<PAGE> 1
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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.
<TABLE>
<CAPTION>
WASHINGTON 91-6087550
State or other jurisdiction IRS Employer
of incorporation or organization Identification No.
<S> <C>
Brandschenke Str. 64, Zurich, Switzerland CH 8002
Address of principal executive office Zip Code
</TABLE>
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.
=============================================================================
<PAGE> 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
<PAGE> 3
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As at March 31, 1997 and December 31, 1996
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
ASSETS
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 3
<PAGE> 4
MERCER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As at March 31, 1997 and December 31, 1996
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
LIABILITIES
<S> <C> <C>
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
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
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
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 4
<PAGE> 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)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 5
<PAGE> 6
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended March 31, 1997 and 1996
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
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)
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 6
<PAGE> 7
MERCER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For Three Months Ended March 31, 1997 and 1996
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
QUARTERLY REPORT - PAGE 7
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
(in thousands)
<S> <C> <C>
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
========= =========
</TABLE>
- ------------------
(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
<PAGE> 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
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The following table is a summary of selected financial information concerning
the Company for the periods indicated:
<TABLE>
<CAPTION>
As at As at
March 31, 1997 December 31, 1996
-------------- -----------------
(in thousands)
<S> <C> <C>
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
</TABLE>
<TABLE>
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
(in thousands, other than per share amounts)
<S> <C> <C>
Cash Flow From Continuing Operations(1)
- ------------------------------------
Cash flow $ (549) $ 4,026
Cash flow per share $ (0.04) $ 0.30
</TABLE>
- ---------------------------------
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
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
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Rate of Exchange
Deutschmark 1.7031 1.7173 1.6672 1.6635 1.4760 1.4785
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
27 Article 5 - Financial Data Schedule for 1st Quarter 1997 - Form 10-Q.
</TABLE>
FORM 10-Q
QUARTERLY REPORT - PAGE 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,048
<SECURITIES> 75,276
<RECEIVABLES> 17,582
<ALLOWANCES> 1,220
<INVENTORY> 17,143
<CURRENT-ASSETS> 112,953
<PP&E> 156,815
<DEPRECIATION> 36,494
<TOTAL-ASSETS> 254,246
<CURRENT-LIABILITIES> 54,934
<BONDS> 12,682
0
0
<COMMON> 87,606
<OTHER-SE> 96,504
<TOTAL-LIABILITY-AND-EQUITY> 254,246
<SALES> 42,132
<TOTAL-REVENUES> 44,354
<CGS> 34,468
<TOTAL-COSTS> 41,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 884
<INCOME-PRETAX> 3,198
<INCOME-TAX> 14
<INCOME-CONTINUING> 3,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,184
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
