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 0-22493
MT Investors Inc.
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3668641
------------------------------- ---------------------------------
(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 (Zip Code)
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 1,898,795 and 537,453 shares of Class A and Class C
Common Stock outstanding at September 30, 1997, respectively.
MT INVESTORS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MT INVESTORS 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 5
Interim Consolidated Statements of Operations for the three months
ended September 30, 1996 and 1997 6
Interim Consolidated Statements of Changes in Net Assets /
Shareholders' Equity (Deficit) for the nine months ended
September 30, 1996 and 1997 7
Interim Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997 9
Notes to the Interim Consolidated Financial Statements 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 22
ITEM 3. DEFAULT UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
Signature 23
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MT INVESTORS 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 $ 33,158
Trade accounts receivable, net 151,161 148,826
Inventories 102,526 106,129
Deferred taxes 7,565 10,956
Other current assets 17,268 21,975
-------- --------
Total current assets 339,216 321,044
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 $768,177
======== ========
MT INVESTORS INC.
INTERIM CONSOLIDATED BALANCE SHEETS - (CONTINUED)
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR SUCCESSOR
--------- ---------
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED)
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, $0.01 par value per share:
Class A non-voting, authorized
2,233,117 shares at December 31, 1996
and 2,235,896 at September 30, 1997;
issued 1,899,779 at December 31, 1996
and 1,898,795 (excluding 3,984 shares
held in treasury) at September 30, 1997 19 19
Class B voting, authorized 1,000 shares;
issued 1,000 at December 31, 1996 and
September 30, 1997 1 1
Class C non-voting, authorized 541,859
shares; issued 537,735 at December 31,
1996 and 537,453 (excluding 1,139
shares held in treasury) at September
30,1997 5 5
Additional paid-in capital 188,084 187,986
Accumulated deficit (159,046) (195,617)
Currency translation adjustment (16,637) (28,655)
-------- --------
Total shareholders' equity (deficit) 12,426 (36,261)
-------- --------
Total liabilities and shareholders'
equity (deficit) $771,888 $768,177
======== ========
See the accompanying notes to the interim consolidated financial
statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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)
======== ========
Loss per common share:
Weighted average number
of common shares 32,333,344
Loss per common share before
extraordinary item $(0.84)
Extraordinary item $(0.29)
--------
Loss per common share $(1.13)
========
See the accompanying notes to the interim consolidated financial
statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 5,282 2,802
Provision for taxes 2,071 2,959
Minority interest 82 127
-------- --------
Net earnings (loss) $3,129 $(284)
======== ========
Loss per common share:
Weighted average number
of common shares 32,333,344
Loss per common share $ (0.01)
========
See the accompanying notes to the interim consolidated financial
statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS /
SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR
------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
-------- ---------- -----
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
======= ======= ========
See the accompanying notes to the interim consolidated financial
statements
<TABLE>
<CAPTION>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS / SHAREHOLDERS' EQUITY (DEFICIT) - (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR
---------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------
COMMON STOCK
--------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL CURRENCY
---------------- ---------------- ---------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 1,899,779 $ 19 1,000 $ 1 537,735 $ 5 $ 188,084 $ (159,046) $ (16,637) $ 12,426
New issuance of shares 3,000 - - - 857 - 300 - - 300
Net loss - - - - - - - (36,571) - (36,571)
Change in currency
translation adjustment - - - - - - - - (12,018) (12,018)
Purchase of
treasury stock (3,984) - - - (1,139) - (398) - - (398)
------- ------ ------ ------ ------- ------ --------- ----------- ---------- ---------
Balance at
September 30, 1997 1,898,795 $ 19 1,000 $ 1 537,453 $ 5 $ 187,986 $ (195,617) $ (28,655) $(36,261)
========= ====== ===== ====== ======= ====== ========= ========== ========= ========
See the accompanying notes to the interim consolidated financial statements
</TABLE>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
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) (3,404)
Trade accounts payable (3,525) (7,344)
Accruals and other liabilities, net 49,408 25,987
-------- --------
Net cash provided by operating
activities 57,924 30,276
-------- --------
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)
Proceeds from issuance of common stock -- 300
Purchase of treasury stock -- (398)
Ciba and affiliates repayments (26,589) --
Capital transactions with Ciba
and affiliates (7,716) --
-------- --------
Net cash provided by (used)
in financing activities (47,769) 25,167
-------- --------
Effect of exchange rate changes
on cash and cash equivalents (1,879) (4,008)
-------- --------
Net decrease in cash and cash
equivalents (8,324) (27,538)
Cash and cash equivalents:
Beginning of period 41,402 60,696
-------- --------
End of period $33,078 $33,158
======== ========
See the accompanying notes to the interim consolidated financial
statements
MT INVESTORS 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 MT Investors Inc. ("MT
Investors"). MT Investors was incorporated by AEA Investors Inc.
("AEA") in December 1991. It was recapitalized to effect the
acquisition of the Mettler-Toledo Group from Ciba-Geigy AG ("Ciba")
and its wholly owned subsidiary, AG fur Prazisionsinstrumente ("AGP").
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. Between the date of formation and October
15, 1996, MT Investors had no substantive operations.
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 MT
Investors 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 MT Investors registration
statement on Form 10 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.
LOSS PER COMMON SHARE
Loss per common share has been computed using the treasury stock
method based upon the weighted average number of common shares,
including common share equivalents, outstanding during the Successor
period. Common share equivalents result from outstanding options to
purchase common stock. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, all common shares and common share
equivalents issued and options granted by the Company at a price less
than the proposed initial public offering price during the twelve months
preceding the initial filing of the Registration Statement (See Note
3) have been included in the loss per common share calculation as if
they were outstanding during the period presented.
STOCK OPTION PLAN
At September 30, 1997, the Company has outstanding 281,078
options to purchase the Company's Class A common stock at a per share
average price of $100.00. After giving effect to the Reorganization
(See Note 3), the Company has outstanding 3,537,063 options to
purchase common stock at a per share average price of $7.95
3. SUBSEQUENT EVENTS
REORGANIZATION
The Company has filed a Registration Statement on Form S-1 to
register shares of its Common Stock for issuance in a proposed public
offering (the "Offerings"). In connection with the Offerings, the
Company plans to undertake certain transactions pursuant to which (i)
Mettler-Toledo Holding, Inc. will be merged with and into MT Investors
(the "Merger"), with MT Investors being the surviving corporation,
(ii) as part of the Merger, MT Investors will convert each share of
its existing Class A, Class B and Class C common stock, into 12.58392
shares of Common Stock and (iii) MT Investors will change its name to
Mettler-Toledo International Inc. The foregoing transactions are
referred to as the "Reorganization."
The following table presents the Company's actual shareholders'
equity at September 30, 1997 and pro forma shareholders' equity at
such date after giving effect to the Reorganization. Concurrent with
the Reorganization, the Company will increase its authorized shares of
Common Stock to 125,000,000 shares.
<TABLE>
<CAPTION>
Actual Pro Forma
<S> <C> <C>
Shareholders' deficit:
Common stock, $0.01 par value per share
Class A non-voting, authorized 2,235,896 shares; issued 1,898,795 (excluding
3,984 shares held in treasury) $ 19 --
Class B voting, authorized 1,000 shares; issued 1,000 1 --
Class C non-voting, authorized 541,859 shares; issued 537,453 (excluding 1,139
shares held in treasury) 5
Common Stock, authorized 125,000,000 shares; issued 30,670,134 (excluding
64,467 shares held in treasury) on a pro forma basis -- 307
Additional paid-in capital 187,986 187,704
Accumulated deficit (195,617) (195,617)
Currency translation adjustment (28,655) (28,655)
----------- ----------
Total shareholders' deficit $ (36,261) $ (36,261)
=========== ==========
</TABLE>
Stock Option Plan
In October 1997, the Company granted, under its stock option
plan, 57,300 options to purchase the Company's Class A common stock at
a price of $200 per share. After giving effect to the Reorganization,
the total number of options granted in October 1997 is 721,059 at a
per share average price of $15.89.
Preferred Stock
In connection with the Offerings, the Board of Directors, without
further shareholder authorization, will be authorized to issue up to
10 million shares of preferred stock, par value $0.01 per share (the
"Preferred Stock") in one or more series and to determine and fix the
rights, preferences and privileges of each series, including dividend
rights and preferences over dividends on the Common Stock and one or
more series of the Preferred Stock, conversion rights, voting rights
(in addition to those provided by law), redemption rights and the
terms of any sinking fund therefor, and rights upon liquidation,
dissolution or winding up, including preferences over the Common Stock
and one or more series of the Preferred Stock. Although the Company
has no present plans to issue any shares of Preferred Stock following
the consummation of the Offerings, the issuance of shares of Preferred
Stock, or the issuance of rights to purchase such shares, may have the
effect of delaying, deferring or preventing a change in control of the
Company or an unsolicited acquisition proposal.
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 MT Investors Inc. ("MT
Investors"). MT Investors was incorporated by AEA Investors Inc.
("AEA") in December 1991. It was recapitalized to effect the
acquisition of the Mettler-Toledo Group from Ciba-Geigy AG ("Ciba")
and its wholly owned subsidiary, AG fur Prazisionsinstrumente ("AGP").
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. Between the date of formation and October
15, 1996, MT Investors had no substantive operations.
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 MT
Investors 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 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, subject to post closing adjustment, 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. 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 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. The Company also
estimates that it will receive, after 1998, upon the sale of the two
facilities which the Company owns 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 oparating results had the effect 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 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 the Offerings.
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."
In connection with the Offerings, 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
$30.3 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 $452.4
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 MT Investors
Inc. registration statement on Form 10 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
In April 1997, the Company issued 3,000 shares of Class A Common
Stock for an aggregate consideration of $300,000 and 857 shares of
Class C Common stock for an aggregate consideration of approximately
$26. The shares were offered and sold to an executive officer of the
Company in reliance on Rule 506 of Regulation D under the Securities
Act.
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 - None
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.
MT Investors Inc.
Date: October 23, 1997 By:/s/ William P. Donnelly
-----------------------
William P. Donnelly
Vice President, Chief
Financial Officer and
Treasurer
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