Fortress Paper Announces Second Quarter 2013 Results

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES.


Fortress Paper Ltd. (TSX:FTP) ("Fortress Paper" or the "Company") reported 2013
second quarter EBITDA loss including discontinued operations of $4.9 million.
Excluding corporate costs, combined EBITDA loss of the three business segments
Fortress operated in during the second quarter of 2013 was $2.5 million. The
Specialty Papers Segment contributed $3.4 million EBITDA, while the Dissolving
Pulp Segment generated EBITDA loss of $6.4 million. The Security Paper Products
Segment generated EBITDA of $0.5 million. Corporate costs contributed $2.4
million to EBITDA loss.


Fortress reported adjusted net loss from continuing operations of $20.6 million,
or diluted loss per share of $1.42 for the second quarter of 2013 on sales of
$59.9 million. In the first quarter of 2013, the Company reported adjusted net
loss from continuing operations of $20.6 million or diluted loss per share of
$1.42 on sales of $57.6 million, and for the second quarter of 2012, adjusted
net loss from continuing operations of $11.5 million or diluted loss per share
of $0.79 on sales of $43.2 million. Adjusted net loss was impacted by an expense
of approximately $3.5 million recorded as a deferred tax accrual in the second
quarter of 2013.


Fortress reported net income, including discontinued operations, of $134.1
million, or diluted earnings per share of $9.23 for the second quarter of 2013
on sales of $75.5 million. Included in discontinued operations is a $153.3
million gain on the sale of Dresden. In the first quarter of 2013, the Company
reported a net loss of $12.4 million or diluted loss per share of $0.85 on sales
of $99.7 million, including discontinued operations. In the second quarter of
2012, the Company reported a net income of $12.3 million or diluted income per
share of $0.82 on sales of $84.0 million, including discontinued operations.


Minor improvements in dissolving pulp prices in the prior quarter resulted in
slightly higher realized prices reported for the Dissolving Pulp Segment in the
second quarter as realizations generally lag the spot market by several months.
Cost of sales also improved more significantly after the ten day planned
maintenance shut-down in April. Excluding the ten day planned maintenance
shut-down costs of approximately $2.6 million, production costs per tonne have
improved significantly compared to the previous quarter.


Improvement at the Security Paper Products Segment has continued from the first
quarter to the second quarter 2013. The mill experienced a second consecutive
quarter with sales, volumes and revenues significantly higher relative to any
comparative period in 2012 and 2011. The mill continues to seek to improve
efficiencies and profitability. 


The Specialty Papers Segment, which has been discontinued, had a strong April.
See "Significant Developments" for an update on the sale of the Dresden mill. 


Management's Outlook

Dissolving Pulp Segment

Dissolving pulp markets weakened during the second quarter of 2013 compared to
the first quarter due to continued excess supply. The market price of dissolving
pulp in China, as reported by China Chemical Fibers & Textiles Consultancy Group
(CCF), a leading professional data analysis company relied upon in the
dissolving pulp industry, dropped in the second quarter of 2013 to US$889 per
air dried metric tonne (ADMT) from an average of US$912 per ADMT in the first
quarter of 2013. Management believes that the current depressed dissolving pulp
prices are indicative of unusual market conditions and are not sustainable, as
the global industry has been experiencing mill shut-downs and mills swinging
capacity to produce paper pulps. We expect that dissolving pulp prices will
recover as the excess supply is reduced or redirected. 


Viscose producers in China have decreased operating rates to manage inventory
and stabilize prices. Viscose staple fibre prices reached their lowest level in
many months in the second quarter of 2013. Viscose staple fibre demand in China
is generally tied to demand for dissolving pulp. Operating rates and prices have
since improved in July. Cotton prices remained relatively stable in China during
the second quarter of 2013 and well above viscose staple fibre prices. However,
when compared to 2011, cotton prices still remain low which could lead to
possible reductions in cotton crop plantations in 2013/14. Cotton reserve
management, particularly in China, may affect future cotton pricing.


The Fortress Specialty Cellulose mill completed a ten day planned maintenance
shut-down during the quarter which has resulted in improved production rates and
digester throughput. Finished goods inventory levels at the end of the second
quarter were minimal.


The cogeneration project start-up was delayed due to unexpected mechanical
failure of the high pressure water pump and the back-up pump. The repaired pump
was reinstalled and re-started mid July and operated for 20 days before being
shut-down due to pump failure. The back-up high pressure water pump was then
installed on August 5, 2013 and its operation was again unsustainable due to
inadequate repairs. The Company has placed an order with another supplier for a
high pressure water pump which is expected to arrive in approximately four weeks
for installation. Despite these set backs, the Company completed all major
testing of equipment during the operating period. The facility successfully
completed 18 and 24 MWH output testing. The Company anticipates completing the
final 100 hour test as soon as the new pump is installed and tested. Fortress
expects that the cogeneration facility will be delivering power to the Hydro
Quebec grid at the contractual rate shortly thereafter.


Although depressed dissolving pulp prices continue to impact Fortress Specialty
Cellulose mill results, we expect to realize significant benefits from
production improvements, cost reduction initiatives and the cogeneration
facility prior to the end of fiscal 2013. 


The Company is currently in the process of exploring strategic options for the
Fortress Global Cellulose ("FGC") mill project to mitigate the financial risk,
including alternative financing structures, joint ventures and partnership
opportunities. While the project economics continue to be attractive, the
Company will be comparing the FGC mill investment opportunity to other strategic
options for shareholder value creation. The Company is currently in discussions
with prospective equity investors for the project and is in the process of
discussing potential revised terms for its project financing to provide greater
flexibility. Due to changing economics and market conditions, there is no
assurance that definitive investment arrangements will be concluded or that the
FGC mill project will proceed to completion as previously planned. The Company
intends to report its decision regarding the strategic direction of the FGC mill
in the third quarter. 


In February 2013, China's Ministry of Commerce ("MOFCOM") announced the
commencement of an anti-dumping investigation on the importing of cellulose pulp
originating from Canada, the United States and Brazil, after receiving a
petition from certain manufacturers in China. The announcement included Fortress
Specialty Cellulose Ltd. ("Fortress Specialty") as one of the Canadian producers
that is subject to the investigation. Fortress Specialty registered with MOFCOM
the same month and has submitted its responses to MOFCOM. MOFCOM was expected to
make a preliminary determination of the dumping margin on a company-by-company
basis within 6 to 9 months after initiation. However, given recent progress at
the fifth round of the China-U.S. Strategic and Economic Dialogue, it is
rumoured that any preliminary determination will be delayed. Although the
Company is actively defending itself against the investigation and believes the
allegations contained in the petition are without merit, there is no assurance
that the timing of the preliminary determination will not occur within the
expected timeframe or that a preliminary dumping duty may not be imposed.


The investigation is scheduled to conclude within 12 to 18 months from
initiation, upon which, depending on the findings, an order may be issued by
MOFCOM and final dumping duties may be imposed. The Company is unable to
determine at this time whether such investigation is likely to result in the
imposition of tariffs. If anti-dumping tariffs are imposed upon us in the
future, we may experience reduced revenues and margins in our dissolving pulp
business that is subject to such tariffs or the terms of any international
dispute settlement arising therefrom. These tariffs or settlement terms may have
a material adverse effect on our business, financial results and financial
condition. The Company is in the process of developing a plan to refocus its
targeted dissolving pulp markets in order to mitigate the risks associated with
any potential duties or tariffs imposed in China. 


Security Paper Products Segment

The Security Paper Products Segment continues to be impacted by overcapacity in
the banknote paper sector with consequent pressure on pricing. The Landqart mill
has a strong order book but does have some available capacity to take advantage
of new sales opportunities. Landqart has received a contract extension on one of
its important orders and has completed a second order for Durasafe(R), its new
composite paper-polymer-paper substrate. Estimated volumes produced to date have
been significantly higher than in 2012 and are expected to continue to be so for
the remainder of 2013, however, management continues efforts to improve
operational performance.


Significant Developments 

Sale of the Dresden Mill

On April 30, 2013, the Company sold all of the shares of its wholly owned
subsidiary, Dresden Papier GmbH (the "Dresden mill"), which represented the
entire specialty papers segment of the Company, for an aggregate purchase price
of EUR160 million (approximately $213 million) subject to working capital and
other adjustments, to Glatfelter Gernsbach GmbH & Co. KG, a subsidiary of P.H.
Glatfelter Co. The transaction excluded cash and long-term debt associated with
the Dresden mill. Concurrent with the sale, the associated long term debt was
repaid and the factored accounts receivable of the Dresden mill were
repurchased. An early prepayment penalty of $1.2 million was recorded on the
retirement of the Dresden mill long term debt.


Based on the book values of the net assets disposed of, the related sales
proceeds, and the effect of foreign exchange, the gain on the sale of the
Dresden mill was $153.3 million. Adjustments to the purchase price are still
being finalized and are currently based on management's best estimate, which
could be subject to change in the future.


With the sale of the Dresden mill, the Company no longer operates in the
Specialty Papers (wallpaper base) industry.


Normal Course Issuer Bid

The Company announces that it intends to commence a normal course issuer bid to
acquire outstanding common shares, 6.5% convertible unsecured subordinated
debentures and 7.0% convertible unsecured subordinated debentures of the Company
up to an aggregate maximum amount of $15 million, subject to receipt of TSX
approval. 


Selected Financial Information 

The selected financial information presented herein is qualified in its entirety
by, and should be read in conjunction with, our unaudited condensed consolidated
interim financial statements as at and for the three and six month periods ended
June 30, 2013 and the related notes thereon and our Management's Discussion and
Analysis ("MD&A") filed on SEDAR.


Three Months Ended June 30, 2013



Selected Financial Information and Statistics                               
                                                                            
(thousands of dollars, except shipments,                                    
 unaudited)                                       Q2 2013  Q1 2013  Q2 2012 
----------------------------------------------------------------------------
                                                                            
Sales from continuing operations                   59,883   57,559   43,208 
EBITDA from continuing operations(1)               (8,356) (13,162)  (8,163)
EBITDA(2)(3)                                       (4,934)  (2,627)   2,175 
Net income (loss) from continuing operations      (20,851) (18,814)   6,005 
Net income (loss)(3)                              134,125  (12,373)  12,289 
Adjusted net loss from continuing operations(4)   (20,632) (20,618) (11,499)
Paper shipments (tonnes)(5)                         1,953    2,179      767 
Pulp shipments (ADMT)                              38,006   39,147   35,679 
                                                                            
(1) See Net (Loss) Income to EBITDA Reconciliation for Continuing           
    Operations.                                                             
(2) See Net Income (Loss) to EBITDA Reconciliation including Discontinued   
    Operations.                                                             
(3) Including discontinued operations.                                      
(4) See Net (Loss) Income to Adjusted Net Loss Reconciliation for Continuing
    Operations.                                                             
(5) From continuing operations.                                             
                                                                            
Net (Loss) Income to Adjusted Net Loss Reconciliation from Continuing       
 Operations:                                                                
                                                                            
(thousands of dollars, except per share amounts,                            
 unaudited)                                       Q2 2013  Q1 2013  Q2 2012 
----------------------------------------------------------------------------
                                                                            
Net (loss) income                                 (20,851) (18,814)   6,005 
Foreign exchange (gain) loss                         (534)      56    1,793 
Gain (loss) on sale of property, plant and                                  
 equipment                                            753   (1,860) (19,297)
----------------------------------------------------------------------------
                                                                            
Adjusted net loss                                 (20,632) (20,618) (11,499)
                                                                            
Basic net income (loss) per share                   (1.43)   (1.30)    0.42 
Diluted net income (loss) per share                 (1.43)   (1.30)    0.40 
Adjusted net loss per share, basic and diluted      (1.42)   (1.42)   (0.79)
                                                                            
                                                                            
Net Income (Loss) to EBITDA Reconciliation for Continuing Operations:       
                                                                            
(thousands of dollars, unaudited)                 Q2 2013  Q1 2013  Q2 2012 
----------------------------------------------------------------------------
                                                                            
Net (loss) income                                 (20,851) (18,814)   6,005 
Income tax                                          3,392   (1,815)  (3,129)
Foreign exchange (gain) loss                         (534)      56    1,793 
Net finance expense                                 3,944    4,009    1,844 
Amortization                                        4,281    4,334    4,122 
Gain (loss) on sale of property, plant and                                  
 equipment                                            753   (1,860) (19,297)
Stock based compensation                              659      928      499 
----------------------------------------------------------------------------
EBITDA                                             (8,356) (13,162)  (8,163)
                                                                            
Net Income (Loss) to EBITDA Reconciliation Including Discontinued           
 Operations:                                                                
                                                                            
(thousands of dollars, unaudited)                 Q2 2013  Q1 2013  Q2 2012 
----------------------------------------------------------------------------
                                                                            
Net income (loss)                                 134,125  (12,373)  12,289 
Income tax                                          3,951    1,144     (324)
Foreign exchange (gain) loss                         (534)      81    1,816 
Net finance expense                                 5,105    4,373    2,277 
Amortization                                        4,281    5,080    4,920 
Gain on disposal of business                     (153,274)       -        - 
Gain (loss) on sale of property, plant and                                  
 equipment                                            753   (1,860) (19,297)
Stock based compensation                              659      928      499 
----------------------------------------------------------------------------
EBITDA                                             (4,934)  (2,627)   2,175 



The Company

During the three and six months ended June 30, 2013, Fortress Paper operated
internationally in three distinct business segments: the Dissolving Pulp
Segment, the Security Paper Products Segment, and the Specialty Papers Segment.
The Specialty Papers Segment was sold on April 30, 2013. Accordingly, references
in this news release to "discontinued operations" refer to the Specialty Papers
Segment. The Company operates its dissolving pulp business at the Fortress
Specialty Cellulose mill located in Canada, which is also in the process of
expanding into the renewable energy generation sector with the construction of a
cogeneration facility. The Company is also seeking to expand its dissolving pulp
capacity with the 2012 acquisition of the Fortress Global Cellulose ("FGC") mill
located at Lebel-sur-Quevillon, Quebec, which the Company is evaluating to
convert into a dissolving pulp mill and re-start the cogeneration facility. 


The Company operates its security paper products business at the Landqart mill
located in Switzerland, where it produces banknote, passport, visa and other
brand protection and security papers, and at its high security production and
research facility located in Canada, where it manufactures optically variable
thin film material. The segmentation of the Company's manufacturing operations
is based on a number of factors, including production, production processes, and
economic characteristics.


Conference Call

A conference call to discuss the financial results for the second quarter 2013
will be held on August 15, 2013 at 9:00 a.m. (PST). To participate in the
conference call, please dial one of the following numbers: 




North America:                       1-855-353-9183
Vancouver:                           604-681-8564  
Calgary and international:           403-532-5601  
Edmonton:                            780-429-5820  
Toronto:                             416-623-0333  
Ottawa:                              613-212-0171  
Montreal:                            514-687-4017  
                                                   
                                                   
Participant pass code:               15086#        
Conference Reference Number:         1048933#      



A replay of the conference call will be available for 30 days. To access the
replay, listeners may dial 1-855-201-2300 from North America or 403-255-0697
International. The conference reference number is 1048933# and the participant
pass code to access the replay is 15086 #.


Forward-Looking Statements

This news release contains certain forward-looking statements that reflect the
current views and/or expectations of the Company with respect to its
expectations, beliefs, assumptions, estimates and forecasts about its business
and the industry and markets in which it operates. The reader is cautioned that
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties, assumptions and other factors which are
difficult to predict and that may cause actual results or events to differ
materially from those anticipated in such forward-looking statements.
Accordingly, readers should not place undue reliance on forward-looking
statements. Examples of such forward-looking statements contained in this news
release include: growth and future prospects of the Company's business; market
conditions for dissolving pulp and the Company's other products; expected
returns on certain business segments; the Company's perceptions of the industry
and markets in which it operates and anticipated trends in such markets;
benefits that may accrue to the Company as a result of certain acquisitions,
dispositions, capital expenditure programs, equipment upgrades and maintenance
shut-downs; and the anticipated benefits, cost, timing, and completion dates for
projects, including the timing of the completion of the cogeneration facility at
the Fortress Specialty Cellulose mill and commencement of delivery of power; and
the timing and completion of the installation of equipment. 


Assumptions underlying the Company's expectations regarding forward-looking
statements or information contained in this news release include, among others:
that the Company will be able to effectively market its products; the ability of
the Company to complete the ramp-up of its dissolving pulp production at the
Fortress Specialty Cellulose mill to reach maximum capacity; that there will be
no further delays and disruptions affecting the completion of the Fortress
Specialty Cellulose mill cogeneration project and that the Company will be able
to commence timely delivery of power therefrom; that dissolving pulp will
experience continued and improved demand in the marketplace at favourable
prices; that the Landqart mill will continue operating on a consistent and
regular basis in order to produce and deliver on its banknote orders; the
general stability of the economic and political environments within the
countries where the Company conducts operations; that all necessary approvals,
arrangements and engineering designs will be obtained, finalized and/or
completed in a satisfactory manner in order to support a decision to proceed
with the Fortress Global Cellulose mill project; that the Company will be able
to obtain financing (if necessary) or acceptable terms; and that our equipment
will operate at expected levels. Persons reading this news release are cautioned
that forward-looking statements or information are only predictions, and that
the Company's actual future results or performance are subject to certain risks
and uncertainties including, without limitation: those relating to potential
disruptions to production and delivery in respect of the delivery of power at
the cogeneration facility, including as a result of equipment failures, labour
issues, the complex integration of processes and equipment and other factors;
labour relations; failure to meet regulatory requirements; changes in the
market; potential downturns in economic conditions; fluctuations in the price
and supply of required materials; foreign exchange fluctuations; trade
restrictions or import duties imposed by foreign governments; availability of
financing (as necessary); dependence on major customers; and other risk factors
detailed in our filings with Canadian securities regulatory authorities. These
risks, as well as others, could cause actual results and events to vary
significantly. The Company does not undertake any obligation to release publicly
any revisions for updating any voluntary forward-looking statements, except as
required by applicable securities law.


FOR FURTHER INFORMATION PLEASE CONTACT: 
Fortress Paper Ltd.
Mr. Chadwick Wasilenkoff
Chief Executive Officer
604-904-2328
[e-mail]
www.fortresspaper.com