##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No.: 000-51826
 MERCER INTERNATIONAL INC.
 (Exact name of Registrant as specified in its charter)
 Washington
    
    47-0956945(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    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)
 Securities Exchange Act of 1934 þ o
 o o
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer þ(Do not check if a smaller reporting company)
Smaller Reporting Company o o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MERCER INTERNATIONAL INC.
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE SIX MONTHS ENDED JUNE 30, 2010
 (Unaudited)




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##### Table of Contents



MERCER INTERNATIONAL INC.
 INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Euros)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assetsCash and cash equivalents
    
    
    62,145
    
    
    
    51,291Receivables
    
    
    125,105
    
    
    
    71,143Inventories (Note 4)
    
    
    89,582
    
    
    
    72,629Prepaid expenses and other
    
    
    7,448
    
    
    
    5,871Total current assets
    
    
    284,280
    
    
    
    200,934Long-term assetsProperty, plant and equipment
    
    
    872,843
    
    
    
    868,558Deferred note issuance and other
    
    
    7,627
    
    
    
    8,186Deferred income tax
    
    
    3,860
    
    
    
    3,426Note receivable
    
    
    2,202
    
    
    
    2,727886,532
    
    
    
    882,897Total assets
    
    
    1,170,812
    
    
    
    1,083,831LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses
    
    
    105,050
    
    
    
    85,185Pension and other post-retirement benefit obligations (Note 7)
    
    
    653
    
    
    
    567Debt (Note 5)
    
    
    23,189
    
    
    
    16,032Total current liabilities
    
    
    128,892
    
    
    
    101,784Long-term liabilitiesDebt (Note 5)
    
    
    845,992
    
    
    
    813,142Unrealized interest rate derivative losses (Notes 6 and 9)
    
    
    63,880
    
    
    
    52,873Pension and other post-retirement benefit obligations (Note 7)
    
    
    20,932
    
    
    
    17,902Capital leases and other
    
    
    10,971
    
    
    
    12,157941,775
    
    
    
    896,074Total liabilities
    
    
    1,070,667
    
    
    
    997,858EQUITYShareholders equityShare capital (Note 8)
    
    
    202,973
    
    
    
    202,844Paid-in capital
    
    
    (5,417
    )
    
    
    (6,082
    )Retained earnings (deficit)
    
    
    (92,380
    )
    
    
    (97,235
    )Accumulated other comprehensive income (loss)
    
    
    26,057
    
    
    
    23,695Total shareholders equity
    
    
    131,233
    
    
    
    123,222Noncontrolling interest (deficit) (Note 10)
    
    
    (31,088
    )
    
    
    (37,249
    )Total equity
    
    
    100,145
    
    
    
    85,973Total liabilities and equity
    
    
    1,170,812
    
    
    
    1,083,831Commitments and contingencies (Note 11)
 The accompanying notes are an integral part of these interim consolidated financial statements.




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##### Table of Contents



MERCER INTERNATIONAL INC.
 INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
(In thousands of Euros, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenuesPulp
    
    
    228,293
    
    
    
    147,522
    
    
    
    399,414
    
    
    
    276,555Energy
    
    
    11,931
    
    
    
    11,362
    
    
    
    21,062
    
    
    
    21,901240,224
    
    
    
    158,884
    
    
    
    420,476
    
    
    
    298,456Costs and expensesOperating costs
    
    
    168,275
    
    
    
    149,033
    
    
    
    308,684
    
    
    
    281,030Operating depreciation and amortization
    
    
    14,106
    
    
    
    13,539
    
    
    
    27,830
    
    
    
    26,94057,843
    
    
    
    (3,688
    )
    
    
    83,962
    
    
    
    (9,514
    )Selling, general and administrative expenses
    
    
    9,955
    
    
    
    6,032
    
    
    
    18,050
    
    
    
    13,177Purchase (sale) of emission allowances
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (542
    )Operating income (loss)
    
    
    47,888
    
    
    
    (9,736
    )
    
    
    65,912
    
    
    
    (22,149
    )Other income (expense)Interest expense
    
    
    (16,898
    )
    
    
    (16,319
    )
    
    
    (33,321
    )
    
    
    (32,868
    )Investment income (loss)
    
    
    117
    
    
    
    138
    
    
    
    211
    
    
    
    (3,064
    )Foreign exchange gain (loss) on debt
    
    
    (9,371
    )
    
    
    5,170
    
    
    
    (14,602
    )
    
    
    754Gain (loss) on extinguishment of convertible notes (Note 5)
    
    
    
    
    
    
    
    
    
    
    (929
    )
    
    
    Gain (loss) on derivative instruments (Note 6)
    
    
    (4,462
    )
    
    
    7,451
    
    
    
    (11,008
    )
    
    
    (7,562
    )Total other income (expense)
    
    
    (30,614
    )
    
    
    (3,560
    )
    
    
    (59,649
    )
    
    
    (42,740
    )Income (loss) before income taxes
    
    
    17,274
    
    
    
    (13,296
    )
    
    
    6,263
    
    
    
    (64,889
    )Income tax benefit (provision)  current
    
    
    (1,319
    )
    
    
    (65
    )
    
    
    (1,523
    )
    
    
    (114
    ) deferred
    
    
    
    
    
    
    1,888
    
    
    
    
    
    
    
    4,919Net income (loss)
    
    
    15,955
    
    
    
    (11,473
    )
    
    
    4,740
    
    
    
    (60,084
    )Less: net loss (income) attributable to noncontrolling interest
    
    
    (3,554
    )
    
    
    (3
    )
    
    
    115
    
    
    
    9,258Net income (loss) attributable to common shareholders
    
    
    12,401
    
    
    
    (11,476
    )
    
    
    4,855
    
    
    
    (50,826
    )Net income (loss) per share attributable to common shareholders
(Note 3)Basic
    
    
    0.34
    
    
    
    (0.32
    )
    
    
    0.13
    
    
    
    (1.40
    )Diluted
    
    
    0.23
    
    
    
    (0.32
    )
    
    
    0.11
    
    
    
    (1.40
    )
 The accompanying notes are an integral part of these interim consolidated financial statements.




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MERCER INTERNATIONAL INC.
 INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
 (Unaudited)
(In thousands of Euros)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) attributable to common shareholders
    
    
    12,401
    
    
    
    (11,476
    )
    
    
    4,855
    
    
    
    (50,826
    )Retained earnings (deficit), beginning of period
    
    
    (104,781
    )
    
    
    (74,396
    )
    
    
    (97,235
    )
    
    
    (35,046
    )Retained earnings (deficit), end of period
    
    
    (92,380
    )
    
    
    (85,872
    )
    
    
    (92,380
    )
    
    
    (85,872
    )
 INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
(In thousands of Euros)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    
    15,955
    
    
    
    (11,473
    )
    
    
    4,740
    
    
    
    (60,084
    )Other comprehensive income (loss)Foreign currency translation adjustment
    
    
    (4,688
    )
    
    
    14,603
    
    
    
    2,944
    
    
    
    9,234Pension income (expense)
    
    
    (234
    )
    
    
    (22
    )
    
    
    (600
    )
    
    
    (39
    )Unrealized gains (losses) on
securities arising during the period
    
    
    12
    
    
    
    21
    
    
    
    18
    
    
    
    335Other comprehensive income (loss)
    
    
    (4,910
    )
    
    
    14,602
    
    
    
    2,362
    
    
    
    9,530Total comprehensive income (loss)
    
    
    11,045
    
    
    
    3,129
    
    
    
    7,102
    
    
    
    (50,554
    )Comprehensive loss (income) attributable
to noncontrolling interest
    
    
    (3,554
    )
    
    
    (3
    )
    
    
    115
    
    
    
    9,258Comprehensive income (loss) attributable
to common shareholders
    
    
    7,491
    
    
    
    3,126
    
    
    
    7,217
    
    
    
    (41,296
    )
 The accompanying notes are an integral part of these interim consolidated financial statements.




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##### Table of Contents



MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of Euros)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders
    
    
    12,401
    
    
    
    (11,476
    )
    
    
    4,855
    
    
    
    (50,826
    )Adjustments to reconcile net income (loss) attributable
to common shareholders to cash flows from operating
activitiesLoss (gain) on derivative instruments
    
    
    4,462
    
    
    
    (7,451
    )
    
    
    11,008
    
    
    
    7,562Foreign exchange (gain) loss on debt
    
    
    9,371
    
    
    
    (5,170
    )
    
    
    14,602
    
    
    
    (754
    )Loss (gain) on extinguishment of convertible notes
    
    
    
    
    
    
    
    
    
    
    929
    
    
    
    Depreciation and amortization
    
    
    14,176
    
    
    
    13,604
    
    
    
    27,997
    
    
    
    27,071Accretion (income) expense
    
    
    514
    
    
    
    
    
    
    
    945
    
    
    
    Noncontrolling interest
    
    
    3,554
    
    
    
    3
    
    
    
    (115
    )
    
    
    (9,258
    )Deferred income taxes
    
    
    
    
    
    
    (1,888
    )
    
    
    
    
    
    
    (4,919
    )Stock compensation expense
    
    
    227
    
    
    
    26
    
    
    
    733
    
    
    
    (8
    )Pension and other post-retirement expense, net of
funding
    
    
    138
    
    
    
    (7
    )
    
    
    332
    
    
    
    (23
    )Inventory provisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,587Other
    
    
    844
    
    
    
    925
    
    
    
    1,847
    
    
    
    (1,974
    )Changes in current assets and liabilitiesReceivables
    
    
    (28,798
    )
    
    
    4,727
    
    
    
    (45,942
    )
    
    
    24,708Inventories
    
    
    (5,724
    )
    
    
    21,406
    
    
    
    (10,983
    )
    
    
    27,525Accounts payable and accrued expenses
    
    
    5,377
    
    
    
    15,161
    
    
    
    13,332
    
    
    
    7,940Other
    
    
    687
    
    
    
    (366
    )
    
    
    (594
    )
    
    
    634Net cash from (used in) operating activities
    
    
    17,229
    
    
    
    29,494
    
    
    
    18,946
    
    
    
    32,265Cash flows from (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (14,542
    )
    
    
    (7,835
    )
    
    
    (20,392
    )
    
    
    (15,541
    )Proceeds on sale of property, plant and equipment
    
    
    162
    
    
    
    103
    
    
    
    549
    
    
    
    232Cash, restricted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,469Notes receivable
    
    
    579
    
    
    
    120
    
    
    
    495
    
    
    
    241Net cash from (used in) investing activities
    
    
    (13,801
    )
    
    
    (7,612
    )
    
    
    (19,348
    )
    
    
    (5,599
    )Cash flows from (used in) financing activitiesRepayment of notes payable and debt
    
    
    
    
    
    
    
    
    
    
    (8,250
    )
    
    
    (13,800
    )Repayment of capital lease obligations
    
    
    (603
    )
    
    
    (536
    )
    
    
    (1,607
    )
    
    
    (1,218
    )Proceeds from borrowings of notes payable and debt
    
    
    6,390
    
    
    
    
    
    
    
    6,390
    
    
    
    10,000Proceeds from government grants
    
    
    1,144
    
    
    
    
    
    
    
    10,559
    
    
    
    Payment of deferred note issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,969
    )Net cash from (used in) financing activities
    
    
    6,931
    
    
    
    (536
    )
    
    
    7,092
    
    
    
    (6,987
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3,094
    
    
    
    (482
    )
    
    
    4,164
    
    
    
    (31
    )Net increase (decrease) in cash and cash equivalents
    
    
    13,453
    
    
    
    20,864
    
    
    
    10,854
    
    
    
    19,648Cash and cash equivalents, beginning of period
    
    
    48,692
    
    
    
    41,236
    
    
    
    51,291
    
    
    
    42,452Cash and cash equivalents, end of period
    
    
    62,145
    
    
    
    62,100
    
    
    
    62,145
    
    
    
    62,100
 The accompanying notes are an integral part of these interim consolidated financial statements.




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##### Table of Contents



MERCER INTERNATIONAL INC.
 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 (Unaudited)
(In thousands of Euros)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Supplemental disclosure of cash flow informationCash paid (received) during the period forInterest
    
    
    14,604
    
    
    
    2,952
    
    
    
    29,033
    
    
    
    31,210Income taxes
    
    
    (37
    )
    
    
    43
    
    
    
    29
    
    
    
    72Supplemental schedule of non-cash investing and
financing activitiesAcquisition of production and other
equipment under capital lease obligations
    
    
    318
    
    
    
    80
    
    
    
    530
    
    
    
    116Decrease in accounts payable relating to
investing activities
    
    
    (12,843
    )
    
    
    (1,602
    )
    
    
    (13,826
    )
    
    
    (1,141
    )
 The accompanying notes are an integral part of these interim consolidated financial statements.




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 1. The Company and Summary of Significant Accounting Policies
 Basis of Presentation
      Use of Estimates




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##### Table of Contents



MERCER INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 1. The Company and Summary of Significant Accounting Policies (continued)
 Recently Implemented Accounting Standards
  Fair Value Measurements and Disclosures.
 Note 2. Stock-Based Compensation
  Performance Stock




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 2. Stock-Based Compensation (continued)
  Restricted Stock
    Stock Options




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MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 3. Net Income (Loss) Per Share Attributable to Common Shareholders
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) attributable to common shareholders  basic
    
    
    12,401
    
    
    
    (11,476
    )
    
    
    4,855
    
    
    
    (50,826
    )Interest on convertible notes, net of tax
    
    
    747
    
    
    
    
    
    
    
    1,437
    
    
    
    Net income (loss) attributable to common shareholders 
diluted
    
    
    13,148
    
    
    
    (11,476
    )
    
    
    6,292
    
    
    
    (50,826
    )Net income (loss) per share attributable to common
shareholdersBasic
    
    
    0.34
    
    
    
    (0.32
    )
    
    
    0.13
    
    
    
    (1.40
    )Diluted
    
    
    0.23
    
    
    
    (0.32
    )
    
    
    0.11
    
    
    
    (1.40
    )Weighted average number of common shares outstandingBasic(1)
    
    
    36,349,340
    
    
    
    36,289,181
    
    
    
    36,334,846
    
    
    
    36,287,115Effect of dilutive instrumentsPerformance rights
    
    
    425,668
    
    
    
    
    
    
    
    429,865
    
    
    
    Restricted stock
    
    
    22,067
    
    
    
    
    
    
    
    16,498
    
    
    
    Stock options and awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes
    
    
    20,197,563
    
    
    
    
    
    
    
    20,212,058
    
    
    
    Diluted
    
    
    56,994,638
    
    
    
    36,289,181
    
    
    
    56,993,267
    
    
    
    36,287,115
 (1)
    
    The basic weighted average number of shares excludes performance and restricted stock which
have been issued, but have not vested as at June 30, 2010 and 2009.     Note 4. Inventories
 June 30, 2010
    
    
    December 31, 2009Raw materials
    
    
    39,255
    
    
    
    24,888Finished goods
    
    
    24,081
    
    
    
    24,198Work in process and other
    
    
    26,246
    
    
    
    23,543
    89,582
    
    
    
    72,629




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 5. Debt
  June 30, 2010
    
    
    December 31, 2009Note payable to bank, included
in a total loan credit facility
of 827,950 to finance the
construction related to the
Stendal mill (a)
    
    
    506,323
    
    
    
    514,574Senior notes due February 2013,
interest at 9.25% accrued and
payable semi-annually, unsecured
(b)
    
    
    252,238
    
    
    
    216,299Subordinated convertible notes
due October 2010, interest at
8.5% accrued and payable
semi-annually (c)
    
    
    1,851
    
    
    
    16,749Subordinated convertible notes
due January 2012, interest at
8.5% accrued and payable
semi-annually (d)
    
    
    50,151
    
    
    
    26,160Credit agreement with a lender
with respect to a revolving
credit facility of C$40 million
(e)
    
    
    23,782
    
    
    
    16,000Loan payable to the
noncontrolling shareholder of
the Stendal mill (f)
    
    
    30,485
    
    
    
    35,881Credit agreement with a bank
with respect to a revolving
credit facility of 25,000 (g)
    
    
    
    
    
    
    Investment loan agreement with a
lender with respect to the wash
press project at the Rosenthal
mill of 4,351 (h)
    
    
    4,351
    
    
    
    3,511Credit agreement with a bank
with respect to a revolving
credit facility of 3,500
(i)
    
    
    
    
    
    
    869,181
    
    
    
    829,174Less: current portion
    
    
    (23,189
    )
    
    
    (16,032
    )Debt, less current portion
    
    
    845,992
    
    
    
    813,142
  Matures
    
    Amount2010
    
    
    8,0622011
    
    
    24,2552012
    
    
    75,8222013(1)
    
    
    317,1082014
    
    
    40,543Thereafter
    
    
    403,391
    869,181
 
 (1)
    
    Includes revolving credit facility principal amounts totalling 23,782.




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 5. Debt (continued)
  (a)
    
    Note payable to bank, included in a total loan facility of 827,950 to finance the
construction related to the Stendal mill (Stendal Loan Facility), interest at rates varying
from Euribor plus 0.90% to Euribor plus 1.50% (rates on amounts of borrowing at June 30, 2010
range from 1.85% to 2.44%), principal due in required installments beginning September 30,
2006 until September 30, 2017, collateralized by the assets of the Stendal mill, with 48% and
32% guaranteed by the Federal Republic of Germany and the State of Saxony-Anhalt,
respectively, of up to 468,823 of outstanding principal, subject to a debt service reserve
account required to pay amounts due in the following twelve months under the terms of the
Stendal Loan Facility; payment of dividends is only permitted if certain cash flow
requirements are met.On March 13, 2009, the Company finalized an agreement with its lenders to amend its Stendal Loan
Facility. The amendment deferred approximately 164,000 of scheduled principal payments until
the maturity date, September 30, 2017, including approximately 20,000, 26,000, 21,000 of
scheduled principal payments that were originally due in 2009, 2010, and 2011, respectively.
The amendment also provided for a 100% cash sweep, referred to as the Cash Sweep, of any cash,
in excess of a 15,000 working capital reserve, held by Stendal which will be used first to fund
the debt service reserve account to a level sufficient to service the amounts due and payable
under the Stendal Loan Facility during the then following 12 months, or Fully Funded, and
second to prepay the deferred principal amounts.(b)
    
    In February 2005, the Company issued $310 million of senior notes due February 2013, which
bear interest at 9.25% accrued and payable semi-annually, and are unsecured. The Company may
redeem all or a part of the notes at redemption prices (expressed as a percentage of principal
amount) equal to 102.31% for the twelve month period beginning on February 15, 2010, and
100.00% beginning on February 15, 2011 and at any time thereafter, plus accrued and unpaid
interest.




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 5. Debt (continued)
 (c)
    
    As at June 30, 2010, the Subordinated Convertible Notes due October 2010 had approximately
$2.3 million of principal outstanding. The Subordinated Convertible Notes due October 2010,
bear interest at 8.5% accrued and payable semi-annually, are convertible at any time by the
holder into common shares of the Company at $7.75 per share and are unsecured. The Company
may redeem for cash all or a portion of these notes at any time at 100% of the principal
amount of the notes plus accrued and unpaid interest up to the redemption date. See Note 5(d).(d)
    
    On December 10, 2009, the Company exchanged approximately $43.3 million of Subordinated
Convertible Notes due October 2010 through private exchange agreements with the holders
thereof for approximately $43.8 million of Subordinated Convertible Notes due January 2012. On
January 22, 2010, through an exchange offer, the Company exchanged a further $21.7 million of
Subordinated Convertible Notes due October 2010 for approximately $22.0 million of the
Companys Subordinated Convertible Notes due January 2012. The Company recognized both
exchange transactions of the Subordinated Convertible Notes as extinguishments of debt in
accordance with ASC Topic 470, Debt,because the fair value of the embedded conversion option
changed by more than 10% in both transactions. As a result, for the year ended December 31,
2009, the Company accounted for the December 10, 2009 exchange as a debt extinguishment and
recognized a gain of 4,447 in the Consolidated Statement of Operations. For the six months
ended June 30, 2010, the Company recognized a loss of 929 as a result of the January 22, 2010
exchange. The gain and loss, which were determined using fair market values prevailing at the
time of the transactions, will both be accreted to income through to January 2012 through
interest expense yielding an effective interest rate of approximately 13% on the December 10,
2009 exchange and 3% on the January 22, 2010 exchange.The Subordinated Convertible Notes due January 2012 bear interest at 8.5%, accrued and payable
semi-annually, are convertible at anytime by the holder into common shares of the Company at
$3.30 per share and are unsecured. The Company may redeem for cash all or a portion of the notes
on or after July 15, 2011 at 100% of the principal amount of the notes plus accrued interest up
to the redemption date. During the six months ended June 30, 2010, $169,027 of Subordinated
Convertible Notes due January 2012 were converted into 51,218 shares.




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 5. Debt (continued)
 (e)
    
    Credit agreement with respect to a revolving credit facility of C$40.0 million for the Celgar
mill. The credit agreement matures May 2013. Borrowings under the credit agreement are
collateralized by the mills inventory and receivables and are restricted by a borrowing base
calculated on the mills inventory and receivables. Canadian dollar denominated amounts bear
interest at bankers acceptance plus 3.75% or Canadian prime plus 2.00%. U.S. dollar
denominated amounts bear interest at LIBOR plus 3.75% or U.S. base plus 2.00%. As at June 30,
2010, this facility was accruing interest at a rate of approximately 4.42% and the undrawn
amount was approximately C$8.0 million.(f)
    
    Loans payable to the noncontrolling shareholder of the Stendal mill bear interest at 7%,
which is accrued semi-annually. The loan payable is unsecured, subordinated to all
liabilities of the Stendal mill, and is due in 2017. The balance includes principal and
accrued interest. See Note 10  Noncontrolling Interest.(g)
    
    A 25,000 working capital facility at the Rosenthal mill that matures in December 2012.
Borrowings under the facility are collateralized by the mills inventory and receivables and
bear interest at approximately Euribor plus 3.50%. As at June 30, 2010, approximately 2,100
of this facility was supporting bank guarantees leaving approximately 22,900 undrawn.(h)
    
    On August 19, 2009 the Company finalized an investment loan agreement with a lender relating
to the new wash press at the Rosenthal mill. The four-year amortizing investment loan was
completed with a total facility of 4,351 bearing interest at the rate of Euribor plus 2.75%.
Borrowings under this agreement are secured by the new wash press equipment. As at June 30,
2010, this facility was drawn by 4,351 and was accruing interest at a rate of 3.20%.(i)
    
    On February 8, 2010 the Rosenthal mill finalized a credit agreement with a lender for a
3,500 facility maturing in December 2012. Borrowings under the facility will bear interest at
the rate of the 3-month Euribor plus 3.5% and are secured by certain land at our Rosenthal
mill. As at June 30, 2010, this facility was undrawn.
 Note 6. Derivative Transactions




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 6. Derivative Transactions (continued)
    Note 7. Pension and Other Post-Retirement Benefit Obligations




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 7. Pension and Other Post-Retirement Benefit Obligations (continued)
  Three Months Ended June 30,2010
    
    
    2009Post-
    
    
    
    
    
    
    Post-Pension
    
    
    Retirement
    
    
    Pension
    
    
    RetirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsService cost
    
    
    21
    
    
    
    102
    
    
    
    14
    
    
    
    84Interest cost
    
    
    437
    
    
    
    202
    
    
    
    377
    
    
    
    203Expected return on plan assets
    
    
    (409
    )
    
    
    
    
    
    
    (317
    )
    
    
    Recognized net loss (gain)
    
    
    115
    
    
    
    (81
    )
    
    
    35
    
    
    
    (59
    )Net periodic benefit cost
    
    
    164
    
    
    
    223
    
    
    
    109
    
    
    
    228
 Six Months Ended June 30,2010
    
    
    2009Post-
    
    
    
    
    
    
    Post-Pension
    
    
    Retirement
    
    
    Pension
    
    
    RetirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsService cost
    
    
    40
    
    
    
    195
    
    
    
    28
    
    
    
    167Interest cost
    
    
    832
    
    
    
    384
    
    
    
    747
    
    
    
    401Expected return on plan assets
    
    
    (778
    )
    
    
    
    
    
    
    (628
    )
    
    
    Recognized net loss (gain)
    
    
    218
    
    
    
    (154
    )
    
    
    69
    
    
    
    (116
    )Net periodic benefit cost
    
    
    312
    
    
    
    425
    
    
    
    216
    
    
    
    452
 Note 8. Share Capital
 Common shares




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##### Table of Contents



MERCER
INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 8. Share Capital (continued)
 Preferred shares
  Note 9. Financial Instruments
  June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCash and cash equivalents
    
    
    62,145
    
    
    
    62,145
    
    
    
    51,291
    
    
    
    51,291Investments
    
    
    155
    
    
    
    155
    
    
    
    135
    
    
    
    135Receivables
    
    
    125,105
    
    
    
    125,105
    
    
    
    71,143
    
    
    
    71,143Notes receivable
    
    
    3,897
    
    
    
    3,897
    
    
    
    3,819
    
    
    
    3,819Accounts payable and accrued expenses
    
    
    105,050
    
    
    
    105,050
    
    
    
    85,185
    
    
    
    85,185Debt
    
    
    869,181
    
    
    
    865,684
    
    
    
    829,174
    
    
    
    769,207Interest rate derivative contracts  liability
    
    
    63,880
    
    
    
    63,880
    
    
    
    52,873
    
    
    
    52,873




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##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 9. Financial Instruments (continued)
  identical
 similar
      Fair value measurements at June 30, 2010 using:Quoted prices inactive markets for
    
    
    Significant other
    
    
    Significantidentical assets
    
    
    observable inputs
    
    
    unobservable inputsDescription
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssetsInvestments (a)
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    155LiabilitiesDerivatives (b)
 Interest rate
swaps
    
    
    
    
    
    
    63,880
    
    
    
    
    
    
    
    63,880
 (a)
    
    Based on observable market data.(b)
    
    Based on observable inputs for the liability (yield curves observable at specific intervals).




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##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 10. Noncontrolling Interest
  Note 11. Commitments and Contingencies




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##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure
  Combined Condensed Balance Sheet
 June 30, 2010Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupASSETSCurrent assetsCash and cash equivalents
    
    
    39,485
    
    
    
    22,660
    
    
    
    
    
    
    
    62,145Receivables
    
    
    69,176
    
    
    
    55,929
    
    
    
    
    
    
    
    125,105Inventories
    
    
    58,250
    
    
    
    31,332
    
    
    
    
    
    
    
    89,582Prepaid expenses and other
    
    
    4,752
    
    
    
    2,696
    
    
    
    
    
    
    
    7,448Total current assets
    
    
    171,663
    
    
    
    112,617
    
    
    
    
    
    
    
    284,280Property, plant and equipment
    
    
    378,462
    
    
    
    494,381
    
    
    
    
    
    
    
    872,843Deferred note issuance and other
    
    
    3,139
    
    
    
    4,488
    
    
    
    
    
    
    
    7,627Deferred income tax
    
    
    3,860
    
    
    
    
    
    
    
    
    
    
    
    3,860Due from unrestricted group
    
    
    76,008
    
    
    
    
    
    
    
    (76,008
    )
    
    
    Note receivable
    
    
    2,202
    
    
    
    
    
    
    
    
    
    
    
    2,202Total assets
    
    
    635,334
    
    
    
    611,486
    
    
    
    (76,008
    )
    
    
    1,170,812LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses
    
    
    65,421
    
    
    
    39,629
    
    
    
    
    
    
    
    105,050Pension and other post-retirement benefit
obligations
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    653Debt
    
    
    2,939
    
    
    
    20,250
    
    
    
    
    
    
    
    23,189Total current liabilities
    
    
    69,013
    
    
    
    59,879
    
    
    
    
    
    
    
    128,892Debt
    
    
    329,434
    
    
    
    516,558
    
    
    
    
    
    
    
    845,992Due to restricted group
    
    
    
    
    
    
    76,008
    
    
    
    (76,008
    )
    
    
    Unrealized interest rate derivative losses
    
    
    
    
    
    
    63,880
    
    
    
    
    
    
    
    63,880Pension and other post-retirement benefit obligations
    
    
    20,932
    
    
    
    
    
    
    
    
    
    
    
    20,932Capital leases and other
    
    
    6,806
    
    
    
    4,165
    
    
    
    
    
    
    
    10,971Total liabilities
    
    
    426,185
    
    
    
    720,490
    
    
    
    (76,008
    )
    
    
    1,070,667EQUITYTotal shareholders equity (deficit)
    
    
    209,149
    
    
    
    (77,916
    )
    
    
    
    
    
    
    131,233Noncontrolling interest (deficit)
    
    
    
    
    
    
    (31,088
    )
    
    
    
    
    
    
    (31,088
    )Total liabilities and equity
    
    
    635,334
    
    
    
    611,486
    
    
    
    (76,008
    )
    
    
    1,170,812




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##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Balance Sheet
 December 31, 2009Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupASSETSCurrent assetsCash and cash equivalents
    
    
    20,635
    
    
    
    30,656
    
    
    
    
    
    
    
    51,291Receivables
    
    
    34,588
    
    
    
    36,555
    
    
    
    
    
    
    
    71,143Inventories
    
    
    52,897
    
    
    
    19,732
    
    
    
    
    
    
    
    72,629Prepaid expenses and other
    
    
    3,452
    
    
    
    2,419
    
    
    
    
    
    
    
    5,871Total current assets
    
    
    111,572
    
    
    
    89,362
    
    
    
    
    
    
    
    200,934Property, plant and equipment
    
    
    362,311
    
    
    
    506,247
    
    
    
    
    
    
    
    868,558Deferred note issuance and other
    
    
    3,388
    
    
    
    4,798
    
    
    
    
    
    
    
    8,186Deferred income tax
    
    
    3,426
    
    
    
    
    
    
    
    
    
    
    
    3,426Due from unrestricted group
    
    
    72,553
    
    
    
    
    
    
    
    (72,553
    )
    
    
    Note receivable
    
    
    2,727
    
    
    
    
    
    
    
    
    
    
    
    2,727Total assets
    
    
    555,977
    
    
    
    600,407
    
    
    
    (72,553
    )
    
    
    1,083,831LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses
    
    
    51,875
    
    
    
    33,310
    
    
    
    
    
    
    
    85,185Pension and other post-retirement benefit
obligations
    
    
    567
    
    
    
    
    
    
    
    
    
    
    
    567Debt
    
    
    2,115
    
    
    
    13,917
    
    
    
    
    
    
    
    16,032Total current liabilities
    
    
    54,557
    
    
    
    47,227
    
    
    
    
    
    
    
    101,784Debt
    
    
    276,604
    
    
    
    536,538
    
    
    
    
    
    
    
    813,142Due to restricted group
    
    
    
    
    
    
    72,553
    
    
    
    (72,553
    )
    
    
    Unrealized interest rate derivative losses
    
    
    
    
    
    
    52,873
    
    
    
    
    
    
    
    52,873Pension and other post-retirement benefit obligations
    
    
    17,902
    
    
    
    
    
    
    
    
    
    
    
    17,902Capital leases and other
    
    
    6,667
    
    
    
    5,490
    
    
    
    
    
    
    
    12,157Total liabilities
    
    
    355,730
    
    
    
    714,681
    
    
    
    (72,553
    )
    
    
    997,858EQUITYTotal shareholders equity (deficit)
    
    
    200,247
    
    
    
    (77,025
    )
    
    
    
    
    
    
    123,222Noncontrolling interest (deficit)
    
    
    
    
    
    
    (37,249
    )
    
    
    
    
    
    
    (37,249
    )Total liabilities and equity
    
    
    555,977
    
    
    
    600,407
    
    
    
    (72,553
    )
    
    
    1,083,831




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##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statements of Operations
 Three Months Ended June 30, 2010Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenuesPulp
    
    
    124,840
    
    
    
    103,453
    
    
    
    
    
    
    
    228,293Energy
    
    
    3,840
    
    
    
    8,091
    
    
    
    
    
    
    
    11,931128,680
    
    
    
    111,544
    
    
    
    
    
    
    
    240,224Operating costs
    
    
    95,870
    
    
    
    72,405
    
    
    
    
    
    
    
    168,275Operating depreciation and amortization
    
    
    7,628
    
    
    
    6,478
    
    
    
    
    
    
    
    14,106Selling, general and administrative expenses and other
    
    
    6,730
    
    
    
    3,225
    
    
    
    
    
    
    
    9,955110,228
    
    
    
    82,108
    
    
    
    
    
    
    
    192,336Operating income (loss)
    
    
    18,452
    
    
    
    29,436
    
    
    
    
    
    
    
    47,888Other income (expense)Interest expense
    
    
    (7,957
    )
    
    
    (10,116
    )
    
    
    1,175
    
    
    
    (16,898
    )Investment income (loss)
    
    
    1,285
    
    
    
    7
    
    
    
    (1,175
    )
    
    
    117Foreign exchange gain (loss) on debt
    
    
    (9,371
    )
    
    
    
    
    
    
    
    
    
    
    (9,371
    )Gain (loss) on derivative instruments
    
    
    
    
    
    
    (4,462
    )
    
    
    
    
    
    
    (4,462
    )Total other income (expense)
    
    
    (16,043
    )
    
    
    (14,571
    )
    
    
    
    
    
    
    (30,614
    )Income (loss) before income taxes
    
    
    2,409
    
    
    
    14,865
    
    
    
    
    
    
    
    17,274Income tax benefit (provision)
    
    
    (334
    )
    
    
    (985
    )
    
    
    
    
    
    
    (1,319
    )Net income (loss)
    
    
    2,075
    
    
    
    13,880
    
    
    
    
    
    
    
    15,955Less: net (income) loss attributable to
noncontrolling interest
    
    
    
    
    
    
    (3,554
    )
    
    
    
    
    
    
    (3,554
    )Net income (loss) attributable to common shareholders
    
    
    2,075
    
    
    
    10,326
    
    
    
    
    
    
    
    12,401
 Three Months Ended June 30, 2009Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenuesPulp
    
    
    76,443
    
    
    
    71,079
    
    
    
    
    
    
    
    147,522Energy
    
    
    3,945
    
    
    
    7,417
    
    
    
    
    
    
    
    11,36280,388
    
    
    
    78,496
    
    
    
    
    
    
    
    158,884Operating costs
    
    
    79,793
    
    
    
    69,240
    
    
    
    
    
    
    
    149,033Operating depreciation and amortization
    
    
    6,888
    
    
    
    6,651
    
    
    
    
    
    
    
    13,539Selling, general and administrative expenses and other
    
    
    3,314
    
    
    
    2,734
    
    
    
    
    
    
    
    6,04889,995
    
    
    
    78,625
    
    
    
    
    
    
    
    168,620Operating income (loss)
    
    
    (9,607
    )
    
    
    (129
    )
    
    
    
    
    
    
    (9,736
    )Other income (expense)Interest expense
    
    
    (6,927
    )
    
    
    (10,513
    )
    
    
    1,121
    
    
    
    (16,319
    )Investment income (loss)
    
    
    1,234
    
    
    
    25
    
    
    
    (1,121
    )
    
    
    138Foreign exchange gain (loss) on debt
    
    
    5,170
    
    
    
    
    
    
    
    
    
    
    
    5,170Gain (loss) on derivative instruments
    
    
    
    
    
    
    7,451
    
    
    
    
    
    
    
    7,451Total other income (expense)
    
    
    (523
    )
    
    
    (3,037
    )
    
    
    
    
    
    
    (3,560
    )Income (loss) before income taxes
    
    
    (10,130
    )
    
    
    (3,166
    )
    
    
    
    
    
    
    (13,296
    )Income tax benefit (provision)
    
    
    (1,149
    )
    
    
    2,972
    
    
    
    
    
    
    
    1,823Net income (loss)
    
    
    (11,279
    )
    
    
    (194
    )
    
    
    
    
    
    
    (11,473
    )Less: net (income) loss attributable to
noncontrolling interest
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Net income (loss) attributable to common shareholders
    
    
    (11,279
    )
    
    
    (197
    )
    
    
    
    
    
    
    (11,476
    )




---



##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statements of Operations
 Six Months Ended June 30, 2010Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenuesPulp
    
    
    231,257
    
    
    
    168,157
    
    
    
    
    
    
    
    399,414Energy
    
    
    7,215
    
    
    
    13,847
    
    
    
    
    
    
    
    21,062238,472
    
    
    
    182,004
    
    
    
    
    
    
    
    420,476Operating costs
    
    
    177,535
    
    
    
    131,149
    
    
    
    
    
    
    
    308,684Operating depreciation and amortization
    
    
    14,841
    
    
    
    12,989
    
    
    
    
    
    
    
    27,830Selling, general and administrative expenses and other
    
    
    11,571
    
    
    
    6,479
    
    
    
    
    
    
    
    18,050203,947
    
    
    
    150,617
    
    
    
    
    
    
    
    354,564Operating income (loss)
    
    
    34,525
    
    
    
    31,387
    
    
    
    
    
    
    
    65,912Other income (expense)Interest expense
    
    
    (15,277
    )
    
    
    (20,380
    )
    
    
    2,336
    
    
    
    (33,321
    )Investment income (loss)
    
    
    2,524
    
    
    
    23
    
    
    
    (2,336
    )
    
    
    211Foreign exchange gain (loss) on debt
    
    
    (14,602
    )
    
    
    
    
    
    
    
    
    
    
    (14,602
    )Gain (loss) on extinguishment of convertible notes
    
    
    (929
    )
    
    
    
    
    
    
    
    
    
    
    (929
    )Gain (loss) on derivative instruments
    
    
    
    
    
    
    (11,008
    )
    
    
    
    
    
    
    (11,008
    )Total other income (expense)
    
    
    (28,284
    )
    
    
    (31,365
    )
    
    
    
    
    
    
    (59,649
    )Income (loss) before income taxes
    
    
    6,241
    
    
    
    22
    
    
    
    
    
    
    
    6,263Income tax benefit (provision)
    
    
    (495
    )
    
    
    (1,028
    )
    
    
    
    
    
    
    (1,523
    )Net income (loss)
    
    
    5,746
    
    
    
    (1,006
    )
    
    
    
    
    
    
    4,740Less: net (income) loss attributable to
noncontrolling interest
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Net income (loss) attributable to common shareholders
    
    
    5,746
    
    
    
    (891
    )
    
    
    
    
    
    
    4,855
 Six Months Ended June 30, 2009Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenuesPulp
    
    
    151,459
    
    
    
    125,096
    
    
    
    
    
    
    
    276,555Energy
    
    
    7,961
    
    
    
    13,940
    
    
    
    
    
    
    
    21,901159,420
    
    
    
    139,036
    
    
    
    
    
    
    
    298,456Operating costs
    
    
    154,228
    
    
    
    126,802
    
    
    
    
    
    
    
    281,030Operating depreciation and amortization
    
    
    13,592
    
    
    
    13,348
    
    
    
    
    
    
    
    26,940Selling, general and administrative expenses and other
    
    
    6,617
    
    
    
    6,018
    
    
    
    
    
    
    
    12,635174,437
    
    
    
    146,168
    
    
    
    
    
    
    
    320,605Operating income (loss)
    
    
    (15,017
    )
    
    
    (7,132
    )
    
    
    
    
    
    
    (22,149
    )Other income (expense)Interest expense
    
    
    (14,229
    )
    
    
    (20,869
    )
    
    
    2,230
    
    
    
    (32,868
    )Investment income (loss)
    
    
    2,150
    
    
    
    (2,984
    )
    
    
    (2,230
    )
    
    
    (3,064
    )Foreign exchange gain (loss) on debt
    
    
    754
    
    
    
    
    
    
    
    
    
    
    
    754Gain (loss) on derivative instruments
    
    
    
    
    
    
    (7,562
    )
    
    
    
    
    
    
    (7,562
    )Total other income (expense)
    
    
    (11,325
    )
    
    
    (31,415
    )
    
    
    
    
    
    
    (42,740
    )Income (loss) before income taxes
    
    
    (26,342
    )
    
    
    (38,547
    )
    
    
    
    
    
    
    (64,889
    )Income tax benefit (provision)
    
    
    (941
    )
    
    
    5,746
    
    
    
    
    
    
    
    4,805Net income (loss)
    
    
    (27,283
    )
    
    
    (32,801
    )
    
    
    
    
    
    
    (60,084
    )Less: net (income) loss attributable to
noncontrolling interest
    
    
    
    
    
    
    9,258
    
    
    
    
    
    
    
    9,258Net income (loss) attributable to common shareholders
    
    
    (27,283
    )
    
    
    (23,543
    )
    
    
    
    
    
    
    (50,826
    )




---



##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Cash Flows
 Three Months Ended June 30, 2010Restricted
    
    
    Unrestricted
    
    
    ConsolidatedGroup
    
    
    Group
    
    
    GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders
    
    
    2,075
    
    
    
    10,326
    
    
    
    12,401Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments
    
    
    
    
    
    
    4,462
    
    
    
    4,462Foreign exchange loss (gain) on debt
    
    
    9,371
    
    
    
    
    
    
    
    9,371Depreciation and amortization
    
    
    7,698
    
    
    
    6,478
    
    
    
    14,176Accretion (income) expense
    
    
    514
    
    
    
    
    
    
    
    514Noncontrolling interest
    
    
    
    
    
    
    3,554
    
    
    
    3,554Stock compensation expense
    
    
    227
    
    
    
    
    
    
    
    227Pension and other post-retirement expense, net of funding
    
    
    138
    
    
    
    
    
    
    
    138Other
    
    
    182
    
    
    
    662
    
    
    
    844Changes in current assets and liabilitiesReceivables
    
    
    (10,186
    )
    
    
    (18,612
    )
    
    
    (28,798
    )Inventories
    
    
    810
    
    
    
    (6,534
    )
    
    
    (5,724
    )Accounts payable and accrued expenses
    
    
    10,567
    
    
    
    (5,190
    )
    
    
    5,377Other(1)
    
    
    (4,860
    )
    
    
    5,547
    
    
    
    687Net cash from (used in) operating activities
    
    
    16,536
    
    
    
    693
    
    
    
    17,229Cash flows from (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (14,148
    )
    
    
    (394
    )
    
    
    (14,542
    )Proceeds on sale of property, plant and equipment
    
    
    9
    
    
    
    153
    
    
    
    162Note receivable
    
    
    579
    
    
    
    
    
    
    
    579Net cash from (used in) investing activities
    
    
    (13,560
    )
    
    
    (241
    )
    
    
    (13,801
    )Cash flows from (used in) financing activitiesRepayment of capital lease obligations
    
    
    (202
    )
    
    
    (401
    )
    
    
    (603
    )Proceeds from borrowings of notes payable and debt
    
    
    6,390
    
    
    
    
    
    
    
    6,390Proceeds from government grants
    
    
    1,144
    
    
    
    
    
    
    
    1,144Net cash from (used in) financing activities
    
    
    7,332
    
    
    
    (401
    )
    
    
    6,931Effect of exchange rate changes on cash and cash equivalents
    
    
    3,094
    
    
    
    
    
    
    
    3,094Net increase (decrease) in cash and cash equivalents
    
    
    13,402
    
    
    
    51
    
    
    
    13,453Cash and cash equivalents, beginning of period
    
    
    26,083
    
    
    
    22,609
    
    
    
    48,692Cash and cash equivalents, end of period
    
    
    39,485
    
    
    
    22,660
    
    
    
    62,145
 
 (1)
    
    Includes intercompany working capital related transactions.




---



##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Cash Flows
 Three Months Ended June 30, 2009Restricted
    
    
    Unrestricted
    
    
    ConsolidatedGroup
    
    
    Group
    
    
    GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders
    
    
    (11,279
    )
    
    
    (197
    )
    
    
    (11,476
    )Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments
    
    
    
    
    
    
    (7,451
    )
    
    
    (7,451
    )Foreign exchange loss (gain) on debt
    
    
    (5,170
    )
    
    
    
    
    
    
    (5,170
    )Depreciation and amortization
    
    
    6,953
    
    
    
    6,651
    
    
    
    13,604Noncontrolling interest
    
    
    
    
    
    
    3
    
    
    
    3Deferred income taxes
    
    
    1,135
    
    
    
    (3,023
    )
    
    
    (1,888
    )Stock compensation expense
    
    
    26
    
    
    
    
    
    
    
    26Pension and other post-retirement expense, net of funding
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Other
    
    
    370
    
    
    
    555
    
    
    
    925Changes in current assets and liabilitiesReceivables
    
    
    6,462
    
    
    
    (1,735
    )
    
    
    4,727Inventories
    
    
    9,715
    
    
    
    11,691
    
    
    
    21,406Accounts payable and accrued expenses
    
    
    6,129
    
    
    
    9,032
    
    
    
    15,161Other(1)
    
    
    (1,348
    )
    
    
    982
    
    
    
    (366
    )Net cash from (used in) operating activities
    
    
    12,986
    
    
    
    16,508
    
    
    
    29,494Cash flows from (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (7,352
    )
    
    
    (483
    )
    
    
    (7,835
    )Proceeds on sale of property, plant and equipment
    
    
    46
    
    
    
    57
    
    
    
    103Note receivable
    
    
    120
    
    
    
    
    
    
    
    120Net cash from (used in) investing activities
    
    
    (7,186
    )
    
    
    (426
    )
    
    
    (7,612
    )Cash flows from (used in) financing activitiesRepayment of capital lease obligations
    
    
    (158
    )
    
    
    (378
    )
    
    
    (536
    )Net cash from (used in) financing activities
    
    
    (158
    )
    
    
    (378
    )
    
    
    (536
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (482
    )
    
    
    
    
    
    
    (482
    )Net increase (decrease) in cash and cash equivalents
    
    
    5,160
    
    
    
    15,704
    
    
    
    20,864Cash and cash equivalents, beginning of period
    
    
    28,682
    
    
    
    12,554
    
    
    
    41,236Cash and cash equivalents, end of period
    
    
    33,842
    
    
    
    28,258
    
    
    
    62,100
 
 (1)
    
    Includes intercompany working capital related transactions.




---



##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Cash Flows
 Six Months Ended June 30, 2010Restricted
    
    
    Unrestricted
    
    
    ConsolidatedGroup
    
    
    Group
    
    
    GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders
    
    
    5,746
    
    
    
    (891
    )
    
    
    4,855Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments
    
    
    
    
    
    
    11,008
    
    
    
    11,008Foreign exchange loss (gain) on debt
    
    
    14,602
    
    
    
    
    
    
    
    14,602Loss (gain) on extinguishment of convertible notes
    
    
    929
    
    
    
    
    
    
    
    929Depreciation and amortization
    
    
    15,008
    
    
    
    12,989
    
    
    
    27,997Accretion (income) expense
    
    
    945
    
    
    
    
    
    
    
    945Noncontrolling interest
    
    
    
    
    
    
    (115
    )
    
    
    (115
    )Stock compensation expense
    
    
    733
    
    
    
    
    
    
    
    733Pension and other post-retirement expense, net of funding
    
    
    332
    
    
    
    
    
    
    
    332Other
    
    
    570
    
    
    
    1,277
    
    
    
    1,847Changes in current assets and liabilitiesReceivables
    
    
    (26,568
    )
    
    
    (19,374
    )
    
    
    (45,942
    )Inventories
    
    
    617
    
    
    
    (11,600
    )
    
    
    (10,983
    )Accounts payable and accrued expenses
    
    
    7,722
    
    
    
    5,610
    
    
    
    13,332Other(1)
    
    
    (3,798
    )
    
    
    3,204
    
    
    
    (594
    )Net cash from (used in) operating activities
    
    
    16,838
    
    
    
    2,108
    
    
    
    18,946Cash flows from (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (19,075
    )
    
    
    (1,317
    )
    
    
    (20,392
    )Proceeds on sale of property, plant and equipment
    
    
    63
    
    
    
    486
    
    
    
    549Note receivable
    
    
    495
    
    
    
    
    
    
    
    495Net cash from (used in) investing activities
    
    
    (18,517
    )
    
    
    (831
    )
    
    
    (19,348
    )Cash flows from (used in) financing activitiesRepayment of notes payable and debt
    
    
    
    
    
    
    (8,250
    )
    
    
    (8,250
    )Repayment of capital lease obligations
    
    
    (584
    )
    
    
    (1,023
    )
    
    
    (1,607
    )Proceeds from borrowings of notes payable and debt
    
    
    6,390
    
    
    
    
    
    
    
    6,390Proceeds from government grants
    
    
    10,559
    
    
    
    
    
    
    
    10,559Net cash from (used in) financing activities
    
    
    16,365
    
    
    
    (9,273
    )
    
    
    7,092Effect of exchange rate changes on cash and cash equivalents
    
    
    4,164
    
    
    
    
    
    
    
    4,164Net increase (decrease) in cash and cash equivalents
    
    
    18,850
    
    
    
    (7,996
    )
    
    
    10,854Cash and cash equivalents, beginning of period
    
    
    20,635
    
    
    
    30,656
    
    
    
    51,291Cash and cash equivalents, end of period
    
    
    39,485
    
    
    
    22,660
    
    
    
    62,145
 
 (1)
    
    Includes intercompany working capital related transactions.




---



##### Table of Contents



MERCER INTERNATIONAL INC.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Euros, except per share data)
 Note 12. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Cash Flows
 Six Months Ended June 30, 2009Restricted
    
    
    Unrestricted
    
    
    ConsolidatedGroup
    
    
    Group
    
    
    GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders
    
    
    (27,283
    )
    
    
    (23,543
    )
    
    
    (50,826
    )Adjustments to reconcile net income (loss) attributable to
common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments
    
    
    
    
    
    
    7,562
    
    
    
    7,562Foreign exchange loss (gain) on debt
    
    
    (754
    )
    
    
    
    
    
    
    (754
    )Depreciation and amortization
    
    
    13,723
    
    
    
    13,348
    
    
    
    27,071Noncontrolling interest
    
    
    
    
    
    
    (9,258
    )
    
    
    (9,258
    )Deferred income taxes
    
    
    909
    
    
    
    (5,828
    )
    
    
    (4,919
    )Stock compensation expense
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Pension and other post-retirement expense, net of funding
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Inventory provisions
    
    
    3,233
    
    
    
    1,354
    
    
    
    4,587Other
    
    
    350
    
    
    
    (2,324
    )
    
    
    (1,974
    )Changes in current assets and liabilitiesReceivables
    
    
    22,215
    
    
    
    2,493
    
    
    
    24,708Inventories
    
    
    11,314
    
    
    
    16,211
    
    
    
    27,525Accounts payable and accrued expenses
    
    
    6,523
    
    
    
    1,417
    
    
    
    7,940Other(1)
    
    
    (12,463
    )
    
    
    13,097
    
    
    
    634Net cash from (used in) operating activities
    
    
    17,736
    
    
    
    14,529
    
    
    
    32,265Cash flows from (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (14,527
    )
    
    
    (1,014
    )
    
    
    (15,541
    )Proceeds on sale of property, plant and equipment
    
    
    98
    
    
    
    134
    
    
    
    232Cash, restricted
    
    
    
    
    
    
    9,469
    
    
    
    9,469Note receivable
    
    
    241
    
    
    
    
    
    
    
    241Net cash from (used in) investing activities
    
    
    (14,188
    )
    
    
    8,589
    
    
    
    (5,599
    )Cash flows from (used in) financing activitiesRepayment of notes payable and debt
    
    
    (5,550
    )
    
    
    (8,250
    )
    
    
    (13,800
    )Repayment of capital lease obligations
    
    
    (301
    )
    
    
    (917
    )
    
    
    (1,218
    )Proceeds form borrowings of notes payables and debt
    
    
    10,000
    
    
    
    
    
    
    
    10,000Payment of deferred note issuance costs
    
    
    
    
    
    
    (1,969
    )
    
    
    (1,969
    )Net cash from (used in) financing activities
    
    
    4,149
    
    
    
    (11,136
    )
    
    
    (6,987
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Net increase (decrease) in cash and cash equivalents
    
    
    7,666
    
    
    
    11,982
    
    
    
    19,648Cash and cash equivalents, beginning of period
    
    
    26,176
    
    
    
    16,276
    
    
    
    42,452Cash and cash equivalents, end of period
    
    
    33,842
    
    
    
    28,258
    
    
    
    62,100
 
 (1)
    
    Includes intercompany working capital related transactions.




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Results of Operations
 General
   Market Environment




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Second Quarter and Six Months Operational Snapshot
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Pulp Production (000 ADMTs)
    
    
    359.7
    
    
    
    349.1
    
    
    
    689.1
    
    
    
    694.7Scheduled Production Downtime (000 ADMTs)
    
    
    17.0
    
    
    
    2.7
    
    
    
    35.2
    
    
    
    2.7Pulp Sales (000 ADMTs)
    
    
    365.0
    
    
    
    395.4
    
    
    
    697.9
    
    
    
    732.0Pulp Revenues (in millions)
    
    
    228.3
    
    
    
    147.5
    
    
    
    399.4
    
    
    
    276.6NBSK pulp list prices in Europe ($/ADMT)
    
    $
    957
    
    
    $
    602
    
    
    $
    908
    
    
    $
    593NBSK pulp list prices in Europe (/ADMT)
    
    
    752
    
    
    
    442
    
    
    
    684
    
    
    
    445Average pulp sales realizations (/ADMT)(1)
    
    
    618
    
    
    
    367
    
    
    
    565
    
    
    
    372Energy Production (000 MWh)
    
    
    382.5
    
    
    
    376.0
    
    
    
    720.3
    
    
    
    732.3Energy Sales (000 MWh)
    
    
    144.2
    
    
    
    128.5
    
    
    
    251.3
    
    
    
    240.8Energy Revenue (in millions)
    
    
    11.9
    
    
    
    11.4
    
    
    
    21.1
    
    
    
    21.9Average energy sales realizations (/MWh)
    
    
    83
    
    
    
    88
    
    
    
    84
    
    
    
    91Average Spot Currency Exchange Rates / $(2)
    
    
    0.7865
    
    
    
    0.7347
    
    
    
    0.7547
    
    
    
    0.7511C$ / $(2)
    
    
    1.0277
    
    
    
    1.1678
    
    
    
    1.0345
    
    
    
    1.2063C$ / (3)
    
    
    1.3073
    
    
    
    1.5890
    
    
    
    1.3739
    
    
    
    1.6054
 
 (1)
    
    Sales realizations after discounts. Incorporates the effect of pulp price variations
occurring between the order and shipment dates.(2)
    
    Average Federal Reserve Bank of New York noon spot rate over the reporting period.(3)
    
    Average Bank of Canada noon spot rates over the reporting period. Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
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Three Months EndedJune 30,2010
    
    
    2009(in thousands)Net income (loss) attributable to common shareholders
    
    
    12,401
    
    
    
    (11,476
    )Net income (loss) attributable to noncontrolling interest
    
    
    3,554
    
    
    
    3Income taxes (benefits)
    
    
    1,319
    
    
    
    (1,823
    )Interest expense
    
    
    16,898
    
    
    
    16,319Investment (income) loss
    
    
    (117
    )
    
    
    (138
    )Foreign exchange loss (gain) on debt
    
    
    9,371
    
    
    
    (5,170
    )Loss (gain) on derivative instruments
    
    
    4,462
    
    
    
    (7,451
    )Operating income (loss)
    
    
    47,888
    
    
    
    (9,736
    )Add: Depreciation and amortization
    
    
    14,176
    
    
    
    13,604Operating EBITDA
    
    
    62,064
    
    
    
    3,868
 Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
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 
  Six Months EndedJune 30,2010
    
    
    2009(in thousands)Net income (loss) attributable to common shareholders
    
    
    4,855
    
    
    
    (50,826
    )Net income (loss) attributable to noncontrolling interest
    
    
    (115
    )
    
    
    (9,258
    )Income taxes (benefits)
    
    
    1,523
    
    
    
    (4,805
    )Interest expense
    
    
    33,321
    
    
    
    32,868Investment (income) loss
    
    
    (211
    )
    
    
    3,064Foreign exchange loss (gain) on debt
    
    
    14,602
    
    
    
    (754
    )Loss on extinguishment of convertible notes
    
    
    929
    
    
    
    Loss (gain) on derivative instruments
    
    
    11,008
    
    
    
    7,562Operating income (loss)
    
    
    65,912
    
    
    
    (22,149
    )Add: Depreciation and amortization
    
    
    27,997
    
    
    
    27,071Operating EBITDA
    
    
    93,909
    
    
    
    4,922
 Liquidity and Capital Resources
  As at
    
    
    As atJune 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Financial PositionCash and cash equivalents
    
    
    62,145
    
    
    
    51,291Working capital
    
    
    155,388
    
    
    
    99,150Property, plant and equipment
    
    
    872,843
    
    
    
    868,558Total assets
    
    
    1,170,812
    
    
    
    1,083,831Long-term liabilities
    
    
    941,775
    
    
    
    896,074Total equity
    
    
    100,145
    
    
    
    85,973
 Sources and Uses of Funds
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 
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 Debt Covenants
   Cash Flow Analysis
 Cash Flows from Operating Activities.
         
 Cash Flows from Investing Activities.    
 Cash Flows from Financing Activities.     




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Capital Resources
 
 Future Liquidity
  Contractual Obligations and Commitments
  Foreign Currency
    
  Results of Operations of the Restricted Group under our Senior Note Indenture




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Restricted Group Results  Three Months Ended June 30, 2010 Compared to Three Months Ended June
30, 2009
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 
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  Three Months EndedJune 30,2010
    
    
    2009(in thousands)Restricted Group(1)Net income (loss)
    
    
    2,075
    
    
    
    (11,279
    )Income taxes (benefits)
    
    
    334
    
    
    
    1,149Interest expense
    
    
    7,957
    
    
    
    6,927Investment (income) loss
    
    
    (1,285
    )
    
    
    (1,234
    )Foreign exchange (gain) loss on debt
    
    
    9,371
    
    
    
    (5,170
    )Operating income (loss)
    
    
    18,452
    
    
    
    (9,607
    )Add: Depreciation and amortization
    
    
    7,698
    
    
    
    6,953Operating EBITDA
    
    
    26,150
    
    
    
    (2,654
    )
 
 (1)
    
    See Note 12 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. Restricted Group Results  Six Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009
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 
  Six Months EndedJune 30,2010
    
    
    2009(in thousands)Restricted Group(1)Net income (loss)
    
    
    5,746
    
    
    
    (27,283
    )Income taxes (benefits)
    
    
    495
    
    
    
    941Interest expense
    
    
    15,277
    
    
    
    14,229Investment (income) loss
    
    
    (2,524
    )
    
    
    (2,150
    )Foreign exchange (gain) loss on debt
    
    
    14,602
    
    
    
    (754
    )Loss on extinguishment of convertible notes
    
    
    929
    
    
    
    Operating income (loss)
    
    
    34,525
    
    
    
    (15,017
    )Add: Depreciation and amortization
    
    
    15,008
    
    
    
    13,723Operating EBITDA
    
    
    49,533
    
    
    
    (1,294
    )
 
 (1)
    
    See Note 12 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. Liquidity and Capital Resources of the Restricted Group
  As at
    
    
    As atJune 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Restricted Group Financial Position(1)Cash and cash equivalents
    
    
    39,485
    
    
    
    20,635Working capital
    
    
    102,650
    
    
    
    57,015Property, plant and equipment
    
    
    378,462
    
    
    
    362,311Total assets
    
    
    635,334
    
    
    
    555,977Long-term liabilities
    
    
    357,172
    
    
    
    301,173Total equity
    
    
    209,149
    
    
    
    200,247
 
 (1)
    
    See Note 12 of the interim consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results.    




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Credit Ratings
    Critical Accounting Policies
     New Accounting Standards




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Cautionary Statement Regarding Forward-Looking Information
 Private Securities
Litigation Reform Act of 1995
 
    
    our markets;
    
    demand and prices for our products;
    
    our level of indebtedness;
    
    raw material costs and supply;
    
    energy prices, sales and our initiatives to enhance sales of surplus energy;
    
    capital expenditures;
    
    the economy;
    
    foreign exchange rates  particularly the U.S. dollar and Canadian dollar; and
    
    derivatives.
  Cyclical Nature of Business
 Revenues




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Costs
  Currency




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures. Securities Exchange Act of 1934
  Changes in Internal Controls.




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Section 302 Certification of Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32.1*
    
    Section 906 Certification of Chief Executive Officer32.2*
    
    Section 906 Certification of Chief Financial Officer
 
 *
    
    In accordance with Release 33-8212 of the Commission, these Certifications: (i) are
furnished to the Commission and are not filed for the purposes of liability under the
Securities Exchange Act of 1934, as amended; and (ii) are not to be subject to automatic
incorporation by reference into any of the Companys registration statements filed under the
Securities Act of 1933, as amended for the purposes of liability thereunder or any offering
memorandum, unless the Company specifically incorporates them by reference therein.




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SIGNATURES
 Securities Exchange Act of 1934
 MERCER INTERNATIONAL INC.By:
    /s/ David M. GandossiDavid M. GandossiSecretary and Chief Financial Officer