Mercer International Inc. Reports 2005 Fourth Quarter and Year End Results

NEW YORK, March 3  /PRNewswire-FirstCall/ -- Mercer International Inc. (Nasdaq: MERC; TSX: MRI.U) today reported results for the fourth quarter and year ended December 31, 2005.

  Summary Selected Highlights

                                Three Months Ended         Year Ended
                                   December 31,            December 31,
                                2005        2004         2005       2004
                                             (in thousands)
  Results of Operations            (unaudited)

  Revenues              euro 137,478 euro 89,201 euro 513,908 euro 237,212
  Income (loss) from
   operations                    145     (10,347)      16,344      (17,972)
  Operating EBITDA(1)         13,324       1,580       68,385       17,172
  Interest expense Stendal   (15,797)    (10,302)     (56,789)     (12,190)
  Interest expense other      (7,743)     (3,893)     (30,071)     (11,559)
  Realized and unrealized
   gain (loss) on interest
   rate and foreign
   currency derivative
   financial instruments,
   net(2)                     (1,703)     13,213      (71,763)      12,136
  Unrealized foreign
   exchange gain (loss) on
   debt                       (2,565)          -       (4,156)           -
  Net income (loss)          (29,773)     32,584     (117,146)      19,980
  Income (loss) per share
    Basic                      (0.90)       1.87        (3.75)        1.15
    Diluted                    (0.90)       1.14        (3.75)        0.89

  Other Data
  Total pulp sales
   volume(3) (ADMTs)         291,046     192,254    1,101,304      421,176
  Mill net pulp price
   realizations (per
   ADMT)(4)                 euro 413    euro 389     euro 407     euro 423

  (1) For a definition of Operating EBITDA, see page 7 of this press
      release and for a reconciliation of net income (loss) to Operating
      EBITDA, see page 11 of the financial tables included in this press
      release.
  (2) Unrealized non-cash marked to market valuation gain (loss), except
      for a realized loss of euro 2.5 million in the year ended
      December 31, 2005.
  (3) Excluding intercompany sales volumes of 3,638 ADMTs and 2,859 ADMTs of
      pulp in the three months ended December 31, 2005 and 2004,
      respectively, and 14,289 ADMTs and 6,756 ADMTs of pulp in the year
      ended December 31, 2005 and 2004, respectively.
  (4) Excluding revenues from third party transportation activities.



                                                    As at         As at
                                                December 31,  December 31,
                                                     2005          2004
                                                     (in thousands)
  Financial Position (Current)
  Cash and cash equivalents                    euro 83,547  euro 49,568
  Cash restricted                                    7,039       45,295
  Receivables                                       74,315       54,687
  Inventories                                       81,147       52,898
  Prepaid expenses and other                         5,474        4,961
  Accounts payable and accrued expenses           (111,513)     (56,542)
  Construction costs payable                        (1,213)     (65,436)
  Debt, current portion                            (27,601)    (107,090)
  Working capital (deficit)(1)                     111,195      (21,659)

  (1) Does not include approximately euro 7.0 million of government grants
      in 2005, which we expect to receive in 2006, and approximately
      euro 65.9 million of government grants in 2004, all of which we
      received in 2005, related to the Stendal mill from the federal and
      state governments of Germany.

  Certain key factors affecting our 2005 fourth quarter results include:

    * Revenues increased by euro 48.3 million over the comparative period
      of 2004 to euro 137.5 million, primarily due to the inclusion of sales
      from our Celgar pulp mill.

    * Operating EBITDA increased to euro 13.3 million in the fourth quarter
      from euro 1.6 million in the comparative quarter of 2004 reflecting
      higher pulp sales and a contribution to income from operations of
      euro 4.9 million resulting from the sale of emission allowances.  For
      a definition of Operating EBITDA, see page 7 of this press release and
      for a reconciliation of net loss to Operating EBITDA, see page 11 of
      the financial tables included in this press release.

    * Interest expense increased to euro 23.5 million in the fourth
      quarter of 2005 from euro 14.2 million in the comparative period
      of 2004 reflecting higher borrowings associated with the Stendal
      mill and interest on our $310 million 9.25% senior notes issued in
      February 2005.

    * The Stendal mill ramp up is proceeding substantially as scheduled.  In
      the quarter, it operated at approximately 88% of its initial rated
      capacity.  Its working capital build up, interest expense and start-up
      losses have been financed through its project loan facility according
      to plan.

    * We recorded a net loss of euro 1.7 million on our interest rate and
      currency derivatives in the fourth quarter of 2005, compared to a net
      gain of euro 13.2 million thereon in the comparative period of 2004.
      We also recorded an unrealized non-cash foreign exchange loss on our
      long-term debt of euro 2.6 million in the current quarter due to the
      weakening of the Euro versus the U.S. dollar.

    * Pulp markets were generally soft, but strengthened marginally from the
      third quarter of 2005.  Average list prices for NBSK pulp in Europe
      were $580 per ADMT in the third quarter of 2005 and $600 per ADMT in
      the fourth quarter of 2005, compared to $603 per ADMT in the fourth
      quarter of 2004.  The decrease in pulp list prices from the fourth
      quarter of 2004 was generally offset by the strengthening of the
      U.S. dollar versus the Euro.



Certain key factors affecting our results for the year ended December 31, 2005 included:

    * Revenues in 2005 increased by euro 276.7 million over the comparative
      period of 2004 to euro 513.9 million, because of higher sales at our
      Stendal mill and the inclusion of results from our Celgar pulp mill
      from February 2005.

    * Operating EBITDA increased to euro 68.4 million in 2005 from
      euro 17.2 million in 2004 reflecting higher pulp sales and a
      contribution to income from operations of euro 17.3 million resulting
      from the sale of emission allowances.  For a definition of Operating
      EBITDA, see page 7 of this press release and for a reconciliation of
      net loss to Operating EBITDA, see page 11 of the financial tables
      included in this press release.

    * Interest expense increased to euro 86.9 million in 2005 from
      euro 23.7 million in 2004 because of euro 56.8 million of interest
      associated with the Stendal mill and euro 20.4 million of interest
      relating to our $310 million 9.25% senior notes.  In 2004, most of
      the interest associated with the Stendal mill was capitalized until
      mid-September, when the mill was started up.

    * We recorded a net loss of euro 71.8 million on our interest rate and
      currency derivatives in 2005 (of which euro 69.3 million was an
      unrealized non-cash holding loss and euro 2.5 million was a realized
      loss), compared to a net gain of euro 12.1 million thereon in 2004
      (of which euro 32.3 million was an unrealized non-cash holding loss
      and euro 44.4 million was a realized gain).

    * Pulp markets were generally weak in 2005.  Average list prices for
      NBSK pulp in Europe decreased to approximately $610 per ADMT from
      approximately $616 per ADMT in 2004, but such decrease was partially
      offset by the strengthening of the U.S. dollar versus the Euro.  The
      strengthening of the Canadian dollar from February 14, 2005, the date
      of the acquisition of the Celgar mill, by approximately 5.6% versus
      the U.S. dollar adversely affected the results of our Celgar mill.

  Results of Operations - 2005 Fourth Quarter


Selected production and sales data for the three months ended December 31, 2005 and 2004 is as follows:

                                             Three Months Ended December 31,

                                                      2005            2004
                                                             (ADMTs)
  Production by Product Class:
      Pulp production by mill:
        Rosenthal                                   75,935          82,785
        Celgar                                      99,088               -
        Stendal                                    121,249         132,694
          Total pulp production                    296,272         215,479
      Paper production                              15,514          14,996
          Total production                         311,786         230,475

  Sales Volume by Product Class:
      Pulp sales volume by mill:
        Rosenthal                                   76,599          78,471
        Celgar                                     101,115               -
        Stendal                                    113,332         113,783
          Total pulp sales volume(1)               291,046         192,254
      Paper sales volume                            14,973          14,781
          Total sales volume(1)                    306,019         207,035


  Revenues by Product Class:                             (in thousands)
      Pulp revenues by mill:
        Rosenthal                              euro 34,135     euro 34,190
        Celgar                                      41,755               -
        Stendal                                     47,112          41,673
          Total pulp revenues(1)                   123,002          75,863
      Paper revenues                                14,476          13,338
          Total revenues(1)                   euro 137,478     euro 89,201

  (1) Excluding intercompany sales volumes of 3,638 ADMTs and 2,859 ADMTs
      of pulp and intercompany net sales revenues of approximately
      euro 1.6 million and euro 1.0 million in the three months ended
      December 31, 2005 and 2004, respectively.



Revenues for the three months ended December 31, 2005 increased to euro 137.5 million from euro 89.2 million in the comparative period of 2004, primarily due to the inclusion of sales from our Celgar mill. Pulp sales by volume were 291,046 ADMTs in the fourth quarter of 2005, compared to 192,254 ADMTs in the comparative period of 2004.

Cost of sales and general, administrative and other expenses in the fourth quarter of 2005 increased to euro 137.3 million from euro 99.5 million in the comparative period of 2004, primarily as a result of the inclusion of the results of our Celgar mill.

For the fourth quarter of 2005, revenues from our pulp operations increased to euro 123.0 million from euro 75.9 million in the same period a year ago, primarily as a result of the inclusion of sales from our Celgar mill. List prices for NBSK pulp in Europe were approximately euro 506 ($600) per ADMT in the fourth quarter of 2005, compared to approximately euro 446 ($603) per ADMT in the comparative period of last year.

Pulp sales realizations increased to euro 413 per ADMT on average in the fourth quarter of 2005 from euro 389 per ADMT in the fourth quarter of 2004, primarily as the strengthening of the U.S. dollar versus the Euro enabled our German pulp mills to improve mill net selling prices.

Cost of sales and general, administrative and other expenses for the pulp operations increased to euro 123.6 million in the fourth quarter of 2005 from euro 87.6 million in the comparative period of 2004, primarily due to the inclusion of the results of the Celgar mill.  In the fourth quarter of 2005, we recorded a contribution to income from operations of euro 4.9 million resulting from the sale of emission allowances.

Depreciation for the pulp operations increased to euro 13.5 million in the fourth quarter of 2005, from euro 11.8 million in the comparative period of 2004, primarily as a result of depreciation associated with the Celgar mill.

For the fourth quarter of 2005, our pulp operations generated operating income of euro 1.0 million, versus an operating loss of euro 10.7 million in the comparative quarter of 2004, primarily due to the higher operating income at our German pulp mills, partially offset by an operating loss at our Celgar mill.  As NBSK pulp is generally quoted in U.S. dollars, the overall strengthening of the Canadian dollar versus the U.S. dollar reduced the sales realizations of our Celgar mill and negatively impacted its results.

Revenues from our paper operations in the current quarter increased to euro 14.5 million from euro 13.6 million in the same quarter of last year as a result of higher sales volumes and a change in the product mix.

Cost of sales and general, administrative and other expenses for the paper operations in the fourth quarter of 2005 increased to euro 14.6 million from euro 12.8 million in the comparative quarter of 2004.

For the fourth quarter of 2005, our paper operations generated an operating loss of euro 0.1 million, compared to operating income of euro 0.8 million in the fourth quarter of 2004.

In the fourth quarter of 2005, we had income from operations of euro 0.1 million, compared to a loss from operations of euro 10.3 million in the same quarter last year. Interest expense in the fourth quarter of 2005 increased to euro 23.5 million from euro 14.2 million in the year ago period, due to higher borrowings relating to the Stendal mill and interest on our $310 million senior note issue completed in February 2005.

Stendal entered into certain foreign currency derivatives to swap all of its long-term bank indebtedness from Euros to U.S. dollars and certain currency forwards in 2005.  Due to the strengthening of the U.S. dollar versus the Euro, we recorded a net unrealized non-cash holding loss of euro 13.7 million before minority interests upon the marked to market valuation of such currency derivatives that were outstanding at the end of the current quarter and a marginal net loss before minority interests in respect of such currency derivatives that matured in the quarter.  In the comparative quarter of 2004, we realized a gain of euro 29.7 million before minority interests upon the settlement of the currency derivatives of Rosenthal and Stendal. In the fourth quarter of 2005, as a result of an increase in long-term European interest rates, we also recorded a net unrealized non-cash holding gain of euro 12.0 million before minority interests on the marked to market valuation of the Stendal interest rate derivatives, compared to a net unrealized non-cash holding loss of euro 16.5 million before minority interests on the interest rate derivatives of Stendal and Rosenthal in the fourth quarter of 2004.  We also recorded an unrealized non-cash foreign exchange loss on our long-term debt of euro 2.6 million in the current quarter due to the weakening of the Euro versus the U.S. dollar.

In the fourth quarter of 2005, minority interest, representing the two minority shareholders' proportionate interest in the Stendal mill, was euro 0.6 million, compared to euro (1.5) million in the fourth quarter of 2004.

We reported a net loss for the fourth quarter of 2005 of euro 29.8 million, or euro 0.90 per basic and diluted share, which reflected generally weak markets, increased interest expense of euro 23.5 million, the net realized and unrealized loss of euro 1.7 million on our interest rate and currency derivatives and the unrealized non-cash foreign exchange loss on our long-term debt of euro 2.6 million. In the fourth quarter of 2004, we reported net income of euro 32.6 million, or euro 1.87 per basic share and euro 1.14 per diluted share, which included an income tax benefit of euro 44.1 million relating to a reorganization of certain subsidiary companies.

We generated "Operating EBITDA" of euro 13.3 million and euro 1.6 million in the three months ended December 31, 2005 and 2004, respectively.  Operating EBITDA is defined as income (loss) from operations 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 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.  Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release.

Results of Operations - 2005

Revenues for the year ended December 31, 2005 increased to euro 513.9 million from euro 237.2 million in the comparative period of 2004, because of higher pulp sales resulting from the inclusion of a full year of results of our Stendal mill and the results of our Celgar mill from February 2005. Pulp sales by volume were 1,101,304 ADMTs in 2005, compared to 421,716 ADMTs in 2004.

Cost of sales and general, administrative and other expenses in the year ended December 31, 2005 increased to euro 497.6 million from euro 255.2 million in the comparative period of 2004, primarily as a result of the inclusion of a full year's results of our Stendal mill and the results of our Celgar mill. We commenced expensing all of the costs, including interest, relating to the Stendal mill effective September 2004 when the mill was started up, prior to which most of the costs, including interest, relating to the Stendal mill were capitalized during its construction.

In the year ended December 31, 2005, revenues from our pulp operations increased to euro 452.4 million from euro 182.5 million in 2004, primarily as a result of the inclusion of a full year's sales of our Stendal mill and sales from our Celgar mill. List prices for NBSK pulp in Europe were approximately euro 490 ($610) per ADMT in 2005, compared to approximately euro 496 ($616) per ADMT last year. The decrease in NBSK pulp prices was partially offset by the strengthening of the U.S. dollar versus the Euro in 2005.

Pulp sales realizations decreased to euro 407 per ADMT on average in the year ended December 31, 2005 from euro 423 per ADMT in 2004, primarily as a result of lower price realizations of the Stendal and Celgar mills.  The Stendal mill sold pulp at a discounted price as a result of its ramp up and the Celgar mill sells a large portion of its production in Asian markets which had lower prices than European markets.

Cost of sales and general, administrative and other expenses for the pulp operations increased to euro 434.9 million in the year ended December 31, 2005 from euro 190.4 million in 2004, primarily as a result of euro 322.0 million of operating costs related to the Stendal and Celgar mills.  In the year ended December 31, 2005, we recorded a contribution to income from operations of euro 17.3 million resulting from the sale of emission allowances by our German pulp mills.

Depreciation for the pulp operations increased to euro 50.9 million in the current period, from euro 26.8 million in 2004, primarily as a result of euro 37.8 million of depreciation from the Stendal and Celgar mills, partially offset by lower depreciation at the Rosenthal mill.

For the year ended December 31, 2005, the pulp operations generated operating income of euro 23.9 million, versus an operating loss of euro 5.1 million last year, primarily as a result of higher operating income at our German pulp mills including income from operations of euro 8.3 million from our Stendal mill, partially offset by an operating loss at our Celgar mill. The overall strength of the Canadian dollar versus the U.S. dollar in 2005 negatively impacted the results of our Celgar mill.

Paper sales in the year ended December 31, 2005 were euro 61.5 million, compared with euro 55.0 million in the same period of last year as a result of higher sales volumes and a shift in the product mix at our paper mills.

Cost of sales and general, administrative and other expenses for the paper operations in the year ended December 31, 2005 decreased to euro 63.8 million from euro 64.7 million in the year ended December 31, 2004.

For the year ended December 31, 2005, our paper operations generated an operating loss of euro 2.3 million, compared to an operating loss of euro 9.8 million in 2004, which included a non-cash impairment charge of euro 6.0 million in 2004.

In the year ended December 31, 2005, we had income from operations of euro 16.3 million, compared to a loss from operations of euro 18.0 million last year, primarily as a result of higher income from our German pulp mills. Interest expense in the year ended December 31, 2005 increased to euro 86.9 million from euro 23.7 million a year ago, due to interest associated with our $310 million senior note issue completed in February 2005 and higher borrowings relating to the Stendal mill. We capitalized most of the interest relating to the Stendal mill prior to its start up in mid-September 2004.

Due to the strengthening of the U.S. dollar versus the Euro in 2005, we recorded a net unrealized non-cash holding loss of euro 66.1 million before minority interests upon the marked to market valuation of Stendal's currency derivatives that were outstanding at the end of the 2005 period and a net realized loss of euro 2.2 million before minority interests in respect of such currency derivatives that matured during the period.  In 2004, we recorded a realized gain of euro 44.5 million before minority interests upon the settlement of the currency derivatives relating to the Stendal and Rosenthal mills due to the weakening of the U.S. dollar versus the Euro in 2004.  In 2005, as a result of a decrease in long-term European interest rates, we also recorded an unrealized non-cash holding loss of euro 3.2 million before minority interests on the marked to market valuation of the interest rate contracts relating to Stendal and a net realized loss of euro 0.3 million before minority interests upon the settlement of the interest rate contracts relating to Rosenthal.  In 2004, we recorded a net unrealized non-cash holding loss of euro 32.3 million before minority interests on the marked to market valuation of the Rosenthal and Stendal interest rate contracts.  We also recorded an unrealized non-cash foreign exchange loss on our long-term debt of euro 4.2 million in 2005 due to the weakening of the Euro versus the U.S. dollar.

In the year ended December 31, 2005, minority interest, representing the two minority shareholders' proportionate interest in the Stendal mill, was euro 17.7 million, compared to euro 2.5 million in 2004.

In 2005, we recorded an adjustment of euro 1.7 million for the non-cash impact of other-than-temporary impairment losses on our available-for-sale securities and a loan receivable.

We reported a net loss for the year ended December 31, 2005 of euro 117.1 million, or euro 3.75 per basic and diluted share, which reflected generally weak pulp markets, the realized and unrealized net losses on our currency and interest rate derivatives of euro 71.8 million and interest expense relating to our Stendal mill of euro 56.8 million, partially offset by a non-cash benefit for income taxes of euro 10.8 million. In 2004, we reported net income of euro 20.0 million, or euro 1.15 per basic share and euro 0.89 per diluted share, which included an income tax benefit of euro 44.2 million relating to the reorganization of certain of our subsidiary companies.

We generated "Operating EBITDA" of euro 68.4 million and euro 17.2 million in the years ended December 31, 2005 and 2004, respectively. Operating EBITDA is defined as income (loss) from operations plus depreciation and amortization and non-recurring capital asset impairment charges. For a definition of Operating EBITDA, see page 7 of this press release and, for a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release.

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated:  "In many respects, 2005 was a milestone year for our Company.  During the year:

    * We ramped up production at our Stendal mill and, in the last quarter,
      it operated at approximately 88% of its initial rated capacity.  The
      production ramp up was largely in line with our plans and, in 2006, we
      currently expect it to operate at or slightly better than its initial
      rated capacity.  The planned increase in production should lower
      Stendal's unit costs of production.

    * In December, we took approximately 11 days of planned downtime at the
      Stendal mill for maintenance and to install two new digesters.  When
      these digesters are fully integrated, they are expected to increase
      Stendal's production capacity to in excess of 600,000 ADMTs.

    * We acquired the Celgar pulp mill with a rated capacity of
      approximately 430,000 ADMTs to expand our business, diversify our
      operations and revenues and better service our customers.  We are
      implementing an approximately euro 20.0 million capital plan to
      improve efficiency and reliability and reduce its operating costs.
      The plan is also expected to increase the Celgar mill's capacity to
      approximately 470,000 ADMTs.

    * We established a new sales and marketing team to coordinate and
      supervise our global pulp sales to improve realizations by increasing
      our contracted regular business, focus on our most transport logical
      customers and better service customers on a global basis. As a result,
      in 2006 we are now handling the vast majority of North America pulp
      sales directly, increasing our contract business and lowering spot
      sales. Further, in 2006 we plan to materially increase our Celgar
      mill's pulp sales to the North American market, which generally has
      higher pulp prices, by shifting product from certain Asian markets,
      which have lower prices.



Mr. Lee continued:  "Our fourth quarter results reflect generally soft pulp markets.  List prices for NBSK pulp in Europe were $600 per ADMT in December and generally lower in Asia.  Further, during the quarter, we took approximately 30 days of planned downtime across our three pulp mills for regular maintenance which reduced production by 38,159 ADMTs.  Also, improvements in our Celgar mill's production costs were more than offset by the negative impact on its results from the strength of the Canadian dollar versus the U.S. dollar.  Despite these challenges, we continued our focus on improving efficiency and cost controls and, during the period, Operating EBITDA increased to euro 13.3 million from euro 1.6 million in the prior period."

Mr. Lee continued:  "NBSK list prices in Europe started the year at approximately $635 per tonne and declined to approximately $580 over the year before recovering somewhat to approximately $600 at year end.  Prices in Asia, and in particular China, were generally much softer.  Our non-cash marked to market loss for the year on our derivative instruments was euro 69.3 million. For the year, we reported interest expense of euro 86.9 million, which reflected both interest expense associated with the acquisition of our Celgar mill and a full year of interest expense related to the Stendal mill.  In 2004, substantially all of the interest expense associated with the Stendal mill was capitalized until mid-September."

Mr. Lee continued:  "Looking forward, we are seeing improving pulp demand in all our markets which should result in some price improvement.  List prices in Europe have now improved to approximately $620 per tonne and producers are seeking a further $20 per tonne price increase in the first quarter of 2006. In 2006, current list prices in Asian markets have also increased by approximately $50 per tonne compared to the 2005 fourth quarter levels."

Mr. Lee further stated:  "In addition, the recent continued softness in pulp markets has resulted in several mill shutdowns which has removed capacity from the market and other facilities are predicted to potentially be shut down.  We believe that this shakeout of older, smaller and higher cost facilities will improve pricing and assist us in becoming a preferred supplier for customers seeking a long-term, stable and reliable supply of NBSK pulp."

Mr. Lee concluded:  "By focusing our production on large, modern and efficient NBSK pulp mills, we believe we are well positioned to realize on any improvements in NBSK pulp markets and to create value for our stakeholders."

In conjunction with this release, Mercer International will host a conference call, which will be simultaneously broadcast live over the Internet.  Management will host the call, which is scheduled for Monday, March 6, 2006 at 10:00 AM EST.  Listeners can access the conference call live and archived over the Internet through a link at the company's web site at http://www.mercerinternational.com/, or at http://phx.corporate-/ ir.net/playerlink.zhtml?c=62074&s=wm&e=1195268.  Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.  A replay of this call will be available approximately two hours after the live call ends until March 13, 2006 at 11:59 p.m. (Eastern Standard Time).  The replay number is [phone], and the passcode is 4249268.

Mercer International Inc. is a global pulp and paper manufacturing company.  To obtain further information on the company, please visit its web site at http://www.mercerint.com/en/newsCurrent.cfm.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: market conditions, competition and other risk factors listed from time to time in the company's SEC reports.

                        MERCER INTERNATIONAL INC.

                       CONSOLIDATED BALANCE SHEETS
                        December 31, 2005 and 2004
                           (Euros in thousands)

                                                 December 31,   December 31,
                                                     2005            2004
          ASSETS

  Current Assets
      Cash and cash equivalents                euro 83,547     euro 49,568
      Cash restricted                                7,039          45,295
      Receivables                                   74,315          54,687
      Inventories                                   81,147          52,898
      Prepaid expenses and other                     5,474           4,961
          Total current assets                     251,522         207,409

  Long-Term Assets
      Cash restricted                               24,573          47,538
      Property, plant and equipment              1,024,662         936,035
      Investments                                    6,314           5,079
      Deferred note issuance and other costs         8,364           5,069
      Deferred income tax                           78,381          54,519
                                                 1,142,294       1,048,240
               Total assets                      1,393,816       1,255,649

          LIABILITIES

  Current Liabilities
      Accounts payable and accrued expenses        111,513          56,542
      Construction costs payable                     1,213          65,436
      Debt, current portion                         27,601         107,090
          Total current liabilities                140,327         229,068

  Long-Term Liabilities
      Debt, less current portion                   922,619         777,272
      Unrealized foreign exchange rate derivative
       loss                                         61,979               -
      Unrealized interest rate derivative loss      78,646          75,471
      Pension and other post-retirement
       benefit obligations                          17,113               -
      Capital leases and other                       9,945           9,035
      Deferred income tax                           14,444           2,062
                                                 1,104,746         863,840

          Total liabilities                      1,245,073       1,092,908

          SHAREHOLDERS' EQUITY

  Shares of beneficial interest                    181,586          83,397
  Additional paid-in capital, stock options             14              14
  Retained earnings (deficit)                      (47,970)         69,176
  Accumulated other comprehensive income            15,113          10,154
          Total shareholders' equity               148,743         162,741
          Total liabilities and
           shareholders' equity             euro 1,393,816   euro 1,255,649

                                   (1)



                        MERCER INTERNATIONAL INC.

                  CONSOLIDATED STATEMENTS OF OPERATIONS
          For the Three Months Ended December 31, 2005 and 2004
                               (Unaudited)
               (Euros in thousands, except per share data)


                                                       2005          2004

  Revenues                                      euro 137,478   euro 89,201
  Costs and expenses:
      Cost of sales                                  134,240        93,736
                                                       3,238        (4,535)
  General and administrative expenses                 (8,032)       (5,812)
  Sale (purchase) of emission allowances               4,939             -
          Income (loss) from operations                  145       (10,347)

  Other income (expense):
      Interest expense                               (23,540)      (14,195)
      Investment income                                  873         1,269
      Realized gain on derivative financial
       instruments                                       199        44,467
      Unrealized loss on derivative financial
       instruments                                    (1,703)      (31,254)
      Unrealized foreign exchange gain on debt        (2,565)            -
      Total other income (expense)                   (26,736)          287

          Loss before income taxes and minority
           interest                                  (26,591)      (10,060)
  Income tax (provision) benefit                      (3,780)       44,126
          Income (loss) before minority interest     (30,371)       34,066

  Minority interest                                      598        (1,482)
          Net income (loss)
                                                euro (29,773)       32,584


  Income (loss) per share
      Basic                                       euro (0.90)    euro 1.87
      Diluted                                     euro (0.90)    euro 1.14

                                   (2)



                        MERCER INTERNATIONAL INC.

                  CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 2005 and 2004
               (Euros in thousands, except per share data)



                                                       2005          2004

  Revenues                                      euro 513,908  euro 237,212
  Costs and expenses:
      Cost of sales                                  484,425       221,595
                                                      29,483        15,617
  General and administrative expenses                (30,431)      (26,920)
  Sale (purchase) of emission allowances              17,292             -
  Impairment of capital assets                             -        (6,000)
  Flooding losses and expenses, less
   grant income                                            -          (669)
          Income (loss) from operations               16,344       (17,972)

  Other income (expense):
      Interest expense                               (86,860)      (23,749)
      Investment income                                2,467         2,948
      Unrealized foreign exchange loss on debt        (4,156)            -
      Realized gain (loss) on derivative
       financial instruments                          (2,455)       44,467
      Unrealized loss on derivative
       financial instruments                         (69,308)      (32,331)
      Impairment of investments                                          -
      Total other income (expense)                  (162,011)       (8,665)

          Loss before income taxes and
           minority interest                        (145,667)      (26,637)
  Income tax benefit                                  10,847        44,163
          (Loss) income before minority interest    (134,820)       17,526
  Minority interest                                   17,674         2,454
          Net (loss) income                    euro (117,146)  euro 19,980

  Income (loss) per share
      Basic                                       euro (3.75)    euro 1.15
      Diluted                                     euro (3.75)    euro 0.89

                                   (3)



                        MERCER INTERNATIONAL INC.

                       BUSINESS SEGMENT INFORMATION
          For the Three Months Ended December 31, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                           Rosenthal     Celgar(1)     Stendal       Total
                             Pulp         Pulp          Pulp         Pulp

  Three Months Ended
   December 31, 2005
  Sales to external
   customers          euro  34,135  euro 41,755   euro 47,112 euro 123,002
  Intersegment net
   sales                         -            -         1,629        1,629
                            34,135       41,755        48,741      124,631
  Operating costs           27,034       45,083        38,881      110,998
  Operating depreciation
   and amortization          2,936        3,452         7,083       13,471
  General and
   administrative            1,396          650         2,056        4,102
  (Sale) purchase of
    emission allowances     (2,869)           -        (2,070)      (4,939)
                            28,497       49,185        45,950      123,632
  Income (loss) from
   operations                5,638       (7,430)        2,791          999
  Interest expense
  Investment income
  Derivative financial
   instruments, net
  Foreign exchange loss
   on debt
  Impairment of investments

  Loss before income
   taxes and minority
   interest

  Three Months Ended
   December 31, 2004
  Sales to external
    customers          euro 34,190  euro      -   euro 41,673 euro  75,863
  Intersegment net
   sales                       127            -           885        1,012
                            34,317            -        42,558       76,875
  Operating costs           25,408            -        45,676       71,084
  Operating
   depreciation
   and amortization          3,585            -         7,711       11,812
  General and
   administrative            2,773            -         2,431        4,688
                            31,766            -        55,818       87,584
  Income (loss) from
   operations                2,551            -       (13,260)     (10,709)
  Interest expense
  Investment and other
   income
  Derivative financial
   instruments, net

  Loss before income
   taxes and minority
   interest


                                                Corporate,
                                                Other and      Consolidated
                                   Paper       Eliminations      Total

  Three Months Ended
   December 31, 2005
  Sales to external
   customers                euro   14,476   euro        -  euro  137,478
  Intersegment net sales                -          (1,629)             -
                                   14,476          (1,629)       137,478
  Operating costs                  12,097          (2,034)       121,061
  Operating depreciation
   and amortization                   289            (581)        13,179
  General and administrative        2,200           1,730          8,032
  (Sale) purchase of emission
    allowances                          -               -         (4,939)
                                   14,586            (885)       137,333
  Income (loss) from operations      (110)           (744)           145
  Interest expense                                               (23,540)
  Investment income                                                  873
  Derivative financial
   instruments, net                                               (1,504)
  Foreign exchange loss on debt                                   (2,565)
  Impairment of investments                                            -
                                                                 (26,736)
  Loss before income taxes
   and minority interest                                   euro  (26,591)


  Three Months Ended
   December 31, 2004
  Sales to external
   customers                euro   13,572    euro    (234)  euro  89,201
  Intersegment net sales                -          (1,012)             -
                                   13,572          (1,246)        89,201
  Operating costs                  11,498          (1,289)        81,293
  Operating depreciation
   and amortization                   616              15         11,927
  General and administrative          646             478          6,328
                                   12,760            (796)        99,548
  Income (loss) from operations       812            (450)       (10,347)
  Interest expense                                               (14,195)
  Investment and other income                                      1,269
  Derivative financial
   instruments, net                                               13,213
                                                                     287
  Loss before income taxes
   and minority interest                                    euro (10,060)

                                   (4)



                        MERCER INTERNATIONAL INC.

                       BUSINESS SEGMENT INFORMATION
              For the Years Ended December 31, 2005 and 2004
                           (Euros in thousands)

                        Rosenthal    Celgar(1)    Stendal         Total
                          Pulp         Pulp         Pulp           Pulp
  Year Ended
   December 31, 2005
  Sales to external
   customers       euro  137,193 euro 139,213 euro 176,031   euro 452,437
  Intersegment
   net sales                   -            -        6,308          6,308
  137,193                139,213      182,339      458,745
  Operating costs        100,180      131,521      151,620        383,321
  Operating
   depreciation
   and amortization       13,109       10,535       27,262         50,906
  General and
   administrative          6,837        5,935        5,176         17,948
  (Sale) purchase
   of emission
   allowances             (7,271)           -      (10,021)       (17,292)
                         112,855      147,991      174,037        434,883
  Income (loss)
   from operations        24,338       (8,778)       8,302         23,862
  Interest expense
  Investment income
  Derivative financial
   instruments, net
  Foreign exchange
   loss on debt
  Impairment of
   investments
  (Loss) income
    before income
    taxes and
    minority
    interest

  Segment assets   euro  344,473 euro 260,461 euro 746,346 euro 1,351,280

  Year Ended
   December 31,
   2004
  Sales to
   external
   customers       euro  140,203   euro     - euro  42,273 euro   182,476
  Intersegment
   net sales               1,949            -          885          2,834
                         142,152            -       43,158        185,310
  Operating costs         98,113            -       46,185        144,298
  Operating
   depreciation and
   amortization           17,751            -        9,022         26,773
  General and
   administrative         10,733            -        8,560         19,293
  Impairment of assets         -            -            -              -
  Flooding grants,
   less losses and
   expenses                    -            -            -              -
                         126,597            -       63,767        190,364
  Income (loss)
   from operations        15,555            -      (20,609)        (5,054)
  Interest expense
  Derivative financial
   instruments, net
  Investment and other
   income
  Loss before income
   taxes and minority
   interest
  Segment assets   euro  394,569   euro     - euro 810,267 euro 1,204,836


                                                 Corporate,
                                                Other and     Consolidated
                                   Paper       Eliminations       Total


  Year Ended
   December 31, 2005
  Sales to external
   customers                  euro 61,471    euro       -   euro  513,908
  Intersegment net sales                -          (6,308)              -
                                   61,471          (6,308)        513,908
  Operating costs                  56,976          (7,913)        432,384
  Operating depreciation
   and amortization                   881             254          52,041
  General and administrative        5,920           6,563          30,431
  (Sale) purchase of emission
    allowances                          -               -         (17,292)
                                   63,777          (1,096)        497,564
  Income (loss) from operations    (2,306)         (5,212)         16,344
  Interest expense                                                (86,860)
  Investment income                                                 2,467
  Derivative financial
   instruments, net                                               (71,763)
  Foreign exchange loss on debt                                    (4,156)
  Impairment of investments                                        (1,699)
  (Loss) income before income
    taxes and minority
    interest                                               euro  (145,667)

  Segment assets              euro 21,892   euro   20,644  euro 1,393,816

  Year Ended
   December 31, 2004
  Sales to external
   customers                  euro 54,970   euro     (234) euro   237,212
  Intersegment net sales                -          (2,834)              -
                                   54,970          (3,068)        237,212
  Operating costs                  51,184          (3,031)        192,451
  Operating depreciation
   and amortization                 2,356              15          29,144
  General and administrative        4,532           3,095          26,920
  Impairment of assets              6,000               -           6,000
  Flooding grants, less
   losses and expenses                669               -             669
  64,741                               79         255,184
  Income (loss) from operations    (9,771)         (3,147)        (17,972)
  Interest expense                                                (23,749)
  Derivative financial
   instruments, net                                                12,136
  Investment and other income       2,948
  Loss before income taxes
   and minority interest                                   euro   (26,637)
  Segment assets              euro 22,735   euro   28,078  euro 1,255,649


  (1) The results of the Celgar pulp mill are from the date of its
      acquisition on February 14, 2005.

                                   (5)



                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                     Combined Condensed Balance Sheet
                         As at December 31, 2005
                           (Euros in thousands)



The terms of the indenture governing our 9.25% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer International Inc. excluding its subsidiaries ("Mercer Inc.") and our restricted subsidiaries under the indenture, collectively referred to as the "Restricted Group."  As at and during the year ended December 31, 2005, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill from the date of its acquisition on February 14, 2005.  As at and during the year ended December 31, 2004, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, which was the only member of the Restricted Group with material operations during this period.  We acquired the Celgar mill in February 2005 and, as a result, its operations for the year ended December 31, 2004 and financial condition at December 31, 2004 are not included for such periods. The Restricted Group excludes our paper operations and the Stendal mill.

                                          December 31, 2005
                         Restricted  Unrestricted               Consolidated
                            Group    Subsidiaries  Eliminations     Group
  ASSETS
  Current assets
   Cash and cash
    equivalents         euro 48,790  euro 34,757    euro   -     euro 83,547
   Cash restricted                -        7,039           -           7,039
   Receivables               41,349       32,966           -          74,315
   Inventories               47,100       34,047           -          81,147
   Prepaid expenses
    and other                 2,940        2,534           -           5,474
  Total current assets      140,179      111,343           -         251,522
  Cash restricted                 -       24,573           -          24,573
  Property, plant and
   equipment                404,151      620,511           -        1,024,66
  Other                      10,533        4,145           -          14,678
  Deferred income tax        24,303       54,078           -          78,381
  Due from unrestricted
   group                     46,412            -     (46,412)              -
  Total assets         euro 625,578 euro 814,650 euro(46,412) euro 1,393,816

  LIABILITIES
  Current liabilities
   Accounts payable
    and accrued
    expenses           euro  46,867 euro  64,646 euro      -  euro   111,513
   Construction costs
    payable                       -        1,213           -           1,213
   Debt, current portion          -       27,601           -          27,601
  Total current
   liabilities               46,867       93,460           -         140,327

  Debt, less current
   portion                  342,023      580,596           -         922,619
  Due to restricted
   group                          -       46,412     (46,412)              -
  Unrealized derivatives
   loss                           -      140,625           -         140,625
  Other                      20,722        6,336           -          27,058
  Deferred income tax         1,851       12,593           -          14,444
  Total liabilities         411,463      880,022     (46,412)      1,245,073

  SHAREHOLDERS' EQUITY
  Total shareholders'
   equity                   214,115      (65,372)(1)       -         148,743
  Total liabilities and
   shareholders'
   equity              euro 625,578 euro 814,650 euro(46,412) euro 1,393,816

  (1) Shareholders' equity does not include government grants received or
      receivable related to the Stendal mill.  Shareholders' equity is
      impacted by the unrealized non-cash marked to market valuation losses
      on derivative financial instruments.

                                   (6)



                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                     Combined Condensed Balance Sheet
                         As at December 31, 2004
                           (Euros in thousands)


                                           December 31, 2004
                         Restricted  Unrestricted               Consolidated
                            Group    Subsidiaries  Eliminations     Group
  ASSETS
  Current assets
   Cash and cash
    equivalents       euro  45,487  euro   4,081   euro    -    euro  49,568
   Cash restricted               -        45,295           -          45,295
   Receivables              21,791        33,060        (164)         54,687
   Inventories              13,911        38,987           -          52,898
   Prepaid expenses
    and other                1,995         2,966           -           4,961
  Total current assets      83,184       124,389        (164)        207,409
  Cash restricted           28,464        19,074           -          47,538
  Property, plant and
   equipment               213,678       722,394         (37)        936,035
  Other                      5,936         4,212           -          10,148
  Deferred income tax       26,592        27,927           -          54,519
  Due from unrestricted
   group                    43,467             -     (43,467)              -
  Total assets        euro 401,321  euro 897,996 euro(43,668) euro 1,255,649

  LIABILITIES
  Current liabilities
   Accounts payable
    and accrued
    expenses          euro  19,615  euro  37,091 euro   (164) euro    56,542
   Construction costs
    payable                      -        65,436           -          65,436
   Debt, current
    portion                 15,089        92,001           -         107,090
  Total current
   liabilities              34,704       194,528        (164)        229,068
  Debt, less current
   portion                 224,542       552,730           -         777,272
  Due to restricted
   group                         -        43,467     (43,467)              -
  Unrealized
   derivative loss               -        75,471           -          75,471
  Other                      1,878         7,157           -           9,035
  Deferred income tax        1,719           343           -           2,062
  Total liabilities        262,843       873,696     (43,631)      1,092,908

  SHAREHOLDERS' EQUITY
  Total shareholders'
   equity                  138,478        24,300         (37)        162,741
  Total liabilities and
   shareholders'
   equity             euro 401,321  euro 897,996 euro(43,668) euro 1,255,649

                                   (7)



                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
               Combined Condensed Statements of Operations
          For the Three Months Ended December 31, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                                  Three Months Ended December 31, 2005
                           Restricted Unrestricted              Consolidated
                              Group   Subsidiaries Eliminations    Group

  Revenues                euro 75,890  euro 61,588  euro    -  euro 137,478
  Operating costs              71,655       49,406          -       121,061
  Operating depreciation
   and amortization             6,467        7,372        (660)      13,179
  General and administrative    3,466        4,566          -         8,032
  (Sale) purchase of
    emission allowances        (2,869)      (2,070)         -        (4,939)
       Income (loss)
        from operations        (2,829)       2,314         660          145
  Other income (expense)
    Interest expense           (8,434)     (15,972)        866      (23,540)
    Investment income           1,429          310        (866)         873
    Derivative financial
     instruments, net             199       (1,703)         -         1,504
    Unrealized foreign
     exchange loss on debt     (2,565)          -           -        (2,565)
    Total other expense        (9,371)     (17,365)         -       (26,736)
       Income (loss)
        before income
        taxes and
        minority interest     (12,200)     (15,051)        660      (26,591)
  Income tax (provision)
   benefit                      5,460      (11,389)      2,149       (3,780)
       Income (loss)
        before minority
        interest               (6,740)     (26,440)      2,809      (30,371)
  Minority interest                -           927        (329)         598
     Net income (loss)   euro  (6,740)     (25,513)      2,480      (29,773)



                                  Three Months Ended December 31, 2004
                           Restricted Unrestricted              Consolidated
                              Group   Subsidiaries Eliminations    Group

  Revenues                euro 34,317  euro 56,130 euro (1,246) euro 89,201
  Operating costs              25,408       57,174      (1,289)      81,293
  Operating depreciation and
   amortization                 3,600        8,327          -        11,927
  General and administrative    3,251        3,077          -         6,328
                               32,259       68,578      (1,289)      99,548
       Income (loss)
        from operations         2,058      (12,448)         43      (10,347)
  Other income (expense)
    Interest expense              233      (11,989)     (2,439)     (14,195)
    Investment income
     (expense)                    598        1,607        (936)       1,269
    Derivative financial
     instruments, net          13,517         (304)         -        13,213
    Total other income
    (expense)                  14,348      (10,686)     (3,375)         287
      Income (loss) before
       income taxes and
       minority interest       16,406      (23,134)     (3,332)     (10,060)
  Income tax benefit           17,198       26,928          -        44,126
     Income (loss) before
      minority interest        33,604        3,794      (3,332)      34,066
  Minority interest                -        (1,482)         -        (1,482)
    Net income (loss)     euro 33,604   euro 2,312 euro (3,332) euro 32,584

                                   (8)



                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
               Combined Condensed Statements of Operations
              For the Year Ended December 31, 2005 and 2004
                           (Euros in thousands)

                                      Year Ended December 31, 2005
                           Restricted Unrestricted              Consolidated
                              Group   Subsidiaries Eliminations    Group

  Revenues              euro 276,406 euro 243,810  euro(6,308) euro 513,908
  Operating costs            230,039      210,258      (7,913)      432,384
  Operating depreciation
   and amortization           23,898       28,143          -         52,041
  General and
   administrative             19,025       11,406          -         30,431
  Gain on sale of
   emission allowances        (7,271)     (10,021)         -        (17,292)
       Income from
        operations            10,715        4,024       1,605        16,344
  Other income (expense)
    Interest expense         (32,352)     (57,323)      2,815       (86,860)
    Investment income          3,742        1,540      (2,815)        2,497
    Derivative financial
     instruments, net           (295)     (71,468)         -        (71,763)
    Unrealized foreign
     exchange loss on debt    (4,156)          -           -         (4,156)
    Impairment of
     investments              (1,699)          -           -         (1,699)
    Total other expense      (34,760)    (127,251)         -       (162,011)
       Income (loss)
        before income
        taxes and
        minority interest    (24,045)    (123,227)      1,605      (145,667)
  Income tax (provision)
   benefit                    (1,161)      12,008          -         10,847
       Income (loss)
        before minority
        interest             (25,206)    (111,219)      1,605      (134,820)
  Minority interest               -        17,674          -         17,674
     Net income (loss)   euro(25,206)     (93,545)      1,605      (117,146)



                                       Year Ended December 31, 2004
                           Restricted Unrestricted              Consolidated
                              Group   Subsidiaries Eliminations    Group

  Revenues
                        euro 142,152 euro  98,128  euro(3,068) euro 237,212
  Operating costs             98,113       97,369      (3,031)      192,451
  Operating depreciation and
   amortization               17,766       11,378          -         29,144
  General and
   administrative             13,828       13,092          -         26,920
  Impairment of
   capital assets                 -         6,000          -          6,000
  Flooding grants, less
   losses and expenses            -           669          -            669
       Income (loss)
        from operations       12,445      (30,380)        (37)      (17,972)
  Other income (expense)
    Interest expense         (10,941)     (14,298)      1,490       (23,749)
    Investment income          3,132        1,306      (1,490)        2,948
    Derivative financial
     instruments, net         13,242       (1,106)         -         12,136
    Total other
     income (expense)          5,433      (14,098)         -         (8,665)
       Income (loss)
        before income
        taxes and
        minority interest     17,878      (44,478)        (37)      (26,637)
  Income tax benefit          17,235       26,928          -         44,163
       Income (loss)
        before minority
        interest              35,113      (17,550)        (37)       17,526
  Minority interest               -         2,454          -          2,454
     Net income (loss)   euro 35,113  euro(15,096)  euro  (37)  euro 19,980

                                   (9)



                        MERCER INTERNATIONAL INC.

                     COMPUTATION OF OPERATING EBITDA
        For the Quarter and Year Ended December 31, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                                             For the          For the
                                          Quarter Ended    Quarter Ended(1)
                                           December 31,      December 31,
                                               2005              2004

  Net income (loss)                    euro  (29,773)    euro   32,584
  Minority interest                             (598)            1,482
  Income taxes (benefit)                       3,780           (44,126)
  Interest expense                            23,540            14,195
  Investment income                             (873)           (1,269)
  Derivative financial instruments, net        1,504           (13,213)
  Foreign exchange loss on debt                2,565                -
  Income (loss) from operations                  145           (10,347)
  Add:  Depreciation and amortization         13,179            11,927
  Operating EBITDA(2)                  euro   13,324     euro    1,580


                                             For the          For the
                                           Year Ended       Year Ended(1)
                                           December 31,      December 31,
                                               2005              2004

  Net income (loss)                    euro (117,146)    euro   19,980
  Minority interest                          (17,674)           (2,454)
  Income taxes (benefit)                     (10,847)          (44,163)
  Interest expense                            86,860            23,749
  Investment income                           (2,467)           (2,948)
  Derivative financial instruments, net       71,763           (12,136)
  Foreign exchange loss on debt                4,156                -
  Impairment of investments                    1,699                -
  Income (loss) from operations               16,344           (17,972)
  Add:  Depreciation and amortization         52,041            29,144
        Impairment charge                         -              6,000
  Operating EBITDA(2)                  euro   68,385     euro   17,172

  (1) The results of the Celgar mill are not included for the three months
      and year ended December 31, 2004, respectively.

  (2) Operating EBITDA does not reflect the impact of a number of items that
      affect the Company's net income (loss), including financing costs and
      the effect of derivative instruments.  Operating EBITDA is not a
      measure of financial performance under accounting principles generally
      accepted in the United States, 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.  Operating EBITDA has
      significant limitations as an analytical tool, and should not be
      considered in isolation, or as a substitute for analysis of the
      Company's results as reported under GAAP.

                                   (10)



                        MERCER INTERNATIONAL INC.

             COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
        For the Quarter and Year Ended December 31, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                                             For the           For the
                                          Quarter Ended     Quarter Ended
                                           December 31,      December 31,
                                               2005              2004
  Restricted Group(1)
  Net income (loss)                    euro   (6,740)    euro   33,604
  Income taxes (benefit)                      (5,460)          (17,198)
  Interest expense                             8,434              (233)
  Investment and other income                 (1,429)             (598)
  Derivative financial instruments, net         (199)          (13,517)
  Foreign exchange loss on debt                2,565                -
  Income (loss) from operations               (2,829)            2,058
  Add: Depreciation and amortization           6,467             3,600
  Operating EBITDA(2)                  euro    3,638     euro    5,658


                                             For the          For the
                                           Year Ended        Year Ended
                                           December 31,      December 31,
                                               2005              2004
  Restricted Group(1)
  Net income (loss)                    euro  (25,206)    euro   35,113
  Income taxes (benefit)                       1,161           (17,235)
  Interest expense                            32,352            10,941
  Investment income                           (3,742)           (3,132)
  Derivative financial instruments, net          295           (13,242)
  Foreign exchange loss on debt                4,156                -
  Impairment of investments                    1,699                -
  Income from operations                      10,715            12,445
  Add: Depreciation and amortization          23,898            17,766
  Operating EBITDA                     euro   34,613     euro   30,211

  (1) The results of the Celgar pulp mill are not included for the three
      months and year ended December 31, 2004, respectively.

  (2) Operating EBITDA does not reflect the impact of a number of items that
      affect the Company's net income (loss), including financing costs and
      the effect of derivative instruments.  Operating EBITDA is not a
      measure of financial performance under accounting principles generally
      accepted in the United States, 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.  Operating EBITDA has
      significant limitations as an analytical tool, and should not be
      considered in isolation, or as a substitute for analysis of the
      Company's results as reported under GAAP.

                                   (11)


DATASOURCE: Mercer International Inc.



CONTACT:  David M. Gandossi, Executive Vice-President & Chief Financial

Officer of Mercer International Inc., [phone]; or Investors - Eric

Boyriven or Alexandra Tramont, or Media - Alecia Pulman, all of Financial

Dynamics, [phone]



Web site:  http://www.mercerinternational.com/ 

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