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
SEPTEMBER 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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3900409
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8608 Greifensee, Switzerland
--------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
41-1-944-22-11
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(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
September 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 September 30, 1997 3
Interim Consolidated Statements of Operations
for the nine months ended September 30, 1996
and 1997 4
Interim Consolidated Statements of Operations
for the three months ended September 30, 1996
and 1997 5
Interim Consolidated Statements of Changes in Net
Assets / Shareholders' Equity (Deficit) for the
nine months ended September 30, 1996 and 1997 6
Interim Consolidated Statements of Cash Flows for
the nine months ended September 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
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULT UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signature 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR SUCCESSOR
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $60,696 $32,858
Trade accounts receivable, net 151,161 148,826
Inventories 102,526 106,129
Deferred taxes 7,565 10,956
Other current assets 17,268 22,373
-------- --------
Total current assets 339,216 321,142
Property, plant and equipment, net 255,292 233,480
Excess of cost over net assets acquired, net 135,490 181,902
Long-term deferred taxes 3,916 4,825
Other assets 37,974 26,926
-------- --------
Total assets $771,888 $768,275
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $32,797 $27,226
Accrued and other liabilities 115,314 135,096
Taxes payable 17,580 27,940
Deferred taxes 9,132 8,621
Bank and other loans 80,446 56,559
-------- --------
Total current liabilities 255,269 255,442
Long-term debt due to third parties 373,758 429,033
Long-term deferred taxes 30,467 26,001
Other long-term liabilities 96,810 90,307
-------- --------
Total liabilities 756,304 800,783
Minority interest 3,158 3,655
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) (195,617)
Currency translation adjustment (16,637) (28,655)
-------- --------
Total shareholders' equity (deficit) 12,426 (36,163)
-------- --------
Total liabilities and shareholders'
equity (deficit) $771,888 $768,275
======== ========
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $624,733 $633,743
Cost of sales 374,121 359,080
--------- ---------
Gross profit 250,612 274,663
Research and development 37,930 34,494
Selling, general and administrative 175,645 189,594
Amortization 2,038 4,449
Purchased research and development -- 29,959
Interest expense 12,579 28,199
Other charges (income), net (226) 7,316
--------- ---------
Earnings (loss) before taxes,
minority interest and extraordinary
item 22,646 (19,348)
Provision for taxes 8,901 7,296
Minority interest 609 375
--------- ---------
Earnings (loss) before extraordinary
item 13,136 (27,019)
Extraordinary item - debt extinguishment -- (9,552)
--------- ---------
Net earnings (loss) $13,136 $(36,571)
========= =========
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
SEPTEMBER 30, SEPTEMBER, 30
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $200,931 $215,929
Cost of sales 121,918 121,564
--------- --------
Gross profit 79,013 94,365
Research and development 12,876 12,050
Selling, general and administrative 55,113 63,243
Amortization 768 2,116
Interest expense 4,233 9,029
Other charges, net 741 5,125
--------- --------
Earnings before taxes and
minority interest and extraordinary
item 5,282 2,802
Provision for taxes 2,071 2,959
Minority interest 82 127
--------- --------
Net earnings (loss) $3,129 $(284)
========= ========
See the accompanying notes to the interim consolidated financial statements
<TABLE>
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN NET
ASSETS / SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
<CAPTION>
PREDECESSOR
-------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 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 (88,404) -- (88,404)
Net earnings 13,136 -- 13,136
Change in currency translation adjustment -- (6,301) (6,301)
-------- ------- --------
Net assets at September 30, 1996 $87,336 $24,349 $111,685
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
-------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 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 -- -- (36,571) -- (36,571)
Change in currency
translation adjustment -- -- -- (12,018) (12,018)
------------- --------------- ---------------- ---------------- ---------------
Balance at September 30, 1997 $1 $188,108 $(195,617) $(28,655) $(36,163)
============= =============== ================ ================ ===============
See the accompanying notes to the interim consolidated financial statements
</TABLE>
<TABLE>
METTLER-TOLEDO HOLDING INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
<CAPTION>
PREDECESSOR SUCCESSOR
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $13,136 $(36,571)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation 18,630 17,784
Amortization 2,038 4,449
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 (768) (126)
Deferred taxes (1,211) (6,804)
Minority interest 272 375
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 9,707 (920)
Inventories (502) (4,715)
Other current assets (29,261) (3,802)
Trade accounts payable (3,525) (7,344)
Accruals and other liabilities, net 49,408 25,987
-------- --------
Net cash provided by operating activities 57,924 29,878
-------- --------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 1,254 15,913
Purchase of property, plant and equipment (14,985) (13,299)
Purchase of Safeline Limited, net of seller financing -- (74,908)
Investments in other long term assets, net (2,869) (6,679)
-------- --------
Net cash used in investing activities (16,600) (78,973)
-------- --------
Cash flows from financing activities:
Borrowings of third party debt -- 314,657
Repayments of third party debt (13,464) (289,392)
Ciba and affiliates repayments (26,589) --
Capital transactions with Ciba and affiliates (7,716) --
-------- --------
Net cash provided by (used in) financing activities (47,769) 25,265
-------- --------
Effect of exchange rate changes
on cash and cash equivalents (1,879) (4,008)
-------- --------
Net decrease in cash and cash
equivalents (8,324) (27,838)
Cash and cash equivalents:
Beginning of period 41,402 60,696
-------- --------
End of period $33,078 $32,858
======== ========
See the accompanying notes to the interim consolidated financial statements
</TABLE>
METTLER-TOLEDO HOLDING INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands 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 September 30, 1997 and
for the nine and three month periods ended September 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 nine months ended
September 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 previous credit
facility and entered into the Company's current credit facility
(the "Credit Agreement"). The Credit Agreement provides for term
loan borrowings in an aggregate principal amount of approximately
$133.8 million, SFr 171.5 million and (pound)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 $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, United Kingdom, for approximately (pound)61.0
million (approximately $100.0 million) plus up to an additional
(pound)6.0 million ($10.0 million) for a contingent earn-out
payment. In October 1997, the Company made an additional payment,
representing a post-closing adjustment, of (pound)1.9 million
(approximately $3.1 million at October 3, 1997). Such amount will
be accounted for as additional purchase price. Under the terms of
the agreement the Company paid approximately (pound)47.3 million
($77.4 million) of the purchase price in cash, provided by amounts
loaned under its Credit Agreement, with the remaining balance of
approximately (pound)13.7 million ($22.4 million) paid in the
form of seller loan notes which mature May 30, 1999. These notes
when retired will be reflected in the consolidated statement of
cash flows as an investing activity. 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 $30.0 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. In addition, the Company allocated approximately $2.1
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 $62.0 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.
RESTRUCTURING CHARGE
In September 1997, the Company recorded a restructuring charge of
approximately $3.3 million. The Company expects to recognize an
additional restructuring charge of approximately $3.0 million
during the fourth quarter ending December 31, 1997 for
restructuring activities not initiated until October of this
year. Both charges are in connection with the closure of three
facilities in North America and are comprised primarily of
severance and other related benefits and costs of exiting
facilities, including lease termination costs and write-down of
existing assets to their expected net realizable value. The
Company expects these actions will be completed in 1998 and that
the two owned facilities will be sold after that period. In
connection with the closure of these facilities, the Company
expects to involuntarily terminate approximately 70 employees.
The Company is undertaking these actions as part of its efforts
to reduce costs through reengineering. When complete, these
actions will enable the Company to close certain operations
and realize cost savings estimated at approximately $2.5 million
on an annual basis.
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's
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 companies in the U.S.
use the last in, first out (LIFO) cost method.
Inventories consisted of the following at December 31, 1996 and
September 30, 1997:
December 31, September 30,
1996 1997
--------------- ---------------
Raw materials and parts $41,015 $41,843
Work in progress 31,534 33,206
Finished goods 29,982 31,204
--------------- ---------------
102,531 106,253
LIFO reserve (5) (124)
--------------- ---------------
$102,526 $106,129
=============== ===============
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 $150.0 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 $100.0 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%.
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%.
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.
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 NINE MONTHS ENDED
--------- ---------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Mettler-Toledo, Inc.:
Current assets $339,216 NA $321,142
Non-current assets 432,672 NA 447,133
Current liabilities 255,269 NA 255,442
Non-current liabilities 501,035 NA 545,341
Minority interest 3,158 NA 3,655
Shareholders' equity (deficit) 12,426 NA (36,163)
Net sales NA 624,733 633,743
Gross profit NA 250,612 274,663
Earnings (loss) from continuing operations
before extraordinary item NA 13,136 (27,019)
Net earnings (loss) NA 13,136 (36,571)
NA = Not Applicable
</TABLE>
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.
GENERAL
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.
Financial information is presented in accordance with United
States generally accepted accounting principles ("U.S. GAAP").
Operating results for the nine and three months ended September
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 previous credit
facility and entered into the Company's current 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, was (pound)61.0 million (approximately
$100.0 million), plus up to an additional (pound)6.0 million
($10.0 million) for a contingent earn-out payment. In October
1997, the Company made an additional payment, representing a
post-closing adjustment, of (pound)1.9 million (approximately
$3.1 million at October 3, 1997). Such amount will be accounted
for as additional purchase price. 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
amounts loaned under its Credit Agreement with the remaining
amounts provided by (pound)13.7 million ($22.4 million) in loan
notes to be retained by the sellers. See "Liquidity and Capital
Resources".
In September, 1997, the Company recorded a restructuring charge
of approximately $3.3 million. The Company expects to recognize
an additional restructuring charge of approximately $3.0 million
during the fourth quarter ending December 31, 1997 for
restructuring activities not initiated until October of this
year. Both charges are in connection with the closure of three
facilities in North America and are comprised primarily of
severance and other related benefits and costs of exiting
facilities, including lease termination costs and write-down of
existing assets to their expected net realized value. The Company
expects these actions will be completed in 1998 and that the two
owned facilities will be sold after that period. In connection
with the closure of these facilities, the Company expects to
involuntarily terminate approximately 70 employees. The Company
is undertaking these actions as part of its efforts to reduce
costs through reengineering. When complete, these actions will
enable the Company to close certain operations and realize cost
savings estimated at approximately $2.5 million on an annual
basis. The Company also estimates that it will receive, after
1998, upon the sale of the two owned facilities proceeds in
excess of $5.0 million. The Company believes that the fair market
value of these facilities approximates their respective book
values.
RESULTS OF OPERATIONS
Net sales were $633.7 million for the nine months ended September
30, 1997 compared to $624.7 million for the corresponding period
in the prior year, an increase of 1%. Results were negatively
impacted by the strengthening of the U.S. dollar against other
currencies. Net sales in local currencies during the nine-month
period increased 8% (6% absent the Safeline Acquisition).
Net sales in local currencies during the nine months ended
September 30, 1997 in Europe increased 2% versus the
corresponding period in the prior year. Weak European economies
adversely affected sales to industrial customers. Net sales in
local currencies during the nine-month period in the Americas
increased 8% principally due to improved market conditions for
sales to industrial and food retailing customers. Net sales in
local currencies in the nine-month period in Asia and other
markets increased 31%, primarily as a result of the establishment
of additional direct marketing and distribution in the region.
Net sales were $215.9 million for the three months ended
September 30, 1997, compared to $200.9 million for the
corresponding period in 1996, an increase of 7%. Results were
adversely impacted by the strengthening of the U.S. dollar against
other currencies. Net sales in local currencies during the
three-month period increased 16% (10% absent the Safeline
Acquisition).
The operating results for Safeline (which were included in the
Company's results from May 31, 1997) had the effect of increasing
the Company's net sales by $15.7 million for the nine months
ended September 30, 1997. Additionally, Safeline's operating
results had the affect of increasing the Company's Adjusted
Operating Income (gross profit less research and development and
selling, general and administrative expenses before amortization
and non-recurring costs) by $4.3 million for the same period. The
Company recorded non-cash purchase accounting adjustments for
purchased research and development ($30.0 million) and the sale
of inventories revalued to fair value ($2.1 million) during such
period. For the three-month period, Safeline contributed $11.9
million in net sales and $3.3 million in Adjusted Operating
Income.
Gross profit before non-recurring costs as a percentage of net
sales increased to 43.7% for the nine months ended September 30,
1997, compared to 40.1% for the corresponding period in the prior
year. Gross profit in the 1997 period includes the previously
noted $2.1 million non-cash charge associated with the excess of
the fair value over the historic value of inventory acquired in
the Safeline Acquisition. Including this charge, the gross profit
percentage for the nine-month period is 43.3%. The improved gross
profit percentage reflects 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.
Gross profit as a percentage of net sales increased to 43.7% for
the three months ended September 30, 1997, compared to 39.3% for
the corresponding period in the prior year.
Research and development expenses as a percentage of net sales
decreased to 5.4% for the nine months ended September 30, 1997,
compared to 6.1% 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 5.6% for the three months ended September 30, 1997,
compared to 6.4% for the corresponding period in the prior year.
Selling, general and administrative expenses as a percentage of
net sales increased to 29.9% for the nine months ended September
30, 1997, compared to 28.1% for the corresponding period in the
prior year. This increase is primarily a result of establishing
additional direct marketing and distribution in Asia.
Selling, general and administrative expenses as a percentage of
sales increased to 29.3% for the three months ended September 30,
1997, compared to 27.4% for the corresponding period in the prior
year.
Adjusted Operating Income was $52.6 million, or 8.3% of sales,
for the nine months ended September 30, 1997 compared to $37.0
million, or 5.9% of sales, for the nine months ended September
30, 1996, an increase of 42%. The 1997 period excludes
non-recurring costs of $2.1 million for the revaluation of
inventories to fair value in connection with the Safeline
Acquisition.
Adjusted Operating Income was $19.1 million, or 8.8% of net
sales, for the three-month period ended September 30, 1997,
compared to $11.0 million, or 5.5% of net sales, for the three
months ended September 30, 1996, an increase of 73%.
As previously noted, in connection with the Safeline Acquisition,
$30.0 million of the purchase price was attributed to purchased
research and development in process. Such amount was expensed
immediately following the Safeline Acquisition. 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.
Interest expense increased to $28.2 million for the nine months
ended September 30, 1997, compared to $12.6 million for the
corresponding period in the prior year. The increase was
principally due to additional Acquisition related debt.
Interest expense increased to $9.0 million for the three months
ended September 30, 1997, compared to $4.2 million for the
corresponding prior period. The higher interest expense is
principally due to higher debt levels due to the Acquisition and
the Safeline Acquisition.
Other charges, net of $7.3 million for the nine months ended
September 30, 1997 compared to other income, net of $0.2 million for
the corresponding period in the prior year. Such decrease is
principally a result of a $3.3 million restructuring charge to
consolidate three facilities in North America and the related
involuntary terminations, as well as lower interest income and an
increase in foreign currency losses.
Other charges, net for the three months ended September 30, 1997
includes the $3.3 million charge previously discussed to
consolidate three facilities in North America, while the
corresponding period in 1996 included a $1.5 million charge in
connection with the closure of the Westerville, Ohio plant.
The provision for taxes is based upon the Company's projected
annual effective tax rate for the related period before
non-recurring acquisition and restructuring adjustments, such
adjustments are then tax affected at the marginal tax rate in the
period in which they occur. The increase in effective tax rate
from September 30, 1996 to September 30, 1997 is due to
additional non-tax deductible goodwill and the Company's
estimated earning levels.
The net loss before the extraordinary item of $27.0 million for
the nine months ended September 30, 1997 compared to net earnings
of $13.1 million for the corresponding period in the prior year.
Excluding the previously noted non-recurring charges for
purchased research and development, the revaluation of
inventories to fair value and the restructuring of its North
American operations, net earnings would have been $7.6 million
for the nine months ended September 30, 1997. Such lower earnings
in the 1997 period are principally the result of higher interest
expense due to Acquisition related debt which more than offset
higher Adjusted Operating Income.
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 $0.3 million for the three months ended September
30, 1997 compared to net earnings of $3.1 million for the
corresponding period of the prior year. Excluding the
restructuring charge for the consolidation of three facilities in
North America, net earnings for the 1997 period would have been
$3.0 million. Similar to the nine-month period, the lower
earnings, even after adjusting for the restructuring charge,
result principally from increased Adjusted Operating Income more
than offset by a high interest expense burden due to acquisition
related debt.
LIQUIDITY AND CAPITAL RESOURCES
The Acquisition was financed principally through capital
contributions of $190.0 million before related expenses from the
Company, borrowings under the Credit Agreement of $307.0 million
and the issuance of 9 3/4% Senior Subordinated Notes due 2006 of
$135.0 million. The Safeline Acquisition was financed by
(pound)47.3 million ($77.4 million at May 30, 1997) loaned under
the Credit Agreement together with the issuance of (pound)13.7
million ($22.4 million at May 30, 1997) of seller loan notes
which mature May 30, 1999.
Prior to the Acquisition, the Company's cash and other liquidity
was used principally to fund capital expenditures, working
capital requirements, debt service and dividends to Ciba.
Following the Acquisition and the Safeline Acquisition, the
annual interest expense associated with the borrowings under the
Credit Agreement and the Notes, as well as scheduled principal
payments of term loans under the Credit Agreement, have
significantly increased the Company's liquidity requirements.
The Credit Agreement provides for term loan borrowings in an
aggregate principal amount of approximately $133.8 million, SFr
171.5 million and (pound)26.7 million that are scheduled to
mature in 2002 and 2004, a Canadian revolver with availability of
CDN $26.3 million (approximately CDN $20.9 million of which has
been drawn as of September 30, 1997) which is scheduled to mature
in 2002, and a multi-currency revolving credit facility with
availability of $151.0 million (approximately $26.7 million of
which has been drawn as of September 30, 1997), which is
scheduled to mature in 2002. The Company had borrowed $312.6
million under the Credit Agreement as of September 30, 1997.
Under the Credit Agreement, amounts outstanding under the loans
amortize in quarterly installments. In addition, the Credit
Agreement obligates the Company to make mandatory prepayments 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 covenants. The
Credit Agreement is secured by certain assets of the Company.
In connection with the Company's refinancing on May 29, 1997 of
its previous credit facility, 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
previous credit facility.
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 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.
The Company has commenced a tender offer for all of the Notes,
and all of the Notes have been irrevocably tendered. In
connection with the tender offer, the Company has obtained the
requisite consents to remove substantially all of the restrictive
covenants and certain other provisions from the Indenture
governing the Notes. The tender offer and consent solicitation
are conditioned upon the Company's completion of an initial
public offering (the "Offerings") of its Common Stock.
Under the Credit Agreement and the Indenture, Mettler-Toledo,
Inc. is prohibited from paying dividends to Mettler-Toledo
Holding Inc., subject to certain limited exceptions.
Mettler-Toledo, Inc's obligations under the Credit Agreement and
Notes are guaranteed by Mettler-Toledo Holding Inc.
At September 30, 1997 approximately $128.5 million of the
borrowings under the Credit Agreement and all of the borrowings
under the Notes were denominated in U.S. dollars. The balance of
the borrowings under the Credit Agreement and under local working
capital facilities were denominated in certain of the Company's
other principal trading currencies. At September 30, 1997, the
Company had $222.9 million of other long-term debt incurred by
its various operating subsidiaries primarily denominated in
various currencies. Changes in exchange rates between the
currencies in which the Company generates cash flow and the
currencies in which its borrowings are denominated will affect
the Company's liquidity. See "Effect of Currency on Results of
Operations."
The Company intends to refinance the Credit Agreement by entering
into the New Credit Agreement. The Company expects that it will
have pro forma borrowings under the New Credit Agreement of
$383.9 million (representing an increase of $71.3 million) as of
September 30, 1997 and borrowings of $38.0 million under various
other credit arrangements. Of the borrowings under the New Credit
Agreement, $200.0 million will be term loans and the remainder
will be outstanding under a revolving credit facility. The
Company's revolving credit facility commitment will increase from
$170.0 million to $420.0 million under the New Credit Agreement,
and this commitment will include a $100.0 million acquisition
facility. Increased borrowings under the New Credit Agreement and
the net proceeds from the Offerings will be used, to repurchase
the Notes and to pay related premiums and fees and expenses.
The Company's cash provided by operating activities decreased
from $57.9 million in the nine months ended September 30, 1996 to
$29.9 million in the nine months ended September 30, 1997. The
decline resulted principally from higher interest costs resulting
from the Acquisition and the Safeline Acquisition.
At September 30, 1997, consolidated debt, net of cash, was $452.7
million.
The Company continues to explore potential 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.
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,
including estimated cost savings to be realized from restructuring
activities and estimated proceeds from and timing of facility
sales. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK Not applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has received a Notice of Proposed Adjustment from the
Internal Revenue Service disallowing $20.4 million of
intercompany interest deductions taken by the Company in its 1994
and 1995 tax returns when the Company was a subsidiary of Ciba.
The Company is indemnified under the acquisition agreement with
Ciba against any loss that may arise from the proposed
adjustment. However, the Company believes that such deductions
were properly made and intends to assist Ciba in contesting the
proposed adjustment.
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 Schedule - attached
(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: October 23, 1997 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President, Chief
Financial Officer and
Treasurer
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