Mercer International Inc. Reports 2007 Third Quarter Results



    NEW YORK, Nov. 5 /CNW/ -- Mercer International Inc. (Nasdaq:   MERC, TSX:
MRI.U) today reported results for the third quarter of 2007.  In 2006, we
divested our paper mills and account for this business as discontinued
operations and its results are reported separately.  As a result, prior year
reported amounts have been reclassified to conform to the current
presentation.  Except as otherwise noted, the following discussion relates to
our continuing operations.
    The quarter ended September 30, 2007 was operationally one of our best
ever with record pulp production and shipments.  In addition, our financial
results were solid despite the continued weakening of the U.S. dollar against
the Euro and higher fiber costs in the current quarter.  High mill
efficiencies and only nine days of annual maintenance downtime were the
primary drivers of the operational results. Demand for NBSK remained strong
throughout the quarter which enabled us to secure price increases in both the
European and Asian markets which were partially offset by the impact of the
weak U.S. dollar.

    Highlights of the 2007 Third Quarter

    
    -- Revenues increased by 12% to euro 191.1 million from euro 171.2 million
       in the comparative quarter of 2006, driven by stronger pulp prices and
       higher sales volume.  Average NBSK list prices in Northern Europe rose
       to $810 per ADMT in the quarter from $783 per ADMT in the prior quarter
       and $708 per ADMT in the third quarter of 2006.
    -- Our average pulp price realizations increased to euro 520 per ADMT from
       euro 482 in the same quarter of 2006 but were only marginally higher
       than euro 518 per ADMT in the prior quarter of 2007 as higher prices
       were largely offset by a weakening U.S. dollar. During the third
       quarter, the U.S. dollar was weaker relative to both the Euro and
       Canadian dollar, falling in value by 2% and 5% respectively compared to
       the second quarter of 2007 and 7% against each such currency in the
       comparative period of 2006.
    -- On average, fiber prices were approximately 33% higher than in the
       prior year period but decreased marginally from prior quarter levels.
    -- Operating EBITDA in the current quarter of euro 35.8 million was down
       compared to the comparative quarter in 2006 of euro 48.2 million as
       higher sales and productivity along with improved prices were more than
       offset by higher fiber costs and currency changes.  For a definition of
       Operating EBITDA, see page 5 of this press release, and for a
       reconciliation of net income from continuing operations to Operating
       EBITDA, see page 7 of the financial tables included in this press
       release.
    -- Net income from continuing operations was euro 10.7 million, or euro
       0.30 per basic and euro 0.26 per diluted share, in the current quarter
       which included a net loss on our derivatives and foreign currency
       denominated long-term debt of euro 1.1 million, compared to net income
       from continuing operations of euro 6.1 million, or euro 0.18 per basic
       and diluted share, in the same period of 2006 which included a net loss
       on our derivatives and foreign currency denominated long-term debt of
       euro 15.2 million.
    

    President's Comments

    Mr. Jimmy S.H. Lee, President and Chairman, stated:

    
    -- "We had strong operating performances in the quarter, setting
       production and sales records.  Scheduled maintenance downtime at our
       Rosenthal mill reduced production by approximately 8,400 ADMTs in the
       quarter. We have now completed all of our 2007 annual maintenance
       downtime.
    -- Pulp markets continued to show strength in the third quarter of 2007.
       List prices in the quarter increased by approximately $27 per ADMT in
       Europe.  Demand in the upcoming quarter is currently expected to remain
       strong as both producer and buyer inventories remain at historically
       low levels.
    -- During the quarter, Stendal concluded a final settlement of
       substantially all outstanding matters with its contractors under its
       EPC contract while still maintaining existing warranties as provided by
       the equipment suppliers.  We are happy to conclude this settlement with
       our contractors which addresses all significant outstanding matters.
    -- Prices for residual chips in Germany and British Columbia purchased in
       the third quarter decreased marginally from second quarter levels.
       Prices for roundwood, which comprises a major portion of fiber for our
       Stendal mill, have not declined due to continuing strong demand in
       northern Germany.  As a result, we expect to continue to displace
       roundwood with residual chips at Stendal in the final quarter of 2007.
       Overall, we currently expect fiber prices in the fourth quarter to be
       generally level with third quarter prices but continuing weakness in
       North American and European lumber markets may put upward pressure on
       prices in early 2008.
    -- We are seeing continued strong demand in all our markets. We expect
       that this, along with the weakened U.S. dollar, will result in higher
       pulp prices in the upcoming months."
    

    Mr. Lee concluded:  "With our mills running at historically high levels,
we are well positioned to take advantage of the NBSK price momentum and
stabilizing fiber prices for the balance of the year, although further
weakness in the U.S. dollar will adversely impact our price realizations and
margins."

    Summary Selected Highlights

    
                                        Q3              Q2            Q3
                                       2007            2007          2006
                          (in millions of Euro, except where otherwise stated)
    

    
    Revenues                     euro 191.1      euro 176.6    euro 171.2
    Operating income from
     continuing operations             21.5            10.9          34.8
    Operating EBITDA(1)                35.8            25.0          48.2
    Unrealized (loss) gain
     on derivative instruments         (5.7)           18.1         (14.5)
    Interest expense                   18.6            17.6          23.0
    Unrealized foreign exchange
     gain (loss) on debt                4.6             1.3          (0.7)
    Net income from continuing
     operations                        10.7             3.3           6.1
    Income per share from
     continuing operations
    Basic                        euro  0.30      euro  0.09    euro  0.18
    Diluted                      euro  0.26      euro  0.09    euro  0.18
    

    
    (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 7 of the financial tables included in this press release.
    

    
                                        Q3              Q2            Q3
                                       2007            2007          2006
    

    Pulp Production ('000 ADMTs)      361.0           326.4         347.2



    Pulp Sales ('000 ADMTs)           363.5           337.0         338.2



    NBSK list price in Europe ($/ADMT)  810             783           708

    
    Average pulp price
     realizations (euro/ADMT)           520             518           482
    

    
    Average Spot Currency
     Exchange Rates
    

    euro / $(1)                      0.7268          0.7416        0.7851

    C$ / $(1)                        1.0446          1.0981        1.1212

    C$ / euro(2)                     1.4367          1.4810        1.4279

    
    (1) Average Federal Reserve Bank of New York noon spot rate over the
        reporting period.
    (2) Average Bank of Canada noon spot rate over the reporting period.
    
    Three Months Ended September 30, 2007 Compared to Three Months Ended
September 30, 2006
    Revenues for the three months ended September 30, 2007 increased by 12%
to euro 191.1 million from euro 171.2 million in the comparative period of
2006, primarily due to higher sales volume and stronger pulp prices, partially
offset by a 7% weakening of the U.S. dollar versus the Euro and the Canadian
dollar. List prices for NBSK pulp in Europe were approximately euro 589 ($810)
per ADMT in the third quarter of 2007, euro 579 ($783) per ADMT in the second
quarter of 2007 and approximately euro 556 ($708) per ADMT in the same period
last year. Pulp sales volume increased to 363,523 ADMTs in the third quarter
of 2007 from 338,201 ADMTs in the comparative period of 2006.  Average pulp
sales realizations increased to euro 520 per ADMT on average in the third
quarter of 2007 from euro 482 per ADMT in the third quarter of 2006, primarily
as a result of higher pulp prices.
    Cost of sales, general administrative and other expenses in the third
quarter of 2007 increased to euro 169.7 million from euro 136.5 million in the
comparative period of 2006, primarily as a result of higher sales volumes and
fiber costs.
    On average, in the current quarter, fiber costs increased by
approximately 33% from the comparative period of 2006 and decreased marginally
from the second quarter of 2007.  Fiber costs at our German pulp mills fell
moderately in the current quarter from the second quarter of 2007, primarily
as a result of increased availability of storm-felled wood and relatively high
levels of sawmill activity. While fiber availability is generally good, the
recent deterioration in European lumber prices is expected to keep fiber
prices relatively level in the fourth quarter. Fiber costs at our Celgar mill
were stable, due to our supply optimization efforts along with the currency
impact on the mill's U.S. sourced fiber. Incremental whole log chipping has
been required to offset the lower availability of chips resulting from weak
North American lumber markets and resulting lower sawmilling activity.
    For the third quarter of 2007, operating income decreased by
approximately 38% to euro 21.5 million from euro 34.8 million in the
comparative quarter of 2006, as higher pulp prices and improved operating
results were more than offset by exchange rates and higher fiber costs.
    Interest expense in the third quarter of 2007 decreased to euro 18.6
million from euro 23.0 million in the comparative quarter of 2006, primarily
due to a lower level of borrowing by Stendal and the settlement of our cross-
currency swaps in the first quarter of 2007.
    During the quarter, Stendal concluded a final settlement of substantially
all outstanding matters with its contractors under its EPC contract while
still maintaining existing warranties as provided by the equipment suppliers.
Pursuant to the settlement, Stendal received approximately euro 11 million
from its contractors, of which euro 9.1 million was applied to reduce our
costs of assets and did not affect our revenues or income.
    
    Derivative Instruments, Long-Term Debt and Minority Interest
    
    We recorded a net unrealized loss of euro 5.7 million on our outstanding
interest rate derivatives at the end of the current quarter as a result of a
decline in long-term interest rates, compared to a net loss of euro 14.5
million on our foreign currency and interest rate derivatives in the same
quarter of last year.
    In the current quarter, we recorded an unrealized gain on our foreign
currency denominated debt of euro 4.6 million, compared to losses of euro 0.7
million in the third quarter of 2006.
    In the third quarter of 2007, minority interest, representing the
minority shareholder's interest in the Stendal mill's income, was euro 0.7
million, compared to its euro 6.0 million share of losses in the same quarter
of last year.
    
    Earnings Per Share and Operating EBITDA
    
    We generated "Operating EBITDA" of euro 35.8 million and euro 48.2
million in the three months ended September 30, 2007 and 2006, respectively.
Operating EBITDA is defined as operating income (loss) from continuing
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, 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 to Operating EBITDA, see page 7 of
the financial tables included in this press release.
    We reported net income from continuing operations for the third quarter
of 2007 of euro 10.7 million, or euro 0.30 per basic and euro 0.26 per diluted
share, which included an aggregate net unrealized loss of euro 1.1 million on
our outstanding derivatives and foreign currency denominated long-term debt.
In the third quarter of 2006, we reported net income from continuing
operations of euro 6.1 million, or euro 0.18 per basic and diluted share,
which included a net unrealized loss of euro 15.2 million on our outstanding
derivatives and foreign currency denominated 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 6, 2007 at 10:00 AM EST.  Listeners can access the conference call
live and archived through December 6, 2007, 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=42599.  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 13, 2007 at 11:59 p.m. (Eastern
Standard Time).  The replay number is (800) 642-1687 for domestic callers or
(706) 645-9291 for international callers, and the passcode is 18699285.
    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 the Company's actual results
in future periods to differ materially from forecasted results. Among those
factors which could cause actual results to differ materially are the
following: market conditions, competition and other risk factors listed from
time to time in the Company's SEC reports.



    
                          MERCER INTERNATIONAL INC.
                         CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)
                             (Euros in thousands)
    



    
                                                  September 30,   December 31,
                                                      2007           2006
    ASSETS
    Current assets
        Cash and cash equivalents                euro 69,441     euro 69,367
        Receivables                                   97,380          75,022
        Note receivable, current portion               5,998           7,798
        Inventories                                   96,791          62,857
        Prepaid expenses and other                     6,356           4,662
        Current assets of discontinued operations      1,537           2,094
    Total current assets                             277,503         221,800
    Long-term assets
        Cash, restricted                              33,000          57,000
        Property, plant and equipment                949,046         972,143
        Investments                                       72               1
        Unrealized foreign exchange rate
         derivative gain                                   -           5,933
        Deferred note issuance and other costs         5,949           6,984
        Deferred income tax                           18,016          29,989
        Note receivable, less current portion          4,239           8,744
                                                   1,010,322       1,080,794
    

    
    Total assets                              euro 1,287,825  euro 1,302,594
    LIABILITIES
    Current liabilities
        Accounts payable and
         accrued expenses                     euro    91,293   euro   84,173
        Debt, current portion                         34,023          33,903
        Current liabilities of discontinued
         operations                                      610           1,926
    Total current liabilities                        125,926         120,002
    Long-term liabilities
        Debt, less current portion                   822,331         873,928
        Unrealized interest rate derivative loss      23,266          41,355
        Pension and other post-retirement benefit
         obligations                                  19,625          17,954
        Capital leases                                 5,350           6,202
        Deferred income tax                           16,698          22,911
        Other long-term liabilities                    3,714           1,441
                                                     890,984         963,791
    Total liabilities                              1,016,910       1,083,793
    Minority interest                                      -               -
    

    
    SHAREHOLDERS' EQUITY
    Common shares                                    202,845         195,642
    Additional paid-in capital                           134             154
    Retained earnings                                 30,181          15,240
    Accumulated other comprehensive income            37,755           7,765
    Total shareholders' equity                       270,915         218,801
    Total liabilities and
     shareholders' equity                     euro 1,287,825  euro 1,302,594
    

    (1)



    
                          MERCER INTERNATIONAL INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
              (Euros in thousands, except for income per share)
    



    
                                      Three Months            Nine Months
                                         Ended                   Ended
                                      September 30,          September 30,
                                    2007       2006        2007        2006
    

    Revenues              euro 191,111 euro 171,248 euro 537,245 euro 463,510

    
    Costs and expenses
        Operating costs        149,440      117,186      429,637      358,740
        Operating depreciation
         and amortization       14,284       13,465       42,003       41,790
                                27,387       40,597       65,605       62,980
        General and
         administrative
         expenses                5,930        5,839       19,494       19,891
        (Sale) purchase of
         emission allowances         -            -         (766)     (13,246)
    Operating income from
     continuing operations      21,457       34,758       46,877       56,335
    

    
    Other income (expense)
        Interest expense       (18,599)     (23,041)     (56,308)     (68,769)
        Investment income        2,791        1,080        5,986        4,083
        Unrealized foreign
         exchange gain (loss)
         on debt                 4,626         (704)       7,229       11,469
        Realized gain (loss) on
         derivative instruments      -           -         6,820       (5,219)
        Unrealized (loss) gain on
         derivative instruments (5,696)     (14,473)      12,156       76,251
    Total other (expense)
     income                    (16,878)     (37,138)     (24,117)      17,815
    

    
    Income (loss) before income taxes
     and  minority interest from
     continuing operations       4,579       (2,380)      22,760       74,150
    Income tax benefit
     (provision)
         - current                (144)        (302)        (877)        (524)
         - deferred              7,013        2,834       (5,959)     (39,864)
    Income before minority
     interest from continuing
     operations                 11,448          152       15,924       33,762
    Minority interest             (742)       5,976         (785)       6,874
    Net income from
     continuing operations      10,706        6,128       15,139       40,636
    Net (loss) income from
     discontinued operations       (10)         600         (198)       1,101
    Net income                  10,696        6,728       14,941       41,737
    

    
    Retained earnings (deficit),
     beginning of period        19,485      (12,961)      15,240      (47,970)
    Retained earnings
    (deficit), end of
    period                 euro 30,181  euro (6,233) euro 30,181 euro  (6,233)
    

    
    Net income per share from
     continuing operations
        Basic              euro   0.30  euro  0.18   euro   0.42 euro    1.22
        Diluted            euro   0.26  euro  0.18   euro   0.40 euro    1.03
    Income per share
        Basic              euro   0.29  euro  0.20   euro   0.41 euro    1.26
        Diluted            euro   0.26  euro  0.19   euro   0.39 euro    1.05
    

    (2)



    
                          MERCER INTERNATIONAL INC.
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                       Combined Condensed Balance Sheet
                           As at September 30, 2007
                                 (Unaudited)
                             (Euros in thousands)
    
    The terms of the indenture governing our 9.25% senior unsecured notes
requires that we provide the results of operations and financial condition of
Mercer International Inc. 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, 2007 and 2006, 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 and up to December 31, 2006 the discontinued paper operations.



    
                                           September 30, 2007
                          Restricted  Unrestricted                Consolidated
                            Group     Subsidiaries  Eliminations      Group
    ASSETS
    Current assets
      Cash and
       cash equivalents euro  48,993 euro  20,448 euro       -  euro    69,441
      Receivables             46,413       50,967            -          97,380
      Note receivable,
       current portion           599        5,399            -           5,998
      Inventories             57,161       39,630            -          96,791
      Prepaid expenses
       and other               3,762        2,594            -           6,356
      Current assets from
       discontinued
       operations              1,537            -            -           1,537
    Total current assets     158,465      119,038            -         277,503
      Cash, restricted             -       33,000            -          33,000
      Property, plant
       and equipment         395,864      553,182            -         949,046
      Other                    6,021            -            -           6,021
      Deferred income tax     11,233        6,783            -          18,016
      Due from unrestricted
       group                  56,561            -      (56,561)              -
      Note receivable, less
       current portion         4,239            -            -           4,239
    

    Total assets       euro  632,383 euro 712,003 euro (56,561) euro
1,287,825

    
    LIABILITIES
    Current
      Accounts payable
       and accrued
       expenses        euro   46,023 euro  45,270 euro       -  euro    91,293
      Debt, current
       portion                     -       34,023            -          34,023
      Current liabilities from
       discontinued operations   610            -            -             610
    Total current liabilities 46,633       79,293            -         125,926
      Debt, less current
       portion               280,847      541,484            -         822,331
      Due to restricted group      -       56,561      (56,561)              -
      Unrealized derivative
       loss                        -       23,266            -          23,266
      Capital leases           3,847        1,503            -           5,350
      Deferred income tax      4,214       12,484            -          16,698
      Other long-term
       liabilities            23,327           12            -          23,339
    Total liabilities        358,868      714,603      (56,561)      1,016,910
    

    
    SHAREHOLDERS' EQUITY
    Total shareholders'
     equity (deficit)        273,515       (2,600)           -         270,915
    Total liabilities and
     shareholders'
     equity            euro  632,383 euro 712,003 euro (56,561) euro 1,287,825
    

    (3)



    
                          MERCER INTERNATIONAL INC.
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                       Combined Condensed Balance Sheet
                           As at December 31, 2006
                                 (Unaudited)
                             (Euros in thousands)
    

    
                                          December 31, 2006
                          Restricted   Unrestricted               Consolidated
                             Group     Subsidiaries  Eliminations    Group
    ASSETS
    Current
      Cash and cash
       equivalents    euro  39,078  euro  30,289  euro      -   euro    69,367
      Receivables           38,662        36,360            -           75,022
      Note receivable,
       current portion         620         7,178            -            7,798
      Inventories           41,087        21,770            -           62,857
      Prepaid expenses
       and other             2,352         2,310            -            4,662
      Current assets of
       discontinued
       operations                -         2,094            -            2,094
    Total current assets   121,799       100,001            -          221,800
      Cash, restricted           -        57,000            -           57,000
      Property, plant
       and equipment       408,957       563,186            -          972,143
      Other                  8,155         4,763            -           12,918
      Deferred income tax   14,316        15,673            -           29,989
      Due from
       unrestricted group   51,265             -      (51,265)               -
      Note receivable,
       less current
       portion               5,023         3,721            -            8,744
    Total assets      euro 609,515  euro 744,344  euro(51,265)  euro 1,302,594
    

    
    LIABILITIES
    Current
      Accounts payable
       and accrued
       expenses       euro  46,838  euro  37,335 euro       -   euro    84,173
      Debt, current
       portion                   -        33,903            -           33,903
      Current liabilities
       from discontinued
       operations                -         1,926            -            1,926
    Total current
     liabilities            46,838        73,164            -          120,002
      Debt, less current
       portion             293,781       580,147            -          873,928
      Due to restricted
      group                      -        51,265      (51,265)               -
      Unrealized
       derivative loss           -        41,355            -           41,355
      Capital leases         2,720         3,482            -            6,202
      Deferred
       income tax            2,832        20,079            -           22,911
      Other long-term
       liabilities          19,395             -            -           19,395
    Total liabilities      365,566       769,492      (51,265)       1,083,793
    SHAREHOLDERS' EQUITY
    Total shareholders'
     equity (deficit)      243,949       (25,148)           -          218,801
    Total liabilities
     and shareholders'
     equity           euro 609,515  euro 744,344 euro (51,265)  euro 1,302,594
    

    (4)



    
                          MERCER INTERNATIONAL INC.
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
            For the Three Months Ended September 30, 2007 and 2006
                                 (Unaudited)
                             (Euros in thousands)
    

    Three Months Ended September 30, 2007

    
                          Restricted   Unrestricted               Consolidated
                             Group     Subsidiaries  Eliminations    Group
    

    
    Revenues          euro 106,530  euro  84,581  euro       -  euro  191,111
    Operating costs         84,769        64,671             -        149,440
    Operating
     depreciation
     and amortization        7,419         6,865             -         14,284
    General and
     administrative
     expenses                3,386         2,544             -          5,930
    (Sale) purchase of
     emission allowances         -             -             -              -
                            95,574        74,080             -        169,654
         Operating income
          from continuing
          operations        10,956        10,501             -         21,457
    Other income (expense)
      Interest expense      (6,996)      (12,540)          937        (18,599)
      Investment income      1,321         2,407          (937)         2,791
      Unrealized foreign
       exchange gain
       on debt               4,545            81             -          4,626
      Derivative financial
       instruments, net          -        (5,696)            -         (5,696)
      Total other expense   (1,130)      (15,748)            -        (16,878)
         Income (loss)
          before income
          taxes and
          minority interest
          from continuing
          operations         9,826        (5,247)            -          4,579
    Income tax benefit
     (provision) - current     (13)         (131)            -           (144)
                 - deferred   (770)        7,783             -          7,013
         Income before
          minority interest
          from continuing
          operations         9,043         2,405             -         11,448
    Minority interest            -          (742)            -           (742)
         Net income from
          continuing
          operations         9,043         1,663             -         10,706
         Net loss from
          discontinued
          operations           (10)            -             -            (10)
    

    Net income   euro   9,033  euro   1,663  euro       -  euro   10,696



    Three Months Ended September 30, 2006

    
                          Restricted   Unrestricted               Consolidated
                             Group     Subsidiaries  Eliminations    Group
    

    
    Revenues          euro  95,779  euro  75,469  euro       -  euro  171,248
    Operating costs         65,595        51,591             -        117,186
    Operating depreciation
     and amortization        6,383         7,082             -         13,465
    General and
     administrative
     expenses                3,399         2,440             -          5,839
    (Sale) purchase of
     emission allowances         -             -             -              -
                            75,377        61,113             -        136,490
         Operating income
          from continuing
          operations        20,402        14,356             -         34,758
    Other income (expense)
      Interest expense      (8,160)      (15,776)          895        (23,041)
      Investment income      1,142           833          (895)         1,080
      Unrealized foreign
       exchange loss
       on debt                (704)            -             -           (704)
      Derivative financial
       instruments, net          -       (14,473)            -        (14,473)
      Total other expense   (7,722)      (29,416)            -        (37,138)
         Income (loss)
          before income
          taxes and
          minority interest
          from continuing
          operations        12,680       (15,060)            -         (2,380)
    Income tax benefit
     (provision) - current    (100)         (202)            -           (302)
                 - deferred (1,281)        4,115             -          2,834
         Income (loss)
          before minority
          interest from
          continuing
          operations        11,299       (11,147)            -            152
    Minority interest            -         5,976             -          5,976
         Net income
         (loss) from
         continuing
         operations         11,299        (5,171)            -          6,128
         Net income from
          discontinued
          operations             -           600             -            600
    

    
         Net income
          (loss)      euro  11,299   euro (4,571)  euro      -  euro    6,728
    

    (5)




    
                          MERCER INTERNATIONAL INC.
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
            For the Nine Months Ended September 30, 2007 and 2006
                                 (Unaudited)
                             (Euros in thousands)
    

    Nine Months Ended September 30, 2007

    
                        Restricted  Unrestricted                Consolidated
                          Group     Subsidiaries  Eliminations      Group
    

    
    Revenues          euro  310,770 euro  226,475   euro    -  euro  537,245
    Operating costs         249,052       180,585           -        429,637
    Operating
     depreciation and
     amortization            21,080        20,923           -         42,003
    General and
     administrative
     expenses                11,548         7,943           -         19,491
    (Sale) purchase
     of emission
     allowances                (261)         (502)          -           (763)
                            281,419       208,949           -        490,368
      Operating income
       from continuing
       operations            29,351        17,526           -         46,877
    Other income (expense)
      Interest expense      (21,414)      (37,672)      2,778        (56,308)
      Investment income       3,761         5,003      (2,778)         5,986
      Unrealized foreign
       exchange gain on debt  6,808           421           -          7,229
      Derivative financial
       instruments, net           -        18,976           -         18,976
    

    
      Total other expense   (10,845)      (13,272)          -        (24,117)
       Income before income
        taxes and minority
        interest from
        continuing
        operations           18,506         4,254           -         22,760
    

    
    Income tax
    provision - current        (469)         (408)          -           (877)
              - deferred     (4,464)       (1,495)          -         (5,959)
    Income before minority
     interest from continuing
     operations              13,573         2,351           -         15,924
    Minority interest             -          (785)          -           (785)
     Net income from
      continuing
      operations             13,573         1,566           -         15,139
     Net loss from
      discontinued
      operations               (198)            -           -           (198)
    

    Net income   euro   13,375 euro    1,566   euro    -  euro   14,941


    Nine Months Ended September 30, 2006

    
                          Restricted  Unrestricted                Consolidated
                            Group     Subsidiaries  Eliminations      Group
    

    
    Revenues           euro  265,531  euro  197,979  euro   -   euro  463,510
    Operating costs          214,873        143,867         -         358,740
    Operating depreciation
     and amortization         20,580         21,210         -          41,790
    General and
     administrative expenses  12,884          7,007         -          19,891
    (Sale) purchase of
    emission allowances       (3,651)        (9,595)        -         (13,246)
                             244,686        162,489         -         407,175
     Operating income from
      continuing operations   20,845         35,490         -          56,335
    

    
    Other income (expense)
     Interest expense        (24,602)       (46,822)    2,655         (68,769)
     Investment income         3,261          3,477    (2,655)          4,083
     Unrealized foreign
      exchange gain on debt   11,469              -         -          11,469
     Derivative financial
      instruments, net             -         71,032         -          71,032
     Total other income
      (expense)               (9,872)        27,687         -          17,815
     Income before income
      taxes and minority interest
      from continuing
      operations              10,973         63,177         -          74,150
    Income tax provision
     - current                  (322)          (202)        -            (524)
     - deferred               (7,964)       (31,900)        -         (39,864)
    Income before minority
     interest from continuing
     operations                2,687         31,075         -          33,762
    Minority interest              -          6,874         -           6,874
     Net income from
      continuing operations    2,687         37,949         -          40,636
     Net income from
      discontinued operations      -          1,101         -           1,101
    

    Net income    euro    2,687  euro   39,050  euro   -   euro   41,737

    (6)



    MERCER INTERNATIONAL INC.

    
                       COMPUTATION OF OPERATING EBITDA
    For the Three Months and Nine Months Ended September 30, 2007 and 2006
                                 (Unaudited)
                             (Euros in thousands)
    


    
                                                        Three Months Ended
                                                            September 30,
                                                          2007        2006
                                                           (in thousands)
    

    
    Net income from continuing operations         euro   10,706  euro  6,128
    Minority interest                                       742       (5,976)
    Income taxes                                         (6,869)      (2,532)
    Interest expense                                     18,599       23,041
    Investment income                                    (2,791)      (1,080)
    Unrealized foreign exchange (gain) loss on debt      (4,626)         704
    Derivative financial instruments, net gain            5,696       14,473
    Operating income from continuing operations          21,457       34,758
    Add:  Depreciation and amortization                  14,351       13,465
    Operating EBITDA(1)                           euro   35,808  euro 48,223
    



    
                                                           Nine Months Ended
                                                             September 30,
                                                          2007         2006
                                                            (in thousands)
    

    
    Net income from continuing operations         euro   15,139   euro 40,636
    Minority interest                                       785        (6,874)
    Income taxes                                          6,836        40,388
    Interest expense                                     56,308        68,769
    Investment income                                    (5,986)       (4,083)
    Unrealized foreign exchange gain on debt             (7,229)      (11,469)
    Derivative financial instruments, net gain          (18,976)      (71,032)
    Operating income from continuing operations          46,877        56,335
    Add:  Depreciation and amortization                  42,197        41,790
    Operating EBITDA(1)                           euro   89,074   euro 98,125
    

    
    (1) 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 accounting principles generally accepted
        in the United States, 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.
    

    (7)



    
               COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
    For the Three Months and Nine Months Ended September 30, 2007 and 2006
                                 (Unaudited)
                             (Euros in thousands)
    


    
                                                         Three Months Ended
                                                             September 30,
                                                          2007        2006
                                                            (in thousands)
    Restricted Group
    Net income from continuing operations            euro 9,043  euro  11,299
    Income taxes                                            783         1,381
    Interest expense                                      6,996         8,160
    Investment and other income                          (1,321)       (1,142)
    Unrealized foreign exchange (gain) loss on debt      (4,545)          704
    Operating income from continuing operations          10,956        20,402
    Add:  Depreciation and amortization                   7,486         6,383
    Operating EBITDA(1)                             euro 18,442  euro  26,785
    



    
                                                        Nine Months Ended
                                                            September 30,
                                                        2007           2006
                                                          (in thousands)
    Restricted Group
    Net income from continuing operations           euro  13,573  euro  2,687
    Income taxes                                           4,933        8,286
    Interest expense                                      21,414       24,602
    Investment and other income                           (3,761)      (3,261)
    Unrealized foreign exchange gain on debt              (6,808)     (11,469)
    Operating income from continuing operations           29,351       20,845
    Add:  Depreciation and amortization                   21,274       20,580
    Operating EBITDA(1)                             euro  50,625  euro 41,425
    

    
    (1) 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.
    

    (8)




For further information:

For further information: Jimmy S.H. Lee, Chairman & President, 
+1-604-684-1099; David M. Gandossi, Executive Vice-President & Chief Financial
 Officer, +1-604-684-1099; or Financial Dynamics, Investors: Eric Boyriven, 
Alexandra Tramont or Media: Scot Hoffman, +1-212-850-5600

Organization Profile

Mercer International Inc.

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