Mercer International Inc. Reports Strong 2014 First Quarter Results

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| Source: Mercer International Inc.

NEW YORK, May 1, 2014 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI.U) today reported strong results for the first quarter ended March 31, 2014. Operating EBITDA* in the first quarter of 2014 increased markedly to $59.0 million from $32.1 million in the first quarter of 2013 and $27.2 million in the fourth quarter of 2013.

For the first quarter of 2014, our net income increased materially to $21.0 million, or $0.38 per basic and $0.37 per diluted share, from a net loss of $0.6 million, or $0.01 per basic and diluted share, in the first quarter of 2013.

On October 1, 2013, we changed our reporting currency from the Euro to the U.S. dollar.

Summary Financial Highlights
       
  Q1 Q4 Q1
  2014 2013 2013
  (in millions, except per share amounts)
Pulp revenues $ 278.5 $ 258.5 $ 237.8
Energy and chemical revenues 27.2 24.1 24.0
Operating income 39.2 6.9 12.6
Operating EBITDA 59.0 27.2 32.1
Gain on derivative instruments 3.2 3.8 6.4
Income tax provision 1.9 6.0 1.1
Net income (loss)(1) 21.0 (9.8) (0.6)
Net income (loss) per share(1)      
Basic 0.38 (0.18) (0.01)
Diluted 0.37 (0.18) (0.01)
Common shares outstanding at period end 55.9 55.9 55.8
       
(1) Attributable to common shareholders.
 
Summary Operating Highlights
       
  Q1 Q4 Q1
  2014 2013 2013
Pulp production ('000 ADMTs) 381.8 364.8 361.2
Scheduled production downtime ('000 ADMTs) 22.4
Pulp sales ('000 ADMTs) 381.4 358.6 356.7
Average NBSK pulp list price in Europe ($/ADMT)(1) 920 902 832
Average pulp sales realizations ($/ADMT)(2) 723 713 659
Energy production ('000 MWh) 466.3 435.8 424.4
Energy sales ('000 MWh) 201.5 172.5 173.6
Average Spot Currency Exchange Rates:      
$ / €(3) 1.3705 1.3619 1.3196
$ / C$(3) 0.9065 0.9530 0.9916
       
(1)  Source: RISI pricing report.
(2)  Sales realizations after discounts. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
(3)  Average Federal Reserve Bank of New York noon spot rate over the reporting period.

_________________________

* 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 9 of the financial tables included in this press release for a reconciliation of net income (loss) attributable to common shareholders to Operating EBITDA.

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "For the first quarter of 2014, our Operating EBITDA increased by approximately 84% and 117% from the comparative and fourth quarters of 2013, respectively. In the current quarter, our mills performed very well and sales volumes increased due to generally strong demand, despite lower than budgeted sales from our Celgar mill in March, primarily due to the work stoppage at Port Metro Vancouver."

Mr. Lee continued: "Our Stendal mill completed Project Blue Mill in the last quarter of 2013 and is now realizing its benefits in terms of both increased pulp and energy production. In the first quarter of 2014, we had record quarterly production with the Stendal mill having its second best production quarter, while our Rosenthal and Celgar mills also had strong production quarters. Overall, energy production at our mills increased by approximately 10% compared to the same period in 2013 and we had record energy sales volumes. Energy and chemical revenues increased by approximately 13% in the first quarter of 2014 compared to the same period of 2013. We had no scheduled maintenance downtime at any of our mills in the first quarter of 2014."

Mr. Lee added: "In March 2014, the since settled work stoppage at Port Metro Vancouver, combined with railcar limitations, caused approximately 21,000 ADMTs of NBSK pulp that we had planned to ship in March 2014 to be delayed into the second quarter of 2014."

Mr. Lee continued: "NBSK list prices continued to increase slowly through the first quarter of 2014 due to steady demand. At the end of the current quarter, list pulp prices in Europe were approximately $925 per ADMT, while list prices in North America and China had marginally increased to $1,030 and $760 per ADMT, respectively. We currently expect some very modest downward price pressure in China in the next quarter but currently expect prices to further improve over the balance of the year."

Mr. Lee continued: "The NBSK pulp market remained generally balanced at approximately 28 days' supply at the end of the current quarter. During March, world producer inventories declined by one day, despite shipping delays from Western Canada. We currently expect producer spring maintenance and other mill downtime to keep the NBSK pulp market generally steady in the near term."

Mr. Lee continued: "On average, our overall per unit fiber costs in the current quarter increased by approximately 4% from the same period in 2013 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada. Due to a warm winter in Germany, timber harvesting increased and demand from pellet producers decreased, leading to an increase in the supply of wood chips and a better supply of logs. As a result, fiber prices in Germany are currently trending moderately downward. Fiber costs at our Celgar mill decreased compared to the same quarter in the prior year as a result of strong sawmill activity in the region. For the next quarter of 2014, we currently expect fiber costs in Germany to decrease moderately and to remain largely unchanged in Canada."

Mr. Lee added: "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 maintenance shutdowns, or approximately 3,600 ADMTs for each shutdown."

Mr. Lee concluded: "We are pleased with our mills' operating performance in the current quarter. This, along with generally favorable markets and prices, let us generate strong results, despite the continuing weakness of the U.S. dollar to the Euro and the delay in shipments resulting primarily from the Port Metro Vancouver work stoppage. Going forward, our Celgar mill should continue to benefit from the 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 addition, in 2014, our Rosenthal mill expects to complete a capital project to enable it to produce and sell tall oil, a chemical by-product. Our recently completed equity issue will provide us with greater operational and financial flexibility. We believe these factors should help position us to further build value for our stakeholders in fiscal 2014."

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Total revenues for the three months ended March 31, 2014 increased by approximately 17% to $305.7 million from $261.8 million in the same period in 2013, due to higher pulp and energy sales volumes and higher pulp prices. Pulp revenues for the current quarter increased by approximately 17% to $278.5 million from $237.8 million in the comparative quarter of 2013, primarily due to higher sales volumes and price realizations.

Energy and chemical revenues increased by approximately 13% to $27.2 million in the first quarter of 2014 from $24.0 million in the same quarter last year, primarily because of higher production and sales resulting from Project Blue Mill coming online at our Stendal mill at the end of 2013.

Average list prices for NBSK pulp in Europe were approximately $920 per ADMT in the current quarter, compared to approximately $832 per ADMT in the same quarter last year. In the first quarter of 2014, average pulp sales realizations increased by approximately 10% to $723 per ADMT from approximately $659 per ADMT in the same quarter last year, primarily due to higher pulp prices.

Pulp production increased by approximately 6% to 381,785 ADMTs in the current quarter from 361,164 ADMTs in the same quarter of 2013. We have ten days (approximately 14,000 ADMTs) of maintenance downtime scheduled for our Celgar mill in the second quarter of 2014 in order to perform annual maintenance. Our Stendal mill will have a scheduled two-day maintenance shutdown (approximately 3,600 ADMTs) in the second quarter of 2014.

Pulp sales volumes increased by approximately 7% to 381,355 ADMTs in the current quarter from 356,660 ADMTs in the comparative quarter, primarily due to generally strong demand in all our markets.

In the first quarter of 2014, a strike by truckers at Port Metro Vancouver, as well as railcar limitations, caused a delay in shipping of approximately 21,000 ADMTs of pulp from the current quarter to the second quarter of 2014.

Costs and expenses in the first quarter of 2014 increased by approximately 7% to $266.4 million from $249.2 million in the comparative period of 2013, primarily due to higher sales volumes.

On average, our overall per unit fiber costs in the current quarter increased by approximately 4% from the same period in 2013 as higher fiber costs in Germany were only partially offset by lower fiber costs in Canada.

For the first quarter of 2014, our operating income increased over three-fold to $39.2 million from $12.6 million in the comparative quarter of 2013, primarily due to higher pulp sales realizations.

Interest expense in the first quarter of 2014 marginally increased to $17.5 million from $17.4 million in the comparative quarter of 2013.

We recorded a derivative gain of $3.2 million on the mark to market adjustment of our Stendal mill's interest rate derivative in the current quarter, compared to a net derivative gain of $6.4 million in the same quarter of last year.

During the current quarter, we recorded an income tax expense of $1.9 million, compared to a net income tax expense of $1.1 million in the same quarter of 2013.

The noncontrolling shareholder's interest in the Stendal mill's net income in the first quarter of 2014 was $2.1 million, compared to $0.9 million in the same quarter last year.

We reported net income attributable to common shareholders of $21.0 million, or $0.38 per basic and $0.37 per diluted share, for the first quarter of 2014, which included a non-cash unrealized gain of $3.2 million on the Stendal interest rate derivative. In the first quarter of 2013, the net loss attributable to common shareholders was $0.6 million, or $0.01 per basic and diluted share, which included a total non-cash net unrealized gain of $6.2 million on the Stendal interest rate derivative and fixed price pulp swaps.

Liquidity and Capital Resources

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

  As at March 31,   As at December 31,
  2014   2013
  (in thousands)  
Financial Position      
Cash and cash equivalents $ 172,109 (1) $ 147,728
Working capital 310,294 (1) 306,274
Total assets 1,546,673 (1) 1,548,559
Long-term liabilities 999,707   1,034,743
Total equity 362,140 (1) 348,317
       
(1) Does not include net proceeds of approximately $53.6 million from our equity issue in April, 2014.

As at March 31, 2014, we had approximately €28.4 million and C$38.3 million available under our Rosenthal and Celgar revolving credit facilities, respectively.

In March 2014, our Stendal mill received a waiver under its two term credit facilities to: postpone the testing date of its Senior Debt/EBITDA cover ratio to September 30, 2014 from June 30, 2014 and report thereon by November 15, 2014; extend the date by which a portion of the net proceeds of our recent equity offering must be contributed to Stendal to November 17, 2014; and confirm that any such contributed capital shall qualify as an "equity cure" in the event that the Stendal mill is not in compliance with prescribed financial ratio covenants.

On April 2, 2014, we completed our registered public offering of 8,050,000 shares of our common stock at $7.15 per share and realized net proceeds of approximately $53.6 million therefrom.

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,   As at December 31,
  2014   2013
  (in thousands)  
Financial Position      
Cash and cash equivalents $ 108,046 (1) $ 82,910
Working capital 229,271 (1) 211,749
Total assets 873,581 (1) 858,824
Long-term liabilities 395,777   394,821
Total equity 413,725 (1) 412,033
       
(1) Does not include net proceeds of approximately $53.6 million from our equity issue in April, 2014.

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 2, 2014 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through June 2, 2014, over the Internet at http://www.media-server.com/m/p/oj7szvju 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 U.S. dollars)
     
  March 31, December 31,
  2014 2013
ASSETS    
Current assets    
Cash and cash equivalents  $ 172,109  $ 147,728
Receivables 149,062 135,893
Inventories 149,889 170,908
Prepaid expenses and other 17,513 10,918
Deferred income tax 6,547 6,326
Total current assets 495,120 471,773
     
Long-term assets    
Property, plant and equipment 1,014,511 1,038,631
Deferred note issuance costs and other 20,112 20,998
Deferred income tax 16,930 17,157
  1,051,553 1,076,786
Total assets  $ 1,546,673  $ 1,548,559
     
LIABILITIES    
Current liabilities    
Accounts payable and other  $ 120,973  $ 103,814
Pension and other post-retirement benefit obligations 1,280 1,330
Debt 62,573 60,355
Total current liabilities 184,826 165,499
     
Long-term liabilities    
Debt 885,994 919,017
Interest rate derivative liability 43,262 46,517
Pension and other post-retirement benefit obligations 34,344 35,466
Capital leases and other 19,926 19,293
Deferred income tax 16,181 14,450
  999,707 1,034,743
Total liabilities 1,184,533 1,200,242
     
EQUITY    
Shareholders' equity    
Share capital 329,063 328,549
Paid-in capital (12,539) (11,756)
Retained earnings 31,856 10,815
Accumulated other comprehensive income 22,385 31,470
Total shareholders' equity 370,765 359,078
Noncontrolling interest (deficit) (8,625) (10,761)
Total equity 362,140 348,317
Total liabilities and equity  $ 1,546,673  $ 1,548,559
     
MERCER INTERNATIONAL INC.
     
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of U.S. dollars, except per share data)
     
  Three Months Ended
  March 31,
  2014 2013
Revenues    
Pulp  $ 278,506  $ 237,818
Energy and chemicals 27,179 23,967
  305,685 261,785
Costs and expenses    
Operating costs 236,304 217,984
Operating depreciation and amortization 19,702 19,450
  49,679 24,351
Selling, general and administrative expenses 10,436 11,744
Operating income 39,243 12,607
     
Other income (expense)    
Interest expense (17,450) (17,360)
Gain (loss) on derivative instruments 3,228 6,364
Other income (expense) 6 (92)
Total other income (expense) (14,216) (11,088)
Income (loss) before income taxes 25,027 1,519
Income tax benefit (provision)    
Current (122) 4,319
Deferred (1,728) (5,464)
Net income (loss) 23,177 374
Less: net income attributable to noncontrolling interest (2,136) (935)
Net income (loss) attributable to common shareholders  $ 21,041  $ (561)
     
Net income (loss) per share attributable to common shareholders    
Basic  $ 0.38  $ (0.01)
Diluted  $ 0.37  $ (0.01)
     
MERCER INTERNATIONAL INC.
     
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
     
  Three Months Ended
  March 31,
  2014 2013
Cash flows from (used in) operating activities    
Net income (loss)  $ 23,177  $ 374
Adjustments to reconcile net income (loss) to cash flows from operating activities    
Unrealized loss (gain) on derivative instruments (3,228) (6,199)
Depreciation and amortization 19,787 19,533
Deferred income taxes 1,728 5,464
Stock compensation expense (269) 356
Pension and other post-retirement expense, net of funding 211 160
Other 652 1,562
Changes in working capital    
Receivables (17,332) (12,813)
Inventories 18,723 7,587
Accounts payable and accrued expenses 22,242 13,992
Other (6,012) (1,033)
Net cash from (used in) operating activities 59,679 28,983
     
Cash flows from (used in) investing activities    
Purchase of property, plant and equipment (6,566) (15,045)
Purchase of intangible assets (1,740) --
Proceeds on sale of property, plant and equipment 179 17
Net cash from (used in) investing activities (8,127) (15,028)
     
Cash flows from (used in) financing activities    
Repayment of debt (30,541) (26,420)
Proceeds from borrowings of debt -- 13,133
Repayment of capital lease obligations (660) (924)
Proceeds from sale and lease-back transactions 1,047 --
Proceeds from (repayment of) credit facilities, net -- 7,948
Proceeds from government grants 3,297 972
Net cash from (used in) financing activities (26,857) (5,291)
     
Effect of exchange rate changes on cash and cash equivalents (314) (3,988)
     
Net increase (decrease) in cash and cash equivalents 24,381 4,676
Cash and cash equivalents, beginning of period 147,728 137,439
Cash and cash equivalents, end of period  $ 172,109  $ 142,115
     
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 three months ended March 31, 2014 and 2013, 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, 2014
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
ASSETS        
Current assets        
Cash and cash equivalents  $ 108,046  $ 64,063 $ --  $ 172,109
Receivables 73,801 75,261 -- 149,062
Inventories 93,226 56,663 -- 149,889
Prepaid expenses and other 15,005 2,508 -- 17,513
Deferred income tax 3,272 3,275 -- 6,547
Total current assets 293,350 201,770 -- 495,120
         
Long-term assets        
Property, plant and equipment 404,647 609,864 -- 1,014,511
Deferred note issuance costs and other 10,702 9,410 -- 20,112
Deferred income tax 9,890 7,040 -- 16,930
Due from unrestricted group 154,992 -- (154,992) --
Total assets  $ 873,581  $ 828,084  $ (154,992)  $ 1,546,673
         
LIABILITIES        
Current liabilities        
Accounts payable and other  $ 62,799  $ 58,174 $ --  $ 120,973
Pension and other post-retirement benefit obligations 1,280 -- -- 1,280
Debt -- 62,573 -- 62,573
Total current liabilities 64,079 120,747 -- 184,826
         
Long-term liabilities        
Debt 336,253 549,741 -- 885,994
Due to restricted group -- 154,992 (154,992) --
Interest rate derivative liability -- 43,262 -- 43,262
Pension and other post-retirement benefit obligations 34,344 -- -- 34,344
Capital leases and other 8,999 10,927 -- 19,926
Deferred income tax 16,181 -- -- 16,181
Total liabilities 459,856 879,669 (154,992) 1,184,533
         
EQUITY        
Total shareholders' equity (deficit) 413,725 (42,960) -- 370,765
Noncontrolling interest (deficit) -- (8,625) -- (8,625)
Total liabilities and equity  $ 873,581  $ 828,084  $ (154,992)  $ 1,546,673
         
MERCER INTERNATIONAL INC.
         
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of U.S. dollars)
         
  December 31, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations 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 Statements of Operations
(Unaudited)
(In thousands of U.S. dollars)
         
  Three Months Ended March 31, 2014
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp  $ 140,797  $ 137,709 $ --  $ 278,506
Energy and chemicals 8,881 18,298 -- 27,179
  149,678 156,007 -- 305,685
         
Operating costs 111,368 124,936 -- 236,304
Operating depreciation and amortization 10,574 9,128 -- 19,702
Selling, general and administrative expenses 6,451 3,985 -- 10,436
  128,393 138,049 -- 266,442
Operating income 21,285 17,958 -- 39,243
         
Other income (expense)        
Interest expense (8,518) (9,072) 140 (17,450)
Gain (loss) on derivative instruments -- 3,228 -- 3,228
Other income (expense) 112 34 (140) 6
Total other income (expense) (8,406) (5,810) -- (14,216)
Income (loss) before income taxes 12,879 12,148 -- 25,027
Income tax benefit (provision) (1,752) (98) -- (1,850)
Net income (loss) 11,127 12,050 -- 23,177
Less: net income attributable to noncontrolling interest -- (2,136) -- (2,136)
Net income (loss) attributable to common shareholders  $ 11,127  $ 9,914 $ --  $ 21,041
         
  Three Months Ended March 31, 2013
  Restricted Unrestricted   Consolidated
  Group Subsidiaries Eliminations Group
Revenues        
Pulp  $ 132,350  $ 105,468 $ --  $ 237,818
Energy and chemicals 9,361 14,606 -- 23,967
  141,711 120,074 -- 261,785
         
Operating costs 118,200 99,784 -- 217,984
Operating depreciation and amortization 10,815 8,635 -- 19,450
Selling, general and administrative expenses 7,547 4,197 -- 11,744
  136,562 112,616 -- 249,178
Operating income 5,149 7,458 -- 12,607
         
Other income (expense)        
Interest expense (7,745) (11,791) 2,176 (17,360)
Gain (loss) on derivative instruments (456) 6,820 -- 6,364
Other income (expense) 2,027 57 (2,176) (92)
Total other income (expense) (6,174) (4,914) -- (11,088)
Income (loss) before income taxes (1,025) 2,544 -- 1,519
Income tax benefit (provision) (1,342) 197 -- (1,145)
Net income (loss) (2,367) 2,741 -- 374
Less: net income attributable to noncontrolling interest -- (935) -- (935)
Net income (loss) attributable to common shareholders  $ (2,367)  $ 1,806 $ --  $ (561)
         
MERCER INTERNATIONAL INC.
       
RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Cash Flows
(Unaudited)
(In thousands of U.S. dollars)
       
  Three Months Ended March 31, 2014
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss)  $ 11,127  $ 12,050  $ 23,177
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments -- (3,228) (3,228)
Depreciation and amortization 10,659 9,128 19,787
Deferred income taxes 1,728 -- 1,728
Stock compensation expense (269) -- (269)
Pension and other post-retirement expense, net of funding 211 -- 211
Other 171 481 652
Changes in working capital      
Receivables (96) (17,236) (17,332)
Inventories (1,589) 20,312 18,723
Accounts payable and accrued expenses 14,683 7,559 22,242
Other(1) (8,092) 2,080 (6,012)
Net cash from (used in) operating activities 28,533 31,146 59,679
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment (2,960) (3,606) (6,566)
Purchase of intangible assets (974) (766) (1,740)
Proceeds on sale of property, plant and equipment 134 45 179
Net cash from (used in) investing activities (3,800) (4,327) (8,127)
       
Cash flows from (used in) financing activities      
Repayment of debt (744) (29,797) (30,541)
Repayment of capital lease obligations (272) (388) (660)
Proceeds from sale and lease-back transactions 1,047 -- 1,047
Proceeds from government grants 832 2,465 3,297
Net cash from (used in) financing activities 863 (27,720) (26,857)
       
Effect of exchange rate changes on cash and cash equivalents (460) 146 (314)
Net increase (decrease) in cash and cash equivalents 25,136 (755) 24,381
Cash and cash equivalents, beginning of period 82,910 64,818 147,728
Cash and cash equivalents, end of period  $ 108,046  $ 64,063  $ 172,109
       
(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)
       
  Three Months Ended March 31, 2013
  Restricted Unrestricted Consolidated
  Group Subsidiaries Group
Cash flows from (used in) operating activities      
Net income (loss)  $ (2,367)  $ 2,741  $ 374
Adjustments to reconcile net income (loss) to cash flows from operating activities      
Unrealized loss (gain) on derivative instruments 621 (6,820) (6,199)
Depreciation and amortization 10,898 8,635 19,533
Deferred income taxes 1,309 4,155 5,464
Stock compensation expense 356 -- 356
Pension and other post-retirement expense, net of funding 160 -- 160
Other 545 1,017 1,562
Changes in working capital      
Receivables (11,011) (1,802) (12,813)
Inventories 4,050 3,537 7,587
Accounts payable and accrued expenses 13,871 121 13,992
Other(1) (2,264) 1,231 (1,033)
Net cash from (used in) operating activities 16,168 12,815 28,983
       
Cash flows from (used in) investing activities      
Purchase of property, plant and equipment (3,492) (11,553) (15,045)
Proceeds on sale of property, plant and equipment 17 -- 17
Net cash from (used in) investing activities (3,475) (11,553) (15,028)
       
Cash flows from (used in) financing activities      
Repayment of debt (736) (25,684) (26,420)
Proceeds from borrowings of debt -- 13,133 13,133
Repayment of capital lease obligations (161) (763) (924)
Proceeds from (repayment of) credit facilities, net 7,948 -- 7,948
Proceeds from government grants -- 972 972
Net cash from (used in) financing activities 7,051 (12,342) (5,291)
       
Effect of exchange rate changes on cash and cash equivalents (1,331) (2,657) (3,988)
Net increase (decrease) in cash and cash equivalents 18,413 (13,737) 4,676
Cash and cash equivalents, beginning of period 48,407 89,032 137,439
Cash and cash equivalents, end of period  $ 66,820  $ 75,295  $ 142,115
       
(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
  March 31,
  2014 2013
Net income (loss) attributable to common shareholders $ 21,041 $ (561)
Net income attributable to noncontrolling interest 2,136 935
Income tax provision 1,850 1,145
Interest expense 17,450 17,360
(Gain) loss on derivative instruments (3,228) (6,364)
Other (income) expense (6) 92
Operating income 39,243 12,607
Add: Depreciation and amortization 19,787 19,533
Operating EBITDA $ 59,030 $ 32,140
     
  Three Months Ended
  March 31,
  2014 2013
Restricted Group(1)    
Net income (loss) attributable to common shareholders $ 11,127 $ (2,367)
Income tax provision 1,752 1,342
Interest expense 8,518 7,745
(Gain) loss on derivative instruments 456
Other (income) expense (112) (2,027)
Operating income 21,285 5,149
Add: Depreciation and amortization 10,659 10,898
Operating EBITDA $ 31,944 $ 16,047
     
(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