Exhibit 99.1

 

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS 2012 THIRD QUARTER RESULTS

NEW YORK, NY, November 1, 2012 - Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported results for the third quarter ended September 30, 2012. Operating EBITDA* in the third quarter of 2012 was €22.3 million ($27.9 million), compared to €49.2 million ($69.5 million) in the third quarter of 2011 and €32.9 million ($42.2 million) in the second quarter of 2012.

For the third quarter of 2012, we had a net loss of €9.7 million ($12.1 million), or €0.17 ($0.21) per basic share, compared to net income of €8.4 million ($11.9 million), or €0.15 ($0.21) per basic share, in the third quarter of 2011 and net income of €1.5 million ($1.9 million), or €0.03 ($0.04) per basic share, for the second quarter of 2012.

Summary Financial Highlights

 

		Q3				Q2				Q3				YTD				YTD
		2012				2012				2011				2012				2011
		(in millions of Euros, other than per share amounts)
Pulp revenues		€	205.1			€	186.0			€	190.4			€	590.6			€	618.2
Energy and chemical revenues			18.2				18.0				16.6				55.1				49.7
Operating income			7.2				18.3				35.3				41.8				108.2
Operating EBITDA			22.3				32.9				49.2				85.7				150.1
Gain (loss) on derivative instruments			(0.9	)			1.3				(10.5	)			1.3				(0.6	)
Foreign exchange gain (loss) on debt			—				—				(0.2	)			—				1.3
Income tax benefit (provision)			(1.9	)			(2.3	)			(3.1	)			(4.9	)			(7.6	)
Net income (loss)(1)			(9.7	)			1.5				8.4				(7.0	)			51.9
Net income (loss) per share(1)
Basic		€	(0.17	)		€	0.03			€	0.15			€	(0.13	)		€	1.07
Diluted		€	(0.17	)		€	0.03			€	0.15			€	(0.13	)		€	0.92
Common shares outstanding at period end (000s)			55,816				55,816				55,779				55,816				55,779
(1)    Attributable to common shareholders.
Summary Operating Highlights
		Q3				Q2				Q3				YTD				YTD
		2012				2012				2011				2012				2011
Pulp production (’000 ADMTs)			373.4				365.0				362.3				1,118.8				1,088.8
Scheduled production downtime (’000 ADMTs)			10.2				22.6				8.3				32.8				24.5
Pulp sales (’000 ADMTs)			404.3				349.2				321.3				1,138.3				1,027.9
Average NBSK pulp list price in Europe ($/ADMT)(1)			777				837				980				817				986
Average NBSK pulp list price in Europe (€/ADMT)			620				652				694				637				701
Average pulp sales realizations (€/ADMT)(2)			501				526				584				512				592

 

 

(1)	Source: RISI 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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		Q3				Q2				Q3				YTD				YTD
		2012				2012				2011				2012				2011
Energy production (’000 MWh)			436.5				425.4				402.5				1,298.2				1,230.9
Energy sales (’000 MWh)			181.3				182.7				149.3				546.4				483.1
Average spot currency exchange rates:
€ / $(3)			0.7999				0.7795				0.7084				0.7807				0.7110
C$ / $(3)			0.9954				1.0102				0.9803				1.0022				0.9778
C$ / €(4)			1.2452				1.2959				1.3835				1.2847				1.3752

 

(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: “During the third quarter of 2012, NBSK pulp prices remained generally weak. Despite this, we generated Operating EBITDA of €22.3 million, primarily as a result of strong pulp sales volumes and energy sales in the quarter.”

Mr. Lee continued: “During the third quarter, pulp prices declined due to traditionally slower demand in the summer months and continued global economic uncertainty. Overall, on average, list prices in Europe were down by approximately 7% and 21% from the prior and comparative quarter, respectively. At the end of the recent quarter, list prices were approximately $760, $830 and $640 per ADMT in Europe, North America and China, respectively. During the current quarter, pulp sales volumes hit record levels and were approximately 83,000 ADMTs higher than the same quarter of 2011. Both our Celgar and Stendal mills realized upon increased demand from China in the latter part of the current quarter and re-balanced their inventory levels. We currently anticipate a gradual improvement in NBSK pulp prices in the medium term as a result of improving demand and the relatively low level of current NBSK inventories globally.”

Mr. Lee added: “During the third quarter of 2012, energy sales volumes increased by 21% to 181,332 MWh in 2012 from 149,276 MWh in 2011. Additionally, we continue to implement Project Blue Mill, which is designed to increase our Stendal mill’s annual energy production by 109,000 MWh and annual pulp production by 30,000 ADMTs.”

Mr. Lee continued: “On average, our per unit fiber costs declined by approximately 9% in the current quarter from the same quarter of 2011, primarily because of lower costs at our German mills. Overall, we currently anticipate our fiber costs will increase marginally in the fourth quarter of 2012.”

Mr. Lee concluded: “Although NBSK pulp markets remain generally weak, we expect pulp prices to gradually strengthen in the fourth quarter and into 2013. We believe that our continued focus on renewable energy and strong mill operating performance positions us well to realize upon higher pulp prices.”

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Page 3

 

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

Total revenues for the three months ended September 30, 2012 increased to €223.3 million ($279.6 million) from €207.1 million ($292.4 million) in the same period in 2011. Pulp revenues for the three months ended September 30, 2012 increased to €205.1 million from €190.4 million in the comparative period of 2011, primarily due to record pulp sales volumes and a stronger U.S. dollar relative to the Euro, partially offset by lower average pulp realizations.

Energy and chemical revenues increased by approximately 10% in the third quarter to €18.2 million from €16.6 million in the same quarter last year, as a result of higher sales volumes at all of our mills.

Pulp production increased to 373,369 ADMTs in the current quarter from 362,330 ADMTs in the same quarter of 2011, due to increased production at our Rosenthal and Stendal mills. We took seven days (approximately 10,200 ADMTs) of scheduled maintenance downtime at our Celgar mill in the third quarter of 2012.

Pulp sales volumes increased by approximately 26% and 16% to a record 404,301 ADMTs in the current quarter from 321,338 ADMTs and 349,177 ADMTs in the comparative and prior quarters, respectively, primarily as a result of significantly higher sales to China. During the current quarter, our Celgar and Stendal mills ramped up sales volumes to realize upon increased demand from China in the latter part of the quarter and re-balanced their inventory levels. Average pulp sales realizations decreased by 14% to €501 ($627) per ADMT in the third quarter of 2012, compared to €584 ($824) 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 third quarter of 2012 increased by 26% to €216.1 million from €171.8 million in the comparative period of 2011, primarily due to a 26% increase in sales volumes.

On average, our per unit fiber costs in the current quarter decreased by approximately 9% from the same period in 2011, due to lower fiber costs in Germany caused by reduced demand from other residual fiber users. Fiber costs at our Celgar mill were slightly higher, primarily due to increased demand for fiber. As we move into the fourth quarter, we currently expect fiber prices for our German mills to increase slightly because of seasonal demand and to decline slightly at our Celgar mill due to increased regional sawmill activity.

Selling, general and administrative expenses increased to €10.0 million in the third quarter of 2012, compared to €8.8 million in the third quarter of 2011, primarily as a result of higher stock compensation and selling costs.

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Page 4

 

For the third quarter of 2012, operating income decreased to €7.2 million from €35.3 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 and lower fiber costs.

Interest expense in the third quarter of 2012 and 2011 was unchanged at €14.1 million.

Our Stendal mill recorded an unrealized loss of €1.2 million on the interest rate derivative in the current quarter, compared to an unrealized loss of €10.5 million in the same quarter of last year. We also recorded a gain of approximately €0.3 million related to a fixed price pulp swap contract entered into in the second quarter of 2012.

In the third quarter of 2012, the noncontrolling shareholder’s interest in the Stendal mill’s income was €0.6 million, compared to a loss of €0.8 million in the same quarter last year.

In the third quarter of 2012, Operating EBITDA decreased to €22.3 million from €49.2 million in the third 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 a net loss attributable to common shareholders of €9.7 million, or €0.17 per basic and diluted share, for the third quarter of 2012, compared to net income of €8.4 million, or €0.15 per basic and diluted share, in the third quarter of 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Total revenues for the nine months ended September 30, 2012 decreased to €645.7 million ($827.9 million) from €667.9 million ($939.5 million) in the same period of 2011. Pulp revenues for the nine months ended September 30, 2012 decreased to €590.6 million from €618.2 million in the comparative period of 2011, primarily due to lower pulp prices, partially offset by higher sales volumes and a stronger U.S. dollar relative to the Euro.

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Page 5

 

Energy and chemical revenues increased by approximately 11% in the nine months ended September 30, 2012 to a record €55.1 million from €49.7 million in the same period last year, as a result of strong production at all of our mills.

Pulp sales volumes increased by approximately 11% to 1,138,304 ADMTs in the nine months ended September 30, 2012 from 1,027,918 ADMTs in the comparative period of 2011, primarily as a result of a significant increase in sales to China. During the third quarter of 2012, our Celgar and Stendal mills ramped up sales volumes to take advantage of increased demand from China in the latter part of the third quarter and re-balanced their inventory levels.

Costs and expenses in the nine months ended September 30, 2012 increased by approximately 8% to €603.9 million, compared to €559.7 million in the same period of 2011, primarily due to an 11% increase in sales volumes, partially offset by reduced fiber costs.

On average, our per unit fiber costs in the nine months ended September 30, 2012 decreased by approximately 6% from the same period of 2011, primarily due to lower fiber costs in Germany caused by decreased demand.

For the nine months ended September 30, 2012, operating income decreased to €41.8 million from €108.2 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 and lower fiber costs.

Interest expense in the nine months ended September 30, 2012 decreased to €42.1 million from €44.9 million in the comparative period of 2011, primarily due to lower debt levels associated with the Stendal mill and the conversion of our remaining convertible notes in 2011.

In the nine months ended September 30, 2012, Operating EBITDA decreased to €85.7 million from €150.1 million in the same period of 2011.⁽¹⁾

We reported a net loss attributable to common shareholders of €7.0 million, or €0.13 per basic and diluted share, for the nine months ended September 30, 2012, which included a total non-cash unrealized gain of €0.8 million on the pulp price and Stendal interest rate derivatives, more than offset by a non-cash charge for stock compensation of €1.8 million. In the nine months ended September 30, 2011, we reported net income attributable to common shareholders of €51.9 million, or €1.07 per basic and €0.92 per diluted share, 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 certain of our foreign currency denominated debt and a non-cash charge for stock compensation of €2.8 million.

 

 

(1)	See page 12 of the financial tables included in the press release for our definition of Operating EBITDA, limitations on its use as an analytical tool and a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

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Page 6

 

Liquidity and Capital Resources

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

 

		As at September 30,				As at December 31,
		2012				2011
		(in thousands)
Financial Position
Cash and cash equivalents		€	126,169			€	105,072
Marketable securities			190				12,372	(1)
Working capital			220,480				247,159
Property, plant and equipment			815,661				820,974
Total assets			1,220,739				1,217,250
Long-term liabilities			775,041				807,641
Total equity			288,784				283,542

 

 

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

As at September 30, 2012, we had approximately €26.4 million and C$36.3 million available under our Rosenthal and Celgar facilities, respectively. As at September 30, 2012, approximately €452.9 million was outstanding under our Stendal mill’s loan facility, compared to €477.5 million as at December 31, 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 September 30,				As at December 31,
		2012				2011
		(in thousands)
Financial Position
Cash and cash equivalents		€	55,023			€	44,829
Marketable securities			190				12,372	(1)
Working capital			135,654				149,973
Property, plant and equipment			356,302				353,925
Total assets			671,448				658,844
Long-term liabilities			265,923				262,770
Total equity			340,974				344,415

 

 

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

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Page 7

 

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 2, 2012 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through December 2, 2012, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=119185&CompanyID=MERC&e=1&mediaKey= 1AE35D7DABC3ECD95E2779DA87354812 or through a link on our 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 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. Words such as “expects”, “anticipates”, “projects”, “intends”, “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.

APPROVED BY:

Jimmy S.H. Lee

Chairman, CEO & President

(604) 684-1099

David M. Gandossi

Executive Vice-President,

Chief Financial Officer & Secretary

(604) 684-1099

-FINANCIAL TABLES FOLLOW-

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MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands of Euros)

 

		September 30,				December 31,
		2012				2011
ASSETS
Current assets
Cash and cash equivalents		€	126,169			€	105,072
Marketable securities			—				12,216
Receivables			118,631				120,487
Inventories			113,355				120,539
Prepaid expenses and other			10,203				8,162
Deferred income tax			9,036				6,750
Total current assets			377,394				373,226
Long-term assets
Property, plant and equipment			815,661				820,974
Deferred note issuance and other			11,924				10,763
Deferred income tax			15,760				12,287
			843,345				844,024
Total assets		€	1,220,739			€	1,217,250
LIABILITIES
Current liabilities
Accounts payable and other		€	115,037			€	99,640
Pension and other post-retirement benefit obligations			789				756
Debt			41,088				25,671
Total current liabilities			156,914				126,067
Long-term liabilities
Debt			670,792				708,415
Unrealized interest rate derivative losses			53,027				52,391
Pension and other post-retirement benefit obligations			32,388				31,197
Capital leases and other			13,399				13,053
Deferred income tax			5,435				2,585
			775,041				807,641
Total liabilities			931,955				933,708
EQUITY
Shareholders’ equity
Share capital			248,371				247,642
Paid-in capital			(3,954	)			(4,857	)
Retained earnings			30,961				37,985
Accumulated other comprehensive income			29,115				21,346
Total shareholders’ equity			304,493				302,116
Noncontrolling deficit			(15,709	)			(18,574	)
Total equity			288,784				283,542
Total liabilities and equity		€	1,220,739			€	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								Nine Months Ended
		September 30,								September 30,
		2012				2011				2012				2011
Revenues
Pulp		€	205,122			€	190,426			€	590,597			€	618,158
Energy and chemicals			18,153				16,639				55,098				49,732
			223,275				207,065				645,695				667,890
Costs and expenses
Operating costs			191,083				149,172				531,470				490,537
Operating depreciation and amortization			14,972				13,832				43,784				41,777
			17,220				44,061				70,441				135,576
Selling, general and administrative expenses			10,006				8,754				28,688				27,414
Operating income			7,214				35,307				41,753				108,162
Other income (expense)
Interest expense			(14,084	)			(14,117	)			(42,080	)			(44,906	)
Gain (loss) on derivative instruments			(883	)			(10,484	)			1,336				(580	)
Foreign exchange gain (loss) on debt			—				(181	)			—				1,272
Other income (expense)			517				201				(261	)			664
Total other income (expense)			(14,450	)			(24,581	)			(41,005	)			(43,550	)
Income (loss) before income taxes			(7,236	)			10,726				748				64,612
Income tax benefit (provision)
Current			(870	)			(1,557	)			(7,207	)			(3,854	)
Deferred			(1,040	)			(1,567	)			2,300				(3,707	)
Net income (loss)			(9,146	)			7,602				(4,159	)			57,051
Less: net loss (income) attributable to noncontrolling interest			(566	)			838				(2,865	)			(5,175	)
Net income (loss) attributable to common shareholders		€	(9,712	)		€	8,440			€	(7,024	)		€	51,876
Net income (loss) per share attributable to common shareholders
Basic		€	(0.17	)		€	0.15			€	(0.13	)		€	1.07
Diluted		€	(0.17	)		€	0.15			€	(0.13	)		€	0.92

 

 

(2)

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MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of Euros)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2012				2011				2012				2011
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	(9,712	)		€	8,440			€	(7,024	)		€	51,876
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			883				10,484				(1,336	)			580
Foreign exchange loss (gain) on debt			—				181				—				(1,272	)
Depreciation and amortization			15,054				13,893				43,992				41,960
Noncontrolling interest			566				(838	)			2,865				5,175
Deferred income taxes			1,040				1,567				(2,300	)			3,707
Stock compensation expense			891				305				1,753				2,844
Pension and other post-retirement expense, net of funding			(73	)			(95	)			(128	)			(102	)
Other			1,412				260				2,278				2,622
Changes in current assets and liabilities
Receivables			(14,122	)			(9,452	)			901				3,248
Inventories			5,834				(23,776	)			9,276				(27,862	)
Accounts payable and accrued expenses			9,692				318				13,146				24,873
Other			(2,239	)			(752	)			(901	)			92
Net cash from (used in) operating activities			9,226				535				62,522				107,741
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(9,152	)			(10,297	)			(27,455	)			(26,122	)
Proceeds on sale of property, plant and equipment			48				1,564				387				1,944
Purchase of marketable securities			—				(4,018	)			—				(4,018	)
Proceeds on maturity of marketable securities			10,213				—				12,221				—
Note receivable			—				2,064				—				2,835
Net cash from (used in) investing activities			1,109				(10,687	)			(14,847	)			(25,361	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(15,544	)			(12,160	)			(27,254	)			(42,511	)
Repayment of capital lease obligations			(508	)			(776	)			(1,567	)			(2,269	)
Repayment of credit facilities, net			—				—				—				(14,652	)
Payment of note issuance costs			—				—				(1,621	)			—
Proceeds from government grants			778				4,470				3,100				13,419
Purchase of treasury shares			—				(7,477	)			—				(7,477	)
Net cash from (used in) financing activities			(15,274	)			(15,943	)			(27,342	)			(53,490	)
Effect of exchange rate changes on cash and cash equivalents			221				2,058				764				(154	)
Net increase (decrease) in cash and cash equivalents			(4,718	)			(24,037	)			21,097				28,736
Cash and cash equivalents, beginning of period			130,887				151,795				105,072				99,022
Cash and cash equivalents, end of period		€	126,169			€	127,758			€	126,169			€	127,758

 

(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 Notes require 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 nine months ended September 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.

 

		September 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
ASSETS
Current assets
Cash and cash equivalents		€	55,023			€	71,146			€	—			€	126,169
Receivables			62,313				56,318				—				118,631
Inventories			69,838				43,517				—				113,355
Prepaid expenses and other			7,730				2,473				—				10,203
Deferred income tax			5,301				3,735				—				9,036
Total current assets			200,205				177,189				—				377,394
Long-term assets
Property, plant and equipment			356,302				459,359				—				815,661
Deferred note issuance and other			6,077				5,847				—				11,924
Deferred income tax			8,873				6,887				—				15,760
Due from unrestricted group			99,991				—				(99,991	)			—
Total assets		€	671,448			€	649,282			€	(99,991	)		€	1,220,739
LIABILITIES
Current liabilities
Accounts payable and other		€	62,674			€	52,363			€	—			€	115,037
Pension and other post-retirement benefit obligations			789				—				—				789
Debt			1,088				40,000				—				41,088
Total current liabilities			64,551				92,363				—				156,914
Long-term liabilities
Debt			221,733				449,059				—				670,792
Due to restricted group			—				99,991				(99,991	)			—
Unrealized interest rate derivative losses			—				53,027				—				53,027
Pension and other post-retirement benefit obligations			32,388				—				—				32,388
Capital leases and other			6,367				7,032				—				13,399
Deferred income tax			5,435				—				—				5,435
Total liabilities			330,474				701,472				(99,991	)			931,955
EQUITY
Total shareholders’ equity (deficit)			340,974				(36,481	)			—				304,493
Noncontrolling deficit			—				(15,709	)			—				(15,709	)
Total liabilities and equity		€	671,448			€	649,282			€	(99,991	)		€	1,220,739

 

 

(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 September 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	112,777			€	92,345			€	—			€	205,122
Energy and chemicals			6,960				11,193				—				18,153
			119,737				103,538				—				223,275
Operating costs			109,815				81,268				—				191,083
Operating depreciation and amortization			8,303				6,669				—				14,972
Selling, general and administrative expenses			6,392				3,614				—				10,006
			124,510				91,551				—				216,061
Operating income (loss)			(4,773	)			11,987				—				7,214
Other income (expense)
Interest expense			(6,010	)			(9,473	)			1,399				(14,084	)
Gain (loss) on derivative instruments			353				(1,236	)			—				(883	)
Other income (expense)			1,665				251				(1,399	)			517
Total other income (expense)			(3,992	)			(10,458	)			—				(14,450	)
Income (loss) before income taxes			(8,765	)			1,529				—				(7,236	)
Income tax provision			(1,192	)			(718	)			—				(1,910	)
Net income (loss)			(9,957	)			811				—				(9,146	)
Less: net income attributable to noncontrolling interest			—				(566	)			—				(566	)
Net income (loss) attributable to common shareholders		€	(9,957	)		€	245			€	—			€	(9,712	)

 

		Three Months Ended September 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	111,634			€	78,792			€	—			€	190,426
Energy and chemicals			6,121				10,518				—				16,639
			117,755				89,310				—				207,065
Operating costs			85,962				63,210				—				149,172
Operating depreciation and amortization			7,364				6,468				—				13,832
Selling, general and administrative expenses			6,080				2,674				—				8,754
			99,406				72,352				—				171,758
Operating income			18,349				16,958				—				35,307
Other income (expense)
Interest expense			(5,496	)			(9,869	)			1,248				(14,117	)
Gain (loss) on derivative instruments			—				(10,484	)			—				(10,484	)
Foreign exchange loss on debt			(181	)			—				—				(181	)
Other income (expense)			1,265				184				(1,248	)			201
Total other income (expense)			(4,412	)			(20,169	)			—				(24,581	)
Income (loss) before income taxes			13,937				(3,211	)			—				10,726
Income tax provision			(2,566	)			(558	)			—				(3,124	)
Net income (loss)			11,371				(3,769	)			—				7,602
Less: net loss attributable to noncontrolling interest			—				838				—				838
Net income (loss) attributable to common shareholders		€	11,371			€	(2,931	)		€	—			€	8,440

 

 

(6)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Statements of Operations

(Unaudited)

(In thousands of Euros)

 

		Nine Months Ended September 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	326,411			€	264,186			€	—			€	590,597
Energy and chemicals			21,411				33,687				—				55,098
			347,822				297,873				—				645,695
Operating costs			302,913				228,557				—				531,470
Operating depreciation and amortization			23,750				20,034				—				43,784
Selling, general and administrative expenses			18,319				10,369				—				28,688
			344,982				258,960				—				603,942
Operating income			2,840				38,913				—				41,753
Other income (expense)
Interest expense			(17,754	)			(28,449	)			4,123				(42,080	)
Gain (loss) on derivative instruments			1,972				(636	)			—				1,336
Other income (expense)			3,405				457				(4,123	)			(261	)
Total other income (expense)			(12,377	)			(28,628	)			—				(41,005	)
Income (loss) before income taxes			(9,537	)			10,285				—				748
Income tax provision			(3,305	)			(1,602	)			—				(4,907	)
Net income (loss)			(12,842	)			8,683				—				(4,159	)
Less: net income attributable to noncontrolling interest			—				(2,865	)			—				(2,865	)
Net income (loss) attributable to common shareholders		€	(12,842	)		€	5,818			€	—			€	(7,024	)

 

		Nine Months Ended September 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	352,098			€	266,060			€	—			€	618,158
Energy and chemicals			17,668				32,064				—				49,732
			369,766				298,124				—				667,890
Operating costs			272,162				218,375				—				490,537
Operating depreciation and amortization			22,379				19,398				—				41,777
Selling, general and administrative expenses			17,572				9,842				—				27,414
			312,113				247,615				—				559,728
Operating income			57,653				50,509				—				108,162
Other income (expense)
Interest expense			(19,202	)			(29,404	)			3,700				(44,906	)
Gain (loss) on derivative instruments			—				(580	)			—				(580	)
Foreign exchange gain on debt			1,272				—				—				1,272
Other income (expense)			3,849				515				(3,700	)			664
Total other income (expense)			(14,081	)			(29,469	)			—				(43,550	)
Income (loss) before income taxes			43,572				21,040				—				64,612
Income tax provision			(5,941	)			(1,620	)			—				(7,561	)
Net income (loss)			37,631				19,420				—				57,051
Less: net income attributable to noncontrolling interest			—				(5,175	)			—				(5,175	)
Net income (loss) attributable to common shareholders		€	37,631			€	14,245			€	—			€	51,876

 

 

(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 September 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	(9,957	)		€	245			€	(9,712	)
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			(353	)			1,236				883
Depreciation and amortization			8,385				6,669				15,054
Noncontrolling interest			—				566				566
Deferred income taxes			1,040				—				1,040
Stock compensation expense			891				—				891
Pension and other post-retirement expense, net of funding			(73	)			—				(73	)
Other			543				869				1,412
Changes in current assets and liabilities
Receivables			(6,130	)			(7,992	)			(14,122	)
Inventories			1,693				4,141				5,834
Accounts payable and accrued expenses			9,800				(108	)			9,692
Other(1)			(4,225	)			1,986				(2,239	)
Net cash from (used in) operating activities			1,614				7,612				9,226
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(6,380	)			(2,772	)			(9,152	)
Proceeds on sale of property, plant and equipment			37				11				48
Proceeds on maturity of marketable securities			10,213				—				10,213
Net cash from (used in) investing activities			3,870				(2,761	)			1,109
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(544	)			(15,000	)			(15,544	)
Repayment of capital lease obligations			(234	)			(274	)			(508	)
Proceeds from government grants			—				778				778
Net cash from (used in) financing activities			(778	)			(14,496	)			(15,274	)
Effect of exchange rate changes on cash and cash equivalents			221				—				221
Net increase (decrease) in cash and cash equivalents			4,927				(9,645	)			(4,718	)
Cash and cash equivalents, beginning of period			50,096				80,791				130,887
Cash and cash equivalents, end of period		€	55,023			€	71,146			€	126,169

 

(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 September 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	11,371			€	(2,931	)		€	8,440
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			—				10,484				10,484
Foreign exchange loss on debt			181				—				181
Depreciation and amortization			7,425				6,468				13,893
Noncontrolling interest			—				(838	)			(838	)
Deferred income taxes			1,567				—				1,567
Stock compensation expense			305				—				305
Pension and other post-retirement expense, net of funding			(95	)			—				(95	)
Other			110				150				260
Changes in current assets and liabilities
Receivables			(12,224	)			2,772				(9,452	)
Inventories			(14,899	)			(8,877	)			(23,776	)
Accounts payable and accrued expenses			(1,704	)			2,022				318
Other(1)			(4,020	)			3,268				(752	)
Net cash from (used in) operating activities			(11,983	)			12,518				535
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(7,859	)			(2,438	)			(10,297	)
Proceeds on sale of property, plant and equipment			76				1,488				1,564
Purchase of marketable securities			(4,018	)			—				(4,018	)
Note receivable			2,064				—				2,064
Net cash from (used in) investing activities			(9,737	)			(950	)			(10,687	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(3,576	)			(8,584	)			(12,160	)
Repayment of capital lease obligations			(270	)			(506	)			(776	)
Proceeds from government grants			4,470				—				4,470
Purchase of treasury shares			(7,477	)			—				(7,477	)
Net cash from (used in) financing activities			(6,853	)			(9,090	)			(15,943	)
Effect of exchange rate changes on cash and cash equivalents			2,058				—				2,058
Net increase (decrease) in cash and cash equivalents			(26,515	)			2,478				(24,037	)
Cash and cash equivalents, beginning of period			86,941				64,854				151,795
Cash and cash equivalents, end of period		€	60,426			€	67,332			€	127,758

 

(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)

 

		Nine months ended September 30, 2012
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	(12,842	)		€	5,818			€	(7,024	)
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			(1,972	)			636				(1,336	)
Depreciation and amortization			23,958				20,034				43,992
Noncontrolling interest			—				2,865				2,865
Deferred income taxes			2,956				(5,256	)			(2,300	)
Stock compensation expense			1,753				—				1,753
Pension and other post-retirement expense, net of funding			(128	)			—				(128	)
Other			66				2,212				2,278
Changes in current assets and liabilities
Receivables			(407	)			1,308				901
Inventories			3,946				5,330				9,276
Accounts payable and accrued expenses			12,180				966				13,146
Other(1)			(12,213	)			11,312				(901	)
Net cash from (used in) operating activities			17,297				45,225				62,522
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(19,413	)			(8,042	)			(27,455	)
Proceeds on sale of property, plant and equipment			274				113				387
Proceeds on maturity of marketable securities			12,221				—				12,221
Net cash from (used in) investing activities			(6,918	)			(7,929	)			(14,847	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(2,671	)			(24,583	)			(27,254	)
Repayment of capital lease obligations			(600	)			(967	)			(1,567	)
Payment of note issuance costs			—				(1,621	)			(1,621	)
Proceeds from government grants			2,322				778				3,100
Net cash from (used in) financing activities			(949	)			(26,393	)			(27,342	)
Effect of exchange rate changes on cash and cash equivalents			764				—				764
Net increase (decrease) in cash and cash equivalents			10,194				10,903				21,097
Cash and cash equivalents, beginning of period			44,829				60,243				105,072
Cash and cash equivalents, end of period		€	55,023			€	71,146			€	126,169

 

(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)

 

		Nine months ended September 30, 2011
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders		€	37,631			€	14,245			€	51,876
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments			—				580				580
Foreign exchange gain on debt			(1,272	)			—				(1,272	)
Depreciation and amortization			22,562				19,398				41,960
Noncontrolling interest			—				5,175				5,175
Deferred income taxes			3,707				—				3,707
Stock compensation expense			2,844				—				2,844
Pension and other post-retirement expense, net of funding			(102	)			—				(102	)
Other			1,234				1,388				2,622
Changes in current assets and liabilities
Receivables			2,007				1,241				3,248
Inventories			(12,534	)			(15,328	)			(27,862	)
Accounts payable and accrued expenses			11,979				12,894				24,873
Other(1)			(7,889	)			7,981				92
Net cash from (used in) operating activities			60,167				47,574				107,741
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(19,860	)			(6,262	)			(26,122	)
Proceeds on sale of property, plant and equipment			95				1,849				1,944
Purchase of marketable securities			(4,018	)			—				(4,018	)
Note receivable			2,835				—				2,835
Net cash from (used in) investing activities			(20,948	)			(4,413	)			(25,361	)
Cash flows from (used in) financing activities
Repayment of notes payable and debt			(19,344	)			(23,167	)			(42,511	)
Repayment of capital lease obligations			(1,131	)			(1,138	)			(2,269	)
Repayment of credit facilities, net			(14,652	)			—				(14,652	)
Proceeds from government grants			13,311				108				13,419
Purchase of treasury shares			(7,477	)			—				(7,477	)
Net cash from (used in) financing activities			(29,293	)			(24,197	)			(53,490	)
Effect of exchange rate changes on cash and cash equivalents			(154	)			—				(154	)
Net increase (decrease) in cash and cash equivalents			9,772				18,964				28,736
Cash and cash equivalents, beginning of period			50,654				48,368				99,022
Cash and cash equivalents, end of period		€	60,426			€	67,332			€	127,758

 

(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 (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), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, 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 September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
		(in thousands)								(in thousands)
Net income (loss) attributable to common shareholders		€	(9,712	)		€	8,440			€	(7,024	)		€	51,876
Net income (loss) attributable to noncontrolling interest			566				(838	)			2,865				5,175
Income tax provision			1,910				3,124				4,907				7,561
Interest expense			14,084				14,117				42,080				44,906
Loss (gain) on derivative instruments			883				10,484				(1,336	)			580
Foreign exchange loss (gain) on debt			—				181				—				(1,272	)
Other expense (income)			(517	)			(201	)			261				(664	)
Operating income			7,214				35,307				41,753				108,162
Add: Depreciation and amortization			15,054				13,893				43,992				41,960
Operating EBITDA		€	22,268			€	49,200			€	85,745			€	150,122
		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
		(in thousands)								(in thousands)
Restricted Group
Net income (loss)(1)		€	(9,957	)		€	11,371			€	(12,842	)		€	37,631
Income tax provision			1,192				2,566				3,305				5,941
Interest expense			6,010				5,496				17,754				19,202
Gain on derivative instruments			(353	)			—				(1,972	)			—
Foreign exchange loss (gain) on debt			—				181				—				(1,272	)
Other expense (income)			(1,665	)			(1,265	)			(3,405	)			(3,849	)
Operating income (loss)			(4,773	)			18,349				2,840				57,653
Add: Depreciation and amortization			8,385				7,425				23,958				22,562
Operating EBITDA		€	3,612			€	25,774			€	26,798			€	80,215

 

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

 

 

(12)

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