The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. (Mercer Inc.) and
all of its subsidiaries (collectively the Company). The Companys shares of common stock are quoted and listed for trading on the NASDAQ Global Market.
The Interim Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the United States
Securities and Exchange Commission (the SEC). The
year-end
Consolidated Balance Sheet data was derived from audited financial statements. The footnote disclosure included herein has been prepared
in accordance with accounting principles generally accepted for interim financial statements in the United States (GAAP). The unaudited Interim Consolidated Financial Statements should be read together with the audited Consolidated
Financial Statements and accompanying notes included in the Companys latest Annual Report on
Form 10-K
for the fiscal year ended December 31, 2017. In the opinion of the Company, the unaudited
Interim Consolidated Financial Statements contained herein contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for
the entire year.
In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United
States dollars (U.S. dollars or $). The symbol refers to euros and the symbol C$ refers to Canadian dollars.
Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, pension and other post-retirement benefit obligations, deferred income
taxes (valuation allowance and permanent reinvestment), depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, the allocation of the purchase price in a business combination to the assets acquired
and liabilities assumed, legal liabilities and contingencies. Actual results could differ materially from these estimates, and changes in these estimates are recorded when known.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
2014-09,
Revenue Recognition Revenue from Contracts with Customers that requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially
all risks and rewards of a good or service. Additionally, the update provides presentation and disclosure requirements which are more detailed in regards to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers. The Company adopted this standard as at January 1, 2018 using the modified retrospective method. The new standard does not change the timing of when the Company recognizes revenue as the majority of the Companys revenue
arises from contracts with customers in which the sale of goods is the main performance obligation. The Companys revised revenue recognition disclosure has been included in the Significant Accounting Policies and the Business Segment
Information Note.
In January 2018, the FASB released guidance on the
accounting for tax on the global intangible
low-taxed
income (GILTI) provisions of the Tax Cuts and Jobs Act (the Act). The GILTI provisions impose a tax on foreign income in excess of
a deemed return on tangible assets of foreign corporations. The Company has elected to treat any potential GILTI inclusions as a period cost.
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the
transfer of control of the products sold. Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when the Company has the right to payment, the customer has legal title to the asset and the
customer has the risks of ownership. Payment terms are defined in the contract and payment is typically due within three months after control has transferred to the customer. The contracts do not have a significant financing component.
The Company has elected to exclude value added, sales and other taxes it collects concurrent with revenue-producing activities from revenues.
The Company may arrange shipping and handling activities as part of the sale of its products.
The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of the product as a fulfillment cost rather than as an additional promised service.
The following is a description of the principal activities from which the Company generates its revenues. For a breakdown of revenues by
product and geographic location see the Business Segment Information Note.
For European sales sent by truck or train from the mills directly to the customer, the contracted sales terms are such that control transfers
once the truck or train leaves the mill. For orders sent by ocean freighter, the contract terms state that control transfers at the time the product passes the ships rail. For North American sales shipped by truck or train, the contracts state that
control transfers once the truck or train has arrived at the customers specified location.
The transaction price is included in the
sales contract and is net of customer discounts, rebates and other selling concessions.
The Companys pulp sales are to tissue and
paper producers and the Companys lumber sales are to manufacturers and retailers. The Companys sales to Europe and North America are direct to the customer. The Companys pulp sales to overseas customers are primarily through third
party sales agents and the Companys lumber sales to overseas customers are either direct to the customer or through third party sales agents.
Energy sales are to utility companies in Canada and Germany. Sales of energy are recognized as the electricity is consumed by the customer and
is based on contractual usage rates and meter readings that measure electricity consumption.
Chemicals and wood residuals are sold into
the European market direct to the customer and have shipping terms where control transfers once the chemicals or wood residuals are loaded onto the truck at the mill.
Note 4. Debt
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
2022 Senior Notes, principal amount, $100,000 (a)
|
|
$
|
98,780
|
|
|
$
|
394,565
|
|
2024 Senior Notes, principal amount, $250,000 (a)
|
|
|
245,776
|
|
|
|
245,398
|
|
2026 Senior Notes, principal amount, $300,000 (a)
|
|
|
294,203
|
|
|
|
293,773
|
|
Revolving credit facilities
|
|
|
|
|
|
|
|
|
75.0 million (b)
|
|
|
|
|
|
|
|
|
C$40.0 million (c)
|
|
|
|
|
|
|
|
|
70.0 million (d)
|
|
|
34,974
|
|
|
|
25,185
|
|
5.0 million (e)
|
|
|
|
|
|
|
|
|
25.0 million (f)
|
|
|
25,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
699,261
|
|
|
$
|
958,921
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2018, the maturities of the principal portion of debt are as follows:
|
|
|
|
|
2018
|
|
|
|
|
|
$
|
|
|
2019
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
25,528
|
|
2021
|
|
|
|
|
|
|
|
|
2022
|
|
|
|
|
|
|
134,974
|
|
Thereafter
|
|
|
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
710,502
|
|
|
|
|
|
|
|
|
|
|
Certain of the Companys debt instruments were issued under agreements which, among other things, may
limit its ability and the ability of its subsidiaries to make certain payments, including dividends. These limitations are subject to specific exceptions. As at June 30, 2018, the Company is in compliance with the terms of its debt agreements.
(a)
|
On December 20, 2017, the Company issued $300,000 in aggregate principal amount of 5.50% senior notes
which mature on January 15, 2026 (2026 Senior Notes). The 2026 Senior Notes were issued at a price of 100.00% of their principal amount. The net proceeds of the offering were $293,795, after deducting the underwriters discount
and offering expenses.
|
In January 2018, the Company used the net proceeds, together with cash on hand,
to redeem $300,000 in aggregate principal amount of 2022 Senior Notes (herein defined below). In connection with this redemption the Company recorded a loss on settlement of debt of $21,515 in the Interim Consolidated Statement of Operations. As at
December 31, 2017, the total cash used to redeem the 2022 Senior Notes was classified as restricted cash and the carrying value of the 2022 Senior Notes was classified as a current liability in the Consolidated Balance Sheet.
On February 3, 2017, the Company issued $225,000 in aggregate principal amount of 6.50% senior notes which mature on
February 1, 2024 (2024 Senior Notes) and on March 16, 2017, the Company issued an additional $25,000 in aggregate principal amount of its 2024 Senior Notes. The 2024 Senior Notes were issued at a price of 100.00% of their
principal amount. The net proceeds of the offerings were $244,711, after deducting the underwriters discount and offering expenses. The net proceeds from the 2024 Senior Notes, together with cash on hand, were used to redeem $227,000 of
remaining aggregate principal amount of outstanding senior notes due 2019, to finance the acquisition of a German sawmill and
bio-mass
power plant near Friesau Germany (the Friesau Facility) and
for general working capital purposes. In connection with the redemption the Company recorded a loss on settlement of debt of $10,696 in the Interim Consolidated Statement of Operations.
FORM 10-Q
QUARTERLY REPORT - PAGE 9
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 4. Debt (continued)
On November 26, 2014, the Company issued $400,000 in aggregate principal
amount of 7.75% senior notes which mature on December 1, 2022 (2022 Senior Notes and collectively with the 2024 Senior Notes and 2026 Senior Notes, the Senior Notes).
The Senior Notes are general unsecured senior obligations of the Company. They rank equal in right of payment with all
existing and future unsecured senior indebtedness of the Company and are senior in right of payment to any current or future subordinated indebtedness of the Company. The Senior Notes are effectively junior in right of payment to all existing and
future secured indebtedness, to the extent of the assets securing such indebtedness, and all indebtedness and liabilities of the Companys subsidiaries.
The Company may redeem all or a part of the 2026 Senior Notes, upon not less than 10 days or more than 60 days
notice, at the redemption prices (expressed as percentages of principal amount) discussed below, plus accrued and unpaid interest to (but not including) the applicable redemption date. The Company may redeem all or a part of the 2024 Senior Notes or
2022 Senior Notes, upon not less than 30 days or more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) discussed below, plus accrued and unpaid interest to (but not including) the applicable
redemption date. The 2026 Senior Notes redemption prices are equal to 102.750% for the twelve month period beginning on January 15, 2021, 101.375% for the twelve month period beginning on January 15, 2022, and 100.000% beginning on
January 15, 2023 and at any time thereafter. The 2024 Senior Notes redemption prices are equal to 103.250% for the twelve month period beginning on February 1, 2020, 101.625% for the twelve month period beginning on February 1, 2021,
and 100.000% beginning on February 1, 2022 and at any time thereafter. The 2022 Senior Notes redemption prices are equal to 105.813% for the twelve month period beginning on December 1, 2017, 103.875% for the twelve month period beginning
on December 1, 2018, 101.938% for the twelve month period beginning on December 1, 2019, and 100.000% beginning on December 1, 2020 and at any time thereafter.
(b)
|
A 75.0 million revolving credit facility at the Stendal mill that matures in October 2019.
Borrowings under the facility are collateralized by the mills inventory and accounts receivable and bear interest at Euribor plus 3.50%. As at June 30, 2018, approximately 2.2 million ($2,592) of this facility was supporting
bank guarantees leaving approximately 72.8 million ($84,843) available.
|
(c)
|
A C$40.0 million revolving credit facility at the Celgar mill that matures in May 2019. Borrowings under
the facility are collateralized by the mills inventory and accounts receivable and are restricted by a borrowing base calculated on the mills inventory and accounts receivable. Canadian dollar denominated amounts bear interest at bankers
acceptance plus 1.50% or Canadian prime. U.S. dollar denominated amounts bear interest at LIBOR plus 1.50% or U.S. base. As at June 30, 2018, approximately C$1.7 million ($1,290) was supporting letters of credit and approximately
C$38.3 million ($29,086) was available.
|
In July 2018, the Company amended the credit facility
including extending its maturity date to July 2023 and reducing the applicable margin on interest rates for Canadian and U.S. dollar denominated balances by 0.25% when the remaining borrowing capacity is greater than or equal to 25% of the total
facility.
(d)
|
A 70.0 million joint revolving credit facility that matures in April 2022. The Rosenthal mill has
full access to the available amount under the facility and the Companys wholly owned subsidiary, Mercer Timber Products GmbH has access to a maximum of 45.0 million. Borrowings under the facility are collateralized by the
borrowers inventory and accounts receivable and bear interest at Euribor plus 2.95%. As at June 30, 2018, approximately 30.0 million ($34,974) of this facility was drawn and accruing interest at a rate of 2.95% and
approximately 11.6 million ($13,478) of this facility was supporting bank guarantees leaving approximately 28.4 million ($33,154) available.
|
FORM 10-Q
QUARTERLY REPORT - PAGE 10
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 4. Debt (continued)
(e)
|
A 5.0 million revolving credit facility at the Rosenthal mill that matures in December 2018.
Borrowings under this facility bear interest at the rate of the three-month Euribor plus 2.50% and are secured by certain land at the Rosenthal mill. As at June 30, 2018 approximately 2.6 million ($2,975) of this facility was
supporting bank guarantees leaving approximately 2.4 million ($2,854) available.
|
(f)
|
A 25.0 million revolving credit facility for the Companys wholly owned German subsidiary,
Mercer Holz GmbH (Mercer Holz), that matures in February 2020. Borrowings under this facility bear interest at Euribor plus 3.30% and are secured by Mercer Holzs inventory and accounts receivable. As at June 30, 2018,
approximately 21.9 million ($25,528) of this facility was drawn and accruing interest at a rate of 3.30% and approximately 0.3 million ($373) of this facility was supporting bank guarantees leaving approximately
2.8 million ($3,244) available.
|
Note 5. Pension and Other Post-Retirement Benefit Obligations
Defined Benefit Plans
Included in pension and other post-retirement benefit obligations are amounts related to the Companys Celgar and Rosenthal mills. The
largest component of these obligations is with respect to the Celgar mill which maintains a defined benefit pension plan and other post-retirement benefit plans for certain employees (the Celgar Defined Benefit Plans).
Pension benefits are based on employees earnings and years of service. The Celgar Defined Benefit Plans are funded by contributions from
the Company based on actuarial estimates and statutory requirements.
The components of the net benefit costs relating to the Celgar
Defined Benefit Plans for the three and six month periods ended June 30, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Pension
|
|
|
Other Post-
Retirement
Benefits
|
|
|
Pension
|
|
|
Other Post-
Retirement
Benefits
|
|
Service cost
|
|
$
|
26
|
|
|
$
|
117
|
|
|
$
|
23
|
|
|
$
|
141
|
|
Interest cost
|
|
|
317
|
|
|
|
178
|
|
|
|
324
|
|
|
|
229
|
|
Expected return on plan assets
|
|
|
(384)
|
|
|
|
|
|
|
|
(486)
|
|
|
|
|
|
Amortization of unrecognized items
|
|
|
230
|
|
|
|
(52)
|
|
|
|
270
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
189
|
|
|
$
|
243
|
|
|
$
|
131
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 11
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 5. Pension and Other Post-Retirement Benefit Obligations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Pension
|
|
|
Other Post-
Retirement
Benefits
|
|
|
Pension
|
|
|
Other Post-
Retirement
Benefits
|
|
Service cost
|
|
$
|
52
|
|
|
$
|
237
|
|
|
$
|
46
|
|
|
$
|
284
|
|
Interest cost
|
|
|
640
|
|
|
|
360
|
|
|
|
652
|
|
|
|
461
|
|
Expected return on plan assets
|
|
|
(777)
|
|
|
|
|
|
|
|
(979)
|
|
|
|
|
|
Amortization of unrecognized items
|
|
|
464
|
|
|
|
(105)
|
|
|
|
527
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
379
|
|
|
$
|
492
|
|
|
$
|
246
|
|
|
$
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Contribution Plan
Effective December 31, 2008, the Celgar Defined Benefit Plans were closed to new members. In addition, the defined benefit service
accrual ceased on December 31, 2008, and members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan effective January 1, 2009. During the three and six month periods ended June 30,
2018, the Company made contributions of $217 and $435, respectively (2017 $192 and $459), to this plan.
Multiemployer Plan
The Company participates in a multiemployer plan for the hourly-paid employees at the Celgar mill. The contributions to the plan are
determined based on a percentage of pensionable earnings pursuant to a collective bargaining agreement. The Company has no current or future contribution obligations in excess of the contractual contributions. During the three and six month periods
ended June 30, 2018, the Company made contributions of $658 and $1,145, respectively (2017 $568 and $1,046), to this plan.
FORM 10-Q
QUARTERLY REPORT - PAGE 12
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 6. Income Taxes
The income tax provision attributable to income before provision for income taxes in the Interim Consolidated Statements of Operations differs
from the amounts computed by applying the U.S. Federal statutory income tax rate of 21% (2017 - 35%) for the three and six month periods ended June 30, 2018 and 2017 as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
U.S. Federal statutory rate
|
|
|
21%
|
|
|
|
35%
|
|
|
|
21%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal statutory rate on income before provision for income taxes
|
|
$
|
(5,296)
|
|
|
$
|
(1,988)
|
|
|
$
|
(12,694)
|
|
|
$
|
(8,010)
|
|
Tax differential on foreign income
|
|
|
(2,639)
|
|
|
|
550
|
|
|
|
(7,228)
|
|
|
|
2,967
|
|
Effect of foreign earnings
|
|
|
(5,740)
|
|
|
|
|
|
|
|
(8,457)
|
|
|
|
|
|
Change in undistributed earnings
|
|
|
|
|
|
|
(2,983)
|
|
|
|
|
|
|
|
(5,465)
|
|
Valuation allowance
|
|
|
3,773
|
|
|
|
(5,200)
|
|
|
|
22,018
|
|
|
|
(9,354)
|
|
Tax benefit of partnership structure
|
|
|
1,380
|
|
|
|
1,230
|
|
|
|
2,277
|
|
|
|
2,446
|
|
Non-taxable
foreign subsidies
|
|
|
732
|
|
|
|
550
|
|
|
|
1,488
|
|
|
|
1,109
|
|
True-up
of prior year taxes
|
|
|
(426)
|
|
|
|
(490)
|
|
|
|
(14,493)
|
|
|
|
(110)
|
|
Foreign exchange on valuation allowance
|
|
|
(352)
|
|
|
|
926
|
|
|
|
(674)
|
|
|
|
1,163
|
|
Foreign exchange on settlement of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550
|
|
Other
|
|
|
107
|
|
|
|
(379)
|
|
|
|
(279)
|
|
|
|
(561)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,461)
|
|
|
$
|
(7,784)
|
|
|
$
|
(18,042)
|
|
|
$
|
(15,265)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax provision
|
|
$
|
(7,257)
|
|
|
$
|
(3,588)
|
|
|
$
|
(12,026)
|
|
|
$
|
(6,860)
|
|
Deferred income tax provision
|
|
|
(1,204)
|
|
|
|
(4,196)
|
|
|
|
(6,016)
|
|
|
|
(8,405)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,461)
|
|
|
$
|
(7,784)
|
|
|
$
|
(18,042)
|
|
|
$
|
(15,265)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three month period ended June 30, 2018, the Company amended previously filed tax returns with
the Canadian tax authorities. As a result, the Company reversed its unrecognized tax benefit of $16,677 recorded during the three month period ended March 31, 2018 and increased its
true-up
of prior year
taxes. The liability related to the amendment is fully offset by a reduction in the valuation allowance and the Company did not incur any interest or penalties.
The Act enacted on December 22, 2017 resulted in substantial changes including reducing the U.S. federal corporate income tax rate from
35% to 21% and requiring companies to pay a
one-time
transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Company applied the guidance in Staff Accounting Bulletin
No. 118 and at December 31, 2017 calculated its best estimate of the impact of the Act in its year end income tax provision. During the three and six month periods ended June 30, 2018, the Company did not record any measurement period
adjustments to the provisional estimates recorded at December 31, 2017. Final accounting for these impacts is expected in the third quarter of 2018 subsequent to the Companys completion of the 2017 tax return.
FORM 10-Q
QUARTERLY REPORT - PAGE 13
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 7. Net Income (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(1)
|
|
|
65,140,802
|
|
|
|
64,945,675
|
|
|
|
65,095,788
|
|
|
|
64,857,300
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units (PSUs)
|
|
|
520,920
|
|
|
|
|
|
|
|
506,475
|
|
|
|
438,204
|
|
Restricted shares
|
|
|
20,959
|
|
|
|
|
|
|
|
26,737
|
|
|
|
22,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
65,682,681
|
|
|
|
64,945,675
|
|
|
|
65,629,000
|
|
|
|
65,318,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three and six month periods ended June 30, 2018, the basic weighted average number of common shares
outstanding excludes 31,130 restricted shares which have been issued, but have not vested as at June 30, 2018 (2017 43,635 restricted shares).
|
The calculation of diluted net income (loss) per common share does not assume the exercise of any instruments that would have an anti-dilutive
effect on net income (loss) per common share. The following table summarizes the instruments excluded from the calculation of net income (loss) per common share because they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
PSUs
|
|
|
|
|
|
|
1,953,308
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
43,635
|
|
|
|
|
|
|
|
|
|
Note 8. Shareholders Equity
Dividends
During the six month period ended
June 30, 2018, the Companys Board of Directors declared the following quarterly dividends:
|
|
|
|
|
|
|
|
|
Date Declared
|
|
Dividend Per
Common Share
|
|
Amount
|
February 15, 2018
|
|
$
|
0.125
|
|
|
$
|
8,147
|
|
May 3, 2018
|
|
|
0.125
|
|
|
|
8,150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.250
|
|
|
$
|
16,297
|
|
|
|
|
|
|
|
|
|
|
Dividends are paid in the quarter subsequent to the quarter in which they were declared.
In July 2018, the Companys Board of Directors declared a quarterly dividend of $0.125 per common share. Payment of the dividend will be
made on October 3, 2018 to all shareholders of record on September 26, 2018. Future dividends are subject to approval by the Board of Directors and may be adjusted as business and industry conditions warrant.
FORM 10-Q
QUARTERLY REPORT - PAGE 14
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 8. Shareholders Equity (continued)
Stock Based Compensation
In June 2010, the Company adopted a stock incentive plan which provides for options, restricted stock rights, restricted shares, performance
shares, PSUs and stock appreciation rights to be awarded to employees, consultants and
non-employee
directors. During the six month period ended June 30, 2018, there were no issued and outstanding
options, restricted stock rights, performance shares or stock appreciation rights. As at June 30, 2018, after factoring in all allocated shares, there remain approximately 2.8 million common shares available for grant.
PSUs
PSUs comprise rights to receive
common shares at a future date that are contingent on the Company and the grantee achieving certain performance objectives. The performance objective period is generally three years. For the three and six month periods ended June 30, 2018, the
Company recognized an expense of $1,630 and $1,694, respectively related to PSUs (2017 $804 and $555).
The following table summarizes PSU
activity during the period:
|
|
|
|
|
|
|
Number of PSUs
|
|
Outstanding as at January 1, 2018
|
|
|
1,867,158
|
|
Granted
|
|
|
652,548
|
|
Vested and issued
|
|
|
(153,243)
|
|
Forfeited
|
|
|
(330,455)
|
|
|
|
|
|
|
Outstanding as at June 30, 2018
|
|
|
2,036,008
|
|
|
|
|
|
|
Restricted Shares
Restricted shares generally vest at the end of one year. Expense recognized for the three and six month periods ended June 30, 2018 was
$129 and $258 (2017 $108 and $196). As at June 30, 2018, the total remaining unrecognized compensation cost related to restricted shares amounted to approximately $477 which will be amortized over the remaining vesting periods.
The following table summarizes restricted share activity during the period:
|
|
|
|
|
|
|
Number of
Restricted
Shares
|
|
Outstanding as at January 1, 2018
|
|
|
43,635
|
|
Granted
|
|
|
31,130
|
|
Vested
|
|
|
(43,635)
|
|
|
|
|
|
|
Outstanding as at June 30, 2018
|
|
|
31,130
|
|
|
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 15
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 8. Shareholders Equity (continued)
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Defined Benefit
Pension and
Other Post-
Retirement
Benefit Items
|
|
|
Unrealized
Gains / Losses
on Marketable
Securities
|
|
|
Total
|
|
Balance as at January 1, 2018
|
|
$
|
(50,083)
|
|
|
$
|
(8,900)
|
|
|
$
|
(18)
|
|
|
$
|
(59,001)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(39,522)
|
|
|
|
(1,087)
|
|
|
|
27
|
|
|
|
(40,582)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|
|
|
359
|
|
|
|
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(39,522)
|
|
|
|
(728)
|
|
|
|
27
|
|
|
|
(40,223)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2018
|
|
$
|
(89,605)
|
|
|
$
|
(9,628)
|
|
|
$
|
9
|
|
|
$
|
(99,224)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Business Segment Information
The Company is managed based on the primary products it manufactures: pulp and wood products. Accordingly, the Companys three pulp mills
are aggregated into the pulp business segment and the Friesau Facility from its acquisition date of April 12, 2017 is a separate reportable business segment, wood products.
None of the income or loss items following operating income in the Companys Interim Consolidated Statement of Operations are allocated
to the segments, since those items are reviewed separately by management.
The following tables shows information by reportable business
segments for the three and six month periods ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Pulp
|
|
|
Wood
Products
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
Revenues from external customers
|
|
$
|
291,632
|
|
|
$
|
54,900
|
|
|
$
|
|
|
|
$
|
346,532
|
|
Operating income (loss)
|
|
$
|
36,976
|
|
|
$
|
4,322
|
|
|
$
|
(3,822)
|
|
|
$
|
37,476
|
|
Depreciation and amortization
|
|
$
|
21,127
|
|
|
$
|
1,779
|
|
|
$
|
108
|
|
|
$
|
23,014
|
|
Revenues by major products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
|
$
|
279,939
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
279,939
|
|
Lumber
|
|
|
|
|
|
|
48,991
|
|
|
|
|
|
|
|
48,991
|
|
Energy and chemicals
|
|
|
11,693
|
|
|
|
3,255
|
|
|
|
|
|
|
|
14,948
|
|
Wood residuals
|
|
|
|
|
|
|
2,654
|
|
|
|
|
|
|
|
2,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
291,632
|
|
|
$
|
54,900
|
|
|
$
|
|
|
|
$
|
346,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
5,653
|
|
|
$
|
15,249
|
|
|
$
|
|
|
|
$
|
20,902
|
|
Germany
|
|
|
116,205
|
|
|
|
22,094
|
|
|
|
|
|
|
|
138,299
|
|
China
|
|
|
75,356
|
|
|
|
|
|
|
|
|
|
|
|
75,356
|
|
Other countries
|
|
|
94,418
|
|
|
|
17,557
|
|
|
|
|
|
|
|
111,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
291,632
|
|
|
$
|
54,900
|
|
|
$
|
|
|
|
$
|
346,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 16
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 9. Business Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Pulp
|
|
|
Wood
Products
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
Revenues from external customers
|
|
$
|
265,886
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
283,177
|
|
Operating income (loss)
|
|
$
|
21,069
|
|
|
$
|
81
|
|
|
$
|
(2,287)
|
|
|
$
|
18,863
|
|
Depreciation and amortization
|
|
$
|
19,387
|
|
|
$
|
1,134
|
|
|
$
|
104
|
|
|
$
|
20,625
|
|
Revenues by major products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
|
$
|
244,684
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
244,684
|
|
Lumber
|
|
|
|
|
|
|
13,593
|
|
|
|
|
|
|
|
13,593
|
|
Energy and chemicals
|
|
|
21,202
|
|
|
|
2,645
|
|
|
|
|
|
|
|
23,847
|
|
Wood residuals
|
|
|
|
|
|
|
1,053
|
|
|
|
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
265,886
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
283,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
6,694
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,694
|
|
Germany
|
|
|
103,438
|
|
|
|
11,636
|
|
|
|
|
|
|
|
115,074
|
|
China
|
|
|
74,779
|
|
|
|
|
|
|
|
|
|
|
|
74,779
|
|
Other countries
|
|
|
80,975
|
|
|
|
5,655
|
|
|
|
|
|
|
|
86,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
265,886
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
283,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Pulp
|
|
|
Wood
Products
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
Revenues from external customers
|
|
$
|
605,867
|
|
|
$
|
108,568
|
|
|
$
|
|
|
|
$
|
714,435
|
|
Operating income (loss)
|
|
$
|
111,030
|
|
|
$
|
7,304
|
|
|
$
|
(4,810)
|
|
|
$
|
113,524
|
|
Depreciation and amortization
|
|
$
|
42,650
|
|
|
$
|
3,465
|
|
|
$
|
218
|
|
|
$
|
46,333
|
|
Total assets
|
|
$
|
1,351,996
|
|
|
$
|
131,092
|
|
|
$
|
39,301
|
|
|
$
|
1,522,389
|
|
Revenues by major products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
|
$
|
570,490
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
570,490
|
|
Lumber
|
|
|
|
|
|
|
97,159
|
|
|
|
|
|
|
|
97,159
|
|
Energy and chemicals
|
|
|
35,377
|
|
|
|
6,036
|
|
|
|
|
|
|
|
41,413
|
|
Wood residuals
|
|
|
|
|
|
|
5,373
|
|
|
|
|
|
|
|
5,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
605,867
|
|
|
$
|
108,568
|
|
|
$
|
|
|
|
$
|
714,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
11,303
|
|
|
$
|
31,654
|
|
|
$
|
|
|
|
$
|
42,957
|
|
Germany
|
|
|
240,943
|
|
|
|
43,860
|
|
|
|
|
|
|
|
284,803
|
|
China
|
|
|
159,837
|
|
|
|
|
|
|
|
|
|
|
|
159,837
|
|
Other countries
|
|
|
193,784
|
|
|
|
33,054
|
|
|
|
|
|
|
|
226,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
605,867
|
|
|
$
|
108,568
|
|
|
$
|
|
|
|
$
|
714,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 17
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 9. Business Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Pulp
|
|
|
Wood
Products
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
Revenues from external customers
|
|
$
|
508,670
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
525,961
|
|
Operating income (loss)
|
|
$
|
63,429
|
|
|
$
|
81
|
|
|
$
|
(3,301)
|
|
|
$
|
60,209
|
|
Depreciation and amortization
|
|
$
|
38,503
|
|
|
$
|
1,134
|
|
|
$
|
209
|
|
|
$
|
39,846
|
|
Revenues by major products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
|
$
|
465,496
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
465,496
|
|
Lumber
|
|
|
|
|
|
|
13,593
|
|
|
|
|
|
|
|
13,593
|
|
Energy and chemicals
|
|
|
43,174
|
|
|
|
2,645
|
|
|
|
|
|
|
|
45,819
|
|
Wood residuals
|
|
|
|
|
|
|
1,053
|
|
|
|
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
508,670
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
525,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
11,118
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,118
|
|
Germany
|
|
|
201,463
|
|
|
|
11,636
|
|
|
|
|
|
|
|
213,099
|
|
China
|
|
|
133,676
|
|
|
|
|
|
|
|
|
|
|
|
133,676
|
|
Other countries
|
|
|
162,413
|
|
|
|
5,655
|
|
|
|
|
|
|
|
168,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
508,670
|
|
|
$
|
17,291
|
|
|
$
|
|
|
|
$
|
525,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues between segments are accounted for at prices that approximate fair value. These include revenues from
the sale of residual fiber from the wood products segment to the pulp segment for use in the pulp production process and from the sale of residual fuel from the pulp segment to the wood products segment for use in energy production. For the three
and six month periods ended June 30, 2018, the pulp segment sold $556 and $910, respectively of residual fuel to the wood products segment (2017 - $nil) and the wood products segment sold $5,096 and $10,045, respectively of residual fiber to
the pulp segment (2017 - $2,986 and $2,986).
As at December 31, 2017, the Company had total assets of $1,253,545 in the pulp
segment, $116,320 in the wood products segment and $354,845 in corporate and other.
Note 10. Financial Instruments and Fair Value Measurement
Due to their short-term maturity, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable
and other approximates their fair value.
The fair value of the senior notes classified as Level 2 was determined using quoted prices
in a dealer market, or using recent market transactions.
The following tables present a summary of the Companys outstanding
financial instruments and their estimated fair values under the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as at June 30, 2018 using:
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Revolving credit facilities
|
|
$
|
|
|
|
$
|
60,502
|
|
|
$
|
|
|
|
$
|
60,502
|
|
Senior notes
|
|
|
|
|
|
|
649,125
|
|
|
|
|
|
|
|
649,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
709,627
|
|
|
$
|
|
|
|
$
|
709,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FORM 10-Q
QUARTERLY REPORT - PAGE 18
MERCER INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands
of U.S. dollars, except share and per share data)
Note 10. Financial Instruments and Fair Value Measurement (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as at December 31, 2017 using:
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Revolving credit facilities
|
|
$
|
|
|
|
$
|
25,185
|
|
|
$
|
|
|
|
$
|
25,185
|
|
Senior notes
|
|
|
|
|
|
|
989,125
|
|
|
|
|
|
|
|
989,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,014,310
|
|
|
$
|
|
|
|
$
|
1,014,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk
The Companys credit risk is primarily attributable to cash held in bank accounts and accounts receivable. The Company maintains cash
balances in foreign financial institutions in excess of insured limits. The Company limits its credit exposure on cash held in bank accounts by periodically investing cash in excess of short-term operating requirements and debt obligations in low
risk government bonds, or similar debt instruments. The Companys credit risk associated with the sale of pulp, lumber and other wood residuals is managed through setting credit limits, the purchase of credit insurance and for certain customers
a letter of credit is received prior to shipping the product. Concentrations of credit risk on the sale of pulp, lumber and other wood residuals are with customers and agents based primarily in Germany, China and Italy.
The carrying amount of cash and cash equivalents of $269,482 and accounts receivable of $190,807 recorded in the Interim Consolidated Balance
Sheet, net of any allowances for losses, represents the Companys maximum exposure to credit risk.
Note 11. Commitments and Contingencies
(a)
|
The Company is involved in legal actions and claims arising in the ordinary course of business. While the
outcome of any legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claims which are pending or threatened, either individually or on a combined basis, will not have a material
adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.
|
(b)
|
The Company is subject to regulations that require the handling and disposal of asbestos in a prescribed
manner if a property undergoes a major renovation or demolition. Otherwise, the Company is not required to remove asbestos from its facilities. Generally asbestos is found on steam and condensate piping systems as well as certain cladding on
buildings and in building insulation throughout older facilities. The Companys obligation for the proper removal and disposal of asbestos products from the Companys mills is a conditional asset retirement obligation. As a result of the
longevity of the Companys mills, due in part to the maintenance procedures and the fact that the Company does not have plans for major changes that require the removal of asbestos, the timing of the asbestos removal is indeterminate. As a
result, the Company is currently unable to reasonably estimate the fair value of its asbestos removal and disposal obligation. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate
its fair value.
|
(c)
|
In March 2018, the Company announced it had received the decision of the tribunal in respect of its previously
initiated claim in January 2012 against the Government of Canada under the North American Free Trade Agreement (NAFTA). The basis of the claim was that the Celgar mill had received discriminatory treatment regarding its ability to
purchase and sell energy compared to other pulp mills and entities that generate and sell electricity within the Province of British Columbia. The tribunal ruled that there was no violation of NAFTA and as is customary in these matters, the tribunal
awarded costs to the Government of Canada of approximately $6,951.
|
FORM 10-Q
QUARTERLY REPORT - PAGE 19
NON-GAAP
FINANCIAL MEASURES
This quarterly report on Form
10-Q
contains
non-GAAP
financial measures, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting
principles in the United States, referred to as GAAP. Specifically, we make use of the
non-GAAP
measure Operating EBITDA.
Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and
non-recurring
capital asset impairment charges. We use Operating EBITDA as a benchmark measurement of our own operating results and as a benchmark relative to our competitors. We consider 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 actual cash costs, and depreciation expense varies
widely from company to company in a manner that we consider 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 (loss)
from operations as a measure of performance, or as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA is an internal measure and therefore may not be comparable to other companies.
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. Some of these limitations are that Operating EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash
requirements for, working capital needs; (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt; (iv) the impact of realized or marked to market changes
in our derivative positions, which can be substantial; and (v) the impact of impairment charges against our investments or assets. Because of these limitations, Operating EBITDA should only be considered as a supplemental performance measure
and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from
Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 20