits (2,135) - (4,153) (6,288)
55,710 47,488 82,524 185,722 Income (loss) from operations 10,226
992 2,422 13,640 Interest expense Investment income Derivative
financial instruments, net Foreign exchange gain on debt Impairment
of investments Loss before income taxes and minority interest
Segment assets euro 347,935 euro 244,361 euro 906,244 euro
1,498,540 Six Months Ended June 30, 2004 Sales to external
customers euro 71,031 euro - euro 927 euro 71,958 Intersegment net
sales 1,179 - - 1,179 72,210 - 927 73,137 Operating costs 49,125 -
- 49,125 Depreciation and amortization 11,136 - 12 11,148 General
and administrative 4,636 - 5,448 10,084 Flooding grants, less
losses and expenses - - - - 64,897 - 5,460 70,357 Income (loss)
from operations 7,313 - (4,533) 2,780 Interest expense Investment
and other income Derivative financial instruments, net Income
before income taxes and minority interest Segment assets euro
365,342 euro - euro 663,193 euro 1,028,535 Corporate, Other and
Consolidated Paper Eliminations Total Six Months Ended June 30,
2005 Sales to external customers euro 31,480 euro - euro 227,502
Intersegment net sales - (3,340) - 31,480 (3,340) 227,502 Operating
costs 29,601 (3,822) 185,284 Depreciation and amortization 379 323
24,883 General and administrative 2,562 4,430 15,316 Emission
credits - - (6,288) 32,542 931 219,195 Income (loss) from
operations (1,062) (4,271) 8,307 Interest expense (41,463)
Investment income 981 Derivative financial instruments, net
(73,310) Foreign exchange gain on debt (7,509) Impairment of
investments (1,645) (122,946) Loss before income taxes and minority
interest euro (114,639) Segment assets euro 24,294 euro 15,995 euro
1,538,829 Six Months Ended June 30, 2004 Sales to external
customers euro 28,693 euro - euro 100,651 Intersegment net sales -
(1,179) - 28,693 (1,179) 100,651 Operating costs 27,213 (317)
76,021 Depreciation and amortization 1,141 318 12,607 General and
administrative 2,643 1,501 14,228 Flooding grants, less losses and
expenses 669 - 669 31,666 1,502 103,525 Income (loss) from
operations (2,973) (2,681) (2,874) Interest expense (5,354)
Investment and other income 1,464 Derivative financial instruments,
net 7,028 3,138 Income before income taxes and minority interest
euro 264 Segment assets euro 28,320 euro (10,899) euro 1,045,956
(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 June 30,
2005 and 2004 (Unaudited) (Euros in thousands) Rosenthal Celgar(1)
Stendal Total Pulp Pulp Pulp Pulp Three Months Ended June 30, 2005
Sales to external customers euro 31,840 euro 40,864 euro 40,808
euro 113,512 Intersegment net sales - - 1,786 1,786 31,840 40,864
42,594 115,298 Operating costs 22,217 35,419 34,411 92,047
Depreciation and amortization 3,362 3,274 6,773 13,409 General and
administrative 1,909 1,162 702 3,773 Emission credits (2,135) -
(4,153) (6,288) 25,353 39,855 37,733 102,941 Income (loss) from
operations 6,487 1,009 4,861 12,357 Interest expense Investment
income Derivative financial instruments, net Foreign exchange
(loss) on debt Impairment of investments Loss before income taxes
and minority interest Three Months Ended June 30, 2004 Sales to
external customers euro 36,022 euro - euro 927 euro 36,949
Intersegment net sales 750 - - 750 36,772 - 927 37,699 Operating
costs 23,318 - - 23,318 Depreciation and amortization 5,554 - 12
5,566 General and administrative 2,648 - 2,707 5,355 Flooding
grants, less losses and expenses - - - - 31,520 - 2,719 34,239
Income (loss) from operations 5,252 - (1,792) 3,460 Interest
expense Investment and other income Derivative financial
instruments, net Income before income taxes and minority interest
Corporate, Other and Consolidated Paper Eliminations Total Three
Months Ended June 30, 2005 Sales to external customers euro 16,097
euro - euro 129,609 Intersegment net sales - (1,786) - 16,097
(1,786) 129,609 Operating costs 15,370 (2,135) 105,282 Depreciation
and amortization 198 289 13,896 General and administrative 1,326
2,419 7,518 Emission credits - - (6,288) 16,894 573 120,408 Income
(loss) from operations (797) (2,359) 9,201 Interest expense
(22,200) Investment income 806 Derivative financial instruments,
net (69,451) Foreign exchange (loss) on debt (9,806) Impairment of
investments - (100,651) Loss before income taxes and minority
interest euro (91,450) Three Months Ended June 30, 2004 Sales to
external customers euro 13,386 euro - euro 50,335 Intersegment net
sales - (750) - 13,386 (750) 50,335 Operating costs 13,455 123
36,896 Depreciation and amortization 589 159 6,314 General and
administrative 1,469 863 7,687 Flooding grants, less losses and
expenses 416 - 416 15,929 1,145 51,313 Income (loss) from
operations (2,543) (1,895) (978) Interest expense (2,366)
Investment and other income 530 Derivative financial instruments,
net 29,473 27,637 Income before income taxes and minority interest
euro 26,659 (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 June 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 Inc. and our restricted subsidiaries
under the indenture, collectively referred to as the "Restricted
Group". As at and during the six and three months ended June 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 six and
three months ended June 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 six and three months ended June 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. June 30, 2005 Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group ASSETS Current assets Cash
and cash equivalents euro 62,792 euro 43,082 euro - euro 105,874
Cash restricted - 37,951 - 37,951 Receivables 42,748 32,665 (69)
75,344 Inventories 54,127 37,910 - 92,037 Prepaid expenses and
other 3,631 3,426 - 7,057 Total current assets 163,298 155,034 (69)
318,263 Cash restricted - 19,074 - 19,074 Property, plant and
equipment 393,047 716,785 (438) 1,109,394 Other 9,741 4,119 -
13,860 Deferred income tax 22,855 55,383 - 78,238 Due from
unrestricted group 44,621 - (44,621) - Total assets euro 633,562
euro 950,395 euro (45,128) euro 1,538,829 LIABILITIES Current
liabilities Accounts payable and accrued expenses euro 43,780 euro
57,688 euro (69) euro 101,399 Construction costs payable - 34,090 -
34,090 Debt, current portion - 97,618 - 97,618 Total current
liabilities 43,780 189,396 (69) 233,107 Debt, less current portion
353,033 599,522 - 952,555 Due to restricted group - 44,621 (44,621)
- Unrealized derivatives loss - 143,631 - 143,631 Other 18,555
6,973 - 25,528 Deferred income tax 1,883 2,260 - 4,143 Total
liabilities 417,251 986,403 (44,690) 1,358,964 SHAREHOLDERS' EQUITY
Total shareholders' equity 216,311 (36,008)(1) (438) 179,865 Total
liabilities and shareholders' equity euro 633,562 euro 950,395 euro
(45,128) euro 1,538,829 (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 Six
Months Ended June 30, 2005 and 2004 (Unaudited) (Euros in
thousands) Six Months Ended June 30, 2005 Restricted Unrestricted
Consolidated Group Subsidiaries Eliminations Group Revenues euro
114,416 euro 113,086 euro - euro 227,502 Operating costs 87,260
98,024 - 185,284 Operating depreciation and amortization 10,829
13,616 438 24,883 General and administrative 11,077 4,239 - 15,316
Gain on sale of emission credits (2,135) (4,153) - (6,288) 107,031
111,726 438 219,195 Income (loss) from operations 7,385 1,360 (438)
8,307 Other income (expense) Interest expense (15,985) (26,571)
1,093 (41,463) Investment income 1,297 777 (1,093) 981 Derivative
financial instruments, net (463) (72,847) - (73,310) Unrealized
foreign exchange loss on debt (7,509) - - (7,509) Impairment of
investments (1,645) - - (1,645) Total other expense (24,305)
(98,641) - (122,946) Loss before income taxes and minority interest
(16,920) (97,281) (438) (114,639) Income tax (provision) benefit
(4,776) 26,188 - 21,412 Loss before minority interest (21,696)
(71,093) (438) (93,227) Minority interest - 11,409 - 11,409 Net
loss euro (21,696) euro (59,684) euro (438) euro (81,818) Six
Months Ended June 30, 2004 Restricted Unrestricted Consolidated
Group Subsidiaries Eliminations Group Revenues euro 72,210 euro
29,620 euro (1,179) euro 100,651 Operating costs 48,675 27,213 133
76,021 Operating depreciation and amortization 11,136 1,153 318
12,607 General and administrative 6,295 8,091 (158) 14,228 Flooding
grants, less losses and expenses - 669 - 669 66,106 37,126 293
103,525 Income (loss) from operations 6,104 (7,506) (1,472) (2,874)
Other income (expense) Interest expense (6,023) (452) 1,121 (5,354)
Investment and other income (expense) 1,745 (214) (67) 1,464
Derivative financial instruments, net (5,272) 12,300 - 7,028 Total
other expense (9,550) 11,634 1,054 3,138 Income (loss) before
income taxes and minority interest (3,446) 4,128 (418) 264 Income
tax provision (199) - - (199) Income (loss) before minority
interest (3,645) 4,128 (418) 65 Minority interest - (2,790) -
(2,790) Net income (loss) euro (3,645) euro 1,338 euro (418) euro
(2,725) MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL
DISCLOSURE Combined Condensed Statements of Operations For the
Three Months Ended June 30, 2005 and 2004 (Unaudited) (Euros in
thousands) Three Months Ended June 30, 2005 Restricted Unrestricted
Consolidated Group Subsidiaries Eliminations Group Revenues euro
72,704 euro 56,905 euro - euro 129,609 Operating costs 57,287
47,995 - 105,282 Operating depreciation and amortization 6,704
6,971 221 13,896 General and administrative 5,490 2,028 - 7,518
Gain on sale of emission credits (2,135) (4,153) - (6,288) 67,346
52,841 221 120,408 Income (loss) from operations 5,358 4,064 (221)
9,201 Other income (expense) Interest expense (8,314) (14,585) 699
(22,200) Investment income 970 467 (631) 806 Derivative financial
instruments, net (358) (69,093) - (69,451) Unrealized foreign
exchange loss on debt (9,806) - - (9,806) Impairment of investments
(467) - 467 - Total other income (expense) (17,975) (83,211) 535
(100,651) Income (loss) before income taxes and minority interest
(12,617) (79,147) 314 (91,450) Income tax (provision) benefit
(1,661) 26,108 - 24,447 Income (loss) before minority interest
(14,278) (53,039) 314 (67,003) Minority interest - 4,852 - 4,852
Net income (loss) euro (14,278) euro (48,187) euro 314 euro
(62,151) Three Months Ended June 30, 2004 Restricted Unrestricted
Consolidated Group Subsidiaries Eliminations Group Revenues euro
36,772 euro 14,313 euro (750) euro 50,335 Operating costs 23,318
13,455 123 36,896 Operating depreciation and amortization 5,554 601
159 6,314 General and administrative 3,181 4,176 330 7,687 Flooding
grants, less losses and expenses - 416 - 416 32,053 18,648 612
51,313 Income (loss) from operations 4,719 (4,335) (1,362) (978)
Other income (expense) Interest expense (1,947) 114 (533) (2,366)
Derivative financial instruments, net (382) 29,855 - 29,473
Investment and other income (expense) 639 (364) 255 530 Total other
income (expense) (1,690) 29,605 (278) 27,637 Income (loss) before
income taxes and minority interest 3,029 25,270 (1,640) 26,659
Income tax provision (199) (20) - (219) Income (loss) before
minority interest 2,830 25,250 (1,640) 26,440 Minority interest -
(10,199) - (10,199) Net income (loss) euro 2,830 euro 15,051 euro
(1,640) euro 16,241 MERCER INTERNATIONAL INC. COMPUTATION OF
OPERATING EBITDA For the Six and Three Months Ended June 30, 2005
and 2004 (Unaudited) (Euros in thousands) Six Months Ended June 30,
2005 2004 Net loss euro (81,818) euro (2,725) Minority interest
(11,409) 2,790 Income taxes (benefit) (21,412) 199 Interest expense
41,463 5,354 Investment income (981) (1,464) Derivative financial
instruments, net 73,310 (7,028) Foreign exchange loss on debt 7,509
- Impairment of investments 1,645 - Income (loss) from operations
8,307 (2,874) Add: Depreciation and amortization 24,883 12,607
Operating EBITDA(1) euro 33,190 euro 9,733 Three Months Ended June
30, 2005 2004 Net income (loss) euro (62,151) euro 16,241 Minority
interest (4,852) 10,199 Income taxes (benefit) (24,447) 219
Interest expense 22,200 2,366 Investment income (806) (530)
Derivative financial instruments, net 69,451 (29,473) Foreign
exchange loss on debt 9,806 - Income (loss) from operations 9,201
(978) Add: Depreciation and amortization 13,896 6,314 Operating
EBITDA(1) euro 23,097 euro 5,336 (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 Six and
Three Months Ended June 30, 2005 and 2004 (Unaudited) (Euros in
thousands) Six Months Ended June 30, 2005 2004 Restricted Group(1)
Net loss euro (21,696) euro (3,645) Income taxes 4,776 199 Interest
expense 15,985 6,023 Investment and other income (1,297) (1,745)
Derivative financial instruments, net 463 5,272 Foreign exchange
loss on debt 7,509 - Impairment of investments 1,645 - Income from
operations 7,385 6,104 Add: Depreciation and amortization 10,829
11,136 Operating EBITDA euro 18,214 euro 17,240 (1) The results of
the Celgar pulp mill are not included for the six months ended June
30, 2004. Three Months Ended June 30, 2005 2004 Restricted Group(1)
Net income (loss) euro (14,278) euro 2,830 Income taxes 1,661 199
Interest expense 8,314 1,947 Investment and other income (970)
(639) Derivative financial instruments, net 358 382 Foreign
exchange loss on debt 9,806 - Impairment of investments 467 -
Income from operations 5,358 4,719 Add: Depreciation and
amortization 6,704 5,554 Operating EBITDA euro 12,062 euro 10,273
(1) The results of the Celgar pulp mill are not included for the
three months ended June 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: Kathleen Tanzy, all of Financial Dynamics,
+1-212-850-5600, for Mercer International Inc. Web site:
http://www.mercerinternational.com/
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