Mercer International Inc. Reports 2005 Third Quarter Results

NEW YORK, NY, Nov. 7  /PRNewswire-FirstCall/ -- Mercer International Inc. (NASDAQ:MERCSNASDAQ:TSX:NASDAQ:MRI.U) today reported results for the third quarter of 2005.

  Summary Selected Highlights

                                            Three Months Ended September 30,
                                                     2005           2004
                                                       (in thousands)
  Results of Operations                                 (unaudited)
  Revenues                                  euro   148,928  euro   47,360
  Income (loss) from operations                      7,892         (4,751)
  Operating EBITDA(1)                               21,871          5,254
  Interest expense                                 (21,911)        (4,200)
  Realized and unrealized gain (loss) on
   derivative financial instruments, net(2)          3,051         (8,105)
  Unrealized foreign exchange gain on debt           5,918              -
  Net loss                                         (5,555)         (9,879)
  Loss per share, basic and diluted                 (0.17)          (0.57)

  Other Data
  Total pulp sales volume(3) (ADMTs)               332,282         73,128
  Mill net pulp price realizations
   (per ADMT)                               euro       398  euro      472


  (1) For a definition of Operating EBITDA, see page 6 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.

  (2) Unrealized non-cash marked to market valuation gain (loss), except for
      a realized loss of euro 0.3 million in the three months ended
      September 30, 2005.

  (3) Excluding intercompany sales volumes of 3,057 ADMTs and 1,348 ADMTs of
      pulp in the three months ended September 30, 2005 and 2004,
      respectively.

  Certain key factors affecting our 2005 third quarter results include:

  * Revenues in the third quarter of 2005 increased by euro 101.6 million
    over the comparative period of 2004 to euro 148.9 million, primarily
    from the inclusion of production and sales from our Stendal and Celgar
    pulp mills.

  * Operating EBITDA increased to euro 21.9 million in the current quarter
    from euro 5.3 million in the prior quarter of 2004 reflecting higher
    pulp sales and a contribution to income from operations of euro 6.1
    million resulting from the sale of excess carbon emission credits by our
    German pulp mills.  For a definition of Operating EBITDA, see page 6 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 21.9 million in the third quarter of
    2005 from euro 4.2 million in the comparative period of 2004 and
    included euro 14.7 million of interest associated with the Stendal mill.
    In the prior period of 2004, most of the interest associated with the
    Stendal mill was capitalized.  Interest expense in the current quarter
    included euro 6.0 million of interest relating to our $310 million 9.25%
    senior notes issued in February 2005.

  * We recorded a net gain of euro 3.1 million on our interest rate and
    currency derivatives in the third quarter of 2005 (of which euro 3.4
    million was an unrealized non-cash holding gain and euro 0.3 million was
    a realized loss), compared to a net unrealized non-cash holding loss of
    euro 8.1 million thereon in the comparative period of 2004.  We also
    recorded an unrealized non-cash foreign exchange gain on our long-term
    debt of euro 5.9 million in the current quarter due to the strengthening
    of the Canadian dollar versus the U.S. dollar.

  * Pulp markets softened in the third quarter of 2005.  Average list prices
    for NBSK pulp in Europe decreased to $580 per ADMT from $635 per ADMT in
    the prior period of 2004, but such decrease was partially offset by the
    strengthening of the U.S. dollar versus the Euro.

  Results of Operations - 2005 Third Quarter


Selected production and sales data for the three months ended September 30, 2005 and 2004 is as follows:

                                          Three Months Ended September 30,
                                                  2005           2004
                                                        (ADMTs)
  Production by Product Class:
    Pulp production by mill:
      Rosenthal                                  83,350         71,847
      Celgar                                    118,035              -
      Stendal                                   126,202              -
       Total pulp production                    327,587         71,847
      Paper production                           16,064         15,354
       Total production                         343,651         87,201

  Sales Volume by Product Class:
    Pulp sales volume by mill:
      Rosenthal                                  86,772         73,128
      Celgar                                    125,079              -
      Stendal                                   120,431              -
       Total pulp sales volume(1)               332,282         73,128
      Paper sales volume                         16,928         14,712
       Total sales volume(1)                    349,210         87,840

  Revenues by Product Class:                         (in thousands)
    Pulp revenues by mill:
      Rosenthal                           euro   37,122  euro   34,982
      Celgar                                     48,978              -
      Stendal                                    47,313          (327)
       Total pulp revenues(1)                   133,413         34,655
      Paper revenues                             15,515         12,705
       Total revenues(1)                  euro  148,928  euro   47,360


  (1) Excluding intercompany sales volumes of 3,057 ADMTs and 1,348 ADMTs of
      pulp and intercompany net sales revenues of approximately euro 1.3
      million and euro 0.6 million in the three months ended September 30,
      2005 and 2004, respectively.



Revenues for the three months ended September 30, 2005 increased to euro 148.9 million from euro 47.4 million in the comparative period of 2004, primarily because of higher pulp sales resulting from the inclusion of sales from our Stendal and Celgar mills. Pulp sales by volume were 332,282 ADMTs in the third quarter of 2005, compared to 73,128 ADMTs in the comparative period of 2004.  In the three months ended September 30, 2005, the Stendal and Celgar mills sold 245,510 ADMTs of NBSK pulp and had sales of euro 96.3 million.

Cost of sales and general, administrative and other expenses in the third quarter of 2005 increased to euro 141.0 million from euro 52.1 million in the comparative period of 2004, primarily as a result of the inclusion of production from our Stendal and Celgar mills.  We commenced expensing all of the costs, including interest, relating to the Stendal mill effective September 2004, prior to which most of the costs, including interest, relating to the Stendal mill were capitalized during its construction.

For the third quarter of 2005, revenues from our pulp operations increased to euro 133.4 million from euro 34.7 million in the same period a year ago, primarily as a result of the inclusion of sales from our Stendal and Celgar mills. List prices for NBSK pulp in Europe were approximately euro 476 ($580) per ADMT in the third quarter of 2005, compared to approximately euro 519 ($635) per ADMT in the comparative period of last year. The decrease in NBSK pulp prices was partially offset by the strengthening of the U.S. dollar versus the Euro during the current period.

Pulp sales realizations decreased to euro 398 per ADMT on average in the third quarter of 2005 from euro 472 per ADMT in the third quarter of 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 start up and the Celgar mill sells a large portion of its production in Asian markets which had lower sales prices than European markets.

Cost of sales and general, administrative and other expenses for the pulp operations increased to euro 125.5 million in the third quarter of 2005 from euro 32.4 million in the comparative period of 2004, primarily as a result of the inclusion of euro 96.9 million of operating costs related to the Stendal and Celgar mills.  In the third quarter of 2005, we recorded a contribution to income from operations of euro 6.1 million resulting from the sale of excess carbon emission credits by our German pulp mills.

Depreciation for the pulp operations increased to euro 13.3 million in the current quarter, from euro 3.8 million in the third quarter of 2004, primarily as a result of the inclusion of euro 9.7 million of depreciation from the Stendal and Celgar mills.

For the third quarter of 2005, our pulp operations generated operating income of euro 9.2 million, versus operating income of euro 2.9 million in the comparative quarter of 2004, primarily as a result of the inclusion of the results of the Stendal and Celgar mills, the sale of excess carbon emission credits by our German pulp mills and lower costs and expenses at our Rosenthal mill.

Revenues from our paper operations in the current quarter increased to euro 15.5 million from euro 12.7 million in the same quarter of last year as a result of higher sales volumes.

Cost of sales and general, administrative and other expenses for the paper operations in the third quarter of 2005 decreased to euro 16.6 million from euro 20.3 million in the comparative quarter of 2004, primarily as a result of a shift in the product mix at our paper mills.

For the third quarter of 2005, our paper operations generated an operating loss of euro 1.1 million, compared to an operating loss of euro 7.6 million in the third quarter of 2004.

In the third quarter of 2005, we had income from operations of euro 7.9 million, compared to a loss from operations of euro 4.8 million in the same quarter last year.

Interest expense in the third quarter of 2005 increased to euro 21.9 million from euro 4.2 million in the year ago period, due to interest expense of euro 14.7 million relating to the Stendal mill and higher borrowings resulting primarily from our $310 million senior note issue in February 2005. In the third quarter of 2004, most of the interest associated with the Stendal mill was capitalized.

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.  We recorded a net unrealized non-cash holding loss of euro 1.9 million before minority interests upon the marked to market valuation of such currency derivatives that were outstanding at the end of the quarter and a net loss of euro 0.3 million before minority interests in respect of such derivatives that matured in the quarter, due to the strengthening of the U.S. dollar versus the Euro.  In the comparative quarter of 2004, we recorded a net unrealized non-cash holding gain of euro 6.0 million before minority interests on the then outstanding currency derivatives of Rosenthal and Stendal. In the third 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 5.3 million before minority interests on the marked to market valuation of the Stendal interest rate derivatives versus a net unrealized non-cash holding loss of euro 14.1 million before minority interests on the interest rate derivatives of Stendal and Rosenthal in the third quarter of 2004.  We also recorded an unrealized non-cash foreign exchange gain on our long-term debt of euro 5.9 million in the current quarter due to the strengthening of the Canadian dollar versus the U.S. dollar.

In the third quarter of 2005, minority interest, representing the two minority shareholders' proportionate interest in the Stendal mill, was euro 5.7 million, compared to euro 6.7 million in the third quarter of 2004.

We reported a net loss for the third quarter of 2005 of euro 5.6 million, or euro 0.17 per basic and diluted share, which reflected the inclusion of interest expense related to our Stendal mill of euro 14.7 million and the net realized and unrealized gain of euro 3.1 million on our interest rate and currency derivatives and the unrealized non-cash foreign exchange gain on our long-term debt of euro 5.9 million. In the third quarter of 2004, we reported a net loss of euro 9.9 million, or euro 0.57 per basic and diluted share.

We generated "Operating EBITDA" of euro 21.9 million and euro 5.3 million in the three months ended September 30, 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.

  Liquidity

                                                   As at           As at
                                                September 30,   December 31,
                                                    2005            2004
                                                       (in thousands)
                                                        (unaudited)
  Financial Position
  Cash and cash equivalents                    euro 89,039    euro 49,568
  Cash restricted                                    7,646         45,295
  Receivables                                       75,696         54,687
  Inventories                                       85,678         52,898
  Prepaid expenses and other                         6,446          4,961
  Accounts payable and accrued expenses             94,702         56,542
  Construction costs payable                         1,088         65,436
  Debt, current portion                             37,135        107,090
  Working capital (deficit)                        131,580(1)     (21,659)
  Property, plant and equipment                  1,031,879        936,035
  Total assets                                   1,409,237      1,255,649
  Long-term liabilities                          1,097,347(2)     863,840
  Shareholders' equity                             178,965        162,741

  (1) Does not include euro 10.6 million of government grants related to the
      Stendal mill from the federal and state governments of Germany, which
      we expect to receive in 2005.

  (2) Includes euro 16.7 million outstanding under the revolving credit
      facilities for the Rosenthal and Celgar mills.



We had good liquidity at September 30, 2005.  Certain key factors affecting our liquidity include:

  * We had unrestricted cash and cash equivalents of euro 89.0 million.

  * The current Stendal construction costs payable of euro 1.1 million will
    be paid from restricted cash of euro 7.6 million held for such purpose.

  * We qualified for investment grants relating to the Stendal mill totaling
    approximately euro 10.6 million at September 30, 2005 from the federal
    and state governments of Germany, which we expect to receive in 2005.
    These grants, when received, will be applied to repay part of the euro
    35.5 million of the current portion of our debt that has been drawn
    under a dedicated tranche of the Stendal loan facility.  Under our
    accounting policies, we do not record these government grants until they
    are received.  The balance outstanding under this dedicated tranche of
    the Stendal loan facility will be substantially paid from VAT credits we
    expect to receive in the ordinary course.

  * Without giving effect to any government grants we expect to receive for
    the Stendal mill, we had net working capital of euro 131.6 million at
    September 30, 2005.

  Results of Operations - Nine Months Ended September 30, 2005


For the nine months ended September 30, 2005, revenues increased to euro 376.4 million from euro 148.0 million in the prior period, because of higher pulp sales.  We generated income from operations of euro 16.2 million in the nine months ended September 30, 2005, compared to a loss from operations of euro 7.6 million in the nine months ended September 30, 2004.  We generated Operating EBITDA of euro 55.1 million and euro 15.6 million in the nine months ended September 30, 2005 and 2004, respectively. For a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release.  We reported a net loss of euro 87.4 million or euro 2.86 per diluted share for the nine months ended September 30, 2005, compared to a net loss of euro 12.6 million or euro 0.73 per diluted share for the nine months ended September 30, 2004, which reflected the inclusion of certain non- capitalized interest of approximately euro 41.0 million related to the Stendal mill, the net realized and unrealized non-cash holding loss of euro 70.1 million on our interest rate and currency derivatives and the unrealized non- cash foreign exchange loss on our long-term debt of euro 1.6 million, partially offset by a non-cash benefit for income taxes of euro 14.6 million.

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated:  "During the current quarter, we had a three fold increase in revenues to approximately euro 148.9 million reflecting the acquisition of our Celgar mill and the ramp-up of our Stendal mill.  Both our Rosenthal and Celgar mills had good production in the quarter and Stendal continues to ramp-up substantially on plan.  We currently expect to take regular planned down-time at our pulp mills in the fourth quarter for maintenance and other improvements, which is expected to reduce our overall production for the quarter by approximately 35,000 ADMTs of pulp. During this down-time, the Stendal mill will also tie in two new digesters which will increase its production capacity in 2006."

"Despite generally soft pulp markets, our Operating EBITDA increased sharply to approximately euro 21.9 million and our net loss decreased in the quarter.  We believe this improvement reflects our strategy of focusing on operating modern, large and efficient production facilities."

Mr. Lee continued:  "Pulp prices were softer in the quarter with list prices in Europe averaging around euro 476 per ADMT.  Pulp pricing in Asia, and particularly China where Celgar has a large portion of its sales, remained weak with prices averaging around euro 410 per ADMT in the quarter."

He further stated:  "We are, however, seeing some pulp price improvement through the partial implementation of the October price increase."  Mr. Lee said:  "As NBSK pulp is priced in U.S. dollars, the recent strengthening of the U.S. dollar versus the Euro improved the operating results of our German pulp mills, although this was partially offset by the weakening of the U.S. dollar versus the Canadian dollar.  A higher dollar generally results in increased Euro revenues."

Mr. Lee also said:  "At September 30, 2005, our balance sheet reflected the receipt of government grants relating to the Stendal mill being applied to the related debt and paying construction costs related to the Stendal mill from restricted cash.  As a result, our working capital increased to approximately euro 131.6 million at the end of the third quarter of 2005 from a working capital deficit of approximately euro 21.7 million at the end of the prior quarter of 2004."

Mr. Lee concluded:  "We continue to make good progress on integrating and coordinating our global NBSK pulp marketing activities.  We believe this progress coupled with our focus on production efficiencies and costs, will help us achieve our overall strategy of being a leading NBSK pulp producer and build value for our stakeholders."

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet.  Management will host the call, which is scheduled for Tuesday, November 8, 2005 at 10:00 AM (Eastern Time).  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=1159175.  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 November 15, 2005 at 11:59 p.m. (Eastern Time).  The replay number is [phone], and the passcode is 2160034.

Mercer International Inc. is a global pulp and paper manufacturing company.  Our production facilities are located in Germany and Canada.  Our shares are quoted for trading on the Nasdaq National Market (MERCS) and listed for trading on the Toronto Stock Exchange (MRI.U), and we also have outstanding 8.5% convertible subordinated notes and 9.25% senior notes.  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 and other filings.

                        MERCER INTERNATIONAL INC.

                       CONSOLIDATED BALANCE SHEETS
              AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
                           (Euros in thousands)

                                                 September 30,  December 31,
                                                     2005            2004
  ASSETS
  Current Assets
    Cash and cash equivalents              euro    89,039    euro  49,568
    Cash restricted                                 7,646          45,295
    Receivables                                    75,696          54,687
    Inventories                                    85,678          52,898
    Prepaid expenses and other                      6,446           4,961
      Total current assets                        264,505         207,409
  Long-Term Assets
    Cash restricted                                24,537          47,538
    Property, plant and equipment               1,031,879         936,035
    Investments                                     4,664           5,079
    Deferred note issuance and other costs          8,903           5,069
    Deferred income tax                            74,749          54,519
                                                1,144,732       1,048,240
        Total assets                       euro 1,409,237  euro 1,255,649

  LIABILITIES
  Current Liabilities
    Accounts payable and accrued
     expenses                               euro   94,702   euro   56,542
    Construction costs payable                      1,088          65,436
    Debt, current portion                          37,135         107,090
      Total current liabilities                   132,925         229,068
  Long-Term Liabilities
    Debt, less current portion                    923,144         777,272
    Unrealized foreign exchange rate
     derivative losses                             49,346               -
    Unrealized interest rate derivative losses     90,637          75,471
    Pension and other post-retirement
     benefit obligations                           17,008               -
    Capital leases and other                        9,562           9,035
    Deferred income tax                             7,650           2,062
                                                1,097,347         863,840
      Total liabilities                         1,230,272       1,092,908
  Minority Interest                                     -               -
  SHAREHOLDERS' EQUITY
  Shares of beneficial interest                   181,600          83,397
  Additional paid-in capital, stock options            14              14
  Retained earnings (deficit)                     (18,197)         69,176
  Accumulated other comprehensive income           15,548          10,154
      Total shareholders' equity                  178,965         162,741
      Total liabilities and shareholders'
       equity                              euro 1,409,237  euro 1,255,649



                        MERCER INTERNATIONAL INC.

                  CONSOLIDATED STATEMENTS OF OPERATIONS
          For the Nine Months Ended September 30, 2005 and 2004
                               (Unaudited)
               (Euros in thousands, except per share data)


                                                    2005            2004

  Revenues                                    euro  376,430   euro 148,011

  Costs and expenses:
    Cost of sales                                   350,185        127,859
    General and administrative expenses              22,399         21,108
    Gain on sale of emission credits                (12,353)             -
    Impairment of capital assets                          -          6,000
    Flooding losses and expenses, less grant
     income                                               -            669
    Total costs and expenses                        360,231        155,636
      Income (loss) from operations                  16,199         (7,625)

  Other income (expense):
    Interest expense                                (63,320)        (9,554)
    Investment income                                 1,594          1,679
    Realized loss on derivative financial
     instruments                                     (2,455)             -
    Unrealized loss on derivative financial
     instruments                                    (67,804)        (1,077)
    Unrealized foreign exchange loss on debt         (1,591)             -
    Impairment of investments                        (1,699)             -
    Total other income (expense)                   (135,275)        (8,952)

      Loss before income taxes and minority
       interest                                    (119,076)       (16,577)
  Income tax benefit                                 14,627             37
      Loss before minority interest                (104,449)       (16,540)
  Minority interest                                  17,076          3,936
      Net loss                                      (87,373)       (12,604)

  Retained earnings, beginning of period             69,176         49,196
  Retained earnings (deficit), end of
   period                                    euro   (18,197)  euro  36,592

  Loss per share
      Basic and diluted                      euro     (2.86)  euro   (0.73)



                        MERCER INTERNATIONAL INC.

                  CONSOLIDATED STATEMENTS OF OPERATIONS
          For the Three Months Ended September 30, 2005 and 2004
                               (Unaudited)
               (Euros in thousands, except per share data)

                                                      2005           2004

  Revenues                                   euro    148,928   euro  47,360

  Costs and expenses:
    Cost of sales                                    140,018         39,231
    General and administrative expenses                7,083          6,880
    Gain on sale of emission credits                  (6,065)             -
    Impairment of capital assets                           -          6,000
    Total costs and expenses                         141,036         52,111
      Income (loss) from operations                    7,892        (4,751)

  Other income (expense):
    Interest expense                                 (21,911)        (4,200)
    Investment income                                    613            215
    Realized loss on derivative financial
     instruments                                        (284)             -
    Unrealized gain (loss) on derivative financial
     instruments                                       3,335         (8,105)
    Unrealized foreign exchange gain on debt           5,918              -
    Total other income (expense)                     (12,329)       (12,090)

      Loss before income taxes and minority
       interest                                       (4,437)       (16,841)
  Income tax (provision) benefit                      (6,785)            236
      Loss before minority interest                  (11,222)       (16,605)
  Minority interest                                    5,667          6,726
      Net loss                                        (5,555)        (9,879)

  Retained earnings (deficit), beginning of
   period                                            (12,642)        46,471
  Retained earnings (deficit), end of
   period                                    euro    (18,197)  euro  36,592

  Loss per share
    Basic and diluted                        euro      (0.17)  euro   (0.57)



                        MERCER INTERNATIONAL INC.

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the Nine Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)


                                                       2005          2004
  Cash Flows from (used in) Operating
   Activities:
    Net loss                                  euro  (87,373)  euro (12,604)
    Adjustments to reconcile net loss to
     cash flows from operating activities
      Unrealized losses on derivatives               67,804          1,077
      Depreciation and amortization                  39,599         17,217
      Unrealized foreign exchange loss on debt        1,591              -
      Impairment of capital assets                        -          6,000
      Impairment of investments and securities        1,699              -
      Minority interest                             (17,076)        (3,936)
      Deferred income taxes                         (14,642)             -
      Stock compensation expense                        330            690
      Other                                             144          1,139

    Changes in current assets and liabilities
      Receivables                                   (20,428)        (2,056)
      Inventories                                    (9,581)       (35,825)
      Accounts payable and accrued expenses          33,765         26,331
      Other                                          (1,435)           782
        Net cash used in operating activities        (5,603)        (1,185)

  Cash Flows from (used in) Investing Activities:
    Cash restricted                                  60,650        (17,517)
    Purchase of property, plant and equipment       (18,646)      (241,825)
    Acquisition of Celgar pulp mill                (146,608)             -
    Sale of available-for-sale securities                 -          1,161
    Other                                                 -            115
      Net cash used in investing activities        (104,604)      (258,066)

  Cash Flows from (used in) Financing Activities:
    Increase (decrease) in construction costs
     payable                                        (64,348)       118,196
    Proceeds from borrowings of notes payable
     and debt                                       311,792        126,000
    Repayment of notes payable and debt            (261,691)       (21,886)
    Proceeds from investment grants                  78,595         28,710
    Repayment of capital lease obligations           (2,930)        (1,781)
    Issuance of shares of beneficial interest        67,329            582
      Net cash from financing activities            128,747        249,821

  Effect of exchange rate changes on cash and
   cash equivalents                                  20,931             80
  Net increase (decrease) in cash and cash
   equivalents                                       39,471         (9,350)
  Cash and cash equivalents, beginning of
   period                                            49,568         51,993
  Cash and cash equivalents, end of period    euro   89,039   euro  42,643



                        MERCER INTERNATIONAL INC.

                       BUSINESS SEGMENT INFORMATION
          For the Nine Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                         Rosenthal     Celgar(1)     Stendal         Total
                           Pulp          Pulp         Pulp           Pulp
  Nine Months Ended
   September 30, 2005
  Sales to external
   customers         euro 103,058  euro 97,458  euro 128,919   euro 329,435
  Intersegment
   net sales                    -            -         4,679          4,679
                          103,058       97,458       133,598        334,114
  Operating costs          73,146       86,438       112,739        272,323
  Depreciation and
   amortization            10,173        7,083        20,179         37,435
  General and
   administrative           5,441        5,285         3,120         13,846
  Emission credits         (4,402)           -        (7,951)       (12,353)
  84,358                   98,806      128,087       311,251
  Income (loss) from
   operations              18,700       (1,348)        5,511         22,863
  Interest expense
  Investment income
  Derivative financial
   instruments, net
  Foreign exchange loss
   on debt
  Impairment of
   investments

  Loss before income taxes
   and minority interest

  Segment assets     euro 341,732  euro 251,918 euro 787,388 euro 1,381,038


  Nine Months Ended
   September 30, 2004
  Sales to
   external
   customers        euro 106,013   euro       -  euro    600  euro  106,613
  Intersegment
   net sales               1,822              -            -          1,822
                         107,835              -          600        108,435
  Operating costs         72,705              -          509         73,214
  Depreciation and
   amortization           14,166              -          795         14,961
  General and
   administrative          7,960              -        6,645         14,605
  Impairment of assets         -              -            -              -
  Flooding grants,
   less losses and
   expenses                    -              -            -              -
                          94,831              -        7,949        102,780
  Income (loss) from
   operations             13,004              -       (7,349)         5,655
  Interest expense
  Investment and
   other income
  Derivative financial
   instruments, net

  Loss before income
   taxes and minority
   interest
  Segment assets   euro  384,764     euro     -  euro 773,081 euro 1,157,845


                                                Corporate,
                                                Other and      Consolidated
                                   Paper       Eliminations       Total


  Nine Months Ended
   September 30, 2005
  Sales to external
   customers                 euro 46,995    euro        -   euro  376,430
  Intersegment net sales               -           (4,679)              -
  46,995                          (4,679)         376,430
  Operating costs                 44,879           (5,879)        311,323
  Depreciation and amortization      592              835          38,862
  General and administrative       3,720            4,833          22,399
  Emission credits                     -                -         (12,353)
  49,191                            (211)         360,231
  Income (loss) from operations   (2,196)          (4,468)         16,199
  Interest expense                                                (63,320)
  Investment income                                                 1,594
  Derivative financial
   instruments, net                                               (70,259)
  Foreign exchange loss
   on debt                                                         (1,591)
  Impairment of investments                                        (1,699)
                                                                 (135,275)
  Loss before income taxes
   and minority interest                                   euro  (119,076)

  Segment assets             euro 22,783    euro   5,416   euro 1,409,237


  Nine Months Ended
   September 30, 2004
  Sales to external
   customers                 euro 41,398    euro       -   euro   148,011

  Intersegment net sales               -          (1,822)              -
                                  41,398          (1,822)         148,011

  Operating costs                 39,686          (1,742)         111,158
  Depreciation and
   amortization                    1,740               -           16,701
  General and administrative       3,886           2,617           21,108
  Impairment of assets             6,000               -            6,000
  Flooding grants, less losses
   and expenses                      669               -              669

                                  51,981             875          155,636
  Income (loss) from
   operations                    (10,583)         (2,697)          (7,625)
  Interest expense                                                 (9,554)
  Investment and other income                                       1,679
  Derivative financial
   instruments, net                                                (1,077)
                                                                   (8,952)

  Loss before income taxes
   and minority interest                                   euro   (16,577)
  Segment assets            euro  31,699    euro   3,183   euro 1,192,727



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


                        MERCER INTERNATIONAL INC.

                       BUSINESS SEGMENT INFORMATION
          For the Three Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                       Rosenthal       Celgar(1)     Stendal        Total
                        Pulp            Pulp          Pulp           Pulp
  Three Months Ended
   September 30, 2005
  Sales to
   external
   customers      euro 37,122   euro   48,978   euro 47,313   euro  133,413
  Intersegment
   net sales                -               -         1,339           1,339
                       37,122          48,978        48,652         134,752
  Operating costs      25,741          45,884        41,193         112,818
  Depreciation and
   amortization         3,543           2,986         6,725          13,254
  General and
   administrative       1,631           2,448         1,443           5,522
  Emission credits     (2,267)              -        (3,798)         (6,065)
                       28,648          51,318        45,563         125,529
  Income (loss) from
    operations          8,474         (2,340)         3,089           9,223

  Interest expense
  Investment income
  Derivative
   financial
   instruments, net
  Foreign exchange
   gain on debt

  Loss before income
   taxes and
   minority
   interest


  Three Months Ended
    September 30, 2004
  Sales to external
   customers      euro 34,982   euro       -    euro   (327)  euro   34,655
  Intersegment
   net sales              643              -              -             643
                       35,625              -           (327)         35,298
  Operating costs      23,580              -            509          24,089
  Depreciation and
   amortization         3,030              -            783           3,813
  General and
   administrative       3,324              -          1,197           4,521
  Impairment of assets      -              -              -               -
  Flooding grants,
   less losses and
   expenses                 -              -              -               -
                       29,934              -          2,489          32,423
  Income (loss) from
   operations           5,691              -         (2,816)          2,875
  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
   September 30, 2005
  Sales to external
   customers               euro   15,532   euro         -   euro 148,928
  Intersegment net sales               -           (1,339)             -
  15,515                          (1,339)         148,928
  Operating costs                 15,278           (2,057)       126,039
  Depreciation and
   amortization                      213              512         13,979
  General and administrative       1,158              403          7,083
  Emission credits                     -                -         (6,065)
                                  16,649           (1,142)       141,036
  Income (loss) from
   operations                     (1,134)            (197)         7,892

  Interest expense                                               (21,911)
  Investment income                                                  613
  Derivative financial
   instruments, net                                                3,051
  Foreign exchange gain
   on debt                                                         5,918
                                                                 (12,329)
  Loss before income taxes
   and minority interest                                    euro  (4,437)


  Three Months Ended
   September 30, 2004
  Sales to external
   customers              euro    12,705   euro         -   euro  47,360
  Intersegment net sales               -             (643)             -
                                  12,705             (643)        47,360
  Operating costs                 12,473           (1,425)        35,137
  Depreciation and
   amortization                      599             (318)         4,094
  General and administrative       1,243            1,116          6,880
  Impairment of assets             6,000                -          6,000
  Flooding grants, less
   losses and expenses                 -                -              -
                                  20,315             (627)        52,111
  Income (loss) from
   operations                     (7,610)             (16)        (4,751)
  Interest expense                (4,200)
  Investment and other income                                        215
  Derivative financial
   instruments, net                                               (8,105)
                                                                 (12,090)
  Loss before income
   taxes and minority
   interest                                                 euro (16,841)


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


                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                     Combined Condensed Balance Sheet
                         As at September 30, 2005
                               (Unaudited)
                           (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 nine and three months ended September 30, 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. During the nine and three months ended September 30, 2004 and as at 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 nine and three months ended September 30, 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.

                                September 30, 2005
                   Restricted   Unrestricted                    Consolidated
                     Group      Subsidiaries     Eliminations      Group

  ASSETS
  Current assets
    Cash and cash
     equivalents   euro 52,566  euro 36,473      euro   -        euro 89,039
    Cash restricted          -        7,646             -              7,646
    Receivables         40,758       35,113          (175)            75,696
    Inventories         50,875       34,803             -             85,678
    Prepaid expenses
     and other           3,968        2,478             -              6,446
  Total current
   assets              148,167      116,513          (175)           264,505
  Cash restricted            -       24,537             -             24,537
  Property, plant and
   equipment           397,071      635,468          (660)         1,031,879
  Other                  9,483        4,084             -             13,567
  Deferred income tax   21,516       53,233             -             74,749
  Due from
   unrestricted
   group                45,473            -       (45,473)                 -
  Total assets    euro 621,710 euro 833,835  euro (46,308)    euro 1,409,237

  LIABILITIES
  Current liabilities
    Accounts payable
     and accrued
     expenses      euro 36,128  euro 58,749     euro (175)       euro 94,702
    Construction
     costs payable           -        1,088             -              1,088
    Debt, current
     portion                 -       37,135             -             37,135
  Total current
   liabilities          36,128       96,972          (175)           132,925

  Debt, less current
   portion             342,221      580,923             -            923,144
  Due to restricted
   group                     -       45,473       (45,473)                -
  Unrealized derivatives
   loss                      -      139,983             -            139,983
  Other                 20,152        6,418             -             26,570
  Deferred income tax    3,845        3,805             -              7,650
  Total liabilities    402,346      873,574       (45,648)         1,230,272
  SHAREHOLDERS' EQUITY
  Total shareholders'
   equity              219,364      (39,739)(1)      (660)           178,965
  Total liabilities
   and shareholders'
   equity         euro 621,710 euro 833,835  euro (46,308)    euro 1,409,237


  (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.



                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                     Combined Condensed Balance Sheet
                         As at December 31, 2004
                               (Unaudited)
                           (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 interest
   rate derivative           -        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


                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
               Combined Condensed Statements of Operations
          For the Nine Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)

                            Nine Months Ended September 30, 2005
                   Restricted   Unrestricted                    Consolidated
                     Group      Subsidiaries     Eliminations      Group

  Revenues       euro 200,516   euro 175,914     euro     -   euro 376,430
  Operating costs     158,384        152,939              -        311,323
  Operating
   depreciation
   and amortization    17,431         20,771            660         38,862
  General and
   administrative      15,559          6,840              -         22,399
  Gain on sale of
   emission credits    (4,402)        (7,951)             -        (12,353)
                      186,972        172,599            660        360,231
    Income (loss)
     from
     operations        13,544          3,315           (660)        16,199
  Other income
   (expense)
    Interest expense  (23,918)       (41,351)         1,949        (63,320)
    Investment
     income             2,313          1,230         (1,949)         1,594
    Derivative
     financial
     instruments, net    (494)       (69,765)             -        (70,259)
    Unrealized foreign
     exchange loss
     on debt           (1,591)             -               -        (1,591)
    Impairment of
     investments       (1,699)             -               -        (1,699)
    Total other
     expense          (25,389)      (109,886)              -      (135,275)
    Loss before income
     taxes and
     minority
     interest         (11,845)      (106,571)           (660)     (119,076)
  Income tax
   (provision)
   benefit             (7,867)        22,494               -        14,627
    Loss before
     minority
    interest          (19,712)      (84,077)            (660)     (104,449)
  Minority interest         -        17,076                -        17,076
    Net loss     euro (19,712) euro (67,001)       euro (660) euro (87,373)


                           Nine Months Ended September 30, 2004
                   Restricted   Unrestricted                    Consolidated
                     Group      Subsidiaries     Eliminations      Group

  Revenues     euro 107,835     euro  41,998    euro (1,822)  euro 148,011
  Operating
   costs             72,255           40,195         (1,292)       111,158
  Operating
    depreciation
    and
    amortization     14,166            2,535              -         16,701
  General and
   administrative    11,027           10,531           (450)        21,108
  Impairment of
   assets                 -            6,000              -          6,000
  Flooding grants,
   less losses and
   expenses               -              669              -            669
                     97,448           59,930         (1,742)       155,636
      Income (loss)
       from
       operations    10,387          (17,932)           (80)        (7,625)
  Other income
   (expense)
    Interest
     expense        (11,174)          (2,309)         3,929         (9,554)
    Investment
     income           2,534             (301)          (554)         1,679
    Derivative
     financial
     instruments,
     net               (102)         (15,723)             -        (15,825)
    Unrealized foreign
     exchange loss
     on debt           (173)          14,921              -         14,748
    Total other
     expense         (8,915)          (3,412)         3,375         (8,952)
      Loss before
       income taxes
       and minority
       interest       1,472          (21,344)         3,295        (16,577)
  Income tax
   (provision)
   benefit               37                -              -             37
    Loss before
     minority
     interest         1,509          (21,344)         3,295        (16,540)
  Minority
   interest               -            3,936              -          3,936
    Net income
     (loss)      euro 1,509     euro (17,408)    euro 3,295   euro (12,604)


                        MERCER INTERNATIONAL INC.

                 RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
               Combined Condensed Statements of Operations
          For the Three Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)


                               Three Months Ended September 30, 2005
                     Restricted  Unrestricted                Consolidated
                      Group      Subsidiaries  Eliminations   Group

  Revenues        euro 86,100    euro 62,828  euro   -       euro 148,928
  Operating costs      71,124         54,915         -            126,039
  Operating
   depreciation
   and amortization     6,602          7,155       222             13,979
  General and
   administrative       4,482          2,601         -              7,083
  Gain on sale of
   emission credits    (2,267)        (3,798)        -             (6,065)
                       79,941         60,873       222            141,036
   Income (loss)
    from operations     6,159          1,955      (222)             7,892
  Other income
   (expense)
   Interest expense    (7,987)       (14,780)      856            (21,911)
   Investment income    1,016            453      (856)               613
   Derivative
    financial
    instruments, net      (31)         3,082         -              3,051
   Unrealized foreign
    exchange gain on
    debt                5,918              -         -              5,918
   Total other income
    (expense)          (1,084)       (11,245)        -            (12,329)
   Income (loss)
    before income
    taxes and
    minority interest   5,075         (9,290)     (222)            (4,437)
  Income tax
   (provision)
    benefit            (3,091)        (3,694)        -             (6,785)
   Income (loss)
    before minority
    interest            1,984        (12,984)     (222)           (11,222)
  Minority interest         -          5,667         -              5,667
  Net income
   (loss)         euro  1,984    euro (7,317) euro(222)      euro  (5,555)



                               Three Months Ended September 30, 2004
                     Restricted  Unrestricted                Consolidated
                      Group      Subsidiaries   Eliminations  Group
  Revenues      euro 35,625      euro 12,378    euro(643)    euro 47,360
  Operating
   costs             23,580           12,982      (1,425)         35,137
  Operating
   depreciation
   and
   amortization       3,030            1,382        (318)          4,094
  General and
   administrative     4,732            2,440        (292)          6,880
  Impairment of
   assets                 -            6,000           -           6,000
                     31,342           22,804      (2,035)         52,111
   Income (loss)
    from
    operations        4,283          (10,426)      1,392          (4,751)
  Other income
   (expense)
   Interest expense  (5,151)          (1,857)      2,808          (4,200)
   Investment income    789              (87)       (487)            215
   Derivative
    financial
    instruments, net  4,712          (14,157)          -          (9,445)
   Unrealized foreign
    exchange gain on
    debt                285            1,055           -           1,340
   Total other income
    (expense)           635          (15,046)      2,321         (12,090)
    Income (loss)
    before income
    taxes and
    minority
    interest          4,918          (25,472)      3,713         (16,841)
  Income tax
   (provision)
   benefit              236                -           -             236
    Income (loss)
    before minority
    interest          5,154          (25,472)      3,713         (16,605)
  Minority interest       -            6,726           -           6,726
   Net income
    (loss)       euro 5,154     euro (18,746) euro 3,713     euro (9,879)



                        MERCER INTERNATIONAL INC.

                     COMPUTATION OF OPERATING EBITDA
     For the Nine and Three Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)


                                                       Nine Months Ended
                                                         September 30,
                                                     2005          2004
  Net loss                                   euro (87,373)    euro(12,604)
  Minority interest                               (17,076)         (3,936)
  Income taxes (benefit)                          (14,627)            (37)
  Interest expense                                 63,320           9,554
  Investment income                                (1,594)         (1,679)
  Derivative financial instruments, net            70,259           1,077
  Foreign exchange loss on debt                     1,591               -
  Impairment of investments                         1,699               -
  Income (loss) from operations                    16,199          (7,625)
  Add: Depreciation and amortization               38,862          17,217
       Impairment charge                                -           6,000
  Operating EBITDA                           euro  55,061     euro 15,592

                                                       Three Months Ended
                                                          September 30,
                                                     2005          2004
  Net loss                                   euro  (5,555)    euro (9,879)
  Minority interest                                (5,667)         (6,726)
  Income taxes (benefit)                            6,785            (236)
  Interest expense                                 21,911           4,200
  Investment income                                  (613)           (215)
  Derivative financial instruments, net            (3,051)          8,105
  Foreign exchange loss on debt                    (5,918)              -
  Income (loss) from operations                     7,892          (4,751)
  Add: Depreciation and amortization               13,979           4,005
       Impairment charge                                -           6,000
  Operating EBITDA                           euro  21,871     euro  5,254


  (1) 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.



                        MERCER INTERNATIONAL INC.

             COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
     For the Nine and Three Months Ended September 30, 2005 and 2004
                               (Unaudited)
                           (Euros in thousands)


                                                       Nine Months Ended
                                                         September 30,
                                                       2005         2004
  Restricted Group(1)
  Net income (loss)                            euro (19,712)   euro 1,509
  Income taxes                                        7,867           (37)
  Interest expense                                   23,918        11,174
  Investment and other income                        (2,313)       (2,534)
  Derivative financial instruments, net                 494           102
  Foreign exchange loss on debt                       1,591           173
  Impairment of investments                           1,699             -
  Income from operations                             13,544        10,387
  Add: Depreciation and amortization                 17,431        14,166
  Operating EBITDA                              euro 30,975   euro 24,553

  (1) The results of the Celgar pulp mill are not included for the nine
      months ended September 30, 2004.


                                                       Three Months Ended
                                                          September 30,
                                                       2005          2004

  Restricted Group(1)
  Net income                                     euro 1,984    euro 5,154
  Income taxes                                        3,091          (236)
  Interest expense                                    7,987         5,151
  Investment and other income                        (1,016)         (789)
  Derivative financial instruments, net                  31        (4,712)
  Foreign exchange (gain) loss on debt               (5,918)         (285)
  Income from operations                              6,159         4,283
  Add: Depreciation and amortization                  6,602         3,030
  Operating EBITDA                              euro 12,761    euro 7,313

  (1) The results of the Celgar pulp mill are not included for the three
      months ended September 30, 2004.


DATASOURCE: Mercer International Inc.



CONTACT:  Jimmy S.H. Lee, Chairman & President, [phone], or David

M. Gandossi, Executive Vice-President & Chief Financial Officer,

[phone], both of Mercer International Inc.; or Investors: Eric

Boyriven, or Alexandra Tramont, or Media: Alecia Pulman, [phone], all

of Financial Dynamics, for Mercer International Inc.



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

Copyright