8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 13, 2008

MERCER INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

Washington
(State or other jurisdiction of incorporation or organization)

000-51826
(Commission File Number) 47-0956945
(I.R.S. Employer Identification No.)

Suite 2840, 650 West Georgia Street, Vancouver, British Columbia, Canada V6B 4N8
(Address of Office)

(604) 684-1099
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02  RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

The information contained in this Current Report shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On February 14, 2008, Mercer International Inc. (the “Company”) announced by press release the Company’s results for its fourth quarter and year ended December 31, 2007. A copy of the Company’s press release is attached hereto as Exhibit 99.1.

ITEM 9.01  FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit No.	Description
99.1	Press Release dated February 13, 2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MERCER INTERNATIONAL INC.
 
 

/s/  David M. Gandossi  

David M. Gandossi 

Chief Financial Officer 

Date:  February 13, 2008

MERCER INTERNATIONAL INC.

FORM 8-K

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release dated February 13, 2008

EX-99.1

EXHIBIT 99.1

For Immediate Release

MERCER INTERNATIONAL INC. REPORTS RECORD PRODUCTION AND
2007 FOURTH QUARTER AND YEAR END RESULTS

     NEW YORK, NY, February 13, 2008 — 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 €167.1 million from €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 €512 per ADMT in the fourth quarter of 2007 compared to €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 €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 €37.2 million from €50.2 million in the comparative quarter in 2006 as higher productivity and improved prices were more than

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• 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 €7.2 million, or €0.20 per basic and €0.18 per diluted share, in the current quarter which included unrealized gains on our derivatives and foreign currency denominated long-term debt of €5.1 million, compared to net income of €21.5 million, or €0.63 per basic and €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 €38.6 million.

Highlights of 2007

• Revenues in 2007 increased by approximately 13% to €704.4 million from €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 €516 per ADMT in 2007 from €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 €126.2 million in 2007 from €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 €22.2 million, or €0.61 per basic and €0.58 per diluted share, in 2007, which included gains on our derivatives and foreign currency denominated long-term debt of €31.3 million, compared to net income of €63.2 million, or €1.90 per basic and €1.58 per diluted share, in 2006, which included a net gain on our derivatives and foreign currency denominated long-term debt of €121.1 million.

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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.”

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Summary Selected Highlights

	Q4		Q3			Q4		Year		Year
	2007		2007			2006		2007		2006
	(in millions of Euro, except where otherwise stated)
Revenues	€	167.1	€	191.1		€	160.5	€	704.4	€	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	€	0.20	€	0.30		€	0.85	€	0.62	€	2.08
Diluted	€	0.18	€	0.26		€	0.66	€	0.58	€	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 (€/ADMT).		512		520		480		516		465
Average Spot Currency Exchange Rates:
€ / $(1)		0.6901		0.7268		0.7750		0.7294		0.7962
C$ / $(1)		0.9818		1.0446		1.1393		1.0740		1.1344
C$ / €(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 €167.1 million from €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 €587 ($850) per ADMT in the fourth quarter of 2007, €589 ($810) per ADMT in the third quarter of 2007 and approximately €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 €512 per ADMT in the fourth quarter of 2007 from €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 €144.4 million from €124.3 million in the comparative period of 2006, primarily as a result of higher fiber costs and a credit in 2006 of €13.0 million for previously accrued wastewater fees.

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     Sales of emission allowances provided a contribution to income of €3.9 million and €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 €22.7 million from €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 €15.1 million from €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 €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 €38.6 million on our derivatives and foreign currency denominated debt in the same quarter of last year, of which a €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 €0.5 million, compared to €7.9 million in the same quarter of last year.

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     We generated “Operating EBITDA” of €37.2 million and €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 €7.3 million, or €0.20 per basic and €0.18 per diluted share, as compared to net income from continuing operations of €28.6 million, or €0.85 per basic and €0.66 per diluted share in the fourth quarter of 2006.

     In the fourth quarter of 2007, net income was €7.2 million, or €0.20 per basic and €0.18 per diluted share. In the same quarter in 2006, net income was €21.5 million, or €0.63 per basic and €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 €704.4 million from €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 €584 ($800) per ADMT in 2007, compared to approximately €541 ($680) per ADMT in 2006. Average pulp sales realizations increased to €516 per ADMT in the year ended December 31, 2007, from €465 per ADMT in 2006, primarily as a result of higher pulp prices.

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     Costs and expenses increased to €634.8 million in 2007 from €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 €4.6 million, compared to €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 €69.6 million from €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 €71.4 million from €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 €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 €6.8 million gain upon the settlement of foreign currency swaps. In 2006, we recorded a net gain of €121.1 million on our derivatives and foreign currency denominated long-term debt, of which a €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 €1.3 million of the current year earnings, compared to €1.1 million in 2006.

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Net Income Per Share and Operating EBITDA

     We generated “Operating EBITDA” of €126.2 million and €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 €22.4 million, or €0.62 per basic and €0.58 per diluted share, as compared to net income from continuing operations of €69.2 million, or €2.08 per basic and €1.72 per diluted share in 2006.

     In 2007, net income was €22.2 million, or €0.61 per basic and €0.58 per diluted share. In 2006, net income was €63.2 million, or €1.90 per basic and €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.

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     The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause the Company’s actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: market conditions, competition and other risk factors listed from time to time in the Company’s SEC reports.

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

-FINANCIAL TABLES FOLLOW-

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MERCER INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS
(Euros in thousands)

	December 31,
	2007		2006
ASSETS
Current Assets
Cash and cash equivalents	€	84,848	€	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	€	1,283,517	€	1,302,594
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses	€	87,000	€	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	€	1,283,517	€	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	€	167,146		€	160,467		€	704,391		€	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	€	37,419		€	15,240		€	37,419		€	15,240
Net income per share from continuing operations
Basic	€	0.20		€	0.85		€	0.62		€	2.08
Diluted	€	0.18		€	0.66		€	0.58		€	1.72
Net income per share
Basic	€	0.20		€	0.63		€	0.61		€	1.90
Diluted	€	0.18		€	0.50		€	0.58		€	1.58

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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	€	59,371	€	25,477		€	—		€	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	€	627,854	€	713,120		€	(57,457	)	€	1,283,517
LIABILITIES
Current
Accounts payable and accrued expenses	€	43,621	€	43,379		€	—		€	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	€	627,854	€	713,120		€	(57,457	)	€	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	€	39,078	€	30,289		€	—		€	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	€	609,515	€	744,344		€	(51,265	)	€	1,302,594
LIABILITIES
Current
Accounts payable and accrued expenses	€	46,475	€	37,335		€	—		€	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	€	609,515	€	744,344		€	(51,265	)	€	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	€	90,481		€	76,665		€	—		€	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	€	4,129		€	3,121		€	—		€	7,250
Net loss from discontinued operations	€	(12	)	€	-		€	—		€	(12	)
Net income	€	4,117		€	3,121		€	—		€	7,238

	Three Months Ended December 31, 2006
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	95,456		€	65,151		€	(140	)	€	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	€	6,666		€	22,080		€	(140	)	€	28,606
Net loss from discontinued operations	€	—		€	(7,133	)	€	—		€	(7,133	)
Net income (loss)	€	6,666		€	14,947		€	(140	)	€	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	€	401,251		€	303,140		€	—		€	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	€	17,702		€	4,687		€	—		€	22,389
Net loss from discontinued operations	€	(210	)	€	-		€	—		€	(210	)
Net income	€	17,492		€	4,687		€	—		€	22,179

	Year Ended December 31, 2006
	Restricted			Unrestricted						Consolidated
	Group			Subsidiaries			Eliminations			Group
Revenues	€	360,986		€	262,991		€	—		€	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	€	9,351		€	59,891		€	—		€	69,242
Net loss from discontinued operations	€	—		€	(6,032	)	€	—		€	(6,032	)
Net income	€	9,351		€	53,859		€	—		€	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	€	7,250		€	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)	€	37,170		€	50,213

	Year Ended
	December 31,
	2007			2006
Net income from continuing operations	€	22,389		€	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)	€	126,244		€	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	€	4,129		€	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)	€	14,967		€	20,797

	Year Ended
	December 31,
	2007			2006
Restricted Group
Net income	€	17,702		€	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)	€	65,589		€	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)

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