Mercer International Inc. Reports 2006 First Quarter Results

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Mercado Minerals Ltd	CSE:MERC	CSE	Common Stock

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Mercado Minerals (CSE:MERC)
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NEW YORK, May 5 /PRNewswire-FirstCall/ -- Mercer International Inc. (Nasdaq: MERC; TSX: MRI.U) today reported results for the first quarter of 2006. Summary Selected Highlights Three Months Ended March 31, 2006 2005 (in thousands) Results of Operations (unaudited) Revenues euro 159,064 euro 97,893 Income (loss) from operations 11,505 (894) Operating EBITDA(1) 25,419 10,093 Interest expense Stendal 15,283 11,845 Interest expense other 7,642 7,418 Realized loss on derivative instruments (3,562) (295) Unrealized gain (loss) on derivative instruments 44,377 (3,564) Unrealized foreign exchange gain on debt 6,113 2,297 Net income (loss) 16,588 (19,667) Income (loss) per share Basic 0.50 (0.77) Diluted 0.41 (0.77) Other Data Total pulp sales volume(2) (ADMTs) 327,101 199,224 Mill net pulp price realizations (per ADMT)(3) 425 409 (1) For a definition of Operating EBITDA, see page 6 of this press release and for a reconciliation of net income (loss) to Operating EBITDA, see page 7 of the financial tables included in this press release. (2) Excluding intercompany sales volumes of 4,986 ADMTs and 3,489 ADMTs of pulp in the three months ended March 31, 2006 and 2005, respectively. (3) Excluding revenues from third party transportation activities. As at As at March 31, 2006 March 31, 2005 (in thousands) Financial Position (Current) Cash and cash equivalents euro 80,350 euro 83,547 Cash restricted 6,298 7,039 Receivables 78,472 74,315 Inventories 71,295 81,147 Prepaid expenses and other 5,191 5,474 Accounts payable and accrued expenses (109,625) (111,513) Construction costs payable (1,060) (1,213) Debt, current portion (74,338) (27,601) Working capital(1) 56,583 111,195 (1) Does not include approximately euro 7.0 million of government grants in 2006, which we expect to receive in 2006, and approximately euro 65.9 million of government grants in 2005, all of which has been received, related to the Stendal mill from German federal and state governments. Certain key factors affecting our 2006 first quarter results include: * Revenues increased by over 60% to euro 159.1 million from euro 97.9 million in the comparative period of 2005, primarily due to the inclusion of sales from our Celgar pulp mill for the full quarter and higher sales from the Stendal pulp mill. * Operating EBITDA increased by approximately 152% to euro 25.4 million in the first quarter from euro 10.1 million in the 2005 comparative quarter because of improving pulp markets and improved results from our Stendal and Rosenthal mills. For a definition of Operating EBITDA, see page 6 of this press release and for a reconciliation of net income to Operating EBITDA, see page 7 of the financial tables included in this press release. * Interest expense increased to euro 22.9 million in the first quarter of 2006 from euro 19.3 million in the comparative period of 2005 reflecting higher borrowings associated with the Stendal mill and incremental 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 95% of its initial rated capacity, and production and sales revenues were up by approximately 21% and 49%, respectively, over the same period of 2005. Further, Stendal mill net realizations also improved as a result of higher pulp prices, increased contract sales in Europe and lower spot market sales in Asian markets. * We recorded a net unrealized gain of euro 44.4 million on our interest rate and currency derivatives in the first quarter of 2006, compared to a net unrealized loss of euro 3.6 million on our outstanding derivatives in the comparative period of 2005. We had a realized loss of euro 3.6 million on certain currency forwards that matured in the current quarter, compared to a realized loss of euro 0.3 million in the comparative period of 2005. We also recorded an unrealized non-cash foreign exchange gain on our long-term debt of euro 6.1 million in the current quarter due to the weakening of the U.S. dollar, compared to an unrealized gain of euro 2.3 million in the first quarter of 2005. * Pulp markets strengthened quarter over quarter. Average list prices for NBSK pulp in Europe were $618 per ADMT in the first quarter of 2006 and $600 per ADMT in the fourth quarter of 2005, compared to $642 per ADMT in the first quarter of 2005. * Mill net pulp realizations increased to euro 425 per ADMT in the first quarter of 2006 from euro 413 and euro 409 per ADMT in the fourth and first quarters of 2005, respectively. Results of Operations - 2006 First Quarter Selected production and sales data for the three months ended March 31, 2006 and 2005 is as follows: Three Months Ended March 31, 2006 2005 (ADMTs) Production by Product Class: Pulp production by mill: Rosenthal 76,154 75,872 Stendal 130,877 107,981 Celgar 111,437 60,762 Total pulp production 318,468 244,615 Paper production 17,175 15,958 Total production 335,643 260,573 Sales Volume by Product Class: Pulp sales volume by mill: Rosenthal 76,226 78,804 Stendal 140,514 102,073 Celgar 110,361 18,347 Total pulp sales volume(1) 327,101 199,224 Paper sales volume 16,602 16,638 Total sales volume(1) 343,703 215,862 Revenues by Product Class: (in thousands) Pulp revenues by mill: Rosenthal euro 33,727 euro 33,389 Stendal 59,781 40,528 Celgar 46,297 7,616 Total pulp revenues(1) 139,805 81,533 Paper revenues 17,238 15,366 Total pulp and paper sales revenues(1) 157,043 96,899 Third party transportation revenues 2,021 994 Total sales revenues euro 159,064 euro 97,893 (1) Excluding intercompany sales volumes of 4,986 ADMTs and 3,489 ADMTs of pulp and intercompany net sales revenues of approximately euro 2.4 million and euro 1.6 million in the three months ended March 31, 2006 and 2005, respectively. Revenues for the three months ended March 31, 2006 increased to euro 159.1 million from euro 97.9 million in the comparative period of 2005, primarily due to the inclusion of sales from our Celgar mill for the full quarter of 2006 and higher sales from the Stendal mill. Pulp sales by volume increased to 327,101 ADMTs in the first quarter of 2006 from 199,224 ADMTs in the comparative period of 2005. Cost of sales and general, administrative and other expenses in the first quarter of 2006 increased to euro 153.2 million from euro 98.8 million in the comparative period of 2005, primarily as a result of the inclusion of a full quarter of results of our Celgar mill and higher production at our Stendal mill. For the first quarter of 2006, revenues from our pulp operations increased to euro 141.8 million from euro 82.5 million in the same period a year ago. List prices for NBSK pulp in Europe were approximately euro 514 ($618) per ADMT in the first quarter of 2006 and euro 506 ($600) per ADMT in the fourth quarter of 2005, compared to approximately euro 490 ($642) per ADMT in the comparative period of last year. Mill net pulp sales realizations increased to euro 425 per ADMT on average in the first quarter of 2006 from euro 409 per ADMT in the first quarter of 2005, primarily as a result of higher pulp prices. Cost of sales and general, administrative and other expenses for the pulp operations increased to euro 137.5 million in the first quarter of 2006 from euro 82.8 million in the comparative period of 2005, primarily due to the inclusion of the results of the Celgar mill and higher sales at our Stendal mill. Fiber costs at our German pulp mills increased by approximately 12.3% in the first quarter of 2006 versus the same quarter of 2005. This resulted from severe winter conditions in Germany and central Europe during the period, which caused sawmillers and log harvesters to curtail operations which reduced fiber availability and increased fiber costs. In the first quarter of 2006, average fiber costs at our Celgar mill decreased by approximately 22% versus the same quarter of 2005, primarily because of increased woodchip availability resulting from higher production at regional sawmills. In the first quarter of 2006, we recorded a contribution to income from operations of euro 5.6 million resulting from the sale of emission allowances. Depreciation for the pulp operations increased to euro 13.6 million in the first quarter of 2006, from euro 10.8 million in the comparative period of 2005, primarily as a result of depreciation associated with the Celgar mill. For the first quarter of 2006, our pulp operations generated operating income of euro 12.2 million, versus operating income of euro 1.3 million in the comparative quarter of 2005, primarily due to the higher operating income at our German pulp mills, including a contribution of euro 5.6 million from the sale of emission allowances, partially offset by an operating loss at our Celgar mill. As NBSK pulp is generally quoted in U.S. dollars, the overall strength of the Canadian dollar versus the U.S. dollar negatively impacted our Celgar mill's sales realizations and results. Further, near the end of the first quarter of 2006, our Celgar mill took approximately two weeks of planned maintenance downtime, of which approximately five days were in March and the balance in April. Revenues from our paper operations in the current quarter increased to euro 17.2 million from euro 15.4 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 first quarter of 2006 increased to euro 16.9 million from euro 15.6 million in the comparative quarter of 2005. For the first quarter of 2006, our paper operations generated operating income of euro 0.5 million, compared to an operating loss of euro 0.3 million in the first quarter of 2005. In the first quarter of 2006, we had income from operations of euro 11.5 million, compared to a loss from operations of euro 0.9 million in the same quarter last year. Interest expense in the first quarter of 2006 increased to euro 22.9 million from euro 19.3 million in the year ago period, due to higher borrowings relating to the Stendal mill and incremental 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 in 2005 and certain currency forwards. In addition, Stendal previously entered into interest rate swaps to fix the interest rate on its outstanding bank indebtedness. Due to the weakening of the U.S. dollar versus the Euro and an increase in long-term interest rates, we recorded a net unrealized non-cash holding gain of euro 44.4 million before minority interests upon the marked to market valuation of such derivatives that were outstanding at the end of the current quarter, compared to a net non-cash holding loss of euro 3.6 million before minority interests upon the marked to market valuation of our outstanding derivatives in the comparative quarter of 2005. In the first quarter of 2006, we had a realized loss of euro 3.6 million on certain currency forwards which had matured, compared to a realized loss of euro 0.3 million on derivative instruments in the first quarter of 2005. In the first quarter of 2006, minority interest, representing the two minority shareholders' proportionate interest in the Stendal mill, was euro 0.4 million, compared to euro 6.6 million in the first quarter of 2005. We reported net income for the first quarter of 2006 of euro 16.6 million, or euro 0.50 per basic and euro 0.41 per diluted share, which reflected an unrealized gain of euro 44.4 million on our outstanding derivatives, an unrealized non-cash foreign exchange gain on our long-term debt of euro 6.1 million and improved results at our German pulp mills. In the first quarter of 2005, we reported a net loss of euro 19.7 million, or euro 0.77 per basic share and diluted share, which included net losses on our derivatives of euro 3.9 million and a non-cash impairment charge of euro 1.6 million relating to investments. We generated "Operating EBITDA" of euro 25.4 million and euro 10.1 million in the three months ended March 31, 2006 and 2005, 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 7 of the financial tables included in this press release. President's Comments Mr. Jimmy S.H. Lee, President and Chairman, stated: "During the first quarter of 2006: * Pulp markets were stronger than the last and comparative quarters of 2005. NBSK list prices in Europe, which were $600 per ADMT in December 2005, improved to $630 per ADMT at the end of the quarter. Further, during the period, list prices in Asian markets improved by approximately $50 per ADMT. * Our ramp up of the Stendal mill continued substantially on plan. It operated at approximately 95% of its initial rated capacity and production and revenues were up by approximately 21% and 49%, respectively, over the same period of 2005. It also recorded substantially better operating results. Stendal also built up its debt service account, which approximates one year's worth of principal and interest under its project loan facility, to euro 66.5 million as planned by drawing euro 42.0 million under a tranche of such facility. This account is recorded as a long-term asset and is a principal reason for our reduction in working capital at March 31, 2006. * Improvements in pulp prices and markets were partially offset by seasonal reduced fiber availability and higher fiber costs at our German pulp mills. Conversely, our Celgar mill enjoyed a reduction in fiber costs as its regional sawmills ramped up production. The Celgar mill's lower fiber costs and other operating improvements were offset by the continuing strength of the Canadian dollar versus the U.S. dollar in the period and planned maintenance downtime. The Celgar mill's euro 20 million capital plan to increase efficiency, production and quality and lower costs continued substantially on plan. * Our global pulp sales and marketing team worked effectively and increased the amount of contract regular business to our most transport logical customers and reduced the amount of spot sales. Mr. Lee continued: "Our first quarter results reflect generally improving pulp markets. Despite some production slow downs and higher fiber costs at our German pulp mills because of reduced fiber availability and five days of maintenance downtime at our Celgar mill, our Operating EBITDA increased by approximately 152% to euro 25.4 million from euro 10.1 million in the prior period." Mr. Lee continued: "During the current period, we recorded a non-cash marked to market gain on our derivative instruments of euro 44.4 million and an unrealized foreign exchange gain on our indebtedness of euro 6.1 million. Net income for the first quarter of 2006 was euro 16.6 million or euro 0.50 per basic share and euro 0.41 per diluted share. In the first quarter of 2005, we reported a loss of euro 19.7 million or euro 0.77 per share." He added: "The market for emission allowances is relatively new and volatile and at the end of April 2006, such market weakened materially. Based upon our current activities to date, we currently estimate that our overall emission allowances sales in 2006 will be at or near our total for 2005." Mr. Lee continued: "Looking forward, we are seeing improvements in pulp prices and demand in all of our markets which we currently believe should result in further price improvement in the upcoming months. List NBSK prices have further increased in April 2006 in Europe to approximately $650 per tonne and in Asia to approximately $570 per tonne." Mr. Lee concluded: "We believe that our large, modern and efficient NBSK pulp mills have us well-positioned to realize upon the improving NBSK pulp market 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, May 8, 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.mercerint.com/en/newsCurrent.cfm, or at http://www.videonewswire.com/event.asp?id=33761. 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 May 15, 2006 at 11:59 p.m. (Eastern Standard Time). The replay number is (800) 642-1687, and the passcode is 8776197. 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.mercerinternational.com/. 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 March 31, 2006 and December 31, 2005 (Euros in thousands) March 31, December 31, 2006 2005 ASSETS Current Assets Cash and cash equivalents euro 80,350 euro 83,547 Cash restricted 6,298 7,039 Receivables 78,472 74,315 Inventories 71,295 81,147 Prepaid expenses and other 5,191 5,474 Total current assets 241,606 251,522 Long-Term Assets Cash restricted 66,537 24,573 Property, plant and equipment 1,013,529 1,024,662 Investments 7,443 6,314 Deferred note issuance and other costs 8,019 8,364 Deferred income tax 67,369 78,381 1,162,897 1,142,294 Total assets euro 1,404,503 euro 1,393,816 LIABILITIES Current Liabilities Accounts payable and accrued expenses euro 110,685 euro 112,726 Debt, current portion 74,338 27,601 Total current liabilities 185,023 140,327 Long-Term Liabilities Debt, less current portion 904,957 922,619 Unrealized foreign exchange rate derivative loss 45,162 61,979 Unrealized interest rate derivative losses 55,141 78,646 Pension and other post-retirement benefit obligations 16,647 17,113 Capital leases and other 10,875 9,945 Deferred income tax 24,214 14,444 1,056,996 1,104,746 Total liabilities 1,242,019 1,245,073 Minority Interest - - SHAREHOLDERS' EQUITY Common shares 181,586 181,586 Additional paid-in capital, stock options 50 14 Deficit (31,382) (47,970) Accumulated other comprehensive income 12,230 15,113 Total shareholders' equity 162,484 148,743 Total liabilities and shareholders' equity euro 1,404,503 euro 1,393,816 (1) MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2006 and 2005 (Unaudited) (Euros in thousands, except per share data) 2006 2005 Revenues euro 159,064 euro 97,893 Costs and expenses: Cost of sales 144,339 90,989 14,725 6,904 General and administrative expenses (8,858) (7,798) Sale (purchase) of emission allowances 5,638 - Income (loss) from operations 11,505 (894) Other income (expense) Interest expense (22,925) (19,263) Investment income 1,744 175 Unrealized foreign exchange gain on debt 6,113 2,297 Realized loss on derivative instruments (3,562) (295) Unrealized gain (loss) on derivative instruments 44,377 (3,564) Impairment of investments - (1,645) Total other income (expense) 25,747 (22,295) Income (loss) before income taxes and minority interest 37,252 (23,189) Income tax provision (21,113) (3,035) Income (loss) before minority interest 16,139 (26,224) Minority interest 449 6,557 Net income (loss) euro 16,588 euro (19,667) (Deficit) retained earnings, beginning of period (47,970) 69,176 (Deficit) retained earnings, end of period euro (31,382) euro 49,509 Income (loss) per share Basic euro 0.50 euro (0.77) Diluted euro 0.41 euro (0.77) (2) MERCER INTERNATIONAL INC. BUSINESS SEGMENT INFORMATION For the Three Months Ended March 31, 2006 and 2005 (Unaudited) (Euros in thousands) Rosenthal Celgar(1) Stendal Total Pulp Pulp Pulp Pulp Three Months Ended March 31, 2006 Sales to external customers euro 34,672 euro 46,297 euro 60,699 euro 141,668 Intersegment net sales 42 - 2,315 2,357 34,714 46,297 63,014 144,025 Operating costs 23,987 45,565 48,125 117,677 Operating depreciation and amortization 3,537 3,014 7,059 13,610 General and administrative 1,327 2,124 2,757 6,208 (Sale) purchase of emission allowances (1,767) - (3,871) (5,638) 27,084 50,703 54,070 131,857 Income (loss) from operations 7,630 (4,406) 8,944 12,168 Interest expense Investment income Derivative financial instruments, net Unrealized foreign exchange gain on debt Income before income taxes and minority interest Segment assets euro 348,533 euro 237,558 euro 770,345 euro 1,356,436 Three Months Ended March 31, 2005 Sales to external customers euro 34,096 euro 7,616 euro 40,798 euro 82,510 Intersegment net sales - - 1,554 1,554 34,096 7,616 42,352 84,064 Operating costs 25,188 5,135 37,135 67,458 Operating depreciation and amortization 3,268 823 6,681 10,772 General and administrative 1,901 1,675 975 4,551 30,357 7,633 44,791 82,781 Income (loss) from operations 3,739 (17) (2,439) 1,283 Interest expense Investment income Derivative financial instruments, net Unrealized foreign exchange gain on debt Impairment of investments Loss before income taxes and minority interest Segment assets euro 349,865 euro 220,739 euro 915,178 euro 1,485,782 Corporate, Other and Consolidated Paper Eliminations Total Three Months Ended March 31, 2006 Sales to external customers euro 17,396 euro - euro 159,064 Intersegment net sales - (2,357) - 17,396 (2,357) 159,064 Operating costs 15,518 (2,770) 130,425 Operating depreciation and amortization 226 78 13,914 General and administrative 1,141 1,509 8,858 (Sale) purchase of emission allowances - - (5,638) 16,885 (1,183) 147,559 Income (loss) from operations 511 (1,174) 11,505 Interest expense (22,925) Investment income 1,744 Derivative financial instruments, net 40,815 Unrealized foreign exchange gain on debt 6,113 Income before income taxes and minority interest euro 37,252 Segment assets euro 22,032 euro 26,035 euro 1,404,503 Three Months Ended March 31, 2005 Sales to external customers euro 15,383 euro - euro 97,893 Intersegment net sales - (1,554) - 15,383 (1,554) 97,893 Operating costs 14,231 (1,687) 80,002 Operating depreciation and amortization 181 34 10,987 General and administrative 1,236 2,011 7,798 15,648 358 98,787 Income (loss) from operations (265) (1,912) (894) Interest expense (19,263) Investment income 175 Derivative financial instruments, net (3,859) Unrealized foreign exchange gain on debt 2,297 Impairment of investments (1,645) Loss before income taxes and minority interest euro (23,189) Segment assets euro 24,911 euro 20,747 euro 1,531,440 (1) The results of the Celgar pulp mill are from the date of its acquisition on February 14, 2005. (3) MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Balance Sheet As at March 31, 2006 (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 three months ended March 31, 2006, the Restricted Group was comprised of Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill. 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. The Restricted Group excludes our paper operations and the Stendal mill. March 31, 2006 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group ASSETS Current assets Cash and cash equivalents euro 41,101 euro 39,249 euro - euro 80,350 Cash restricted - 6,298 - 6,298 Receivables 37,327 41,145 - 78,472 Inventories 44,466 26,829 - 71,295 Prepaid expenses and other 2,823 2,368 - 5,191 Total current assets 125,717 115,889 - 241,606 Cash restricted - 66,537 - 66,537 Property, plant and equipment 398,256 615,273 - 1,013,529 Other 11,361 4,101 - 15,462 Deferred income tax 29,434 37,935 - 67,369 Due from unrestricted group 39,253 - (39,253) - Total assets euro 604,021 euro 839,735 euro (39,253) euro 1,404,503 LIABILITIES Current liabilities Accounts payable and accrued expenses euro 42,300 euro 67,325 euro - euro 109,625 Construction costs payable - 1,060 - 1,060 Debt, current portion - 74,338 - 74,338 Total current liabilities 42,300 142,723 - 185,023 Debt, less current portion 328,984 575,973 - 904,957 Due to restricted group - 39,253 (39,253) - Unrealized derivatives loss - 100,303 - 100,303 Other 20,964 6,558 - 27,522 Deferred income tax 9,683 14,531 - 24,214 Total liabilities 401,931 879,341 (39,253) 1,242,019 SHAREHOLDERS' EQUITY Total shareholders' equity (deficit) 202,090 (39,606)(1) - 162,484 Total liabilities and shareholders' equity euro 604,021 euro 839,735 euro (39,253) euro 1,404,503 (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. (4) MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Balance Sheet As at December 31, 2005 (Euros in thousands) December 31, 2005 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group ASSETS Current 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 - 1,024,662 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 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 derivative 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 (deficit) 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. (5) MERCER INTERNATIONAL INC. RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE Combined Condensed Statements of Operations For the Three Months Ended March 31, 2006 and 2005 (Unaudited) (Euros in thousands) March 31, 2006 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group Revenues euro 81,011 euro 80,410 euro (2,357) euro 159,064 Operating costs 69,139 61,286 - 130,425 Operating depreciation and amortization 6,629 7,285 - 13,914 General and administrative 4,960 3,898 - 8,858 (Sale) purchase of emission allowances (1,767) (3,871) - (5,638) 78,961 68,598 - 147,559 Income (loss) from operations 2,050 11,812 (2,357) 11,505 Other income (expense) Interest expense (8,463) (15,337) 875 (22,925) Investment income 2,261 358 (875) 1,744 Derivative financial instruments, net (79) 40,894 - 40,815 Foreign exchange gain on debt 6,113 - - 6,113 Total other expense (168) 25,915 - 25,747 Income (loss) before income taxes and minority interest 1,882 37,727 (2,357) 37,252 Income tax provision (2,841) (18,080) (192) (21,113) Income (loss) before minority interest (959) 19,647 (2,549) 16,139 Minority interest - 449 - 449 Net income (loss) euro (959) euro 20,096 euro (2,549) euro 16,588 March 31, 2005 Restricted Unrestricted Consolidated Group Subsidiaries Eliminations Group Revenues euro 41,712 euro 56,181 euro - euro 97,893 Operating costs 29,973 50,029 - 80,002 Operating depreciation and amortization 4,125 6,645 217 10,987 General and administrative 5,587 2,211 - 7,798 39,685 58,885 217 98,787 Income (loss) from operations 2,027 (2,704) (217) (894) Other income (expense) Interest expense (7,671) (11,986) 394 (19,263) Investment income 328 309 (462) 175 Derivative financial instruments, net (105) (3,754) - (3,859) Foreign exchange gain on debt 2,297 - - 2,297 Impairment of investments (1,178) - (467) (1,645) Total other expense (6,329) (15,431) (535) (22,295) Loss before income taxes and minority interest (4,302) (18,135) (752) (23,189) Income tax provision (3,115) 80 - (3,035) Loss before minority interest (7,417) (18,055) (752) (26,224) Minority interest - 6,557 - 6,557 Net loss euro (7,417) euro (11,498) euro (752) euro (19,667) (6) MERCER INTERNATIONAL INC. COMPUTATION OF OPERATING EBITDA For the Quarters Ended March 31, 2006 and 2005 (Unaudited) (Euros in thousands) Three Months Ended March 31, 2006 2005(1) (in thousands) Net income (loss) euro 16,588 euro (19,667) Minority interest (449) (6,557) Income taxes 21,113 3,035 Interest expense 22,925 19,263 Investment income (1,744) (175) Derivative financial instruments, net loss (gain) (40,815) 3,859 Foreign exchange gain on debt (6,113) (2,297) Impairment of investments - 1,645 Income (loss) from operations 11,505 (894) Add: Depreciation and amortization 13,914 10,987 Operating EBITDA(2) euro 25,419 euro 10,093 (1) The results of the Celgar pulp mill are included from the date of its acquisition on February 14, 2005. (2) 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 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 our results as reported under GAAP. COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA For the Quarters Ended March 31, 2006 and 2005 (Unaudited) (Euros in thousands) Three Months Ended March 31, 2006 2005(1) (in thousands) Restricted Group Net loss euro (959) euro (7,417) Income taxes 2,841 3,115 Interest expense 8,463 7,671 Investment and other income (2,261) (328) Derivative financial instruments, net loss 79 105 Foreign exchange gain on debt (6,113) (2,297) Impairment of investments - 1,178 Income from operations 2,050 2,027 Add: Depreciation and amortization 6,629 4,125 Operating EBITDA(2) euro 8,679 euro 6,152 (1) The results of the Celgar pulp mill are included from the date of its acquisition on February 14, 2005. (2) Operating EBITDA does not reflect the impact of a number of items that affect 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 our results as reported under GAAP. (7) DATASOURCE: Mercer International Inc. CONTACT: Jimmy S.H. Lee, Chairman & President, or David M. Gandossi, Executive Vice-President & Chief Financial Officer, both of Mercer International Inc., +1-604-684-1099; or Investors, Eric Boyriven or Alexandra Tramont or Media, Scot Hoffman, all of Financial Dynamics, +1-212-850-5600, for Mercer International Inc. Web site: http://www.mercerinternational.com/

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