Mercer International 8K Reports Strong 2011 Third Quarter Results | MERC 3 Nov 11

Exhibit 99.1

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS STRONG 2011 THIRD QUARTER RESULTS

NEW YORK, NY, November 3, 2011 — Mercer International Inc. (Nasdaq: MERC, TSX: MRI.U) today reported strong results for the third quarter ended September 30, 2011. Operating EBITDA in the third quarter of 2011 was €49.2 million ($69.5 million), compared to €65.5 million ($84.7 million) in the third quarter of 2010 and €50.1 million ($72.1 million) in the second quarter of 2011. Operating EBITDA is defined on page 5 of this press release and reconciled to net income on page 8 of the financial tables in this press release.

In the current quarter, total revenues were €204.8 million ($289.1 million), compared to €234.4 million ($303.1 million) in the third quarter of 2010. We reported net income of €8.4 million ($11.9 million), or €0.15 ($0.21) per basic share, for the third quarter of 2011, which included an aggregate non-cash unrealized loss of €10.7 million, or €0.20 ($0.28) per basic share, on the Stendal interest rate derivative and foreign exchange losses on our debt and an income tax expense of €3.1 million ($4.4 million), or €0.06 ($0.08) per basic share. In the third quarter of 2010, we reported net income of €46.1 million ($59.6 million), or €1.17 ($1.51) per basic share, which included aggregate non-cash gains of €10.4 million, or €0.26 ($0.34) per basic share, on the Stendal interest rate derivative and foreign exchange gains on our debt and a net income tax benefit of €7.2 million ($9.3 million), or €0.18 ($0.22) per basic share.

Summary Financial Highlights


									YTD			YTD
	Q3			Q2			Q3		Sept 30			Sept 30
	2011			2011			2010		2011			2010
	(in millions of Euros, except where otherwise stated)
Pulp revenues	€	190.4		€	217.3		€	224.7	€	618.2		€	624.1
Energy revenues		14.4			13.9			9.7		42.0			30.8
Operating income		35.3			36.2			51.4		108.2			117.3
Operating EBITDA		49.2			50.1			65.5		150.1			159.4
Unrealized gain (loss) on derivative instruments		(10.5	)		(2.3	)		0.5		(0.6	)		(10.5	)
Foreign exchange gain (loss) on debt		(0.2	)		0.3			9.9		1.3			(4.7	)
Income tax benefit (provision)		(3.1	)		(3.6	)		7.2		(7.6	)		5.6
Net income attributable to common shareholders		8.4			14.4			46.1		51.9			51.0
Net income per share attributable to common shareholders
Basic	€	0.15		€	0.32		€	1.17	€	1.07		€	1.36
Diluted	€	0.15		€	0.26		€	0.82	€	0.92		€	0.93
Common shares outstanding at period end (000s)		55,779			45,828			42,030		55,779			42,030

Summary Operating Highlights


							YTD		YTD
	Q3		Q2		Q3		Sept 30		Sept 30
	2011		2011		2010		2011		2010
Pulp Production (‘000 ADMTs)		362.3		367.9		380.9		1,088.8		1,070.0
Scheduled Production Downtime (‘000 ADMTs)		8.3		16.2		8.3		24.5		43.5
Pulp Sales (‘000 ADMTs)		321.3		357.6		344.8		1,027.9		1,042.6
Average NBSK pulp list price in Europe ($/ADMT)		980		1,017		980		986		932
Average NBSK pulp list price in Europe (€/ADMT)		694		706		758		701		708
Average pulp sales realizations (€/ADMT)⁽¹⁾		584		599		642		592		590
Energy Production (‘000 MWh)		402.5		420.7		330.8		1,230.9		1,051.1
Energy Sales (‘000 MWh)		149.3		175.9		119.1		483.1		370.3
Average Spot Currency Exchange Rates:
€ / $⁽²⁾		0.7084		0.6946		0.7729		0.7110		0.7608
C$ / $⁽²⁾		0.9803		0.9677		1.0385		0.9778		1.0358
C$ / €⁽³⁾		1.3835		1.3934		1.3438		1.3752		1.3639


(1)		Average realized pulp prices for the periods indicated reflect customer discounts and pulp price movements between the order and shipment date.

(2)		Average Federal Reserve Bank of New York noon spot rate over the reporting period.

(3)		Average Bank of Canada noon spot rate over the reporting period.

President’s Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: “We are pleased with the strong third quarter as, despite a weaker U.S. dollar and 11 days of unscheduled maintenance downtime at our Stendal mill, we achieved Operating EBITDA of €49.2 million.”

Mr. Lee continued: “Although uncertainties concerning the economic situation in Europe and credit tightening in China have caused pulp prices to come off their record levels from earlier this year, NBSK list prices remained generally strong in the third quarter. List prices at the end of the quarter were $950 per ADMT in Europe and $970 and $830 per ADMT in North America and China, respectively. While we currently anticipate further downward price pressure in the fourth quarter, the recent strengthening of the U.S. dollar against both the Euro and the Canadian dollar is helping to partially offset such decreases.”

Mr. Lee added: “Due to our strong liquidity position and continued confidence in our growth prospects, we initiated a share and debt repurchase program in the third quarter of 2011. As of November 3, 2011, we purchased and cancelled approximately $13.6 million in aggregate principal amount of our 9.5% senior notes and approximately 1.3 million shares ($10.6 million) of our common stock.”

Mr. Lee continued: “We successfully completed improvements to the Celgar mill’s fiber line and oxygen delignification process during the third quarter, and are already seeing noticeable reductions to the mill’s production costs. We also have an additional C$4.3 million of funds available to us from the Government of Canada’s Green Transformation Project, which we intend to utilize by the end of the first quarter of 2012.”

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Mr. Lee concluded: “Despite uncertainties surrounding the global economy, we believe that our improved liquidity position, increasing energy revenues and continued strong performance of our mills should enable us to generate strong returns.”

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

Total revenues for the three months ended September 30, 2011 decreased to €204.8 million ($289.1 million) from €234.4 million ($303.1 million) in the same period in 2010, primarily due to lower pulp revenues, partially offset by higher energy revenues. Pulp revenues for the three months ended September 30, 2011 decreased to €190.4 million from €224.7 million in the comparative period of 2010, primarily due to a weaker U.S. dollar and lower sales volumes. The U.S. dollar was approximately 8% weaker versus the Euro in the current quarter compared to the same quarter of last year. Energy revenues increased by approximately 48% in the current quarter to a record €14.4 million from €9.7 million in the same quarter last year, primarily as a result of increased energy production at our Rosenthal mill and increased energy sales at our Celgar mill.

Pulp production decreased to 362,330 ADMTs in the current quarter, from 380,894 ADMTs in the same quarter of 2010, primarily due to 11 days (approximately 21,000 ADMTs) of unscheduled maintenance downtime at our Stendal mill required to repair the mill’s recovery boiler.

Pulp sales volume decreased to 321,338 ADMTs in the current quarter from 344,777 ADMTs in the comparative period of 2010, primarily as a result of softer demand caused by economic uncertainty in Europe and credit tightening in China. Average pulp sales realizations decreased to €584 ($824) per ADMT in the third quarter of 2011, compared to €642 ($831) per ADMT in the same period last year, primarily due to a weaker U.S. dollar relative to the Euro.

Costs and expenses in the third quarter of 2011 decreased to €169.5 million from €183.0 million in the comparative period of 2010, primarily due to lower sales volumes and a weaker U.S. dollar, partially offset by higher fiber costs. Our costs and expenses in the current quarter included approximately €2.1 million for regularly scheduled maintenance costs. Several competing producers and members of the peer group that we benchmark our performance against now report their financial results in accordance with International Financial Reporting Standards which permit a significant portion of such maintenance costs to be capitalized instead of expensed. Such costs are not charged to EBITDA by the peer group companies but instead are expensed as depreciation.

Page 3

On average, our per unit fiber costs in the quarter increased by approximately 5% from the same period in 2010, primarily due to higher fiber costs at our Celgar mill caused by increased competition for fiber. Fiber costs at our German mills also increased slightly due to lower harvesting rates in Germany. As we move into the fourth quarter, we expect fiber prices for our German mills to stabilize as the German fiber market remains well balanced. We expect fiber prices at our Celgar mill to increase slightly in the short term due to ongoing competition for fiber. However, we expect prices to flatten out towards the end of the year as the availability of pulp logs increases.

Selling, general and administrative expenses increased to €8.8 million from €6.9 million in the third quarter of 2010, primarily as a result of increased foreign exchange losses due to the weaker U.S. dollar relative to the Euro.

For the third quarter of 2011, operating income decreased to €35.3 million from €51.4 million in the comparative quarter of 2010, primarily due to lower pulp revenues resulting from lower sales volume and a weaker U.S. dollar relative to the Euro.

Interest expense in the third quarter of 2011 decreased to €14.1 million from €17.8 million in the comparative quarter of 2010, primarily due to the conversion of the majority of our convertible notes and reduced levels of debt associated with the Stendal mill.

Our Stendal mill recorded an unrealized loss of €10.5 million on our interest rate derivative in the current quarter, compared to an unrealized gain of €0.5 million in the same quarter of last year. We recorded a foreign exchange loss on our foreign currency denominated debt of €0.2 million in the third quarter of 2011 compared to a gain of €9.9 million in the same period last year.

During the current quarter, we recorded €3.1 million of income tax expense, compared to net income tax recoveries of €7.2 million in the same period last year, primarily due to the recognition of additional deferred tax liabilities in the current quarter, compared to the reversal of certain valuation allowances during the same period last year.

In the third quarter of 2011, the noncontrolling shareholder’s interest in the Stendal mill’s loss was €0.8 million, compared to income of €5.1 million in the same quarter last year.

Page 4

In the third quarter of 2011, Operating EBITDA decreased to €49.2 million from €65.5 million in the third quarter of 2010, primarily due to lower pulp sales volumes and a weaker U.S. dollar relative to the Euro. Operating EBITDA is defined as operating income (loss) 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, 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 or income 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) attributable to common shareholders to Operating EBITDA, see page 8 of the financial tables included in this press release.

We reported net income attributable to common shareholders of €8.4 million, or €0.15 per basic and diluted share, for the third quarter of 2011, which included an aggregate non-cash unrealized loss of €10.7 million, or €0.20 per basic share, on the Stendal interest rate derivative and foreign exchange losses on our debt, and an income tax expense of €3.1 million, or €0.06 per basic share. In the third quarter of 2010, we reported net income attributable to common shareholders of €46.1 million, or €1.17 per basic and €0.82 per diluted share, which included a non-cash unrealized gain of €10.4 million, or €0.26 per basic share, on the Stendal interest rate derivative and foreign exchange gains on our debt and a net income tax benefit of €7.2 million, or €0.18 per basic share.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

Total revenues for the nine months ended September 30, 2011 increased to €660.1 million ($928.5 million) from €654.9 million ($862.3 million) in the same period in 2010. Pulp revenues for the nine months ended September 30, 2011 decreased marginally to €618.2 million from €624.1 million in the comparative period of 2010, due to slightly higher pulp prices being more than offset by lower sales volumes and a weaker U.S. dollar relative to the Euro. The U.S. dollar was approximately 6% weaker versus the Euro in the nine months ended September 30, 2011, compared to the same period of 2010. Energy revenues increased by approximately 36% to a record €42.0 million in the nine months ended September 30, 2011 from €30.8 million in the comparable period of 2010, primarily as a result of increased energy production at our Rosenthal mill and higher energy sales at our Celgar mill.

Page 5

Costs and expenses for the nine months ended September 30, 2011 increased to €552.0 million from €537.6 million in the comparative period of 2010, primarily due to higher fiber costs. Our costs and expenses in the current period included approximately €9.8 million for regularly scheduled maintenance costs.

During the nine months ended September 30, 2011, we recorded €7.6 million of income tax expense, compared to net income tax recoveries of €5.6 million in the same period in 2010, primarily due to the recognition of additional deferred tax liabilities in the current period, compared to the reversal of certain valuation allowances during the same period last year.

Operating EBITDA decreased to €150.1 million in the nine months ended September 30, 2011 from €159.4 million in the comparative period of 2010 primarily due to a weaker U.S. dollar and higher fiber costs, partially offset by higher pulp prices. See the discussion of our results for the third quarter of 2011 for additional information relating to Operating EBITDA and page 8 of the financial tables for a reconciliation to net income (loss) attributable to common shareholders.

We reported net income attributable to common shareholders of €51.9 million, or €1.07 per basic and €0.92 per diluted share, for the nine months ended September 30, 2011, which included a non-cash unrealized loss of €0.6 million on the Stendal interest rate derivative, a €1.3 million non-cash foreign exchange gain on our debt, a non-cash charge for stock compensation of €2.8 million and an income tax expense of €7.6 million. In the nine months ended September 30, 2010, we reported net income attributable to common shareholders of €51.0 million, or €1.36 per basic and €0.93 per diluted share, which included non-cash unrealized losses of €15.2 million on the Stendal interest rate derivative and the foreign exchange effect on our debt and a net income tax benefit of €5.6 million.

Page 6

Liquidity and Capital Resources

The following table is a summary of selected financial information for the periods indicated:


	As at		As at
	September 30,		December 31,
	2011		2010
	(in thousands)
Financial Position
Cash and cash equivalents	€	127,758	€	99,022
Marketable securities⁽¹⁾		4,191		275
Working capital		268,756		231,683
Property, plant and equipment		815,727		846,767
Total assets		1,230,636		1,216,075
Long-term liabilities		807,873		877,315
Total equity		286,553		213,563


(1)		Principally comprised of German federal government bonds with maturities of less than one year.

As at September 30, 2011, we had approximately €26.3 million and C$37.9 million available under our Rosenthal and Celgar facilities, respectively. As at September 30, 2011, the principal amount outstanding under the Stendal loan facility was €477.5 million.

Restricted Group

The following table is a summary of selected financial information for the Restricted Group for the periods indicated.


	As at		As at
	September 30,		December 31,
	2011		2010
	(in thousands)
Restricted Group Financial Position
Cash and cash equivalents	€	60,426	€	50,654
Marketable securities⁽¹⁾		4,191		275
Working capital		169,702		150,667
Property, plant and equipment		345,077		362,274
Total assets		665,671		662,944
Long-term liabilities		265,429		312,631
Total equity		342,202		289,141


(1)		Principally comprised of German federal government bonds with maturities of less than one year.

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 Friday, November 4, 2011 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through December 4, 2011, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=1038278CompanyID=MERC8&e=1&mediakey=IAE35D7DABC3E
CD95E2779DA87354812 or through a link on the Company’s Investors/News Releases page at http://www.mercerint.com
/s/NewsReleases.asp. 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 December 4, 2011 through a link on the Company’s Investors/News Releases page at http://www.mercerint.com/s/NewsReleases.asp.

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

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our 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: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

APPROVED BY:

Jimmy S.H. Lee
Chairman & President
(604) 684-1099

David M. Gandossi
Executive Vice-President &
Chief Financial Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-

Page 8

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Euros)


	September 30,			December 31,
	2011			2010
ASSETS
Current assets
Cash and cash equivalents	€	127,758		€	99,022
Marketable securities		4,013			—
Receivables		110,296			121,709
Inventories		128,041			102,219
Prepaid expenses and other		9,907			11,360
Deferred income tax		24,951			22,570

Total current assets		404,966			356,880

Long-term assets
Property, plant and equipment		815,727			846,767
Deferred note issuance and other		9,943			11,082
Note receivable		—			1,346

		825,670			859,195

Total assets	€	1,230,636		€	1,216,075


LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	109,845		€	84,873
Pension and other post-retirement benefit obligations		694			728
Debt		25,671			39,596

Total current liabilities		136,210			125,197

Long-term liabilities
Debt		707,040			782,328
Unrealized interest rate derivative losses		51,553			50,973
Pension and other post-retirement benefit obligations		23,010			24,236
Capital leases and other		11,857			12,010
Deferred income tax		14,413			7,768

		807,873			877,315

Total liabilities	€	944,083		€	1,002,512


EQUITY
Shareholders’ equity
Share capital		247,642			219,211
Paid-in capital		(5,308	)		(3,899	)
Retained earnings (deficit)		39,786			(10,956	)
Accumulated other comprehensive income (loss)		21,762			31,712

Total shareholders’ equity		303,882			236,068


Noncontrolling interest (deficit)		(17,329	)		(22,505	)

Total equity		286,553			213,563

Total liabilities and equity	€	1,230,636		€	1,216,075

(1)

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of Euros, except per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Pulp	€	190,426		€	224,697		€	618,158		€	624,111
Energy		14,352			9,721			41,970			30,783

		204,778			234,418			660,128			654,894
Costs and expenses
Operating costs		146,885			162,293			482,775			470,977
Operating depreciation and amortization		13,832			13,987			41,777			41,817

		44,061			58,138			135,576			142,100
Selling, general and administrative expenses		8,754			6,894			27,616			24,944
Purchase (sale) of emission allowances		—			(167	)		(202	)		(167	)

Operating income (loss)		35,307			51,411			108,162			117,323


Other income (expense)
Interest expense		(14,117	)		(17,820	)		(44,906	)		(51,141	)
Investment income (loss)		270			93			733			304
Foreign exchange gain (loss) on debt		(181	)		9,927			1,272			(4,675	)
Gain (loss) on extinguishment of debt		(69	)		—			(69	)		(929	)
Gain (loss) on derivative instruments		(10,484	)		485			(580	)		(10,523	)

Total other income (expense)		(24,581	)		(7,315	)		(43,550	)		(66,964	)

Income (loss) before income taxes		10,726			44,096			64,612			50,359
Income tax benefit (provision) — current		(1,557	)		(2,227	)		(3,854	)		(3,750	)
— deferred		(1,567	)		9,382			(3,707	)		9,382

Net income (loss)		7,602			51,251			57,051			55,991
Less: net loss (income) attributable to noncontrolling interest		838			(5,116	)		(5,175	)		(5,001	)

Net income (loss) attributable to common shareholders	€	8,440		€	46,135		€	51,876		€	50,990


Net income (loss) per share attributable to common shareholders
Basic	€	0.15		€	1.17		€	1.07		€	1.36

Diluted	€	0.15		€	0.82		€	0.92		€	0.93

(2)

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of Euros)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Cash flows from (used in) operating activities
Net income (loss) attributable to common shareholders	€	8,440		€	46,135		€	51,876		€	50,990
Adjustments to reconcile net income (loss) attributable to common shareholders to cash flows from operating activities
Loss (gain) on derivative instruments		10,484			(485	)		580			10,523
Foreign exchange loss (gain) on debt		181			(9,927	)		(1,272	)		4,675
Loss (gain) on extinguishment of debt		69			—			69			929
Depreciation and amortization		13,893			14,055			41,960			42,052
Accretion expense (income)		(168	)		1,111			591			2,056
Noncontrolling interest		(838	)		5,116			5,175			5,001
Deferred income taxes		1,567			(9,382	)		3,707			(9,382	)
Stock compensation expense		305			540			2,844			1,273
Pension and other post-retirement expense, net of funding		(95	)		96			(102	)		428
Other		359			989			1,962			2,836
Changes in current assets and liabilities
Receivables		(9,452	)		19,591			3,248			(26,351	)
Inventories		(23,776	)		(26,005	)		(27,862	)		(36,988	)
Accounts payable and accrued expenses		318			1,814			24,873			15,146
Other		(752	)		(4,883	)		92			(5,477	)

Net cash from (used in) operating activities		535			38,765			107,741			57,711


Cash flows from (used in) investing activities
Purchase of property, plant and equipment		(10,297	)		(8,484	)		(26,122	)		(28,876	)
Proceeds on sale of property, plant and equipment		1,564			28			1,944			577
Note receivable		2,064			216			2,835			711
Purchase of marketable securities		(4,018	)		—			(4,018	)		—

Net cash from (used in) investing activities		(10,687	)		(8,240	)		(25,361	)		(27,588	)


Cash flows from (used in) financing activities
Repayment of notes payable and debt		(12,160	)		(6,211	)		(42,511	)		(14,461	)
Repayment of capital lease obligations		(776	)		(638	)		(2,269	)		(2,245	)
Proceeds from borrowings of notes payable and debt		—			—			—			840
Proceeds from (repayment of) credit facilities, net		—			(4,057	)		(14,652	)		1,493
Proceeds from government grants		4,470			6,778			13,419			17,337
Purchase of treasury shares		(7,477	)		—			(7,477	)		—

Net cash from (used in) financing activities		(15,943	)		(4,128	)		(53,490	)		2,964


Effect of exchange rate changes on cash and cash equivalents		2,058			(3,416	)		(154	)		748


Net increase (decrease) in cash and cash equivalents		(24,037	)		22,981			28,736			33,835
Cash and cash equivalents, beginning of period		151,795			62,145			99,022			51,291

Cash and cash equivalents, end of period	€	127,758		€	85,126		€	127,758		€	85,126

(3)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)

The terms of the indenture governing our 9.5% senior unsecured notes require that we provide the results of operations and financial condition of Mercer International Inc. and our restricted subsidiaries under the indenture, collectively referred to as the “Restricted Group”. As at and during the three and nine months ended September 30, 2011 and 2010, the Restricted Group was comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills. The Restricted Group excludes the Stendal mill.


	September 30, 2011
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
ASSETS
Current assets
Cash and cash equivalents	€	60,426	€	67,332		€	—		€	127,758
Marketable securities		4,013		—			—			4,013
Receivables		60,639		49,657			—			110,296
Inventories		71,404		56,637			—			128,041
Prepaid expenses and other		6,309		3,598			—			9,907
Deferred income tax		24,951		—			—			24,951

Total current assets		227,742		177,224			—			404,966

Long-term assets
Property, plant and equipment		345,077		470,650			—			815,727
Deferred note issuance and other		6,229		3,714			—			9,943
Due from unrestricted group		86,623		—			(86,623	)		—

Total assets	€	665,671	€	651,588		€	(86,623	)	€	1,230,636


LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	56,258	€	53,587		€	—		€	109,845
Pension and other post-retirement benefit obligations		694		—			—			694
Debt		1,088		24,583			—			25,671

Total current liabilities		58,040		78,170			—			136,210

Long-term liabilities
Debt		221,449		485,591			—			707,040
Due to restricted group		—		86,623			(86,623	)		—
Unrealized interest rate derivative losses		—		51,553			—			51,553
Pension and other post-retirement benefit obligations		23,010		—			—			23,010
Capital leases and other		6,557		5,300			—			11,857
Deferred income tax		14,413		—						14,413

Total liabilities		323,469		707,237			(86,623	)		944,083


EQUITY
Total shareholders’ equity (deficit)		342,202		(38,320	)		—			303,882
Noncontrolling interest (deficit)		—		(17,329	)		—			(17,329	)

Total liabilities and equity	€	665,671	€	651,588		€	(86,623	)	€	1,230,636

(4)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Balance Sheets
(Unaudited)
(In thousands of Euros)


	December 31, 2010
	Restricted		Unrestricted						Consolidated
	Group		Subsidiaries			Eliminations			Group
ASSETS
Current assets
Cash and cash equivalents	€	50,654	€	48,368		€	—		€	99,022
Receivables		70,865		50,844			—			121,709
Inventories		60,910		41,309			—			102,219
Prepaid expenses and other		6,840		4,520			—			11,360
Deferred income tax		22,570		—			—			22,570

Total current assets		211,839		145,041			—			356,880

Long-term assets
Property, plant and equipment		362,274		484,493			—			846,767
Deferred note issuance and other		6,903		4,179			—			11,082
Due from unrestricted group		80,582		—			(80,582	)		—
Note receivable		1,346		—			—			1,346

Total assets	€	662,944	€	633,713		€	(80,582	)	€	1,216,075


LIABILITIES
Current liabilities
Accounts payable and accrued expenses	€	44,015	€	40,858		€	—		€	84,873
Pension and other post-retirement benefit obligations		728		—			—			728
Debt		16,429		23,167			—			39,596

Total current liabilities		61,172		64,025			—			125,197

Long-term liabilities
Debt		273,473		508,855			—			782,328
Due to restricted group		—		80,582			(80,582	)		—
Unrealized interest rate derivative losses		—		50,973			—			50,973
Pension and other post-retirement benefit obligations		24,236		—			—			24,236
Capital leases and other		7,154		4,856			—			12,010
Deferred income tax		7,768		—			—			7,768

Total liabilities		373,803		709,291			(80,582	)		1,002,512


EQUITY
Total shareholders’ equity (deficit)		289,141		(53,073	)		—			236,068
Noncontrolling interest (deficit)		—		(22,505	)		—			(22,505	)

Total liabilities and equity	€	662,944	€	633,713		€	(80,582	)	€	1,216,075

(5)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)


	Three Months Ended September 30, 2011
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues
Pulp	€	111,634		€	78,792		€	—		€	190,426
Energy		6,121			8,231			—			14,352

		117,755			87,023			—			204,778


Operating costs		85,962			60,923			—			146,885
Operating depreciation and amortization		7,364			6,468			—			13,832
Selling, general and administrative expenses and other		6,080			2,674			—			8,754

		99,406			70,065			—			169,471

Operating income (loss)		18,349			16,958			—			35,307


Other income (expense)
Interest expense		(5,496	)		(9,869	)		1,248			(14,117	)
Investment income (loss)		1,334			184			(1,248	)		270
Foreign exchange gain (loss) on debt		(181	)		—			—			(181	)
Gain (loss) on extinguishment of debt		(69	)		—			—			(69	)
Gain (loss) on derivative instruments		—			(10,484	)		—			(10,484	)

Total other income (expense)		(4,412	)		(20,169	)		—			(24,581	)

Income (loss) before income taxes		13,937			(3,211	)		—			10,726
Income tax benefit (provision)		(2,566	)		(558	)		—			(3,124	)

Net income (loss)		11,371			(3,769	)		—			7,602
Less: net loss (income) attributable to noncontrolling interest		—			838			—			838

Net income (loss) attributable to common shareholders	€	11,371		€	(2,931	)	€	—		€	8,440


	Three Months Ended September 30, 2010
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues
Pulp	€	123,518		€	101,179		€	—		€	224,697
Energy		1,535			8,186			—			9,721

		125,053			109,365			—			234,418


Operating costs		91,528			70,765			—			162,293
Operating depreciation and amortization		7,514			6,473			—			13,987
Selling, general and administrative expenses and other		3,221			3,506			—			6,727

		102,263			80,744			—			183,007

Operating income (loss)		22,790			28,621			—			51,411


Other income (expense)
Interest expense		(8,796	)		(10,213	)		1,189			(17,820	)
Investment income (loss)		1,246			36			(1,189	)		93
Foreign exchange gain (loss) on debt		9,927			—			—			9,927
Gain (loss) on derivative instruments		—			485			—			485

Total other income (expense)		2,377			(9,692	)		—			(7,315	)

Income (loss) before income taxes		25,167			18,929			—			44,096
Income tax benefit (provision)		8,849			(1,694	)		—			7,155

Net income (loss)		34,016			17,235			—			51,251
Less: net loss (income) attributable to noncontrolling interest		—			(5,116	)		—		��	(5,116	)

Net income (loss) attributable to common shareholders	€	34,016		€	12,119		€	—		€	46,135

(6)

MERCER INTERNATIONAL INC.

RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
Combined Condensed Statements of Operations
(Unaudited)
(In thousands of Euros)


	Nine Months Ended September 30, 2011
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues
Pulp	€	352,098		€	266,060		€	—		€	618,158
Energy		17,668			24,302			—			41,970

		369,766			290,362			—			660,128


Operating costs		272,162			210,613			—			482,775
Operating depreciation and amortization		22,379			19,398			—			41,777
Selling, general and administrative expenses and other		17,572			9,842			—			27,414

		312,113			239,853			—			551,966

Operating income (loss)		57,653			50,509			—			108,162


Other income (expense)
Interest expense		(19,202	)		(29,404	)		3,700			(44,906	)
Investment income (loss)		3,918			515			(3,700	)		733
Foreign exchange gain (loss) on debt		1,272			—			—			1,272
Gain (loss) on extinguishment of debt		(69	)		—			—			(69	)
Gain (loss) on derivative instruments		—			(580	)		—			(580	)

Total other income (expense)		(14,081	)		(29,469	)		—			(43,550	)

Income (loss) before income taxes		43,572			21,040			—			64,612
Income tax benefit (provision)		(5,941	)		(1,620	)		—			(7,561	)

Net income (loss)		37,631			19,420			—			57,051
Less: net loss (income) attributable to noncontrolling interest		—			(5,175	)		—			(5,175	)

Net income (loss) attributable to common shareholders	€	37,631		€	14,245		€	—		€	51,876


	Nine Months Ended September 30, 2010
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues
Pulp	€	354,775		€	269,336		€	—		€	624,111
Energy		8,750			22,033			—			30,783

		363,525			291,369			—			654,894


Operating costs		269,063			201,914			—			470,977
Operating depreciation and amortization		22,355			19,462			—			41,817
Selling, general and administrative expenses and other		14,792			9,985			—			24,777

		306,210			231,361			—			537,571

Operating income (loss)		57,315			60,008			—			117,323


Other income (expense)
Interest expense		(24,073	)		(30,593	)		3,525			(51,141	)
Investment income (loss)		3,770			59			(3,525	)		304
Foreign exchange gain (loss) on debt		(4,675	)		—			—			(4,675	)
Gain (loss) on extinguishment of debt		(929	)		—			—			(929	)
Gain (loss) on derivative instruments		—			(10,523	)		—			(10,523	)

Total other income (expense)		(25,907	)		(41,057	)		—			(66,964	)

Income (loss) before income taxes		31,408			18,951			—			50,359
Income tax benefit (provision)		8,354			(2,722	)		—			5,632

Net income (loss)		39,762			16,229			—			55,991
Less: net loss (income) attributable to noncontrolling interest		—			(5,001	)		—			(5,001	)

Net income (loss) attributable to common shareholders	€	39,762		€	11,228		€	—		€	50,990

(7)

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands of Euros)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss) attributable to common shareholders	€	8,440		€	46,135		€	51,876		€	50,990
Net income (loss) attributable to noncontrolling interest		(838	)		5,116			5,175			5,001
Income taxes (benefits)		3,124			(7,155	)		7,561			(5,632	)
Interest expense		14,117			17,820			44,906			51,141
Investment (income) loss		(270	)		(93	)		(733	)		(304	)
Foreign exchange (gain) loss on debt		181			(9,927	)		(1,272	)		4,675
Loss on extinguishment of debt		69			—			69			929
Loss (gain) on derivative financial instruments		10,484			(485	)		580			10,523

Operating income (loss)		35,307			51,411			108,162			117,323
Add: Depreciation and amortization		13,893			14,055			41,960			42,052

Operating EBITDA⁽¹⁾	€	49,200		€	65,466		€	150,122		€	159,375


(1)		Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss) attributable to common shareholders, 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) attributable to common shareholders or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
(Unaudited)
(In thousands of Euros)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Restricted Group
Net income (loss) attributable to common shareholders⁽¹⁾	€	11,371		€	34,016		€	37,631		€	39,762
Income taxes (benefits)		2,566			(8,849	)		5,941			(8,354	)
Interest expense		5,496			8,796			19,202			24,073
Investment (income) loss		(1,334	)		(1,246	)		(3,918	)		(3,770	)
Foreign exchange (gain) loss on debt		181			(9,927	)		(1,272	)		4,675
Loss on extinguishment of debt		69			—			69			929

Operating income (loss)		18,349			22,790			57,653			57,315
Add: Depreciation and amortization		7,425			7,582			22,562			22,590

Operating EBITDA⁽²⁾	€	25,774		€	30,372		€	80,215		€	79,905


(1)		For the Restricted Group, net income (loss) attributable to common shareholders and net income (loss) are the same.

(2)		Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss) attributable to common shareholders, 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) attributable to common shareholders 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.

# # #

(8)

Mercer International (MERC) 8-KMercer International Inc. Reports Strong 2011 Third Quarter Results