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Mercer International Inc. Reports 2017 Second Quarter Results and Announces Quarterly Cash Dividend of $0.115

NEW YORK, July 27, 2017 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MERC.U) today reported results for the second quarter ended June 30, 2017. Operating EBITDA* in the second quarter of 2017 increased by approximately 13% to $39.1 million from $34.7 million in the same quarter of 2016 but declined from $60.2 million in the prior quarter. In the current quarter, strong operating performance was partially offset by a large planned maintenance shut along with foreign exchange losses on foreign currency balances. In the current quarter, we had 22 days of annual maintenance downtime at our pulp mills compared to 21 days in the comparative quarter and no such downtime in the prior quarter of 2017.

For the second quarter of 2017, we had a net loss of $2.1 million, or $0.03 per basic and diluted share, compared to a net loss of $4.2 million, or $0.07 per basic and diluted share, in the comparative quarter. In the prior quarter, we had net income of $9.7 million.

Since April 12, 2017, when we acquired the Friesau sawmill and power plant in Germany (the "Friesau Facility"), we have two reportable operating segments being pulp and wood products.

Summary Financial Highlights

  Q2
2017
Q1
2017
Q2
2016
YTD
2017
YTD
2016
                               
  (in millions, other than per share amounts)
   
Pulp segment revenues $     265.9   $ 242.8   $ 218.1   $   508.7   $ 472.0  
Wood products segment revenues       17.3               17.3      
Total revenues $     283.2   $ 242.8   $ 218.1   $   526.0   $ 472.0  
           
Pulp segment operating income $     20.7   $ 42.0   $ 18.8   $   62.7   $ 48.7  
Wood products operating income     0.1               0.1      
Corporate and other operating loss       (2.3 )   (1.0 )   (2.0 )     (3.3 )   (3.8 )
Total operating income $     18.5   $ 41.0   $ 16.8   $   59.5   $ 44.9  
           
Pulp segment depreciation and amortization $     19.4   $ 19.1   $ 17.9   $   38.5   $ 34.9  
Wood products depreciation and amortization     1.1               1.1      
Corporate and other depreciation and amortization       0.1     0.1     0.1       0.2     0.3  
Total depreciation and amortization $     20.6   $ 19.2   $ 18.0   $   39.8   $ 35.2  
           
Operating EBITDA(*) $     39.1   $ 60.2   $ 34.7   $   99.3   $ 80.1  
Loss on settlement of debt(1) $     ‑   $ 10.7   $   $   10.7   $ 0.5  
Income tax provision $     7.8   $ 7.5   $ 7.9   $   15.3   $ 14.1  
Net income (loss) $     (2.1 ) $ 9.7   $ (4.2 ) $   7.6   $ 4.5  
Net income (loss) per common share          
Basic and diluted $     (0.03 ) $ 0.15   $ (0.07 ) $   0.12   $ 0.07  
Common shares outstanding at period end     65.0     65.0     64.7       65.0     64.7  

/EIN News/ --                                
(1) Redemption of 7.0% 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 to Operating EBITDA.

Summary Operating Highlights

Pulp Segment   Q2
2017
Q1
2017
Q2
2016
  YTD
2017
YTD
2016
Pulp production ('000 ADMTs)     362.7 373.8 338.3   736.4 716.3
Annual maintenance downtime ('000 ADMTs)     32.5 29.6     32.5 29.6
Annual maintenance downtime (days)     22 21     22 21
Pulp sales ('000 ADMTs)     388.8 375.1 330.3     763.9 723.8
Average NBSK pulp list prices in Europe ($/ADMT)(1)     880 823 798     852 795
Average NBSK pulp list prices in China ($/ADMT)(1)     670 645 617     658 603
Average NBSK pulp list prices in North America
($/ADMT)(1)
    1,093 1,033 980     1,063 962
Average pulp sales realizations ($/ADMT)(2)     624 584 592     604 586
Energy production ('000 MWh)     448.7 472.2 431.5     920.9 907.1
Energy sales ('000 MWh)     193.5 202.7 190.3     396.1 397.6
Average energy sales realizations ($/MWh)     89 91 86     90 90
               
Wood Products Segment(3)              
Production – lumber (million board feet)   67.5   67.5
Shipments – lumber (million board feet)   41.5   41.5
Average lumber sales realization ($/Mfbm)   328   328
Energy sales ('000 MWh)   24.0   24.0
Average energy sales realizations ($/MWh)   110   110
               
Average Spot Currency Exchange Rates              
$ / €(4)   1.1008 1.0661 1.1295   1.0838 1.1167
$ / C$(4)   0.7438 0.7555 0.7762   0.7496 0.7535

_________________________
(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) Lumber production and sales in Europe are commonly measured in cubic metres. We have converted our lumber metrics from cubic metres to board feet using a conversion ratio of 1.6 cubic meters of lumber equalling a thousand board feet ("Mfbm") of lumber.
(4) Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.

President's Comments

Mr. David M. Gandossi, the Chief Executive Officer, stated: "In the current quarter, we completed the largest planned maintenance shut in our Celgar mill's history. The shut was well planned and executed and we were also able to perform additional work that was intended to be completed later in the year. The mill returned to full production immediately after startup and continues to operate well through July. On average, our pulp mill production was up 7% compared to the same quarter of 2016 and included a quarterly production record at our Rosenthal mill. Pulp markets were generally strong and sales volumes were about 18% higher than the comparative quarter."

Mr. Gandossi continued: "During the quarter, we had annual maintenance downtime of 22 days (approximately 32,500 ADMTs), which impacted our operating income by approximately $27.5 million, comprised of approximately $21.0 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 ("IFRS") capitalize their direct costs of maintenance downtime."

Mr. Gandossi said: "In the second quarter of 2017, pulp prices in Europe, China and North America increased compared to the prior quarter of 2017 as a result of steady demand, relatively low producer inventories and the impact of spring maintenance downtime taken by producers. This resulted in our average pulp sales realizations being approximately 7% higher in the second quarter of 2017 compared to the prior quarter of 2017. At the end of the current quarter, list prices in Europe, China and North America were approximately $890, $650 and $1,100 per ADMT, respectively. Currently, the NBSK pulp market is balanced with world producer inventories at about 31 days' supply. A weakening dollar, particularly near the end of the quarter, dampened earnings considerably as we revalued our foreign currency denominated cash and accounts receivable balances to current spot rates."

Mr. Gandossi continued: "We are pleased with the ramp up of the Friesau Facility. Due to strong markets, the mill's ramp up has proceeded faster than we initially budgeted and it generated positive operating income. It produced 67.5 million board feet of lumber in the current quarter and substantially all of lumber sales were to the European market. We commenced lumber sales into the U.S. market in the third quarter of 2017. In the current quarter, lumber sales volumes were 41.5 million board feet as some of the production was staged at the port for delivery to the U.S. market in the third quarter of 2017."

He added: "Looking forward, we believe the new pulp production capacity that has or is coming on line in 2017 will not have a material negative impact on the market this year as a result of steady demand growth and diminishing supply and quality of recycled fiber. Further, some of the new capacity will not hit the market in a meaningful amount until 2018.  As a result, we currently expect overall steady pulp demand and pricing in the third quarter of 2017 in Europe and China with some potential temporary weakness in spot pricing in China during their slow summer period."

Mr. Gandossi continued: "In the second quarter of 2017, U.S. benchmark lumber prices for Western SPF No. 2 and better averaged $386 per Mfbm. There is no similar or common pricing metric quoted in the European market. However, in the second quarter of 2017, our average lumber sales realization in Europe was $328 per Mfbm. Currently both the European and U.S. lumber markets are strong and prices are near multi-year highs and are expected to remain steady in the near term."

Mr. Gandossi concluded: "With our major annual maintenance downtime completed, balanced pulp markets and the successful ramp up of the Friesau Facility, we are well positioned to enhance value for stakeholders over the second half of 2017."

Quarterly Dividend

A quarterly dividend of $0.115 per common share will be paid on October 4, 2017 to all shareholders of record on September 27, 2017. Future dividends will be subject to board approval and may be adjusted as business and industry conditions warrant.

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Consolidated ‑ Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Total revenues for the three months ended June 30, 2017 increased by approximately 30% to $283.2 million from $218.1 million in the same quarter of 2016 primarily due to 24% higher pulp revenues and the inclusion of $17.3 million of revenues from our wood products segment. In the current quarter, pulp revenues benefitted from an approximately 18% increase in sales volumes and an approximately 5% increase in pulp sales realizations.

Costs and expenses in the current quarter increased by approximately 31% to $264.7 million from $201.4 million in the second quarter of 2016 primarily due to higher pulp sales volumes, costs and expenses of $20.2 million from our wood products segment and higher maintenance costs at our pulp mills.

In the second quarter of 2017, operating depreciation and amortization was $20.5 million, compared to $17.9 million in the same quarter of 2016 primarily due to the completion of large capital projects at our pulp mills and the acquisition of the Friesau Facility.

Selling, general and administrative expenses increased to $13.3 million in the second quarter of 2017 from $10.3 million in the same quarter of 2016 primarily due to the inclusion of the wood products segment and $0.9 million of acquisition costs in connection with the acquisition of the Friesau Facility.

In the second quarter of 2017, our operating income increased by approximately 10% to $18.5 million from $16.8 million in the same quarter of 2016 primarily due to higher pulp sales realizations, partially offset by higher maintenance costs at our pulp mills.

Interest expense in the current quarter increased to $13.3 million from $12.7 million in the same quarter of 2016 primarily as a result of drawing €25.0 million on our €70.0 million revolving credit facility to partially finance the acquisition of the Friesau Facility and an increase in its working capital resulting from the ramp up of its operations.

During the second quarter of 2017, income tax expense was $7.8 million, compared to $7.9 million in the same quarter of 2016.

For the second quarter of 2017, we had a net loss of $2.1 million, or $0.03 per basic and diluted share, compared to a net loss of $4.2 million, or $0.07 per basic and diluted share, in the same quarter of 2016.

In the second quarter of 2017, Operating EBITDA increased by approximately 13% to $39.1 million from $34.7 million in the same quarter of 2016 primarily as a result of higher pulp sales realizations, partially offset by higher maintenance costs at our pulp mills.

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, 2017 Compared to Three Months Ended June 30, 2016
 
Selected Financial Information
  Three Months Ended
June 30, 
    2017    2016 
  (in thousands)
Pulp revenues $     244,684 $     198,055
Energy and chemical revenues $     21,202 $     20,090
Operating depreciation and amortization $     19,387 $     17,855
Operating income $     20,693 $     18,794

Pulp revenues in the second quarter of 2017 increased by approximately 24% to $244.7 million from $198.1 million in the same quarter of 2016, due to higher sales volume and higher sales realizations.

Energy and chemical revenues increased by approximately 5% to $21.2 million in the second quarter of 2017 from $20.1 million in the same quarter of 2016 primarily due to higher sales volumes.

Pulp production increased by approximately 7% to 362,665 ADMTs in the current quarter from 338,265 ADMTs in the same quarter of 2016. 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. In the second quarter of 2016, we had an aggregate of 21 days (approximately 29,600 ADMTs) of annual maintenance downtime, of which 18 days (approximately 24,500 ADMTs) was at our Celgar mill and three days (approximately 5,100 ADMTs) was at our Stendal mill.

We estimate that annual maintenance downtime in the current quarter adversely impacted our operating income by approximately $27.5 million, comprised of approximately $21.0 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using IFRS capitalize their direct costs of maintenance downtime.

Pulp sales volumes increased by approximately 18% to 388,792 ADMTs in the current quarter from 330,318 ADMTs in the same quarter of 2016 primarily due to strong production, the timing of shipments to China and continued steady demand in China and Europe.

In the current quarter of 2017, list prices for NBSK pulp in Europe and China increased from the same quarter of 2016, largely as a result of overall steady demand. Average list prices for NBSK pulp in Europe were approximately $880 per ADMT in the second quarter of 2017, compared to approximately $798 per ADMT in the same quarter of 2016. Average list prices for NBSK pulp in China and North America were approximately $670 per ADMT and $1,093 per ADMT, respectively, in the second quarter of 2017, compared to approximately $617 per ADMT and $980 per ADMT, respectively, in the same quarter of 2016.

Average pulp sales realizations increased by approximately 5% to $624 per ADMT in the second quarter of 2017 from approximately $592 per ADMT in the same quarter of 2016 primarily due to higher list prices.

At the end of the current quarter of 2017, the dollar weakened against the euro which reduced our dollar-denominated cash and receivables held by our German pulp mills and contributed to a negative foreign exchange impact of approximately $1.1 million compared to the same quarter of the prior year.

Costs and expenses for our pulp segment in the current quarter increased by approximately 23% to $245.2 million from $199.4 million in the second quarter of 2016 primarily due to higher sales volume, higher maintenance costs and the reversal in the comparative 2016 quarter of an accrual for wastewater fees at our Rosenthal mill of $7.2 million. 

In the second quarter of 2017, pulp segment operating depreciation and amortization increased to $19.4 million from $17.9 million in the same quarter of 2016 primarily due to the acquisition of customized rail cars for our German pulp mills and the completion of other large capital projects.

On average, in the current quarter overall per unit fiber costs decreased by approximately 6% from the same quarter of 2016 primarily as a result of a balanced wood market and strong sawmilling activity in both Germany and in the Celgar mill's fiber basket. In the current quarter, per unit fiber costs in Germany were approximately 4% lower than the comparative quarter and for our Celgar mill were 9% lower than the comparative quarter.

Transportation costs for our pulp segment increased by approximately 34% to $20.1 million in the current quarter from $15.0 million in the same quarter of 2016 primarily due to higher sales volumes.

In the second quarter of 2017, pulp segment operating income increased by approximately 10% to $20.7 million from $18.8 million in the same quarter of 2016 primarily due to higher pulp sales realizations and the net impact of higher sales volumes, partially offset by higher maintenance costs and the reversal in the second quarter of 2016 of an accrual for wastewater fees of $7.2 million. 

Wood Products Segment ‑ Three Months Ended June 30, 2017
 
Selected Financial Information
  Three Months Ended
June 30, 2017
  (in thousands)
Lumber revenues $ 13,593
Energy revenues $ 2,645
Other wood residual revenues $ 1,053
Operating depreciation and amortization $ 1,134
Operating income $ 81

We entered into the wood products business with the acquisition of the Friesau Facility on April 12, 2017. As a result, we manufacture, sell and distribute lumber, electricity and other wood residuals. The Friesau Facility can produce lumber for European, U.S. and other lumber export markets. Commencing in the third quarter of 2017, we have started lumber sales into the U.S. market. Depending on market conditions, we currently intend to increase our lumber sales to the U.S. market to up to half of the lumber production from Friesau.

During the two years prior to our acquisition of the Friesau Facility, it was being operated on a restricted basis and well below its production capacity. Since our acquisition, we have been ramping up the mill's lumber production and capitalizing on synergies. In the Friesau Facility's fiber region, major sawlog contracts are generally awarded on a yearly basis. As a result, we initially expected our ramp up to materially increase at the start of 2018 when new contracts are awarded.

However, due to the successful procurement of wood, the mill's ramp up has proceeded faster than we initially budgeted and generated positive operating income in the partial quarter. The ramp up of production steadily improved our operating efficiency and costs over the current quarter.

In the second quarter of 2017, we had lumber revenues of $13.6 million, substantially all of which were in the European market. European lumber markets were generally strong and prices steady and near multi-year highs. 

In the second quarter of 2017, we produced 67.5 million board feet of lumber. Lumber sales volumes were 41.5 million board feet as some of our production was staged at the port for delivery to the U.S. market in the third quarter of 2017. We expect to record sales of such volumes in the third quarter of 2017. In the current quarter, our average lumber sales realization was $328 per Mfbm. 

Energy and other by-product revenues were approximately $3.7 million. We produced 24.0 thousand MWh of electricity in the second quarter of 2017. 

In the second quarter of 2017, wood products segment costs and expenses were $20.2 million. Our fiber costs were approximately 80% of our cash production costs. The ramping up of production in the current quarter resulted in our purchasing large volumes of sawlogs in a short period. This resulted in our sawlog costs being marginally higher than our regional competitors. We currently expect our sawlog costs to remain flat in the third quarter of 2017 and our sawlog costs to become more comparable to regional competitors at the start of 2018.

In the current quarter we started realizing on identified fiber synergies between the Friesau Facility and our Rosenthal pulp mill. During the current quarter, the facility shipped 179,800 cubic metres of chips to Rosenthal, and Rosenthal has shipped 24,000 cubic metres of waste wood to Friesau.  Both volumes are in line with our forecasts and have begun to lower costs at both mills.  By the end of June 2017, we estimate we have realized approximately $2.0 million of our expected synergy savings.

In the second quarter of 2017, operating depreciation and amortization for our wood products segment was $1.1 million.

In the second quarter of 2017, our wood products segment operating income was $0.1 million. 

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Consolidated ‑ Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Total revenues for the first half of 2017 increased by approximately 11% to $526.0 million from $472.0 million in the first half of 2016 primarily due to higher pulp revenues and $17.3 million of wood products revenue.

Costs and expenses in the first half of 2017 increased by approximately 9% to $466.5 million from $427.1 million in the first half of 2016 primarily due to higher pulp sales volumes and costs and expenses of $20.2 million from our wood products segment.

In the first half of 2017, operating depreciation and amortization was $39.6 million, compared to $34.9 million in the same period of 2016 due to acquisition of the Friesau Facility and the completion of large capital projects at our pulp mills.

Selling, general and administrative expenses increased to $23.0 million in the first half of 2017 from $22.1 million in the same period of 2016. The first half of 2017 included $0.9 million of acquisition costs in connection with our purchase of the Friesau Facility.

In the first half of 2017, our operating income increased by approximately 33% to $59.5 million from $44.9 million in the same period of 2016 primarily due to higher pulp sales realizations. 

In the first half of 2017, we issued, in two tranches, an aggregate $250.0 million of 6.5% senior notes due 2024, referred to as the "2024 Senior Notes". We utilized the proceeds primarily to redeem $227.0 million of our 7.0% senior notes due 2019, referred to as the "2019 Senior Notes", at a cost, including premium, of $234.9 million and recorded a loss on such redemption of $10.7 million (being $0.16 per basic and diluted share).

Interest expense in the first half of 2017 increased to $27.2 million from $25.9 million in the same period of 2016, since, during the requisite notice period for redemption of the 2019 Senior Notes, we also had $225.0 million of the 2024 Senior Notes outstanding.

During the first half of 2017, income tax expense increased to $15.3 million from $14.1 million in the same period of 2016 due to higher taxable income for our German pulp mills.

For the first half of 2017, we reported net income of $7.6 million, or $0.12 per basic and diluted share compared to net income of $4.5 million, or $0.07 per basic and diluted share, in the same period of 2016.

In the first half of 2017, Operating EBITDA increased by approximately 24% to $99.3 million from $80.1 million in the same period of 2016 primarily as a result of higher pulp sales realizations.

Liquidity and Capital Resources
The following table is a summary of our cash flows for the periods indicated:

Summary of Cash Flows

  Six Months Ended June 30,
 
    2017      2016   
  (in thousands)
Net cash from operating activities $ 69,470   $ 74,743  
Net cash used in investing activities   (89,862 )   (20,604 )
Net cash from (used in) financing activities   17,705     (44,787 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash   6,434     2,274  
Net increase in cash, cash equivalents and restricted cash $ 3,747   $ 11,626  

The following table is a summary of selected financial information as at the dates indicated:

    June 30,     December 31,
    2017      2016 
  (in thousands)
           
Financial Position
Cash and cash equivalents
$ 142,589   $ 136,569
Working capital $ 331,799   $ 308,681
Total assets $ 1,328,382   $ 1,158,708
Long term liabilities $ 740,454   $ 686,410
Total equity $ 445,249   $ 379,128

As at June 30, 2017, we had approximately $164.9 million available under our revolving credit facilities.

As a result of the weakening of the dollar versus the euro and Canadian dollar as at June 30, 2017 compared to December 31, 2016, we recorded a non-cash increase in the carrying value of our net assets, consisting primarily of our fixed assets, denominated in euros and Canadian dollars. This non-cash increase of approximately $69.6 million does not affect our net income, Operating EBITDA or cash flows but is reflected in our other comprehensive income and as an increase to our total equity.

Earnings Release Call
In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Friday, July 28, 2017 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for thirty days over the Internet at http://edge.media-server.com/m/p/ffnqksma or through a link on the company's home page at http://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 465 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.

-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,
  2017   2016   2017   2016
               
Revenues $ 283,177     $ 218,145     $ 525,961     $ 471,988  
Costs and expenses              
Operating costs, excluding depreciation and amortization 230,910     173,227     403,866     370,169  
Operating depreciation and amortization 20,521     17,855     39,637     34,887  
Selling, general and administrative expenses 13,259     10,286     22,985     22,055  
Operating income 18,487     16,777     59,473     44,877  
               
Other income (expenses)              
Interest expense (13,320 )   (12,736 )   (27,199 )   (25,927 )
Loss on settlement of debt         (10,696 )   (454 )
Other income (expenses) 513     (409 )   1,309     104  
Total other expenses (12,807 )   (13,145 )   (36,586 )   (26,277 )
Income before provision for income taxes 5,680     3,632     22,887     18,600  
Provision for income taxes (7,784 )   (7,873 )   (15,265 )   (14,072 )
Net income (loss) $ (2,104 )   $ (4,241 )   $ 7,622     $ 4,528  
               
Net income (loss) per common share        
Basic and diluted $ (0.03 )   $ (0.07 )   $ 0.12     $ 0.07  
               
Dividends declared per common share $ 0.115     $ 0.115     $ 0.230     $ 0.230  


MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
       
  June 30,   December 31,
  2017   2016
ASSETS      
Current assets      
Cash and cash equivalents $ 142,589     $ 136,569  
Restricted cash 2,054     4,327  
Accounts receivable 177,707     123,892  
Inventories 145,064     133,451  
Prepaid expenses and other 7,064     3,612  
Total current assets 474,478     401,851  
       
Property, plant and equipment, net 823,364     738,276  
Intangible and other assets 26,234     7,591  
Deferred income tax 4,306     10,990  
Total assets $ 1,328,382     $ 1,158,708  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities      
Accounts payable and other $ 141,606     $ 92,133  
Pension and other post-retirement benefit obligations 1,073     1,037  
Total current liabilities 142,679     93,170  
       
Debt 667,562     617,545  
Pension and other post-retirement benefit obligations 25,556     25,084  
Capital leases and other 27,340     26,467  
Deferred income tax 19,996     17,314  
Total liabilities 883,133     779,580  
       
Shareholders’ equity      
Common shares $1 par value; 200,000,000 authorized;          
65,017,000 issued and outstanding (2016 – 64,694,000) 64,974     64,656  
Additional paid-in capital 336,556     333,673  
Retained earnings 158,741     166,068  
Accumulated other comprehensive loss (115,022 )   (185,269 )
Total shareholders’ equity 445,249     379,128  
Total liabilities and shareholders’ equity $ 1,328,382     $ 1,158,708  
       


MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2017   2016   2017   2016
               
Cash flows from (used in) operating activities              
Net income (loss) $ (2,104 )   $ (4,241 )   $ 7,622     $ 4,528  
Adjustments to reconcile net income (loss)
to cash flows from operating activities
       
Depreciation and amortization 20,625     17,962     39,846     35,181  
Deferred income tax provision 4,196     4,501     8,405     8,947  
Loss on settlement of debt         10,696     454  
Defined benefit pension plan and other post-retirement
benefit plan expense
540     398     1,066     874  
Stock compensation expense 912     764     751     1,655  
Other (153 )   305     525     522  
Defined benefit pension plan and other post-retirement
benefit plan contributions
(319 )   (458 )   (851 )   (884 )
Changes in working capital              
Accounts receivable (37,426 )   8,548     (43,714 )   12,501  
Inventories (5,294 )   (3,648 )   4,131     10,988  
Accounts payable and accrued expenses 36,954     (13,313 )   43,835     (103 )
Other (1,846 )   459     (2,842 )   80  
Net cash from (used in) operating activities 16,085     11,277     69,470     74,743  
               
Cash flows from (used in) investing activities              
Purchase of property, plant and equipment (19,743 )   (13,479 )   (27,907 )   (20,415 )
Purchase of intangible assets (165 )   (416 )   (405 )   (936 )
Acquisition of Friesau Facility (61,627 )       (61,627 )    
Other 77     849     77     747  
Net cash from (used in) investing activities (81,458 )   (13,046 )   (89,862 )   (20,604 )
               
Cash flows from (used in) financing activities              
Repurchase of notes         (234,945 )   (23,079 )
Proceeds from issuance of notes         250,000      
Proceeds from revolving credit facility 26,525         26,525      
Dividend payments (7,472 )   (7,435 )   (14,912 )   (14,853 )
Payment of debt issuance costs (1,008 )       (6,132 )    
Payment of interest rate derivative liability (3,789 )   (5,852 )   (3,789 )   (5,852 )
Other 1,879     (517 )   958     (1,003 )
Net cash from (used in) financing activities 16,135     (13,804 )   17,705     (44,787 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
5,916     (3,493 )   6,434     2,274  
Net increase (decrease) in cash, cash equivalents                      
and restricted cash (43,322 )   (19,066 )   3,747     11,626  
Cash, cash equivalents and restricted cash, beginning of period 187,965     139,551     140,896     108,859  
Cash, cash equivalents and restricted cash, end of period $ 144,643     $ 120,485     $ 144,643     $ 120,485  
               
Supplemental cash flow disclosure              
Cash paid for interest $ 16,425     $ 24,036     $ 20,881     $ 24,635  
Cash paid for income taxes $ 2,677     $ 4,681     $ 5,204     $ 9,311  


MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands)

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, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

  Three Months Ended
June 30, 
Six Months Ended
June 30, 
 
    2017      2016      2017      2016   
  (in thousands)
Net income (loss) $ (2,104 ) $ (4,241 ) $ 7,622   $ 4,528  
Income tax provision   7,784     7,873     15,265     14,072  
Interest expense   13,320     12,736     27,199     25,927  
Loss on settlement of debt   -     -     10,696     454  
Other (income) expenses     (513 )     409       (1,309 )     (104 )
Operating income   18,487     16,777     59,473     44,877  
Add: Depreciation and amortization     20,625       17,962       39,846       35,181  
Operating EBITDA $   39,112   $   34,739   $   99,319   $   80,058  
APPROVED BY:

Jimmy S.H. Lee
Executive Chairman
(604) 684-1099

David M. Gandossi
Chief Executive Officer 
(604) 684-1099

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