Mercer International Inc. Reports 2004 Second Quarter Results

Mercer International Inc. Reports 2004 Second Quarter Results



NEW YORK, Aug. 9  /PRNewswire-FirstCall/ -- Mercer International Inc.
(NASDAQ:MERCSNASDAQ:TSX:NASDAQ:MRI.U) today reported results for the second
quarter ended June 30, 2004.

Results of Operations - Three Months Ended June 30, 2004

Total revenues for the three months ended June 30, 2004 increased to 51.8
million euros from 47.9 million euros in the comparative period of 2003,
primarily because of higher pulp sales.  Pulp and paper revenues were 48.5
million euros in the second quarter of 2004, versus 45.0 million euros in the
comparative period of 2003.

Costs of pulp and paper sales in the three months ended June 30, 2004 increased
to 44.0 million euros from 41.5 million euros in the comparative period of
2003, primarily a result of increased pulp sales volumes.

For the three months ended June 30, 2004, pulp sales increased to 35.3 million
euros from 31.0 million euros in the same period a year ago. List prices for
Northern Bleached Softwood Kraft Pulp ("NBSK") in Europe were approximately 535
euros ($645) per tonne in the second quarter of 2004, approximately 464 euros
($580) per tonne in the first quarter of 2004 and approximately 484 euros
($550) per tonne in the second quarter of last year. The increase in NBSK pulp
prices was partially offset by the weakness of the U.S. dollar versus the Euro
in the current period.  Increased production volumes due to enhanced
operational efficiency lead to higher pulp revenues. In the current quarter,
pulp sales by volume were 74,841 tonnes, compared to 69,700 tonnes in the
comparative period of 2003.

Pulp sales realizations were 471 euros per tonne on average in the current
quarter, compared to 416 euros per tonne in the first quarter of 2004 and 445
euros per tonne in the three months ended June 30, 2003.

Transportation and other revenues for the pulp operations were 4.4 million
euros in the three months ended June 30, 2004, compared to 2.4 million euros in
the comparative quarter of last year.

Cost of sales and general, administrative and other expenses for the pulp
operations increased to 36.9 million euros in the three months ended June 30,
2004 from 31.8 million euros in the comparative period of 2003, primarily as a
result of the inclusion of certain non-capitalized expenses of approximately
2.3 million euros related to the Stendal mill. On average, per tonne fiber
costs for pulp production decreased by approximately 2.8% compared to the
second quarter of last year.  Depreciation for the pulp operations was 5.6
million euros in the current quarter, versus 5.5 million euros in the year ago
period.

For the three months ended June 30, 2004, our pulp operations generated
operating income of 3.6 million euros, versus operating income of 2.3 million
euros in the year ago period.

Paper sales in the three months ended June 30, 2004 were 13.2 million euros,
compared with 14.0 million euros in the same period of last year. Sales of
specialty papers in the three months ended June 30, 2004 were 8.6 million euros
versus 10.5 million euros in the three months ended June 30, 2003, primarily as
a result of a shift in the product mix.  For the current quarter, total paper
sales volumes were 15,383 tonnes, versus 15,302 tonnes in the comparative
period of last year.  On average, prices for specialty papers realized in the
current quarter decreased slightly, reflecting a shift in the product mix. 
Average prices for our printing papers decreased by approximately 6.0%
reflecting generally weak demand.

Cost of sales and general, administrative and other expenses for the paper
operations in the three months ended June 30, 2004 increased to 15.1 million
euros from 14.9 million euros in the comparative quarter of 2003, primarily as
a result of higher paper sales volumes.  Depreciation for the paper operations
was 0.6 million euros in the three months ended June 30, 2004, compared to 0.5
million euros in the same period last year.

For the three months ended June 30, 2004, our paper operations generated an
operating loss of 2.1 million euros, compared to 1.1 million euros in the same
period of last year.

For the three months ended June 30, 2004, consolidated general and
administrative expenses increased to 7.3 million euros from 3.9 million euros
in the year ago period, primarily as a result of the inclusion of certain non-
capitalized expenses related to the Stendal mill.

In the three months ended June 30, 2004, we reported a loss from operations of
0.6 million euros, compared to income from operations of 1.4 million euros in
the same period last year.  Interest expense (excluding capitalized interest of
10.4 million euros relating to the Stendal pulp mill) in the three months ended
June 30, 2004 increased to 2.4 million euros from 2.2 million euros a year ago,
due to higher borrowings resulting primarily from our convertible note issue in
October 2003.

Our 63%-owned subsidiary, Zellstoff Stendal GmbH ("Stendal"), had previously
entered into variable-to-fixed rate interest swaps to manage the interest risk
exposure with respect to approximately 612.6 million euros under its project
loan facility (the "Stendal Loan Facility") relating to our newly constructed
552,000 tonne NBSK pulp mill near Stendal, Germany (the "Stendal project").  In
addition, our wholly-owned subsidiary that operates the Rosenthal mill
("Rosenthal") had previously entered into forward interest rate and interest
cap contracts in connection with a portion of the indebtedness relating to the
Rosenthal mill.  In the three months ended June 30, 2004, the marked to market
valuation of these interest rate contracts resulted in a net non-cash holding
gain of approximately 15.8 million euros before minority interests, primarily
as a result of an increase in long-term interest rates during the period.  In
the comparable period of 2003, we recorded a net loss of 18.1 million euros
before minority interests on such interest rate contracts.

Rosenthal had previously entered into two currency swaps to convert all of its
long-term indebtedness under its project loan facility into U.S. dollars as
well as a currency forward.  Stendal had also entered into a currency swap to
convert approximately one-half of its indebtedness under its project loan
facility into U.S. dollars as well as a currency forward.  In the three months
ended June 30, 2004, we recorded a net non-cash holding gain of approximately
13.7 million euros before minority interests on the valuation of these currency
derivatives as a result of a weakening of the U.S. dollar versus the Euro and
changes in interest rates related to such currencies, versus a net non-cash
holding gain of 13.3 million euros before minority interests on Rosenthal's
then outstanding currency derivatives in the year ago period. Stendal did not
have any currency derivatives outstanding during the prior period.

In the current quarter, minority interest, representing the two minority
shareholders' proportionate interest in the Stendal project, was (10.2) million
euros, compared to 6.5 million euros in the comparative period of 2003.

Our results for the current period include an adjustment of 0.4 million euros
relating primarily to the valuation of certain assets at the paper operations
made obsolete as a result of a change in the product mix.

We reported net income for the three months ended June 30, 2004 of 16.2 million
euros, or 0.94 euros per basic share and 0.57 euros per diluted share, versus
net income of 0.9 million euros, or 0.05 euros per basic and diluted share, a
year ago.

As the Stendal project is currently under construction and because of its
overall size relative to our other facilities, management uses consolidated
operating results excluding items relating to the Stendal project to measure
the performance and results of our operating units. Management believes this
measure provides meaningful information for it and security holders on the
performance of our operating facilities for a reporting period. Upon
commencement of commercial production, the Stendal project will be evaluated
with our other operating units. For the three months ended June 30, 2004, we
reported net income of 16.2 million euros or 0.57 euros per share on a diluted
basis. If we had excluded items relating to the Stendal project by subtracting
the gain on derivative financial instruments of 15.8 million euros on the
Stendal interest rate swaps, 14.0 million euros on the currency swap and
currency forward relating to the Stendal Loan Facility and other income of 0.3
million euros related to the Stendal mill from, and adding minority interest of
10.2 million euros and general and administrative expenses of 2.3 million euros
relating to the Stendal mill to, the reported net income of 16.2 million euros,
we would have reported a net loss of 1.4 million euros or 0.08 euros per share
on a diluted basis. For the three months ended June 30, 2003, we reported net
income of 0.9 million euros or 0.05 euros per share on a diluted basis. If we
had excluded items relating to the Stendal project by adding the loss on
derivative financial instruments of 17.6 million euros on the Stendal interest
rate swaps and general and administrative expenses of 0.8 million euros related
to the Stendal mill to, and subtracting minority interests of 6.5 million euros
and other income of 0.3 million euros related to the Stendal mill from, the
reported net loss of 0.9 million euros, we would have reported net income of
12.4 million euros or 0.74 euros per share on a diluted basis. This measure 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
generally accepted accounting principles in the United States ("GAAP").

We generated "Operating EBITDA" of 5.7 million euros in the current period,
compared to Operating EBITDA of 7.3 million euros in the comparative period of
2003. The decrease from the prior period results is primarily as a result of
the inclusion of certain non-capitalized expenses of 2.3 million euros related
to the Stendal mill in the current period.  Operating EBITDA is defined as
income (loss) from operations plus depreciation and amortization. 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 is not an actual cash cost, and 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.

At June 30, 2004, our cash and cash equivalents were 42.2 million euros,
compared to 52.0 million euros at the December 31, 2003. We also had 20.9
million euros of cash restricted to pay construction in progress costs payable
and 19.1 million euros of cash restricted in a debt service account, both
related to the Stendal project. In addition, we had 26.9 million euros of cash
restricted in a debt service account relating to the Rosenthal mill's project
loan facility. At June 30, 2004, we had a working capital deficit of 19.8
million euros, primarily because we pre-finance certain governmental grants
which we expect to receive under a dedicated tranche of the Stendal Loan
Facility but, under our accounting policies, do not record these grants until
they are received, as well as Stendal construction in progress costs payable
for which we had not drawn down under such facility. At June 30, 2004, we
qualified for investment grants totaling approximately 100.6 million euros from
the federal and state governments of Germany, of which we expect to receive
74.1 million euros in 2004 and the balance subsequently. The grants are not
reported in our income and reduce the cost basis of the assets purchased when
they are received. At June 30, 2004, we had Stendal construction in progress
costs payable of 19.8 million euros, which will be paid pursuant to the Stendal
Loan Facility in the ordinary course.

Results of Operations - Six Months Ended June 30, 2004

For the six months ended June 30, 2004, revenues increased to 104.8 million
euros from 98.3 million euros in the prior period, primarily because of higher
pulp sales.  We generated a loss from operations of 2.5 million euros in the
six months ended June 30, 2004, compared to income from operations of 2.6
million euros in the six months ended June 30, 2003, primarily as a result of
the inclusion of certain non-capitalized expenses of approximately 5.4 million
euros related to the Stendal mill in the current period.  We reported a net
loss of 2.7 million euros or 0.16 euros per diluted share, compared to a net
loss of 10.0 million euros or 0.60 euros per diluted share for the six months
ended June 30, 2003.

Stendal Project Status

Construction of the Stendal pulp mill was completed substantially on its
planned schedule and budget in the last week of July 2004.  Such completion
means that the construction and installation of equipment and works are
essentially finished and operational testing, checks and approvals are
occurring so that continuous production from the mill can commence.  At the end
of July 2004, the mill had all of its requisite permits in place to commence
operations and had secured sufficient fiber supplies for the balance of 2004
and into the first quarter of 2005.  At July 31, 2004, the mill had filled in
excess of 71% of its overall staffing requirements.  The balance of the hiring
will occur in affiliated activities such as harvesting and transportation and
will be completed through 2004 and 2005 as the mill ramps up operations.

The Stendal mill is currently being supervised by the contractor using
Stendal's personnel to operate the mill.  Stendal commenced feeding wood chips
to the digester at the end of July 2004 and commenced the initial production of
pulp.  The initial pulp produced was off-grade pulp, which was primarily sold
into the recycled fiber, corrugated board and similar markets.  The mill is
currently producing "start-up quality" pulp. The prices realized on the sale of
off-grade and start-up quality pulp are lower than the selling price for
on-grade NBSK pulp.  Under our current start-up plan, we expect Stendal to
commence ramping up pulp production and quality so that the Stendal mill will
be producing a significant proportion of saleable kraft pulp by the end of the
third quarter of 2004.  Pursuant to our start up plan, we expect that the mill
would be operating at approximately 80% of its design capacity by the end of
2004.

During the start-up period of the Stendal mill, the mill will undergo extensive
testing and evaluation to determine whether mechanical completion has occurred
and, following several months of start-up operations, whether certain
performance requirements have been met, referred to as the "Acceptance Test". 
The Acceptance Test requires that the mill continuously produces pulp for a
72-hour period in compliance with specified operational, quality and
environmental requirements.  Following completion of such testing, if the
requisite performance requirements are met, we are required to provide the
contractor with an acceptance certificate.  Once we deliver the acceptance
certificate, we assume responsibility for the operation of the mill, subject to
the contractor's warranty obligations.

Under the current start-up plan, we expect that the contractor will shut down
the mill for a two or three-week period in October 2004 for the completion of
any adjustments, installations and the replacement of any equipment that may be
required in order to fulfill its obligations under the construction contract. 
We also expect that, in the latter part of 2004, the Stendal mill will be shut
down for a few days for fine tuning and cleaning so that the contractor may
commence trials for the Acceptance Test.

Our planned start up of the Stendal mill is subject to risks commonly
associated with the start up of large greenfield industrial projects which
could result in the Stendal mill experiencing operating difficulties or delays
in the start-up period and the Stendal mill may not achieve our planned
production, timing, quality or cost projections.  These risks include, without
limitation, equipment failures or damage, errors or miscalculations in
engineering, design specifications or equipment manufacturing, faulty
construction or workmanship, defective equipment or installation, human error,
industrial accidents, weather conditions, failure to comply with environmental
and other permits, and complex integration of processes and equipment.

President's Comments

Mr. Jimmy S. H. Lee, President and Chairman, stated, "Our results for the
second quarter of 2004 reflect improving pulp demand and prices and the overall
weakness of the U.S. dollar versus the Euro.  In the quarter, pulp prices and
demand steadily improved with list prices for NBSK pulp in Europe reaching
approximately $645 per tonne by the end of the quarter.  Such price
improvements were, in part, offset by the weakness of the U.S. dollar versus
the Euro during the quarter.  Markets for our paper products remained generally
weak."

He noted, "We are very excited about the completion of the Stendal pulp mill,
substantially on time and budget.  Our second quarter results included
approximately 2.3 million euros of general and administrative costs relating to
the Stendal mill that are not capitalized."

Mr. Lee added, "The Stendal mill has been started up and it is now producing
start-up quality pulp that is being sold.  During the start up to date, we have
experienced minor difficulties and delays associated with equipment,
installation and integration of processes and systems but are generally pleased
with the same.  Our current expectation is that the Stendal pulp mill should
achieve a steady state of saleable pulp production in the fourth quarter of
2004."

Mr. Lee concluded, "The completion of the Stendal pulp mill and the current
firmness shown in pulp markets leaves us well positioned for growth in the
remainder of 2004 and into next year."

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, August 9, 2004 at
10:00 AM (EDT).  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://www.firstcallevents.com/service/ajwz407725525gf12.html.  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 August 16, 2004 at 11:59
P.M. (EDT).  The replay number is [phone], and the passcode is 8398183.

Mercer International Inc. is a European 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
                As of June 30, 2004 and December 31, 2003
                               (Unaudited)
                           (Euros in thousands)

                                                 June 30,  December 31,
                                                   2004           2003
  ASSETS
  Current Assets
    Cash and cash equivalents               euros 42,236   euros 51,993
    Cash restricted                               20,887         15,187
    Receivables                                   32,386         32,285
    Unrealized foreign exchange
     derivative gains                                783            743
    Inventories                                   41,904         23,909
    Prepaid expenses                               5,675          4,284
      Total current assets                       143,871        128,401

  Long-Term Assets
    Cash restricted                               45,948         44,180
    Property, plant and equipment                823,017        745,178
    Investments                                      844          1,644
    Equity method investments                      4,378          2,309
    Deferred note issuance costs                   4,072          4,213
    Unrealized foreign exchange
     derivative gains                             13,826              -
    Deferred income tax                           10,000          9,980

      Total assets                       euros 1,045,956  euros 935,905

  LIABILITIES
  Current Liabilities
    Accounts payable and
     accrued expenses                       euros 49,140   euros 37,414
    Construction in
     progress costs payable                       19,782         42,756
    Note payable                                   1,002          1,377
    Debt, construction in progress                78,700         80,000
    Debt, current portion                         15,009         15,801
      Total current liabilities                  163,633        177,348

  Long-Term Liabilities
    Debt, construction in progress               454,328        324,238
    Debt, less current portion                   244,533        255,901
    Unrealized interest rate derivative losses    44,717         43,151
    Unrealized foreign exchange
     derivative losses                             4,665              -
    Capital leases and other                       4,664          2,412

      Total liabilities                          916,540        803,050

  Minority Interest                                    -              -

  SHAREHOLDERS' EQUITY
  Shares of beneficial interest                   79,736         78,139
  Additional paid-in capital, stock options           14            223
  Retained earnings                               46,471         49,196
  Accumulated other comprehensive income           3,195          5,297
      Total shareholders' equity                 129,416        132,855
      Total liabilities and
       shareholders' equity              euros 1,045,956  euros 935,905



Certain reclassifications were made to the prior period results to conform to
the current period presentation.

                        MERCER INTERNATIONAL INC.
       CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
             For the Six Months Ended June 30, 2004 and 2003
                               (Unaudited)
               (Euros in thousands, except per share data)

                                                   2004           2003
  Revenues
    Pulp and paper                          euros 97,768   euros 91,274
    Transportation                                 1,467          2,022
    Other                                          5,531          5,018
                                                 104,766         98,314

  Cost of sales
    Pulp and paper                                90,664         86,472
    Transportation                                 1,469          1,863
                                                  92,133         88,335

  Gross profit                                    12,633          9,979
  General and administrative expenses            (14,434)        (8,730)
  Flooding losses and expenses,
   less grant income                                (669)          1,376
  (Loss) income from operations                   (2,470)          2,625

  Other income (expense)
    Interest expense                              (5,354)        (4,651)
    Investment income                              1,464            639
    Derivative financial instruments
      Unrealized gain (loss),
       construction in progress financing         12,300        (27,944)
      Unrealized and realized net (losses)
       gains, other                               (5,272)        14,601
    Other                                           (404)            11
    Impairment of available-for-sale securities        -         (5,511)
  Total other income (expense)                     2,734        (22,855)

  Income (loss) before income taxes
   and minority interest                             264        (20,230)
  Income tax benefit (expense)                      (199)          (198)
  Income (loss) before minority interest              65        (20,428)
  Minority interest                               (2,790)        10,379
  Net loss                                        (2,725)       (10,049)

  Retained earnings, beginning of period          49,196         52,789
  Retained earnings, end of period          euros 46,471   euros 42,740

  Loss per share
    Basic                                    euros (0.16)   euros (0.60)
    Diluted                                  euros (0.16)   euros (0.60)



Certain reclassifications were made to the prior period results to conform to
the current period presentation.

                        MERCER INTERNATIONAL INC.
       CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
            For the Three Months Ended June 30, 2004 and 2003
                               (Unaudited)
               (Euros in thousands, except per share data)

                                                   2004           2003
  Revenues
    Pulp and paper                          euros 48,535   euros 45,041
    Transportation                                   732            980
    Other                                          2,577          1,892
                                                  51,844         47,913

  Cost of sales
    Pulp and paper                                43,987         41,472
    Transportation                                   743            797
                                                  44,730         42,269

  Gross profit                                     7,114          5,644
  General and administrative expenses             (7,272)        (3,923)
  Flooding losses and expenses, less grant income   (416)          (353)
  (Loss) income from operations                     (574)         1,368

  Other income (expense)
    Interest expense                              (2,366)        (2,188)
    Investment income                                530            102
    Derivative financial instruments
      Unrealized gain (loss), construction
       in progress financing                      29,855        (17,582)
      Unrealized and realized net
       (losses) gains, other                        (382)        12,805
    Other                                           (404)            11
  Total other income (expense)                    27,233         (6,852)

  Income (loss) before income taxes
   and minority interest                          26,659         (5,484)
  Income tax benefit (expense)                      (219)          (186)
  Income (loss) before minority interest          26,440         (5,670)
  Minority interest                              (10,199)         6,543
  Net income                                      16,241            873

  Retained earnings, beginning of period          30,230         41,867
  Retained earnings, end of period          euros 46,471   euros 42,740

  Income per share
    Basic                                     euros 0.94     euros 0.05
    Diluted                                   euros 0.57     euros 0.05



Certain reclassifications were made to the prior period results to conform to
the current period presentation.

                        MERCER INTERNATIONAL INC.
                       BUSINESS SEGMENT INFORMATION
             For the Six Months Ended June 30, 2004 and 2003
                               (Unaudited)
                           (Euros in thousands)
                                                                   Active
                                    Rosenthal                    Production
                                      Pulp         Paper          Segments
  Six Months Ended
   June 30, 2004
  Sales to external customers   euros 69,226   euros 28,542   euros 97,768
  Transportation and other             6,889            438          7,327
  Intersegment net sales               1,179              -          1,179
                                      77,294         28,980        106,274

  Operating costs                     54,071         27,028         81,099
  Depreciation and amortization       11,136          1,141         12,277
  General and administrative           4,774          2,711          7,485
  Flooding grants,
   less losses and expenses                -            669            669
                                      69,981         31,549        101,530

  (Loss) income from operations        7,313         (2,569)         4,744
  Interest expense                    (4,392)          (284)        (4,676)
  Unrealized net gain (loss)
   on derivative financial
    instruments                       (5,272)             -         (5,272)
  Investment income                    1,614           (273)         1,341
  (Loss) income before income
   taxes and minority interest    euros (737)  euros (3,126)  euros (3,863)

  Six Months Ended
   June 30, 2003
  Sales to external customers   euros 62,414   euros 28,860   euros 91,274
  Transportation and other             6,256            560          6,816
  Intersegment net sales               1,545              -          1,545
                                      70,215         29,420         99,635

  Operating costs                     53,756         24,358          78,114
  Depreciation and amortization       10,777            989          11,766
  General and administrative           3,977          2,770           6,747
  Flooding grants,
   less losses and expenses                -         (1,376)         (1,376)
                                      68,510         26,741          95,251

  (Loss) income from operations        1,705          2,679           4,384
  Interest expense                    (3,983)          (203)         (4,186)
  Net gain (loss) on derivative
   financial instruments              14,601              -          14,601
  Impairment of investments           (4,441)        (1,070)         (5,511)
  Investment income                      777            328           1,105
  (Loss) income before income
   taxes and minority interest   euros 8,659    euros 1,734    euros 10,393

                                 Stendal Pulp     Corporate,
                                 Construction     Other and     Consolidated
                                  in Progress    Eliminations       Total
  Six Months Ended
   June 30, 2004
  Sales to external customers        euros -        euros -    euros 97,768
  Transportation and other               927         (1,256)          6,998
  Intersegment net sales                   -         (1,179)              -
                                         927         (2,435)        104,766

  Operating costs                          -         (1,243)         79,856
  Depreciation and amortization           12            318          12,607
  General and administrative           5,448          1,171          14,104
  Flooding grants,
   less losses and expenses                -              -             669
                                       5,460            246         107,236
  (Loss) income from operations       (4,533)        (2,681)         (2,470)
  Interest expense                      (168)          (510)         (5,354)
  Unrealized net gain (loss)
   on derivative financial
    instruments                       12,300              -           7,028
  Investment income                     (345)            64           1,060
  (Loss) income before income
   taxes and minority interest   euros 7,254   euros (3,127)      euros 264

  Six Months Ended
   June 30, 2003
  Sales to external customers        euros -        euros -    euros 91,274
  Transportation and other                 -            224           7,040
  Intersegment net sales                   -         (1,545)              -
                                           -         (1,321)         98,314

  Operating costs                          -         (1,545)         76,569
  Depreciation and amortization           93             22          11,881
  General and administrative             746          1,122           8,615
  Flooding grants,
   less losses and expenses                -              -          (1,376)
                                         839           (401)         95,689

  (Loss) income from operations         (839)          (920)          2,625
  Interest expense                        (8)          (457)         (4,651)
  Net gain (loss) on derivative
   financial instruments             (27,944)             -         (13,343)
  Impairment of investments                -              -          (5,511)
  Investment income                      406           (861)            650
  (Loss) income before income
   taxes and minority interest euros (28,385)  euros (2,238)  euros (20,230)



Certain reclassifications were made to the prior period results to conform to
the current period presentation.

                        MERCER INTERNATIONAL INC.
                       BUSINESS SEGMENT INFORMATION
            For the Three Months Ended June 30, 2004 and 2003
                               (Unaudited)
                           (Euros in thousands)

                                                                   Active
                                    Rosenthal                    Production
                                      Pulp         Paper          Segments
  Three Months Ended
   June 30, 2004
  Sales to external customers   euros 35,286   euros 13,249    euros 48,535
  Transportation and other             3,892            137           4,029
  Intersegment net sales                 750              -             750
                                      39,928         13,386          53,314
  Operating costs                     26,349         13,050          39,399
  Depreciation and amortization        5,554            589           6,143
  General and administrative           2,665          1,472           4,137
  Flooding grants,
   less losses and expenses                -            416             416
                                      34,568         15,527          50,095

  (Loss) income from operations        5,360         (2,141)          3,219
  Interest expense                    (1,943)          (139)         (2,082)
  Unrealized net gain (loss)
   on derivative financial
    instruments                         (382)             -            (382)
  Investment income                      629           (278)            351
  (Loss) income before income
   taxes and minority interest   euros 3,664   euros (2,558)    euros 1,106

  Three Months Ended
   June 30, 2003
  Sales to external customers   euros 31,029   euros 14,012    euros 45,041
  Transportation and other             2,446            150           2,596
  Intersegment net sales                 675              -             675
                                      34,150         14,162          48,312

  Operating costs                     23,787         13,300          37,087
  Depreciation and amortization        5,393            464           5,857
  General and administrative           1,905          1,161           3,066
  Flooding grants,
   less losses and expenses                -            353             353
                                      31,085         15,278          46,363
  (Loss) income from operations        3,065         (1,116)          1,949
  Interest expense                      (949)          (111)         (1,060)
  Net gain (loss) on
   derivative financial
    instruments                       12,805              -          12,805
  Impairment of investments           (4,441)        (1,070)         (5,511)
  Investment income                      386            317             703
  (Loss) income before income
   taxes and minority interest  euros 10,865   euros (1,979)    euros 8,886


                                 Stendal Pulp     Corporate,
                                 Construction     Other and     Consolidated
                                  in Progress    Eliminations       Total
  Three Months Ended
   June 30, 2004
  Sales to external customers        euros -        euros -    euros 48,535
  Transportation and other               536         (1,256)          3,309
  Intersegment net sales                   -           (750)              -
                                         536         (2,006)         51,844

  Operating costs                          -           (812)         38,587
  Depreciation and amortization           12            159           6,314
  General and administrative           2,316            648           7,101
  Flooding grants,
   less losses and expenses                -              -             416
                                       2,328             (5)         52,418

  (Loss) income from operations       (1,792)        (2,001)           (574)
  Interest expense                      (111)          (173)         (2,366)
  Unrealized net gain (loss)
   on derivative financial
    instruments                       29,855              -          29,473
  Investment income                     (124)          (101)            126
  (Loss) income before income
   taxes and minority interest  euros 27,828   euros (2,275)   euros 26,659

  Three Months Ended June 30, 2003
  Sales to external customers        euros -        euros -    euros 45,041
  Transportation and other                 -            276           2,872
  Intersegment net sales                   -           (675)              -
                                           -           (399)         47,913

  Operating costs                          -           (675)         36,412
  Depreciation and amortization           93             22           5,972
  General and administrative             668             75           3,809
  Flooding grants,
   less losses and expenses                -              -             353
                                         761           (578)         46,546
  (Loss) income from operations         (761)           179           1,367
  Interest expense                        (8)        (1,120)         (2,188)
  Net gain (loss) on
   derivative financial
    instruments                      (17,582)             -          (4,777)
  Impairment of investments                -          5,511               -
  Investment income                      260           (850)            114
  (Loss) income before income
   taxes and minority interest euros (18,090)   euros 3,720    euros (5,484)



Certain reclassifications were made to the prior period results to conform to
the current period presentation.

                        MERCER INTERNATIONAL INC.
                   RECONCILIATION OF PRO FORMA RESULTS
              For the Quarters Ended June 30, 2004 and 2003
               (Euros in thousands, except per share data)

                               For the Quarter Ended   For the Quarter Ended
                                   June 30, 2004           June 30, 2003
                                                (unaudited)
  Net income reported
   under GAAP                       euros 16,241             euros 873
  Adjustments for Stendal project:
    Gain (loss) on interest
     rate swap contracts                 (15,827)               17,582
    Gain on currency derivatives         (14,028)                    -
    General and administrative expenses    2,328                   761
    Other income                            (301)                 (252)
    Minority interest                     10,199                (6,543)
  Pro forma net (loss) income       euros (1,388)         euros 12,421

  Pro forma (loss) income per share
    Basic                            euros (0.08)           euros 0.74
    Diluted                          euros (0.08)           euros 0.74


                        MERCER INTERNATIONAL INC.
                     COMPUTATION OF OPERATING EBITDA
              For the Quarters Ended June 30, 2004 and 2003
                           (Euros in thousands)

                                         For the Quarters Ended June 30,
                                           2004                  2003
                                                   (unaudited)
  Net income                        euros 16,241             euros 873
  Minority interest                       10,199                (6,543)
  Income taxes                               219                   186
  Interest expense                         2,366                 2,188
  Investment income                         (530)                 (102)
  Derivative financial instruments       (29,473)                4,777
  Other                                      404                   (11)
  (Loss) income from operations             (574)                1,368
  Add: Depreciation and amortization       6,314                 5,972
  Operating EBITDA (1)               euros 5,740           euros 7,340

   (1) 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.


                COMPANY SALES BY PRODUCT CLASS AND VOLUME
                               (Unaudited)

                              Six Months Ended        Three Months Ended
                                  June 30,                 June 30,
                              2004         2003         2004         2003
                                          (Euros in thousands)
  Sales by Product
   Class
  Pulp(1)(2)          euros 69,226  euros 62,414  euros 35,286  euros 31,029
  Specialty Papers          19,442        21,575         8,577        10,519
  Printing Papers            9,100         7,285         4,672         3,493
  Total(1)(2)         euros 97,768  euros 91,274  euros 48,535  euros 45,041

                                            (Amount in tonnes)
  Sales by Volume
  Pulp(1)(2)               156,334       148,179        74,841        69,700
  Specialty Papers          19,625        21,675         8,587        10,359
  Printing Papers           13,164         9,334         6,796         4,763
  Total(1)(2)              189,123       179,188        90,224        85,002

   (1) Excluding intercompany sales of 2,549 tonnes and 3,611 tonnes of pulp
       and intercompany net sales revenues of approximately 1.2 million
       euros and 1.5 million euros in the six months ended June 30, 2004 and
       2003, respectively.
   (2) Excluding intercompany sales of 1,540 tonnes and 1,482 tonnes of pulp
       and intercompany net sales revenues of approximately ?0.8 million and
       0.6 million euros in the three months ended June 30, 2004 and 2003,
       respectively.

   NOTE:  One tonne = 1.0160 of one ton.


DATASOURCE: Mercer International Inc.



CONTACT:  Jimmy S. H. Lee, Chairman & Chief Executive Officer

[phone], or David M. Gandossi, Executive Vice-President & Chief

Financial Officer, [phone], both of Mercer International Inc.; or

Investors, Eric Boyriven or Kellie Nugent, or Media, Scot Hoffman, all of

Financial Dynamics, [phone], all for Mercer International Inc. 



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

http://www.firstcallevents.com/service/ajwz407725525gf12.html

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