Mercer International Inc. Reports 2013 Fourth Quarter and Year End Results

        Print
| Source: Mercer International Inc.

NEW YORK, Feb. 13, 2014 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI.U) today reported results for the fourth quarter and year ended December 31, 2013. Operating EBITDA* in the fourth quarter of 2013 was $27.2 million after giving effect to $2.6 million in restructuring expenses, compared to $27.7 million in the same quarter of last year and $32.8 million in the third quarter of 2013. For 2013, Operating EBITDA was $110.3 million and included $6.4 million in restructuring expenses, compared to $137.7 million in 2012.

For the fourth quarter of 2013, our net loss was $9.8 million, or $0.18 per share, compared to a net loss of $6.7 million, or $0.12 per share, in the fourth quarter of 2012 and a net loss of $3.0 million, or $0.05 per share, for the third quarter of 2013. For 2013, we reported a net loss of $26.4 million, or $0.47 per share, compared to a net loss of $15.7 million, or $0.28 per share, in 2012.

On October 1, 2013, we changed our reporting currency from the Euro to the U.S. dollar. See page 7 of this press release for further information about this change.

Summary Financial Highlights

  Q4 Q3 Q4 Year Year
   2013   2013   2012   2013   2012 
  (in millions, except per share amounts)
Pulp revenues $ 258.5 $ 246.7 $ 222.5 $ 996.2 $ 979.8
Energy and chemical revenues  24.1  22.6  22.3  92.2  93.0
Operating income  6.9  13.3  9.5  31.7  63.0
Restructuring expenses  2.6  3.8  --  6.4  --
Operating EBITDA  27.2  32.8  27.7  110.3  137.7
Gain on derivative instruments  3.8  2.6  3.1  19.7  4.8
Income tax benefit (provision)  (6.0)  (1.2)  (3.1)  (9.2)  (9.4)
Net income (loss)(1)  (9.8)  (3.0)  (6.7)  (26.4)  (15.7)
Net income (loss) per share(1)(2) $ (0.18) $ (0.05) $ (0.12) $ (0.47) $ (0.28)
Common shares outstanding at period end  55.9  55.9  55.8  55.9  55.8
_________________________          
(1) Attributable to common shareholders.          
(2) Per basic and diluted share.          

Summary Operating Highlights

  Q4 Q3 Q4 Year Year
   2013   2013   2012   2013   2012 
Pulp production ('000 ADMTs)  364.8  369.0  349.5  1,444.5  1,468.3
Scheduled production downtime ('000 ADMTs)  22.4  9.4  18.1  47.8  50.9
Pulp sales ('000 ADMTs)  358.6  356.6  335.2  1,440.1  1,473.5
Average NBSK pulp list price in Europe ($/ADMT)(1)  902  867  803  864  813
Average pulp sales realizations ($/ADMT)(2)  713  682  655  683  657
_________________________          
(1) Source: RISI pricing report.          
(2) Sales realizations after discounts. Incorporates the effect of pulp price variations occurring between the order and shipment dates.          

_________________________

* Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 10 of the financial tables included in this press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

  Q4 Q3 Q4 Year Year
   2013   2013   2012   2013   2012
Energy production ('000 MWh)  435.8  444.2   405.9  1,710.2  1,704.1
Energy sales ('000 MWh)  172.5  185.4   163.8  699.1   710.2
Average Spot Currency Exchange Rates:          
$ / €(3)  1.3619  1.3252   1.2977  1.3281   1.2859
$ / C$(3)  0.9530  0.9630   1.0089  0.9712   1.0007
_________________________          
(3) Average Federal Reserve Bank of New York noon spot rate over the reporting period.          

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "In the fourth quarter of 2013, our Operating EBITDA was in line with the comparative period of 2012 and down about 17% from the third quarter of 2013. In the current quarter, we had $2.6 million in restructuring expenses, primarily related to a management restructuring at our Stendal mill and the workforce reduction at our Celgar mill. For the year 2013, Operating EBITDA declined by approximately 20% from 2012 as higher fiber prices in Germany, the weakness of the U.S. dollar versus the Euro and $6.4 million of restructuring expenses more than offset higher average list prices in 2013. The U.S. dollar was 5% and 3% weaker versus the Euro in the current quarter and 2013, compared to the comparable periods of 2012, respectively."

Mr. Lee continued: "Our Stendal mill completed Project Blue Mill in December 2013, slightly below budget, and the mill is currently producing at planned levels.  The project is designed to increase the mill's annual production capacity by approximately 30,000 ADMTs of pulp and 109,000 MWh of surplus renewable energy."

Mr. Lee added: "Our Rosenthal and Stendal mills both achieved new monthly production records in the fourth quarter of 2013. Energy production increased 7% and sales increased by about 5% in the fourth quarter of 2013 compared to the same period of 2012 as a result of the start and ramp up of the additional turbine at our Stendal mill. In the fourth quarter, our Stendal mill had 12 days of scheduled downtime for its annual maintenance."

Mr. Lee continued: "At the end of 2013, list pulp prices in Europe were approximately $905 per ADMT, while list prices in North America and China were approximately $990 and $750 per ADMT, respectively. A $20 per ADMT price increase for North America was implemented in January 2014. In Europe, a $15 per ADMT price increase was implemented in January 2014 with a further $10 per ADMT price increase implemented in February 2014. In China, a $10 per ADMT price increase was implemented in February 2014."

Mr. Lee continued: "At year end, the NBSK pulp market was slightly under-balanced with world producer inventories at about 27 days' supply. In addition, we expect to see continued growth in NBSK demand in emerging markets, particularly in China, driven by increasing strong demand from tissue producers. As a result of the foregoing and the closure of a Norwegian mill, we currently expect that NBSK pulp prices will continue their moderate upward trend over the first half of 2014. During the course of 2014, the global supply of hardwood kraft pulp is projected to increase by approximately 2.1 million ADMTs, primarily from South America. This increase in hardwood production is largely targeted at the growing demand for pulp by tissue makers, particularly in China. If such additional hardwood pulp supply is not absorbed by such demand growth, as a result of generally lower prices for hardwood pulp, this supply increase could put downward pressure on NBSK pulp prices. However, we believe customers' ability to further substitute NBSK pulp for lower priced hardwood pulp is limited by the strength characteristic provided by NBSK pulp that large modern paper machines need to run lower basis weight paper products efficiently."

Mr. Lee continued: "Fiber costs in Germany remained at relatively high levels through the fourth quarter of 2013 as a result of continued strong demand for roundwood from sawmills offsetting slightly lower chip prices. Fiber costs at our Celgar mill slightly decreased as a result of strong sawmill activity in the region. Overall, fiber costs per unit were approximately 11% and 2% higher in the fourth quarter of 2013, compared to the last quarter of 2012 and the third quarter of 2013, respectively. We expect fiber costs in Germany and Canada to remain relatively stable in the first quarter of 2014."

Mr. Lee added: "In 2014, we have no scheduled downtime in the first quarter. For the balance of 2014, we have scheduled maintenance downtime of ten days, or approximately 14,000 ADMTs, for our Celgar mill in the second quarter and 12 days, or approximately 12,000 ADMTs, for our Rosenthal mill in the third quarter. Our Stendal mill is not scheduled to have major maintenance downtime in 2014. Instead, in the second and fourth quarters of 2014, our Stendal mill will have two two-day shutdowns, or approximately 3,600 ADMTs for each shutdown."

Mr. Lee concluded: "Currently all of our mills are performing well. In 2014, our Stendal mill should see the benefits of higher production of pulp and electricity from Project Blue Mill. Further, our Celgar mill should benefit from the recent decline of the Canadian dollar versus the U.S. dollar and realize lower fixed costs as a result of its workforce reduction and other initiatives. In 2014, our Rosenthal mill is completing a capital project so that it can produce and sell tall oil, a chemical by-product. These factors, coupled with currently improving pulp prices, should help position us to build value for our stakeholders in 2014."

Three Months Ended December 31, 2013 Compared to Three Months Ended December 31, 2012

Total revenues for the three months ended December 31, 2013 increased by approximately 15% to $282.7 million from $244.8 million in the same period in 2012, due to higher pulp and energy and chemical revenues. Pulp revenues for the three months ended December 31, 2013 increased to $258.5 million from $222.5 million in the comparative quarter of 2012, primarily due to increased sales volume at our Celgar and Stendal mills and higher average pulp sales realizations.

Energy and chemical revenues increased by approximately 8% to $24.1 million in the fourth quarter of 2013 from $22.3 million in the same quarter last year, primarily as a result of higher sales volumes.

Pulp production increased by approximately 4% to 364,798 ADMTs in the current quarter from 349,517 ADMTs in the same quarter of 2012. We took 12 days (approximately 22,400 ADMTs) of scheduled maintenance downtime at our Stendal mill in the fourth quarter of 2013, compared to ten days (approximately 18,100 ADMTs) of scheduled maintenance downtime at our Stendal mill in the fourth quarter of 2012.

Pulp sales volumes increased by approximately 7% to 358,583 ADMTs in the current quarter from 335,215 ADMTs in the comparative quarter, primarily due to higher sales to China.

Average pulp sales realizations increased by approximately 9% to $713 per ADMT from approximately $655 per ADMT in the same quarter last year, primarily due to higher average NBSK list prices.

Costs and expenses in the fourth quarter of 2013 increased by approximately 17% to $275.8 million from $235.3 million in the comparative period of 2012, primarily due to higher sales volume, higher fiber prices in Germany and the impact of a weaker U.S. dollar relative to the Euro on our German mill expenses. Our costs and expenses in the three months ended December 31, 2013 included $10.4 million for the Stendal maintenance shutdown. Several competing producers and members of the peer group that we benchmark our performance against report their financial results in accordance with International Financial Reporting Standards which permit a significant portion of such maintenance costs to be capitalized instead of expensed.

On average, our overall per unit fiber costs in the current quarter increased by approximately 11% from the same period in 2012 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

Selling, general and administrative expenses were $14.7 million in the fourth quarter of 2013, compared to $12.5 million in the fourth quarter of 2012.

In the fourth quarter of 2013, we had restructuring expenses of $2.6 million, primarily related to a management restructuring at our Stendal mill and the workforce reduction at our Celgar mill.

For the fourth quarter of 2013, our operating income decreased to $6.9 million from $9.5 million in the comparative quarter of 2012, primarily due to higher fiber costs in Germany and the impact of a weaker U.S. dollar relative to the Euro on our German mill expenses, only partially offset by a higher realized sales price and higher sales volumes.

Interest expense in the fourth quarter of 2013 decreased to $17.4 million from $17.8 million in the comparative quarter of 2012.

We recorded a net derivative gain of $3.8 million, which includes an unrealized gain of approximately $4.1 million on the mark to market adjustment of our Stendal mill's interest rate derivative and an approximately $0.4 million realized loss related to fixed price pulp swap contracts entered into in the fourth quarter of 2012, compared to a net derivative gain of $3.1 million in the same quarter of last year.

The noncontrolling shareholder's interest in the Stendal mill's net loss in the fourth quarter of 2013 was $1.8 million, compared to $1.5 million in the same quarter last year.

We recognized a deferred tax expense of $5.6 million in the fourth quarter of 2013, compared to $2.8 million in the same quarter of 2012, primarily due to reducing our net deferred tax assets on the balance sheet. This is a non-cash charge and does not reduce our underlying tax attributes or hinder our ability to use them.

In the fourth quarter of 2013, Operating EBITDA decreased marginally to $27.2 million from $27.7 million in the fourth quarter of 2012. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 10 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 $9.8 million, or $0.18 per basic and diluted share, for the fourth quarter of 2013, which included a net gain of $3.8 million on the Stendal interest rate derivative and fixed price pulp swaps and $2.6 million in restructuring expenses. In the fourth quarter of 2012, the net loss attributable to common shareholders was $6.7 million, or $0.12 per basic and diluted share, which included a net gain of $3.1 million on the Stendal interest rate derivative and fixed price pulp swaps.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Total revenues for 2013 increased marginally to $1,088.4 million from $1,072.7 million in the same period in 2012. Pulp revenues for 2013 increased by 2% to $996.2 million from $979.8 million in the comparative period of 2012, primarily due to higher average pulp sales realizations, partially offset by lower sales volumes.

Energy and chemical revenues marginally decreased to $92.2 million in 2013 from $93.0 million in the same period last year, primarily as a result of marginally lower sales volumes.

Pulp production decreased by approximately 2% to 1,444,475 ADMTs in 2013 from 1,468,275 ADMTs in the same period of 2012, primarily due to lower pulp production at our Celgar mill. In the second quarter, the Celgar mill took its annual maintenance shutdown. As a result of weather, equipment and execution issues, the shutdown was four days longer and the startup was slower than budgeted, which resulted in a loss of approximately 30,300 ADMTs of NBSK pulp production.

Pulp sales volumes decreased by approximately 2% to 1,440,147 ADMTs in 2013 from 1,473,519 ADMTs in the comparative period of 2012, primarily due to lower production levels at our Celgar mill.

Costs and expenses in 2013 increased by approximately 5% to $1,056.7 million from $1,009.7 million in the comparative period of 2012, primarily due to higher fiber costs at our German mills, the impact of a weaker U.S. dollar relative to the Euro on our German mill expenses and restructuring costs, partially offset by lower sales volume. Included in our 2013 costs and expenses are $24.7 million for regularly scheduled major maintenance shutdowns.

On average, our per unit fiber costs in 2013 increased by approximately 8% over the comparative period of 2012, as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

In 2013, we had restructuring expenses of $6.4 million, primarily related to the workforce reduction at our Celgar mill.

For 2013, operating income decreased to $31.7 million from $63.0 million in the comparative period of 2012, primarily due to higher fiber costs in Germany, the impact of a weaker U.S. dollar relative to the Euro on our German mill expenses and the Celgar mill shutdown, partially offset by a higher realized sales price.

Interest expense in 2013 decreased to $69.2 million from $71.8 million in the comparative period of 2012, primarily due to reduced debt levels associated with our Stendal mill.

We recorded a net derivative gain of $19.7 million, which includes a $22.5 million unrealized gain on the mark to market adjustment of our Stendal mill's interest rate derivative and a $2.8 million realized loss on our fixed pulp price swap contracts, compared to a derivative gain of $4.8 million in the same period of last year.

We recognized a deferred tax expense of $11.5 million in 2013, compared to a recovery of $0.2 million in 2012, primarily due to reducing our net deferred tax assets on the balance sheet. This charge is a non-cash charge and does not reduce our underlying tax attributes or hinder our ability to use them.

In 2013, Operating EBITDA decreased to $110.3 million from $137.7 million in 2012.(1)

We reported a net loss attributable to common shareholders of $26.4 million, or $0.47 per basic and diluted share, for 2013, which included a net gain of $19.7 million on the Stendal interest rate derivative and fixed price pulp swaps, restructuring expenses of $6.4 million and $11.5 million of a deferred tax expense. In 2012, the net loss attributable to common shareholders was $15.7 million, or $0.28 per basic and diluted share, which included a gain of $4.8 million on the fixed price pulp swaps and Stendal interest rate derivative.

_________________________

(1) See page 10 of the financial tables included in the press release for limitations on the use of Operating EBITDA as an analytical tool and a reconciliation of net income (loss) to Operating EBITDA.

Liquidity and Capital Resources

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

  Year Ended December 31,
    2013    2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  $ 147,728  $ 137,439
Working capital   306,274   275,004
Total assets   1,548,559   1,560,581
Long-term liabilities   1,034,743   1,012,943
Total equity   348,317   367,762

As at December 31, 2013, we had approximately €28.3 million and C$33.3 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

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

Restricted Group

The following table is a summary of selected financial information for the Restricted Group (which, under the indenture for our 2017 9.5% Senior Notes, is comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills) as at the dates indicated:

  Year Ended December 31,
    2013    2012 
  (in thousands)
Financial Position    
Cash and cash equivalents  $ 82,910  $ 48,407
Working capital   211,749   174,213
Total assets   858,824   849,271
Long-term liabilities   394,821   343,056
Total equity   412,033   442,161

Change in Reporting Currency

Effective October 1, 2013, we changed our reporting currency from the Euro to the U.S. dollar, as management is of the opinion that a U.S. dollar reporting currency enhances communication and understanding with our shareholders, analysts and other stakeholders and improves comparability of our financial information with our competitors and peer group companies. Consolidated financial statements issued prior to October 1, 2013 were prepared using the Euro as the reporting currency; however, subsequent to October 1, 2013, both current and historical financial information have been translated to U.S. dollars to reflect our consolidated financial statements as if they had been historically reported in U.S. dollars.

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, February 14, 2014 at 10:00 AM (Eastern Standard Time). Listeners can access the conference call live and archived through March 16, 2014, over the Internet at http://www.media-server.com/m/p/pwhbva7n 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.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of U.S. dollars)
 
  December 31,
  2013 2012
ASSETS    
Current assets    
Cash and cash equivalents $ 147,728 $ 137,439
Receivables  135,893  145,150
Inventories  170,908  155,979
Prepaid expenses and other  10,918  10,425
Deferred income tax  6,326  5,887
Total current assets  471,773  454,880
     
Long-term assets    
Property, plant and equipment  1,038,631  1,066,506
Deferred note issuance costs and other  20,998  16,036
Deferred income tax 17,157  23,159
  1,076,786  1,105,701
Total assets $ 1,548,559 $ 1,560,581
     
LIABILITIES    
Current liabilities    
Accounts payable and other $ 103,814 $ 118,599
Pension and other post-retirement benefit obligations  1,330  1,072
Debt  60,355  60,205
Total current liabilities  165,499  179,876
     
Long-term liabilities    
Debt  919,017  877,780
Interest rate derivative liability  46,517  66,819
Pension and other post-retirement benefit obligations  35,466  42,378
Capital leases and other  19,293  18,375
Deferred income tax  14,450  7,591
   1,034,743  1,012,943
Total liabilities  1,200,242  1,192,819
     
EQUITY    
Shareholders' equity    
Share capital  328,549  327,818
Paid-in capital  (11,756)  (4,481)
Retained earnings  10,815  37,190
Accumulated other comprehensive income  31,470  28,577
Total shareholders' equity  359,078  389,104
Noncontrolling interest (deficit)  (10,761)  (21,342)
Total equity  348,317  367,762
Total liabilities and equity $ 1,548,559 $ 1,560,581

 

 
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of U.S. dollars, except per share data)
 
  Three Months Ended
December 31,
Twelve Months Ended
December 31,
  2013 2012 2013 2012
Revenues        
Pulp $ 258,546 $ 222,480 $ 996,187 $ 979,770
Energy and chemicals  24,136  22,317  92,198  92,966
   282,682  244,797 1,088,385 1,072,736
Costs and expenses        
Operating costs  238,325  204,670  920,832  886,144
Operating depreciation and amortization  20,198  18,160  78,309  74,302
   24,159  21,967  89,244  112,290
Selling, general and administrative expenses  14,681  12,483  51,169  49,268
Restructuring expenses  2,560  --  6,415  --
Operating income  6,918  9,484  31,660  63,022
         
Other income (expense)        
Interest expense  (17,372)  (17,810)  (69,156)  (71,767)
Gain (loss) on derivative instruments  3,779  3,099  19,709  4,812
Other income (expense)  1,073  156  1,215  (179)
Total other income (expense)  (12,520)  (14,555)  (48,232)  (67,134)
Income (loss) before income taxes  (5,602)  (5,071)  (16,572)  (4,112)
Income tax benefit (provision)        
Current  (378)  (290)  2,286  (9,531)
Deferred  (5,611)  (2,797)  (11,482)  152
Net income (loss)  (11,591)  (8,158)  (25,768)  (13,491)
Less: net loss (income) attributable to noncontrolling interest  1,758  1,495  (607)  (2,179)
Net income (loss) attributable to common shareholders $ (9,833) $ (6,663) $ (26,375) $ (15,670)
         
Net income (loss) per share attributable to common shareholders        
Basic and diluted $ (0.18) $ (0.12) $ (0.47) $ (0.28)
 
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
 
  For the Year Ended December 31,
  2013 2012 2011
Cash flows from (used in) operating activities      
Net income (loss) $ (25,768) $ (13,491) $ 75,170
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  (21,494)  (3,186)  1,974
Depreciation and amortization  78,645  74,657  77,952
Deferred income taxes  11,482  (152)  (3,309)
Stock compensation expense  3,574  2,616  4,607
Pension and other post-retirement expense, net of funding  648  365  (374)
Other  3,169  4,991  1,116
Changes in working capital      
Receivables  13,993  10,795  (2,233)
Inventories  (14,563)  1,726  (24,654)
Accounts payable and accrued expenses  (11,569)  (17,992)  19,837
Other  (1,792)  (1,214)  4,490
Net cash from (used in) operating activities  36,325  59,115  154,576
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (45,707)  (47,203)  (52,626)
Proceeds on sale of property, plant and equipment  739  840  1,132
Purchase of marketable securities  --  --  (16,343)
Proceeds on maturity of marketable securities  --  15,753  --
Note receivable  --  --  3,988
Net cash from (used in) investing activities  (44,968)  (30,610)  (63,849)
       
Cash flows from (used in) financing activities      
Repayment of debt and purchase of notes  (56,416)  (35,440)  (67,702)
Proceeds from issuance of notes and borrowings of debt  74,472  --  --
Repayment of capital lease obligations  (2,593)  (2,733)  (4,095)
Proceeds from (repayment of) credit facilities, net  (5,640)  6,031  (20,491)
Payment of note issuance costs  (3,855)  (2,570)  --
Proceeds from government grants  9,265  5,045  20,049
Purchase of treasury shares  --  --  (10,623)
Net cash from (used in) financing activities  15,233  (29,667)  (82,862)
       
Effect of exchange rate changes on cash and cash equivalents  3,699  2,302  (4,166)
       
Net increase (decrease) in cash and cash equivalents  10,289  1,140  3,699
Cash and cash equivalents, beginning of year  137,439  136,299  132,600
Cash and cash equivalents, end of year  $ 147,728   $ 137,439 $ 136,299
       

MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE 
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of U.S. dollars)

The terms of the indenture governing our 9.5% senior unsecured notes requires 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 years ended December 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.

  December 31, 2013
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
ASSETS        
Current assets        
Cash and cash equivalents $ 82,910 $ 64,818 $ -- $ 147,728
Receivables  75,987  59,906  --  135,893
Inventories  93,807  77,101  --  170,908
Prepaid expenses and other  7,742  3,176  --  10,918
Deferred income tax 3,273  3,053  -- 6,326
Total current assets  263,719  208,054  -- 471,773
         
Long-term assets        
Property, plant and equipment  420,373  618,258  --  1,038,631
Deferred note issuance costs and other  10,987  10,011  --  20,998
Deferred income tax 9,894  7,263  -- 17,157
Due from unrestricted group  153,851  --  (153,851)  --
Total assets $ 858,824 $ 843,586 $ (153,851) $ 1,548,559
         
LIABILITIES        
Current liabilities        
Accounts payable and other $ 49,891 $ 53,923 $ -- $ 103,814
Pension and other post-retirement benefit obligations  1,330  --  --  1,330
Debt  749  59,606  --  60,355
Total current liabilities  51,970  113,529  --  165,499
         
Long-term liabilities        
Debt  336,382  582,635  --  919,017
Due to restricted group  --  153,851  (153,851)  --
Interest rate derivative liability  --  46,517  --  46,517
Pension and other post-retirement benefit obligations  35,466  --  --  35,466
Capital leases and other  8,523  10,770  --  19,293
Deferred income tax  14,450  --  --  14,450
Total liabilities  446,791  907,302  (153,851)  1,200,242
         
EQUITY        
Total shareholders' equity (deficit)  412,033  (52,955)  --  359,078
Noncontrolling interest (deficit)  --  (10,761)  --  (10,761)
Total liabilities and equity $ 858,824 $ 843,586 $ (153,851) $ 1,548,559
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of U.S. dollars)
 
  December 31, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
ASSETS        
Current assets        
Cash and cash equivalents $ 48,407 $ 89,032 $ -- $ 137,439
Receivables  80,708  64,442  --  145,150
Inventories  98,606  57,373  --  155,979
Prepaid expenses and other  7,661  2,764  --  10,425
Deferred income tax  2,885  3,002  --  5,887
Total current assets  238,267  216,613  --  454,880
         
Long-term assets        
Property, plant and equipment  455,293  611,213  --  1,066,506
Deferred note issuance costs and other  8,712  7,324  --  16,036
Deferred income tax  12,102  11,057  --  23,159
Due from unrestricted group  134,897  --  (134,897)  --
Total assets $ 849,271 $ 846,207 $ (134,897) $ 1,560,581
         
LIABILITIES        
Current liabilities        
Accounts payable and other  $ 55,517 $ 63,082 $ -- $ 118,599
Pension and other post-retirement benefit obligations  1,072  --  --  1,072
Debt  7,465  52,740  --  60,205
Total current liabilities  64,054  115,822  --  179,876
         
Long-term liabilities        
Debt  285,079  592,701  --  877,780
Due to restricted group  --  134,897  (134,897)  --
Interest rate derivative liability  --  66,819  --  66,819
Pension and other post-retirement benefit obligations  42,378  --  --  42,378
Capital leases and other  8,008  10,367  --  18,375
Deferred income tax  7,591  --  --  7,591
Total liabilities  407,110  920,606  (134,897)  1,192,819
         
EQUITY        
Total shareholders' equity (deficit)  442,161  (53,057)  --  389,104
Noncontrolling interest (deficit)  --  (21,342)  --  (21,342)
Total liabilities and equity $ 849,271 $ 846,207 $ (134,897) $ 1,560,581
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of U.S. dollars)
 
  Three Months Ended December 31, 2013
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp $ 150,850 $ 107,696 $ -- $ 258,546
Energy and chemicals  8,665  15,471  --  24,136
   159,515  123,167  --  282,682
         
Operating costs  124,919  113,406  --  238,325
Operating depreciation and amortization  11,115  9,083  --  20,198
Selling, general and administrative expenses  9,588  5,093  --  14,681
Restructuring expenses  1,174  1,386  --  2,560
   146,796  128,968  --  275,764
Operating income (loss)  12,719  (5,801)  --  6,918
         
Other income (expense)        
Interest expense  (8,687)  (10,349)  1,664  (17,372)
Gain (loss) on derivative instruments  (360)  4,139  --  3,779
Other income (expense)  2,701  36  (1,664)  1,073
Total other income (expense)  (6,346)  (6,174)  --  (12,520)
Income (loss) before income taxes  6,373  (11,975)  --  (5,602)
Income tax benefit (provision)  (5,789)  (200)  --  (5,989)
Net income (loss)  584  (12,175)  --  (11,591)
Less: net loss attributable to noncontrolling interest  --  1,758  --  1,758
Net income (loss) attributable to common shareholders $ 584 $ (10,417) $ -- $ (9,833)
   
  Three Months Ended December 31, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp $ 126,666 $ 95,814 $ -- $ 222,480
Energy and chemicals  9,184  13,133  --  22,317
   135,850  108,947  --  244,797
         
Operating costs  111,815  92,855  --  204,670
Operating depreciation and amortization  9,664  8,496  --  18,160
Selling, general and administrative expenses  8,199  4,284  --  12,483
   129,678  105,635  --  235,313
Operating income (loss)  6,172  3,312  --  9,484
         
Other income (expense)        
Interest expense  (7,360)  (12,455)  2,005  (17,810)
Gain (loss) on derivative instruments  80  3,019  --  3,099
Other income (expense)  2,099  62  (2,005)  156
Total other income (expense)  (5,181)  (9,374)  --  (14,555)
Income (loss) before income taxes  991  (6,062)  --  (5,071)
Income tax benefit (provision)  (2,812)  (275)  --  (3,087)
Net income (loss)  (1,821)  (6,337)  --  (8,158)
Less: net loss attributable to noncontrolling interest  --  1,495  --  1,495
Net income (loss) attributable to common shareholders $ (1,821) $ (4,842) $ -- $ (6,663)
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of U.S. dollars)
 
  Year Ended December 31, 2013
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp $ 561,350 $ 434,837 $ -- $ 996,187
Energy and chemicals  33,783  58,415  --  92,198
   595,133  493,252  --  1,088,385
         
Operating costs  498,952  421,880  --  920,832
Operating depreciation and amortization  43,498  34,811  --  78,309
Selling, general and administrative expenses  31,943  19,226  --  51,169
Restructuring expenses  5,029  1,386  --  6,415
   579,422  477,303  --  1,056,725
Operating income  15,711  15,949  --  31,660
         
Other income (expense)        
Interest expense  (32,321)  (45,011)  8,176  (69,156)
Gain (loss) on derivative instruments  (2,767)  22,476  --  19,709
Other income (expense)  9,217  174  (8,176)  1,215
Total other income (expense)  (25,871)  (22,361)  --  (48,232)
Income (loss) before income taxes  (10,160)  (6,412)  --  (16,572)
Income tax benefit (provision)  (9,365)  169  --  (9,196)
Net income (loss)  (19,525)  (6,243)  --  (25,768)
Less: net income attributable to noncontrolling interest  --  (607)  --  (607)
Net loss attributable to common shareholders $ (19,525) $ (6,850) $ -- $ (26,375)
   
  Year Ended December 31, 2012
  Restricted
Group
Unrestricted
Subsidiaries

Eliminations
Consolidated
Group
Revenues        
Pulp $ 545,205 $ 434,565 $ -- $ 979,770
Energy and chemicals  36,638  56,328  --  92,966
   581,843  490,893  --  1,072,736
         
Operating costs  500,223  385,921  --  886,144
Operating depreciation and amortization  40,118  34,184  --  74,302
Selling, general and administrative expenses  31,688  17,580  --  49,268
   572,029  437,685  --  1,009,714
Operating income  9,814  53,208  --  63,022
         
Other income (expense)        
Interest expense  (30,125)  (48,934)  7,292  (71,767)
Gain (loss) on derivative instruments  2,609  2,203  --  4,812
Other income (expense)  6,465  648  (7,292)  (179)
Total other income (expense)  (21,051)  (46,083)  --  (67,134)
Income (loss) before income taxes  (11,237)  7,125  --  (4,112)
Income tax benefit (provision)  (7,050)  (2,329)  --  (9,379)
Net income (loss)  (18,287)  4,796  --  (13,491)
Less: net income attributable to noncontrolling interest  --  (2,179)  --  (2,179)
Net income (loss) attributable to common shareholders $ (18,287) $ 2,617 $ -- $ (15,670)
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of U.S. dollars)
 
  Year Ended December 31, 2013
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) $ (19,525) $ (6,243) $ (25,768)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  982  (22,476)  (21,494)
Depreciation and amortization  43,833  34,812  78,645
Deferred income taxes  7,263  4,219  11,482
Stock compensation expense  3,574  --  3,574
Pension and other post-retirement expense, net of funding  648  --  648
Other  (360)  3,529  3,169
Changes in working capital      
Receivables  4,780  9,213  13,993
Inventories  1,965  (16,528)  (14,563)
Accounts payable and accrued expenses  (6,026)  (5,543)  (11,569)
Other(1)  (13,621)  11,829  (1,792)
Net cash from (used in) operating activities  23,513  12,812  36,325
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (13,183)  (32,524)  (45,707)
Acquisition of noncontrolling interest  (20,000)  20,000  --
Proceeds on sale of property, plant and equipment  581  158  739
Net cash from (used in) investing activities  (32,602)  (12,366)  (44,968)
       
Cash flows from (used in) financing activities      
Repayment of debt and purchase of notes  (1,459)  (54,957)  (56,416)
Proceeds from issuance of notes and borrowings of debt  52,250  22,222  74,472
Repayment of capital lease obligations  (725)  (1,868)  (2,593)
Proceeds from (repayment of) credit facilities, net  (5,640)  --  (5,640)
Payment of note issuance costs  (1,829)  (2,026)  (3,855)
Proceeds from government grants  --  9,265  9,265
Net cash from (used in) financing activities  42,597  (27,364)  15,233
       
Effect of exchange rate changes on cash and cash equivalents  995  2,704  3,699
Net increase (decrease) in cash and cash equivalents  34,503  (24,214)  10,289
Cash and cash equivalents, beginning of year  48,407  89,032  137,439
Cash and cash equivalents, end of year $ 82,910 $ 64,818 $ 147,728
___________________________
 
(1) Includes intercompany working capital related transactions.
 
 
MERCER INTERNATIONAL INC.
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of U.S. dollars)
 
  Year Ended December 31, 2012
  Restricted
Group
Unrestricted
Subsidiaries
Consolidated
Group
Cash flows from (used in) operating activities      
Net income (loss) $ (18,287) $ 4,796 $ (13,491)
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments  (983)  (2,203)  (3,186)
Depreciation and amortization  40,474  34,183  74,657
Deferred income taxes  6,660  (6,812)  (152)
Stock compensation expense  2,616  --  2,616
Pension and other post-retirement expense, net of funding  365  --  365
Other  1,574  3,417  4,991
Changes in working capital      
Receivables  (755)  11,550  10,795
Inventories  (5,132)  6,858  1,726
Accounts payable and accrued expenses  (9,576)  (8,416)  (17,992)
Other(1)  (20,292)  19,078  (1,214)
Net cash from (used in) operating activities  (3,336)  62,451  59,115
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment  (28,213)  (18,990)  (47,203)
Proceeds on sale of property, plant and equipment  470  370  840
Proceeds on maturity of marketable securities  15,753  --  15,753
Net cash from (used in) investing activities  (11,990)  (18,620)  (30,610)
       
Cash flows from (used in) financing activities      
Repayment of debt and purchase of notes  (3,378)  (32,062)  (35,440)
Repayment of capital lease obligations  (945)  (1,788)  (2,733)
Proceeds from (repayment of) credit facilities, net  6,031  --  6,031
Payment of note issuance costs  (409)  (2,161)  (2,570)
Proceeds from government grants  4,061  984  5,045
Net cash from (used in) financing activities  5,360  (35,027)  (29,667)
       
Effect of exchange rate changes on cash and cash equivalents  221  2,081  2,302
Net increase (decrease) in cash and cash equivalents  (9,745)  10,885  1,140
Cash and cash equivalents, beginning of year  58,152  78,147  136,299
Cash and cash equivalents, end of year $ 48,407 $ 89,032 $ 137,439
___________________________
 
(1) Includes intercompany working capital related transactions.
 

MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands of U.S. dollars)

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
 December 31, 
Year Ended
 December 31, 
   2013   2012   2013   2012 
Net income (loss) attributable to common shareholders $ (9,833) $ (6,663) $ (26,375) $ (15,670)
Net income (loss) attributable to noncontrolling interest  (1,758)  (1,495)  607  2,179
Income tax (benefit) provision  5,989  3,087  9,196  9,379
Interest expense  17,372  17,810  69,156  71,767
(Gain) loss on derivative instruments  (3,779)  (3,099)  (19,709)  (4,812)
Other (income) expense  (1,073)  (156)  (1,215)  179
Operating income  6,918  9,484  31,660  63,022
Add: Depreciation and amortization  20,282  18,249  78,645  74,657
Operating EBITDA $ 27,200 $ 27,733 $ 110,305 $ 137,679
     
 
 
Three Months Ended
 December 31, 
Year Ended
 December 31, 
   2013   2012   2013   2012 
Restricted Group(1)        
Net income (loss) attributable to common shareholders $ 584 $ (1,821) $ (19,525) $ (18,287)
Income tax (benefit) provision  5,789  2,812  9,365  7,050
Interest expense  8,687  7,360  32,321  30,125
(Gain) loss on derivative instruments  360  (80)  2,767  (2,609)
Other (income) expense  (2,701)  (2,099)  (9,217)  (6,465)
Operating income  12,719  6,172  15,711  9,814
Add: Depreciation and amortization  11,198  9,754  43,833  40,474
Operating EBITDA $ 23,917 $ 15,926 $ 59,544 $ 50,288
__________________        
(1) For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.        
         
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