##### 



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 September 30, 2007
 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 þ 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 6. EXHIBITSSIGNATURES 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007
 (Unaudited)




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##### 



MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(Euros in thousands)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    
    69,441
    
    
    
    69,367Receivables
    
    
    97,380
    
    
    
    75,022Note receivable, current portion
    
    
    5,998
    
    
    
    7,798Inventories (Note 4)
    
    
    96,791
    
    
    
    62,857Prepaid expenses and other
    
    
    6,356
    
    
    
    4,662Current assets of discontinued operations (Note 10)
    
    
    1,537
    
    
    
    2,094Total current assets
    
    
    277,503
    
    
    
    221,800Long-term assetsCash, restricted
    
    
    33,000
    
    
    
    57,000Property, plant and equipment
    
    
    949,046
    
    
    
    972,143Investments
    
    
    72
    
    
    
    1Unrealized foreign exchange rate derivative gain
    
    
    
    
    
    
    5,933Deferred note issuance and other costs
    
    
    5,949
    
    
    
    6,984Deferred income tax
    
    
    18,016
    
    
    
    29,989Note receivable, less current portion
    
    
    4,239
    
    
    
    8,7441,010,322
    
    
    
    1,080,794Total assets
    
    
    1,287,825
    
    
    
    1,302,594LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses
    
    
    91,293
    
    
    
    84,173Debt, current portion
    
    
    34,023
    
    
    
    33,903Current liabilities of discontinued operations (Note 10)
    
    
    610
    
    
    
    1,926Total current liabilities
    
    
    125,926
    
    
    
    120,002Long-term liabilitiesDebt, less current portion (Note 8)
    
    
    822,331
    
    
    
    873,928Unrealized interest rate derivative loss
    
    
    23,266
    
    
    
    41,355Pension and other post-retirement benefit obligations (Note 6)
    
    
    19,625
    
    
    
    17,954Capital leases
    
    
    5,350
    
    
    
    6,202Deferred income tax
    
    
    16,698
    
    
    
    22,911Other long-term liabilities
    
    
    3,714
    
    
    
    1,441890,984
    
    
    
    963,791Total liabilities
    
    
    1,016,910
    
    
    
    1,083,793Minority interest
    
    
    
    
    
    
    SHAREHOLDERS EQUITYCommon shares (Note 8)
    
    
    202,845
    
    
    
    195,642Additional paid-in capital
    
    
    134
    
    
    
    154Retained earnings
    
    
    30,181
    
    
    
    15,240Accumulated other comprehensive income
    
    
    37,755
    
    
    
    7,765Total shareholders equity
    
    
    270,915
    
    
    
    218,801Total liabilities and shareholders equity
    
    
    1,287,825
    
    
    
    1,302,594
 The accompanying notes are an integral part of these interim financial statements.




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##### 



MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
(Euros in thousands, except for income per share)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    
    191,111
    
    
    
    171,248
    
    
    
    537,245
    
    
    
    463,510Costs and expensesOperating costs
    
    
    149,440
    
    
    
    117,186
    
    
    
    429,637
    
    
    
    358,740Operating depreciation and amortization
    
    
    14,284
    
    
    
    13,465
    
    
    
    42,003
    
    
    
    41,79027,387
    
    
    
    40,597
    
    
    
    65,605
    
    
    
    62,980General and administrative expenses
    
    
    5,930
    
    
    
    5,839
    
    
    
    19,494
    
    
    
    19,891(Sale) purchase of emission allowances
    
    
    
    
    
    
    
    
    
    
    (766
    )
    
    
    (13,246
    )Operating income from continuing operations
    
    
    21,457
    
    
    
    34,758
    
    
    
    46,877
    
    
    
    56,335Other income (expense)Interest expense
    
    
    (18,599
    )
    
    
    (23,041
    )
    
    
    (56,308
    )
    
    
    (68,769
    )Investment income
    
    
    2,791
    
    
    
    1,080
    
    
    
    5,986
    
    
    
    4,083Unrealized foreign exchange gain (loss) on debt
    
    
    4,626
    
    
    
    (704
    )
    
    
    7,229
    
    
    
    11,469Realized gain (loss) on derivative instruments (Note 5)
    
    
    
    
    
    
    
    
    
    
    6,820
    
    
    
    (5,219
    )Unrealized (loss) gain on derivative instruments (Note 5)
    
    
    (5,696
    )
    
    
    (14,473
    )
    
    
    12,156
    
    
    
    76,251Total other (expense) income
    
    
    (16,878
    )
    
    
    (37,138
    )
    
    
    (24,117
    )
    
    
    17,815Income (loss) before income taxes and minority interest from
continuing operations
    
    
    4,579
    
    
    
    (2,380
    )
    
    
    22,760
    
    
    
    74,150Income tax benefit (provision)  current
    
    
    (144
    )
    
    
    (302
    )
    
    
    (877
    )
    
    
    (524
    ) deferred
    
    
    7,013
    
    
    
    2,834
    
    
    
    (5,959
    )
    
    
    (39,864
    )Income before minority interest from continuing operations
    
    
    11,448
    
    
    
    152
    
    
    
    15,924
    
    
    
    33,762Minority interest
    
    
    (742
    )
    
    
    5,976
    
    
    
    (785
    )
    
    
    6,874Net income from continuing operations
    
    
    10,706
    
    
    
    6,128
    
    
    
    15,139
    
    
    
    40,636Net (loss) income from discontinued operations
    
    
    (10
    )
    
    
    600
    
    
    
    (198
    )
    
    
    1,101Net income
    
    
    10,696
    
    
    
    6,728
    
    
    
    14,941
    
    
    
    41,737Retained earnings (deficit), beginning of period
    
    
    19,485
    
    
    
    (12,961
    )
    
    
    15,240
    
    
    
    (47,970
    )Retained earnings (deficit), end of period
    
    
    30,181
    
    
    
    (6,233
    )
    
    
    30,181
    
    
    
    (6,233
    )Net income per share from continuing operations (Note 3)Basic
    
    
    0.30
    
    
    
    0.18
    
    
    
    0.42
    
    
    
    1.22Diluted
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.40
    
    
    
    1.03Income per shareBasic
    
    
    0.29
    
    
    
    0.20
    
    
    
    0.41
    
    
    
    1.26Diluted
    
    
    0.26
    
    
    
    0.19
    
    
    
    0.39
    
    
    
    1.05
 The accompanying notes are an integral part of these interim financial statements.




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##### 



MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited)
(Euros in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    
    10,696
    
    
    
    6,728
    
    
    
    14,941
    
    
    
    41,737Other comprehensive income:Foreign currency translation adjustment
    
    
    11,665
    
    
    
    (943
    )
    
    
    29,919
    
    
    
    4,417Pension plan additional minimum liability
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (20
    )Unrealized (losses) gains on securities
    
    
    (16
    )
    
    
    22
    
    
    
    71
    
    
    
    712Other comprehensive income (loss)
    
    
    11,649
    
    
    
    (924
    )
    
    
    29,990
    
    
    
    5,109Total comprehensive income
    
    
    22,345
    
    
    
    5,804
    
    
    
    44,931
    
    
    
    46,846
 The accompanying notes are an integral part of these interim financial statements.




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##### 



MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(Euros in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    
    14,941
    
    
    
    41,737Adjustments
to reconcile net income to cash flows from operating activitiesUnrealized gains on derivatives
    
    
    (12,156
    )
    
    
    (71,032
    )Unrealized foreign exchange gain on debt
    
    
    (7,229
    )
    
    
    (11,469
    )Loss (gain) on sale of assets
    
    
    128
    
    
    
    (359
    )Operating depreciation and amortization
    
    
    42,003
    
    
    
    42,815Non-operating amortization
    
    
    194
    
    
    
    205Minority interest
    
    
    785
    
    
    
    (6,874
    )Deferred income taxes
    
    
    5,959
    
    
    
    39,878Stock compensation expense
    
    
    350
    
    
    
    293Pension and other post-retirement expense
    
    
    1,366
    
    
    
    1,297Other
    
    
    912
    
    
    
    14Changes in current assets and liabilitiesReceivables
    
    
    (19,314
    )
    
    
    (14,936
    )Inventories
    
    
    (31,149
    )
    
    
    11,940Accounts payable and accrued expenses
    
    
    5,610
    
    
    
    (136
    )Other
    
    
    1,939
    
    
    
    (106
    )Net cash from operating activities
    
    
    4,339
    
    
    
    33,267Cash flows from (used in) investing activities:Cash restricted
    
    
    24,000
    
    
    
    (25,388
    )Purchase of property, plant and equipment(1)
    
    
    (2,704
    )
    
    
    (23,978
    )Proceeds on sale of property, plant and equipment
    
    
    538
    
    
    
    5,000Notes receivable
    
    
    4,720
    
    
    
    Pension and other post-retirement benefit funding
    
    
    (1,201
    )
    
    
    (1,352
    )Net cash from (used in) investing activities
    
    
    25,353
    
    
    
    (45,718
    )Cash flows used in financing activities:Decrease in construction costs payable
    
    
    
    
    
    
    (270
    )Proceeds from borrowings of notes payable and debt
    
    
    
    
    
    
    77,300Proceeds from minority shareholders
    
    
    
    
    
    
    5,463Repayment of notes payable and debt
    
    
    (26,865
    )
    
    
    (80,906
    )Proceeds from investment grants
    
    
    
    
    
    
    383Repayment of capital lease obligations
    
    
    (4,222
    )
    
    
    (3,263
    )Issuance of shares of common stock
    
    
    305
    
    
    
    145Net cash used in financing activities
    
    
    (30,782
    )
    
    
    (1,148
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1,764
    
    
    
    (575
    )Net increase (decrease) in cash and cash equivalents
    
    
    674
    
    
    
    (14,174
    )Cash and cash equivalents, beginning of period(2)
    
    
    69,804
    
    
    
    83,547Cash and cash equivalents, end of period(3)
    
    
    70,478
    
    
    
    69,373
 
 (1)
    
    Includes amounts received and recorded as a reduction of property, plant and equipment
(approximately 9,100) upon the settlement of the Stendal engineering, procurement and
construction (EPC) contract.(2)
    
    Includes amounts related to discontinued operations of: 2007  437 (2006  772) (Note 10)(3)
    
    Includes amounts related to discontinued operations of: 2007  1,037 (2006  428) (Note 10) The accompanying notes are an integral part of these interim financial statements.




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MERCER INTERNATIONAL INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 (Unaudited)
(Euros in thousands)
 Nine Months EndedSeptember 30,2007
    
    2006Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    
    66,136
    
    
    
    75,996Income taxes
    
    
    397
    
    
    
    310Supplemental schedule of non-cash investing and financing activities:Acquisition of production and other equipment under capital
lease obligations
    
    
    2,088
    
    
    
    3,465Common shares issued in satisfaction of floating rate note
    
    
    6,728
    
    
    
    
 The accompanying notes are an integral part of these interim financial statements.




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MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 1. Basis of Presentation
 Basis of Presentation




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MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 1. Basis of Presentation (continued)
 New Accounting Standards




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MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 2. Stock-Based Compensation
  Stock Options
   Outstanding Options
    
    Exercisable OptionsWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedExercise
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    AveragePrice Range
    
    Number
    
    Contractual Life
    
    Exercise price
    
    Number
    
    Exercise Price(In U.S. Dollars)
    
    
    
    
    
    (Years)
    
    (In U.S. Dollars)
    
    
    
    
    
    (In U.S. Dollars)$5.65-6.375
    
    
    830,000
    
    
    
    2.75
    
    
    $
    6.29
    
    
    
    830,000
    
    
    $
    6.297.30
    
    
    30,000
    
    
    
    7.75
    
    
    
    7.30
    
    
    
    30,000
    
    
    
    7.307.92
    
    
    68,334
    
    
    
    8.00
    
    
    
    7.92
    
    
    
    68,334
    
    
    
    7.92




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MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 2. Stock-Based Compensation (continued)
 Restricted Stock
    
 




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MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 3. Income Per Share
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income from continuing operations  basic
    
    
    10,706
    
    
    
    6,128
    
    
    
    15,139
    
    
    
    40,636Interest on convertible notes, net of tax
    
    
    1,050
    
    
    
    1,810
    
    
    
    2,956
    
    
    
    4,576Net income from continuing operations  diluted
    
    
    11,756
    
    
    
    7,938
    
    
    
    18,095
    
    
    
    45,212Net income from continuing operations per share:Basic
    
    
    0.30
    
    
    
    0.18
    
    
    
    0.42
    
    
    
    1.22Diluted
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.40
    
    
    
    1.03Net income from continuing operations
    
    
    10,706
    
    
    
    6,128
    
    
    
    15,139
    
    
    
    40,636Net (loss) income from discontinued operations
    
    
    (10
    )
    
    
    600
    
    
    
    (198
    )
    
    
    1,101Net income  basic
    
    
    10,696
    
    
    
    6,728
    
    
    
    14,941
    
    
    
    41,737Interest on convertible notes, net of tax
    
    
    1,050
    
    
    
    1,810
    
    
    
    2,956
    
    
    
    4,576Net income  diluted
    
    
    11,746
    
    
    
    8,538
    
    
    
    17,897
    
    
    
    46,313Net income per share:Basic
    
    
    0.29
    
    
    
    0.20
    
    
    
    0.41
    
    
    
    1.26Diluted
    
    
    0.26
    
    
    
    0.19
    
    
    
    0.39
    
    
    
    1.05Weighted average number of common shares
outstanding:Basic
    
    
    36,284,343
    
    
    
    33,180,444
    
    
    
    36,012,152
    
    
    
    33,173,279Effect of dilutive shares:Stock options and awards
    
    
    285,684
    
    
    
    313,946
    
    
    
    405,326
    
    
    
    284,589Convertible notes
    
    
    8,678,065
    
    
    
    10,645,161
    
    
    
    8,920,022
    
    
    
    10,645,161Diluted
    
    
    45,248,092
    
    
    
    44,139,551
    
    
    
    45,337,500
    
    
    
    44,103,029




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##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 4. Inventories
 September 30, 2007
    
    
    December 31, 2006Raw materials
    
    
    71,372
    
    
    
    38,905Work in process and finished goods
    
    
    25,419
    
    
    
    23,952
    96,791
    
    
    
    62,857
 Note 5. Derivatives Transactions
 Three Months Ended September 30,2007
    
    
    2006Unrealized net loss on interest rate derivatives
    
    
    (5,696
    )
    
    
    (9,702
    )Unrealized net loss on foreign exchange derivatives
    
    
    
    
    
    
    (4,771
    )Unrealized net loss on derivative financial instruments
    
    
    (5,696
    )
    
    
    (14,473
    )
 Nine Months Ended September 30,2007
    
    
    2006Realized net gain (loss) on foreign exchange derivatives
    
    
    6,820
    
    
    
    (5,219
    )Unrealized net gain on interest rate derivatives
    
    
    18,089
    
    
    
    26,624Unrealized net (loss) gain on foreign exchange derivatives
    
    
    (5,933
    )
    
    
    49,627Unrealized net gain on derivative financial instruments
    
    
    12,156
    
    
    
    76,251




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##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 6. Pension and Other Post-Retirement Benefit Obligations
     
 
 Three Months Ended September 30,2007
    
    
    2006Post-
    
    
    
    
    
    
    Post-Pension
    
    
    Retirement
    
    
    Pension
    
    
    RetirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsService cost
    
    
    215
    
    
    
    121
    
    
    
    219
    
    
    
    112Interest cost
    
    
    349
    
    
    
    190
    
    
    
    345
    
    
    
    186Expected return on plan assets
    
    
    (428
    )
    
    
    
    
    
    
    (384
    )
    
    
    Recognized net loss
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    25Net periodic benefit cost
    
    
    136
    
    
    
    327
    
    
    
    180
    
    
    
    323
 Nine Months Ended September 30,2007
    
    
    2006Post-
    
    
    
    
    
    
    Post-Pension
    
    
    Retirement
    
    
    Pension
    
    
    RetirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsService cost
    
    
    623
    
    
    
    351
    
    
    
    667
    
    
    
    339Interest cost
    
    
    1,014
    
    
    
    551
    
    
    
    1,051
    
    
    
    568Expected return on plan assets
    
    
    (1,241
    )
    
    
    
    
    
    
    (1,170
    )
    
    
    Recognized net loss
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    75Net periodic benefit cost
    
    
    396
    
    
    
    948
    
    
    
    548
    
    
    
    982




---



##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 7. Income Taxes
   
   
  Note 8. Common Shares
   




---



##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 9. Restricted Group Supplemental Disclosure
  Combined Condensed Balance Sheet
 September 30, 2007Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupASSETSCurrent assetsCash and cash equivalents
    
    
    48,993
    
    
    
    20,448
    
    
    
    
    
    
    
    69,441Receivables
    
    
    46,413
    
    
    
    50,967
    
    
    
    
    
    
    
    97,380Note receivable, current portion
    
    
    599
    
    
    
    5,399
    
    
    
    
    
    
    
    5,998Inventories
    
    
    57,161
    
    
    
    39,630
    
    
    
    
    
    
    
    96,791Prepaid expenses and other
    
    
    3,762
    
    
    
    2,594
    
    
    
    
    
    
    
    6,356Current assets from discontinued operations
    
    
    1,537
    
    
    
    
    
    
    
    
    
    
    
    1,537Total current assets
    
    
    158,465
    
    
    
    119,038
    
    
    
    
    
    
    
    277,503Cash, restricted
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    33,000Property, plant and equipment
    
    
    395,864
    
    
    
    553,182
    
    
    
    
    
    
    
    949,046Other
    
    
    6,021
    
    
    
    
    
    
    
    
    
    
    
    6,021Deferred income tax
    
    
    11,233
    
    
    
    6,783
    
    
    
    
    
    
    
    18,016Due from unrestricted group
    
    
    56,561
    
    
    
    
    
    
    
    (56,561
    )
    
    
    Note receivable, less current portion
    
    
    4,239
    
    
    
    
    
    
    
    
    
    
    
    4,239Total assets
    
    
    632,383
    
    
    
    712,003
    
    
    
    (56,561
    )
    
    
    1,287,825LIABILITIESCurrentAccounts payable and accrued expenses
    
    
    46,023
    
    
    
    45,270
    
    
    
    
    
    
    
    91,293Debt, current portion
    
    
    
    
    
    
    34,023
    
    
    
    
    
    
    
    34,023Current liabilities from discontinued
operations
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    610Total current liabilities
    
    
    46,633
    
    
    
    79,293
    
    
    
    
    
    
    
    125,926Debt, less current portion
    
    
    280,847
    
    
    
    541,484
    
    
    
    
    
    
    
    822,331Due to restricted group
    
    
    
    
    
    
    56,561
    
    
    
    (56,561
    )
    
    
    Unrealized derivative loss
    
    
    
    
    
    
    23,266
    
    
    
    
    
    
    
    23,266Capital leases
    
    
    3,847
    
    
    
    1,503
    
    
    
    
    
    
    
    5,350Deferred income tax
    
    
    4,214
    
    
    
    12,484
    
    
    
    
    
    
    
    16,698Other long-term liabilities
    
    
    23,327
    
    
    
    12
    
    
    
    
    
    
    
    23,339Total liabilities
    
    
    358,868
    
    
    
    714,603
    
    
    
    (56,561
    )
    
    
    1,016,910SHAREHOLDERS EQUITYTotal shareholders equity (deficit)
    
    
    273,515
    
    
    
    (2,600
    )
    
    
    
    
    
    
    270,915Total liabilities and shareholders equity
    
    
    632,383
    
    
    
    712,003
    
    
    
    (56,561
    )
    
    
    1,287,825




---



##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 9. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Balance Sheet
 December 31, 2006Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupASSETSCurrentCash and cash equivalents
    
    
    39,078
    
    
    
    30,289
    
    
    
    
    
    
    
    69,367Receivables
    
    
    38,662
    
    
    
    36,360
    
    
    
    
    
    
    
    75,022Note receivable, current portion
    
    
    620
    
    
    
    7,178
    
    
    
    
    
    
    
    7,798Inventories
    
    
    41,087
    
    
    
    21,770
    
    
    
    
    
    
    
    62,857Prepaid expenses and other
    
    
    2,352
    
    
    
    2,310
    
    
    
    
    
    
    
    4,662Current assets of discontinued operations
    
    
    
    
    
    
    2,094
    
    
    
    
    
    
    
    2,094Total current assets
    
    
    121,799
    
    
    
    100,001
    
    
    
    
    
    
    
    221,800Cash, restricted
    
    
    
    
    
    
    57,000
    
    
    
    
    
    
    
    57,000Property, plant and equipment
    
    
    408,957
    
    
    
    563,186
    
    
    
    
    
    
    
    972,143Other
    
    
    8,155
    
    
    
    4,763
    
    
    
    
    
    
    
    12,918Deferred income tax
    
    
    14,316
    
    
    
    15,673
    
    
    
    
    
    
    
    29,989Due from unrestricted group
    
    
    51,265
    
    
    
    
    
    
    
    (51,265
    )
    
    
    Note receivable, less current portion
    
    
    5,023
    
    
    
    3,721
    
    
    
    
    
    
    
    8,744Total assets
    
    
    609,515
    
    
    
    744,344
    
    
    
    (51,265
    )
    
    
    1,302,594LIABILITIESCurrentAccounts payable and accrued expenses
    
    
    46,838
    
    
    
    37,335
    
    
    
    
    
    
    
    84,173Debt, current portion
    
    
    
    
    
    
    33,903
    
    
    
    
    
    
    
    33,903Current liabilities from discontinued operations
    
    
    
    
    
    
    1,926
    
    
    
    
    
    
    
    1,926Total current liabilities
    
    
    46,838
    
    
    
    73,164
    
    
    
    
    
    
    
    120,002Debt, less current portion
    
    
    293,781
    
    
    
    580,147
    
    
    
    
    
    
    
    873,928Due to restricted group
    
    
    
    
    
    
    51,265
    
    
    
    (51,265
    )
    
    
    Unrealized derivative loss
    
    
    
    
    
    
    41,355
    
    
    
    
    
    
    
    41,355Capital leases
    
    
    2,720
    
    
    
    3,482
    
    
    
    
    
    
    
    6,202Deferred income tax
    
    
    2,832
    
    
    
    20,079
    
    
    
    
    
    
    
    22,911Other long-term liabilities
    
    
    19,395
    
    
    
    
    
    
    
    
    
    
    
    19,395Total liabilities
    
    
    365,566
    
    
    
    769,492
    
    
    
    (51,265
    )
    
    
    1,083,793SHAREHOLDERS EQUITYTotal shareholders equity (deficit)
    
    
    243,949
    
    
    
    (25,148
    )
    
    
    
    
    
    
    218,801Total liabilities and shareholders equity
    
    
    609,515
    
    
    
    744,344
    
    
    
    (51,265
    )
    
    
    1,302,594




---



##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 9. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Operations
 Three Months Ended September 30, 2007Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenues
    
    
    106,530
    
    
    
    84,581
    
    
    
    
    
    
    
    191,111Operating costs
    
    
    84,769
    
    
    
    64,671
    
    
    
    
    
    
    
    149,440Operating depreciation and amortization
    
    
    7,419
    
    
    
    6,865
    
    
    
    
    
    
    
    14,284General and administrative expenses
    
    
    3,386
    
    
    
    2,544
    
    
    
    
    
    
    
    5,930(Sale) purchase of emission allowances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,574
    
    
    
    74,080
    
    
    
    
    
    
    
    169,654Operating income from continuing operations
    
    
    10,956
    
    
    
    10,501
    
    
    
    
    
    
    
    21,457Other income (expense)Interest expense
    
    
    (6,996
    )
    
    
    (12,540
    )
    
    
    937
    
    
    
    (18,599
    )Investment income
    
    
    1,321
    
    
    
    2,407
    
    
    
    (937
    )
    
    
    2,791Unrealized foreign exchange gain on debt
    
    
    4,545
    
    
    
    81
    
    
    
    
    
    
    
    4,626Derivative financial instruments, net
    
    
    
    
    
    
    (5,696
    )
    
    
    
    
    
    
    (5,696
    )Total other expense
    
    
    (1,130
    )
    
    
    (15,748
    )
    
    
    
    
    
    
    (16,878
    )Income (loss) before income taxes and
minority interest from continuing operations
    
    
    9,826
    
    
    
    (5,247
    )
    
    
    
    
    
    
    4,579Income tax benefit (provision) - current
    
    
    (13
    )
    
    
    (131
    )
    
    
    
    
    
    
    (144
    )- deferred
    
    
    (770
    )
    
    
    7,783
    
    
    
    
    
    
    
    7,013Income before minority interest from
continuing operations
    
    
    9,043
    
    
    
    2,405
    
    
    
    
    
    
    
    11,448Minority interest
    
    
    
    
    
    
    (742
    )
    
    
    
    
    
    
    (742
    )Net income from continuing operations
    
    
    9,043
    
    
    
    1,663
    
    
    
    
    
    
    
    10,706Net loss from discontinued operations
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    
    9,033
    
    
    
    1,663
    
    
    
    
    
    
    
    10,696
 Three Months Ended September 30, 2006Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenues
    
    
    95,779
    
    
    
    75,469
    
    
    
    
    
    
    
    171,248Operating costs
    
    
    65,595
    
    
    
    51,591
    
    
    
    
    
    
    
    117,186Operating depreciation and amortization
    
    
    6,383
    
    
    
    7,082
    
    
    
    
    
    
    
    13,465General and administrative expenses
    
    
    3,399
    
    
    
    2,440
    
    
    
    
    
    
    
    5,839(Sale) purchase of emission allowances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,377
    
    
    
    61,113
    
    
    
    
    
    
    
    136,490Operating income from continuing operations
    
    
    20,402
    
    
    
    14,356
    
    
    
    
    
    
    
    34,758Other income (expense)Interest expense
    
    
    (8,160
    )
    
    
    (15,776
    )
    
    
    895
    
    
    
    (23,041
    )Investment income
    
    
    1,142
    
    
    
    833
    
    
    
    (895
    )
    
    
    1,080Unrealized foreign exchange loss on debt
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    (704
    )Derivative financial instruments, net
    
    
    
    
    
    
    (14,473
    )
    
    
    
    
    
    
    (14,473
    )Total other expense
    
    
    (7,722
    )
    
    
    (29,416
    )
    
    
    
    
    
    
    (37,138
    )Income (loss) before income taxes and
minority interest from continuing operations
    
    
    12,680
    
    
    
    (15,060
    )
    
    
    
    
    
    
    (2,380
    )Income tax benefit (provision) - current
    
    
    (100
    )
    
    
    (202
    )
    
    
    
    
    
    
    (302
    )- deferred
    
    
    (1,281
    )
    
    
    4,115
    
    
    
    
    
    
    
    2,834Income (loss) before minority interest from
continuing operations
    
    
    11,299
    
    
    
    (11,147
    )
    
    
    
    
    
    
    152Minority interest
    
    
    
    
    
    
    5,976
    
    
    
    
    
    
    
    5,976Net income (loss) from continuing operations.
    
    
    11,299
    
    
    
    (5,171
    )
    
    
    
    
    
    
    6,128Net income from discontinued operations
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    600Net income (loss)
    
    
    11,299
    
    
    
    (4,571
    )
    
    
    
    
    
    
    6,728




---



##### 



MERCER INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 9. Restricted Group Supplemental Disclosure (continued)
 Combined Condensed Statement of Operations
 Nine Months Ended September 30, 2007Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenues
    
    
    310,770
    
    
    
    226,475
    
    
    
    
    
    
    
    537,245Operating costs
    
    
    249,052
    
    
    
    180,585
    
    
    
    
    
    
    
    429,637Operating depreciation and amortization
    
    
    21,080
    
    
    
    20,923
    
    
    
    
    
    
    
    42,003General and administrative expenses
    
    
    11,551
    
    
    
    7,943
    
    
    
    
    
    
    
    19,494(Sale) purchase of emission allowances
    
    
    (264
    )
    
    
    (502
    )
    
    
    
    
    
    
    (766
    )281,419
    
    
    
    208,949
    
    
    
    
    
    
    
    490,368Operating income from continuing
operations
    
    
    29,351
    
    
    
    17,526
    
    
    
    
    
    
    
    46,877Other income (expense)Interest expense
    
    
    (21,414
    )
    
    
    (37,672
    )
    
    
    2,778
    
    
    
    (56,308
    )Investment income
    
    
    3,761
    
    
    
    5,003
    
    
    
    (2,778
    )
    
    
    5,986Unrealized foreign exchange gain on debt
    
    
    6,808
    
    
    
    421
    
    
    
    
    
    
    
    7,229Derivative financial instruments, net
    
    
    
    
    
    
    18,976
    
    
    
    
    
    
    
    18,976Total other expense
    
    
    (10,845
    )
    
    
    (13,272
    )
    
    
    
    
    
    
    (24,117
    )Income before income taxes and
minority interest from continuing
operations
    
    
    18,506
    
    
    
    4,254
    
    
    
    
    
    
    
    22,760Income tax provision - current
    
    
    (469
    )
    
    
    (408
    )
    
    
    
    
    
    
    (877
    )- deferred
    
    
    (4,464
    )
    
    
    (1,495
    )
    
    
    
    
    
    
    (5,959
    )Income before minority interest from
continuing operations
    
    
    13,573
    
    
    
    2,351
    
    
    
    
    
    
    
    15,924Minority interest
    
    
    
    
    
    
    (785
    )
    
    
    
    
    
    
    (785
    )Net income from continuing operations
    
    
    13,573
    
    
    
    1,566
    
    
    
    
    
    
    
    15,139Net loss from discontinued operations
    
    
    (198
    )
    
    
    
    
    
    
    
    
    
    
    (198
    )Net income
    
    
    13,375
    
    
    
    1,566
    
    
    
    
    
    
    
    14,941
 Nine Months Ended September 30, 2006Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    GroupRevenues
    
    
    265,531
    
    
    
    197,979
    
    
    
    
    
    
    
    463,510Operating costs
    
    
    214,873
    
    
    
    143,867
    
    
    
    
    
    
    
    358,740Operating depreciation and amortization
    
    
    20,580
    
    
    
    21,210
    
    
    
    
    
    
    
    41,790General and administrative expenses
    
    
    12,884
    
    
    
    7,007
    
    
    
    
    
    
    
    19,891(Sale) purchase of emission allowances
    
    
    (3,651
    )
    
    
    (9,595
    )
    
    
    
    
    
    
    (13,246
    )244,686
    
    
    
    162,489
    
    
    
    
    
    
    
    407,175Operating income from continuing
operations
    
    
    20,845
    
    
    
    35,490
    
    
    
    
    
    
    
    56,335Other income (expense)Interest expense
    
    
    (24,602
    )
    
    
    (46,822
    )
    
    
    2,655
    
    
    
    (68,769
    )Investment income
    
    
    3,261
    
    
    
    3,477
    
    
    
    (2,655
    )
    
    
    4,083Unrealized foreign exchange gain on debt
    
    
    11,469
    
    
    
    
    
    
    
    
    
    
    
    11,469Derivative financial instruments, net
    
    
    
    
    
    
    71,032
    
    
    
    
    
    
    
    71,032Total other income (expense)
    
    
    (9,872
    )
    
    
    27,687
    
    
    
    
    
    
    
    17,815Income before income taxes and
minority interest from continuing
operations
    
    
    10,973
    
    
    
    63,177
    
    
    
    
    
    
    
    74,150Income tax provision - current
    
    
    (322
    )
    
    
    (202
    )
    
    
    
    
    
    
    (524
    )- deferred
    
    
    (7,964
    )
    
    
    (31,900
    )
    
    
    
    
    
    
    (39,864
    )Income before minority interest from
continuing operations
    
    
    2,687
    
    
    
    31,075
    
    
    
    
    
    
    
    33,762Minority interest
    
    
    
    
    
    
    6,874
    
    
    
    
    
    
    
    6,874Net income from continuing operations
    
    
    2,687
    
    
    
    37,949
    
    
    
    
    
    
    
    40,636Net income from discontinued operations
    
    
    
    
    
    
    1,101
    
    
    
    
    
    
    
    1,101Net income
    
    
    2,687
    
    
    
    39,050
    
    
    
    
    
    
    
    41,737




---



##### 



MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 10. Discontinued Operations
  
    September 30, 2007
    
    
    December 31, 2006AssetsCash and cash equivalents
    
    
    1,037
    
    
    
    437Receivables
    
    
    500
    
    
    
    1,657
    1,537
    
    
    
    2,094LiabilitiesAccounts payable and accrued expenses
    
    
    610
    
    
    
    1,926
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    
    7
    
    
    
    3,937
    
    
    
    117
    
    
    
    37,444Operating income (loss) from discontinued
operations
    
    
    6
    
    
    
    3,073
    
    
    
    (130
    )
    
    
    3,876Total other expenses
    
    
    16
    
    
    
    352
    
    
    
    68
    
    
    
    653Net (loss) income from discontinued operations
    
    
    (10
    )
    
    
    2,721
    
    
    
    (198
    )
    
    
    3,223Earnings per common share from discontinued
operations- basic
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.04Earnings per common share from discontinued
operations- diluted
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    




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##### 



MERCER INTERNATIONAL INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Euros in thousands, except for shares and per share data)
 Note 10. Discontinued Operations (continued)
  Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows (used in) from operating activities
    
    
    (660
    )
    
    
    410Cash flows
from investing activities
    
    
    
    
    
    
    4,204Cash flows from (used in) financing activities
    
    
    1,260
    
    
    
    (4,958
    )Cash flows from (used in) discontinued operations
    
    
    600
    
    
    
    (344
    )




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##### 



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
   
    
    the disposition of our paper operations in 2006. In accordance with SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets, the results of this
business have been classified as discontinued operations; and
    
    only our continuing operations except as otherwise expressly noted.
 Results of Operations
 Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
  Nine Months Ended September 30,2007
    
    
    2006Pulp production (ADMTs)
    
    
    1,034,592
    
    
    
    973,410Pulp sales (ADMTs)
    
    
    1,029,674
    
    
    
    994,567Revenues (in millions)
    
    
    537.2
    
    
    
    463.5NBSK list prices in Europe ($/ADMT)
    
    $
    783
    
    
    $
    663Average pulp price realizations (/ADMT)
    
    
    517
    
    
    
    454Average Currency Exchange Rates / $(1)
    
    
    0.7435
    
    
    
    0.8035C$ / $(1)
    
    
    1.1048
    
    
    
    1.1328C$ / (2)
    
    
    1.4844
    
    
    
    1.4090
 
 (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.




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 
  
  
  
    




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 
  
   
    
  
 
  
        
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##### 



Nine Months EndedSeptember 30,2007
    
    
    2006(in thousands)Net income from continuing operations
    
    
    15,139
    
    
    
    40,636Minority interest
    
    
    785
    
    
    
    (6,874
    )Income taxes
    
    
    6,836
    
    
    
    40,388Interest expense
    
    
    56,308
    
    
    
    68,769Investment income
    
    
    (5,986
    )
    
    
    (4,083
    )Unrealized foreign exchange gain on debt
    
    
    (7,229
    )
    
    
    (11,469
    )Derivative financial instruments, net gain
    
    
    (18,976
    )
    
    
    (71,032
    )Operating income from continuing operations
    
    
    46,877
    
    
    
    56,335Add: Depreciation and amortization
    
    
    42,197
    
    
    
    41,790Operating EBITDA
    
    
    89,074
    
    
    
    98,125




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##### 



Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
  Three Months Ended September 30,2007
    
    
    2006Pulp production (ADMTs)
    
    
    360,986
    
    
    
    347,200Pulp sales (ADMTs)
    
    
    363,523
    
    
    
    338,201Revenues (in millions)
    
    
    191.1
    
    
    
    171.2NBSK list prices in Europe ($/ADMT)
    
    $
    810
    
    
    $
    708Average pulp price realizations (/ADMT)
    
    
    520
    
    
    
    482Average Currency Exchange Rates / $(1)
    
    
    0.7268
    
    
    
    0.7851C$ / $(1)
    
    
    1.0446
    
    
    
    1.1212C$ / (2)
    
    
    1.4367
    
    
    
    1.4279
 
 (1)
    
    Average Federal Reserve Bank of New York noon spot rate over the reporting period.(2)
    
    Average Bank of Canada noon spot rate over the reporting period.  
   
  
  




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##### 



 
  
  
   
  
  
 
       
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##### 



Three Months EndedSeptember 30,2007
    
    
    2006(in thousands)Net income from continuing operations
    
    
    10,706
    
    
    
    6,128Minority interest
    
    
    742
    
    
    
    (5,976
    )Income taxes
    
    
    (6,869
    )
    
    
    (2,532
    )Interest expense
    
    
    18,599
    
    
    
    23,041Investment income
    
    
    (2,791
    )
    
    
    (1,080
    )Unrealized foreign exchange (gain) loss on debt
    
    
    (4,626
    )
    
    
    704Derivative financial instruments, net loss
    
    
    5,696
    
    
    
    14,473Operating income from continuing operations
    
    
    21,457
    
    
    
    34,758Add: Depreciation and amortization
    
    
    14,351
    
    
    
    13,465Operating EBITDA
    
    
    35,808
    
    
    
    48,223
 Liquidity and Capital Resources
  As at
    
    
    As atSeptember 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Financial PositionCash and cash equivalents
    
    
    69,441
    
    
    
    69,367Working capital(1)
    
    
    150,650
    
    
    
    101,630Property, plant and equipment
    
    
    949,046
    
    
    
    972,143Total assets(1)
    
    
    1,286,288
    
    
    
    1,300,500Long-term liabilities
    
    
    890,984
    
    
    
    963,791Shareholders equity
    
    
    270,915
    
    
    
    218,801
 
 (1)
    
    Excluding assets and liabilities of discontinued operations.     




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##### 



Operating Activities
        
  Investing Activities
     
  
 Financing Activities
    
  Contractual Obligations and Commitments




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##### 



Capital Resources
  Convertible Notes
  Foreign Currency
     
  Results of Operations of the Restricted Group Under Our Senior Note Indenture




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##### 



Restricted Group Results  Nine Months Ended September 30, 2007 Compared to Nine Months Ended
September 30, 2006
    
  
    




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##### 



 
  
  
  
 
  
    




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##### 



Nine Months EndedSeptember 30,2007
    
    
    2006(in thousands)Restricted GroupNet income from continuing operations(1)
    
    
    13,573
    
    
    
    2,687Income taxes
    
    
    4,933
    
    
    
    8,286Interest expense
    
    
    21,414
    
    
    
    24,602Investment and other income
    
    
    (3,761
    )
    
    
    (3,261
    )Unrealized foreign exchange gain on debt
    
    
    (6,808
    )
    
    
    (11,469
    )Operating income from continuing operations
    
    
    29,351
    
    
    
    20,845Add: Depreciation and amortization
    
    
    21,274
    
    
    
    20,580Operating EBITDA(1)
    
    
    50,625
    
    
    
    41,425
 
 (1)
    
    See Note 9 of the condensed consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. Restricted Group Results  Three Months Ended September 30, 2007 Compared to Three Months Ended
September 30, 2006
    
  




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##### 



 
  
  
  
 
  
    




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##### 



Three Months EndedSeptember 30,2007
    
    
    2006(in thousands)Restricted GroupNet income from continuing operations(1)
    
    
    9,043
    
    
    
    11,299Income taxes
    
    
    783
    
    
    
    1,381Interest expense
    
    
    6,996
    
    
    
    8,160Investment and other income
    
    
    (1,321
    )
    
    
    (1,142
    )Unrealized foreign exchange (gain) loss on debt
    
    
    (4,545
    )
    
    
    704Operating income from continuing operations
    
    
    10,956
    
    
    
    20,402Add: Depreciation and amortization
    
    
    7,486
    
    
    
    6,383Operating EBITDA(1)
    
    
    18,442
    
    
    
    26,785
 
 (1)
    
    See Note 9 of the condensed consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results. Liquidity and Capital Resources of the Restricted Group
  As at
    
    As atSeptember 30,
    
    December 31,2007
    
    2006(in thousands)Restricted Group Financial Position(1)Cash and cash equivalents
    
    
    48,993
    
    
    
    39,078Working capital(2)
    
    
    110,905
    
    
    
    74,961Property, plant and equipment
    
    
    395,864
    
    
    
    408,957Total assets(2)
    
    
    630,846
    
    
    
    609,515Long-term liabilities
    
    
    312,235
    
    
    
    318,728Shareholders equity
    
    
    273,515
    
    
    
    243,949
 
 (1)
    
    See Note 9 of the condensed consolidated financial statements included elsewhere herein for a
reconciliation to our consolidated results.(2)
    
    Excluding assets and liabilities of discontinued operations.   
 




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##### 



Critical Accounting Policies
    New Accounting Standards
  Cautionary Statement Regarding Forward-Looking Information
 Private Securities
Litigation Reform Act of 1995




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##### 



Cyclical Nature of Business
 Revenues
     Costs




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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.
  Changes in Internal Controls.




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##### 



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 ExhibitNo.
    
    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