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Press release from GlobeNewswire (a Nasdaq OMX company)

Mercer International Inc. Reports 2012 Third Quarter Results

Thursday, November 01, 2012

Mercer International Inc. Reports 2012 Third Quarter Results13:30 EDT Thursday, November 01, 2012NEW 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 ($0.04) per basic share, for the second quarter of 2012.Summary Financial Highlights   Q3 Q2 Q3YTD YTD  2012   2012   2011  2012   2011  (in millions of Euros, other than per share amounts) Pulp revenues€ 205.1 € 186.0 € 190.4€ 590.6  € 618.2 Energy and chemical revenues 18.2  18.0  16.6 55.1   49.7 Operating income 7.2  18.3  35.3 41.8   108.2 Operating EBITDA 22.3  32.9  49.2 85.7  150.1 Gain (loss) on derivative instruments (0.9)  1.3  (10.5) 1.3  (0.6) Foreign exchange gain (loss) on debt --  --  (0.2) --  1.3 Income tax benefit (provision) (1.9)  (2.3)  (3.1) (4.9)  (7.6) Net income (loss)(1) (9.7)  1.5  8.4 (7.0)  51.9 Net income (loss) per share(1)          Basic€ (0.17) € 0.03 € 0.15€ (0.13)  € 1.07  Diluted€ (0.17) € 0.03 € 0.15€ (0.13)  € 0.92 Common shares outstanding at period end (000s) 55,816  55,816  55,779 55,816  55,779             (1)     Attributable to common shareholders.          Summary Operating Highlights Q3 Q2 Q3YTD YTD  2012   2012   2011  2012   2011  Pulp production ('000 ADMTs) 373.4  365.0  362.3 1,118.8  1,088.8 Scheduled production downtime ('000 ADMTs) 10.2  22.6  8.3 32.8  24.5 Pulp sales ('000 ADMTs) 404.3  349.2  321.3 1,138.3  1,027.9 Average NBSK pulp list price in Europe ($/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 Q3YTD 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, 20122011ASSETS     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 EndedNine Months Ended  September 30,September 30,  2012201120122011 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 EndedNine Months Ended  September 30,September 30,  2012201120122011 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 DISCLOSURECombined 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 GroupUnrestricted Subsidiaries EliminationsConsolidated GroupASSETS         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 DISCLOSURECombined Condensed Balance Sheets(Unaudited)(In thousands of Euros)  December 31, 2011 Restricted GroupUnrestricted Subsidiaries EliminationsConsolidated GroupASSETS         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 DISCLOSURECombined Condensed Statements of Operations(Unaudited)(In thousands of Euros)   Three Months Ended September 30, 2012  Restricted GroupUnrestricted Subsidiaries EliminationsConsolidated 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 GroupUnrestricted Subsidiaries EliminationsConsolidated 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 DISCLOSURECombined Condensed Statements of Operations(Unaudited)(In thousands of Euros)   Nine Months Ended September 30, 2012  Restricted GroupUnrestricted Subsidiaries EliminationsConsolidated 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 GroupUnrestricted Subsidiaries EliminationsConsolidated 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 DISCLOSURECombined Condensed Statements of Cash Flows(Unaudited)(In thousands of Euros)   Three months ended September 30, 2012  Restricted GroupUnrestricted SubsidiariesConsolidated 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 DISCLOSURECombined Condensed Statements of Cash Flows(Unaudited)(In thousands of Euros)   Three months ended September 30, 2011  Restricted GroupUnrestricted SubsidiariesConsolidated 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 DISCLOSURECombined Condensed Statements of Cash Flows(Unaudited)(In thousands of Euros)   Nine months ended September 30, 2012  Restricted GroupUnrestricted SubsidiariesConsolidated 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 DISCLOSURECombined Condensed Statements of Cash Flows(Unaudited)(In thousands of Euros)   Nine months ended September 30, 2011  Restricted GroupUnrestricted SubsidiariesConsolidated 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