-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LKCEgaWbbk2o66U9uIkCc6s0l7mZuhxV4PXpepobbjGrK9yZQvFNO7IZLSbA85L5 wCHVxj06KYb+9tsmx06W+Q== 0001012410-97-000016.txt : 19970520 0001012410-97-000016.hdr.sgml : 19970520 ACCESSION NUMBER: 0001012410-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCER INTERNATIONAL INC CENTRAL INDEX KEY: 0000075659 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 916087550 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09409 FILM NUMBER: 97608392 BUSINESS ADDRESS: STREET 1: BRNDSCHENKE STR 64 CITY: ZURICH SWITZERLAND C STATE: V6 BUSINESS PHONE: 4112017710 10-Q 1 MERCER INTERNATIONAL INC. 1ST QTR 1997 FORM 10-Q 1 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter ended March 31, 1997 Commission File No.: 0-9409 MERCER INTERNATIONAL INC. Exact name of Registrant as specified in its charter.
WASHINGTON 91-6087550 State or other jurisdiction IRS Employer of incorporation or organization Identification No. Brandschenke Str. 64, Zurich, Switzerland CH 8002 Address of principal executive office Zip Code
Registrant's telephone number including area code: 41(1) 201 7710 Indicate by check mark whether the registrant [1] has filed all documents and reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and [2] has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) The Registrant had 14,917,369 shares of beneficial interest outstanding as at March 31, 1997. ============================================================================= 2 FORWARD-LOOKING STATEMENTS - -------------------------- Statements in this report, to the extent they are not based on historical events, constitute forward-looking statements. Forward-looking statements include, without limitation, statements regarding the outlook for future operations, forecasts of future costs and expenditures, evaluation of market conditions, the outcome of legal proceedings, the adequacy of reserves, or other business plans. Investors are cautioned that forward-looking statements are subject to an inherent risk that actual results may vary materially from those described herein. Factors that may result in such variance, in addition to those accompanying the forward-looking statements, include changes in interest rates, commodity prices, and other economic conditions; actions by competitors; changing weather conditions and other natural phenomena; actions by government authorities; uncertainties associated with legal proceedings; technological development; future decisions by management in response to changing conditions; and misjudgments in the course of preparing forward-looking statements. PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS MERCER INTERNATIONAL INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) FORM 10-Q QUARTERLY REPORT - PAGE 2 3 MERCER INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS As at March 31, 1997 and December 31, 1996 (Unaudited) (dollars in thousands)
March 31, December 31, 1997 1996 --------- ----------- ASSETS Current Assets Cash and cash equivalents $ 4,048 $ 9,967 Investments 75,276 83,359 Receivables 16,362 18,366 Inventories 17,143 20,668 Other 124 291 ---------- ---------- 112,953 132,651 Long-Term Assets Investments 4,010 3,759 Properties 120,321 125,116 Deferred income tax assets 16,962 18,313 141,293 147,188 ---------- ---------- $ 254,246 $ 279,839 ========== ==========
The accompanying notes are an integral part of these financial statements. FORM 10-Q QUARTERLY REPORT - PAGE 3 4 MERCER INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS As at March 31, 1997 and December 31, 1996 (Unaudited) (dollars in thousands)
March 31, December 31, 1997 1996 --------- ------------ LIABILITIES Current Liabilities Accounts payable and accrued expenses $ 36,547 $ 45,324 Notes payable 3,572 6,017 Current portion of long-term debt 14,815 2,647 --------- --------- 54,934 53,988 Long-Term Liabilities Debt 12,682 28,610 Due to spun-off operations 364 368 Other 2,156 2,334 --------- --------- 15,202 31,312 --------- --------- Total Liabilities 70,136 85,300
SHAREHOLDERS' EQUITY Shares of beneficial interest 87,606 85,965 Cumulative translation adjustment (27,680) (12,014) Net unrealized loss on investments valuation (1,838) (2,250) Retained Earnings 126,022 122,838 --------- --------- 184,110 194,539 --------- --------- $ 254,246 $ 279,839 ========= =========
The accompanying notes are an integral part of these financial statements. FORM 10-Q QUARTERLY REPORT - PAGE 4 5 MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For Three Months Ended March 31, 1997 and 1996 (Unaudited) (dollars in thousands, except for earnings per share)
1997 1996 ---------- ---------- Revenues Sales $ 42,132 $ 48,085 Investments 2,222 1,788 ---------- ---------- 44,354 49,873 Expenses Cost of sales 34,468 36,615 General and administrative 5,804 6,269 Interest expenses 884 1,059 ---------- ---------- 41,156 43,943 ---------- ---------- Income from continuing operations before income taxes 3,198 5,930 Income taxes 14 70 ---------- ---------- Income from continuing operations 3,184 5,860 Income (loss) from spun-off operations -- 30 ---------- ---------- Net income 3,184 5,890 Retained earnings, beginning of period 122,838 160,956 ---------- ---------- Retained earnings, end of period $ 126,022 $ 166,846 ========== ========== Earnings per share Income from continuing operations $ 0.21 $ 0.43 Income (loss) from spun-off operations -- -- ---------- ---------- $ 0.21 $ 0.43 ========== ==========
The accompanying notes are an integral part of these financial statements. FORM 10-Q QUARTERLY REPORT - PAGE 5 6 MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For Three Months Ended March 31, 1997 and 1996 (Unaudited) (dollars in thousands)
1997 1996 ----------- ---------- Cash Flows from Continuing Operating Activities: Net income from continuing operations $ 3,184 $ 5,860 Adjustments to reconcile net income from continuing operations to cash from continuing operating activities Depreciation and amortization (2,070) (1,835) Loss (gain) on investments (1,663) 1 ----------- ---------- (549) 4,026 Changes in current assets and liabilities Inventories 1,939 (36) Receivables 796 (59) Accounts payable and accrued expenses (7,422) (6,530) Other 144 (96) ----------- ---------- (5,092) (2,695) Proceeds from the sales of trading securities 7,801 11,875 Purchase of trading securities (4,369) (21,153) ----------- ---------- Net cash used in continuing operating activities (1,660) (11,973) Cash Flows from Investing Activities of Continuing Operations: Purchase of fixed assets (1,864) (5,366) Other 8 17 ----------- ---------- Net cash used in investing activities of continuing operations $ (1,856) $ (5,349)
The accompanying notes are an integral part of these financial statements. FORM 10-Q QUARTERLY REPORT - PAGE 6 7 MERCER INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For Three Months Ended March 31, 1997 and 1996 (Unaudited) (dollars in thousands)
1997 1996 ---------- ---------- Cash Flows from Financing Activities of Continuing Operations: Increase in bank indebtedness $ -- $ 3,300 Decrease in bank indebtedness (2,684) (149) Net proceeds on issuance (cost to repurchase) of shares of beneficial interest 570 (1,391) ---------- ---------- Net cash provided by financing activities of continuing operations (2,114) 1,760 Effect of exchange rate changes on cash and cash equivalents (289) (586) ---------- ---------- Net cash used in continuing operations (5,919) (16,148) Net cash provided by (used in) spun-off operations -- (376) ---------- ---------- Net decrease in cash and cash equivalents (5,919) (16,524) Cash and Cash Equivalents, beginning of period 9,967 29,230 ---------- ---------- Cash and Cash Equivalents, end of period $ 4,048 $ 12,706 ========== ==========
The accompanying notes are an integral part of these financial statements. FORM 10-Q QUARTERLY REPORT - PAGE 7 8 MERCER INTERNATIONAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) NOTE 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Mercer International Inc. and its subsidiaries (the "Company"). The interim period consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. These interim period statements should be read together with the audited financial statements and the accompanying notes included in the Company's latest annual report on Form 10- K. In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. Previously reported financial statements for all periods and certain amounts in the Company's financial statements and related notes have been restated to conform to the current presentation. The Company's interest in the operating results and net assets of MFC Bancorp Ltd. ("MFC"), formerly Arbatax International Inc., are classified separately within these financial statements as "spun-off operations" and are excluded from amounts for "continuing operations" (see Note 2. Spun-Off Operations). In addition, the Company's cash flow statements exclude the activities of MFC. Intercompany transactions with MFC, which were eliminated in previous consolidated financial statements, are now reflected in these financial statements. NOTE 2. SPUN-OFF OPERATIONS Effective June 3, 1996, the Company completed the spin-off of its financial services segment in a one for two stock dividend (the "Distribution") of approximately 6,697,716 shares of MFC as announced on December 28, 1995. The Distribution was recorded as a stock dividend from shareholders' equity at the carrying amount of the net assets of the spun-off operations. As a result, the Company's total assets and shareholders' equity were each reduced by approximately $50.7 million after the Distribution. FORM 10-Q QUARTERLY REPORT - PAGE 8 9 The operations of MFC have been classified separately within the Company's financial statements as "spun-off operations" and are excluded from the amounts of revenues and expenses of the Company's continuing operations. NOTE 3. EARNINGS PER SHARE Earnings per share is computed on the weighted average number of shares outstanding during the period after considering convertible securities, warrants and options. The weighted average number of shares was 14,930,868 and 13,505,291 for the three months ended March 31, 1997 and 1996, respectively. FORM 10-Q QUARTERLY REPORT - PAGE 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Mercer International Inc. is a pulp and paper company headquartered in Zurich, Switzerland and its operations are primarily located in Germany. In this document: (i) unless the context otherwise requires, the "Company" refers to Mercer International Inc. and its subsidiaries; and (ii) a "tonne" is one metric ton or 2,204.6 pounds. In June 1996, the Company completed the spin-off of its financial services segment and its operations have been classified separately within the Company's financial statements as "spun-off operations" and are excluded from the amounts of revenues and expenses of the Company's continuing operations. See Notes 1 and 2 to the financial statements included herein. The following discussion and analysis of the results of operation and the financial condition of the Company for the three months ended March 31, 1997 should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein. RESULTS OF OPERATIONS - Three Months Ended March 31, 1997 - --------------------------------------------------------- In the first quarter of 1997, revenues decreased to $44.4 million from $49.9 million in the same period in 1996, primarily as a result of lower pulp and paper prices. As the Company's products are principally sold in deutschmarks, the depreciation of the deutschmark against the U.S. dollar in the first quarter of 1997 also contributed to lower revenues. See "Foreign Currency". Pulp and paper costs decreased to $34.5 million in the first quarter of 1997, compared to $36.6 million in the same period in 1996, primarily as a result of reduced revenues and decreased fibre costs (raw materials). General and administrative expenses decreased marginally to $5.8 million for the three months ended March 31, 1997 from $6.3 million in the same period in 1996. For the three months ended March 31, 1997, net earnings from continuing operations were $3.2 million or $0.21 per share, compared to $5.9 million or $0.43 per share for the three months ended March 31, 1996. FORM 10-Q QUARTERLY REPORT - PAGE 10 11 The distribution of the Company's sales by product class, geographic area and volume is set out in the following table for the periods indicated:
Quarter Ended Quarter Ended March 31, 1997 March 31, 1996 -------------- -------------- (in thousands) Sales by Product Class - ---------------------- Packaging papers $ 7,011 $ 9,715 Specialty papers 6,916 8,014 Printing papers 8,901 10,311 Pulp 18,401 18,424 Other 903 1,621 --------- --------- Total(1) $ 42,132 $ 48,085 ========= ========= Sales by Geographic Area - ------------------------ Germany $ 25,265 $ 29,164 European Union(2) 12,780 11,244 Other 4,087 7,677 --------- --------- Total $ 42,132 $ 48,085 ========= ========= Sales by Volume (tonnes) - --------------- Packaging papers 26,589 28,682 Specialty papers 8,459 7,044 Printing papers 12,851 11,190 Pulp 41,445 26,134 --------- --------- Total 89,344 73,050 ========= =========
- ------------------ (1) Excluding intercompany sales. (2) Not including Germany. Pulp and paper markets were generally weak in the first quarter of 1997 and product prices were lower than in the same period in 1996, as a result of relatively slow paper demand and high pulp inventories. Increased sales volumes in the first quarter of 1997 only partially compensated for the price weakness, which is expected to continue until the excess inventory situation corrects itself. See "Cyclical Nature of Business; Competitive Position". While demand for market pulp improved during the quarter, high operating rates and inventories resulted in generally weak prices. In the first quarter of 1997, list prices for pulp were, on average, down approximately 37.0% from the same period in 1996 and approximately 7.7% from December 31, 1996. Pulp sales by volume in the first quarter of 1997 increased by 58.5% compared to the same period in 1996. Improvements in overall demand during the current quarter resulted in some FORM 10-Q QUARTERLY REPORT - PAGE 11 12 pulp producers announcing a price increase in the second quarter. However, there can be no assurance that such an increase can be successfully implemented. The average net selling price for the Company's paper products decreased, on average, by approximately 20.2% in the first quarter of 1997 from the comparative period in 1996. Prices for all classes of paper also declined in the first quarter of 1997 compared to the fourth quarter of 1996. In contrast, paper sales by volume in the first quarter of 1997 increased by 2.1% compared to the same period in 1996, and increased by 6.4% from the fourth quarter of 1996. Sales of specialty and printing papers, by volume, increased marginally in the first quarter of 1997, compared to the same quarter in 1996, whereas sales volume for packaging papers declined. Although sales prices for paper products are stabilizing and expected to be firm in the second quarter, there can be no assurance that such prices can be maintained. On average, the Company's fibre (wood chips and pulpwood) costs for pulp operations decreased by approximately 8.9% in the first quarter of 1997, compared to December 31, 1996 and were down approximately 21.9% in the current quarter, compared to the same period in 1996. Recycled fibre (wastepaper) costs for paper operations decreased by approximately 44.6% in the first quarter of 1997 from the same period in 1996 and were down approximately 24.4% in the current quarter of 1997, compared to December 31, 1996. While fibre costs remained relatively low in the first quarter of 1996, there can be no assurance that they will not escalate in the future. The Company is currently negotiating new labour agreements with its pulp and paper workers. The Company has agreed to a three percent wage increase with its paper workers effective March 1, 1997 with ongoing negotiations to finalize a new labour agreement. The Company's labour agreement with its pulp workers expires at the end of June 1997. Although the Company cannot predict with any certainty the results of such labour negotiations or provide any assurances, it expects that new labour agreements will eventually be successfully concluded without material work stoppages. The date by which the Pulp mill must reduce its levels of AOX (adsorbable organic halogen) discharge from 0.6 kilograms per tonne to 0.4 kilograms per tonne has been deferred from January 1, 1998 to January 1, 1999. In addition, the Company's requirement to reduce its levels of COD (chemical oxygen demand) discharge at the Pulp mill to 50 kilograms per tonne has also been postponed from July 1, 1997 to January 1, 1999. The Company has and will continue to modify its wastewater and bleaching facilities at its Pulp mill to meet or exceed these prescribed regulations. Such modifications are also expected to improve the operational efficiency of the Pulp mill and are part of the Company's overall capital investment program for the mill. Since acquisition, the Company has been implementing operational changes to its operations to improve efficiency, increase export sales to markets outside of Germany and upgrade its product mix. These changes continued in the first quarter of 1997 and resulted in the further elimination of employee positions and downtime at some of the Company's mills. These changes and upgrades to the mills will continue during the balance of 1997. FORM 10-Q QUARTERLY REPORT - PAGE 12 13 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The following table is a summary of selected financial information concerning the Company for the periods indicated:
As at As at March 31, 1997 December 31, 1996 -------------- ----------------- (in thousands) Financial Position - ------------------ Working capital $ 58,019 $ 78,663 Total assets 254,246 279,839 Long-term government debt 8,476 9,184 Long-term debt - other 4,206 19,426 Due to spun-off operations 364 368 Shareholders' equity 184,110 194,539
Quarter Ended Quarter Ended March 31, 1997 March 31, 1996 -------------- -------------- (in thousands, other than per share amounts) Cash Flow From Continuing Operations(1) - ------------------------------------ Cash flow $ (549) $ 4,026 Cash flow per share $ (0.04) $ 0.30
- --------------------------------- (1) Cash flow from operations before changes in working capital and net purchases of trading securities. At March 31, 1997, the Company's cash and cash equivalents decreased to $4.0 million, from $12.7 million at March 31, 1996 or from $10.0 million at December 31, 1996. At March 31, 1997, the Company had short-term trading securities, totalling $75.3 million, compared to $83.4 million as at December 31, 1996. Operating Activities - -------------------- Cash used in operating activities before net purchases of trading securities was $5.1 million in the three months ended March 31, 1997, as compared to $2.7 million in the same period in 1996. Cash flow from operations used cash of $1.7 million in the first quarter of 1997, as compared to $12.0 million for the same period in 1996. During the current period, the reduction of accounts payable and accrued expenses used $7.4 million, and net sales of trading securities provided $3.4 million. Purchases of trading securities consisted primarily of interest bearing investment grade deutschmark and Swiss franc bonds. The Company expects to generate sufficient cash flow from operations to meet its working capital requirements. FORM 10-Q QUARTERLY REPORT - PAGE 13 14 Investing Activities - -------------------- Investing activities in the first quarter of 1997 used cash of approximately $1.9 million, consisting primarily of capital expenditures for upgrades to the manufacturing plants, compared to $5.3 million in the same period in 1996. The Company expects capital investments in 1997 to total approximately $10.7 million. Approximately $1.9 million was expended in the first quarter of 1997, compared to $5.4 million in the same period in 1996. These investments are being partially financed through non-refundable grants made available by German federal and state governments to qualifying businesses operating in Germany. These non-refundable grants are not recorded in the income of the Company, but instead reduce the cost base of the assets purchased with the proceeds thereof. Loan guarantees are also available from state governments in Germany for up to 80% of the cost of qualified investments. Such guarantees permit businesses to obtain term loans at below market interest rates. The Company has not yet utilized any such state guarantees. The Company plans to convert the Pulp mill from the production of sulphite pulp to sulphate (kraft) pulp. The conversion is expected to increase its annual production capacity from 160,000 tonnes to 280,000 tonnes, substantially reduce effluent and sulphur dioxide emissions and reduce energy costs. The estimated cost for the conversion is approximately $325 million, which will be financed through a combination of non-refundable governmental grants of approximately $97.5 million, governmental assistance and guarantees for long-term project financing and cash flow from operations. The Company is finalizing its detailed reviews and anticipates making its formal application for approval of the project in mid 1997. A final decision to proceed with the conversion would be made upon receipt of all necessary environmental and operating permits and approvals which are currently expected to be received at the end of 1997. The Company estimates that its costs in respect of the project in 1997 will be approximately $3.3 million. Although the Company's plan to convert the Pulp mill to the production of kraft pulp has received favourable support from German governmental and regulatory bodies to date, the same is subject to receiving substantial governmental financial assistance under existing programs and receipt of complex environmental and operating permits. There can be no assurance that current governmental assistance programs will not be amended in the future or that financial assistance will be provided to the Company on terms satisfactory to it, if at all, or that all necessary environmental and operating permits will be received on satisfactory terms, if at all , or in time to permit the Company to proceed with and complete the project as currently planned. Financing Activities - -------------------- Cash used by financing activities was $2.1 million in the first quarter of 1997, as compared to $1.8 million provided in the same period in 1996. The Company decreased its bank indebtedness by $2.7 million in the first quarter of 1997, as compared to a net increase of $3.2 million in the comparative FORM 10-Q QUARTERLY REPORT - PAGE 14 15 period in 1996. During the first quarter of 1997, the Company received proceeds on the issuance of shares of $0.6 million on the exercise of stock options, compared to expending $1.4 million on repurchases of the Company's shares in the same period in 1996. The depreciation of the deutschmark against the U.S. dollar in the first quarter of 1997 resulted in an unrealized foreign exchange translation loss of $0.3 million on cash and cash equivalents, which is included as shareholders' equity in the Company's balance sheet and does not affect the Company's net earnings. See "Foreign Currency". The Company is continuing discussions with third parties to divest certain redundant assets, including a substantial amount of real property which is excess to its requirements. The Company has entered into certain lease arrangements with respect to some of the redundant assets whereby the Company has the right to "put" the assets to the tenant at a prearranged price commencing 1997. The Company's pulp and paper operations had net operating tax losses of approximately $242.0 million at December 31, 1996, which under German tax laws may be carried forward indefinitely. The Company's tax losses may result in a substantial deferred tax benefit being recognized, which under FASB Statement No. 109, may be reflected as an increase to earnings. As at March 31, 1997, other than the Company's plan to convert the production of the Pulp mill from sulphite to kraft pulp, the Company had no material commitments to acquire assets or operating businesses. The Company anticipates that there will be acquisitions of businesses or commitments to projects during 1997. To achieve its long-term goals of expanding the asset and earnings base by mergers and acquisitions, the Company will require substantial capital resources. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against its assets and/or the sale of assets. Foreign Currency - ---------------- Substantially all of the Company's operations are conducted in international markets and therefore its consolidated financial results are subject to foreign currency exchange rate fluctuations. As primarily all of the Company's revenues are received in deutschmarks, the financial position of the Company for any given period, when reported in U.S. dollars, can be significantly affected by the exchange rate for deutschmarks prevailing during that period. In the three months ended March 31, 1997, approximately 99% of the Company's revenues were denominated in deutschmarks. The Company translates foreign assets and liabilities into U.S. dollars at the rate of exchange on the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the year. Unrealized gains or losses from these translations are recorded as shareholders' equity on the balance sheet and do not affect the net earnings of the Company. At December 31, 1996, the cumulative foreign exchange translation resulted in a loss of $12.0 million. In the three months ended March 31, 1997, the overall depreciation of the deutschmark against the U.S. dollar FORM 10-Q QUARTERLY REPORT - PAGE 15 16 resulted in a net $15.7 million foreign exchange translation loss and as a result the cumulative foreign exchange translation loss was increased from $12.0 million to $27.7 million at March 31, 1997. As both the Company's principal sources of revenues and expenses are in deutschmarks, the Company does not currently enter into any currency hedging arrangements for exchange rate fluctuations. The period average and period ending exchange rates for the deutschmark to the U.S. dollar for the periods indicated are as follows:
Period From Quarter Ended Quarter Ended March 31 to May 12, 1997 March 31, 1997 March 31, 1996 Period End Period Average Period End Period Average Period End Period Average ---------- -------------- ---------- -------------- ---------- -------------- Rate of Exchange Deutschmark 1.7031 1.7173 1.6672 1.6635 1.4760 1.4785
Based upon the period average exchange rate in the first quarter of 1997, the U.S. dollar increased by approximately 8.1% in value against the deutschmark since December 31, 1996. Cyclical Nature of Business; Competitive Position - ------------------------------------------------- The pulp and paper business is cyclical in nature and markets for the Company's principal products are affected by fluctuations in supply and demand in each cycle, which in turn affects product prices. The markets for pulp and paper are highly competitive and sensitive to cyclical changes in the industry capacity and in the economy, both of which can have a significant influence on selling prices and the earnings of the Company. Demand for pulp and paper products has historically been determined by the level of economic growth and has been closely tied to overall business activity. The competitive position of the Company is influenced by the availability and quality of raw materials (fibre) and its experience in relation to other producers with respect to inflation, energy, labour costs and productivity. FORM 10-Q QUARTERLY REPORT - PAGE 16 17 PART II. OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS The Company is subject to routine litigation incidental to its business. The Company does not believe that the outcome of such litigation will have a material adverse effect on its business or financial condition. ITEM 2-5. Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description ------- ----------- 27 Article 5 - Financial Data Schedule for 1st Quarter 1997 - Form 10-Q. (b) Reports on Form 8-K None. FORM 10-Q QUARTERLY REPORT - PAGE 17 18 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERCER INTERNATIONAL INC. /s/ Jimmy S.H. Lee -------------------------- Jimmy S.H. Lee Chief Executive Officer Date: May 14, 1997 FORM 10-Q QUARTERLY REPORT - PAGE 18 19 EXHIBIT INDEX
Exhibit Number Description - -------- ----------- 27 Article 5 - Financial Data Schedule for 1st Quarter 1997 - Form 10-Q.
FORM 10-Q QUARTERLY REPORT - PAGE 19 EX-27 2 EXHIBIT 27-ARTICLE 5 FDS FOR 1ST QTR 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,048 75,276 17,582 1,220 17,143 112,953 156,815 36,494 254,246 54,934 12,682 0 0 87,606 96,504 254,246 42,132 44,354 34,468 41,156 0 0 884 3,198 14 3,184 0 0 0 3,184 0.21 0.21
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