Mercer International (MERC) 8-K Mercer International Inc. Reports 2005 Fourth Quarter and Year End Results

EXHIBIT 99.1

	FOR:	MERCER INTERNATIONAL INC.
	APPROVED BY:	Jimmy S.H. Lee
		Chairman & President
		(604) 684-1099
		David M. Gandossi
		Executive Vice-President &
		Chief Financial Officer
		(604) 684-1099
For Immediate Release
		Financial Dynamics
		Investors: Eric Boyriven, Alexandra Tramont
		Media: Alecia Pulman
		(212) 850-5600

MERCER INTERNATIONAL INC. REPORTS 2005 FOURTH QUARTER
AND YEAR END RESULTS

     NEW YORK, NY, March 3, 2006 — Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported results for the fourth quarter and year ended December 31, 2005.

Summary Selected Highlights

	Three Months Ended						Year Ended
	December 31,						December 31,
	2005			2004			2005			2004
	(in thousands)
Results of Operations	(unaudited)
Revenues	€	137,478		€	89,201		€	513,908		€	237,212
Income (loss) from operations		145			(10,347	)		16,344			(17,972	)
Operating EBITDA(1)		13,324			1,580			68,385			17,172
Interest expense Stendal		(15,797	)		(10,302	)		(56,789	)		(12,190	)
Interest expense other		(7,743	)		(3,893	)		(30,071	)		(11,559	)
Realized and unrealized gain (loss) on interest rate and foreign currency derivative financial instruments, net(2)		(1,703	)		13,213			(71,763	)		12,136
Unrealized foreign exchange gain (loss) on debt		(2,565	)		—			(4,156	)		—
Net income (loss)		(29,773	)		32,584			(117,146	)		19,980
Income (loss) per share
Basic		(0.90	)		1.87			(3.75	)		1.15
Diluted		(0.90	)		1.14			(3.75	)		0.89
Other Data
Total pulp sales volume(3) (ADMTs)		291,046			192,254			1,101,304			421,176
Mill net pulp price realizations (per ADMT)(4)	€	413		€	389		€	407		€	423

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

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 2

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

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

Certain key factors affecting our 2005 fourth quarter results include:

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

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

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

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

• We recorded a net loss of€1.7 million on our interest rate and currency derivatives in the fourth quarter of 2005, compared to a net gain of€13.2 million thereon in the comparative period of 2004. We also recorded an unrealized non-cash foreign exchange

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 3

loss on our long-term debt of€2.6 million in the current quarter due to the weakening of the Euro versus the U.S. dollar.

•

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

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

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

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

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

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

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

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 4

Results of Operations — 2005 Fourth Quarter

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

	Three Months Ended December 31,
	2005		2004
	(ADMTs)
Production by Product Class:
Pulp production by mill:
Rosenthal		75,935		82,785
Celgar		99,088		—
Stendal		121,249		132,694
Total pulp production		296,272		215,479
Paper production		15,514		14,996
Total production		311,786		230,475
Sales Volume by Product Class:
Pulp sales volume by mill:
Rosenthal		76,599		78,471
Celgar		101,115		—
Stendal		113,332		113,783
Total pulp sales volume(1)		291,046		192,254
Paper sales volume		14,973		14,781
Total sales volume(1)		306,019		207,035
Revenues by Product Class:	(in thousands)
Pulp revenues by mill:
Rosenthal	€	34,135	€	34,190
Celgar		41,755		—
Stendal		47,112		41,673
Total pulp revenues(1)		123,002		75,863
Paper revenues		14,476		13,338
Total revenues(1)	€	137,478	€	89,201

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

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

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

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 5

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

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

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

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

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

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

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

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 6

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

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

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

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

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

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 7

which included an income tax benefit of€44.1 million relating to a reorganization of certain subsidiary companies.

     We generated “Operating EBITDA” of€13.3 million and€1.6 million in the three months ended December 31, 2005 and 2004, respectively. Operating EBITDA is defined as income (loss) from operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

     Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For a reconciliation of net loss to Operating EBITDA, see page 11 of the financial tables included in this press release.

Results of Operations — 2005

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

     Cost of sales and general, administrative and other expenses in the year ended December 31, 2005 increased to€497.6 million from€255.2 million in the comparative period of 2004, primarily as a result of the inclusion of a full year’s results of our Stendal mill and the results of our Celgar mill. We commenced expensing all of the costs, including interest, relating to the Stendal mill effective September 2004 when the

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 8

mill was started up, prior to which most of the costs, including interest, relating to the Stendal mill were capitalized during its construction.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President’s Comments

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

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

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

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

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

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

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

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

     Mr. Lee further stated: “In addition, the recent continued softness in pulp markets has resulted in several mill shutdowns which has removed capacity from the market and other facilities are predicted to

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Mercer Reports 2005 Fourth Quarter and Year End Results Page 12

potentially be shut down. We believe that this shakeout of older, smaller and higher cost facilities will improve pricing and assist us in becoming a preferred supplier for customers seeking a long-term, stable and reliable supply of NBSK pulp.”

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

     In conjunction with this release, Mercer International will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Monday, March 6, 2006 at 10:00 AM EST. Listeners can access the conference call live and archived over the Internet through a link at the company’s web site athttp://www.mercerinternational.com, or at http://phx.corporate-ir.net/playerlink.zhtml?c=62074&s=wm&e=1195268. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software. A replay of this call will be available approximately two hours after the live call ends until March 13, 2006 at 11:59 p.m. (Eastern Standard Time). The replay number is (800) 642-1687, and the passcode is 4249268.

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

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

-FINANCIAL TABLES FOLLOW-

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MERCER INTERNATIONAL INC.

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

	December 31,			December 31,
	2005			2004
ASSETS
Current Assets
Cash and cash equivalents	€	83,547		€	49,568
Cash restricted		7,039			45,295
Receivables		74,315			54,687
Inventories		81,147			52,898
Prepaid expenses and other		5,474			4,961
Total current assets		251,522			207,409
Long-Term Assets
Cash restricted		24,573			47,538
Property, plant and equipment		1,024,662			936,035
Investments		6,314			5,079
Deferred note issuance and other costs		8,364			5,069
Deferred income tax		78,381			54,519
		1,142,294			1,048,240
Total assets	€	1,393,816		€	1,255,649
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses	€	111,513		€	56,542
Construction costs payable		1,213			65,436
Debt, current portion		27,601			107,090
Total current liabilities		140,327			229,068
Long-Term Liabilities
Debt, less current portion		922,619			777,272
Unrealized foreign exchange rate derivative loss		61,979			—
Unrealized interest rate derivative loss		78,646			75,471
Pension and other post-retirement benefit obligations		17,113			—
Capital leases and other		9,945			9,035
Deferred income tax		14,444			2,062
		1,104,746			863,840
Total liabilities		1,245,073			1,092,908
SHAREHOLDERS’ EQUITY
Shares of beneficial interest		181,586			83,397
Additional paid-in capital, stock options		14			14
Retained earnings (deficit)		(47,970	)		69,176
Accumulated other comprehensive income		15,113			10,154
Total shareholders’ equity		148,743			162,741
Total liabilities and shareholders’ equity	€	1,393,816		€	1,255,649

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MERCER INTERNATIONAL INC.

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

	2005			2004
Revenues	€	137,478		€	89,201
Costs and expenses:
Cost of sales		134,240			93,736
		3,238			(4,535	)
General and administrative expenses		(8,032	)		(5,812	)
Sale (purchase) of emission allowances		4,939			—
Income (loss) from operations		145			(10,347	)
Other income (expense):
Interest expense		(23,540	)		(14,195	)
Investment income		873			1,269
Realized gain on derivative financial instruments		199			44,467
Unrealized loss on derivative financial instruments		(1,703	)		(31,254	)
Unrealized foreign exchange gain on debt		(2,565	)		—
Total other income (expense)		(26,736	)		287
Loss before income taxes and minority interest		(26,591	)		(10,060	)
Income tax (provision) benefit		(3,780	)		44,126
Income (loss) before minority interest		(30,371	)		34,066
Minority interest		598			(1,482	)
Net income (loss)	€	(29,773	)	€	32,584
Income (loss) per share
Basic	€	(0.90	)	€	1.87
Diluted	€	(0.90	)	€	1.14

(2)

MERCER INTERNATIONAL INC.

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

	2005			2004
Revenues	€	513,908		€	237,212
Costs and expenses:
Cost of sales		484,425			221,595
		29,483			15,617
General and administrative expenses		(30,431	)		(26,920	)
Sale (purchase) of emission allowances		17,292			—
Impairment of capital assets		—			(6,000	)
Flooding losses and expenses, less grant income		—			(669	)
Income (loss) from operations		16,344			(17,972	)
Other income (expense):
Interest expense		(86,860	)		(23,749	)
Investment income		2,467			2,948
Unrealized foreign exchange loss on debt		(4,156	)		—
Realized gain (loss) on derivative financial instruments		(2,455	)		44,467
Unrealized loss on derivative financial instruments		(69,308	)		(32,331	)
Impairment of investments		(1,699	)		—
Total other income (expense)		(162,011	)		(8,665	)
Loss before income taxes and minority interest		(145,667	)		(26,637	)
Income tax benefit		10,847			44,163
(Loss) income before minority interest		(134,820	)		17,526
Minority interest		17,674			2,454
Net (loss) income	€	(117,146	)	€	19,980
Income (loss) per share
Basic	€	(3.75	)	€	1.15
Diluted	€	(3.75	)	€	0.89

(3)

MERCER INTERNATIONAL INC.

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

																Corporate,
	Rosenthal			Celgar(1)			Stendal			Total						Other and			Consolidated
	Pulp			Pulp			Pulp			Pulp			Paper			Eliminations			Total
Three Months Ended December 31, 2005
Sales to external customers	€	34,135		€	41,755		€	47,112		€	123,002		€	14,476		€	—		€	137,478
Intersegment net sales		—			—			1,629			1,629			—			(1,629	)		—
		34,135			41,755			48,741			124,631			14,476			(1,629	)		137,478
Operating costs		27,034			45,083			38,881			110,998			12,097			(2,034	)		121,061
Operating depreciation and amortization		2,936			3,452			7,083			13,471			289			(581	)		13,179
General and administrative		1,396			650			2,056			4,102			2,200			1,730			8,032
(Sale) purchase of emission allowances		(2,869	)		—			(2,070	)		(4,939	)		—			—			(4,939	)
		28,497			49,185			45,950			123,632			14,586			(885	)		137,333
Income (loss) from operations		5,638			(7,430	)		2,791			999			(110	)		(744	)		145
Interest expense																				(23,540	)
Investment income																				873
Derivative financial instruments, net																				(1,504	)
Foreign exchange loss on debt																				(2,565	)
Impairment of investments																				—
																				(26,736	)
Loss before income taxes and minority interest																			€	(26,591	)

Three Months Ended December 31, 2004
Sales to external customers	€	34,190	€	—	€	41,673		€	75,863		€	13,572	€	(234	)	€	89,201
Intersegment net sales		127		—		885			1,012			—		(1,012	)		—
		34,317		—		42,558			76,875			13,572		(1,246	)		89,201
Operating costs		25,408		—		45,676			71,084			11,498		(1,289	)		81,293
Operating depreciation and amortization		3,585		—		7,711			11,812			616		15			11,927
General and administrative		2,773		—		2,431			4,688			646		478			6,328
		31,766		—		55,818			87,584			12,760		(796	)		99,548
Income (loss) from operations		2,551		—		(13,260	)		(10,709	)		812		(450	)		(10,347	)
Interest expense																	(14,195	)
Investment and other income																	1,269
Derivative financial instruments, net																	13,213
																	287
Loss before income taxes and minority interest																€	(10,060	)

(4)

MERCER INTERNATIONAL INC.

BUSINESS SEGMENT INFORMATION

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

																Corporate,
	Rosenthal			Celgar(1)			Stendal			Total						Other and			Consolidated
	Pulp			Pulp			Pulp			Pulp			Paper			Eliminations			Total
Year Ended December 31, 2005
Sales to external customers	€	137,193		€	139,213		€	176,031		€	452,437		€	61,471		€	—		€	513,908
Intersegment net sales		—			—			6,308			6,308			—			(6,308	)		—
		137,193			139,213			182,339			458,745			61,471			(6,308	)		513,908
Operating costs		100,180			131,521			151,620			383,321			56,976			(7,913	)		432,384
Operating depreciation and amortization		13,109			10,535			27,262			50,906			881			254			52,041
General and administrative		6,837			5,935			5,176			17,948			5,920			6,563			30,431
(Sale) purchase of emission allowances		(7,271	)		—			(10,021	)		(17,292	)		—			—			(17,292	)
		112,855			147,991			174,037			434,883			63,777			(1,096	)		497,564
Income (loss) from operations		24,338			(8,778	)		8,302			23,862			(2,306	)		(5,212	)		16,344
Interest expense																				(86,860	)
Investment income																				2,467
Derivative financial instruments, net																				(71,763	)
Foreign exchange loss on debt																				(4,156	)
Impairment of investments																				(1,699	)
(Loss) income before income taxes and minority interest																			€	(145,667	)
Segment assets	€	344,473		€	260,461		€	746,346		€	1,351,280		€	21,892		€	20,644		€	1,393,816

Year Ended December 31, 2004
Sales to external customers	€	140,203	€	—	€	42,273		€	182,476		€	54,970		€	(234	)	€	237,212
Intersegment net sales		1,949		—		885			2,834			—			(2,834	)		—
		142,152		—		43,158			185,310			54,970			(3,068	)		237,212
Operating costs		98,113		—		46,185			144,298			51,184			(3,031	)		192,451
Operating depreciation and amortization		17,751		—		9,022			26,773			2,356			15			29,144
General and administrative		10,733		—		8,560			19,293			4,532			3,095			26,920
Impairment of assets		—		—		—			—			6,000			—			6,000
Flooding grants, less losses and expenses		—		—		—			—			669			—			669
		126,597		—		63,767			190,364			64,741			79			255,184
Income (loss) from operations		15,555		—		(20,609	)		(5,054	)		(9,771	)		(3,147	)		(17,972	)
Interest expense																		(23,749	)
Derivative financial instruments, net																		12,136
Investment and other income																		2,948
Loss before income taxes and minority interest																	€	(26,637	)
Segment assets	€	394,569	€	—	€	810,267		€	1,204,836		€	22,735		€	28,078		€	1,255,649

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

(5)

MERCER INTERNATIONAL INC.

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

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

	December 31, 2005
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
ASSETS
Current assets
Cash and cash equivalents	€	48,790	€	34,757		€	-		€	83,547
Cash restricted		—		7,039			—			7,039
Receivables		41,349		32,966			—			74,315
Inventories		47,100		34,047			—			81,147
Prepaid expenses and other		2,940		2,534			—			5,474
Total current assets		140,179		111,343			—			251,522
Cash restricted		—		24,573			—			24,573
Property, plant and equipment		404,151		620,511			—			1,024,662
Other		10,533		4,145			—			14,678
Deferred income tax		24,303		54,078			—			78,381
Due from unrestricted group		46,412		—			(46,412	)		—
Total assets	€	625,578	€	814,650		€	(46,412	)	€	1,393,816
LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	46,867	€	64,646		€	-		€	111,513
Construction costs payable		—		1,213			—			1,213
Debt, current portion		—		27,601			—			27,601
Total current liabilities		46,867		93,460			—			140,327
Debt, less current portion		342,023		580,596			—			922,619
Due to restricted group		—		46,412			(46,412	)		—
Unrealized derivatives loss		—		140,625			—			140,625
Other		20,722		6,336			—			27,058
Deferred income tax		1,851		12,593			—			14,444
Total liabilities		411,463		880,022			(46,412	)		1,245,073
SHAREHOLDERS’ EQUITY
Total shareholders’ equity		214,115		(65,372	)(1)		—			148,743
Total liabilities and shareholders’ equity	€	625,578	€	814,650		€	(46,412	)	€	1,393,816

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

(6)

MERCER INTERNATIONAL INC.

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

	December 31, 2004
	Restricted		Unrestricted					Consolidated
	Group		Subsidiaries		Eliminations			Group
ASSETS
Current assets
Cash and cash equivalents	€	45,487	€	4,081	€	—		€	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	€	401,321	€	897,996	€	(43,668	)	€	1,255,649
LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	19,615	€	37,091	€	(164	)	€	56,542
Construction costs payable		—		65,436		—			65,436
Debt, current portion		15,089		92,001		—			107,090
Total current liabilities		34,704		194,528		(164	)		229,068
Debt, less current portion		224,542		552,730		—			777,272
Due to restricted group		—		43,467		(43,467	)		—
Unrealized derivative loss		—		75,471		—			75,471
Other		1,878		7,157		—			9,035
Deferred income tax		1,719		343		—			2,062
Total liabilities		262,843		873,696		(43,631	)		1,092,908
SHAREHOLDERS’ EQUITY
Total shareholders’ equity		138,478		24,300		(37	)		162,741
Total liabilities and shareholders’ equity	€	401,321	€	897,996	€	(43,668	)	€	1,255,649

(7)

MERCER INTERNATIONAL INC.

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

	Three Months Ended December 31, 2005
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	75,890		€	61,588		€	—		€	137,478
Operating costs		71,655			49,406			—			121,061
Operating depreciation and amortization		6,467			7,372			(660	)		13,179
General and administrative		3,466			4,566			—			8,032
(Sale) purchase of emission allowances		(2,869	)		(2,070	)		—			(4,939	)
Income (loss) from operations		(2,829	)		2,314			660			145
Other income (expense)
Interest expense		(8,434	)		(15,972	)		866			(23,540	)
Investment income		1,429			310			(866	)		873
Derivative financial instruments, net		199			(1,703	)		—			1,504
Unrealized foreign exchange loss on debt		(2,565	)		—			—			(2,565	)
Total other expense		(9,371	)		(17,365	)		—			(26,736	)
Income (loss) before income taxes and minority interest		(12,200	)		(15,051	)		660			(26,591	)
Income tax (provision) benefit		5,460			(11,389	)		2,149			(3,780	)
Income (loss) before minority interest		(6,740	)		(26,440	)		2,809			(30,371	)
Minority interest		—			927			(329	)		598
Net income (loss)	€	(6,740	)	€	(25,513	)	€	2,480		€	(29,773	)

	Three Months Ended December 31, 2004
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
Revenues	€	34,317	€	56,130		€	(1,246	)	€	89,201
Operating costs		25,408		57,174			(1,289	)		81,293
Operating depreciation and amortization		3,600		8,327			—			11,927
General and administrative		3,251		3,077			—			6,328
		32,259		68,578			(1,289	)		99,548
Income (loss) from operations		2,058		(12,448	)		43			(10,347	)
Other income (expense)
Interest expense		233		(11,989	)		(2,439	)		(14,195	)
Investment income (expense)		598		1,607			(936	)		1,269
Derivative financial instruments, net		13,517		(304	)		—			13,213
Total other income (expense)		14,348		(10,686	)		(3,375	)		287
Income (loss) before income taxes and minority interest		16,406		(23,134	)		(3,332	)		(10,060	)
Income tax benefit		17,198		26,928			—			44,126
Income (loss) before minority interest		33,604		3,794			(3,332	)		34,066
Minority interest		—		(1,482	)		—			(1,482	)
Net income (loss)	€	33,604	€	2,312		€	(3,332	)	€	32,584

(8)

MERCER INTERNATIONAL INC.

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

	Year Ended December 31, 2005
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	276,406		€	243,810		€	(6,308	)	€	513,908
Operating costs		230,039			210,258			(7,913	)		432,384
Operating depreciation and amortization		23,898			28,143			—			52,041
General and administrative		19,025			11,406			—			30,431
Gain on sale of emission allowances		(7,271	)		(10,021	)		—			(17,292	)
Income from operations		10,715			4,024			1,605			16,344
Other income (expense)
Interest expense		(32,352	)		(57,323	)		2,815			(86,860	)
Investment income		3,742			1,540			(2,815	)		2,497
Derivative financial instruments, net		(295	)		(71,468	)		—			(71,763	)
Unrealized foreign exchange loss on debt		(4,156	)		—			—			(4,156	)
Impairment of investments		(1,699	)		—			—			(1,699	)
Total other expense		(34,760	)		(127,251	)		—			(162,011	)
Income (loss) before income taxes and minority interest		(24,045	)		(123,227	)		1,605			(145,667	)
Income tax (provision) benefit		(1,161	)		12,008			—			10,847
Income (loss) before minority interest		(25,206	)		(111,219	)		1,605			(134,820	)
Minority interest		—			17,674			—			17,674
Net income (loss)	€	(25,206	)	€	(93,545	)	€	1,605		€	(117,146	)

	Year Ended December 31, 2004
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	142,152		€	98,128		€	(3,068	)	€	237,212
Operating costs		98,113			97,369			(3,031	)		192,451
Operating depreciation and amortization		17,766			11,378			—			29,144
General and administrative		13,828			13,092			—			26,920
Impairment of capital assets		—			6,000			—			6,000
Flooding grants, less losses and expenses		—			669			—			669
Income (loss) from operations		12,445			(30,380	)		(37	)		(17,972	)
Other income (expense)
Interest expense		(10,941	)		(14,298	)		1,490			(23,749	)
Investment income		3,132			1,306			(1,490	)		2,948
Derivative financial instruments, net		13,242			(1,106	)		—			12,136
Total other income (expense)		5,433			(14,098	)		—			(8,665	)
Income (loss) before income taxes and minority interest		17,878			(44,478	)		(37	)		(26,637	)
Income tax benefit		17,235			26,928			—			44,163
Income (loss) before minority interest		35,113			(17,550	)		(37	)		17,526
Minority interest		—			2,454			—			2,454
Net income (loss)	€	35,113		€	(15,096	)	€	(37	)	€	19,980

(9)

MERCER INTERNATIONAL INC.

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

	For the Quarter Ended			For the Quarter Ended(1)
	December 31, 2005			December 31, 2004
Net income (loss)	€	(29,773	)	€	32,584
Minority interest		(598	)		1,482
Income taxes (benefit)		3,780			(44,126	)
Interest expense		23,540			14,195
Investment income		(873	)		(1,269	)
Derivative financial instruments, net		1,504			(13,213	)
Foreign exchange loss on debt		2,565			—
Income (loss) from operations		145			(10,347	)
Add: Depreciation and amortization		13,179			11,927
Operating EBITDA(2)	€	13,324		€	1,580
	For the Year Ended			For the Year Ended(1)
	December 31, 2005			December 31, 2004
Net income (loss)	€	(117,146	)	€	19,980
Minority interest		(17,674	)		(2,454	)
Income taxes (benefit)		(10,847	)		(44,163	)
Interest expense		86,860			23,749
Investment income		(2,467	)		(2,948	)
Derivative financial instruments, net		71,763			(12,136	)
Foreign exchange loss on debt		4,156			—
Impairment of investments		1,699			—
Income (loss) from operations		16,344			(17,972	)
Add: Depreciation and amortization		52,041			29,144
Impairment charge		—			6,000
Operating EBITDA(2)	€	68,385		€	17,172

(1)

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

(2)

Operating EBITDA does not reflect the impact of a number of items that affect the Company’s net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of the Company’s results as reported under GAAP.

(10)

MERCER INTERNATIONAL INC.

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

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

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

(1)

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

(2)

Operating EBITDA does not reflect the impact of a number of items that affect the Company’s net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of the Company’s results as reported under GAAP.

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