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TheStreet Open House

Mercer International Inc. Reports 2013 First Quarter Results

Liquidity and Capital Resources

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

    As at March 31, 2013    As at December 31, 2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  € 110,664  € 104,239
Working capital   202,331   208,573
Total assets   1,185,560   1,183,603
Long-term liabilities   756,192   768,253
Total equity   275,824   278,925

As at March 31, 2013, we had approximately €26.2 million and C$22.3 million available under our Rosenthal and Celgar facilities, respectively. As at March 31, 2013, approximately €432.9 million was outstanding under our Stendal mill's loan facility, compared to €467.9 million as at March 31, 2012.

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 March 31,  2013    As at December 31, 2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  € 52,032  € 36,714
Working capital   135,744   132,130
Total assets   661,657  644,119
Long-term liabilities   266,151   260,185
Total equity   330,177   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, May 3, 2013 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through June 2, 2013, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=128464&CompanyID=MERC&e=1&mediaKey=1AE35D7DABC3ECD95E2779DA87354812  or through a link on the Company's home page at http://www.mercerint.com . Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

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.

-FINANCIAL TABLES FOLLOW-

MERCER INTERNATIONAL INC.
     
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Euros)
     
  March 31, 2013 December 31, 2012
ASSETS    
Current assets    
Cash and cash equivalents   € 110,664  € 104,239
Receivables  120,184 110,087
Inventories 112,908 118,300
Prepaid expenses and other 8,295 7,907
Deferred income tax 3,824 4,465
Total current assets   € 355,875  € 344,998
     
Long-term assets    
Property, plant and equipment  802,959 808,878
Deferred note issuance and other 11,622 12,162
Deferred income tax 15,104 17,565
  829,685 838,605
Total assets  € 1,185,560  € 1,183,603
     
LIABILITIES    
Current liabilities    
Accounts payable and other  € 97,645  € 89,950
Pension and other post-retirement benefit obligations 818 813
Debt 55,081 45,662
Total current liabilities  153,544 136,425
     
Long-term liabilities    
Debt 658,166 665,741
Unrealized interest rate derivative losses 45,513 50,678
Pension and other post-retirement benefit obligations 32,451 32,141
Capital leases and other 13,887 13,936
Deferred income tax 6,175 5,757
  756,192 768,253
Total liabilities 909,736 904,678
     
EQUITY    
Shareholders' equity    
Share capital 248,757 248,371
Paid-in capital (3,706) (3,547)
Retained earnings 25,375 25,800
Accumulated other comprehensive income 21,570 25,181
Total shareholders' equity 291,996 295,805
Noncontrolling interest (deficit) (16,172) (16,880)
Total equity  275,824 278,925
Total liabilities and equity  € 1,185,560  € 1,183,603
 
MERCER INTERNATIONAL INC.
     
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of Euros, except per share data)
     
  Three Months Ended March 31,
  2013 2012
Revenues    
Pulp   € 180,120  € 199,439
Energy and chemicals 18,152 18,919
  198,272 218,358
Costs and expenses    
Operating costs 165,098 177,770
Operating depreciation and amortization 14,731 14,287
  18,443 26,301
Selling, general and administrative expenses 8,895 10,058
Operating income 9,548 16,243
     
Other income (expense)    
Interest expense (13,148) (14,133)
Gain on derivative instruments 4,820 876
Other income (expense) (70) (410)
Total other income (expense) (8,398) (13,667)
Income before income taxes 1,150 2,576
Income tax benefit (provision)     
Current 3,271 (56)
Deferred (4,138) (676)
Net income 283 1,844
Less: net income attributable to noncontrolling interest (708) (671)
Net income (loss) attributable to common shareholders  € (425)  € 1,173
     
Net income (loss) per share attributable to common shareholders    
Basic and diluted  € (0.01)  € 0.02
 
MERCER INTERNATIONAL INC.
     
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of Euros)
     
  Three Months Ended March 31,
  2013 2012
Cash flows from (used in) operating activities    
Net income  € 283  € 1,844
Adjustments to reconcile net income to cash flows from operating activities    
Unrealized gain on derivative instruments (4,695) (876)
Depreciation and amortization 14,794 14,350
Deferred income taxes 4,138 676
Stock compensation expense 267 868
Pension and other post-retirement expense, net of funding 121 (14)
Other  1,183 793
Changes in working capital    
Receivables (9,704) 2,685
Inventories 5,746 11,738
Accounts payable and accrued expenses 10,597 2,649
Other (782) 1,424
Net cash from (used in) operating activities 21,948 36,137
     
Cash flows from (used in) investing activities    
Purchase of property, plant and equipment (11,395) (8,465)
Proceeds on sale of property, plant and equipment 13 226
Net cash from (used in) investing activities (11,382) (8,239)
     
Cash flows from (used in) financing activities    
Repayment of debt (20,545) (10,126)
Proceeds from borrowings of debt 10,000  --
Repayment of capital lease obligations (700) (611)
Proceeds from credit facilities, net 5,968 3,759
Payment of note issuance costs  -- (1,621)
Proceeds from government grants 730 630
Net cash from (used in) financing activities (4,547) (7,969)
     
Effect of exchange rate changes on cash and cash equivalents 406 (805)
     
Net increase in cash and cash equivalents 6,425 19,124
Cash and cash equivalents, beginning of period 104,239 105,072
Cash and cash equivalents, end of period  € 110,664  € 124,196
 
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 months ended March 31, 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.
         
  March 31, 2013
  Restricted Group Unrestricted Subsidiaries Eliminations Consolidated Group
ASSETS        
Current assets        
Cash and cash equivalents  € 52,032 € 58,632 € -- € 110,664
Receivables   69,944  50,240  --  120,184
Inventories  72,073  40,835  --  112,908
Prepaid expenses and other  4,834  3,461  --  8,295
Deferred income tax  2,190  1,634  --  3,824
Total current assets   201,073  154,802  --  355,875
         
Long-term assets        
Property, plant and equipment   340,459  462,500  --  802,959
Deferred note issuance and other  6,322  5,300  --  11,622
Deferred income tax  9,222  5,882  --  15,104
Due from unrestricted group  104,581  -- (104,581)  --
Total assets € 661,657 € 628,484  € (104,581) € 1,185,560
         
LIABILITIES        
Current liabilities        
Accounts payable and other € 52,688 € 44,957 € -- € 97,645
Pension and other post-retirement benefit obligations  818  --  --  818
Debt  11,823  43,258  --  55,081
Total current liabilities   65,329  88,215  --  153,544
         
Long-term liabilities        
Debt  221,430  436,736  --  658,166
Due to restricted group  --  104,581 (104,581)  --
Unrealized interest rate derivative losses  --  45,513  --  45,513
Pension and other post-retirement benefit obligations  32,451  --  --  32,451
Capital leases and other  6,095  7,792  --  13,887
Deferred income tax  6,175  --  --  6,175
Total liabilities  331,480  682,837 (104,581)  909,736
         
EQUITY        
Total shareholders' equity (deficit)  330,177 (38,181)  --  291,996
Noncontrolling interest (deficit)  -- (16,172)  -- (16,172)
Total liabilities and equity € 661,657 € 628,484 € (104,581) € 1,185,560
 
MERCER INTERNATIONAL INC.
         
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)
         
  December 31, 2012
  Restricted Group Unrestricted Subsidiaries Eliminations Consolidated 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
 
MERCER INTERNATIONAL INC.
         
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)
         
  Three months ended March 31, 2013
  Restricted Group Unrestricted Subsidiaries Eliminations Consolidated Group
Revenues        
Pulp € 100,240 € 79,880 € -- € 180,120
Energy and chemicals  7,090  11,062  --  18,152
   107,330  90,942  --  198,272
         
Operating costs  89,523  75,575  --  165,098
Operating depreciation and amortization  8,191  6,540  --  14,731
Selling, general and administrative expenses  5,716  3,179  --  8,895
   103,430  85,294  --  188,724
Operating income  3,900  5,648  --  9,548
         
Other income (expense)        
Interest expense (5,866) (8,930)  1,648 (13,148)
Gain (loss) on derivative instruments (345)  5,165  --  4,820
Other income (expense)  1,535  43 (1,648) (70)
Total other income (expense) (4,676) (3,722)  -- (8,398)
Income (loss) before income taxes (776)  1,926  --  1,150
Income tax benefit (provision) (1,016)  149  -- (867)
Net income (loss) (1,792)  2,075  --  283
Less: net income attributable to noncontrolling interest  -- (708)  -- (708)
Net income (loss) attributable to common shareholders € (1,792) € 1,367 € -- € (425)
         
         
  Three months ended March 31, 2012
  Restricted Group Unrestricted Subsidiaries Eliminations Consolidated Group
Revenues        
Pulp € 109,889 € 89,550 € -- € 199,439
Energy and chemicals  7,991  10,928  --  18,919
   117,880  100,478  --  218,358
         
Operating costs  98,336  79,434  --  177,770
Operating depreciation and amortization  7,640  6,647  --  14,287
Selling, general and administrative expenses  6,521  3,537  --  10,058
   112,497  89,618  --  202,115
Operating income  5,383  10,860  --  16,243
         
Other income (expense)        
Interest expense (5,810) (9,664)  1,341 (14,133)
Gain on derivative instruments  --  876  --  876
Other income (expense)  825  106 (1,341) (410)
Total other income (expense) (4,985) (8,682)  -- (13,667)
Income before income taxes  398  2,178  --  2,576
Income tax benefit (provision) (715) (17)  -- (732)
Net income (loss) (317)  2,161  --  1,844
Less: net income attributable to noncontrolling interest  -- (671)  -- (671)
Net income (loss) attributable to common shareholders € (317) € 1,490 € -- € 1,173
 
MERCER INTERNATIONAL INC.
       
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
       
  Three months ended March 31, 2013
  Restricted Group Unrestricted Subsidiaries Consolidated Group
Cash flows from (used in) operating activities      
Net income (loss)  € (1,792) € 2,075 € 283
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  470 (5,165) (4,695)
Depreciation and amortization  8,254  6,540  14,794
Deferred income taxes  991  3,147  4,138
Stock compensation expense  267  --  267
Pension and other post-retirement expense, net of funding  121  --  121
Other   413  770  1,183
Changes in working capital      
Receivables (8,339) (1,365) (9,704)
Inventories  3,067  2,679  5,746
Accounts payable and accrued expenses  10,505  92  10,597
Other (1) (1,714)  932 (782)
Net cash from (used in) operating activities  12,243  9,705  21,948
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment (2,645) (8,750) (11,395)
Proceeds on sale of property, plant and equipment  13  --  13
Net cash from (used in) investing activities (2,632) (8,750) (11,382)
       
Cash flows from (used in) financing activities      
Repayment of debt  (545)  (20,000)  (20,545)
Proceeds from borrowings of debt  --  10,000  10,000
Repayment of capital lease obligations (122) (578) (700)
Proceeds from credit facilities, net  5,968  --  5,968
Proceeds from government grants  --  730  730
Net cash from (used in) financing activities  5,301 (9,848) (4,547)
       
Effect of exchange rate changes on cash and cash equivalents  406  --  406
       
Net increase (decrease) in cash and cash equivalents  15,318 (8,893)  6,425
Cash and cash equivalents, beginning of period  36,714  67,525  104,239
Cash and cash equivalents, end of period € 52,032 € 58,632 € 110,664
       
______________________      
(1)  Includes intercompany related transactions.      
 
MERCER INTERNATIONAL INC.
       
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of Euros)
       
  Three months ended March 31, 2012
  Restricted Group Unrestricted Subsidiaries Consolidated Group
Cash flows from (used in) operating activities      
Net income (loss)  € (317) € 2,161 € 1,844 
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized gain on derivative instruments  -- (876) (876)
Depreciation and amortization  7,703  6,647  14,350
Deferred income taxes  676  --  676
Stock compensation expense  868  --  868
Pension and other post-retirement expense, net of funding (14)  -- (14)
Other   58  735  793
Changes in working capital      
Receivables (2,110)  4,795  2,685
Inventories  4,018  7,720  11,738
Accounts payable and accrued expenses  5,535 (2,886)  2,649
Other (1) (6,474)  7,898  1,424
Net cash from (used in) operating activities  9,943  26,194  36,137
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment (4,218) (4,247) (8,465)
Proceeds on sale of property, plant and equipment  186  40  226
Net cash from (used in) investing activities (4,032) (4,207) (8,239)
       
Cash flows from (used in) financing activities      
Repayment of debt (543) (9,583) (10,126)
Repayment of capital lease obligations (186) (425) (611)
Proceeds from credit facilities, net  3,759  --  3,759
Payment of note issuance costs  -- (1,621) (1,621)
Proceeds from government grants  630  --  630
Net cash from (used in) financing activities  3,660 (11,629) (7,969)
       
Effect of exchange rate changes on cash and cash equivalents (805)  -- (805)
       
Net increase in cash and cash equivalents  8,766  10,358  19,124
Cash and cash equivalents, beginning of period  44,829  60,243  105,072
Cash and cash equivalents, end of period € 53,595 € 70,601 € 124,196
       
______________________      
(1)  Includes intercompany 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 March 31, 
  2013 2012
  (in thousands)
Net income (loss) attributable to common shareholders  € (425) € 1,173
Net income attributable to noncontrolling interest  708 671
Income tax provision (benefit)  867 732
Interest expense  13,148 14,133
Gain on derivative instruments  (4,820) (876)
Other expense (income)  70 410
Operating income  9,548 16,243
Add: Depreciation and amortization  14,794 14,350
Operating EBITDA  € 24,342 € 30,593
     
  Three Months Ended March 31, 
  2013 2012
  (in thousands)
Restricted Group (1)    
Net loss  € (1,792) € (317)
Income tax provision (benefit)  1,016 715
Interest expense  5,866 5,810
Loss on derivative instruments  345 --
Other expense (income)  (1,535) (825)
Operating income  3,900 5,383
Add: Depreciation and amortization  8,254 7,703
Operating EBITDA  € 12,154 € 13,086
__________________    
(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 & President
         (604) 684-1099
         
         David M. Gandossi
         Executive Vice-President &
         Chief Financial Officer
         (604) 684-1099

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