Mercer International (MERC) 8-K Mercer International Inc. Reports Record 2006 Third Quarter Results

EXHIBIT 99.1

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS RECORD 2006 THIRD QUARTER RESULTS

     NEW YORK, NY, November 6, 2006 — Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported results for the third quarter of 2006.

Highlights of the 2006 Third Quarter

• Revenues increased by approximately 18% to€175.2 million from€148.9 million in the comparative period of 2005, due to higher pulp prices and sales from our Stendal pulp mill.

• Operating EBITDA increased by approximately 119% to€48.0 million in the third quarter compared to€21.9 million in the comparable period of 2005, primarily as a result of higher pulp prices and significant improvement in the results of our Celgar pulp mill. For a definition of Operating EBITDA, see page 5 of this press release and for a reconciliation of net income (loss) to Operating EBITDA, see page 10 of the financial tables included in this press release.

• Pulp markets strengthened quarter over quarter. Average list prices for NBSK pulp in Europe were $708 per ADMT in the third quarter of 2006 and $665 per ADMT in the second quarter of 2006, compared to $580 per ADMT in the third quarter of 2005.

• Mill net pulp realizations increased to€482 per ADMT in the third quarter of 2006 from€453 and€398 per ADMT in the prior quarter of 2006 and the third quarter of 2005, respectively.

• We recorded an aggregate net unrealized loss of€14.5 million on our outstanding derivatives in the third quarter of 2006, compared to an aggregate net unrealized gain of€3.3 million thereon in the comparative period of 2005.

• We had net income of€6.7 million, or€0.20 per basic and€0.19 per diluted share, in the current quarter, compared to a net loss of€5.6 million, or€0.17 per basic and diluted share, in the same period of 2005.

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Mercer Reports 2006 Third Quarter Results Page 2

President’s Comments

     Mr. Jimmy S.H. Lee, President and Chairman, stated: “During the third quarter of 2006:

• Our strong results reflect strengthening pulp markets compared to the prior and comparative quarter.

• All three of our pulp mills performed well and in particular our Celgar mill had much better results as our planned initiatives are taking effect.

• The Stendal mill ramp up proceeds substantially as scheduled. In the quarter, it operated above its initial rated capacity and production and sales revenues were up by approximately 14% and 33%, respectively, over the prior quarter.

     Mr. Lee added:

• Further to our objective of building a focused and profitable pulp company, we have increased our exposure to NBSK pulp in October by acquiring a further 7% interest in the Stendal mill for€8.1 million, of which€6.7 million was paid by a note that, at our election, we can satisfy in our common shares. We have also reduced our exposure to the paper industry as, in August, we disposed of our equity interest in the Heidenau paper mill and an interest in a Swiss specialty paper mill for cash proceeds of€5.0 million and a secured note of€5.0 million.

• In November 2006, Mr. George Malpass joined our Board. Mr. Malpass was formerly the CEO and a director of a British Columbia forest products company and has been a director of two other public forest products companies. George’s appointment to the Board adds additional broad industry knowledge and public company experience to the Board. This appointment is in addition to the previously announced appointments of Claes-Inge Isacson to Chief Operating Officer and David Ure to Vice President, Controller.

     Mr. Lee continued: “We are continuing to see improvements in pulp prices and demand in all of our markets which we currently believe should result in higher prices in the upcoming months. In October 2006, list NBSK prices increased to approximately $730 per tonne in Europe and approximately $700 per tonne in Asia. These price improvements are being partially offset by upward pressure on fiber prices.”

     Mr. Lee concluded: “Looking forward for the balance of the year, we expect the current strength in pulp markets to continue and, with our large, modern and efficient pulp mills, we are well positioned to generate solid results for our stakeholders.”

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Mercer Reports 2006 Third Quarter Results Page 3

Summary Selected Highlights

	Q3			Q2		YTD		Q3			YTD
(in millions of Euro, except where otherwise stated)	2006			2006		2006		2005			2005
Revenues	€	175.2		€	166.7	€	501.0	€	148.9		€	376.4
Sales of emission allowances		—			7.6		13.2		6.1			12.4
Income from operations		34.4			10.9		56.8		7.9			16.2
Operating EBITDA(1)		48.0			25.7		99.1		21.9			55.1
Interest expense		22.1			23.1		68.1		21.9			63.3
Unrealized gain (loss) on derivative instruments		(14.5	)		44.7		71.0		3.3			(70.3	)
Unrealized foreign exchange gain (loss) on debt		(0.7	)		6.1		11.5		5.9			(1.6	)
Net income (loss)		6.7			18.4		41.7		(5.6	)		(87.4	)
Income (loss) per share
Basic	€	0.20		€	0.56	€	1.26	€	(0.17	)	€	(2.86	)
Diluted	€	0.19		€	0.45	€	1.05	€	(0.17	)	€	(2.86	)

(1) For a definition of Operating EBITDA, see page 5 of this press release and for a reconciliation of net income (loss) to Operating EBITDA, see page 10 of the financial tables included in this press release.

	Q3		Q2		YTD		Q3		YTD
	2006		2006		2006		2005		2005
Production (‘000 tonnes)
Pulp production by mill:
Rosenthal		84.1		67.4		227.6		83.4		240.6
Stendal		144.2		139.7		414.8		126.2		357.8
Celgar		118.9		100.7		331.0		118.0		289.9
Total pulp production		347.2		307.8		973.4		327.6		888.3
Sales (‘000 tonnes)
Pulp sales volume by mill:
Rosenthal		80.6		73.0		229.9		86.8		241.6
Stendal		144.9		136.9		422.3		120.4		243.3
Celgar		112.7		119.4		342.4		125.1		325.4
Total pulp sales volume(1)		338.2		329.3		994.6		332.3		810.3
Mill net pulp price realizations (€/ADMT)(2)		482		453		454		398		402
NBSK list price in Europe (US$/ADMTs)		708		665		663		580		611

(1)	Excluding intercompany pulp sales volumes of 2,774 ADMTs in Q3 2006, 4,871 ADMTs in Q2 2006, 12,631 ADMTs in YTD 2006, 3,057 ADMTs in Q3 2005 and 10,651 ADMTs in YTD 2005, respectively.
(2)	Excluding revenues from third party transportation activities.

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

     Revenues for the three months ended September 30, 2006 increased to€175.2 million from€148.9 million in the comparative period of 2005, primarily due to higher pulp prices and sales from our Stendal pulp mill. Pulp sales by volume increased to 338,201 ADMTs in the third quarter of 2006 from 332,282 ADMTs in the comparative period of 2005.

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Mercer Reports 2006 Third Quarter Results Page 4

     Cost of sales and general, administrative and other expenses in the third quarter of 2006 decreased to€140.8 million from€141.0 million in the comparative period of 2005.

Pulp Operations

     For the third quarter of 2006, revenues from our pulp operations increased to€164.9 million from€133.4 million in the same period a year ago. List prices for NBSK pulp in Europe were approximately€556 ($708) per ADMT in the third quarter of 2006,€529 ($665) per ADMT in the second quarter of 2006 and approximately€476 ($580) per ADMT in the comparative third quarter of last year.

     Mill net pulp sales realizations increased to€482 per ADMT on average in the third quarter of 2006 from€398 per ADMT in the third quarter of 2005, primarily as a result of higher prices.

     Cost of sales and general, administrative and other expenses for the pulp operations increased to€132.8 million in the third quarter of 2006 from€125.5 million in the comparative period of 2005, primarily as a result of the absence of the sale of emission allowances and higher sales from our Stendal mill.

     Fiber costs at our German pulp mills increased by approximately 10% in the third quarter of 2006 versus the same quarter of 2005, primarily because of increased demand for wood residuals. In the third quarter of 2006, fiber costs at our Celgar mill increased by approximately 6% versus the same quarter of 2005, primarily because of fluctuations in regional woodchip availability. We expect that reduced fiber availability during the winter harvesting season will result in continued upward pressure on fiber prices into the last part of 2006 and into the first part of 2007.

     For the third quarter of 2006, operating income from our pulp operations increased by approximately 267% to€33.8 million from€9.2 million in the comparative quarter of 2005, primarily as a result of higher pulp prices and improved operating results at our Celgar mill.

     In the third quarter of 2006, income from operations increased to€34.4 million from€7.9 million in the same quarter last year. Interest expense in the third quarter of 2006 increased marginally to€22.1 million from€21.9 million in the year ago period.

Derivative Instruments and Minority Interest

     We recorded a net unrealized non-cash holding loss of€14.5 million before minority interests upon the marked to market valuation of Stendal’s outstanding foreign currency and interest rate derivatives at the end of the current quarter, compared to a net realized and unrealized non-cash holding gain of€3.1 million before minority interests upon the marked to market valuation of our outstanding derivatives in the comparative quarter of 2005.

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Mercer Reports 2006 Third Quarter Results Page 5

     In the third quarter of 2006, minority interest, representing the two minority shareholders’ proportionate interest in the Stendal mill, was€6.0 million, compared to€5.7 million in the third quarter of 2005.

Paper Operations

     In August 2006, we disposed of our equity interest in the Heidenau paper mill and our interest in a Swiss specialty paper mill for cash proceeds of€5.0 million and a secured note of€5.0 million. We recorded a gain of€0.4 million on this transaction. We now currently operate one paper mill at Fährbrücke, that we do not consider part of our core operations. We are continuing to explore and consider strategic options for such mill, including a sale, closure or divestiture thereof.

     Revenues from our paper operations were€10.3 million in the current quarter, compared to€15.5 million in the comparative period of 2005. For the third quarter of 2006, the operating loss of our paper operations decreased to€0.3 million from€1.1 million in the third quarter of 2005.

Earnings Per Share and Operating EBITDA

     We generated “Operating EBITDA” of€48.0 million and€21.9 million in the three months ended September 30, 2006 and 2005, respectively. Operating EBITDA is defined as income (loss) from operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

     Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For a reconciliation of net income (loss) to Operating EBITDA, see page 10 of the financial tables included in this press release.

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Mercer Reports 2006 Third Quarter Results Page 6

     We reported net income for the third quarter of 2006 of€6.7 million, or€0.20 per basic and€0.19 per diluted share, which included an aggregate of€15.2 million of unrealized losses on our outstanding derivatives and a foreign exchange loss on our long-term debt. In the third quarter of 2005, we reported a net loss of€5.6 million, or€0.17 per basic and diluted share, which reflected the inclusion of interest expense of€14.7 million related to our Stendal mill and the net realized and unrealized gain of€3.1 million on our interest rate and currency derivatives and the unrealized non-cash foreign exchange gain of€5.9 million on our long-term debt.

Earnings Release Call

     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 7, 2006 at 10:00 AM EST. Listeners can access the conference call live and archived over the Internet through a link at the Company’s web site at http://www.mercerint.com/en/newsCurrent.cfm, or at http://www.videonewswire.com/event.asp?id=36530. 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 14, 2006 at 11:59 p.m. (Eastern Standard Time). The replay number is (800) 642-1687, and the passcode is 1285017.

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

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Mercer Reports 2006 Third Quarter Results Page 7

     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.

APPROVED BY: Jimmy S.H. Lee Chairman & President (604) 684-1099	Financial Dynamics Investors: Eric Boyriven, Alexandra Tramont Media: Scot Hoffman (212) 850-5600
David M. Gandossi
Executive Vice-President &
Chief Financial Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-

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MERCER INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS
September 30, 2006 and December 31, 2005
(Euros in thousands)

	September 30,			December 31,
	2006			2005
ASSETS
Current Assets
Cash and cash equivalents	€	69,373		€	83,547
Cash restricted		—			7,039
Receivables		83,853			74,315
Note receivable, current portion		7,230			—
Inventories		62,508			81,147
Prepaid expenses and other		5,626			5,474
Total current assets		228,590			251,522
Long-Term Assets
Cash restricted		57,000			24,573
Property, plant and equipment		994,805			1,024,662
Investments		1,396			6,314
Deferred note issuance and other costs		7,329			8,364
Deferred income tax		43,189			78,381
Note receivable, less current portion		4,036			—
		1,107,755			1,142,294
Total assets	€	1,336,345		€	1,393,816
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses	€	103,321		€	112,726
Debt, current portion		40,903			27,601
Total current liabilities		144,224			140,327
Long-Term Liabilities
Debt, less current portion		883,096			922,619
Unrealized foreign exchange rate derivative loss		16,506			61,979
Unrealized interest rate derivative losses		52,022			78,646
Pension and other post-retirement benefit obligations		16,631			17,113
Capital leases and other		8,893			9,945
Deferred income tax		19,130			14,444
		996,278			1,104,746
Total liabilities		1,140,502			1,245,073
Minority Interest		—			—
SHAREHOLDERS’ EQUITY
Common shares		181,731			181,586
Additional paid-in capital, stock options		123			14
Deficit		(6,233	)		(47,970	)
Accumulated other comprehensive income		20,222			15,113
Total shareholders’ equity		195,843			148,743
Total liabilities and shareholders’ equity	€	1,336,345		€	1,393,816

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands, except per share data)

	2006			2005
Revenues	€	500,954		€	376,430
Costs and expenses:
Cost of sales		433,432			350,185
		67,522			26,245
General and administrative expenses		(24,344	)		(22,399	)
Sale of emission allowances		13,246			12,353
Gain on sale of assets		359			—
Income from operations		56,783			16,199
Other income (expense)
Interest expense		(68,129	)		(63,320	)
Investment income		4,096			1,594
Unrealized foreign exchange gain (loss) on debt		11,469			(1,591	)
Realized loss on derivative instruments		(5,219	)		(2,455	)
Unrealized gain (loss) on derivative instruments		76,251			(67,804	)
Impairment of investments		—			(1,699	)
Total other income (expense)		18,468			(135,275	)
Income (loss) before income taxes and minority interest		75,251			(119,076	)
Income tax (provision) benefit		(40,388	)		14,627
Income (loss) before minority interest		34,863			(104,449	)
Minority interest		6,874			17,076
Net income (loss)	€	41,737		€	(87,373	)
(Deficit) retained earnings, beginning of period		(47,970	)		69,176
Deficit, end of period	€	(6,233	)	€	(18,197	)
Income (loss) per share
Basic	€	1.26		€	(2.86	)
Diluted	€	1.05		€	(2.86	)

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MERCER INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands, except per share data)

	2006			2005
Revenues	€	175,185		€	148,928
Costs and expenses:
Cost of sales		135,387			140,018
		39,798			8,910
General and administrative expenses		(5,753	)		(7,083	)
Sale of emission allowances		—			6,065
Gain on sale of assets		359			—
Income from operations		34,404			7,892
Other income (expense)
Interest expense		(22,092	)		(21,911	)
Investment income		1,085			613
Unrealized foreign exchange gain (loss) on debt		(704	)		5,918
Realized loss on derivative instruments		—			(284	)
Unrealized gain (loss) on derivative instruments		(14,473	)		3,335
Total other expense		(36,184	)		(12,329	)
Loss before income taxes and minority interest		(1,780	)		(4,437	)
Income tax (provision) benefit		2,532			(6,785	)
Income (loss) before minority interest		752			(11,222	)
Minority interest		5,976			5,667
Net income (loss)	€	6,728		€	(5,555	)
Deficit, beginning of period		(12,961	)		(12,642	)
Deficit, end of period	€	(6,233	)	€	(18,197	)
Income (loss) per share
Basic	€	0.20		€	(0.17	)
Diluted	€	0.19		€	(0.17	)

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MERCER INTERNATIONAL INC.

BUSINESS SEGMENT INFORMATION
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

																Corporate,
	Rosenthal			Celgar			Stendal			Total						Other and			Consolidated
	Pulp			Pulp			Pulp			Pulp			Paper			Eliminations			Total
Nine Months Ended September 30, 2006
Sales to external customers	€	109,225		€	157,431		€	190,514		€	457,170		€	43,784		€	—		€	500,954
Intersegment net sales		(1,022	)		(103	)		7,326			6,201			(139	)		(6,062	)		—
		108,203			157,328			197,840			463,371			43,645			(6,062	)		500,954
Operating costs		73,333			140,343			143,022			356,698			40,038			(5,645	)		391,091
Operating depreciation and amortization		10,857			9,491			21,210			41,558			551			232			42,341
General and administrative		5,565			7,484			7,852			20,901			2,828			615			24,344
Gain on sale of assets		—			—			—			—			(359	)		—			(359	)
(Sale) purchase of emission allowances		(3,651	)		—			(9,595	)		(13,246	)		—			—			(13,246	)
		86,104			157,318			162,489			405,911			43,058			(4,798	)		444,171
Income (loss) from operations		22,099			10			35,351			57,460			587			(1,264	)		56,783
Interest expense																				(68,129	)
Investment income																				4,096
Unrealized foreign exchange gain on debt																				11,469
Derivative financial instruments, net																				71,032
Income before income taxes and minority interest																			€	75,251
Segment assets	€	324,824		€	239,258		€	729,148		€	1,293,230		€	5,564		€	37,551		€	1,336,345

																Corporate,
	Rosenthal			Celgar(1)			Stendal			Total						Other and			Consolidated
	Pulp			Pulp			Pulp			Pulp			Paper			Eliminations			Total
Nine Months Ended September 30, 2005
Sales to external customers	€	103,058		€	97,458		€	128,919		€	329,435		€	46,995		€	—		€	376,430
Intersegment net sales		—			—			4,679			4,679			—			(4,679	)		—
		103,058			97,458			133,598			334,114			46,995			(4,679	)		376,430
Operating costs		73,146			86,438			112,739			272,323			44,879			(5,879	)		311,323
Operating depreciation and amortization		10,173			7,083			20,179			37,435			592			835			38,862
General and administrative		5,441			5,285			3,120			13,846			3,720			4,833			22,399
(Sale) purchase of emission allowances		(4,402	)		—			(7,951	)		(12,353	)		—			—			(12,353	)
		84,358			98,806			128,087			311,251			49,191			(211	)		360,231
Income (loss) from operations		18,700			(1,348	)		5,511			22,863			(2,196	)		(4,468	)		16,199
Interest expense																				(63,320	)
Investment income																				1,594
Unrealized foreign exchange loss on debt																				(1,591	)
Derivative financial instruments, net																				(70,259	)
Impairment of investments																				(1,699	)
Loss before income taxes and minority interest																			€	(119,076	)
Segment assets	€	341,732		€	251,918		€	787,388		€	1,381,038		€	22,783		€	5,416		€	1,409,237

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

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MERCER INTERNATIONAL INC.

BUSINESS SEGMENT INFORMATION
For the Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

															Corporate,
	Rosenthal			Celgar			Stendal		Total						Other and			Consolidated
	Pulp			Pulp			Pulp		Pulp			Paper			Eliminations			Total
Three Months Ended September 30, 2006
Sales to external customers	€	40,284		€	56,620		€	68,004	€	164,908		€	10,277		€	—		€	175,185
Intersegment net sales		(870	)		(126	)		2,638		1,642			(247	)		(1,395	)		—
		39,414			56,494			70,642		166,550			10,030			(1,395	)		175,185
Operating costs		23,880			41,641			47,451		112,972			10,067			(1,211	)		121,828
Operating depreciation and amortization		3,107			3,200			7,081		13,388			95			76			13,559
General and administrative		1,973			2,545			1,912		6,430			552			(1,229	)		5,753
Gain on sale of assets		—			—			—		—			(359	)		—			(359	)
											��
		28,960			47,386			56,444		132,790			10,355			(2,364	)		140,781
Income (loss) from operations		10,454			9,108			14,198		33,760			(325	)		969			34,404
Interest expense																			(22,092	)
Investment income																			1,085
Unrealized foreign exchange gain on debt																			(704	)
Derivative financial instruments, net																			(14,473	)
Loss before income taxes and minority interest																		€	(1,780	)

																Corporate,
	Rosenthal			Celgar			Stendal			Total						Other and			Consolidated
	Pulp			Pulp			Pulp			Pulp			Paper			Eliminations			Total
Three Months Ended September 30, 2005
Sales to external customers	€	37,122		€	48,978		€	47,313		€	133,413		€	15,515		€	—		€	148,928
Intersegment net sales		—			—			1,339			1,339			—			(1,339	)		—
		37,122			48,978			48,652			134,752			15,515			(1,339	)		148,928
Operating costs		25,741			45,884			41,193			112,818			15,278			(2,057	)		126,039
Operating depreciation and amortization		3,543			2,986			6,725			13,254			213			512			13,979
General and administrative		1,631			2,448			1,443			5,522			1,158			403			7,083
(Sale) purchase of emission allowances		(2,267	)		—			(3,798	)		(6,065	)		—			—			(6,065	)
		28,648			51,318			45,563			125,529			16,649			(1,142	)		141,036
Income (loss) from operations		8,474			(2,340	)		3,089			9,223			(1,134	)		(197	)		7,892
Interest expense																				(21,911	)
Investment income																				613
Derivative financial instruments, net																				3,051
Unrealized foreign exchange loss on debt																				5,918
Loss before income taxes and minority interest																			€	(4,437	)

(5)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheet
As at September 30, 2006
(Euros in thousands)

The terms of the indenture governing our 9.25% senior unsecured notes requires that we provide the results of operations and financial condition of Mercer International Inc. excluding its subsidiaries (“Mercer Inc.”) and our restricted subsidiaries under the indenture, collectively referred to as the “Restricted Group”. From February 14, 2005, the Restricted Group includes Mercer Inc., certain holding subsidiaries and Rosenthal, and the Celgar mill. The Restricted Group excludes our paper operations and the Stendal mill.

	September 30, 2006
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
ASSETS
Current assets
Cash and cash equivalents	€	37,381	€	31,992		€	—		€	69,373
Cash restricted		—		—			—			—
Receivables		45,683		38,170			—			83,853
Note receivable, current portion		1,963		5,267			—			7,230
Inventories		38,951		23,557			—			62,508
Prepaid expenses and other		3,271		2,355			—			5,626
Total current assets		127,249		101,341			—			228,590
Cash restricted		—		57,000			—			57,000
Property, plant and equipment		424,205		570,600			—			994,805
Other		3,118		5,607			—			8,725
Deferred income tax		17,093		26,096			—			43,189
Due from unrestricted group		48,352		—			(48,352	)		—
Note receivable, less current portion		—		4,036			—			4,036
Total assets	€	620,017	€	764,680		€	(48,352	)	€	1,336,345
LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	41,532	€	61,789		€	—		€	103,321
Debt, current portion		—		40,903			—			40,903
Total current liabilities		41,532		102,692			—			144,224
Debt, less current portion		317,999		565,097			—			883,096
Due to restricted group		—		48,352			(48,352	)		—
Unrealized derivative loss		—		68,528			—			68,528
Other		21,213		4,311			—			25,524
Deferred income tax		2,604		16,526			—			19,130
Total liabilities		383,348		805,506			(48,352	)		1,140,502
SHAREHOLDERS’ EQUITY
Total shareholders’ equity (deficit)		236,669		(40,826	)(1)		—			195,843
Total liabilities and shareholders’ equity	€	620,017	€	764,680		€	(48,352	)	€	1,336,345

(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, 2005
(Euros in thousands)

	December 31, 2005
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
ASSETS
Current
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
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 derivative loss		—		140,625			—			140,625
Other		20,722		6,336			—			27,058
Deferred income tax		1,851		12,593			—			14,444
Total liabilities		411,463		880,022			(46,412	)		1,245,073
SHAREHOLDERS’ EQUITY
Total shareholders’ equity (deficit)		214,115		(65,372	)(1)		—			148,743
Total liabilities and shareholders’ equity	€	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.

(7)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

	Nine Months Ended September 30, 2006
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	265,531		€	241,485		€	(6,062	)	€	500,954
Operating costs		214,093			176,998			—			391,091
Operating depreciation and amortization		20,580			21,761			—			42,341
General and administrative expenses		13,664			10,680			—			24,344
(Sale) purchase of emission allowances		(3,651	)		(9,595	)		—			(13,246	)
Gain on sale of assets		—			(359	)		—			(359	)
		244,686			199,485			—			444,171
Income from operations		20,845			42,000			(6,062	)		56,783
Other income (expense)
Interest expense		(24,602	)		(46,182	)		2,655			(68,129	)
Investment income		3,262			2,283			(1,449	)		4,096
Unrealized foreign exchange gain on debt		11,469			—			—			11,469
Derivative financial instruments, net		—			71,032			—			71,032
Total other (expense) income		(9,871	)		27,133			1,206			18,468
Income (loss) before income taxes and minority interest		10,974			69,133			(4,856	)		75,251
Income tax provision		(8,094	)		(32,102	)		(192	)		(40,388	)
Income (loss) before minority interest		2,880			37,031			(5,048	)		34,863
Minority interest		—			6,874			—			6,874
Net income (loss)	€	2,880		€	43,905		€	(5,048	)	€	41,737

	Nine Months Ended September 30, 2005
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	200,516		€	175,914		€	—		€	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
(Sale) purchase of emission allowances		(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
Unrealized foreign exchange loss on debt		(1,591	)		—			—			(1,591	)
Derivative financial instruments, net		(494	)		(69,765	)		—			(70,259	)
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	€	(19,712	)	€	(67,001	)	€	(660	)	€	(87,373	)

(8)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
For the Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

	Three Months Ended September 30, 2006
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	95,908		€	80,672		€	(1,395	)	€	175,185
Operating costs		65,705			51,689			4,434			121,828
Operating depreciation and amortization		6,383			7,176			—			13,559
General and administrative expenses		3,289			2,464			—			5,753
Gain on sale of assets		—			(359	)		—			(359	)
		75,377			60,970			4,434			140,781
Income (loss) from operations		20,531			19,702			(5,829	)		34,404
Other income (expense)
Interest expense		(8,160	)		(14,827	)		895			(22,092	)
Investment income		1,143			(369	)		311			1,085
Foreign exchange loss on debt		(704	)		—			—			(704	)
Derivative financial instruments, net		—			(14,473	)		—			(14,473	)
Total other (expense) income		(7,721	)		(29,669	)		1,206			(36,184	)
Income (loss) before income taxes and minority interest		12,810			(9,967	)		(4,623	)		(1,780	)
Income tax provision		(1,189	)		3,913			(192	)		2,532
Income (loss) before minority interest		11,621			(6,054	)		(4,815	)		752
Minority interest		—			5,976			—			5,976
Net income (loss)	€	11,621		€	(78	)	€	(4,815	)	€	6,728

	Three Months Ended September 30, 2005
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	86,100		€	62,828		€	—		€	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
(Sale) purchase of emission allowances		(2,267	)		(3,798	)		—			(6,065	)
		79,941			60,873			222			141,036
Income 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
Unrealized foreign exchange gain on debt		5,918			—			—			5,918
Derivative financial instruments, net		(31	)		3,082			—			3,051
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)	€	1,984		€	(7,317	)	€	(222	)	€	(5,555	)

(9)

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
For the Nine Months and Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

	Nine Months Ended
	September 30,
	2006			2005(1)
	(in thousands)
Net income (loss)	€	41,737		€	(87,373	)
Minority interest		(6,874	)		(17,076	)
Income taxes (benefit)		40,388			(14,627	)
Interest expense		68,129			63,320
Investment income		(4,096	)		(1,594	)
Foreign exchange (gain) loss on debt		(11,469	)		1,591
Derivative financial instruments, net (gain) loss		(71,032	)		70,259
Impairment of investments		—			1,699
Income from operations		56,783			16,199
Add: Depreciation and amortization		42,341			38,862
Operating EBITDA	€	99,124		€	55,061

	Three Months Ended
	September 30,
	2006			2005
	(in thousands)
Net income (loss)	€	6,728		€	(5,555	)
Minority interest		(5,976	)		(5,667	)
Income taxes (benefit)		(2,532	)		6,785
Interest expense		22,092			21,911
Investment income		(1,085	)		(613	)
Foreign exchange (gain ) loss on debt		704			(5,918	)
Derivative financial instruments, net (gain) loss		14,473			(3,051	)
Income from operations		34,404			7,892
Add: Depreciation and amortization		13,559			13,979
Operating EBITDA	€	47,963		€	21,871

(1)

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

(2)

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

(10)

MERCER INTERNATIONAL INC.

COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
For the Nine Months and Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Euros in thousands)

	Nine Months Ended
	September 30,
	2006			2005(1)
	(in thousands)
Restricted Group(2)
Net income (loss)	€	2,880		€	(19,712	)
Income taxes		8,094			7,867
Interest expense		24,602			23,918
Investment and other income		(3,262	)		(2,313	)
Derivative financial instruments, net		—			494
Unrealized foreign exchange (gain) loss on debt		(11,469	)		1,591
Impairment of investments		—			1,699
Income from operations		20,845			13,544
Add: Depreciation and amortization		20,580			17,431
Operating EBITDA	€	41,425		€	30,975

	Three Months Ended
	September 30,
	2006			2005
	(in thousands)
Restricted Group(1)
Net income	€	11,621		€	1,984
Income taxes		1,189			3,091
Interest expense		8,160			7,987
Investment and other expense (income)		(1,143	)		(1,016	)
Derivative financial instruments, net		—			31
Unrealized foreign exchange (gain) loss on debt		704			(5,918	)
Income from operations		20,531			6,159
Add: Depreciation and amortization		6,383			6,602
Operating EBITDA	€	26,914		€	12,761

(1)

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

(2)

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

(11)
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