Three Months Ended September 30,
                                                    2008                  2007
 Pulp Production ('000 ADMTs)                            368.4                 361.0

 Scheduled Production Downtime ('000 ADMTs)                9.0                   8.0

 Pulp Sales ('000 ADMTs)                                 363.8                 363.5

 Revenues (in millions)                        €         178.6       €         191.1

 NBSK pulp list prices in Europe ($/ADMT)      $           878       $           810
 NBSK pulp list prices in Europe (€/ADMT)      €           585       €           589
 Average pulp sales realizations (€/ADMT)(1)   €           484       €           520
 Average Spot Currency Exchange Rates
 € / $(2)                                               0.6658                0.7268
 C$ / $(2)                                              1.0416                1.0446
 C$ / €(3)                                              1.5620                1.4367

(1) List price less discounts and commissions.

(2) Average Federal Reserve Bank of New York noon spot rate over the reporting period.

(3) Average Bank of Canada noon spot rate over the reporting period.

Revenues for the three months ended September 30, 2008 decreased by 6.5% to €178.6 million from €191.1 million in the comparative quarter of 2007, due to the weaker U.S. dollar in the current quarter which more than offset higher pulp prices.
List prices for NBSK pulp in Europe were approximately €585 ($878) per ADMT in the third quarter of 2008 compared to approximately €589 ($810) in the third quarter of 2007, €586 ($880) in the first quarter of 2008 and €576 ($900) in the second quarter of 2008. List prices, which had been improving in 2008, started declining towards the latter part of the third quarter as a result of slowing global economies and, in particular, lower demand in China.
FORM 10-Q
QUARTERLY REPORT - PAGE 21

Pulp sales volume remained largely unchanged at 363,775 ADMTs in the current quarter compared to 363,523 ADMTs in the comparative period of 2007. Average pulp sales realizations decreased by 6.9% to €484 per ADMT in the third quarter of 2008 from €520 per ADMT in the third quarter of 2007 as higher pulp prices were more than offset by the continued weakness in the U.S. dollar during the current quarter.
Partially offsetting the recent declines in pulp prices has been the appreciation of the U.S. dollar versus the Euro and the Canadian dollar which commenced in the latter part of the third quarter and has continued into the fourth quarter. Specifically, since the end of the third quarter to date, the Euro and the Canadian dollar have decreased by approximately 8.1% and 8.5%, respectively, in value against the U.S. dollar. A stronger U.S. dollar is beneficial to us because, although NBSK pulp is primarily quoted in U.S. dollars, our production costs are principally incurred in Euros and Canadian dollars.
Pulp production increased marginally to 368,378 ADMTs in the current quarter from 360,986 ADMTs in the same period of 2007, as all of our mills performed generally well. In the third quarter of 2008, we had a total of 10 days scheduled maintenance downtime at our mills, compared to 9 days in the same period last year.
During the third quarter of 2008, our raw material inventories increased to €47.0 million from €30.8 million at the end of the prior quarter as we built up inventories in anticipation of a slower winter harvesting season. Our pulp inventories increased to €57.1 million in the third quarter of 2008 from €52.2 million at the end of the prior quarter. Pulp inventories at our Celgar mill increased as sales to China slowed considerably in the latter part of the third quarter as a result of the build-up of pulp stocks by Chinese buyers earlier this year. Pulp inventories at our Rosenthal and Stendal mills were generally consistent with the second quarter.
Costs and expenses in the third quarter of 2008 decreased marginally to €168.7 million from €169.7 million in the comparative quarter of 2007. On average, fiber costs increased by approximately 2.6% in the third quarter of 2008 versus the same period in 2007. Our fiber costs in Germany decreased slightly in the current quarter from the comparative period of 2007 as the sustained production curtailments by German sawmills and large parts of the European board industry continue and demand for fiber remains generally low. Fiber costs at our Celgar mill increased in the current quarter from the prior quarter and the same period last year as a result of increased whole log chipping and higher freight costs incurred in the delivery of wood chips to the
mill. Overall, we currently expect fiber prices in Germany in the fourth quarter and early part of 2009 to remain generally level with third quarter prices. Fiber costs at our Celgar mill are also expected to remain at current levels in the near term and to decrease as we move into 2009 as a result of fiber initiatives implemented at the mill including improvements in transportation logistics and woodroom efficiencies. We recorded no contribution to income from the sale of emission allowances for the three months ended September 30, 2008 and 2007 as a result of weak markets and prices for the sale of emission allowances. In the third quarter of 2008, sales of surplus energy were approximately 7.2% higher than in the comparative quarter of 2007.
FORM 10-Q
QUARTERLY REPORT - PAGE 22

Operating depreciation and amortization decreased marginally to €14.0 million from €14.3 million in the comparative quarter of 2007.
For the third quarter of 2008, operating income decreased to €9.9 million from €21.5 million in the comparative quarter of 2007, primarily due to lower sales realizations.
Interest expense in the third quarter of 2008 decreased to €16.4 million from €17.3 million in the year ago period, primarily due to lower levels of borrowing.
We recorded an unrealized loss of €8.2 million before minority interests on our interest rate derivatives during the third quarter of 2008. In the comparative quarter of 2007, we recorded an unrealized loss of €5.7 million before minority interests on our then outstanding interest rate derivatives.
In the third quarter of 2008, we recorded an unrealized loss of €9.6 million on our foreign currency denominated debt, compared to an unrealized gain of €4.6 million in the same period of 2007.
In the third quarter of 2008, the minority shareholder's proportionate interest in the Stendal mill's loss for the period was €3.3 million, compared to €0.7 million of income in the third quarter of 2007.
We reported a net loss from continuing operations for the third quarter of 2008 of €17.2 million, or €0.47 per basic and diluted share. In the third quarter of 2007, we reported net income from continuing operations of €10.7 million, or €0.30 per basic share and €0.26 per diluted share.
Operating EBITDA decreased to €24.0 million in the third quarter of 2008 from €35.8 million in the three months ended September 30, 2007.
Operating EBITDA is defined as operating income from continuing operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance. Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of operational performance, nor as an alternative to net cash from operating activities as a measure of liquidity.
FORM 10-Q
QUARTERLY REPORT - PAGE 23

Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Operating EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt; (iv) minority interests on our Stendal NBSK pulp mill operations; (v) the impact of realized or marked to market changes in our derivative positions, which can be substantial; and (vi) the impact of impairment charges against our investments or assets. Because of these limitations, Operating EBITDA should only be considered as a supplemental operational performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. See the Statement of Cash Flows set out in our interim consolidated financial statements included herein. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our operational performance and relying primarily on our GAAP financial statements. The following table provides a reconciliation of net income from continuing operations to Operating EBITDA for the periods indicated:

                                                          Three Months Ended
                                                             September 30,
                                                           2008          2007
                                                            (in thousands)
      Net income (loss) from continuing operations      €  (17,173 )   € 10,706
      Minority interest                                     (3,290 )        742
      Income taxes (benefits)                               (5,913 )     (6,869 )
      Interest expense                                      16,424       17,299
      Investment (income) loss                               2,031       (1,491 )
      Unrealized foreign exchange loss (gain) on debt        9,560       (4,626 )
      Derivative financial instruments                       8,215        5,696

      Operating income from continuing operations            9,854       21,457
      Add: Depreciation and amortization                    14,103       14,351

      Operating EBITDA                                  €   23,957     € 35,808

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
Selected production, sales and exchange rate data for the nine months ended September 30, 2008 and 2007 is as follows:

                                                  Nine Months Ended September 30,
                                                    2008                   2007
Pulp Production ('000 ADMTs)                           1,086.1                1,034.6

Scheduled Production Downtime ('000 ADMTs)                26.0                   46.0

Pulp Sales ('000 ADMTs)                                1,059.2                1,029.7

Revenues (in millions)                        €          528.3       €          537.2

NBSK pulp list prices in Europe ($/ADMT)      $            886       $            783
NBSK pulp list prices in Europe (€/ADMT)      €            582       €            582
Average pulp sales realizations (€/ADMT)(1)   €            493       €            517
Average Spot Currency Exchange Rates
€ / $(2)                                                0.6572                 0.7435
C$ / $(2)                                               1.0185                 1.1048
C$ / €(3)                                               1.5486                 1.4844

(1) List price less discounts and commissions.

(2) Average Federal Reserve Bank of New York noon spot rate over the reporting period.

(3) Average Bank of Canada noon spot rate over the reporting period.

FORM 10-Q
QUARTERLY REPORT - PAGE 24

Revenues for the nine months ended September 30, 2008 decreased to €528.3 million from €537.2 million in the comparative period of 2007, as higher sales volumes and pulp prices were more than offset by the weaker U.S. dollar versus the Euro in the current period.
List prices for NBSK pulp in Europe were approximately €582 ($886) per ADMT in the first nine months of 2008 compared to approximately €582 ($783) in the first nine months of 2007.
Pulp sales volume increased to 1,059,212 ADMTs in the first nine months of 2008 from 1,029,674 ADMTs in the first nine months of 2007.
Average pulp sales realizations were €493 per ADMT in the first nine months of 2008 compared to €517 per ADMT in the comparative period of 2007, primarily as a result of the weakness of the U.S. dollar versus the Euro during the period. Pulp production in the first nine months of 2008 increased to 1,086,078 ADMTs from 1,034,592 ADMTs in the same period of 2007, as all of our mills performed generally well. In the first nine months of 2008, we had a total of 22 days scheduled maintenance downtime at our mills, compared to 33 days in the same period last year.
During the first nine months of 2008, our raw material inventories increased to €47.0 million from €38.0 million at the end of 2007. Our pulp inventories increased to €57.1 million in the third quarter of 2008 from €43.1 million at the end of 2007.
Costs and expenses in the first nine months of 2008 increased to €493.6 million from €490.4 million in the comparative period of 2007.
On average, fiber costs decreased by approximately 1.5% in the first nine months of 2008 versus the same period in 2007. Our fiber costs in Germany were approximately 3.3% lower compared to the same period last year as lower demand for fiber from the European board industry reduced pressure on pricing. At our Celgar mill fiber costs increased almost 12.6% from the third quarter of 2007 as the deterioration of the North American housing and lumber markets sharply reduced sawmilling activity and residual chip supply requiring Celgar to increase its levels of whole log chipping. Celgar's fiber costs were also negatively affected by higher freight costs incurred in the delivery of wood chips to the mill.
We recorded no contribution to income from the sale of emission allowances for the nine months ended September 30, 2008 compared to €0.8 million in the same period last year as a result of weak markets and prices for the sale of emission allowances. In the first nine months of 2008, sales of surplus energy were approximately 9.8% higher than in the same period of 2007.
Operating depreciation and amortization decreased marginally to €41.7 million in the first nine months of 2008 from €42.0 in the same period last year. For the first nine months of 2008, operating income decreased to €34.7 million from €46.9 million in the comparative period of 2007.
Interest expense in the first nine months of 2008 decreased to €49.1 million from €54.1 million in the year ago period, primarily due to a lower level of borrowing.
FORM 10-Q
QUARTERLY REPORT - PAGE 25

We recorded an unrealized gain of €4.5 million before minority interests on our interest rate derivatives during the first nine months of 2008. In the comparative period of 2007, we recorded a gain of €19.0 million before minority interests on our then outstanding derivatives, which included a realized gain of €6.8 million from the settlement of currency swaps.
In the first nine months of 2008, we recorded a loss of €3.3 million on our foreign currency denominated debt, compared to a gain of €7.2 million in the comparative period of 2007.
In the first nine months of 2008, the minority shareholder's proportionate interest in the Stendal mill's loss for the period was €3.0 million, compared to €0.8 million of income in the same period of 2007.
We reported a net loss from continuing operations for the first nine months of 2008 of €13.4 million, or €0.37 per basic and diluted share. In the first nine months of 2007, we reported net income from continuing operations of €15.1 million, or €0.42 per basic share and €0.40 per diluted share. Operating EBITDA was €76.6 million in the first nine months of 2008 from €89.1 million in the nine months ended September 30, 2007. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. See the discussion of our results for the three months ended September 30, 2008 for additional information relating to Operating EBITDA.
The following table provides a reconciliation of net income from continuing operations to Operating EBITDA for the periods indicated:

                                                           Nine Months Ended
                                                             September 30,
                                                          2008          2007
                                                            (in thousands)
      Net income (loss) from continuing operations      € (13,433 )   €  15,139
      Minority interest                                    (3,037 )         785
      Income taxes (benefits)                               3,050         6,836
      Interest expense                                     49,057        54,108
      Investment (income) loss                                300        (3,786 )
      Unrealized foreign exchange (gain) loss on debt       3,291        (7,229 )
      Derivative financial instruments                     (4,515 )     (18,976 )

      Operating income from continuing operations          34,713        46,877
      Add: Depreciation and amortization                   41,879        42,197

      Operating EBITDA                                  €  76,592     €  89,074

FORM 10-Q
QUARTERLY REPORT - PAGE 26

Liquidity and Capital Resources
The following table is a summary of selected financial information for the
periods indicated:

                                                As at             As at
                                            September 30,      December 31,
                                                 2008              2007
                                                    (in thousands)
           Financial Position
           Cash and cash equivalents        €      75,779      €    84,848
           Working capital                        173,132          168,743
           Property, plant and equipment          904,653          933,258
           Total assets                         1,249,708        1,283,517
           Long-term liabilities                  872,743          885,339
           Shareholders' equity                   252,096          276,662

As at September 30, 2008 and December 31, 2007, our cash and cash equivalents were €75.8 million and €84.8 million, respectively. We also had €13.0 million of restricted cash in a debt service account related to the financing for the Stendal mill at the end of the third quarter of 2008 compared to €33.0 million at December 31, 2007. As at September 30, 2008, we had not drawn any amount under the €40.0 million Rosenthal revolving term credit facility and had drawn approximately C$35.2 million under the C$40.0 million Celgar revolving credit facility.
We expect to meet our interest and debt service obligations and the working and maintenance capital requirements for our operations, other than the Stendal mill, from cash flow from operations, cash on hand and the two revolving working capital facilities for the Rosenthal and Celgar mills.
The following summary of certain selected provisions of our credit facilities is not complete and these provisions, including definitions of certain terms, are qualified in their entirety by reference to the credit facilities and applicable amendments on file with the SEC.
The Celgar revolving working facility had an initial three-year term and matures in May 2009. It may be extended by our Celgar mill for successive one-year periods upon request and lender acceptance. The maximum amount available under the Celgar facility is C$40.0 million, subject to borrowing base limitations equal to 85% of eligible accounts receivable and a percentage of eligible inventory varying between 65% and 85%. The facility is secured by a first fixed charge on the Celgar mill's working capital and is guaranteed by Mercer Inc. No security is granted upon the equipment, buildings or real property of the Celgar
mill. Advances under the facility are available in Canadian and U.S. dollars. Rates for advances in Canadian and U.S. dollars are equal to a prime rate charged by a Canadian bank plus a margin of 0.50%. Advances are also available under Canadian dollar acceptances and U.S. currency LIBOR rates plus, in each case, a margin of 2.25%. The credit facility is subject to a number of positive and negative covenants customary for credit agreements of this nature including a covenant that, if the excess amount under the credit facility for the Celgar mill is less than C$8.0 million, then until it becomes equal to or greater than such amount, the Celgar mill must maintain a fixed charge coverage ratio of not less than 1.1:1.0 for each 12-month period. The Rosenthal revolving working capital facility is in the aggregate amount of €40.0 million and matures in February 2010. There is no borrowing base requirement in this facility and it is secured by a first fixed charge on the working capital of the Rosenthal mill. No security is granted upon the equipment, buildings or real property of Rosenthal. Advances are available in Euros or U.S. dollars. Interest accrues based upon the form of advance at LIBOR or EURIBOR plus a margin of 1.55% plus certain other costs incurred by lenders. The agreement contains positive and negative covenants customary to facilities of this type. They include that for the Rosenthal mill the ratio of net debt to EBITDA must not exceed 3:1 in any 12-month period, there must be an interest ratio coverage of EBITDA to interest expense equal to or in excess of 1.4:1 for each six-month period and there must be a current ratio where current assets to current liabilities must equal or exceed 1.1:1.
FORM 10-Q
QUARTERLY REPORT - PAGE 27

We currently expect to meet the capital requirements for the Stendal mill, including working capital, interest and principal service expenses through cash on hand, cash flow from operations and our 70% owned Stendal mill's loan facility (the "Stendal Facility"). The Stendal Facility was designed as a "project loan facility" for the construction and operation of the Stendal mill. It is non-recourse to Mercer Inc. and our other operating subsidiaries. The Stendal Facility of our Stendal mill is our only credit facility with regularly scheduled principal payments, which are due semi-annually until its maturity in 2017. In 2009, the Stendal Facility provides for semi-annual principal payments of approximately €17.9 million and €18.7 million. In addition to operating cash flow, the Stendal mill also has approximately €13.0 million in its debt service reserve account to assist with scheduled payments. Additionally, under the Stendal Facility, the Stendal mill is permitted, at its option, to implement one six-month deferral of scheduled principal payments. As the Stendal Facility is the only credit facility which currently has scheduled principal payments, Stendal has had initial discussions with its lenders to provide for greater financial flexibility given the current distress and uncertainty facing global world markets.
Our expectations as to our liquidity are based upon current market conditions and, in particular, current and expected future pulp pricing and foreign exchange rates.
Operating Activities
Operating activities in the first nine months of 2008 provided cash of €6.5 million, compared to €3.1 million in the comparative period of 2007. A decrease in receivables provided cash of €7.7 million in the first nine months of 2008, compared to using cash of €19.3 million in the comparative period of 2007. An increase in inventories used cash of €27.4 million in the first nine months of 2008, compared to €31.1 in the same period of 2007.
Working capital is subject to cyclical operating needs, such as the timing of collections and sales and the payment of payables. Investing Activities
Investing activities in the first nine months of 2008 provided cash of €10.1 million in large part due to a drawdown of funds in our debt service reserve account to repay principal and interest under the Stendal Facility. The . . .