Exhibit 99.1

 

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS IMPROVED 2013 THIRD QUARTER RESULTS

NEW YORK, NY, October 31, 2013 - Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported results for the third quarter ended September 30, 2013. Operating EBITDA* increased in the third quarter of 2013 to €24.8 million ($32.9 million) from €22.3 million ($27.9 million) in the third quarter of 2012 and €14.0 million ($18.3 million) in the second quarter of 2013. Current quarter Operating EBITDA includes €2.9 million of severance and personnel costs associated with our Celgar mill workforce reduction.

For the third quarter of 2013, our net loss declined to €2.2 million ($2.9 million), or €0.04 ($0.05) per share, from a net loss of €9.7 million ($12.1 million), or €0.17 ($0.21) per share, in the third quarter of 2012 and a net loss of €9.9 million ($12.9 million), or €0.18 ($0.24) per share, for the second quarter of 2013.

Summary Financial Highlights

 

		Q3				Q2				Q3				YTD				YTD
		2013				2013				2012				2013				2012
		(in millions, except per share amounts)
Pulp revenues		€	186.1			€	193.7			€	205.1			€	559.9			€	590.6
Energy and chemical revenues			17.0				16.5				18.2				51.7				55.1
Operating income (loss)			10.1				(0.8	)			7.2				18.8				41.8
Operating EBITDA			24.8				14.0				22.3				63.1				85.7
Gain (loss) on derivative instruments			2.0				5.3				(0.9	)			12.1				1.3
Income tax provision			(0.9	)			(0.6	)			(1.9	)			(2.4	)			(4.9	)
Net loss (1)			(2.2	)			(9.9	)			(9.7	)			(12.6	)			(7.0	)
Net loss per share(1)(2)		€	(0.04	)		€	(0.18	)		€	(0.17	)		€	(0.23	)		€	(0.13	)
Common shares outstanding at period end			55.9				55.9				55.8				55.9				55.8
(1)    Attributable to common shareholders.
(2)    Per basic and diluted share.
Summary Operating Highlights
		Q3				Q2				Q3				YTD				YTD
		2013				2013				2012				2013				2012
Pulp production (‘000 ADMTs)			369.0				349.5				373.4				1,079.7				1,118.8
Scheduled production downtime (‘000 ADMTs)			9.4				16.0				10.2				25.4				32.8
Pulp sales (‘000 ADMTs)			356.6				368.3				404.3				1,081.6				1,138.3
Average NBSK pulp list price in Europe ($/ADMT)(1)			867				857				777				852				817
Average NBSK pulp list price in Europe (€/ADMT)			654				656				620				646				637
Average pulp sales realizations (€/ADMT)(2)			515				520				501				511				512

 

(1)	Source: RISI pricing report.

(2)	Sales realizations after discounts. Incorporates the effect of pulp price variations occurring between the order and shipment dates.

 

*

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
		2013				2013				2012				2013				2012
Energy production (‘000 MWh)			444.2				405.8				436.5				1,274.4				1,298.2
Energy sales (‘000 MWh)			185.4				167.5				181.3				526.6				546.4
Average Spot Currency Exchange Rates:
€ / $(3)			0.7547				0.7655				0.7999				0.7594				0.7807
C$ / $(3)			1.0385				1.0230				0.9954				1.0236				1.0022
C$ / €(4)			1.3762				1.3374				1.2452				1.3485				1.2847

 

(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: “In the current quarter, Operating EBITDA improved to €24.8 million from €14.0 million in the prior quarter which included costs and production losses associated with our Celgar mill’s shutdown. Our results in the current quarter reflect generally stable pulp prices, severance and personnel costs associated with the Celgar workforce reduction, a strong Euro versus the U.S. dollar and continued high fiber costs in Germany.”

Mr. Lee added: “At the end of the third quarter of 2013, list prices in Europe were approximately $880 per ADMT and in North America and China were approximately $945 and $695 per ADMT, respectively. A $20 per ADMT price increase in all markets was announced in late September and a further $20 per ADMT price increase has been announced in October 2013. We expect demand and pricing to have an upward trend in the fourth quarter of 2013 due to rising Asian demand, the closure of the Tofte mill in Norway and current NBSK inventory levels being slightly under-balanced at 27 days.”

Mr. Lee continued: “In the current quarter, pulp production was approximately 19,500 ADMTs higher and energy production and sales were also approximately 38,400 MWh and 17,900 MWh higher, respectively, than the second quarter. Our Rosenthal mill completed its annual maintenance shutdown essentially on time and budget and our Stendal mill is scheduled to shut down for its annual maintenance in the fourth quarter.”

Mr. Lee continued: “Fiber costs at our German mills remained at high levels during the third quarter of 2013 due to continuing strong demand from European pellet and board producers. High fiber costs in Germany were partially offset by continuing price decreases in Canada due to strong sawmill activity. Going forward this year, we currently expect fiber costs in Germany to increase slightly and to remain largely unchanged in Canada.”

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Mr. Lee added: “In the current quarter, we incurred pre-tax charges of approximately €2.9 million for severance and other personnel related expenses in connection with the Celgar mill workforce reduction. We currently estimate incurring additional pre-tax severance and personnel charges of approximately €1.5 million to €3.0 million in connection therewith in the fourth quarter of 2013 as additional personnel leave the workforce. We expect that our Celgar mill will realize approximately €6.0 million to €7.5 million in annual pre-tax cost savings once the workforce restructuring has been fully implemented, with approximately 80% of such annual cost savings being realized in 2014.”

Mr. Lee continued: “Project Blue Mill at our Stendal mill, designed to increase its annual energy production by 109,000 MWh and annual pulp production by 30,000 ADMTs, is expected to be finalized in mid-November 2013. In the meantime, we are pleased to report that the project’s new turbine is ramping up energy production and that electricity is currently being sold.”

Mr. Lee added: “Our Stendal mill successfully amended its senior project finance credit facility and its amortizing term facility in respect of Project Blue Mill to provide it with greater flexibility going forward. In connection therewith, we contributed $20.0 million to the capital of Stendal and increased our equity ownership in Stendal to 83.0% from 74.9%.”

Mr. Lee concluded: “We intend to change our reporting currency from Euros to the U.S. dollar for our public reporting commencing with the fourth quarter this year. We believe the use of U.S. dollar reporting will enhance communication and understanding with shareholders, analysts and other stakeholders and improve comparability of our financial information with other competitors and peer group companies.”

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Total revenues for the three months ended September 30, 2013 decreased by approximately 9% to €203.1 million from €223.3 million in the same period in 2012, due to lower pulp revenues and marginally lower energy and chemical revenues. Pulp revenues for the three months ended September 30, 2013 decreased to €186.1 million from €205.1 million in the comparative quarter of 2012, primarily due to lower sales volumes and the impact of a weaker U.S. dollar relative to the Euro, partially offset by a higher realized price.

Energy and chemical revenues decreased by approximately 7% to €17.0 million in the third quarter of 2013 from €18.2 million in the same quarter last year, primarily as a result of lower prices.

Pulp production decreased by approximately 1% to 369,011 ADMTs in the current quarter from 373,369 ADMTs in the same quarter of 2012. We took 10 days (approximately 9,400 ADMTs) of scheduled maintenance downtime at our Rosenthal mill in the third quarter of 2013, compared to seven days (approximately 10,200 ADMTs) of scheduled maintenance downtime at our Celgar mill in the third quarter of 2012.

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Pulp sales volumes decreased by approximately 12% to 356,619 ADMTs in the current quarter from 404,301 ADMTs in the comparative quarter, primarily due to lower sales to China, compared to exceedingly high sales to China in the comparative quarter of 2012.

Average pulp sales realizations marginally increased by approximately 3% to €515 per ADMT from approximately €501 per ADMT in the same quarter last year, primarily due to higher average NBSK list prices, partially offset by a weaker U.S. dollar relative to the Euro.

Costs and expenses in the third quarter of 2013 decreased by approximately 11% to €193.0 million from €216.1 million in the comparative period of 2012, primarily due to lower sales volumes and the reversal of certain wastewater fee accruals at our Rosenthal mill.

On average, our overall per unit fiber costs in the current quarter increased by approximately 7% from the same period in 2012 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

Selling, general and administrative expenses were €9.4 million in the third quarter of 2013, compared to €10.0 million in the third quarter of 2012.

For the third quarter of 2013, our operating income increased to €10.1 million from €7.2 million in the comparative quarter of 2012, primarily due to higher pulp sales realizations.

Interest expense in the third quarter of 2013 decreased to €13.0 million from €14.1 million in the comparative quarter of 2012, primarily due to lower debt levels associated with the Stendal mill in the third quarter of 2013.

We recorded a net derivative gain of €2.0 million, which includes an approximately €1.0 million loss related to fixed price pulp swap contracts entered into in the fourth quarter of 2012 and an unrealized gain of approximately €3.0 million on the mark to market adjustment of our Stendal mill’s interest rate derivative, compared to a net derivative loss of €0.9 million in the same quarter of last year.

The noncontrolling shareholder’s interest in the Stendal mill’s net income in the third quarter of 2013 was €0.5 million, compared to €0.6 million in the same quarter last year.

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In the third quarter of 2013, Operating EBITDA increased to €24.8 million from €22.3 million in the third quarter of 2012. 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 loss attributable to common shareholders to Operating EBITDA.

We reported a net loss attributable to common shareholders of €2.2 million, or €0.04 per basic and diluted share, for the third quarter of 2013, which included a net non-cash unrealized gain of €2.4 million on the fixed price pulp swaps and Stendal interest rate derivative. In the third quarter of 2012, the net loss attributable to common shareholders was €9.7 million, or €0.17 per basic and diluted share, which included a total non-cash unrealized loss of €1.3 million on the Stendal interest rate derivative and fixed price pulp swaps.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Total revenues for the nine months ended September 30, 2013 decreased by approximately 5% to €611.5 million from €645.7 million in the same period in 2012, due to both lower pulp and energy and chemical revenues. Pulp revenues for the nine months ended September 30, 2013 decreased to €559.9 million from €590.6 million in the comparative period of 2012, primarily due to lower pulp sales volumes and a weaker U.S. dollar relative to the Euro.

Energy and chemical revenues decreased by approximately 6% to €51.7 million in the nine months ended September 30, 2013 from €55.1 million in the same period last year, primarily as a result of lower pulp production and lower prices.

Pulp production decreased by approximately 3% to 1,079,677 ADMTs in the nine months ended September 30, 2013 from 1,118,758 ADMTs in the same period of 2012, primarily due to lower pulp production at our Celgar mill. In the prior quarter, the Celgar mill took its annual maintenance shutdown. As a result of weather, equipment and execution issues, the shutdown was four days longer and the startup was slower than budgeted, which resulted in a loss of approximately 30,300 ADMTs of NBSK pulp production.

Pulp sales volumes decreased by approximately 5% to 1,081,564 ADMTs in the nine months ended September 30, 2013 from 1,138,304 ADMTs in the comparative period of 2012, primarily due to lower sales to China and the United States.

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Costs and expenses in the nine months ended September 30, 2013 decreased by approximately 2% to €592.8 million from €603.9 million in the comparative period of 2012, primarily due to lower sales volumes and the reversal of certain wastewater fee accruals at our Rosenthal mill.

On average, our per unit fiber costs in the nine months ended September 30, 2013 increased by approximately 4% over the comparative period of 2012, as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

For the nine months ended September 30, 2013, operating income decreased to €18.8 million from €41.8 million in the comparative period of 2012, primarily due to the combined effect of higher fiber costs, the impact of a weaker U.S. dollar relative to the Euro and the Celgar mill’s maintenance shutdown.

Interest expense in the nine months ended September 30, 2013 decreased to €39.3 million from €42.1 million in the comparative period of 2012, primarily due to lower debt levels associated with the Stendal mill.

We recorded a net derivative gain of €12.1 million, which includes a €1.8 million loss related to fixed price pulp swap contracts entered into in the fourth quarter of 2012 and an unrealized gain of approximately €13.9 million on the mark to market adjustment of our Stendal mill’s interest rate derivative, compared to a net derivative gain of €1.3 million in the same period of last year.

In the nine months ended September 30, 2013, Operating EBITDA decreased to €63.1 million from €85.7 million in the nine months ended September 30, 2012.⁽¹⁾

We reported a net loss attributable to common shareholders of €12.6 million, or €0.23 per basic and diluted share, for the nine months ended September 30, 2013, which included a net non-cash unrealized gain of €12.8 million on the fixed price pulp swaps and Stendal interest rate derivative, partially offset by a negative impact of approximately €11.0 million related to the Celgar maintenance shutdown. In the nine months ended September 30, 2012, the net loss attributable to common shareholders was €7.0 million, or €0.13 per basic and diluted share, which included a net non-cash unrealized gain of €0.8 million on the fixed price pulp swaps and Stendal interest rate derivative.

 

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

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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 September 30,				As at December 31,
		2013				2012
		(in thousands)
Financial Position
Cash and cash equivalents		€	134,168			€	104,239
Working capital			222,981				208,573
Total assets			1,176,484				1,183,603
Long-term liabilities			766,087				768,253
Total equity			262,673				278,925

As at September 30, 2013, we had approximately €28.3 million and C$21.4 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

In July 2013, we issued an additional $50.0 million of 2017 9.5% Senior Notes at a price of 104.5%.

On September 30, 2013, we completed an amendment to the Stendal mill’s senior project finance credit facility and its amortizing term facility in respect of Project Blue Mill to provide the mill greater financial flexibility.

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,
		2013				2012
		(in thousands)
Financial Position
Cash and cash equivalents		€	75,075			€	36,714
Working capital			153,421				132,130
Total assets			651,112				644,119
Long-term liabilities			298,214				260,185
Total equity			299,722				335,353

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 1, 2013 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live over the Internet at http://www.media-server.com/m/p/zwwb4a3z. A recording of the completed conference call can be accessed through December 1, 2013 through a link on the Company’s home page at http://www.mercerint.com, or by dialing (855) 859-2056 and entering Conference ID 79074350. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

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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”, “designed”, “will”, “believes”, “estimates”, “may”, “could” and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

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,
		2013				2012
ASSETS
Current assets
Cash and cash equivalents		€	134,168			€	104,239
Receivables			97,303				110,087
Inventories			122,604				118,300
Prepaid expenses and other			12,395				7,907
Deferred income tax			4,235				4,465
Total current assets			370,705				344,998
Long-term assets
Property, plant and equipment			777,415				808,878
Deferred note issuance and other			14,138				12,162
Deferred income tax			14,226				17,565
			805,779				838,605
Total assets		€	1,176,484			€	1,183,603
LIABILITIES
Current liabilities
Accounts payable and other		€	103,155			€	89,950
Pension and other post-retirement benefit obligations			767				813
Debt			43,802				45,662
Total current liabilities			147,724				136,425
Long-term liabilities
Debt			676,447				665,741
Unrealized interest rate derivative losses			36,759				50,678
Pension and other post-retirement benefit obligations			30,737				32,141
Capital leases and other			14,505				13,936
Deferred income tax			7,639				5,757
			766,087				768,253
Total liabilities			913,811				904,678
EQUITY
Shareholders’ equity
Share capital			248,923				248,371
Paid-in capital			(10,425	)			(3,547	)
Retained earnings			13,244				25,800
Accumulated other comprehensive income			18,630				25,181
Total shareholders’ equity			270,372				295,805
Noncontrolling interest (deficit)			(7,699	)			(16,880	)
Total equity			262,673				278,925
Total liabilities and equity		€	1,176,484			€	1,183,603

 

(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,
		2013				2012				2013				2012
Revenues
Pulp		€	186,100			€	205,122			€	559,879			€	590,597
Energy and chemicals			17,021				18,153				51,660				55,098
			203,121				223,275				611,539				645,695
Costs and expenses
Operating costs			166,054				191,083				518,032				531,470
Operating depreciation and amortization			14,632				14,972				44,107				43,784
			22,435				17,220				49,400				70,441
Selling, general and administrative expenses			9,437				10,006				27,695				28,688
Restructuring expenses			2,926				—				2,926				—
Operating income (loss)			10,072				7,214				18,779				41,753
Other income (expense)
Interest expense			(13,018	)			(14,084	)			(39,305	)			(42,080	)
Gain (loss) on derivative instruments			1,978				(883	)			12,091				1,336
Other income (expense)			172				517				108				(261	)
Total other income (expense)			(10,868	)			(14,450	)			(27,106	)			(41,005	)
Income (loss) before income taxes			(796	)			(7,236	)			(8,327	)			748
Income tax benefit (provision)
Current			(1,057	)			(870	)			2,022				(7,207	)
Deferred			115				(1,040	)			(4,456	)			2,300
Net income (loss)			(1,738	)			(9,146	)			(10,761	)			(4,159	)
Less: net income attributable to noncontrolling interest			(482	)			(566	)			(1,795	)			(2,865	)
Net income (loss) attributable to common shareholders		€	(2,220	)		€	(9,712	)		€	(12,556	)		€	(7,024	)
Net income (loss) per share attributable to common shareholders
Basic and diluted		€	(0.04	)		€	(0.17	)		€	(0.23	)		€	(0.13	)

 

(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,
		2013				2012				2013				2012
Cash flows from (used in) operating activities
Net income (loss)		€	(1,738	)		€	(9,146	)		€	(10,761	)		€	(4,159	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments			(2,398	)			883				(12,774	)			(1,336	)
Depreciation and amortization			14,694				15,054				44,298				43,992
Deferred income taxes			(115	)			1,040				4,456				(2,300	)
Stock compensation expense			621				891				1,194				1,753
Pension and other post-retirement expense, net of funding			124				(73	)			457				(128	)
Other			461				1,412				2,614				2,278
Changes in working capital
Receivables			(696	)			(14,122	)			11,349				901
Inventories			(15,248	)			5,834				(7,355	)			9,276
Accounts payable and accrued expenses			9,061				9,692				18,088				13,146
Other			77				(2,239	)			(6,413	)			(901	)
Net cash from (used in) operating activities			4,843				9,226				45,153				62,522
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(6,991	)			(9,152	)			(29,368	)			(27,455	)
Proceeds on sale of property, plant and equipment			233				48				248				387
Proceeds on maturity of marketable securities			—				10,213				—				12,221
Net cash from (used in) investing activities			(6,758	)			1,109				(29,120	)			(14,847	)
Cash flows from (used in) financing activities
Repayment of debt and purchase of notes			(22,174	)			(15,544	)			(42,719	)			(27,254	)
Proceeds from issuance of notes and borrowings of debt			39,607				—				56,607				—
Repayment of capital lease obligations			(396	)			(508	)			(1,497	)			(1,567	)
Proceeds from (repayment of) credit facilities, net			(12,226	)			—				728				—
Payment of note issuance costs			(1,794	)			—				(1,794	)			(1,621	)
Proceeds from government grants			—				778				4,147				3,100
Net cash from (used in) financing activities			3,017				(15,274	)			15,472				(27,342	)
Effect of exchange rate changes on cash and cash equivalents			(1,367	)			221				(1,576	)			764
Net increase (decrease) in cash and cash equivalents			(265	)			(4,718	)			29,929				21,097
Cash and cash equivalents, beginning of period			134,433				130,887				104,239				105,072
Cash and cash equivalents, end of period		€	134,168			€	126,169			€	134,168			€	126,169

 

(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 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, 2013 and 2012, 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, 2013
		Restricted				Unrestricted								Consolidated
		Group				Subsidiaries				Eliminations				Group
ASSETS
Current assets
Cash and cash equivalents		€	75,075			€	59,093			€	—			€	134,168
Receivables			52,595				44,708				—				97,303
Inventories			68,731				53,873				—				122,604
Prepaid expenses and other			7,977				4,418				—				12,395
Deferred income tax			2,219				2,016				—				4,235
Total current assets			206,597				164,108				—				370,705
Long-term assets
Property, plant and equipment			318,865				458,550				—				777,415
Deferred note issuance and other			7,525				6,613				—				14,138
Deferred income tax			8,726				5,500				—				14,226
Due from unrestricted group			109,399				—				(109,399	)			—
Total assets		€	651,112			€	634,771			€	(109,399	)		€	1,176,484
LIABILITIES
Current liabilities
Accounts payable and other		€	51,865			€	51,290			€	—			€	103,155
Pension and other post-retirement benefit obligations			767				—				—				767
Debt			544				43,258				—				43,802
Total current liabilities			53,176				94,548				—				147,724
Long-term liabilities
Debt			253,671				422,776				—				676,447
Due to restricted group			—				109,399				(109,399	)			—
Unrealized interest rate derivative losses			—				36,759				—				36,759
Pension and other post-retirement benefit obligations			30,737				—				—				30,737
Capital leases and other			6,167				8,338				—				14,505
Deferred income tax			7,639				—				—				7,639
Total liabilities			351,390				671,820				(109,399	)			913,811
EQUITY
Total shareholders’ equity (deficit)			299,722				(29,350	)			—				270,372
Noncontrolling interest (deficit)			—				(7,699	)			—				(7,699	)
Total liabilities and equity		€	651,112			€	634,771			€	(109,399	)		€	1,176,484

 

(4)

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MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE

Combined Condensed Balance Sheets

(Unaudited)

(In thousands of Euros)

 

		December 31, 2012
		Restricted				Unrestricted								Consolidated
		Group				Subsidiaries				Eliminations				Group
ASSETS
Current assets
Cash and cash equivalents		€	36,714			€	67,525			€	—			€	104,239
Receivables			61,212				48,875				—				110,087
Inventories			74,786				43,514				—				118,300
Prepaid expenses and other			5,811				2,096				—				7,907
Deferred income tax			2,188				2,277				—				4,465
Total current assets			180,711				164,287				—				344,998
Long-term assets
Property, plant and equipment			345,311				463,567				—				808,878
Deferred note issuance and other			6,607				5,555				—				12,162
Deferred income tax			9,179				8,386				—				17,565
Due from unrestricted group			102,311				—				(102,311	)			—
Total assets		€	644,119			€	641,795			€	(102,311	)		€	1,183,603
LIABILITIES
Current liabilities
Accounts payable and other		€	42,106			€	47,844			€	—			€	89,950
Pension and other post-retirement benefit obligations			813				—				—				813
Debt			5,662				40,000				—				45,662
Total current liabilities			48,581				87,844				—				136,425
Long-term liabilities
Debt			216,214				449,527				—				665,741
Due to restricted group			—				102,311				(102,311	)			—
Unrealized interest rate derivative losses			—				50,678				—				50,678
Pension and other post-retirement benefit obligations			32,141				—				—				32,141
Capital leases and other			6,073				7,863				—				13,936
Deferred income tax			5,757				—				—				5,757
Total liabilities			308,766				698,223				(102,311	)			904,678
EQUITY
Total shareholders’ equity (deficit)			335,353				(39,548	)			—				295,805
Noncontrolling interest (deficit)			—				(16,880	)			—				(16,880	)
Total liabilities and equity		€	644,119			€	641,795			€	(102,311	)		€	1,183,603

 

(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, 2013
		Restricted				Unrestricted								Consolidated
		Group				Subsidiaries				Eliminations				Group
Revenues
Pulp		€	105,794			€	80,306			€	—			€	186,100
Energy and chemicals			5,935				11,086				—				17,021
			111,729				91,392				—				203,121
Operating costs			90,815				75,239				—				166,054
Operating depreciation and amortization			8,130				6,502				—				14,632
Selling, general and administrative expenses			5,608				3,829				—				9,437
Restructuring expenses			2,926				—				—				2,926
			107,479				85,570				—				193,049
Operating income (loss)			4,250				5,822				—				10,072
Other income (expense)
Interest expense			(6,193	)			(8,472	)			1,647				(13,018	)
Gain (loss) on derivative instruments			(1,060	)			3,038				—				1,978
Other income (expense)			1,791				28				(1,647	)			172
Total other income (expense)			(5,462	)			(5,406	)			—				(10,868	)
Income (loss) before income taxes			(1,212	)			416				—				(796	)
Income tax benefit (provision)			(1,087	)			145				—				(942	)
Net income (loss)			(2,299	)			561				—				(1,738	)
Less: net income attributable to noncontrolling interest			—				(482	)			—				(482	)
Net income (loss) attributable to common shareholders		€	(2,299	)		€	79			€	—			€	(2,220	)

 

		Three Months Ended September 30, 2012
		Restricted				Unrestricted								Consolidated
		Group				Subsidiaries				Eliminations				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 benefit (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	)

 

(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, 2013
		Restricted Group				Unrestricted Subsidiaries				Eliminations				Consolidated Group
Revenues
Pulp		€	311,575			€	248,304			€	—			€	559,879
Energy and chemicals			19,065				32,595				—				51,660
			330,640				280,899				—				611,539
Operating costs			283,896				234,136				—				518,032
Operating depreciation and amortization			24,579				19,528				—				44,107
Selling, general and administrative expenses			16,968				10,727				—				27,695
Restructuring expenses			2,926				—				—				2,926
			328,369				264,391				—				592,760
Operating income (loss)			2,271				16,508				—				18,779
Other income (expense)
Interest expense			(17,939	)			(26,309	)			4,943				(39,305	)
Gain (loss) on derivative instruments			(1,827	)			13,918				—				12,091
Other income (expense)			4,946				105				(4,943	)			108
Total other income (expense)			(14,820	)			(12,286	)			—				(27,106	)
Income (loss) before income taxes			(12,549	)			4,222				—				(8,327	)
Income tax benefit (provision)			(2,714	)			280				—				(2,434	)
Net income (loss)			(15,263	)			4,502				—				(10,761	)
Less: net income attributable to noncontrolling interest			—				(1,795	)			—				(1,795	)
Net income (loss) attributable to common shareholders		€	(15,263	)		€	2,707			€	—			€	(12,556	)
		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 (loss)			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 benefit (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	)

 

(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, 2013
		Restricted				Unrestricted				Consolidated
		Group				Subsidiaries				Group
Cash flows from (used in) operating activities
Net income (loss)		€	(2,299	)		€	561			€	(1,738	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments			640				(3,038	)			(2,398	)
Depreciation and amortization			8,192				6,502				14,694
Deferred income taxes			(115	)			—				(115	)
Stock compensation expense			621				—				621
Pension and other post-retirement expense, net of funding			124				—				124
Other			75				386				461
Changes in working capital
Receivables			(3,350	)			2,654				(696	)
Inventories			(5,366	)			(9,882	)			(15,248	)
Accounts payable and accrued expenses			2,517				6,544				9,061
Other(1)			(2,659	)			2,736				77
Net cash from (used in) operating activities			(1,620	)			6,463				4,843
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(2,199	)			(4,792	)			(6,991	)
Acquisition of noncontrolling interest			(14,809	)			14,809				—
Proceeds on sale of property, plant and equipment			194				39				233
Net cash from (used in) investing activities			(16,814	)			10,056				(6,758	)
Cash flows from (used in) financing activities
Repayment of debt			(544	)			(21,630	)			(22,174	)
Proceeds from issuance of notes and borrowings of debt			39,607				—				39,607
Repayment of capital lease obligations			(122	)			(274	)			(396	)
Proceeds from (repayment of) credit facilities, net			(12,226	)			—				(12,226	)
Payment of note issuance costs			(1,306	)			(488	)			(1,794	)
Proceeds from government grants			—				—				—
Net cash from (used in) financing activities			25,409				(22,392	)			3,017
Effect of exchange rate changes on cash and cash equivalents			(1,367	)			—				(1,367	)
Net increase (decrease) in cash and cash equivalents			5,608				(5,873	)			(265	)
Cash and cash equivalents, beginning of period			69,467				64,966				134,433
Cash and cash equivalents, end of period		€	75,075			€	59,093			€	134,168

 

(1)	Includes intercompany 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, 2012
		Restricted				Unrestricted				Consolidated
		Group				Subsidiaries				Group
Cash flows from (used in) operating activities
Net income (loss)		€	(9,957	)		€	811			€	(9,146	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments			(353	)			1,236				883
Depreciation and amortization			8,385				6,669				15,054
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 working capital
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 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 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, 2013
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss)		€	(15,263	)		€	4,502			€	(10,761	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments			1,144				(13,918	)			(12,774	)
Depreciation and amortization			24,770				19,528				44,298
Deferred income taxes			1,309				3,147				4,456
Stock compensation expense			1,194				—				1,194
Pension and other post-retirement expense, net of funding			457				—				457
Other			778				1,836				2,614
Changes in working capital
Receivables			7,174				4,175				11,349
Inventories			3,004				(10,359	)			(7,355	)
Accounts payable and accrued expenses			11,143				6,945				18,088
Other(1)			(11,299	)			4,886				(6,413	)
Net cash from (used in) operating activities			24,411				20,742				45,153
Cash flows from (used in) investing activities
Purchase of property, plant and equipment			(7,446	)			(21,922	)			(29,368	)
Acquisition of noncontrolling interest			(14,809	)			14,809				—
Proceeds on sale of property, plant and equipment			207				41				248
Net cash from (used in) investing activities			(22,048	)			(7,072	)			(29,120	)
Cash flows from (used in) financing activities
Repayment of debt			(1,089	)			(41,630	)			(42,719	)
Proceeds from issuance of notes and borrowings of debt			39,607				17,000				56,607
Repayment of capital lease obligations			(366	)			(1,131	)			(1,497	)
Proceeds from (repayment of) credit facilities, net			728				—				728
Payment of note issuance costs			(1,306	)			(488	)			(1,794	)
Proceeds from government grants			—				4,147				4,147
Net cash from (used in) financing activities			37,574				(22,102	)			15,472
Effect of exchange rate changes on cash and cash equivalents			(1,576	)			—				(1,576	)
Net increase (decrease) in cash and cash equivalents			38,361				(8,432	)			29,929
Cash and cash equivalents, beginning of period			36,714				67,525				104,239
Cash and cash equivalents, end of period		€	75,075			€	59,093			€	134,168

 

(1)	Includes intercompany 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, 2012
		Restricted Group				Unrestricted Subsidiaries				Consolidated Group
Cash flows from (used in) operating activities
Net income (loss)		€	(12,842	)		€	8,683			€	(4,159	)
Adjustments to reconcile net income (loss) to cash flows from operating activities
Unrealized loss (gain) on derivative instruments			(1,972	)			636				(1,336	)
Depreciation and amortization			23,958				20,034				43,992
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 working capital
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 debt and purchase of notes			(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 related transactions.

 

(11)

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MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA

(Unaudited)

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,
		2013				2012				2013				2012
		(in thousands)								(in thousands)
Net loss attributable to common shareholders		€	(2,220	)		€	(9,712	)		€	(12,556	)		€	(7,024	)
Net income attributable to noncontrolling interest			482				566				1,795				2,865
Income tax provision			942				1,910				2,434				4,907
Interest expense			13,018				14,084				39,305				42,080
(Gain) loss on derivative instruments			(1,978	)			883				(12,091	)			(1,336	)
Other (income) expense			(172	)			(517	)			(108	)			261
Operating income			10,072				7,214				18,779				41,753
Add: Depreciation and amortization			14,694				15,054				44,298				43,992
Operating EBITDA		€	24,766			€	22,268			€	63,077			€	85,745

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2013				2012				2013				2012
		(in thousands)								(in thousands)
Restricted Group(1)
Net loss		€	(2,299	)		€	(9,957	)		€	(15,263	)		€	(12,842	)
Income tax provision			1,087				1,192				2,714				3,305
Interest expense			6,193				6,010				17,939				17,754
(Gain) loss on derivative instruments			1,060				(353	)			1,827				(1,972	)
Other (income) expense			(1,791	)			(1,665	)			(4,946	)			(3,405	)
Operating income (loss)			4,250				(4,773	)			2,271				2,840
Add: Depreciation and amortization			8,192				8,385				24,770				23,958
Operating EBITDA		€	12,442			€	3,612			€	27,041			€	26,798

 

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

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(12)