Mercer International Inc. Reports 2008 Second Quarter Results



    NEW YORK, July 30 /CNW/ -- Mercer International Inc. (Nasdaq:   MERC, TSX:
MRI.U) today reported results for the second quarter of 2008. Revenues and
Operating EBITDA in the second quarter of 2008 decreased to euro 170.6 million
(U.S.$266.5 million) and euro 19.8 million (U.S.$30.9 million) from euro 176.6
million (U.S.$238.1 million) and euro 25.0 million (U.S.$33.7 million),
respectively, in the second quarter of 2007, primarily due to the continued
weakness of the U.S. dollar which more than offset pulp list price
improvements and higher sales and production volumes. Operating EBITDA is
defined on page 4 of this press release and reconciled to net income from
continuing operations on page 7 of the financial tables in this press release.



    
    Summary Financial Highlights
    

    
                                                Q2          Q1          Q2
                                              2008        2008        2007
                          (in millions of Euro, except where otherwise stated)
    

    
    Revenues                            euro 170.6  euro 179.1  euro 176.6
    Operating income from continuing
     operations                                6.2        18.6        10.9
    Operating EBITDA                          19.8        32.8        25.0
    Unrealized gain (loss) on derivative
     instruments                              20.6        (7.9)          -
    Foreign exchange gain on debt              0.2         6.0         1.3
    Net income from continuing operations      0.9         2.9         3.3
    Net income per share
      Basic                              euro 0.02   euro 0.08   euro 0.09
      Diluted                            euro 0.02   euro 0.08   euro 0.09
    



    
    Summary Operating Highlights
    

    
                                                     Q2        Q1       Q2
                                                   2008      2008     2007
    

    
    Pulp Production ('000 ADMTs)                  356.8     360.9    326.4
    Scheduled Production Downtime ('000 ADMTs)     15.0       1.5     24.0
    Pulp Sales ('000 ADMTs)                       347.3     348.2    337.0
    NBSK pulp list price in Europe (US$/ADMT)       900       880      783
    NBSK pulp list price in Europe (euro/ADMT)      576       586      579
    Average pulp sales realizations (euro/ADMT)(1)  485       510      518
    Average Spot Currency Exchange Rates:
    euro / $(2)                                  0.6401    0.6666   0.7416
    C$ / $(2)                                    1.0099    1.0015   1.0981
    C$ / euro(3)                                 1.5783    1.5060   1.4810
    

    
    (1) List price, less discounts and commissions.
    
    (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:  "While all of our
mills performed generally well and production volumes increased approximately
9% from the same quarter last year, our results were adversely impacted by the
continued weakening of the U.S. dollar versus the Euro and by 11 days of
scheduled production downtime at our Celgar mill."
    Mr. Lee continued: "Pulp prices during the quarter were relatively flat
but our average pulp sales realizations declined by 6.4% from the second
quarter of 2007 because of the slumping U.S. dollar."
    Mr. Lee added:  "In June the German government approved amendments to the
country's Renewable Energy Resources Act, its legislative framework for the
promotion of electricity generation from renewable energy sources, including
biomass. A key element of the Act is that public electric utilities give
priority to electricity from renewable energy sources and pay a fixed tariff
for a period of 20 years. The amount of tariff is generally dependent on the
technology used, the year the installation was put into operation and the size
of the plant.  The Act is only applicable to installments with a capacity of
20MW or less, effectively excluding our Rosenthal and Stendal mills, as large
industrial complexes, from the statutory scheme. The recent amendments to the
Act, currently scheduled to take effect January 1, 2009, raise this capacity
limit, permitting our German mills to participate in the program, and increase
the tariff for biomass energy. As a result, once the amendments become
effective, we expect to be able to materially increase the revenues from our
sales of surplus energy in Germany."
    Mr. Lee concluded: "We are pleased with the legislative developments in
Germany which, along with progress on our Celgar green-energy initiative, help
advance one of our key objectives of increasing production of and revenues
from green energy.  We also expect that certain fiber supply initiatives that
have recently been implemented will take some pressure off fiber costs for the
balance of the year. Although pulp prices have been impacted by slowing world
economies, we believe the supply and demand fundamentals for NBSK pulp are
fairly balanced and will support strengthening markets over the mid to long
term. As one of the lowest cost NBSK producers in the market with highly
modern facilities, we believe we are well positioned to take advantage of
opportunities in our industry."
    Three Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
    Revenues for the three months ended June 30, 2008 decreased by 3.4% to
euro 170.6 million from euro 176.6 million in the comparative period of 2007,
primarily due to the weak U.S. dollar.
    Pulp production increased to 356,819 ADMTs in the current quarter, from
326,350 ADMTs in the same quarter of 2007 as all of our mills performed
generally well.
    Pulp sales volume increased to 347,259 ADMTs in the second quarter of
2008 from 337,016 ADMTs in the comparative period of 2007.  Average pulp sales
realizations were euro 485 per ADMT in the current quarter of 2008 compared to
euro 518 per ADMT in the second quarter of 2007, as the weakness of the U.S.
dollar versus the Euro more than offset pulp list price improvements.
    Costs and expenses in the second quarter of 2008 decreased marginally to
euro 164.4 million from euro 165.7 million in the comparative period of 2007,
despite higher freight costs and warehousing expenses in connection with the
shipment backlog at the Port of Vancouver.
    On average, our fiber costs decreased by approximately 2.9% in the second
quarter of 2008 from the same period of 2007. Our fiber costs in Germany
decreased in the current quarter from the comparative period of 2007 and are
expected to remain stable in the short term because of lower demand from the
European board industry. However, there is some uncertainty related to Russian
government tariffs which are expected to reduce Russian wood exports to Europe
and which may begin to exert upward pressure on pricing if Scandinavian
producers, who traditionally import significant amounts of Russian wood, seek
out alternative supply markets such as Germany.
    In the second quarter of 2008, fiber costs at our Celgar mill were
comparable to the same quarter of 2007 and the prior quarter. Fiber costs have
remained consistent despite significant curtailments in sawmilling activity as
a result of the faltering North American housing and lumber markets which have
sharply decreased the availability of fiber. Recent fiber initiatives at our
Celgar mill, such as new pulp log procurement arrangements and the addition of
a second shift in the woodroom, have helped stabilize fiber supply to the mill
and we believe will provide some pricing relief over the balance of the year.
    During the second quarter of 2008, our raw material inventories increased
to euro 30.8 million from euro 29.0 million at the end of the first quarter of
2008.  Our pulp inventories increased by approximately 100% and 7.7% at the
end of the current quarter of 2008, compared to the same time last year and
the end of the first quarter of 2008, respectively. Pulp inventories at our
Celgar mill remained high and largely the same as at March 31, 2008 due to
delays in shipments to China caused by a sustained backlog at the Port of
Vancouver.  While this inventory is generally already committed to customer
orders, we do not record the sale until the pulp is shipped.  Pulp inventories
increased at our Stendal mill, as slowing economies and tighter credit caused
certain of its customers to delay purchases into the second half of 2008.
    We recorded no contribution to income from the sale of emission
allowances in the current quarter as the applicable emissions certificates
were not issued until after June 30.  In the same quarter last year, we
recorded only a negligible contribution to income as a result of weak markets
and prices for the sale of emission allowances.  In the current quarter, sales
of surplus energy were approximately 20% higher than the second quarter of
2007.
    For the second quarter of 2008, operating income from continuing
operations decreased to euro 6.2 million from euro 10.9 million in the
comparative quarter of 2007, as the generally positive performance of our
mills was more than offset by the continued weakness in the U.S. dollar
against the Euro.
    Interest expense in the second quarter of 2008 decreased to euro 16.0
million from euro 17.6 million in the comparative quarter of 2007, primarily
due to a lower level of borrowing.
    We recorded an unrealized gain of euro 20.6 million before minority
interests on our interest rate derivatives at the end of the current quarter,
compared to an unrealized gain of euro 18.1 million in the same quarter of
last year. We recorded foreign exchange gains of euro 0.2 million and euro 1.3
million on our debt in the periods ended June 30, 2008 and 2007, respectively.
    In the second quarter of 2008, minority interest, representing the
minority shareholder's interest in the Stendal mill, was euro 3.4 million,
compared to euro 1.1 million in the same quarter of last year.
    Operating EBITDA decreased to euro 19.8 million in the second quarter of
2008 from euro 25.0 million in the second quarter of 2007.  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 second quarter
of 2008 of euro 0.9 million, or euro 0.02 per basic and diluted share, as
compared to net income from continuing operations of euro 3.3 million, or euro
0.09 per basic and diluted share in the second quarter of 2007.
    
    Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
    
    Revenues for the six months ended June 30, 2008 increased to euro 349.7
million from euro 346.1 million in the comparative period of 2007, primarily
due to higher pulp list prices which were in large part offset by the weak
U.S. dollar.
    Operating EBITDA was euro 52.6 million in the first half of 2008 compared
to euro 53.3 million in the six months ended June 30, 2007. 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.  See the discussion of our results for the second quarter
of 2008 for additional information relating to Operating EBITDA and page 7 of
the financial tables for a reconciliation to net income from continuing
operations.
    We reported net income from continuing operations for the first half of
2008 of euro 3.7 million, or euro 0.10 per basic and diluted share. In the
first half of 2007, we reported net income from continuing operations of euro
4.4 million, or euro 0.12 per basic and diluted share.
    
    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 Thursday,
July 31, 2008 at 10:00 AM (Eastern Daylight Time).  Listeners can access the
conference call live and archived through August 31, 2008, over the Internet
through a link at the Company's web site at
http://www.mercerint.com/s/NewsReleases.asp, or at
http://www.videonewswire.com/event.asp?id=49730. 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 August 7, 2008 at 11:59 PM (Eastern Daylight
Time).  The replay number is (800) 642-1687 for domestic callers or (706)
645-9291 for international callers, and the passcode is 55178967.
    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.

    
                          -FINANCIAL TABLES FOLLOW-
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                                                   June 30,     December 31,
                                                       2008             2007
    ASSETS
    Current assets
      Cash and cash equivalents                 euro 83,295      euro 84,848
      Receivables                                    98,181           89,890
      Note receivable, current portion                  557            5,896
      Inventories                                   106,360          103,610
      Prepaid expenses and other                      6,485            6,015
    Total current assets                            294,878          290,259
    Long-term assets
      Cash, restricted                               33,000           33,000
      Property, plant and equipment                 897,377          933,258
      Investments                                       778               96
      Deferred note issuance and other costs          4,640            5,303
      Deferred income tax                            12,202           17,624
      Note receivable, less current portion           3,406            3,977
                                                    951,403          993,258
    Total assets                             euro 1,246,281   euro 1,283,517
    

    
    LIABILITIES
    Current liabilities
      Accounts payable and accrued expenses     euro 89,914      euro 87,000
      Pension and other post-retirement
       benefit obligations, current portion             438              493
      Debt, current portion                          35,042           34,023
    Total current liabilities                       125,394          121,516
      Long-term liabilities
      Debt, less current portion                    786,988          815,832
      Unrealized interest rate derivative losses      9,155           21,885
      Pension and other post-retirement benefit
       obligations                                   17,450           19,983
      Capital leases and other                       11,534            8,999
      Deferred income tax                            22,361           18,640
                                                    847,488          885,339
    Total liabilities                               972,882        1,006,855
    

    
    SHAREHOLDERS' EQUITY
    Share capital                                   203,600          202,844
    Additional paid-in capital                          445              134
    Retained earnings                                41,159           37,419
    Accumulated other comprehensive income           28,195           36,265
    Total shareholders' equity                      273,399          276,662
    Total liabilities and shareholders'
     equity                                  euro 1,246,281   euro 1,283,517
    

    
                                     (1)
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                              Three Months Ended         Six Months Ended
                                    June 30,                  June 30,
                               2008         2007         2008         2007
    

    
    Revenues           euro 170,585 euro 176,603 euro 349,686 euro 346,134
    

    
    Costs and expenses
      Operating costs       142,902      143,658      282,343      278,302
      Operating
       depreciation
       and amortization      13,514       13,990       27,635       27,719
                             14,169       18,995       39,708       40,113
      Selling, general
       and administrative
       expenses               7,953        8,051       14,849       15,459
      (Sale) purchase of
       emission allowances        -          (39)           -         (766)
    Operating income from
     continuing operations    6,216       10,943       24,859       25,420
    

    
    Other income (expense)
      Interest expense      (16,013)     (17,641)     (32,633)     (37,709)
      Investment income       1,421        1,584        1,731        3,195
      Foreign exchange
       gain on debt             238        1,349        6,269        2,603
      Realized gain on
       derivative
       instruments                -            -            -        6,820
      Unrealized gain on
       derivative
       instruments           20,580       18,100       12,730       17,852
    Total other
     income (expense)         6,226        3,392      (11,903)      (7,239)
    Income before income
     taxes and minority
     interest from
     continuing operations   12,442       14,335       12,956       18,181
    Income tax benefit
     (provision)
       - current               (213)        (384)         163         (733)
       - deferred            (7,922)      (9,520)      (9,126)     (12,972)
    Income before minority
     interest from
     continuing operations    4,307        4,431        3,993        4,476
    Minority interest        (3,436)      (1,091)        (253)         (43)
    Net income from
     continuing operations      871        3,340        3,740        4,433
    Net loss from
     discontinued
     operations                   -         (181)           -         (188)
    Net income                  871        3,159        3,740        4,245
    

    
    Retained earnings,
     beginning of period     40,288       16,326       37,419       15,240
    Retained earnings,
     end of period      euro 41,159  euro 19,485  euro 41,159  euro 19,485
    

    
    Net income from
     continuing
     operations
     per share:
      Basic and diluted   euro 0.02    euro 0.09    euro 0.10    euro 0.12
    Net income per share:
      Basic and diluted   euro 0.02    euro 0.09    euro 0.10    euro 0.12
    

    
                                     (2)
    



    
                          MERCER INTERNATIONAL INC.
    

    
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                       Combined Condensed Balance Sheet
                                 (Unaudited)
                           (In thousands of Euros)
    
    The terms of the indenture governing our 9.25% 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 six months ended June 30, 2008 and 2007, 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.



    
                                           June 30, 2008
    

    
                        Restricted  Unrestricted                 Consolidated
                             Group  Subsidiaries   Eliminations       Group
    ASSETS
    Current
      Cash and cash
       equivalents     euro 70,151  euro 13,144        euro -     euro 83,295
      Receivables           47,978       50,203             -          98,181
      Note receivable,
       current portion         557            -             -             557
      Inventories           64,451       41,909             -         106,360
      Prepaid expenses
       and other             4,612        1,873             -           6,485
    Total current assets   187,749      107,129             -         294,878
      Cash, restricted           -       33,000             -          33,000
      Property, plant
       and equipment       358,250      539,127             -         897,377
      Other                  5,414            4             -           5,418
      Deferred income
       tax                   9,122        3,080             -          12,202
      Due from
       unrestricted
       group                53,993            -       (53,993)              -
      Note receivable,
       less current
       portion               3,406            -             -           3,406
    Total assets      euro 617,934 euro 682,340  euro (53,993) euro 1,246,281
    

    
    LIABILITIES
    Current
      Accounts payable
       and accrued
       expenses        euro 49,922  euro 39,992        euro -     euro 89,914
      Pension and other
       post-retirement
       benefit
       obligations,
       current portion         438            -             -             438
      Debt, current
       portion                   -       35,042             -          35,042
    Total current
     liabilities            50,360       75,034             -         125,394
      Debt, less current
       portion             261,376      525,612             -         786,988
      Due to restricted
       group                     -       53,993       (53,993)              -
      Unrealized
       derivative loss           -        9,155             -           9,155
      Pension and other
       post-retirement
       benefit
       obligations          17,450            -             -          17,450
      Capital leases
       and other             7,063        4,471             -          11,534
      Deferred income
       tax                   6,374       15,987             -          22,361
    Total liabilities      342,623      684,252       (53,993)        972,882
    

    
    SHAREHOLDERS' EQUITY
    Total shareholders'
     equity (deficit)      275,311       (1,912)            -         273,399
    Total liabilities
     and shareholders'
     equity           euro 617,934 euro 682,340 euro  (53,993) euro 1,246,281
    

    
                                     (3)
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                                          December 31, 2007
    

    
                        Restricted  Unrestricted                  Consolidated
                             Group  Subsidiaries   Eliminations       Group
    

    
    ASSETS
    Current
      Cash and cash
       equivalents    euro 59,371  euro 25,477        euro -     euro 84,848
      Receivables          37,482       52,408             -          89,890
      Note receivable,
       current portion        589        5,307             -           5,896
      Inventories          63,444       40,166             -         103,610
      Prepaid expenses
       and other            3,714        2,301             -           6,015
    Total current
     assets               164,600      125,659             -         290,259
      Cash, restricted          -       33,000             -          33,000
      Property, plant
       and equipment      385,569      547,689             -         933,258
      Other                 5,399            -             -           5,399
      Deferred income
       tax                 10,852        6,772             -          17,624
      Due from
       unrestricted
       group               57,457            -       (57,457)              -
      Note receivable,
       less current
       portion              3,977            -             -           3,977
    Total assets     euro 627,854 euro 713,120  euro (57,457) euro 1,283,517
    

    
    LIABILITIES
    Current
      Accounts payable
       and accrued
       expenses       euro 43,621  euro 43,379        euro -     euro 87,000
      Pension and
       other post-
       retirement
       benefit
       obligations,
       current
       portion                493            -             -             493
      Debt, current
       portion                  -       34,023             -          34,023
    Total current
     liabilities           44,114       77,402             -         121,516
      Debt, less current
       portion            273,589      542,243             -         815,832
      Due to restricted
       group                    -       57,457       (57,457)              -
      Unrealized
       derivative loss          -       21,885             -          21,885
      Pension and other
       post-retirement
       benefit
       obligations         19,983            -             -          19,983
      Capital leases
       and other            7,033        1,966             -           8,999
      Deferred income
       tax                  4,553       14,087             -          18,640
    Total liabilities     349,272      715,040       (57,457)      1,006,855
    

    
    SHAREHOLDERS' EQUITY
    Total shareholders'
     equity (deficit)     278,582       (1,920)            -         276,662
    Total liabilities
     and shareholders'
     equity          euro 627,854 euro 713,120 euro  (57,457) euro 1,283,517
    

    
                                     (4)
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                                   Three Months Ended June 30, 2008
    

    
                        Restricted  Unrestricted                  Consolidated
                             Group  Subsidiaries   Eliminations       Group
    

    
    Revenues          euro 97,694  euro 72,891        euro -   euro 170,585
    Operating costs        87,938       54,964             -        142,902
    Operating
     depreciation
     and amortization       6,774        6,740             -         13,514
    Selling, general
     and administrative
     expenses               4,865        3,088             -          7,953
    (Sale) purchase of
     emission allowances        -            -             -              -
                           99,577       64,792             -        164,369
      Operating income
       (loss) from
       continuing
       operations          (1,883)       8,099             -          6,216
    Other income
     (expense)
      Interest expense     (4,440)     (10,614)         (959)       (16,013)
      Investment income
       (expense)             (373)         835           959          1,421
      Foreign exchange
       gain (loss)
       on debt               (248)         486             -            238
      Derivative
       financial
       instruments              -       20,580             -         20,580
      Total other
       income (expense)    (5,061)      11,287             -          6,226
        Income (loss)
         before income
         taxes and
         minority
         interest from
         continuing
         operations        (6,944)      19,386             -         12,442
    Income tax
     provision             (1,303)      (6,832)            -         (8,135)
      Income (loss)
       before minority
       interest from
       continuing
       operations          (8,247)      12,554             -          4,307
    Minority interest           -       (3,436)            -         (3,436)
      Net income
       (loss)         euro (8,247)  euro 9,118        euro -       euro 871
    



    
                                    Three Months Ended June 30, 2007
    

    
                        Restricted  Unrestricted                  Consolidated
                             Group  Subsidiaries   Eliminations       Group
    

    
    Revenues          euro 104,307  euro 72,296       euro -     euro 176,603
    Operating costs         86,893       56,765            -          143,658
    Operating
     depreciation and
     amortization            6,975        7,015            -           13,990
    Selling, general
     and administrative
     expenses                4,642        3,409            -            8,051
    (Sale) purchase of
     emission allowances        (4)         (35)           -              (39)
                            98,506       67,154            -          165,660
      Operating income
       from continuing
       operations            5,801        5,142            -           10,943
    Other income
     (expense)
      Interest expense      (6,961)     (11,606)         926          (17,641)
      Investment income      1,136        1,374         (926)           1,584
      Foreign exchange
       gain on debt          1,009          340            -            1,349
      Derivative financial
       instruments, net          -       18,100            -           18,100
      Total other
       income (expense)     (4,816)       8,208            -            3,392
        Income before
         income taxes
         and minority
         interest from
         continuing
         operations            985       13,350            -           14,335
    Income tax provision    (1,612)      (8,292)           -           (9,904)
        Income (loss)
         before minority
         interest from
         continuing
         operations           (627)       5,058            -            4,431
    Minority interest            -       (1,091)           -           (1,091)
        Net income
         (loss) from
         continuing
         operations           (627)       3,967            -            3,340
        Net loss from
         discontinued
         operations           (181)           -            -             (181)
        Net income
         (loss)          euro (808)  euro 3,967       euro -       euro 3,159
    

    
                                     (5)
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                                     Six Months Ended June 30, 2008
    

    
                        Restricted  Unrestricted                  Consolidated
                             Group  Subsidiaries   Eliminations       Group
    


    
    Revenues          euro 198,796 euro 150,890       euro -     euro 349,686
    Operating costs        165,594      116,749            -          282,343
    Operating
     depreciation and
     amortization           14,195       13,440            -           27,635
    Selling, general
     and administrative
     expenses                8,609        6,240            -           14,849
    (Sale) purchase
     of emission
     allowances                  -            -            -                -
                           188,398      136,429            -          324,827
      Operating income      10,398       14,461            -           24,859
    Other income (expense)
      Interest expense     (11,152)     (21,481)           -          (32,633)
      Investment
       income (expense)      1,363          368            -            1,731
      Foreign exchange
       gain (loss) on debt   6,379         (110)           -            6,269
      Derivative financial
       instruments               -       12,730            -           12,730
      Total other
       income (expense)     (3,410)      (8,493)           -          (11,903)
        Income (loss)
         before income
         taxes and
         minority
         interest            6,988        5,968            -           12,956
    Income tax provision    (3,457)      (5,506)           -           (8,963)
        Income (loss)
         before minority
         interest            3,531          462            -            3,993
    Minority interest            -         (253)           -             (253)
        Net income
         (loss)         euro 3,531     euro 209       euro -       euro 3,740
    



    
                                     Six Months Ended June 30, 2007
    

    
                         Restricted  Unrestricted                 Consolidated
                              Group  Subsidiaries  Eliminations       Group
    

    
    Revenues          euro 204,240  euro 141,894       euro -    euro 346,134
    Operating costs        163,747       114,555            -         278,302
    Operating
     depreciation and
     amortization           13,661        14,058            -          27,719
    Selling, general
     and administrative
     expenses                8,705         6,754            -          15,459
    (Sale) purchase of
     emission allowances      (268)         (498)           -            (766)
                           185,845       134,869            -         320,714
      Operating income
       from continuing
       operations           18,395         7,025            -          25,420
    Other income(expense)
      Interest expense     (14,418)      (25,132)       1,841         (37,709)
      Investment income      2,440         2,596       (1,841)          3,195
      Foreign exchange
       gain on debt          2,263           340            -           2,603
      Derivative financial
       instruments, net          -        24,672            -          24,672
      Total other
       (expense) income     (9,715)        2,476            -          (7,239)
        Income before
         income taxes and
         minority interest
         from continuing
         operations          8,680         9,501            -          18,181
    Income tax provision    (4,150)       (9,555)           -         (13,705)
      Income (loss) before
       minority interest
       from continuing
       operations            4,530           (54)           -           4,476
    Minority interest            -           (43)           -             (43)
      Net income (loss)
       from continuing
       operations            4,530           (97)           -           4,433
      Net loss from
       discontinued
       operations             (188)            -            -            (188)
      Net income (loss) euro 4,342      euro (97)      euro -      euro 4,245
    

    
                                     (6)
    



    
                          MERCER INTERNATIONAL INC.
    

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

    
                                 Three Months Ended         Six Months Ended
                                       June 30,                  June 30,
                                  2008         2007         2008         2007
                                   (in thousands)             (in thousands)
    

    
    Net income from
     continuing operations euro    871   euro 3,340   euro 3,740   euro 4,433
    Minority interest            3,436        1,091          253           43
    Income taxes                 8,135        9,904        8,963       13,705
    Interest expense            16,013       17,641       32,633       37,709
    Investment income           (1,421)      (1,584)      (1,731)      (3,195)
    Unrealized foreign
     exchange gain on debt        (238)      (1,349)      (6,269)      (2,603)
    Derivative financial
     instruments, net          (20,580)     (18,100)     (12,730)     (24,672)
    Operating income
     from continuing
     operations                  6,216       10,943       24,859       25,420
    Add:  Depreciation
     and amortization           13,584       14,055       27,776       27,847
    Operating EBITDA       euro 19,800  euro 24,998  euro 52,635  euro 53,267
    
    (1) Operating EBITDA does not reflect the impact of a number of items
that affect our net income (loss), including financing costs and the effect of
derivative instruments.  Operating EBITDA is not a measure of financial
performance under accounting principles generally accepted in the United
States, and should not be considered as an alternative to net income (loss) or
income (loss) from operations as a measure of performance, nor as an
alternative to net cash from operating activities as a measure of liquidity.
Operating EBITDA has significant limitations as an analytical tool, and should
not be considered in isolation, or as a substitute for analysis of our results
as reported under GAAP.



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


    
                               Three Months Ended        Six Months Ended
                                    June 30,                  June 30,
                               2008         2007         2008         2007
                                 (in thousands)            (in thousands)
    Restricted Group
    Net income from
     continuing
     operations(1)     euro  (8,247)   euro (627)  euro 3,531   euro 4,530
    Income taxes              1,303        1,612        3,457        4,150
    Interest expense          4,440        6,961       11,152       14,418
    Investment income           373       (1,136)      (1,363)      (2,440)
    Unrealized foreign
     exchange gain
     on debt                    248       (1,009)      (6,379)      (2,263)
    Operating income
     from continuing
     operations              (1,883)       5,801       10,398       18,395
    Add:  Depreciation
     and amortization         6,844        7,040       14,336       13,789
    Operating EBITDA(2)  euro 4,961  euro 12,841  euro 24,734  euro 32,184
    
    (1) For the Restricted Group, net income (loss) from continuing
operations 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), 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.


    
                                     (7)

    




For further information:

For further information: Jimmy S.H. Lee, Chairman & President, or David
M. Gandossi, Executive Vice-President & Chief Financial Officer, both of
Mercer International, +1-604-684-1099; or Investors, Eric Boyriven, Alexandra
Tramont, or Media, Jordana Miller, all of FD for Mercer, +1-212-850-5600 Web
Site: http://www.mercerint.com                
http://www.mercerint.com/s/NewsReleases.asp                
http://www.videonewswire.com/event.asp?id=49730

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Mercer International Inc.

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