×

Mercer International Inc. Reports 2012 Third Quarter Results

company logo

NEW YORK, Nov. 1, 2012 (GLOBE NEWSWIRE) -- 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.
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."

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.

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.

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.

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.

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.

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
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
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
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
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
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
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
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.
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.
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.
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.
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.
CONTACT: 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

Source:Mercer International Inc.