Attached files
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| 8-K - 8-K - MERCER INTERNATIONAL INC. | d91065d8k.htm |
Exhibit 99.1
M E R C E R
INTERNATIONAL GROUP
Jefferies 2015 Industrials Conference
August 13, 2015
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this presentation contains statements that are forward-looking, such as statements relating to results of operations and financial conditions and business development activities, as well as capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of Mercer. For more information regarding these risks and uncertainties, review Mercer’s filings with the United States Securities and Exchange Commission, including the risks disclosed under “Risk Factors” in our annual reports on Form 10-K and our quarterly reports on Form 10-Q. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 2
Mercer International Inc.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 3
Corporate Structure
Mercer’s operations have a combined annual capacity of 1.54 million air dried metric tonnes (“ADMT”) of Northern Bleached Softwood Kraft (“NBSK”) pulp production and 305 MW of electrical generation
Mercer conducts operations through three subsidiaries:
Rosenthal - Germany
the only two NBSK market pulp mills in Germany, which is Europe’s largest market for NBSK
Stendal - Germany
Celgar - BC, Canada one of the largest, most modern pulp mills in North America
MERCER
INTERNATIONAL GROUP
100%
Rosenthal - Germany
360,000 ADMT + 57 MW
100%
Celgar - BC, Canada
520,000 ADMT + 100 MW
100% (1)
Stendal - Germany
660,000 ADMT + 148 MW
(1) In September 2014, Mercer completed the acquisition of all of the shareholders’ loans, substantially all of the shares of the minority shareholder and other rights and now owns a 100% economic interest in Stendal
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 4
Strategically Located Mills with Access to Global Markets
The mills’ strategic locations position Mercer well to serve customers in Europe, North America and Asia
China – the world’s largest and fastest growing pulp import market
Germany – the largest European pulp import market
Stendal (Germany) 660,000 ADMT
Europe
Rosenthal (Germany) 360,000 ADMT
Middle East
Japan
China
Thailand
Indonesia
Celgar (B.C., Canada) 520,000 ADMT
United States
Mercer 2014 Pulp Sales by Region
Other 1%
US 4%
Other Asia 7%
Germany 32%
Italy 7%
Other EU (1) 23%
China 26%
(1) Not including Germany or Italy; includes new entrants to the European Union from their time of admission
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 5
Growing Energy and Chemical By-Product Revenues
Mercer has been a leader among paper and forest products companies in embracing the “bio-economy” by harnessing significant value from the generation of surplus power and the production of bio-chemicals
Mercer recognized the opportunity to secure new revenue streams from its operations as the marketplace turned to biomass for carbon-neutral power and renewable chemical by-products
Since energy and chemicals are by-products of our pulping process, production requires limited incremental operating expenses and sales of these products are highly profitable
Mercer’s Electricity Production and Sales
MWh (mm)
2.0
1.6
1.2
0.8
0.4
-
1.85 CAGR:
Production Exports 1.70 1.71 5.1%
1.64
1.45 1.44
0.81 CAGR:
0.65 0.71 0.70 11.0%
0.48 0.52
2009 2010 2011 2012 2013 2014
Mercer’s Energy and Chemical Revenue
Revenue (US$ mm)
$110.0
$88.0
$66.0
$44.0
$22.0
-
$101.5 CAGR:
Chemical
$94.8 $93.0 $92.2 9.8%
Energy
$65.4
$63.5
2009 2010 2011 2012 2013 2014
Green electricity and chemical by-product revenue…
a significant and growing part of Mercer’s business
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 6
Globally Cost Competitive, Modern Mill Operations
Mercer’s operations are some of the largest and most modern NBSK facilities in the world
Low production costs
Low maintenance capital requirements
High runnability / efficiency
Strong record of environmental performance
All facilities are net energy producers
NBSK Producer Competitiveness (1)(2)
Average Technical Age: 29.0 years
Average Mill Capacity (ktpa)
900
750
600
450
300
150
-
International Paper (Ilim) Newer, Larger NBSK Pulp Mills
Nanaimo Canfor Pulp Mercer
Metsä Board Weyer- haeuser West Fraser Södra Cell SCA
Catalyst
Aditya Birla Metsä Fibre Average Market Pulp Capacity per Mill: 317,762 tpa
Resolute
Older, Smaller NBSK Pulp Mills
Domtar Stora Enso UPM
Heinzel
Asia Pulp and Paper Mondi
(Paper Excellence)
Billerud- Korsnas
50.0 40.0 30.0 20.0 10.0
(1) Source: FisherSolve Q3 2015 data Average Technical Age (years)
(2) Note: NBSK market pulp only
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 7
The NBSK Market
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M ER C E R 8
Global Pulp Market
Components of the Pulp Market (1)
Chemical Pulp Demand
Bleached Hardwood Kraft 54%
Bleached Softwood Kraft 43%
Sulphite 0%
Unbleached Kraft 3%
Bleached Softwood Kraft Pulp Demand
Other 14%
SBSK 27%
NBSK 59%
Major Uses for Softwood Pulp
Northern Bleached Softwood Kraft (NBSK)
Produced From:
Spruce / Pine / Fir / Cedar
Core Production Areas:
North America, Northern Europe
Characteristics:
Long, slender, thin-walled fibers
Better softness and strength
Better structure
Tissue Specialty Paper Laminates
NBSK generally commands a higher premium relative to other kraft pulps
(1) Source: PPPC (2014A); some numbers may not add due to rounding
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 9
Demand Fundamentals – The Importance of NBSK Fibers
Fiber Characteristics
NBSK provides structural integrity for the fiber network due to length and fineness
Each NBSK fiber has three times more bonding than a BEK fiber
NBSK gives strength and resistance to strain, tear and fracture in both dry and wet states
This is advantageous not only for end products, but also for runnability of modern, fast pace paper machines
For this, NBSK cannot be completely substituted out of products that require these strength characteristics
This explains why NBSK is a meaningful component of tissues / towels and a smaller component in printing & writing grades
Pulp Fiber Bonding (1)
Softwood Fiber
Hardwood Fiber
Fiber-to-Fiber Bonding
-200 um-
Current NBSK Usage Ranges by Paper Grade (1)
% NBSK
100%
80%
60%
40%
20%
-
Tissues / Towels
75% 75%
Printing & Writing Grades
40%
35%
30% 30%
10% 10% 30%
25%
20%
10% 10% 10%
Uncoated Fine Coated Fine Light-Weight Coated SC Newsprint Bathroom / Towel Facial Tissue Napkin
(1) Source: FPInnovations (September 8, 2014 prepared for Mercer International)
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 10
Demand Fundamentals – Changes to NBSK End Use Markets
Changes to Papermakers’ Demand for NBSK
The increased NBSK demand for use in tissue / specialty products has more than offset the decreased NBSK demand for printing & writing grades
From 2003 to 2013, a period very affected by “digital substitution” of traditional paper grades, total NBSK demand grew by 13.9% (1)
Significant growth in tissue capacity is a major contributing factor and is expected to continue globally, though some projects have been delayed
NBSK Demand by End Use (1)
millions of tones
15.0
12.0
9.0
6.0
3.0
-
CAGR 2003 - 2013
Printing & Writing 30%
P&W: (6%)
Printing & Writing 61% Tissue: +10% Tissue 40%
Tissue 17%
Specialties & Others 22% Specialty & Other: +4% Specialties & Others 30%
2003 2013
Annual Tissue Capacity Growth by Region (2)
millions of tones
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
Rest of World 3.1
China
1.7
2.0
1.3 1.0
0.6
1.5
1.0
0.8
2013 2014 2015
NBSK’s strength attributes make it a necessary input for tissue and specialty products
(1) Source: PPPC (November 2014) for NBSK Demand; Brian McClay for NBSK End Uses (November 2014)
(2) Source: Brian McClay (April 2015); some numbers may not add due to rounding
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 11
Demand Fundamentals – China’s Growing Demand
Global BSK Demand by Region (1)
millions of tonnes
28.0 35%
Region: 1995-2015E CAGR
China: 14.5%
W. Europe: (0.4%)
N. America: (0.4%)
24.0 30%
Other: 2.0%
% China
20.0 25%
16.0 20%
12.0 15%
8.0 10%
4.0 5%
—
1995 2000 2005 2010 2015E
% China of Total
China’s Chemical Pulp Demand (2)
millions of tonnes
16.0 CAGR:
P&W: Woodfree 2004 – 2013
Paper Board
14.0 Tissue Kraft & Spec.: +11.1%
Fluff
Kraft & Specialty
P&W: Mechanical
12.0
10.0
8.0
Tissue: +19.0%
Paper Board: +11.4%
6.0
4.0
P&W Woodfree: +7.7%
2.0
-
2004 2007 2010 2013
(1) Source: PPPC (May 2015)
(2) Source: PPPC (2014)
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 12
Demand Fundamentals – China’s Growing Demand (Cont’d)
We believe China’s demand is growing rapidly...
China’s 12th Five-Year Plan should increase demand for NBSK
Growth in Chinese per capita tissue, wood-free, and specialty paper grade consumption is due to:
Rising living standards
Growing disposable income
Increased demand for hygiene products
Tissue Demand & Income in China (1)(2)
kg / person
6.00 $8.0
Tissue Demand per Capita
5.25 $7.0
Income per Capita
4.50 10 Year CAGR: +7.4% $6.0
3.75 $5.0
3.00 Over time, the market will easily absorb new tissue capacity $4.0
2.25 10 Year CAGR: +8.8% $3.0
1.50 $2.0
0.75 $1.0
- -
1990 1993 1996 1999 2002 2005 2008 2011
000’s US$ / person
(1) Source: PPPC (2014)
(2) Income measured at purchasing power parity in constant 2005 US dollars
(3) Source: RISI (press releases from June 26, 2015, January 6, 2015, November 26, 2014, August 22, 2014 and July 24, 2014; PPI Asia Report dated May 9, 2014; and other disclosures)
... and its pulp supply isn’t currently keeping pace
Shutting of “Old China” pulp / paper capacity
Significant closures to date, and to come
Implementing pollution and water / energy constraints to stay operating
Modern paper machines require greater volumes of NBSK to run machines at optimal rates
Focus on wood-based pulps, but limited domestic wood fiber supply, means large pulp import volumes
We believe that there is healthy demand for virgin fiber as paper recovery is nearing feasible maximums in most markets
RISI Chinese Government Mandated Closure of “Old China” Capacity (3)
2005-2009: 6.5 mm tonnes per year over 5 years
2011: 8.31 mm tonnes
2012: 10.57 mm tonnes
2013: 8.31 mm tonnes
2014E: 4.92 mm tonnes (not yet finalized)
2015E YTD April: 3.37 mm tonnes (not yet finalized)
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 13
Demand Fundamentals – Explaining the NBSK-BEK Spread
We believe that the recent decrease in the price spread is mostly attributable to greater than expected strength in BEK markets, and not weakness in NBSK markets
BEK Market Price Developments
Some market participants predicted that new hardwood supply coming from Latin America would negatively impact BEK prices; however, the supply increases have been absorbed more smoothly than expected
Believed to be due in part to strong demand from China, as many old, polluting domestic mills are being shutdown, which has left a supply gap
NBSK Market Price Developments
Despite balanced NBSK conditions last spring, we believe the introduction of the new Ilim expansion volume in China, along with trader activities, temporarily led the softwood market to over-adjust pricing
NBSK vs. BEK Price Spread in China (1)
Price Spread (US$/tonne)
$250
$200
$150
$100
$50
-
($50)
Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14
We believe that price spreads between NBSK and BEK should widen over time
(1) Source: RISI World Pulp Monthly reports
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 14
Supply Fundamentals – Net Capacity Change Analysis
Recent History
In the last few years, there have been several notable NBSK mill closures
During this time, the Ilim Bratsk mill expanded (490,000 tpa) and the Terrace Bay mill restarted (350,000 tpa)
Future Expectations
There have been several announcements for new NBSK capacity in the last year
Forecasted NBSK Supply Increases (1)
Mill Capacity
Name Company Location Year ktpa
Kymi UPM Finland 2015/2016 170
Svetlogorsk Svetlogorsk Belarus 2015/2016 **
Husum MetsäBoard Sweden 2016 150
Värö Södra Cell Sweden 2016 275
Äänekoski MetsäFibre Finland 2017/2018 700
Other Various Various Various 175
Total 1,470+
We believe that these new capacities are being motivated by expectations of NBSK demand growth and capacity decreases from:
Old, high cost mills approaching end of life conditions
Mill conversions to dissolving pulp (Aditya Birla Terrace Bay, Canada: 350,000 tpa)
Integration of market pulp (new paper machine at Mondi Štĕtí, Czech Republic: volume impact unknown)
(1) Source: Based on Hawkins Wright, PPPC, Brian McClay and public corporate disclosures
** Swing dissolving, hardwood / softwood, partially integrated – NBSK market impact not known
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 15
Financial Performance and Recent Developments
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 16
Putting NBSK’s History into Perspective
NBSK History: Price & Global Inventory (1)
NBSK Price (US$/t)
$1,100 64
Days of Global BSK Inventory Supply, Prices: Stocks are low, prices are increasing
NBSK Price
$1,000 56
$900 48
$800 40
Shortage!
$700 price surge 32
$600 24
$500 16
$400 8
$300 -
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Global BSK Inventory (# Days)
After undergoing significant changes over the past 20+ years, the market for NBSK has tightened, with the meaningful substitution of NBSK for other pulps largely completed
(1) Sources: Factset FOEX PIX Pulp NBSK for prices (European delivered, before rebates); PPPC for inventories, based on monthly World Chemical Market Pulp Flash reports
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 17
Significant Earnings Potential
Annual Consolidated Operating EBITDA (1)(2)
EBITDA (US$mm)
$360 40%
$297
$270 $233 $240 30%
$186 $173
$180 25% $138 20%
23% $101 $110 20%
19%
$90 17% $57 10%
13%
10% 10%
7%
- -
2006 2007 2008 2009 2010 2011 2012 2013 2014
EBITDA Margin
Energy & Chemical Revenue (US$mm) $33 $35 $51 $63 $65 $95 $93 $92 $101
Quarterly Consolidated Operating EBITDA (1)(2)
EBITDA (US$mm)
$100 40%
$81 $85 $87
$75 $69 $73 $69 $68 $71 30%
$61
$44 28% $59 $50
$50 26% 26% $40 $42 $42 25% 24% 20%
22% 24% $28 $28 $32 $33 $27 22%
23% $21 19% 19%
$25 18% 14% 16% $18 15% 10%
11% 12% 12%
7% 10% 7% 10%
- -
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013 2014 2015
EBITDA Margin
(1) For a Reconciliation of Net Income to Operating EBITDA, please refer to Appendix B. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. It does not reflect the impact of a number of items that affect net income. It 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
(2) The company’s reporting currency was the euro up until October 1, 2013. Figures prior to this date have been converted to US dollars at the average foreign exchange rates in effect during the period
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 18
Mercer’s Recent Developments Stendal Acquisition In September 2014, Mercer acquired all of the shareholders’ loans, substantially all of the shares of the minority shareholder and other rights in the Stendal mill to obtain a 100% economic interest Around the same time, Mercer also made a capital investment of $20 million in the mill Corporate Refinancing On November 26, 2014, Mercer completed a new senior notes debt offering $250 million in 7.00% senior notes due in 2019 $400 million in 7.75% senior notes due in 2022 The proceeds were used to refinance / repay current debt facilities, including: Two loan facilities related to the Stendal mill (totalling $499 million at September 30, 2014) 9.50% Senior Notes due in 2017 (totalling $334 million in principal at September 30, 2014) Also, certain mill level working capital facilities were created / extended; current facilities now in place include: Stendal: €75 million maturing in October 2019 Rosenthal: €25 million maturing in October 2016 and €5 million maturing in December 2015 Celgar: C$40 million maturing in May 2019 An estimated $168 million of cash was used from the balance to permanently delever long term debt As at June 30, 2015, Mercer’s debt outstanding to LTM EBITDA was 2.8x Initiated Dividend Quarterly cash dividend of $0.115 per share to commence First dividend to be paid on October 5, 2015 to shareholders of record on September 28, 2015 NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 19
Mercer’s Recent Developments (Cont’d) Leadership Transition Plan On July 20, 2015, the following management changes became effective: Jimmy S.H. Lee transitioned from CEO, President and Chairman into the role of Executive Chairman of the Board David M. Gandossi transitioned from Executive Vice-President, CFO and Secretary to the role of President and CEO, in addition to joining the Board as a Director David K. Ure, the Senior Vice-President, Finance concurrently became the CFO and Secretary Capital Projects Rosenthal’s new 6,000 tonne per year tall oil plant became fully operational in Q4 2014, on schedule and on budget Stendal’s Project Blue Mill was completed on schedule and on budget in Q4 2013 Enhanced pulp production capacity (30,000 ADMT per year) and added new electrical generating capacity (46 MW) NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 20
Mercer’s Refinancing Actions Repaid Stendal Loan Facility Lowered coupon rate on senior notes Used cash on balance sheet to lower overall debt levels Impacts Simplified corporate structure Removed Restricted vs. Unrestricted Group Lowered future interest payments Permanently delevered the balance sheet Mercer Debt Summary 30-Sept-14 30-Jun-15 Pre-Refinancing Post-Refinancing US$mm US$mm Cash $240 $91 (1) Stendal Loan Facility $499 - 2017 Senior Notes (9.50%) $334 (2) - 2019 Senior Notes (7.00%) - $250 2022 Senior Notes (7.75%) - $400 Other Secured Debt $23 (3) $10 (4) Operating Facilities - $33 Total Debt $856 $693 Total Net Debt $616 $602 LTM EBITDA $196 $250 Debt to EBITDA 4.4x 2.8x Net Debt to EBITDA 3.2x 2.4x The refinancing has delevered and simplified Mercer’s corporate structure Note: Interest rate swap remains in place post-transaction; the swap matures in October 2017 and represents a fair value liability of US$23.3 million as at June 30, 2015, which is not included in Total Debt (1) Excludes restricted cash (2) Principal amount, does not include premium (3) Includes capital leases and payment-in-kind note issued to finance the acquisition of substantially all of the shareholder loans / minority shareholder interests in our Stendal mill (4) Includes capital leases only (payment-in-kind note was repaid in April 2015) NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 21
Mercer – Summary The largest “pure-play” NBSK market pulp producer Strong long-term NBSK fundamentals Globally cost competitive, modern mill operations Strategically located mills with excellent access to key markets Stable and growing revenue from high-margin energy & bio-chemical by-product sales Delevered and flexible capital structure that can be optimized Recently commenced dividend Experienced management team NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 22
Appendix A
Detailed Overview of Operations
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 23
Rosenthal Mill
Location: Blankenstein, Germany (~300 km south of Berlin)
Pulp Production Capacity: 360,000 ADMT per year
Electricity Generating Capacity: 57 MW
Certification: ISO 9001, 14001, and 50001
2014 Green Electricity Sales: $21.9 million
Key Features:
Built in 1999 – modern and efficient
Strategically located in central Europe
Close proximity to stable fiber supply and nearby sawmills
Allows customers to operate using just-in-time inventory process, lowering their costs and making Rosenthal a preferred supplier
One of the largest biomass power plants in Germany
In 2014, the mill sold 178,266 MWh of green electricity
Regularly setting new pulp and energy production records
New 6,000 tonne per year tall oil plant became operational in Q4 2014; the project was completed on time and on budget
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 24
Celgar Mill
Location: Castlegar, BC, Canada (~600 km east of Vancouver)
Pulp Production Capacity: 520,000 ADMT per year
Electricity Generating Capacity: 100 MW
Certification: ISO 9001 and 14001
2014 Green Electricity Sales: $10.1 million
Key Features:
Modern and efficient
Abundant and low cost fiber, by global standards
Green Energy Project was completed in September 2010
In 2014, the mill sold 119,719 MWh of green electricity
Secured C$57.7 million in non-repayable capital funding from government of Canada for green capital investments
Majority used to fund Green Energy Project
Continues to demonstrate significant upside potential
Regularly setting production records and increasing the amount of bio-energy generated
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 25
Stendal Mill
Location: Stendal, Germany (~130 km west of Berlin)
Pulp Production Capacity: 660,000 ADMT per year
Electricity Generating Capacity: 148 MW
Certification: ISO 9001 and 14001
2014 Green Electricity Sales: $56.8 million
2014 Chemical Sales: $12.5 million
Key Features:
Completed in 2004, it’s one of the newest and largest pulp mills in the world
In September 2014, Mercer completed the acquisition of all of the shareholders’ loans, substantially all of the shares of the minority shareholder and other rights in the Stendal mill
One of the largest biomass power plants in Germany
In 2014, exported 509,773 MWh
Project Blue Mill was completed in Q4 2013 (on time and on budget) and increased the mill’s annual pulp production capacity by 30,000 ADMT and electricity generation by 109,000 MWh
Regularly setting new performance records
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 26
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Appendix B
Reconciliation of Net Income to Operating EBITDA
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 27
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Reconciling Net Income to Operating EBITDA
in US$ millions 2012 2013 2014 Q2 2014 (1) Q2 2015 (1)
Net Income (Loss) Attributable to Common Shareholders ($15.7) ($26.4) $113.2 $21.6 $30.0
Add: Net Income Attributable to Non-Controlling Interest $2.2 $0.6 $7.8 $4.3 - (2)
Add: Income Tax Provision (Benefit) $9.4 $9.2 ($16.8) $6.4 $15.2
Add: Interest Expense $71.8 $69.2 $67.5 $34.6 $27.4
Add: Loss (Gain) on Derivative Instruments ($4.8) ($19.7) ($11.5) ($5.8) $0.4
Add: Other Expense (Income) $0.2 ($1.2) $1.6(3) $0.1 $4.5 (4)
Operating Income $63.0 $31.7 $161.8 $61.3 $77.5
Add: Depreciation and Amortization $74.7 $78.6 $78.0 $39.6 $33.9
Operating EBITDA $137.7 $110.3 $239.8 $100.9 $111.3
Note: For other reconciliations of Net Income (Loss) to Operating EBITDA in periods not shown here, please refer to that period’s respective Form 10-Q or 10-K, which can be found on our website (www.mercerint.com)
(1) Quarterly data represents 6 months ended June 30; some numbers may not add due to rounding
(2) Completed acquisition of minority interest in September 2014
(3) Includes debt settlement gain of $31.9 million related to the acquisition of the minority shareholder debt at Stendal and debt settlement loss of $20.5 million related to the 2017 Senior Notes
(4) Includes foreign exchange loss on intercompany debt of $4.4 million
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 (loss) as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss) attributable to common shareholders, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under the accounting principles generally accepted in the United States of America (“GAAP”), and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity.
Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. 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.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com M E R C E R 28