Exhibit 99.1

 

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS 2012 SECOND QUARTER RESULTS

NEW YORK, NY, August 2, 2012 - Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported results for the second quarter ended June 30, 2012. Operating EBITDA* in the second quarter of 2012 was €32.9 million ($42.2 million), compared to €50.1 million ($72.1 million) in the second quarter of 2011 and €30.6 million ($40.1 million) in the first quarter of 2012.

For the second quarter of 2012, we had net income of €1.5 million ($1.9 million), or €0.03 ($0.04) per basic share, compared to net income of €14.4 million ($20.7 million), or €0.32 ($0.46) per basic share, in the second quarter of 2011 and net income of €1.2 million ($1.6 million), or €0.02 ($0.03) per basic share, for the first quarter of 2012.

Summary Financial Highlights

 

		Q2				Q1				Q2				YTD				YTD
		2012				2012				2011				2012				2011
		(in millions of Euros, other than per share amounts)
Pulp revenues		€	186.0			€	199.4			€	217.3			€	385.5			€	427.7
Energy and chemical revenues			18.0				18.9				17.2				36.9				33.1
Operating income			18.3				16.2				36.2				34.5				72.9
Operating EBITDA			32.9				30.6				50.1				63.5				100.9
Gain (loss) on derivative instruments			1.3				0.9				(2.3	)			2.2				9.9
Foreign exchange gain on debt			—				—				0.3				—				1.5
Income tax benefit (provision)			(2.3	)			(0.7	)			(3.6	)			(3.0	)			(4.4	)
Net income attributable to common shareholders			1.5				1.2				14.4				2.7				43.4
Net income per share attributable to common shareholders
Basic		€	0.03			€	0.02			€	0.32			€	0.05			€	0.97
Diluted		€	0.03			€	0.02			€	0.26			€	0.05			€	0.77
Common shares outstanding at period end (000s)			55,816				55,779				45,828				55,816				45,828
Summary Operating Highlights
		Q2				Q1				Q2				YTD				YTD
		2012				2012				2011				2012				2011
Pulp production (‘000 ADMTs)			365.0				380.3				367.9				745.4				726.5
Scheduled production downtime (‘000 ADMTs)			22.6				—				16.2				22.6				19.9
Pulp sales (‘000 ADMTs)			349.2				384.8				357.6				734.0				706.6
Average NBSK pulp list price in Europe ($/ADMT)(1)			837				837				1,017				837				988
Average NBSK pulp list price in Europe (€/ADMT)			652				638				706				645				704
Average pulp sales realizations (€/ADMT)(2)			526				512				599				519				596

 

(1)	Source: RISI, PPPC pricing report.

(2)	Average realized pulp prices for the periods indicated reflect customer discounts and pulp price movements between the order and shipment date.

 

*

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 12 of the financial tables included in this press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

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		Q2				Q1				Q2				YTD				YTD
		2012				2012				2011				2012				2011
Energy production (‘000 MWh)			425.4				436.2				419.6				861.7				827.3
Energy sales (‘000 MWh)			182.7				182.4				175.9				365.1				333.8
Average spot currency exchange rates:
€ / $(3)			0.7795				0.7623				0.6946				0.7710				0.7122
C$ / $(3)			1.0102				1.0009				0.9677				1.0056				0.9765
C$ / €(4)			1.2959				1.3129				1.3934				1.3044				1.3711

 

(3)	Average Federal Reserve Bank of New York noon spot rate over the reporting period.

(4)	Average Bank of Canada noon spot rate over the reporting period.

President’s Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: “Despite a weak NBSK pulp price environment and approximately 23 days of scheduled maintenance downtime at our Rosenthal mill, we achieved Operating EBITDA of €32.9 million, primarily as a result of strong pulp production at our Celgar and Stendal mills combined with strong energy sales at all of our mills.”

Mr. Lee continued: “Pulp prices decreased in the second quarter of 2012 due to economic uncertainty in Europe and a softening of Chinese demand. Overall, at the end of the second quarter, list prices in Europe were approximately $820 per ADMT and in North America and China were approximately $900 and $660 per ADMT, respectively. Although we currently believe that NBSK pulp prices will decline slightly during the traditionally slower summer months, we believe that the market is bottoming and we currently anticipate that NBSK pulp prices will begin to gradually increase in the medium term.”

Mr. Lee added: “We continue to implement capital projects designed to enhance our mills’ technical capabilities and improve operating efficiencies. We completed an upgrade to the Rosenthal mill’s recovery boiler in the second quarter of 2012 to reduce the mill’s emissions, increase production capacity and lower operating costs. Our Project Blue Mill at our Stendal mill is also currently on schedule.”

Mr. Lee continued: “Fiber costs at our German mills continued to decline primarily due to weak demand from European particle board producers. We also currently anticipate that our Celgar mill’s fiber costs will begin to decline slightly in the third quarter.”

Mr. Lee concluded: “In connection with our focus on the growing bio-energy market, our Stendal mill had €3.2 million in revenues from the sale of a bio-chemical called tall oil. Tall oil is a by-product of our production process and is used as both a chemical additive and as a green energy source. We currently expect the proceeds from the sale of tall oil to remain stable in future periods.”

 

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Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Total revenues for the three months ended June 30, 2012 decreased to €204.1 million ($261.9 million) from €234.5 million ($337.7 million) in the same period in 2011, due to lower average pulp realizations. Pulp revenues for the three months ended June 30, 2012 decreased to €186.0 million from €217.3 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro.

Revenues from the sale of excess energy increased by approximately 6% in the second quarter to €14.8 million from €13.9 million in the same quarter last year, as a result of higher energy sales at our Celgar mill and record energy sales at our Stendal mill. Revenues from the sale of a biochemical called “tall oil” were €3.2 million in the second quarter, compared to €3.3 million in the same period last year.

Pulp production marginally decreased to 365,047 ADMTs in the second quarter, from 367,914 ADMTs in the same quarter of 2011, primarily due to annual maintenance shut down at our Rosenthal mill, partially offset by increased production rates at our Celgar and Stendal mills. We had 23 days (approximately 22,600 ADMTs) of scheduled maintenance downtime at our Rosenthal mill in the second quarter of 2012 in order to perform annual maintenance and to upgrade the mill’s recovery process.

Pulp sales volume marginally decreased to 349,177 ADMTs in the second quarter from 357,585 ADMTs in the comparative period of 2011, primarily as a result of decreased demand in Europe. Average pulp sales realizations decreased to €526 ($675) per ADMT in the second quarter of 2012, compared to €599 ($863) per ADMT in the same period last year, due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro.

Costs and expenses in the second quarter of 2012 decreased to €185.8 million from €198.3 million in the comparative period of 2011, primarily due to lower fiber costs.

On average, our per unit fiber costs in the current quarter decreased by approximately 7% from the same period in 2011, due to lower fiber costs in Germany caused by reduced demand for fiber from the European particle board industry. Fiber costs at our Celgar mill were slightly higher, primarily due to increased demand for fiber. As we move into the third quarter, we currently expect fiber prices at our German mills to decrease slightly due to continued weakness in the particle board industry, partially offset by reduced harvesting rates, while we currently expect fiber prices at our Celgar mill to decline slightly through the third quarter due to increased sawmill activity.

 

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Selling, general and administrative expenses were unchanged at €8.6 million in the second quarter of 2012, compared to the second quarter of 2011.

For the second quarter of 2012, operating income decreased to €18.3 million from €36.2 million in the comparative quarter of 2011, primarily due to lower average pulp realizations, partially offset by a stronger U.S. dollar relative to the Euro.

Interest expense in the second quarter of 2012 decreased to €13.9 million from €14.9 million in the comparative quarter of 2011, primarily due to the conversion of our remaining convertible notes in 2011 and lower debt levels associated with the Stendal mill.

Our Stendal mill recorded an unrealized loss of €0.3 million on our interest rate derivative in the current quarter, compared to an unrealized loss of €2.3 million in the same quarter of last year. We also recorded an unrealized gain of €1.6 million related to a fixed price pulp swap contract entered into in the second quarter of 2012.

In the second quarter of 2012, the noncontrolling shareholder’s interest in the Stendal mill’s income was €1.6 million, compared to €1.5 million in the same quarter last year.

In the second quarter of 2012, Operating EBITDA decreased to €32.9 million from €50.1 million in the second quarter of 2011. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 12 of the financial tables included in the press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

We reported net income attributable to common shareholders of €1.5 million, or €0.03 per basic and diluted share, for the second quarter of 2012. In the second quarter of 2011, we reported net income attributable to common shareholders of €14.4 million, or €0.32 per basic and €0.26 per diluted share.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Total revenues for the six months ended June 30, 2012 decreased to €422.4 million ($548.0 million) from €460.8 million ($647.0 million) in the same period in 2011, due to lower average pulp realizations, partially offset by higher energy revenues. Pulp revenues for the six months ended June 30, 2012 decreased to €385.5 million from €427.7 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro.

 

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Revenues from the sale of excess energy increased by approximately 12% in the first half of 2012 to a record €30.9 million from €27.6 million in the same period last year, as a result of strong pulp production at our Stendal and Celgar mills. Revenues from the sale of tall oil increased to €6.0 million in the first half of 2012, compared to €5.5 million in the same period last year.

Costs and expenses in the first half of 2012 remained relatively stable at €387.9 million, compared to €388.0 million in the same period of 2011, primarily due to higher sales volumes offset by reduced fiber costs.

On average, our per unit fiber costs in the first half of 2012 decreased by approximately 5% from the same period in 2011, primarily due to lower fiber costs in Germany caused by decreased demand from the European particle board industry.

For the first half of 2012, operating income decreased to €34.5 million from €72.9 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by a stronger U.S. dollar relative to the Euro.

Interest expense in the first half of 2012 decreased to €28.0 million from €30.8 million in the comparative period of 2011, primarily due to the conversion of our remaining convertible notes in 2011 and lower debt levels associated with the Stendal mill.

In the first half of 2012, Operating EBITDA decreased to €63.5 million from €100.9 million in the first half of 2011. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 12 of the financial tables included in the press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

We reported net income attributable to common shareholders of €2.7 million, or €0.05 per basic and diluted share, for the first half of 2012, which included a non-cash unrealized gain of €2.2 million on the pulp price and Stendal interest rate derivatives, partially offset by a non-cash charge for stock compensation of €0.9 million. In the first half of 2011, we reported net income attributable to common shareholders of €43.4 million, or €0.97 per basic and €0.77 per diluted share, which included a non-cash unrealized gain of €9.9 million on the Stendal interest rate derivative and a €1.5 million non-cash foreign currency translation gain on our debt, partially offset by a non-cash charge for stock compensation of €2.5 million.

 

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Liquidity and Capital Resources

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

 

		As at June 30, 2012				As at December 31, 2011
		(in thousands)
Financial Position
Cash and cash equivalents		€	130,887			€	105,072
Marketable securities(1)			10,368				12,372
Working capital			239,354				247,159
Property, plant and equipment			816,892				820,974
Total assets			1,225,695				1,217,250
Long-term liabilities			795,087				807,641
Total equity			289,868				283,542

 

(1)	Principally comprised of German federal government bonds with a maturity of less than one year.

As at June 30, 2012, we had approximately €26.4 million and C$36.3 million available under our Rosenthal and Celgar facilities, respectively. As at June 30, 2012, approximately €467.9 million was outstanding under our Stendal mill’s loan facility, compared to €486.1 million as at June 30, 2011.

Restricted Group

The following table is a summary of selected financial information for the Restricted Group (which, under the indenture for our 2017 9.5% Senior Notes, is comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills) as at the dates indicated:

 

		As at June 30, 2012				As at December 31, 2011
		(in thousands)
Financial Position
Cash and cash equivalents		€	50,096			€	44,829
Marketable securities(1)			10,368				12,372
Working capital			141,916				149,973
Property, plant and equipment			355,633				353,925
Total assets			665,623				658,844
Long-term liabilities			267,713				262,770
Total equity			342,869				344,415

 

(1)	Principally comprised of German federal government bonds with a maturity of less than one year.

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, August 3, 2012 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived

 

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through September 3, 2012, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=116555&Company ID=MERC&e=1&mediaKey=1AE35D7DABC3ECD95E2779DA87354812 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. A replay of this call will be available approximately two hours after the live call ends until September 3, 2012 at 11:59 PM (Eastern Standard Time) 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.

APPROVED BY:

Jimmy S.H. Lee

Chairman & President

(604) 684-1099

David M. Gandossi

Executive Vice-President &

Chief Financial Officer

(604) 684-1099

-FINANCIAL TABLES FOLLOW-

 

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MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands of Euros)

 

		June 30, 2012				December 31, 2011
ASSETS
Current assets
Cash and cash equivalents		€	130,887			€	105,072
Marketable securities			10,201				12,216
Receivables			103,923				120,487
Inventories			118,220				120,539
Prepaid expenses and other			8,592				8,162
Deferred income tax			8,271				6,750
Total current assets			380,094				373,226
Long-term assets
Property, plant and equipment			816,892				820,974
Deferred note issuance and other			12,561				10,763
Deferred income tax			16,148				12,287
			845,601				844,024
Total assets		€	1,225,695			€	1,217,250
LIABILITIES
Current liabilities
Accounts payable and other		€	103,879			€	99,640
Pension and other post-retirement benefit obligations			773				756
Debt			36,088				25,671
Total current liabilities			140,740				126,067
Long-term liabilities
Debt			694,150				708,415
Unrealized interest rate derivative losses			51,791				52,391
Pension and other post-retirement benefit obligations			31,798				31,197
Capital leases and other			13,453				13,053
Deferred income tax			3,895				2,585
			795,087				807,641
Total liabilities			935,827				933,708
EQUITY
Shareholders’ equity
Share capital			248,371				247,642
Paid-in capital			(4,726	)			(4,857	)
Retained earnings			40,673				37,985
Accumulated other comprehensive income			21,825				21,346
Total shareholders’ equity			306,143				302,116
Noncontrolling deficit			(16,275	)			(18,574	)
Total equity			289,868				283,542
Total liabilities and equity		€	1,225,695			€	1,217,250

 

(1)

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MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands of Euros, except per share data)

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2012				2011				2012				2011
Revenues
Pulp		€	186,036			€	217,274			€	385,475			€	427,732
Energy and chemicals			18,026				17,221				36,945				33,093
			204,062				234,495				422,420				460,825
Costs and expenses
Operating costs			162,617				175,815				340,387				341,365
Operating depreciation and amortization			14,525				13,869				28,812				27,945
			26,920				44,811				53,221				91,515
Selling, general and administrative expenses			8,624				8,600				18,682				18,660
Operating income			18,296				36,211				34,539				72,855
Other income (expense)
Interest expense			(13,863	)			(14,883	)			(27,996	)			(30,789	)
Gain (loss) on derivative instruments			1,343				(2,339	)			2,219				9,904
Foreign exchange gain on debt			—				342				—				1,453
Other income (expense)			(368	)			136				(778	)			463
Total other income (expense)			(12,888	)			(16,744	)			(26,555	)			(18,969	)
Income before income taxes			5,408				19,467				7,984				53,886
Income tax benefit (provision) – current			(6,281	)			(1,478	)			(6,337	)			(2,297	)
– deferred			4,016				(2,140	)			3,340				(2,140	)
Net income			3,143				15,849				4,987				49,449
Less: net income attributable to noncontrolling interest			(1,628	)			(1,466	)			(2,299	)			(6,013	)
Net income attributable to common shareholders		€	1,515			€	14,383			€	2,688			€	43,436
Net income per share attributable to common shareholders
Basic		€	0.03			€	0.32			€	0.05			€	0.97
Diluted		€	0.03			€	0.26			€	0.05			€	0.77

 

(2)

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MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of Euros)

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2012				2011				2012				2011
Cash flows from (used in) operating activities
Net income attributable to common shareholders		€	1,515			€	14,383			€	2,688			€	43,436
Adjustments to reconcile net income attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			(1,343	)			2,339				(2,219	)			(9,904	)
Foreign exchange gain on debt			—				(342	)			—				(1,453	)
Depreciation and amortization			14,588				13,929				28,938				28,067
Accretion expense			—				289				—				759
Noncontrolling interest			1,628				1,466				2,299				6,013
Deferred income taxes			(4,016	)			2,140				(3,340	)			2,140
Stock compensation expense			(6	)			471				862				2,539
Pension and other post-retirement expense, net of funding			(41	)			7				(55	)			(7	)
Other			73				919				866				1,603
Changes in current assets and liabilities
Receivables			12,338				5,523				15,023				12,700
Inventories			(8,296	)			(8,399	)			3,442				(4,086	)
Accounts payable and accrued expenses			805				(833	)			3,454				24,555
Other			(86	)			485				1,338				844
Net cash from (used in) operating activities			17,159				32,377				53,296				107,206
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(9,838	)			(7,756	)			(18,303	)			(15,825	)
Proceeds on sale of property, plant and equipment			113				27				339				380
Proceeds on sale of marketable securities			2,008				—				2,008				—
Note receivable			—				375				—				771
Net cash from (used in) investing activities			(7,717	)			(7,354	)			(15,956	)			(14,674	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(1,584	)			—				(11,710	)			(30,351	)
Repayment of capital lease obligations			(448	)			(638	)			(1,059	)			(1,493	)
Repayment of credit facilities, net			(3,759	)			—				—				(14,652	)
Payment of note issuance costs			—				—				(1,621	)			—
Proceeds from government grants			1,692				4,837				2,322				8,949
Net cash from (used in) financing activities			(4,099	)			4,199				(12,068	)			(37,547	)
Effect of exchange rate changes on cash and cash equivalents			1,348				(668	)			543				(2,212	)
Net increase in cash and cash equivalents			6,691				28,554				25,815				52,773
Cash and cash equivalents, beginning of period			124,196				123,241				105,072				99,022
Cash and cash equivalents, end of period		€	130,887			€	151,795			€	130,887			€	151,795

 

(3)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands of Euros)

The terms of the indenture governing our 9.5% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer International Inc. and our restricted subsidiaries under the indenture, collectively referred to as the “Restricted Group”. As at and during the three and six months ended June 30, 2012 and 2011, the Restricted Group was comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills. The Restricted Group excludes the Stendal mill.

 

		June 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
ASSETS
Current assets
Cash and cash equivalents		€	50,096			€	80,791			€	—			€	130,887
Marketable securities			10,201				—				—				10,201
Receivables			55,430				48,493				—				103,923
Inventories			70,562				47,658				—				118,220
Prepaid expenses and other			5,749				2,843				—				8,592
Deferred income tax			4,919				3,352				—				8,271
Total current assets			196,957				183,137				—				380,094
Long-term assets
Property, plant and equipment			355,633				461,259				—				816,892
Deferred note issuance and other			6,384				6,177				—				12,561
Deferred income tax			8,878				7,270				—				16,148
Due from unrestricted group			97,771				—				(97,771	)			—
Total assets		€	665,623			€	657,843			€	(97,771	)		€	1,225,695
LIABILITIES
Current liabilities
Accounts payable and other		€	53,180			€	50,699			€	—			€	103,879
Pension and other post-retirement benefit obligations			773				—				—				773
Debt			1,088				35,000				—				36,088
Total current liabilities			55,041				85,699				—				140,740
Long-term liabilities
Debt			225,560				468,590				—				694,150
Due to restricted group			—				97,771				(97,771	)			—
Unrealized interest rate derivative losses			—				51,791				—				51,791
Pension and other post-retirement benefit obligations			31,798				—				—				31,798
Capital leases and other			6,460				6,993				—				13,453
Deferred income tax			3,895				—				—				3,895
Total liabilities			322,754				710,844				(97,771	)			935,827
EQUITY
Total shareholders’ equity (deficit)			342,869				(36,726	)			—				306,143
Noncontrolling deficit			—				(16,275	)			—				(16,275	)
Total liabilities and equity		€	665,623			€	657,843			€	(97,771	)		€	1,225,695

 

(4)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands of Euros)

 

		December 31, 2011
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
ASSETS
Current assets
Cash and cash equivalents		€	44,829			€	60,243			€	—			€	105,072
Marketable securities			12,216				—				—				12,216
Receivables			62,697				57,790				—				120,487
Inventories			71,692				48,847				—				120,539
Prepaid expenses and other			5,019				3,143				—				8,162
Deferred income tax			5,179				1,571				—				6,750
Total current assets			201,632				171,594				—				373,226
Long-term assets
Property, plant and equipment			353,925				467,049				—				820,974
Deferred note issuance and other			5,971				4,792				—				10,763
Deferred income tax			8,492				3,795				—				12,287
Due from unrestricted group			88,824				—				(88,824	)			—
Total assets		€	658,844			€	647,230			€	(88,824	)		€	1,217,250
LIABILITIES
Current liabilities
Accounts payable and other		€	49,815			€	49,825			€	—			€	99,640
Pension and other post-retirement benefit obligations			756				—				—				756
Debt			1,088				24,583				—				25,671
Total current liabilities			51,659				74,408				—				126,067
Long-term liabilities
Debt			222,384				486,031				—				708,415
Due to restricted group			—				88,824				(88,824	)			—
Unrealized interest rate derivative losses			—				52,391				—				52,391
Pension and other post-retirement benefit obligations			31,197				—				—				31,197
Capital leases and other			6,604				6,449				—				13,053
Deferred income tax			2,585				—				—				2,585
Total liabilities			314,429				708,103				(88,824	)			933,708
EQUITY
Total shareholders’ equity (deficit)			344,415				(42,299	)			—				302,116
Noncontrolling deficit			—				(18,574	)			—				(18,574	)
Total liabilities and equity		€	658,844			€	647,230			€	(88,824	)		€	1,217,250

 

(5)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Operations

(Unaudited)

(In thousands of Euros)

 

		Three Months Ended June 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	103,745			€	82,291			€	—			€	186,036
Energy and chemicals			6,460				11,566				—				18,026
			110,205				93,857				—				204,062
Operating costs			94,762				67,855				—				162,617
Operating depreciation and amortization			7,807				6,718				—				14,525
Selling, general and administrative expenses			5,406				3,218				—				8,624
			107,975				77,791				—				185,766
Operating income			2,230				16,066				—				18,296
Other income (expense)
Interest expense			(5,934	)			(9,312	)			1,383				(13,863	)
Gain (loss) on derivative instruments			1,619				(276	)			—				1,343
Other income (expense)			915				100				(1,383	)			(368	)
Total other income (expense)			(3,400	)			(9,488	)			—				(12,888	)
Income (loss) before income taxes			(1,170	)			6,578				—				5,408
Income tax provision			(1,398	)			(867	)			—				(2,265	)
Net income (loss)			(2,568	)			5,711				—				3,143
Less: net income attributable to noncontrolling interest			—				(1,628	)			—				(1,628	)
Net income (loss) attributable to common shareholders		€	(2,568	)		€	4,083			€	—			€	1,515

 

		Three Months Ended June 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	125,238			€	92,036			€	—			€	217,274
Energy and chemicals			5,701				11,520				—				17,221
			130,939				103,556				—				234,495
Operating costs			100,209				75,606				—				175,815
Operating depreciation and amortization			7,401				6,468				—				13,869
Selling, general and administrative expenses			5,301				3,299				—				8,600
			112,911				85,373				—				198,284
Operating income			18,028				18,183				—				36,211
Other income (expense)
Interest expense			(6,433	)			(9,684	)			1,234				(14,883	)
Gain (loss) on derivative instruments			—				(2,339	)			—				(2,339	)
Foreign exchange gain on debt			342				—				—				342
Other income (expense)			1,305				65				(1,234	)			136
Total other income (expense)			(4,786	)			(11,958	)			—				(16,744	)
Income before income taxes			13,242				6,225				—				19,467
Income tax provision			(2,851	)			(767	)			—				(3,618	)
Net income			10,391				5,458				—				15,849
Less: net income attributable to noncontrolling interest			—				(1,466	)			—				(1,466	)
Net income attributable to common shareholders		€	10,391			€	3,992			€	—			€	14,383

 

(6)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Operations

(Unaudited)

(In thousands of Euros)

 

		Six Months Ended June 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	213,634			€	171,841			€	—			€	385,475
Energy and chemicals			14,451				22,494				—				36,945
			228,085				194,335				—				422,420
Operating costs			193,098				147,289				—				340,387
Operating depreciation and amortization			15,447				13,365				—				28,812
Selling, general and administrative expenses			11,927				6,755				—				18,682
			220,472				167,409				—				387,881
Operating income			7,613				26,926				—				34,539
Other income (expense)
Interest expense			(11,744	)			(18,976	)			2,724				(27,996	)
Gain (loss) on derivative instruments			1,619				600				—				2,219
Other income (expense)			1,740				206				(2,724	)			(778	)
Total other income (expense)			(8,385	)			(18,170	)			—				(26,555	)
Income (loss) before income taxes			(772	)			8,756				—				7,984
Income tax provision			(2,113	)			(884	)			—				(2,997	)
Net income (loss)			(2,885	)			7,872				—				4,987
Less: net income attributable to noncontrolling interest			—				(2,299	)			—				(2,299	)
Net income (loss) attributable to common shareholders		€	(2,885	)		€	5,573			€	—			€	2,688

 

		Six Months Ended June 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	240,464			€	187,268			€	—			€	427,732
Energy and chemicals			11,547				21,546				—				33,093
			252,011				208,814				—				460,825
Operating costs			186,200				155,165				—				341,365
Operating depreciation and amortization			15,015				12,930				—				27,945
Selling, general and administrative expenses			11,492				7,168				—				18,660
			212,707				175,263				—				387,970
Operating income			39,304				33,551				—				72,855
Other income (expense)
Interest expense			(13,706	)			(19,535	)			2,452				(30,789	)
Gain (loss) on derivative instruments			—				9,904				—				9,904
Foreign exchange gain on debt			1,453				—				—				1,453
Other income (expense)			2,584				331				(2,452	)			463
Total other income (expense)			(9,669	)			(9,300	)			—				(18,969	)
Income before income taxes			29,635				24,251				—				53,886
Income tax provision			(3,375	)			(1,062	)			—				(4,437	)
Net income			26,260				23,189				—				49,449
Less: net income attributable to noncontrolling interest			—				(6,013	)			—				(6,013	)
Net income attributable to common shareholders		€	26,260			€	17,176			€	—			€	43,436

 

(7)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of Euros)

 

		Three Months Ended June 30, 2012
		Restricted Group				Unrestricted Group				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	(2,568	)		€	4,083			€	1,515
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			(1,619	)			276				(1,343	)
Depreciation and amortization			7,870				6,718				14,588
Noncontrolling interest			—				1,628				1,628
Deferred income taxes			1,240				(5,256	)			(4,016	)
Stock compensation expense			(6	)			—				(6	)
Pension and other post-retirement expense, net of funding			(41	)			—				(41	)
Other			(535	)			608				73
Changes in current assets and liabilities
Receivables			7,833				4,505				12,338
Inventories			(1,765	)			(6,531	)			(8,296	)
Accounts payable and accrued expenses			(3,155	)			3,960				805
Other(1)			(1,514	)			1,428				(86	)
Net cash from (used in) operating activities			5,740				11,419				17,159
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(8,815	)			(1,023	)			(9,838	)
Proceeds on sale of property, plant and equipment			51				62				113
Proceeds on sale of marketable securities			2,008				—				2,008
Net cash from (used in) investing activities			(6,756	)			(961	)			(7,717	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(1,584	)			—				(1,584	)
Repayment of capital lease obligations			(180	)			(268	)			(448	)
Repayment of credit facilities			(3,759	)			—				(3,759	)
Proceeds from government grants			1,692				—				1,692
Net cash from (used in) financing activities			(3,831	)			(268	)			(4,099	)
Effect of exchange rate changes on cash and cash equivalents			1,348				—				1,348
Net increase (decrease) in cash and cash equivalents			(3,499	)			10,190				6,691
Cash and cash equivalents, beginning of period			53,595				70,601				124,196
Cash and cash equivalents, end of period		€	50,096			€	80,791			€	130,887

 

(1)	Includes intercompany working capital related transactions.

 

(8)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of Euros)

 

		Three Months Ended June 30, 2011
		Restricted Group				Unrestricted Group				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	10,391			€	3,992			€	14,383
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			—				2,339				2,339
Foreign exchange gain on debt			(342	)			—				(342	)
Depreciation and amortization			7,461				6,468				13,929
Accretion expense			289				—				289
Noncontrolling interest			—				1,466				1,466
Deferred income taxes			2,140				—				2,140
Stock compensation expense			471				—				471
Pension and other post-retirement expense, net of funding			7				—				7
Other			232				687				919
Changes in current assets and liabilities
Receivables			7,972				(2,449	)			5,523
Inventories			2,616				(11,015	)			(8,399	)
Accounts payable and accrued expenses			2,721				(3,554	)			(833	)
Other(1)			(2,147	)			2,632				485
Net cash from (used in) operating activities			31,811				566				32,377
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(6,293	)			(1,463	)			(7,756	)
Proceeds on sale of property, plant and equipment			16				11				27
Note receivable			375				—				375
Net cash from (used in) investing activities			(5,902	)			(1,452	)			(7,354	)
Cash flows from (used in) financing activities
Repayment of capital lease obligations			(339	)			(299	)			(638	)
Proceeds from government grants			4,837				—				4,837
Net cash from (used in) financing activities			4,498				(299	)			4,199
Effect of exchange rate changes on cash and cash equivalents			(668	)			—				(668	)
Net increase (decrease) in cash and cash equivalents			29,739				(1,185	)			28,554
Cash and cash equivalents, beginning of period			57,202				66,039				123,241
Cash and cash equivalents, end of period		€	86,941			€	64,854			€	151,795

 

(1)	Includes intercompany working capital related transactions.

 

(9)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of Euros)

 

		Six Months Ended June 30, 2012
		Restricted Group				Unrestricted Group				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	(2,885	)		€	5,573			€	2,688
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			(1,619	)			(600	)			(2,219	)
Depreciation and amortization			15,573				13,365				28,938
Noncontrolling interest			—				2,299				2,299
Deferred income taxes			1,916				(5,256	)			(3,340	)
Stock compensation expense			862				—				862
Pension and other post-retirement expense, net of funding			(55	)			—				(55	)
Other			(477	)			1,343				866
Changes in current assets and liabilities
Receivables			5,723				9,300				15,023
Inventories			2,253				1,189				3,442
Accounts payable and accrued expenses			2,380				1,074				3,454
Other(1)			(7,988	)			9,326				1,338
Net cash from (used in) operating activities			15,683				37,613				53,296
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(13,033	)			(5,270	)			(18,303	)
Proceeds on sale of property, plant and equipment			237				102				339
Proceeds on sale of marketable securities			2,008				—				2,008
Net cash from (used in) investing activities			(10,788	)			(5,168	)			(15,956	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(2,127	)			(9,583	)			(11,710	)
Repayment of capital lease obligations			(366	)			(693	)			(1,059	)
Payment of note issuance costs			—				(1,621	)			(1,621	)
Proceeds from government grants			2,322				—				2,322
Net cash from (used in) financing activities			(171	)			(11,897	)			(12,068	)
Effect of exchange rate changes on cash and cash equivalents			543				—				543
Net increase (decrease) in cash and cash equivalents			5,267				20,548				25,815
Cash and cash equivalents, beginning of period			44,829				60,243				105,072
Cash and cash equivalents, end of period		€	50,096			€	80,791			€	130,887

 

(1)	Includes intercompany working capital related transactions.

 

(10)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Cash Flows

(Unaudited)

(In thousands of Euros)

 

		Six Months Ended June 30, 2011
		Restricted Group				Unrestricted Group				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	26,260			€	17,176			€	43,436
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			—				(9,904	)			(9,904	)
Foreign exchange gain on debt			(1,453	)			—				(1,453	)
Depreciation and amortization			15,137				12,930				28,067
Accretion expense			759				—				759
Noncontrolling interest			—				6,013				6,013
Deferred income taxes			2,140				—				2,140
Stock compensation expense			2,539				—				2,539
Pension and other post-retirement expense, net of funding			(7	)			—				(7	)
Other			365				1,238				1,603
Changes in current assets and liabilities
Receivables			14,231				(1,531	)			12,700
Inventories			2,365				(6,451	)			(4,086	)
Accounts payable and accrued expenses			13,683				10,872				24,555
Other(1)			(3,869	)			4,713				844
Net cash from (used in) operating activities			72,150				35,056				107,206
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(12,001	)			(3,824	)			(15,825	)
Proceeds on sale of property, plant and equipment			19				361				380
Note receivable			771				—				771
Net cash from (used in) investing activities			(11,211	)			(3,463	)			(14,674	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(15,768	)			(14,583	)			(30,351	)
Repayment of capital lease obligations			(861	)			(632	)			(1,493	)
Repayment of credit facilities, net			(14,652	)			—				(14,652	)
Proceeds from government grants			8,841				108				8,949
Net cash from (used in) financing activities			(22,440	)			(15,107	)			(37,547	)
Effect of exchange rate changes on cash and cash equivalents			(2,212	)			—				(2,212	)
Net increase (decrease) in cash and cash equivalents			36,287				16,486				52,773
Cash and cash equivalents, beginning of period			50,654				48,368				99,022
Cash and cash equivalents, end of period		€	86,941			€	64,854			€	151,795

 

(1)	Includes intercompany working capital related transactions.

 

(11)

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MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA

(Unaudited)

(In thousands of Euros)

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. The following tables set forth the net income (loss) attributable to common shareholders to Operating EBITDA for both the consolidated group and our Restricted Group:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
		(in thousands)								(in thousands)
Net income attributable to common shareholders		€	1,515			€	14,383			€	2,688			€	43,436
Net income attributable to noncontrolling interest			1,628				1,466				2,299				6,013
Income tax provision			2,265				3,618				2,997				4,437
Interest expense			13,863				14,883				27,996				30,789
Other expense (income)			368				(136	)			778				(463	)
Foreign exchange gain on debt			—				(342	)			—				(1,453	)
Loss (gain) on derivative instruments			(1,343	)			2,339				(2,219	)			(9,904	)
Operating income			18,296				36,211				34,539				72,855
Add: Depreciation and amortization			14,588				13,929				28,938				28,067
Operating EBITDA		€	32,884			€	50,140			€	63,477			€	100,922
		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
		(in thousands)								(in thousands)
Restricted Group
Net income (loss) attributable to common shareholders(1)		€	(2,568	)		€	10,391			€	(2,885	)		€	26,260
Income tax provision			1,398				2,851				2,113				3,375
Interest expense			5,934				6,433				11,744				13,706
Other expense (income)			(915	)			(1,305	)			(1,740	)			(2,584	)
Foreign exchange gain on debt			—				(342	)			—				(1,453	)
Loss (gain) on derivative instruments			(1,619	)			—				(1,619	)			—
Operating income			2,230				18,028				7,613				39,304
Add: Depreciation and amortization			7,870				7,461				15,573				15,137
Operating EBITDA		€	10,100			€	25,489			€	23,186			€	54,441

 

(1)	For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.

#    #    #

 

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