Selected Highlights
Mercer International Inc. (Nasdaq:MERC) today reported strong
results for the second quarter ended June 30, 2018 due to higher
pulp and lumber sales realizations. Operating EBITDA in the current
quarter was $60.5 million compared to $39.5 million in the second
quarter of 2017 and $99.4 million in the first quarter of 2018.
For the second quarter of 2018, net income was
$16.8 million, or $0.26 per share, compared to a net loss of $2.1
million, or $0.03 per share, for the second quarter of 2017 and
$25.6 million, or $0.39 per share, in the prior quarter of
2018.
Summary Financial
Highlights
|
Q2 2018 |
|
Q12018 |
|
Q22017 |
|
YTD2018 |
|
YTD2017 |
|
|
(in millions, except per share
amounts) |
Pulp segment
revenues |
$ |
291.6 |
|
$ |
314.2 |
|
$ |
265.9 |
|
$ |
605.9 |
|
$ |
508.7 |
|
Wood products segment
revenues |
|
54.9 |
|
|
53.7 |
|
|
17.3 |
|
|
108.6 |
|
|
17.3 |
|
Total revenues |
$ |
346.5 |
|
$ |
367.9 |
|
$ |
283.2 |
|
$ |
714.4 |
|
$ |
526.0 |
|
|
|
|
|
|
|
Pulp segment operating
income |
$ |
37.0 |
|
$ |
74.1 |
|
$ |
21.1 |
(1) |
$ |
111.0 |
|
$ |
63.4 |
(1) |
Wood products segment
operating income |
|
4.3 |
|
|
3.0 |
|
|
0.1 |
|
|
7.3 |
|
|
0.1 |
|
Corporate and other
operating loss |
|
(3.8 |
) |
|
(1.0 |
) |
|
(2.3 |
) |
|
(4.8 |
) |
|
(3.3 |
) |
Total operating
income |
$ |
37.5 |
|
$ |
76.0 |
|
$ |
18.9 |
|
$ |
113.5 |
|
$ |
60.2 |
|
|
|
|
|
|
|
Pulp segment
depreciation and amortization |
$ |
21.1 |
|
$ |
21.5 |
|
$ |
19.4 |
|
$ |
42.7 |
|
$ |
38.5 |
|
Wood products segment
depreciation and amortization |
|
1.8 |
|
|
1.7 |
|
|
1.1 |
|
|
3.5 |
|
|
1.1 |
|
Corporate and other
depreciation and amortization |
|
0.1 |
|
|
0.1 |
|
|
0.1 |
|
|
0.2 |
|
|
0.2 |
|
Total depreciation and
amortization |
$ |
23.0 |
|
$ |
23.3 |
|
$ |
20.6 |
|
$ |
46.3 |
|
$ |
39.8 |
|
|
|
|
|
|
|
Operating
EBITDA(*) |
$ |
60.5 |
|
$ |
99.4 |
|
$ |
39.5 |
(1) |
$ |
159.9 |
|
$ |
100.1 |
(1) |
Loss on settlement of
debt |
$ |
- |
|
$ |
21.5 |
(2) |
$ |
‑ |
|
$ |
21.5 |
(2) |
$ |
10.7 |
(3) |
Legal cost award |
$ |
- |
|
$ |
7.0 |
|
$ |
‑ |
|
$ |
7.0 |
|
$ |
‑ |
|
Provision for income
taxes |
$ |
8.5 |
|
$ |
9.6 |
|
$ |
7.8 |
|
$ |
18.0 |
|
$ |
15.3 |
|
Net income (loss) |
$ |
16.8 |
|
$ |
25.6 |
|
$ |
(2.1 |
) |
$ |
42.4 |
|
$ |
7.6 |
|
Net income (loss) per
common share |
|
|
|
|
|
Basic and
diluted |
$ |
0.26 |
|
$ |
0.39 |
|
$ |
(0.03 |
) |
$ |
0.65 |
|
$ |
0.12 |
|
Common shares
outstanding at period end |
|
65.2 |
|
|
65.2 |
|
|
65.0 |
|
|
65.2 |
|
|
65.0 |
|
|
|
|
|
|
|
(1)
Adjusted as a result of our adoption of Accounting Standards Update
2017-07, Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Post-Retirement Benefit Cost, in the current year.
See Note 1 to our Interim Consolidated Financial Statements.(2)
Redemption of 7.75% senior notes due 2022 (the "2022 Senior
Notes").(3) Redemption of 7.00% senior notes due
2019.______________________*Operating EBITDA is not a measure of
financial performance under accounting principles generally
accepted in the United States ("GAAP") and should not be considered
in isolation or as a substitute for analysis of our results as
reported under GAAP. See page 4 of the financial tables included in
this press release for a reconciliation of net income (loss) to
Operating EBITDA.
Mr. David M. Gandossi, the Chief Executive
Officer, stated: "We are pleased with our performance and results
for the second quarter of 2018 as:
- This was a significant maintenance
quarter for us. We had an aggregate of 37 days (55,400 ADMTs) of
downtime at our Celgar and Stendal mills. We estimate that such
downtime adversely affected our operating income by approximately
$59.1 million comprised of $36.6 million in direct out-of-pocket
costs and the balance in reduced production. Many of our
competitors that report their financial results using International
Financial Reporting Standards capitalize their direct costs of
maintenance downtime; and
- Even with such maintenance, strong
pulp and lumber sales realizations permitted us to generate
Operating EBITDA of $60.5 million in the current quarter."
He continued: "In the second quarter of
2018, pulp prices in Europe and North America increased and pulp
prices in China were generally flat compared to the prior quarter
of 2018. In the second quarter of 2018, European and U.S. lumber
markets continued to be strong with prices near multi-year
highs.
At the end of the current quarter, NBSK list
prices in Europe, China and North America were approximately
$1,230, $910 and $1,330 per ADMT, respectively.
In the third quarter of 2018, we have 14 days of
scheduled maintenance downtime (which will reduce production by
approximately 14,800 ADMTs) at our Rosenthal mill and in the fourth
quarter of 2018, we have three days of scheduled maintenance
downtime (which will reduce production by approximately 5,700
ADMTs) at our Stendal mill.
Currently, the NBSK pulp market is generally
balanced with world producer inventories at about 28 days' supply.
Looking forward, we believe the new pulp production capacity that
has or is coming online will not materially adversely impact the
market in the near term as a result of continued steady demand
growth, producer downtime and continuing restrictions on the import
of recovered or waste paper in China. We also expect lumber markets
to moderately adjust from their multi-year highs in the near
term."
Mr. Gandossi concluded: "In addition, it has
been a year since we acquired the Friesau sawmill. In the last year
we have ramped up our lumber business ahead of plan, we are
realizing significant synergies between our solid wood and pulp
businesses, and Friesau is generating substantial value for
shareholders. I am also confident our upcoming targeted investments
in Friesau will generate additional value for our shareholders.
This quarter was highlighted by significant
investments in our assets, which were focused on increasing our
efficiency, productivity and lowering the risk of unplanned
downtime. These investments are consistent with our long-term value
creation strategy of leveraging our core competencies to deliver
results for shareholders from world-class assets and building a
platform for sustainable and profitable growth."
Quarterly DividendA quarterly
dividend of $0.125 per share will be paid on October 3, 2018 to all
shareholders of record on September 26, 2018. Future dividends will
be subject to Board approval and may be adjusted as business and
industry conditions warrant.
Summary Operating
Highlights
Pulp
Segment |
Q22018 |
|
Q12018 |
|
Q22017 |
|
YTD2018 |
|
YTD2017 |
Pulp production ('000
ADMTs) |
309.7 |
|
364.5 |
|
362.7 |
|
674.2 |
|
736.4 |
Annual maintenance
downtime ('000 ADMTs) |
55.4 |
|
‑ |
|
32.5 |
|
55.4 |
|
32.5 |
Annual maintenance
downtime (days) |
37 |
|
‑ |
|
22 |
|
37 |
|
22 |
Pulp sales ('000
ADMTs) |
338.3 |
|
367.1 |
|
388.8 |
|
705.4 |
|
763.9 |
Average NBSK pulp list
prices in Europe ($/ADMT)(1) |
1,200 |
|
1,097 |
|
880 |
|
1,148 |
|
852 |
Average NBSK pulp list
prices in China ($/ADMT)(1) |
910 |
|
910 |
|
670 |
|
910 |
|
658 |
Average NBSK pulp list
prices in North America ($/ADMT)(1) |
1,310 |
|
1,233 |
|
1,093 |
|
1,272 |
|
1,063 |
Average pulp sales
realizations ($/ADMT)(2) |
821 |
|
783 |
|
624 |
|
801 |
|
604 |
Energy production ('000
MWh) |
294.7 |
|
438.0 |
|
448.7 |
|
732.7 |
|
920.9 |
Energy sales ('000
MWh) |
84.6 |
|
175.7 |
|
193.5 |
|
260.3 |
|
396.1 |
Average energy sales
realizations ($/MWh) |
99 |
|
107 |
|
89 |
|
104 |
|
90 |
|
|
|
|
|
|
|
|
|
|
Wood Products
Segment |
|
|
|
|
|
|
|
|
|
Lumber production
(million board feet) |
112.0 |
|
103.3 |
|
67.5 |
|
215.3 |
|
67.5 |
Lumber sales (million
board feet) |
113.1 |
|
115.1 |
|
41.5 |
|
228.2 |
|
41.5 |
Average lumber sales
realizations ($/Mfbm) |
433 |
|
418 |
|
328 |
|
426 |
|
328 |
Energy production and
sales (‘000 MWh) |
25.6 |
|
20.6 |
|
24.0 |
|
46.2 |
|
24.0 |
Average energy sales
realizations ($/MWh) |
127 |
|
135 |
|
110 |
|
131 |
|
110 |
|
|
|
|
|
|
|
|
|
|
Average Spot
Currency Exchange Rates |
|
|
|
|
|
|
|
|
|
$ / €(3) |
1.1922 |
|
1.2289 |
|
1.1008 |
|
1.2103 |
|
1.0838 |
$ / C$(3) |
0.7750 |
|
0.7904 |
|
0.7438 |
|
0.7826 |
|
0.7496 |
|
|
|
|
|
|
|
|
|
|
_______________(1) Source: RISI pricing
report.(2) Sales realizations after customer discounts, rebates and
other selling concessions. Incorporates the effect of pulp price
variations occurring between the order and shipment dates.(3)
Average Federal Reserve Bank of New York Noon Buying Rates over the
reporting period.
Three Months Ended June 30, 2018
Compared to Three Months Ended June 30, 2017
Consolidated ‑ Three Months Ended June 30,
2018 Compared to Three Months Ended June 30, 2017
Total revenues for the three months ended June
30, 2018 increased by approximately 22% to $346.5 million from
$283.2 million in the same quarter of 2017 primarily due to a 32%
increase in pulp sales realizations and $37.6 million of higher
revenues from our wood products segment.
Costs and expenses in the current quarter
increased by approximately 17% to $309.1 million from $264.3
million in the second quarter of 2017 primarily due to costs
associated with a 66% increase in production in our wood products
segment and higher maintenance and per unit fiber costs partially
offset by the impact of lower pulp sales volumes.
In the second quarter of 2018, operating
depreciation and amortization increased to $22.9 million from $20.5
million in the same quarter of 2017 primarily due to the negative
impact of a weaker dollar on our euro and Canadian dollar
denominated depreciation expense.
Selling, general and administrative expenses
increased to $15.0 million in the second quarter of 2018 from $13.3
million in the same quarter of 2017 primarily due to the impact of
a higher share price on our stock compensation expense and the
negative impact of a weaker dollar.
In the second quarter of 2018, our operating
income increased by approximately 98% to $37.5 million from $18.9
million in the same quarter of 2017 as higher pulp sales
realizations more than offset lower energy and pulp sales volumes
and higher maintenance and per unit fiber costs.
Interest expense in the current quarter
decreased to $12.1 million from $13.3 million in the same quarter
of 2017 primarily as a result of a lower interest rate on our
outstanding senior notes.
During the second quarter of 2018, income tax
expense increased to $8.5 million from $7.8 million in the same
quarter of 2017 due to higher taxable income for our German
mills.
For the second quarter of 2018, our net income
increased to $16.8 million, or $0.26 per share, from a net loss of
$2.1 million, or $0.03 per share, in the same quarter of 2017.
In the second quarter of 2018, Operating EBITDA
increased by approximately 53% to $60.5 million from $39.5 million
in the same quarter of 2017 as higher pulp sales realizations more
than offset lower energy and pulp sales volumes and higher
maintenance and per unit fiber costs.
Operating Results by Business
Segment
None of the income or loss items following
operating income in our Interim Consolidated Statement of
Operations are allocated to our segments, since those items are
reviewed separately by management.
Pulp Segment ‑ Three Months Ended June 30,
2018 Compared to Three Months Ended June 30, 2017
Selected Financial Information
|
Three Months EndedJune
30, |
|
2018 |
|
2017 |
|
(in thousands) |
Pulp revenues |
$ |
279,939 |
|
$ |
244,684 |
Energy and chemical
revenues |
$ |
11,693 |
|
$ |
21,202 |
Depreciation and
amortization |
$ |
21,127 |
|
$ |
19,387 |
Operating income |
$ |
36,976 |
|
$ |
21,069 |
|
|
|
|
|
|
Pulp revenues in the second quarter of 2018
increased by approximately 14% to $279.9 million from $244.7
million in the same quarter of 2017 due to higher sales
realizations partially offset by lower sales volumes.
Energy and chemical revenues decreased by
approximately 45% to $11.7 million in the second quarter of 2018
from $21.2 million in the same quarter of 2017 due to lower
production as a result of the maintenance downtime.
Additionally, one of the turbines at the Stendal mill was taken
offline for a scheduled major maintenance in April and did not
resume service until late July 2018.
Pulp production decreased by approximately 15%
to 309,668 ADMTs in the current quarter from 362,665 ADMTs in the
same quarter of 2017. In the current quarter of 2018, we had an
aggregate of 37 days (approximately 55,400 ADMTs) of annual
maintenance downtime, of which 25 days (approximately 36,300 ADMTs)
was at our Celgar mill and 12 days (approximately 19,100 ADMTs) was
at our Stendal mill. The 25 days of maintenance downtime at the
Celgar mill included 11 unplanned days primarily to complete
additional identified maintenance inside the recovery boiler. This
contributed to a slower restart of the mill than planned. In the
second quarter of 2017, we had an aggregate of 22 days
(approximately 32,500 ADMTs) of annual maintenance downtime, of
which 20 days (approximately 28,700 ADMTs) was at our Celgar mill
and two days (approximately 3,800 ADMTs) was at our Stendal
mill.
We estimate that annual maintenance downtime in
the current quarter adversely impacted our operating income by
approximately $59.1 million, comprised of approximately $36.6
million in direct out-of-pocket expenses and the balance in reduced
production. Many of our competitors that report their financial
results using International Financial Reporting Standards
capitalize their direct costs of maintenance downtime.
Pulp sales volumes decreased by approximately
13% to 338,308 ADMTs in the current quarter from 388,792 ADMTs in
the same quarter of 2017 primarily due to lower production.
In the current quarter of 2018, list prices for
NBSK pulp increased from the same quarter of 2017, largely as a
result of overall steady demand. Average list prices for NBSK pulp
in Europe were approximately $1,200 per ADMT in the second quarter
of 2018 compared to approximately $880 per ADMT in the same quarter
of 2017. Average list prices for NBSK pulp in China and North
America were approximately $910 per ADMT and $1,310 per ADMT,
respectively, in the current quarter compared to approximately $670
per ADMT and $1,093 per ADMT, respectively, in the same quarter of
2017. NBSK pulp prices are cyclical and are at or near record
highs.
Average pulp sales realizations increased by
approximately 32% to $821 per ADMT in the second quarter of 2018
from approximately $624 per ADMT in the same quarter of 2017
primarily due to higher list prices.
As a result of the effect of the dollar
strengthening at the end of the current quarter against the euro
and Canadian dollar on our dollar denominated cash and receivables
held at our operations, we recorded a net overall positive impact
of approximately $1.5 million due to foreign exchange despite the
negative impact of a weaker dollar on costs and expenses during the
current quarter.
Costs and expenses for our pulp segment in the
current quarter increased by approximately 4% to $255.2 million
from $244.8 million in the second quarter of 2017 primarily due to
higher maintenance and per unit fiber costs partially offset by the
impact of lower sales volumes.
On average, in the current quarter overall per
unit fiber costs increased by approximately 19% from the same
quarter of 2017 primarily as a result of the negative impact of a
weaker dollar on our euro and Canadian dollar denominated fiber
costs and strong demand. In the current quarter low producer
inventories caused by unfavorable winter harvesting conditions and
strong demand resulted in the higher prices. We currently expect a
moderate decline in per unit fiber costs in the third quarter of
2018 as a result of improved harvesting conditions.
Transportation costs for our pulp segment
decreased by approximately 12% to $17.6 million in the current
quarter from $20.1 million in the same quarter of 2017 primarily
due to lower sales volumes.
In the second quarter of 2018, pulp segment
operating income increased by approximately 75% to $37.0 million
from $21.1 million in the same quarter of 2017 as higher pulp sales
realizations more than offset lower sales volumes, higher
maintenance costs and higher per unit fiber costs.
Wood Products Segment ‑ Three Months Ended
June 30, 2018 Compared to Three Months Ended June 30,
2017
Selected Financial Information
|
Three Months EndedJune
30, |
|
2018 |
|
2017 |
|
(in thousands) |
Lumber revenues |
$ |
48,991 |
|
$ |
13,593 |
Energy revenues |
$ |
3,255 |
|
$ |
2,645 |
Wood residual
revenues |
$ |
2,654 |
|
$ |
1,053 |
Depreciation and
amortization |
$ |
1,779 |
|
$ |
1,134 |
Operating income |
$ |
4,322 |
|
$ |
81 |
|
|
|
|
|
|
We entered into the wood products business on
April 12, 2017.
In the second quarter of 2018, lumber revenues
increased to $49.0 million from $13.6 million, due to higher sales
volume and higher sales realizations. In the current quarter
approximately 22% of sales volumes were in the U.S. market and
substantially all remaining sales were in Europe, which such sales
are generally made in euros.
Energy and wood residual revenues increased to
$5.9 million in the second quarter of 2018 from $3.7 million in the
same quarter of 2017 primarily due to higher sales volumes and the
positive impact of a weaker dollar on our euro denominated
revenues.
Production increased to 112.0 MMfbm of lumber in
the current quarter from 67.5 MMfbm in the same quarter of
2017.
Average lumber sales realizations increased by
approximately 32% to $433 per Mfbm in the second quarter of 2018
from approximately $328 per Mfbm in the same quarter of 2017
primarily due to higher prices in Europe and increased sales to the
U.S. where we realized higher sale prices.
Fiber costs are approximately 80% of our cash
production costs. In the current quarter per unit fiber costs
increased by approximately 17% from the same quarter of 2017
primarily as a result of the negative impact of a weaker dollar on
our euro denominated fiber costs and strong demand. In the current
quarter low producer inventories caused by unfavorable winter
harvesting conditions and strong demand resulted in higher prices.
We currently expect a moderate decline in per unit fiber costs in
the third quarter of 2018 as a result of improved harvesting
conditions.
Transportation costs for our wood products
segment increased to $5.9 million in the current quarter from $0.8
million in the same quarter of 2017 primarily due to higher sales
volumes and higher sales to the U.S.
In the second quarter of 2018, our wood products
segment operating income increased to $4.3 million from $0.1
million in the same quarter of 2017 primarily due to higher lumber
sales realizations partially offset by higher transportation and
per unit fiber costs.
Six Months Ended June 30, 2018 Compared
to Six Months Ended June 30, 2017
Consolidated ‑ Six Months Ended June 30, 2018
Compared to Six Months Ended June 30, 2017
Total revenues for the first half of 2018
increased by approximately 36% to $714.4 million from $526.0
million in the first half of 2017 primarily due to a 33% increase
in pulp sales realizations and the inclusion of an additional $91.3
million of wood products segment revenues.
Costs and expenses in the first half of 2018
increased by approximately 29% to $600.9 million from $465.8
million in the first half of 2017 primarily due to additional costs
and expenses from our wood products segment, the negative impact of
a weaker dollar on our euro denominated costs and expenses and
higher maintenance and per unit fiber costs partially offset by
lower pulp sales volumes.
In the first half of 2018, operating
depreciation and amortization increased to $46.1 million from $39.6
million in the same period of 2017 primarily due to the negative
impact of a weaker dollar on our euro denominated depreciation
expense and the inclusion of depreciation for the wood products
segment for the full period.
Selling, general and administrative expenses
increased to $29.4 million in the first half of 2018 from $23.0
million in the same period of 2017 primarily due to the inclusion
of our wood products segment for the full period and the negative
impact of a weaker dollar.
In the first half of 2018, operating income
increased by approximately 89% to $113.5 million from $60.2 million
in the same period of 2017 as higher pulp sales realizations more
than offset lower energy and pulp sales volumes, the negative
impact of a weaker dollar on our euro denominated costs and
expenses and higher maintenance and per unit fiber costs.
In December 2017, we issued $300.0 million of
5.50% senior notes due 2026, referred to as the "2026 Senior Notes"
and, on January 5, 2018, we utilized the proceeds, together with
cash on hand, to redeem $300.0 million of our 7.75% senior notes
due 2022 at a cost, including premium, of $317.4 million and
recorded a loss on such redemption of $21.5 million (being $0.33
per share).
Interest expense in the first half of 2018
decreased to $24.2 million from $27.2 million in the same period of
2017 primarily as a result of a lower interest rate on our
outstanding senior notes.
In the first half of 2018, we recognized an
expense of $7.0 million, or $0.11 per share, in connection with the
legal cost award made by the tribunal in our claim against the
Government of Canada under the North American Free Trade Agreement,
referred to as "NAFTA".
During the first half of 2018, income tax
expense increased to $18.0 million from $15.3 million in the same
period of 2017 due to higher taxable income for our German
mills.
For the first half of 2018, after giving effect
to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted
share, for the redemption of senior notes and the NAFTA legal cost
award, our net income increased to $42.4 million, or $0.65 per
share, from $7.6 million, or $0.12 per share, after giving effect
to costs of $10.7 million for the redemption of senior notes in the
same period of 2017.
In the first half of 2018, Operating EBITDA
increased by approximately 60% to $159.9 million from $100.1
million in the same period of 2017 as higher pulp sales
realizations more than offset lower energy and pulp sales volumes,
the negative impact of a weaker dollar relative to the euro and
higher maintenance and per unit fiber costs.
Liquidity and Capital
ResourcesThe following table is a summary of our cash
flows for the periods indicated:
|
Six Months EndedJune
30, |
|
|
2018 |
|
2017 |
|
|
(in thousands) |
Net cash from operating
activities |
$ |
162,122 |
|
$ |
69,470 |
|
Net cash used in
investing activities |
|
(45,092 |
) |
|
(89,862 |
) |
Net cash from financing
activities |
|
18,453 |
(1) |
|
17,705 |
|
Effect of exchange rate
changes on cash, cash equivalents and restricted cash |
|
(9,300 |
) |
|
6,434 |
|
Net increase in cash,
cash equivalents and restricted cash |
$ |
126,183 |
|
$ |
3,747 |
|
|
|
|
|
|
|
|
_________________________(1) Excludes restricted cash of
$317.4 million used for the redemption of 2022 Senior Notes.
The following table is a summary of selected
financial information as at the dates indicated:
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
(in thousands) |
|
Financial Position |
|
|
|
|
|
|
Cash
and cash equivalents |
$ |
269,482 |
|
$ |
143,299 |
(1) |
Working capital |
$ |
473,092 |
|
$ |
421,873 |
|
Total
assets |
$ |
1,522,389 |
|
$ |
1,407,271 |
(1) |
Long-term liabilities |
$ |
795,416 |
|
$ |
743,578 |
|
Total
equity |
$ |
538,502 |
|
$ |
550,666 |
|
_________________________(1) Excludes restricted cash of $317.4
million used for the redemption of 2022 Senior Notes.
As at June 30, 2018, we had approximately $153.2
million available under our revolving credit facilities.
Earnings Release CallIn
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
July 27, 2018 at 10:00 AM (Eastern Daylight Time). Listeners can
access the conference call live and archived for 30 days over the
Internet at edge.media-server.com/m6/p/cxqhhomm or through a
link on the company's home page at www.mercerint.com. Please allow
15 minutes prior to the call to visit the site and download and
install any necessary audio software.
Mercer International Inc. is a global forest
products company with operations in Germany and Canada with
consolidated annual production capacity of 1.5 million tonnes of
NBSK pulp and 550 million board feet of lumber. 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. Words such as "expects",
"anticipates", "projects", "intends", "designed", "will",
"believes", "estimates", "may", "could" and variations of such
words and similar expressions are intended to identify such
forward-looking statements. 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.
APPROVED BY:
Jimmy S.H. LeeExecutive Chairman(604)
684-1099
David M. GandossiChief Executive Officer (604)
684-1099
-FINANCIAL TABLES FOLLOW-
|
MERCER INTERNATIONAL INC. |
INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS |
(Unaudited) |
(In thousands, except per share
data) |
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
Revenues |
$ |
346,532 |
|
|
$ |
283,177 |
|
|
$ |
714,435 |
|
|
$ |
525,961 |
|
Costs and expenses |
|
|
|
|
|
|
|
Operating
costs, excluding depreciation and amortization |
271,134 |
|
|
230,534 |
|
|
525,419 |
|
|
403,130 |
|
Operating
depreciation and amortization |
22,906 |
|
|
20,521 |
|
|
46,115 |
|
|
39,637 |
|
Selling,
general and administrative expenses |
15,016 |
|
|
13,259 |
|
|
29,377 |
|
|
22,985 |
|
Operating income |
37,476 |
|
|
18,863 |
|
|
113,524 |
|
|
60,209 |
|
|
|
|
|
|
|
|
|
Other income
(expenses) |
|
|
|
|
|
|
|
Interest
expense |
(12,128 |
) |
|
(13,320 |
) |
|
(24,243 |
) |
|
(27,199 |
) |
Loss on
settlement of debt |
— |
|
|
— |
|
|
(21,515 |
) |
|
(10,696 |
) |
Legal
cost award |
— |
|
|
— |
|
|
(6,951 |
) |
|
— |
|
Other
income (expenses) |
(132 |
) |
|
137 |
|
|
(369 |
) |
|
573 |
|
Total other
expenses |
(12,260 |
) |
|
(13,183 |
) |
|
(53,078 |
) |
|
(37,322 |
) |
Income before provision
for income taxes |
25,216 |
|
|
5,680 |
|
|
60,446 |
|
|
22,887 |
|
Provision for income
taxes |
(8,461 |
) |
|
(7,784 |
) |
|
(18,042 |
) |
|
(15,265 |
) |
Net income (loss) |
$ |
16,755 |
|
|
$ |
(2,104 |
) |
|
$ |
42,404 |
|
|
$ |
7,622 |
|
|
|
|
|
|
|
|
|
Net income
(loss) per common share |
Basic and
diluted |
$ |
0.26 |
|
|
$ |
(0.03 |
) |
|
$ |
0.65 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
Dividends declared per
common share |
$ |
0.125 |
|
|
$ |
0.115 |
|
|
$ |
0.250 |
|
|
$ |
0.230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
MERCER INTERNATIONAL INC. |
INTERIM CONSOLIDATED BALANCE
SHEETS |
(Unaudited) |
(In thousands, except share and per share
data) |
|
|
|
|
|
June 30, |
|
December 31, |
|
2018 |
|
2017 |
ASSETS |
|
|
|
Current assets |
|
|
|
Cash and
cash equivalents |
$ |
269,482 |
|
|
$ |
143,299 |
|
Restricted cash to redeem senior notes |
— |
|
|
317,439 |
|
Accounts
receivable |
190,807 |
|
|
206,027 |
|
Inventories |
189,233 |
|
|
176,601 |
|
Prepaid
expenses and other |
12,041 |
|
|
8,973 |
|
Total current
assets |
661,563 |
|
|
852,339 |
|
|
|
|
|
Property,
plant and equipment, net |
836,116 |
|
|
844,848 |
|
Intangible and other assets |
23,299 |
|
|
26,147 |
|
Deferred
income tax |
1,411 |
|
|
1,376 |
|
Total assets |
$ |
1,522,389 |
|
|
$ |
1,724,710 |
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
Current
liabilities |
|
|
|
Accounts
payable and other |
$ |
187,532 |
|
|
$ |
133,557 |
|
Pension
and other post-retirement benefit obligations |
939 |
|
|
985 |
|
Senior
notes to be redeemed with restricted cash |
— |
|
|
295,924 |
|
Total current
liabilities |
188,471 |
|
|
430,466 |
|
|
|
|
|
Debt |
699,261 |
|
|
662,997 |
|
Pension
and other post-retirement benefit obligations |
21,579 |
|
|
21,156 |
|
Capital
leases and other |
37,671 |
|
|
27,464 |
|
Deferred
income tax |
36,905 |
|
|
31,961 |
|
Total liabilities |
983,887 |
|
|
1,174,044 |
|
|
|
|
|
Shareholders'
equity |
|
|
|
Common
shares $1 par value; 200,000,000 authorized;
65,202,000 issued and outstanding (2017 –
65,017,000) |
65,171 |
|
|
64,974 |
|
Additional paid-in capital |
340,450 |
|
|
338,695 |
|
Retained
earnings |
232,105 |
|
|
205,998 |
|
Accumulated other comprehensive loss |
(99,224 |
) |
|
(59,001 |
) |
Total shareholders'
equity |
538,502 |
|
|
550,666 |
|
Total liabilities and
shareholders' equity |
$ |
1,522,389 |
|
|
$ |
1,724,710 |
|
|
|
|
|
|
|
|
|
(2)
|
MERCER INTERNATIONAL INC. |
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(Unaudited) |
(In thousands) |
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Cash flows from (used
in) operating activities |
|
|
|
|
|
|
|
Net
income (loss) |
$ |
16,755 |
|
|
$ |
(2,104 |
) |
|
$ |
42,404 |
|
|
$ |
7,622 |
|
Adjustments to reconcile net income (loss) to cash flows from
operating activities |
|
|
|
|
Depreciation and amortization |
23,014 |
|
|
20,625 |
|
|
46,333 |
|
|
39,846 |
|
Deferred
income tax provision |
1,204 |
|
|
4,196 |
|
|
6,016 |
|
|
8,405 |
|
Loss on
settlement of debt |
— |
|
|
— |
|
|
21,515 |
|
|
10,696 |
|
Defined
benefit pension plan and other post-retirement benefit plan
expense |
432 |
|
|
540 |
|
|
871 |
|
|
1,066 |
|
Stock
compensation expense |
1,759 |
|
|
912 |
|
|
1,952 |
|
|
751 |
|
Other |
1,311 |
|
|
(153 |
) |
|
2,131 |
|
|
525 |
|
Defined
benefit pension plan and other post-retirement benefit plan
contributions |
(60 |
) |
|
(319 |
) |
|
(105 |
) |
|
(851 |
) |
Changes
in working capital |
|
|
|
|
|
|
|
Accounts
receivable |
13,475 |
|
|
(37,426 |
) |
|
8,343 |
|
|
(43,714 |
) |
Inventories |
(12,221 |
) |
|
(5,294 |
) |
|
(19,043 |
) |
|
4,131 |
|
Accounts
payable and accrued expenses |
36,906 |
|
|
36,954 |
|
|
54,933 |
|
|
43,835 |
|
Other |
3,170 |
|
|
(1,846 |
) |
|
(3,228 |
) |
|
(2,842 |
) |
Net cash
from (used in) operating activities |
85,745 |
|
|
16,085 |
|
|
162,122 |
|
|
69,470 |
|
|
|
|
|
|
|
|
|
Cash flows from (used
in) investing activities |
|
|
|
|
|
|
|
Purchase
of property, plant and equipment |
(28,655 |
) |
|
(19,743 |
) |
|
(44,839 |
) |
|
(27,907 |
) |
Purchase
of intangible assets |
(153 |
) |
|
(165 |
) |
|
(320 |
) |
|
(405 |
) |
Acquisition of Friesau Facility |
— |
|
|
(61,627 |
) |
|
— |
|
|
(61,627 |
) |
Other |
67 |
|
|
77 |
|
|
67 |
|
|
77 |
|
Net cash
from (used in) investing activities |
(28,741 |
) |
|
(81,458 |
) |
|
(45,092 |
) |
|
(89,862 |
) |
|
|
|
|
|
|
|
|
Cash flows from (used
in) financing activities |
|
|
|
|
|
|
|
Redemption of senior notes |
— |
|
|
— |
|
|
(317,439 |
) |
|
(234,945 |
) |
Proceeds
from issuance of notes |
— |
|
|
— |
|
|
— |
|
|
250,000 |
|
Proceeds
from revolving credit facilities, net |
17,665 |
|
|
26,525 |
|
|
37,736 |
|
|
26,525 |
|
Dividend
payments |
(8,147 |
) |
|
(7,472 |
) |
|
(16,274 |
) |
|
(14,912 |
) |
Payment
of interest rate derivative liability |
— |
|
|
(3,789 |
) |
|
— |
|
|
(3,789 |
) |
Payment
of debt issuance costs |
— |
|
|
(1,008 |
) |
|
(1,390 |
) |
|
(6,132 |
) |
Other |
(771 |
) |
|
1,879 |
|
|
(1,619 |
) |
|
958 |
|
Net cash
from (used in) financing activities |
8,747 |
|
|
16,135 |
|
|
(298,986 |
) |
|
17,705 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash, cash equivalents and restricted cash |
(9,835 |
) |
|
5,916 |
|
|
(9,300 |
) |
|
6,434 |
|
Net increase (decrease)
in cash, cash equivalents and restricted cash |
55,916 |
|
|
(43,322 |
) |
|
(191,256 |
) |
|
3,747 |
|
Cash, cash equivalents
and restricted cash, beginning of period |
213,566 |
|
|
187,965 |
|
|
460,738 |
|
|
140,896 |
|
Cash, cash equivalents
and restricted cash, end of period |
$ |
269,482 |
|
|
$ |
144,643 |
|
|
$ |
269,482 |
|
|
$ |
144,643 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow
disclosure |
|
|
|
|
|
|
|
Cash paid
for interest |
$ |
4,424 |
|
|
$ |
16,425 |
|
|
$ |
15,696 |
|
|
$ |
20,881 |
|
Cash paid
for income taxes |
$ |
2,742 |
|
|
$ |
2,677 |
|
|
$ |
4,220 |
|
|
$ |
5,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING
EBITDA(Unaudited)(In thousands of
U.S. dollars)
Operating EBITDA is defined as operating income
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 our 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 from operations as a measure of performance, nor as an
alternative to net cash from operating activities as a measure of
liquidity. The following tables set forth the net income
(loss) to Operating EBITDA:
|
Q22018 |
|
Q12018 |
|
Q22017 |
|
YTD2018 |
|
YTD2017 |
|
Net income (loss) |
$ |
16,755 |
|
$ |
25,649 |
|
$ |
(2,104 |
) |
$ |
42,404 |
|
$ |
7,622 |
|
Provision for income
taxes |
|
8,461 |
|
|
9,581 |
|
|
7,784 |
|
|
18,042 |
|
|
15,265 |
|
Interest expense |
|
12,128 |
|
|
12,115 |
|
|
13,320 |
|
|
24,243 |
|
|
27,199 |
|
Loss on settlement of
debt |
|
‑ |
|
|
21,515 |
|
|
‑ |
|
|
21,515 |
|
|
10,696 |
|
Legal cost award |
|
‑ |
|
|
6,951 |
|
|
‑ |
|
|
6,951 |
|
|
‑ |
|
Other (income)
expenses |
|
132 |
|
|
237 |
|
|
(137 |
) |
|
369 |
|
|
(573 |
) |
Operating income |
|
37,476 |
|
|
76,048 |
|
|
18,863 |
|
|
113,524 |
|
|
60,209 |
|
Add: Depreciation and
amortization |
|
23,014 |
|
|
23,319 |
|
|
20,625 |
|
|
46,333 |
|
|
39,846 |
|
Operating EBITDA |
$ |
60,490 |
|
$ |
99,367 |
|
$ |
39,488 |
|
$ |
159,857 |
|
$ |
100,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
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