NEW YORK, Nov. 3, 2011 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI-U) today reported strong results for the third quarter ended September 30, 2011. Operating EBITDA in the third quarter of 2011 was €49.2 million ($69.5 million), compared to €65.5 million ($84.7 million) in the third quarter of 2010 and €50.1 million ($72.1 million) in the second quarter of 2011. Operating EBITDA is defined on page 5 of this press release and reconciled to net income on page 8 of the financial tables in this press release.

In the current quarter, total revenues were €204.8 million ($289.1 million), compared to €234.4 million ($303.1 million) in the third quarter of 2010. We reported net income of €8.4 million ($11.9 million), or €0.15 ($0.21) per basic share, for the third quarter of 2011, which included an aggregate non-cash unrealized loss of €10.7 million, or €0.20 ($0.28) per basic share, on the Stendal interest rate derivative and foreign exchange losses on our debt and an income tax expense of €3.1 million ($4.4 million), or €0.06 ($0.08) per basic share. In the third quarter of 2010, we reported net income of €46.1 million ($59.6 million), or €1.17 ($1.51) per basic share, which included aggregate non-cash gains of €10.4 million, or €0.26 ($0.34) per basic share, on the Stendal interest rate derivative and foreign exchange gains on our debt and a net income tax benefit of €7.2 million ($9.3 million), or €0.18 ($0.22) per basic share.

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are pleased with the strong third quarter as, despite a weaker U.S. dollar and 11 days of unscheduled maintenance downtime at our Stendal mill, we achieved Operating EBITDA of €49.2 million."

Mr. Lee continued: "Although uncertainties concerning the economic situation in Europe and credit tightening in China have caused pulp prices to come off their record levels from earlier this year, NBSK list prices remained generally strong in the third quarter. List prices at the end of the quarter were $950 per ADMT in Europe and $970 and $830 per ADMT in North America and China, respectively. While we currently anticipate further downward price pressure in the fourth quarter, the recent strengthening of the U.S. dollar against both the Euro and the Canadian dollar is helping to partially offset such decreases."

Mr. Lee added: "Due to our strong liquidity position and continued confidence in our growth prospects, we initiated a share and debt repurchase program in the third quarter of 2011. As of November 3, 2011, we purchased and cancelled approximately $13.6 million in aggregate principal amount of our 9.5% senior notes and approximately 1.3 million shares ($10.6 million) of our common stock."

Mr. Lee continued: "We successfully completed improvements to the Celgar mill's fiber line and oxygen delignification process during the third quarter, and are already seeing noticeable reductions to the mill's production costs. We also have an additional C$4.3 million of funds available to us from the Government of Canada's Green Transformation Project, which we intend to utilize by the end of the first quarter of 2012."

Mr. Lee concluded: "Despite uncertainties surrounding the global economy, we believe that our improved liquidity position, increasing energy revenues and continued strong performance of our mills should enable us to generate strong returns."

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

Total revenues for the three months ended September 30, 2011 decreased to €204.8 million ($289.1 million) from €234.4 million ($303.1 million) in the same period in 2010, primarily due to lower pulp revenues, partially offset by higher energy revenues. Pulp revenues for the three months ended September 30, 2011 decreased to €190.4 million from €224.7 million in the comparative period of 2010, primarily due to a weaker U.S. dollar and lower sales volumes. The U.S. dollar was approximately 8% weaker versus the Euro in the current quarter compared to the same quarter of last year. Energy revenues increased by approximately 48% in the current quarter to a record €14.4 million from €9.7 million in the same quarter last year, primarily as a result of increased energy production at our Rosenthal mill and increased energy sales at our Celgar mill.

Pulp production decreased to 362,330 ADMTs in the current quarter, from 380,894 ADMTs in the same quarter of 2010, primarily due to 11 days (approximately 21,000 ADMTs) of unscheduled maintenance downtime at our Stendal mill required to repair the mill's recovery boiler.

Pulp sales volume decreased to 321,338 ADMTs in the current quarter from 344,777 ADMTs in the comparative period of 2010, primarily as a result of softer demand caused by economic uncertainty in Europe and credit tightening in China. Average pulp sales realizations decreased to €584 ($824) per ADMT in the third quarter of 2011, compared to €642 ($831) per ADMT in the same period last year, primarily due to a weaker U.S. dollar relative to the Euro. 

Costs and expenses in the third quarter of 2011 decreased to €169.5 million from €183.0 million in the comparative period of 2010, primarily due to lower sales volumes and a weaker U.S. dollar, partially offset by higher fiber costs.  Our costs and expenses in the current quarter included approximately €2.1 million for regularly scheduled maintenance costs. Several competing producers and members of the peer group that we benchmark our performance against now report their financial results in accordance with International Financial Reporting Standards which permit a significant portion of such maintenance costs to be capitalized instead of expensed. Such costs are not charged to EBITDA by the peer group companies but instead are expensed as depreciation.

On average, our per unit fiber costs in the quarter increased by approximately 5% from the same period in 2010, primarily due to higher fiber costs at our Celgar mill caused by increased competition for fiber. Fiber costs at our German mills also increased slightly due to lower harvesting rates in Germany. As we move into the fourth quarter, we expect fiber prices for our German mills to stabilize as the German fiber market remains well balanced. We expect fiber prices at our Celgar mill to increase slightly in the short term due to ongoing competition for fiber. However, we expect prices to flatten out towards the end of the year as the availability of pulp logs increases.

Selling, general and administrative expenses increased to €8.8 million from €6.9 million in the third quarter of 2010, primarily as a result of increased foreign exchange losses due to the weaker U.S. dollar relative to the Euro.

For the third quarter of 2011, operating income decreased to €35.3 million from €51.4 million in the comparative quarter of 2010, primarily due to lower pulp revenues resulting from lower sales volume and a weaker U.S. dollar relative to the Euro.

Interest expense in the third quarter of 2011 decreased to €14.1 million from €17.8 million in the comparative quarter of 2010, primarily due to the conversion of the majority of our convertible notes and reduced levels of debt associated with the Stendal mill.

Our Stendal mill recorded an unrealized loss of €10.5 million on our interest rate derivative in the current quarter, compared to an unrealized gain of €0.5 million in the same quarter of last year. We recorded a foreign exchange loss on our foreign currency denominated debt of €0.2 million in the third quarter of 2011 compared to a gain of €9.9 million in the same period last year.

During the current quarter, we recorded €3.1 million of income tax expense, compared to net income tax recoveries of €7.2 million in the same period last year, primarily due to the recognition of additional deferred tax liabilities in the current quarter, compared to the reversal of certain valuation allowances during the same period last year.

In the third quarter of 2011, the noncontrolling shareholder's interest in the Stendal mill's loss was €0.8 million, compared to income of €5.1 million in the same quarter last year.

In the third quarter of 2011, Operating EBITDA decreased to €49.2 million from €65.5 million in the third quarter of 2010, primarily due to lower pulp sales volumes and a weaker U.S. dollar relative to the Euro. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA, see page 8 of the financial tables included in this press release.

We reported net income attributable to common shareholders of €8.4 million, or €0.15 per basic and diluted share, for the third quarter of 2011, which included an aggregate non-cash unrealized loss of €10.7 million, or €0.20 per basic share, on the Stendal interest rate derivative and foreign exchange losses on our debt, and an income tax expense of €3.1 million, or €0.06 per basic share. In the third quarter of 2010, we reported net income attributable to common shareholders of €46.1 million, or €1.17 per basic and €0.82 per diluted share, which included a non-cash unrealized gain of €10.4 million, or €0.26 per basic share, on the Stendal interest rate derivative and foreign exchange gains on our debt and a net income tax benefit of €7.2 million, or €0.18 per basic share.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

Total revenues for the nine months ended September 30, 2011 increased to €660.1 million ($928.5 million) from €654.9 million ($862.3 million) in the same period in 2010. Pulp revenues for the nine months ended September 30, 2011 decreased marginally to €618.2 million from €624.1 million in the comparative period of 2010, due to slightly higher pulp prices being more than offset by lower sales volumes and a weaker U.S. dollar relative to the Euro. The U.S. dollar was approximately 6% weaker versus the Euro in the nine months ended September 30, 2011, compared to the same period of 2010. Energy revenues increased by approximately 36% to a record €42.0 million in the nine months ended September 30, 2011 from €30.8 million in the comparable period of 2010, primarily as a result of increased energy production at our Rosenthal mill and higher energy sales at our Celgar mill.

Costs and expenses for the nine months ended September 30, 2011 increased to €552.0 million from €537.6 million in the comparative period of 2010, primarily due to higher fiber costs. Our costs and expenses in the current period included approximately €9.8 million for regularly scheduled maintenance costs.

During the nine months ended September 30, 2011, we recorded €7.6 million of income tax expense, compared to net income tax recoveries of €5.6 million in the same period in 2010, primarily due to the recognition of additional deferred tax liabilities in the current period, compared to the reversal of certain valuation allowances during the same period last year.

Operating EBITDA decreased to €150.1 million in the nine months ended September 30, 2011 from €159.4 million in the comparative period of 2010 primarily due to a weaker U.S. dollar and higher fiber costs, partially offset by higher pulp prices. See the discussion of our results for the third quarter of 2011 for additional information relating to Operating EBITDA and page 8 of the financial tables for a reconciliation to net income (loss) attributable to common shareholders.

We reported net income attributable to common shareholders of €51.9 million, or €1.07 per basic and €0.92 per diluted share, for the nine months ended September 30, 2011, which included a non-cash unrealized loss of €0.6 million on the Stendal interest rate derivative, a €1.3 million non-cash foreign exchange gain on our debt, a non-cash charge for stock compensation of €2.8 million and an income tax expense of €7.6 million. In the nine months ended September 30, 2010, we reported net income attributable to common shareholders of €51.0 million, or €1.36 per basic and €0.93 per diluted share, which included non-cash unrealized losses of €15.2 million on the Stendal interest rate derivative and the foreign exchange effect on our debt and a net income tax benefit of €5.6 million.

Liquidity and Capital Resources

The following table is a summary of selected financial information for the periods indicated:

As at September 30, 2011, we had approximately €26.3 million and C$37.9 million available under our Rosenthal and Celgar facilities, respectively. As at September 30, 2011, the principal amount outstanding under the Stendal loan facility was €477.5 million.

Restricted Group

The following table is a summary of selected financial information for the Restricted Group for the periods indicated.

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, November 4, 2011 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through December 4, 2011, over the Internet at http://investor.shareholder.com/media/eventdetail.cfmeventid=1038278CompanyID=MERC8&e=1&mediakey=IAE35D7DABC3ECD95E2779DA87354812 or through a link on the Company's Investors/News Releases page at http://www.mercerint.com/s/NewsReleases.asp. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software. A replay of this call will be available approximately two hours after the live call ends until December 4, 2011 through a link on the Company's Investors/News Releases page at http://www.mercerint.com/s/NewsReleases.asp.

Mercer International Inc. is a global pulp manufacturing company. To obtain further information on the company, please visit its web site at http://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.