Mercer International Inc. Reports Record Production and 2007 Fourth Quarter and Year End Results



    NEW YORK, Feb. 13 /CNW/ -- Mercer International Inc. (Nasdaq:   MERC, TSX:
MRI.U) today reported results for the fourth quarter and year ended December
31, 2007.  In 2006, we divested our paper mills and its results are reported
separately as discontinued operations.
    The quarter ended December 31, 2007 concluded our best year
operationally. As a result of capital and other initiatives, all three of our
mills had record annual production and two of the mills set quarterly
production records in the fourth quarter.  While demand for NBSK pulp was
strong throughout the year, price increases were more than offset by the
weakening U.S. dollar and higher fiber costs.

    Highlights of the 2007 Fourth Quarter

    
    -- Revenues increased by 4% to euro 167.1 million from euro 160.5 million
       in the comparative quarter of 2006, primarily as a result of higher
       pulp prices.  Average NBSK pulp list prices in Europe rose to $850 per
       ADMT in the quarter from $810 per ADMT in the prior quarter and $730
       per ADMT in the fourth quarter of 2006.
    -- Our average pulp sales realizations were euro 512 per ADMT in the
       fourth quarter of 2007 compared to euro 520 per ADMT in the third
       quarter of 2007, as higher prices were more than offset by the
       weakening U.S. dollar. Average sales realizations in the fourth quarter
       of 2006 were euro 480 per ADMT. During the fourth quarter of 2007, the
       U.S. dollar was weaker relative to both the Euro and Canadian dollar,
       falling in value by 5% and 6%, respectively, compared to the third
       quarter of 2007 and 11% and 14% from the fourth quarter of 2006.
    -- Fiber prices, on average, were relatively unchanged from the third
       quarter but were approximately 10% higher than the fourth quarter of
       2006.
    -- Operating EBITDA in the current quarter decreased to euro 37.2 million
       from euro 50.2 million in the comparative quarter in 2006 as higher
       productivity and improved prices were more than offset by higher fiber
       costs and the weakening U.S. dollar.  For a definition of Operating
       EBITDA, see page 6 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 was euro 7.2 million, or euro 0.20 per basic and euro 0.18
       per diluted share, in the current quarter which included unrealized
       gains on our derivatives and foreign currency denominated long-term
       debt of euro 5.1 million, compared to net income of euro 21.5 million,
       or euro 0.63 per basic and euro 0.50 per diluted share, in the same
       period of 2006 which included gains on our derivatives and foreign
       currency denominated long-term debt of euro 38.6 million.
    

    
    Highlights of 2007
    -- Revenues in 2007 increased by approximately 13% to euro 704.4 million
       from euro 624.0 million in 2006, primarily as a result of higher pulp
       prices and increased sales volumes. Average list prices for NBSK pulp
       in Europe increased to $800 per ADMT in 2007 from $680 per ADMT in
       2006.
    -- Our average pulp sales realizations increased to euro 516 per ADMT in
       2007 from euro 465 per ADMT in 2006 as higher pulp prices were
       partially offset by the weakening U.S. dollar.  In 2007, the U.S.
       dollar decreased in value by approximately 8% and 5% against the Euro
       and the Canadian dollar, respectively, compared to 2006.
    -- On average, fiber costs increased by approximately 29% in 2007 from
       2006.
    -- Operating EBITDA decreased by 15% to euro 126.2 million in 2007 from
       euro 148.3 million in 2006 as improved pricing, sales and productivity
       were more than offset by the weakening U.S. dollar and higher fiber
       costs. For a definition of Operating EBITDA, see page 6 of this press
       release and for a reconciliation of net income to Operating EBITDA, see
       page 7 of the financial tables included in this press release.
    -- Net income decreased to euro 22.2 million, or euro 0.61 per basic and
       euro 0.58 per diluted share, in 2007, which included gains on our
       derivatives and foreign currency denominated long-term debt of euro
       31.3 million, compared to net income of euro 63.2 million, or euro 1.90
       per basic and euro 1.58 per diluted share, in 2006, which included a
       net gain on our derivatives and foreign currency denominated long-term
       debt of euro 121.1 million.
    President's Comments
    
    Mr. Jimmy S.H. Lee, President and Chairman, stated:  "We are generally
pleased with our operating performance during the year.  Our record production
reflected both capital projects initiated two years ago and our continual
management focus on productivity and efficiency."  He added:

    
    -- "All three mills achieved record production in the year and two of the
       mills achieved quarterly records in the fourth quarter. Focused capital
       expenditures and other measures at our mills are complete and their
       efficiency benefits have met our expectations.
    -- Pulp markets continued to strengthen in the final quarter of 2007,
       ending a year of continual price increases resulting from both strong
       demand and a weakening U.S. dollar. Based upon the current demand
       levels we are seeing in the market and historically low inventory
       levels, we believe that there will be continued upward pressure on
       pricing into the first part of 2008.
    -- After rising in the first half of 2007, prices for fiber were
       relatively stable in the second half. We currently expect that the
       sharp deterioration in North American and European lumber markets will
       continue to constrain residual fiber supply in 2008, particularly in
       British Columbia.  We believe however that demand for fiber from other
       manufacturers in Europe has begun to decline and this may have a
       dampening effect on European pricing pressure created by the weak
       lumber markets.
    -- During the year, energy production was a considerable focus area for
       us. In 2007, we sold more surplus energy than at any time in our
       history by increasing the value of our sales of surplus power by
       approximately 9% compared to 2006.  We are pursuing several initiatives
       to try to enhance this core strength in 2008."
    
    Mr. Lee concluded:  "With our mills running at historically high levels,
we are well positioned to take advantage of the NBSK pulp price momentum and
stabilizing fiber prices in 2008, although further weakness in the U.S. dollar
will adversely impact our sales realizations and margins."

    Summary Selected Highlights


    
                             Q4         Q3         Q4        Year       Year
                            2007       2007       2006       2007       2006
                         (in millions of Euro, except where otherwise stated)
    

    
    Revenues            euro 167.1 euro 191.1 euro 160.5 euro 704.4 euro 624.0
    Operating income
     from continuing
     operations               22.7       21.5       36.2       69.6       92.5
    Operating EBITDA(1)       37.2       35.8       50.2      126.2      148.3
    Unrealized gain (loss)
     on derivative
     instruments               1.4       (5.7)      33.1       13.5      109.4
    Interest expense          15.1       18.6       23.2       71.4       91.9
    Foreign exchange
     gain on debt and
     distributions             3.7        4.6        3.8       11.0       15.2
    Net income from
     continuing
     operations                7.3       10.7       28.6       22.4       69.2
    Net income per
     share from
     continuing
     operations
      Basic             euro  0.20 euro  0.30 euro  0.85 euro  0.62 euro  2.08
      Diluted           euro  0.18 euro  0.26 euro  0.66 euro  0.58 euro  1.72
    

    
    (1) For a definition of Operating EBITDA, see page 6 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.
    


    
                             Q4         Q3         Q4        Year      Year
                            2007       2007       2006       2007      2006
    

    
    Pulp Production
     ('000 ADMTs)            370.1      361.0      328.9    1,404.7    1,302.3
    

    
    Pulp Sales
     ('000 ADMTs)            322.9      363.5      344.4    1,352.6    1,326.4
    

    
    NBSK pulp list price in
     Europe (US$/ADMT)         850        810        730        800        680
    

    
    Average pulp sales
     realizations
     (euro/ADMT)               512        520        480        516        465
    

    
    Average Spot Currency
     Exchange Rates:
    euro / $(1)             0.6901     0.7268     0.7750     0.7294     0.7962
    C$ / $(1)               0.9818     1.0446     1.1393     1.0740     1.1344
    C$ / euro(2)            1.4230     1.4367     1.4706     1.4690     1.4244
    

    
    (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 December 31, 2007 Compared to Three Months Ended
December 31, 2006
    Revenues for the three months ended December 31, 2007 increased by 4% to
euro 167.1 million from euro 160.5 million in the comparative period of 2006,
primarily due to higher pulp prices, partially offset by an 11% and 14%
weakening of the U.S. dollar versus the Euro and the Canadian dollar,
respectively. List prices for NBSK pulp in Europe were approximately euro 587
($850) per ADMT in the fourth quarter of 2007, euro 589 ($810) per ADMT in the
third quarter of 2007 and approximately euro 566 ($730) per ADMT in the same
period last year. Pulp sales volume decreased to 322,900 ADMTs in the fourth
quarter of 2007 from 344,400 ADMTs in the comparative period of 2006.  Average
pulp sales realizations increased to euro 512 per ADMT in the fourth quarter
of 2007 from euro 480 per ADMT in the fourth quarter of 2006, primarily as a
result of higher pulp prices.
    Costs and expenses in the fourth quarter of 2007 increased to euro 144.4
million from euro 124.3 million in the comparative period of 2006, primarily
as a result of higher fiber costs and a credit in 2006 of euro 13.0 million
for previously accrued wastewater fees.
    Sales of emission allowances provided a contribution to income of euro
3.9 million and euro 2.4 million in the fourth quarter of 2007 and 2006,
respectively.
    After rising during the first half of 2007, fiber prices stabilized in
the fourth quarter of 2007, but remained on average at elevated levels when
compared to the same period a year ago. Our fiber costs in Germany in the
fourth quarter of 2007 and 2006 were virtually unchanged. Fiber costs for our
Celgar mill however were more heavily impacted by the weak North American
housing markets and have experienced significant inflation. On average, our
fiber costs increased by approximately 10% in the last quarter of 2007 from
the same period of 2006. While pulp wood supply is generally available, the
deterioration of the housing and lumber markets in North America is reducing
sawmilling activity and residual chip supply which is expected to keep fiber
costs at relatively high levels.
    For the fourth quarter of 2007, operating income from continuing
operations decreased by approximately 37% to euro 22.7 million from euro 36.2
million in the comparative quarter of 2006, as higher pulp prices and improved
production were more than offset by exchange rates and higher fiber costs.
    Interest expense in the fourth quarter of 2007 decreased to euro 15.1
million from euro 23.2 million in the comparative quarter of 2006, primarily
due to a lower level of borrowing and the absence of premiums associated with
our cross-currency swaps which were settled in the first quarter of 2007.
    We recorded unrealized gains of euro 5.1 million on our interest rate
derivatives and foreign currency denominated debt at the end of the current
quarter as a result of an increase in long-term interest rates and the weaker
U.S. dollar, compared to gains of euro 38.6 million on our derivatives and
foreign currency denominated debt in the same quarter of last year, of which a
euro 1.7 million gain was realized upon the settlement of foreign currency
swaps.
    In the fourth quarter of 2007, minority interest, representing the
minority shareholder's interest in the Stendal mill, was euro 0.5 million,
compared to euro 7.9 million in the same quarter of last year.
    We generated "Operating EBITDA" of euro 37.2 million and euro 50.2
million in the three months ended December 31, 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 fourth quarter
of 2007 of euro 7.3 million, or euro 0.20 per basic and euro 0.18 per diluted
share, as compared to net income from continuing operations of euro 28.6
million, or euro 0.85 per basic and euro 0.66 per diluted share in the fourth
quarter of 2006.
    In the fourth quarter of 2007, net income was euro 7.2 million, or euro
0.20 per basic and euro 0.18 per diluted share.  In the same quarter in 2006,
net income was euro 21.5 million, or euro 0.63 per basic and euro 0.50 per
diluted share.
    
    Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
    
    Revenues for the year ended December 31, 2007 increased by approximately
13% to euro 704.4 million from euro 624.0 million in 2006, primarily as a
result of higher pulp prices which were partially offset by an 8% and 5%
weakening of the U.S. dollar versus the Euro and the Canadian dollar,
respectively. List prices for NBSK pulp in Europe were approximately euro 584
($800) per ADMT in 2007, compared to approximately euro 541 ($680) per ADMT in
2006. Average pulp sales realizations increased to euro 516 per ADMT in the
year ended December 31, 2007, from euro 465 per ADMT in 2006, primarily as a
result of higher pulp prices.
    Costs and expenses increased to euro 634.8 million in 2007 from euro
531.5 million in 2006, primarily as a result of higher fiber costs and higher
volumes.
    Weak markets for emission allowances in 2007 resulted in the contribution
to income from such sales decreasing to euro 4.6 million, compared to euro
15.6 million in 2006. Partially offsetting this was a 9% increase in sales of
surplus energy in 2007 compared to 2006.
    Overall fiber costs increased by approximately 29% compared to 2006 as a
result of both a supply imbalance and increased demand. In Germany, the supply
imbalance resulted from low harvesting levels in late 2005 and 2006 which were
not made up during the course of the year. Increased demand in Germany
resulted from a higher consumption of wood residuals by renewable energy
suppliers. A strong European lumber market and the severe winter storm at the
beginning of 2007 provided some marginal price relief in the latter part of
the year. Fiber costs at our Celgar mill were also higher in 2007 compared to
2006 due to reduced North American sawmill activity as a result of weakness in
U.S. housing construction. Fiber costs at our Celgar mill were relatively
stable over the last half of 2007, due to supply optimization and the currency
impact on the mill's U.S. sourced fiber.
    In 2007, operating income from continuing operations decreased to euro
69.6 million from euro 92.5 million in 2006 as higher pulp prices, sale
volumes and surplus energy sales were more than offset by higher fiber costs,
the weakening U.S. dollar and the reduction in sales of emission allowances.
    Interest expense in 2007 decreased to euro 71.4 million from euro 91.9
million in the comparative period, primarily due to a lower level of borrowing
and the absence of premiums associated with our cross-currency swaps which
were settled in the first quarter of 2007.
    We recorded gains of euro 31.3 million on our derivatives and foreign
currency denominated long-term debt for the year ended December 31, 2007 as a
result of an increase in long-term interest rates and the weaker U.S. dollar,
and realized a euro 6.8 million gain upon the settlement of foreign currency
swaps.  In 2006, we recorded a net gain of euro 121.1 million on our
derivatives and foreign currency denominated long-term debt, of which a euro
3.5 million loss was realized upon the settlement of foreign currency swaps.
    In 2007, minority interest, representing the minority shareholder's
proportionate interest in the Stendal mill, was euro 1.3 million of the
current year earnings, compared to euro 1.1 million in 2006.
    
    Net Income Per Share and Operating EBITDA
    
    We generated "Operating EBITDA" of euro 126.2 million and euro 148.3
million in the year ended December 31, 2007 and 2006, respectively. For a
definition of Operating EBITDA, see page 6 of this press release and 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 year ended
December 31, 2007 of euro 22.4 million, or euro 0.62 per basic and euro 0.58
per diluted share, as compared to net income from continuing operations of
euro 69.2 million, or euro 2.08 per basic and euro 1.72 per diluted share in
2006.
    In 2007, net income was euro 22.2 million, or euro 0.61 per basic and
euro 0.58 per diluted share.  In 2006, net income was euro 63.2 million, or
euro 1.90 per basic and euro 1.58 per 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,
February 14, 2008 at 10:00 AM EST.  Listeners can access the conference call
live and archived through March 14, 2008, 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=45063. 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 February 21, 2008 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 30961639.
    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
                             (Euros in thousands)
    

    
                                                            December 31,
                                                        2007           2006
    ASSETS
    Current Assets
     Cash and cash equivalents                 euro    84,848  euro    69,367
     Receivables                                       89,890          75,022
     Note receivable, current portion                   5,896           7,798
     Inventories                                      103,610          62,857
     Prepaid expenses and other                         6,015           4,662
     Current assets of discontinued operations              -           2,094
    Total current assets                              290,259         221,800
    Long-Term Assets
     Cash restricted                                   33,000          57,000
     Property, plant and equipment                    933,258         972,143
     Investments                                           96               1
     Unrealized foreign exchange rate derivative gain       -           5,933
     Deferred note issuance and other costs             5,303           6,984
     Deferred income tax                               17,624          29,989
     Note receivable, less current portion              3,977           8,744
                                                      993,258       1,080,794
    Total assets                               euro 1,283,517  euro 1,302,594
    LIABILITIES
    Current Liabilities
     Accounts payable and accrued expenses     euro    87,000  euro    83,810
     Pension and other post-retirement benefit
     obligations, current portion                         493             363
     Debt, current portion                             34,023          33,903
     Current liabilities of discontinued operations         -           1,926
    Total current liabilities                         121,516         120,002
    Long-Term Liabilities
     Debt, less current portion                       815,832         873,928
     Unrealized interest rate derivative losses        21,885          41,355
     Pension and other post-retirement benefit
      obligations                                      19,983          17,954
     Capital leases and other                           8,999           7,643
     Deferred income tax                               18,640          22,911
                                                      885,339         963,791
    Total liabilities                               1,006,855       1,083,793
    SHAREHOLDERS' EQUITY
    

    
    Common shares                                     202,844         195,642
    Additional paid-in capital                            134             154
    Retained earnings                                  37,419          15,240
    Accumulated other comprehensive income             36,265           7,765
    Total shareholders' equity                        276,662         218,801
    Total liabilities and shareholders' equity euro 1,283,517  euro 1,302,594
    

    (1)



    MERCER INTERNATIONAL INC.

    
                    CONSOLIDATED STATEMENTS OF OPERATIONS
              (Euros in thousands, except for income per share)
    


    
                              Three Months Ended            Year Ended
                                  December 31,              December 31,
                                2007         2006         2007         2006
    

    Revenues              euro 167,146 euro 160,467 euro 704,391 euro 623,977

    
    Costs and expenses
     Operating costs           124,506      104,012      548,334      456,604
     Operating depreciation
      and amortization          14,397       14,044       56,400       55,834
                                28,243       42,411       99,657      111,539
     Selling, general and
      administrative expenses    9,411        8,605       34,714       34,644
     (Sale) purchase of emission
       allowances               (3,877)      (2,363)      (4,643)     (15,609)
    Operating income from
     continuing operations      22,709       36,169       69,586       92,504
    

    
    Other income (expense)
     Interest expense          (15,092)     (23,162)     (71,400)     (91,931)
     Investment income          (1,533)       2,007        4,453        6,090
     Foreign exchange gain on
      debt and distributions     3,729        3,776       10,958       15,245
     Realized gain (loss) on
      derivative instruments         -        1,709        6,820       (3,510)
     Unrealized gain on derivative
      instruments                1,381       33,107       13,537      109,358
    Total other (expense)
     income                    (11,515)      17,437      (35,632)     (35,252)
    

    
    Income before income taxes
     and minority interest from
     continuing operations      11,194       53,606       33,954      127,756
    Income tax benefit (provision)
     Current                    (1,293)         (60)      (2,170)        (584)
     Deferred                   (2,185)     (16,995)      (8,144)     (56,859)
    Income before minority
     interest from continuing
     operations                  7,716       36,551       23,640       70,313
    Minority interest             (466)      (7,945)      (1,251)      (1,071)
    Net income from continuing
     operations                  7,250       28,606       22,389       69,242
    Net (loss) from discontinued
     operations                    (12)      (7,133)        (210)      (6,032)
    Net income                   7,238       21,473       22,179       63,210
    

    
    Retained earnings (deficit),
     beginning of period        30,181       (6,233)      15,240      (47,970)
    Retained earnings,
     end of period        euro  37,419 euro  15,240 euro  37,419 euro  15,240
    

    
    Net income per share
     from continuing
     operations
      Basic               euro    0.20 euro    0.85 euro    0.62 euro    2.08
      Diluted             euro    0.18 euro    0.66 euro    0.58 euro    1.72
    Net income per share
      Basic               euro    0.20 euro    0.63 euro    0.61 euro    1.90
      Diluted             euro    0.18 euro    0.50 euro    0.58 euro    1.58
    

    (2)



    MERCER INTERNATIONAL INC.

    
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                       Combined Condensed Balance Sheet
                             (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 months and years ended December 31, 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.



    
                                          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
    Capital leases and other 27,016        1,966             -          28,982
    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
    

    (3)



    MERCER INTERNATIONAL INC.

    
                   RESTRICTED GROUP SUPPLEMENTAL DISCLOSURE
                       Combined Condensed Balance Sheet
                             (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 from
      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  46,475 euro  37,335  euro       -  euro    83,810
     Pension and other
      post-retirement
      benefit
      obligations,
      current portion           363            -             -             363
     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      571,840             -         865,621
    Due to restricted group       -       51,265       (51,265)              -
    

    Unrealized derivative loss    -       41,355             -         
41,355

    
    Capital leases and other
                             22,115       11,789             -          33,904
    

    Deferred income tax       2,832       20,079             -         
22,911

    
    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
                 Combined Condensed Statements of Operations
                             (Euros in thousands)
    


    
                               Three Months Ended December 31, 2007
                        Restricted Unrestricted                 Consolidated
                            Group  Subsidiaries   Eliminations       Group
    



    Revenues         euro  90,481  euro  76,665  euro        -  euro  167,146

    
    Operating costs        70,547        53,959              -        124,506
    Operating depreciation
     and amortization       7,581         6,816              -         14,397
    Selling, general and
     administrative
     expenses               6,336         3,075              -          9,411
    (Sale) purchase of
      emission allowances  (1,302)       (2,575)             -         (3,877)
       Operating income
        from continuing
        operations          7,319        15,390              -         22,709
    

    
    Other income (expense)
     Interest expense      (7,058)       (8,981)           947        (15,092)
     Investment income      1,542        (2,128)          (947)        (1,533)
     Foreign exchange gain
      on debt and
      distributions         3,821           (92)             -          3,729
     Derivative financial
      instruments, net          -         1,381              -          1,381
     Total other (expense)
      income               (1,695)       (9,820)             -        (11,515)
       Income before
        income taxes and
        minority interest
        from continuing
        operations          5,624         5,570              -         11,194
    Income tax provision
       Current               (925)         (368)             -         (1,293)
       Deferred              (570)       (1,615)             -         (2,185)
       Income before
        minority
        interest from
        continuing
        operations          4,129         3,587              -          7,716
    Minority interest           -          (466)             -           (466)
       Net income from
        continuing
        operations   euro   4,129  euro   3,121  euro        -  euro    7,250
       Net loss from
        discontinued
        operations   euro     (12) euro       -  euro        -  euro      (12)
       Net income    euro   4,117  euro   3,121  euro        -  euro    7,238
    



    
                                 Three Months Ended December 31, 2006
                        Restricted Unrestricted                 Consolidated
                            Group  Subsidiaries   Eliminations       Group
    

    Revenues         euro  95,456  euro  65,151  euro     (140) euro  160,467

    
    Operating costs        70,738        32,704              -        103,442
    Operating depreciation
     and amortization       7,239         6,807              -         14,046
    Selling, general and
     administrative
     expenses               5,203         3,970              -          9,173
    (Sale) purchase of
      emission allowances  (1,282)       (1,081)             -         (2,363)
       Operating income
        from continuing
        operations         13,558        22,751           (140)        36,169
    

    
    Other income (expense)
     Interest expense      (9,752)      (14,315)           905        (23,162)
     Investment income      2,056           856           (905)         2,007
     Foreign exchange
      gain on debt and
      distributions         3,776             -              -          3,776
     Derivative financial
      instruments, net          -        34,816              -         34,816
     Total other (expense)
      income               (3,920)       21,357              -         17,437
      Income (loss) before
       income taxes and
       minority interest
       from continuing
       operations           9,638        44,108           (140)        53,606
    Income tax provision
      Current                  32           (92)             -            (60)
      Deferred             (3,004)      (13,991)             -        (16,995)
      Income (loss) before
       minority interest
       from continuing
       operations           6,666        30,025           (140)        36,551
    Minority interest           -        (7,945)             -         (7,945)
      Net income (loss)
       from
       continuing
       operations    euro   6,666  euro  22,080  euro     (140) euro   28,606
      Net loss from
       discontinued
       operations    euro       -  euro  (7,133) euro        -  euro   (7,133)
      Net income
      (loss)         euro   6,666  euro  14,947  euro     (140) euro   21,473
    

    (5)



    MERCER INTERNATIONAL INC.

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

    
                                  Year Ended December 31, 2007
                        Restricted Unrestricted                 Consolidated
                            Group  Subsidiaries   Eliminations       Group
    

    Revenues         euro 401,251  euro 303,140  euro        -  euro  704,391

    
    Operating costs       315,836       232,498              -        548,334
    Operating depreciation
     and amortization      28,661        27,739              -         56,400
    Selling, general and
     administrative
     expenses              21,650        13,064              -         34,714
    (Sale) purchase of
      emission
      allowances           (1,566)       (3,077)             -         (4,643)
       Operating income
        from continuing
        operations         36,670        32,916              -         69,586
    

    
    Other income (expense)
     Interest expense     (28,472)      (46,653)         3,725        (71,400)
     Investment income      5,303         2,875         (3,725)         4,453
     Foreign exchange gain
      on debt and
      distributions        10,629           329              -         10,958
     Derivative financial
      instruments, net          -        20,357              -         20,357
     Total other (expense)
      income              (12,540)      (23,092)             -        (35,632)
       Income before
        income taxes and
        minority interest
        from continuing
        operations         24,130         9,824              -         33,954
    Income tax provision
       Current             (1,394)         (776)             -         (2,170)
       Deferred            (5,034)       (3,110)             -         (8,144)
       Income before
        minority interest
        from continuing
        operations         17,702         5,938              -         23,640
    Minority interest           -        (1,251)             -         (1,251)
      Net income from
       continuing
       operations    euro  17,702  euro   4,687  euro        -  euro   22,389
      Net loss from
       discontinued
       operations    euro    (210) euro       -  euro        -  euro     (210)
      Net income     euro  17,492  euro   4,687  euro        -  euro   22,179
    



    Year Ended December 31, 2006

    
                        Restricted Unrestricted                 Consolidated
                            Group  Subsidiaries   Eliminations       Group
    

    Revenues         euro 360,986  euro 262,991  euro        -  euro  623,977

    
    Operating costs       280,837       175,767              -        456,604
    Operating depreciation
     and amortization      27,819        28,015              -         55,834
    Selling, general and
     administrative
     expenses              22,861        11,783              -         34,644
    (Sale) purchase of
      emission allowances  (4,933)      (10,676)             -        (15,609)
       Operating income
        from continuing
        operations         34,402        58,102              -         92,504
    

    
    Other income (expense)
     Interest expense     (34,354)      (61,137)         3,560        (91,931)
     Investment income      5,316         4,334         (3,560)         6,090
     Derivative financial
      instruments, net          -       105,848              -        105,848
     Foreign exchange gain
      on debt and
      distributions        15,245             -              -         15,245
     Total other (expense)
      income              (13,793)       49,045              -         35,252
       Income before
        income taxes and
        minority interest
        from continuing
        operations         20,609       107,147              -        127,756
    Income tax provision
       Current               (290)         (294)             -           (584)
       Deferred           (10,968)      (45,891)             -        (56,859)
       Income before
        minority interest
        from continuing
        operations          9,351        60,962              -         70,313
    Minority interest           -        (1,071)             -         (1,071)
       Net income from
        continuing
        operations   euro   9,351  euro  59,891   euro       -  euro   69,242
       Net loss from
        discontinued
        operations   euro       -  euro  (6,032)  euro       -   euro  (6,032)
       Net income    euro   9,351  euro  53,859   euro       -   euro  63,210
    

    (6)



    MERCER INTERNATIONAL INC.

    
                       COMPUTATION OF OPERATING EBITDA
                                 (Unaudited)
                             (Euros in thousands)
    

    
                                                        Three Months Ended
                                                           December 31,
                                                        2007           2006
    

    
    Net income from continuing operations       euro   7,250   euro  28,606
    Minority interest                                    466          7,945
    Income taxes                                       3,478         17,055
    Interest expense                                  15,092         23,162
    Investment expense (income)                        1,533         (2,007)
    Unrealized foreign exchange gain on debt          (3,729)        (3,776)
    Derivative financial instruments, net gain        (1,381)       (34,816)
    Operating income from continuing operations       22,709         36,169
    Add: Depreciation and amortization                14,461         14,044
    Operating EBITDA(1)                         euro  37,170   euro  50,213
    



    
                                                            Year Ended
                                                            December 31,
                                                        2007           2006
    

    
    Net income from continuing operations       euro  22,389   euro  69,242
    Minority interest                                  1,251          1,071
    Income taxes                                      10,314         57,443
    Interest expense                                  71,400         91,931
    Investment income                                 (4,453)        (6,090)
    Unrealized foreign exchange gain on debt         (10,958)       (15,245)
    Derivative financial instruments, net gain       (20,357)      (105,848)
    Operating income from continuing operations       69,586         92,504
    Add: Depreciation and amortization                56,658         55,834
    Operating EBITDA(1)                         euro 126,244   euro 148,338
    

    
    (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.
    

    (7)



    MERCER INTERNATIONAL INC.

    
               COMPUTATION OF RESTRICTED GROUP OPERATING EBITDA
                                 (Unaudited)
                             (Euros in thousands)
    

    
                                                        Three Months Ended
                                                            December 31,
                                                        2007           2006
    Restricted Group
    Net income                                  euro   4,129   euro   6,666
    Income taxes                                       1,495          2,972
    Interest expense                                   7,058          9,752
    Investment and other income                       (1,542)        (2,056)
    Unrealized foreign exchange gain on debt          (3,821)        (3,776)
    Operating income from operations                   7,319         13,558
    Add: Depreciation and amortization                 7,648          7,239
    Operating EBITDA(1)                         euro  14,967   euro  20,797
    



    
                                                            Year Ended
                                                           December 31,
                                                        2007           2006
    Restricted Group
    Net income                                  euro  17,702   euro   9,351
    Income taxes                                       6,428         11,258
    Interest expense                                  28,472         34,354
    Investment and other (income)                     (5,303)        (5,316)
    Unrealized foreign exchange gain on debt         (10,629)       (15,245)
    Operating income from operations                  36,670         34,402
    Add: Depreciation and amortization                28,919         27,819
    Operating EBITDA(1)                         euro  65,589   euro  62,221
    

    
    (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, or David
M.  Gandossi, Executive Vice-President & Chief Financial Officer, both of
Mercer  International Inc., +1-604-684-1099; Investors: Eric Boyriven, or
Alexandra  Tramont, Media: Scot Hoffman, all of FD, +1-212-850-5600 Web Site:
http://www.mercerint.com

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Mercer International Inc.

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