SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1997, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM -------------- TO --------------
Commission File Number 333-09621-01
Mettler-Toledo Holding Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3900409
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
Im Langacher, P.O. Box MT-100
CH 8608 Greifensee, Switzerland
-------------------------------- ---------------
(Zip Code)
(Address of principal executive
offices)
41-1-944-22-11
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
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 has 1,000 shares of Common Stock outstanding as
of June 30, 1997.
METTLER-TOLEDO HOLDING INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
METTLER-TOLEDO HOLDING INC.
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997 3
Interim Consolidated Statements of Operations
for the six months ended June 30, 1996 and 1997 4
Interim Consolidated Statements of Operations
for the three months ended June 30, 1996 and 1997 5
Interim Consolidated Statements of Changes in
Net Assets / Shareholders' Equity (Deficit)
for the six months ended June 30, 1996 and 1997 6
Interim Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and 1997 7
Notes to the Interim Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
---------------------------------------------
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
-----------------
Item 2. Changes in Securities 16
---------------------
Item 3. Default upon Senior Securities 16
------------------------------
Item 4. Submission of Matters to a Vote of
Security Holders 16
----------------------------------
Item 5. Other Information 16
-----------------
Item 6. Exhibits and Reports on Form 8-K 16
---------------------------------
Signature 17
Part I Financial Information
Item 1 - Financial Statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1997
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Successor Successor
---------- ---------
December 31, June 30,
1996 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 60,696 $ 30,975
Trade accounts receivable, net 151,161 158,577
Inventories 102,526 109,398
Deferred taxes 7,565 9,390
Other current assets 17,268 19,854
-------- --------
Total current assets 339,216 328,194
Property, plant and equipment, net 255,292 250,381
Excess of cost over net assets
acquired, net 135,490 181,284
Long-term deferred taxes 3,916 4,324
Other assets 37,974 22,652
-------- --------
Total assets $771,888 $786,835
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 32,797 $ 28,844
Accrued and other liabilities 115,314 121,075
Taxes payable 17,580 23,683
Deferred taxes 9,132 8,606
Bank and other loans 80,446 70,476
--------- ----------
Total current liabilities 255,269 252,684
Long-term debt due to third parties 373,758 440,605
Long-term deferred taxes 30,467 28,133
Other long-term liabilities 96,810 93,315
--------- ----------
Total liabilities 756,304 814,737
Minority interest 3,158 3,529
Shareholders' equity (deficit):
Common stock, $1.00 par value, 1,000
shares authorized and issued 1 1
Additional paid-in capital 188,108 188,108
Accumulated deficit (159,046) (195,333)
Currency translation adjustment (16,637) (24,207)
---------- ----------
Total shareholders' equity (deficit) 12,426 (31,431)
---------- ----------
Total liabilities and shareholders'
equity (deficit) $ 771,888 $ 786,835
========== ==========
</TABLE>
See the accompanying notes to the interim consolidated financial
statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
June 30, June 30,
1996 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net sales $423,802 $417,814
Cost of sales 252,203 237,516
-------- --------
Gross profit 171,599 180,298
Research and development 25,054 22,444
Selling, general and administrative 120,531 126,351
Amortization 1,270 2,333
Purchased research and development - 29,959
Other income, net - (99)
-------- --------
Earnings (loss) before interest,
taxes and extraordinary item 24,744 (690)
Interest expense 8,346 19,170
Financial expense (income), net (965) 2,290
------- --------
Earnings (loss) before taxes,
minority interest and
extraordinary item 17,363 (22,150)
Provision for taxes 6,830 4,337
Minority interest 526 248
-------- --------
Earnings (loss) before
extraordinary item 10,007 (26,735)
Extraordinary item - debt
extinguishment - 9,552
-------- --------
Net earnings (loss) $10,007 $(36,287)
======== ========
</TABLE>
See the accompanying notes to the interim consolidated financial
statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
June 30, June 30,
1996 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net sales $222,429 $220,412
Cost of sales 131,225 123,396
-------- --------
Gross profit 91,204 97,016
Research and development 12,602 11,612
Selling, general and administrative 59,051 66,158
Amortization 599 1,176
Purchased research and development - 29,959
Other income, net - (110)
-------- --------
Earnings (loss) before interest,
taxes and extraordinary item 18,952 (11,779)
Interest expense 3,809 9,724
Financial income, net (569) (1,453)
-------- --------
Earnings (loss) before taxes and
minority interest and
extraordinary item 15,712 (20,050)
Provision for taxes 6,182 5,424
Minority interest 452 139
-------- --------
Earnings (loss) before
exraordinary item 9,078 (25,613)
Extraordinary item - debt
extinguishment - 9,552
-------- --------
Net earnings (loss) $9,078 $(35,165)
======== =========
</TABLE>
See the accompanying notes to the interim consolidated financial
statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS /
SHAREHOLDERS' EQUITY (DEFICIT)
Six months ended June 30, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Predecessor
-----------------------------------------------
Six months ended June 30, 1996
-----------------------------------------------
Currency
Capital Translation
Employed Adjustment Total
-------- ----------- -----
<S> <C> <C> <C>
Net assets at December
31, 1995 $162,604 $30,650 $193,254
Capital transactions with
Ciba and affiliates 1,353 - 1,353
Net earnings 10,007 - 10,007
Change in currency
translation adjustment - (11,252) (11,252)
-------- -------- --------
Net assets at June 30,
1996 $173,964 $19,398 $193,362
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Successor
-----------------------------------------------
Six months ended June 30, 1997
-----------------------------------------------
Additional Currency
Common Paid-in Accumulated Translation
Stock Capital Deficit Adjustment Total
------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996 $1 $188,108 $(159,046) $(16,637) $12,426
Net loss - - (36,287) - (36,287)
Change in currency
translation
adjustment - - - (7,570) (7,570)
------ ---------- ----------- ----------- ---------
Balance at June 30, $1 $188,108 $(195,333) $(24,207) $(31,431)
1997
====== ========== =========== =========== =========
</TABLE>
See the accompanying notes to the interim consolidated financial
statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
June 30, June 30,
1996 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $10,007 $(36,287)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation 12,942 11,802
Amortization 1,270 2,333
Write-off of purchased research
and development and cost of
sales associated with
revaluation of inventories - 32,013
Extraordinary item - debt extinguishment - 9,552
Net gain on disposal of long-term assets (131) (478)
Deferred taxes (191) (2,336)
Minority interest 526 248
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable, net (4,666) (7,792)
Inventories 279 (6,540)
Other current assets (352) (3,081)
Trade accounts payable 932 (5,969)
Accruals and other
liabilities, net 16,244 16,757
------ -------
Net cash provided by
operating activities 36,860 10,222
------ -------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 508 2,297
Purchase of property, plant and
equipment (10,053) (8,760)
Purchase of Safeline Limited - (74,908)
Investments in other long term assets,
net (37) (1,629)
-------- --------
Net cash used in investing
activities (9,582) (83,000)
-------- --------
Cash flows from financing activities:
Borrowings of third party debt - 312,592
Repayments of third party debt (1,078) (265,780)
Ciba and affiliates repayments (16,368) -
Capital transactions with Ciba
and affiliates (2,983) -
------- --------
Net cash provided by (used in)
financing activities (20,429) 46,812
-------- --------
Effect of exchange rate changes
on cash and cash equivalents (2,316) (3,755)
-------- --------
Net increase (decrease) in cash and cash
equivalents 4,533 (29,721)
Cash and cash equivalents:
Beginning of period 41,402 60,696
------- --------
End of period $45,935 $30,975
======= =======
</TABLE>
See the accompanying notes to the interim consolidated financial
statements
METTLER-TOLEDO HOLDING INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise stated)
1.BASIS OF PRESENTATION
The accompanying interim consolidated financial statements
have been prepared in accordance with United States
generally accepted accounting principles on a basis which
reflects the interim consolidated financial statements of
Mettler-Toledo Holding Inc. ("Mettler-Toledo Holding").
Mettler-Toledo Holding was formed in July, 1996 by AEA
Investors Inc. ("AEA") to effect the acquisition (the
"Acquisition") of the Mettler-Toledo Group from Ciba-Geigy
AG ("Ciba") and its wholly-owned subsidiary, AG fur
Prazisionsinstrumente ("AGP"). Mettler-Toledo Holding is a
wholly-owned subsidiary of MT Investors Inc. ("MT
Investors"). Pursuant to the terms of a stock purchase
agreement dated April 2, 1996 between MT Investors, AGP and
Ciba, on October 15, 1996 MT Investors acquired the Mettler-
Toledo Group in a business combination accounted for as a
purchase.
In the accompanying interim consolidated financial
statements the terms "Mettler-Toledo" or the "Company" when
used in situations pertaining to periods prior to October
15, 1996 refer to the combined group of businesses sold by
Ciba and when used in situations pertaining to periods
subsequent to October 15, 1996 refer to Mettler-Toledo
Holding and its consolidated subsidiaries. The combined
historical financial information of the business acquired
from Ciba prior to the Acquisition on October 15, 1996 are
referred to as "Predecessor" while the consolidated
financial information of the Company subsequent to the date
of the Acquisition are referred to as "Successor". Because
of purchase price accounting for the Acquisition and the
additional interest expense from debt incurred to finance
the Acquisition, the accompanying interim financial
statements of the Successor are not directly comparable to
those of the Predecessor.
The accompanying interim consolidated financial statements
of the Company have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. The accompanying interim consolidated
financial statements as of June 30, 1997 and for the six
months and three months periods ended June 30, 1996 and
1997 should be read in conjunction with the December 31,
1995 and 1996 consolidated financial statements and the
notes thereto included in Mettler-Toledo Holding's annual
report on Form 10-K for the year ended December 31, 1996.
The accompanying unaudited interim consolidated financial
statements reflect all adjustments (consisting of only
normal recurring adjustments) which, in the opinion of
management, are necessary for a fair statement of the
results of the interim periods presented. Operating
results for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for
the full year ending December 31, 1997.
Debt refinancing
On May 29, 1997, the Company refinanced its existing credit
facility (the "Credit Agreement"). The Credit Agreement provides
for term loan borrowings in an aggregate principal amount of
approximately US $133.8 million, SFr 171.5 million and GBP
26.7 million, that are scheduled to mature between 2002 and
2004, a Canadian revolving credit facility with
availability of CDN $26.3 million and a multi-currency
revolving credit facility with availability of US $151.0
million. The revolving credit facilities are scheduled to
mature in 2002.
The Company recorded an extraordinary item - debt
extinguishment of $9.6 million representing a one time
charge for the write-off of capitalized debt issuance fees
and related expenses associated with the Company's previous
credit facility.
Safeline acquisition
On May 30, 1997, the Company purchased (the "Safeline
Acquisition") the entire issued share capital of Safeline
Limited ("Safeline"), a manufacturer of metal detection
systems based in Manchester in the United Kingdom, for
approximately GBP 61 million (approximately US $100
million) subject to post-closing adjustment, plus up to an
additional GBP 6 million (US $10 million) for a contingent
earn-out payment. Under the terms of the agreement the
Company paid approximately GBP 47.2 million (US $77.4
million) of the purchase price in cash, provided by amounts
loaned under its Credit Agreement, with the remaining
balance of approximately GBP 13.7 million (US $22.5
million) paid in the form of seller loan notes which mature
May 30, 1999. In connection with the Safeline Acquisition
the Company incurred expenses of approximately $2.0 million
which have been accounted for as part of the purchase
price.
The Company has accounted for the Safeline Acquisition
using the purchase method of accounting. Accordingly, the
costs of the Safeline Acquisition were allocated to the
assets acquired and liabilities assumed based upon their
respective fair values. Approximately $30 million of the
purchase price was attributed to purchased research and
development in process. Such amount was expensed immediately
in the second quarter of 1997. The technological feasibility
of the products being developed had not been established as
of the date of the Safeline Acquisition. The Company expects
that the projects underlying these research and development
efforts will be substantially complete over the next two
years. The Company spends more than $40 million annually
on research and development; however, ultimately achieving
technological feasibility cannot be assured for these
projects or others. In addition, the Company allocated
approximately $2.0 million of the purchase price to revalue
certain finished goods inventories to fair value.
Substantially all of such inventories were sold in the
second quarter of 1997. The excess of the cost of the
Safeline Acquisition over the fair value of the net assets
acquired of approximately $62 million is being amortized
over 30 years. The purchase price allocation is subject to
adjustment. The results of operations and cash flows of
Safeline have been consolidated with those of the Company
from the date of the Safeline Acquisition.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Mettler-Toledo is a manufacturer and marketer of weighing
instruments for use in laboratory, industrial and food
retailing applications. The Company also manufactures and
sells certain related laboratory measurement instruments.
The Company manufacturing facilities are located in
Switzerland, the United States, Germany, the United Kingdom
and China.
Inventories
Inventories are valued at the lower of cost or market.
Cost, which includes direct materials, labor and overhead
plus indirect overhead, is determined using either the
first in, first out (FIFO) or weighted average cost method.
Two subsidiaries of the Company in the U.S. use the last
in, first out (LIFO) cost method.
Inventories consisted of the following at December 31, 1996
and June 30, 1997:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Raw materials and parts $ 41,015 $ 42,309
Work in progress 31,534 33,078
Finished goods 29,982 34,168
--------- ---------
102,531 109,555
LIFO reserve (5) (157)
--------- ---------
$102,526 $109,398
========= =========
</TABLE>
Interest rate agreements
In July 1997 the Company entered into three year interest
rate cap agreements to limit the impact of increases in
interest rates on $150 million of US dollar based debt.
These agreements "cap" the effects of an increase in three
month LIBOR above 8.5%. In addition, the Company has
entered into three year interest rate swap agreements
which swap the interest obligation associated with $100
million of US dollar based debt from variable to fixed. The
fixed rate associated with the swap is 6.09% plus the
Company's normal interest margin. The swap is effective at
three month LIBOR rates up to 7.00%.
The Company has designated such interest rate agreements as
hedges of certain of its long-term debt payable and
recognizes interest differentials as adjustments to
interest expense in the period they occur. Premiums paid on
interest rate cap agreements are amortized over the terms
of the agreements. In August 1997, the Company entered
into certain three year interest rate swap agreements that
fix the interest obligation associated with SFR 112.5 million
of Swiss Franc based debt at rates varying between 2.17%
and 2.49%.
3.SUMMARIZED INTERIM FINANCIAL INFORMATION - METTLER-TOLEDO,
INC.
In connection with the Acquisition, Mettler-Toledo, Inc., a
wholly-owned subsidiary of Mettler-Toledo Holding, issued
senior subordinated notes (the "Notes") which were fully
and unconditionally guaranteed on a senior subordinated
basis by Mettler-Toledo Holding. Set forth below is
summarized interim financial information for Mettler-
Toledo, Inc. Separate interim financial statements of
Mettler-Toledo, Inc. are not presented because management
has determined that they would not be material to
investors.
During the Predecessor period Mettler-Toledo, Inc. operated
as a subsidiary of Ciba. In connection with the
Acquisition, Mettler-Toledo was reorganized such that
Mettler-Toledo, Inc. directly or indirectly owns each of
the entities comprising Mettler-Toledo. Summarized
financial information for Mettler-Toledo, Inc. for the
Predecessor period assumes that the reorganization had been
effected for all periods presented.
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
Successor Six months ended
--------- ----------------------
December 31, June 30, June 30,
1996 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Mettler-Toledo, Inc.:
Current assets $339,216 NA $328,194
Non-current assets 432,672 NA 458,641
Current liabilities 255,269 NA 252,684
Non-current liabilities 501,035 NA 562,053
Minority interest 3,158 NA 3,529
Shareholders' equity
(deficit) 12,426 NA (31,431)
Net sales NA $423,802 417,814
Gross profit NA 171,599 180,298
Earnings (loss) from
continuing operations
before extraordinary item NA 10,007 (26,735)
Net earnings (loss) NA 10,007 (36,287)
</TABLE>
NA = Not Applicable
Under the Credit Agreement and the indenture relating
to Notes, Mettler-Toledo, Inc. is prohibited from
paying dividends to Mettler-Toledo Holding and
Mettler-Toledo, Inc. and its subsidiaries are prohibited
from making loans and other advances to Mettler-Toledo
Holding, in each case, subject to certain limited
exceptions.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
The following discussion and analysis of the Company's
financial condition and results of operations should be
read in conjunction with the Unaudited Interim Consolidated
Financial Statements included herein.
Genera1
Mettler-Toledo Holding Inc. ("Mettler-Toledo Holding") was
formed in July, 1996 by AEA Investors Inc. ("AEA") to
effect the acquisition (the "Acquisition") of the Mettler-
Toledo Group from Ciba-Geigy AG ("Ciba") and its wholly-
owned subsidiary, AG fur Prazisionsinstrumente ("AGP").
Mettler-Toledo Holding is a wholly-owned subsidiary of MT
Investors Inc. ("MT Investors"). Pursuant to the terms of
a stock purchase agreement dated April 2, 1996 between MT
Investors, AGP and Ciba, on October 15, 1996 MT Investors
acquired the Mettler-Toledo Group in a business combination
accounted for as a purchase.
In the accompanying interim consolidated financial
statements the terms "Mettler-Toledo" or the "Company" when
used in situations pertaining to periods prior to October
15, 1996 refer to the combined group of businesses sold by
Ciba and when used in situations pertaining to periods
subsequent to October 15, 1996 refer to Mettler-Toledo
Holding and its consolidated subsidiaries. The combined
historical financial information of the business acquired
from Ciba prior to the Acquisition on October 15, 1996 are
referred to as "Predecessor" while the consolidated
financial information of the Company subsequent to the date
of the Acquisition are referred to as "Successor." Because
of purchase price accounting for the Acquisition and the
additional interest expense from debt incurred to finance
the Acquisition, the accompanying interim financial
statements of the Successor are not directly comparable to
those of the Predecessor.
Financial information is presented in accordance with
United States generally accepted accounting principles
("U.S. GAAP"). Operating results for the six and three
months ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year ending
December 31, 1997.
On May 29, 1997 the Company refinanced its existing
credit facility (the "Credit Agreement"). See "Liquidity
and Capital Resources".
On May 30, 1997, the Company purchased (the "Safeline
Acquisition") the entire issued share capital of Safeline
Limited ("Safeline"). The purchase price (the "Purchase
Price") for the Safeline Acquisition, subject to post
closing adjustments, was GBP 61 million (approximately US
$100 million), plus up to an additional GBP 6 million (US
$10 million) for a contingent earn-out payment. The
Safeline Acquisition was effected pursuant to the terms of
a Share Sale and Purchase Agreement (the "Purchase
Agreement"), dated May 30, 1997, among the Company's
subsidiaries Safeline Holding Company and Mettler-Toledo
Inc. (a Canadian corporation), as purchasers, and Safeline
Limited and each of the sellers named therein as sellers.
Safeline, based in Manchester, U.K., is the world's leading
supplier of metal detection systems for companies who
produce and package goods in the food, pharmaceutical,
cosmetics, chemicals and other industries.
The source of funds for the Purchase Price was provided by
GBP 13.7 million (US $22.5 million) in loan notes to be
retained by the sellers with the remaining amounts provided
by amounts loaned under its Credit Agreement. See
"Liquidity and Capital Resources".
Results of Operations
Net sales were $417.8 million and $220.4 million for the
six and three month periods ended June 30, 1997,
respectively, compared to $423.8 million and $222.4 million
for the corresponding periods in the prior year, a decrease
of 1% for the six month period and relatively unchanged for
the three month period. Results were negatively impacted in
part by the strengthening of the U.S. dollar against other
currencies. Net sales during the six month period in local
currencies increased 5%. Net sales in local currencies for
the three month period increased 6%.
Net sales in local currencies during the six and three
month periods in Europe decreased 1% principally as a
result of weak European economies adversely affecting sales
to industrial customers. Net sales in local currencies
during the six and three month periods in the Americas
increased 6% principally due to improved market conditions
for sales to industrial and food retailing customers. Net
sales in local currencies in the six and three month
periods in Asia and other markets increased 28% and 38%
respectively, primarily as a result of the establishment of
additional direct marketing and distribution in the region.
The operating results for Safeline had the effect of
increasing the Company's net sales by $3.8 million for the
period ended June 30, 1997. Earnings before interest, taxes
and extraordinary item were increased by $0.8 million for
the period ended June 30, 1997, excluding the impacts of
purchase accounting adjustments for purchased research and
development and the sale of inventories revalued (to fair
value).
Gross profit as a percentage of net sales increased to
43.2% for the six months ended June 30, 1997, compared to
40.5% for the corresponding period in the prior year. Gross
profit as a percentage of net sales increased to 44.0% for
the three months ended June 30, 1997, compared to 41.0% for
the corresponding period in the prior year. Such increases
were adversely impacted by a non-cash charge associated
with the excess of the fair value over the historic value
of inventory acquired in the Safeline Acquisition. Absent
such charge, the gross profit percentages for the six and
three month periods would have been 43.6% and 44.9%,
respectively. These results reflect the benefits of reduced
product costs arising from the Company's research and
development efforts, ongoing productivity improvements, and
the depreciation of the Swiss franc against the Company's
other principal trading currencies.
Research and development expenses as a percentage of net
sales decreased to 5.4% for the six months ended June 30,
1997, compared to 5.9% for the corresponding period in the
prior year; however, the local currency spending level
remained relatively constant period to period. Research and
development expenses as a percentage of net sales decreased
to 5.3% for the three months ended June 30, 1997, compared
to 5.7% for the corresponding period in the prior year.
Selling, general and administrative expenses as a
percentage of net sales increased to 30.2% for the six
months ended June 30, 1997, compared to 28.4% for the
corresponding period in the prior year. Selling, general
and administrative expense as a percentage of net sales
increased to 30.0% for the three months ended June 30,
1997, compared to 26.5% for the corresponding period in the
prior year. The increases are primarily a result of
establishing additional direct marketing and distribution
in Asia.
In connection with the Safeline Acquisition, approximately
$30 million of the purchase price was attributed to
purchased research and development in process. Such amount
was expensed immediately in the second quarter of 1997.
The technological feasibility of the products being developed
had not been established as of the date of the Safeline
Acquisition. The Company expects that the projects underlying these
research and development efforts will be substantially
complete over the next two years. The Company spends more
than $40 million annually on research and development;
however, ultimately achieving technological feasibility
cannot be assured for these projects or others.
The loss before interest, taxes and extraordinary item was
$0.7 million and $11.8 million for the six and three month
periods ended June 30, 1997, respectively, compared to
earnings of $24.7 million and $19.0 million for the
corresponding periods in the prior year. The losses during
the 1997 periods include expenses of $30.0 million for the
allocation of purchase price to in-process research and
development projects in connection with the Safeline
Acquisition and $2.0 million for the revaluation of
inventories to fair value. Excluding these expenses,
earnings before interest, taxes and extraordinary item
would have been $31.3 million and $20.2 million for the six
and three month periods ended June 30, 1997, respectively.
Interest expense increased to $19.2 million for the six
months ended June 30, 1997, compared to $8.3 million for
the corresponding period in the prior year. The increase
was principally due to additional Acquisition related debt.
Net financial expense of $2.3 million for the six months
ended June 30, 1997 compared to net financial income of
$1.0 million for the corresponding period in the prior year
as a result of lower interest income and an increase in
foreign currency losses.
The extraordinary item - debt extinguishment of $9.6
million represents a one time charge for the write-off of
capitalized debt issuance fees and related expenses
associated with the Company's previous credit facility.
See "Liquidity and Capital Resources".
The net loss of $36.3 million and $35.2 million for the six
and three month periods ended June 30, 1997, respectively,
compared to net earnings of $10.0 million and $9.1 million
for the corresponding periods in the prior year. Excluding
the expense for purchased research and development, the
revaluation of inventories to fair value and the
extraordinary item - debt extinguishment, net earnings
would have been $4.6 million and $5.7 million for the six
and three month periods ended June 30, 1997, respectively.
Liquidity and Capital Resources
The Acquisition was financed principally through capital
contributions, borrowings under a credit facility and
9 3/4% Senior Subordinated Notes due 2006 (the "Notes").
Prior to the Acquisition, the Company's cash and other
liquidity has historically been used to fund capital
expenditures, working capital requirements, debt
service and dividends to Ciba. Following the Acquisition,
interest expense associated with borrowings under the
Credit Agreement and Notes as well as scheduled principal
payments of term loans under the Credit Agreement, has
significantly increased liquidity requirements.
The Credit Agreement provides for term loan borrowings
in an aggregate principal amount of approximately
US $133.8 million, SFr 171.5 million and GBP
26.7 million that are scheduled to mature in 2002 and
2004, a Canadian revolving credit facility with
availability of CDN $26.3 million (approximately CDN $21
million of which has been drawn), and a multi-currency
revolving credit facility with availability of US $151.0
million (approximately US $8.3 million of which has been
drawn). The revolving credit facilities are scheduled to
mature in 2002. The interest rate margin on all loans have
been reduced by 75 basis points under the Credit Agreement
as compared to the Company's prior credit facility.
Under the Credit Agreement, mandatory prepayments are
required to be made in certain circumstances with the
proceeds of asset sales or issuance of capital stock
or indebtedness and with certain excess cash flow.
The Credit Agreement imposes certain restrictions on the
Company and its subsidiaries, including restrictions on the
ability to incur indebtedness, make investments, grant liens,
sell financial assets and engage in certain other activities.
The Company must also comply with certain financial
convenants. The Credit Agreement is secured by certain assets
of the Company.
The Notes will mature in 2006. The Notes may be required
to be purchased by the Company upon a Change of Control (as
defined) and in certain circumstances with the proceeds of
asset sales. The Notes are subordinated to the
indebtedness under the Credit Agreement. The indenture
governing the Notes (the "Indenture") imposes certain
restrictions on the Company and its subsidiaries,
including restrictions on the ability to incur
indebtedness, make investments, grant liens and
engage in certain other activities.
Under the Credit Agreement and the Indenture,
Mettler-Toledo, Inc. is prohibited from paying
dividends to Mettler-Toledo Holding, subject to certain
limited exceptions. Mettler-Toledo, Inc.'s obligations
under the Credit Agreement and Notes are guaranteed by
Mettler-Toledo Holding.
The Company's cash provided by operating activities
declined from $36.9 million in the six months ended June
30, 1996 to $10.2 million in the six months ended June 30,
1997. The decline resulted principally from higher
interest costs resulting from the Acquisition and higher
working capital requirements.
During the six months ended June 30, 1997, the Company's
net debt increased by $86.6 million as a result of the
Safeline Acquisition.
The Company continues to explore acquisitions to expand its
product portfolio and improve its distribution
capabilities. In connection with any acquisition, the
Company may incur additional indebtedness.
The Company currently believes that cash flow from
operating activities, together with borrowings available
under the Credit Agreement and local working capital
facilities, will be sufficient to fund currently anticipated
working capital needs and capital spending requirements
as well as debt service requirements for at least several
years, but there can be no assurance that this will be the
case.
The Company holds a variety of interest swap and cap
arrangements which limits its risk of increases in interest
rates. See Note 2 to the Interim Consolidated Financial Statements.
Effect of Currency on Results of Operations
The Company's operations are conducted by subsidiaries in
many countries, and the results of operations and the
financial position of each of those subsidiaries is
reported in the relevant foreign currency and then
translated into U.S. dollars at the applicable foreign
exchange rate for inclusion in the Company's interim
consolidated financial statements. Accordingly, the
results of operations of such subsidiaries as reported in
U.S. dollars can vary as a result of changes in currency
exchange rates. Specifically, a strengthening of the U.S.
dollar versus other currencies reduces net sales and
earnings as translated into U.S. dollars while a weakening
of the U.S. dollar has the opposite effect.
Swiss franc-denominated costs represent a much greater
percentage of the Company's total expenses than Swiss franc-
denominated sales represent of total sales. In general, an
appreciation of the Swiss franc versus the Company's other
major trading currencies, especially the principal European
currencies, has a negative impact on the Company's results
of operations and a depreciation of the Swiss franc versus
the Company's other major trading currencies, especially
the principal European currencies, has a positive impact on
the Company's results of operations. The effect of these
changes generally offsets in part the translation effect on
earnings before interest and taxes of changes in exchange
rates between the U.S. dollar and other currencies
described in the preceding paragraph.
Cautionary Statement
Statements in this discussion which are not historical
facts may be considered forward looking statements within
the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. The words "believe," "expect,"
"anticipate" and similar expressions identify forward
looking statements. Any forward looking statements involve
risks and uncertainties that could cause actual events or
results to differ, perhaps materially, from the events or
results described in the forward looking statements.
Readers are cautioned not to place undue reliance on these
forward looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly
update or revise any forward looking statements, whether as
a result of new information, future events or otherwise.
Risks associated with the Company's forward looking
statements include, but are not limited to, risks
associated with the Company's international operations,
such as currency fluctuations, the risk of new and
different legal and regulatory requirements, governmental
approvals, tariffs and trade barriers; risks associated
with competition and technological innovation by
competitors; general economic conditions and conditions in
industries that use the Company's products, especially the
pharmaceutical and chemical industries, and risks
associated with the Company's growth strategy, including
investments in emerging markets. For a more detailed
discussion of these factors, see the Mettler-Toledo Holding
annual report on Form 10-K for the year ended December 31,
1996.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schdule
(b) Reports on Form 8-K - During the quarter
ended June 30, 1997 the Registrant filed one
report on Form 8-K dated May 30, 1997 announcing
the acquisition of Safeline Limited and the
refinancing of its Credit Agreement.
SIGNATURE
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 thereto duly authorized.
Mettler-Toledo Holding Inc.
Date: August 14, 1997 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President, Chief
Financial Officer and
Treasurer
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