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 MARCH 31, 1999, OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
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Commission File Number 1-13595
Mettler-Toledo International Inc.
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(Exact name of registrant as specified in its
charter)
Delaware 13-3668641
(State or other jurisdiction of (IRS Employer Identification No.)
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Incorporation or organization)
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Im Langacher, P.O. Box MT-100
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CH 8606 Greifensee, Switzerland
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(Address of principal executive offices) (Zip Code)
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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 38,400,363 shares of Common Stock outstanding at March 31,
1999.
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METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of March 31, 1999 3
and December 31, 1998
Interim Consolidated Statements of Operations for the three 4
months ended March 31, 1999 and 1998
Interim Consolidated Statements of Shareholders' Equity 5
for the three months ended March 31, 1999 and 1998
Interim Consolidated Statements of Cash Flows for the three 6
months ended March 31, 1999 and 1998
Notes to the Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Security 18
Item 3. Default upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of March 31, 1999 and December 31, 1998
(In thousands, except per share data)
March 31, December 31,
1999 1998
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $16,293 $21,191
Trade accounts receivable, net 174,878 178,525
Inventories, net 111,388 112,059
Other current assets and prepaid expenses 28,062 46,455
---------- ----------
Total current assets 330,621 358,230
Property, plant and equipment, net 209,974 230,264
Excess of cost over net assets acquired, net 206,167 213,772
Other assets 18,655 18,175
---------- ----------
Total assets $765,417 $820,441
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $47,403 $58,740
Accrued and other liabilities 99,924 91,049
Accrued compensation and related items 35,625 45,906
Taxes payable 33,498 51,302
Short-term borrowings and current maturities
of long-term debt 46,680 46,432
---------- ----------
Total current liabilities 263,130 293,429
Long-term debt 310,589 340,246
Non-current deferred taxes 23,512 25,566
Other non-current liabilities 100,107 103,201
---------- ----------
Total liabilities 697,338 762,442
Minority interest 4,300 4,164
Shareholders' equity:
Preferred stock, $0.01 par value per share;
authorized 10,000,000 shares - -
Common stock, $0.01 par value per share;
authorized 125,000,000 shares;
issued 38,400,363 shares
(excluding 64,467 shares held in treasury) 384 384
Additional paid-in capital 285,161 285,161
Accumulated deficit (178,462) (186,527)
Accumulated other comprehensive loss (43,304) (45,183)
---------- ----------
Total shareholders' equity 63,779 53,835
Commitments and contingencies
---------- ----------
Total liabilities and shareholders' equity $765,417 $820,441
========== ==========
The accompanying notes are an integral part of these interim consolidated
financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 1999 and 1998
(In thousands, except per share data)
March 31, March 31,
1999 1998
---- ----
(unaudited) (unaudited)
Net sales $235,715 $215,655
Cost of sales 130,488 121,048
---------- ----------
Gross profit 105,227 94,607
Research and development 12,755 10,795
Selling, general and administrative 70,384 65,112
Amortization 2,535 1,818
Interest expense 5,576 5,879
Other charges, net 917 454
---------- ----------
Earnings before taxes and minority interest 13,060 10,549
Provision for taxes 4,860 3,692
Minority interest 135 19
---------- ----------
Net earnings $ 8,065 $ 6,838
========== ==========
Basic earnings per common share:
Net earnings $0.21 $0.18
Weighted average number of common shares 38,400,363 38,336,014
Diluted earnings per common share:
Net earnings $0.20 $0.17
Weighted average number of common shares 41,082,017 40,600,109
The accompanying notes are an integral part of these interim consolidated
financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three months ended March 31, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock Accumulated
All Classes Additional Other
--------------------- Paid-in Accum. Comprehensive
Shares Amount Capital Deficit Loss Total
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 38,400,363 $384 $285,161 $(186,527) $(45,183) $53,835
Comprehensive income:
Net earnings - - - 8,065 - 8,065
Change in currency
translation adjustment - - - - 1,879 1,879
----------
Comprehensive income 9,944
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 38,400,363 $384 $285,161 $(178,462) $(43,304) $63,779
========== ========== ========== ========== =========== ==========
Balance at December 31, 1997 38,336,014 $383 $284,630 $(224,152) $(35,462) $25,399
Comprehensive income:
Net earnings - - - 6,838 - 6,838
Change in currency
translation adjustment - - - - 1,689 1,689
----------
Comprehensive income 8,527
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 38,336,014 $383 $284,630 $(217,314) $(33,773) $33,926
========== ========== ========== ========== =========== ==========
The accompanying notes are an integral part of these interim consolidated
financial statements.
</TABLE>
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<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 1998
(In thousands)
March 31, March 31,
1999 1998
---- ----
(unaudited) (unaudited)
Cash flow from operating activities:
Net earnings $8,065 $6,838
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 6,313 5,877
Amortization 2,535 1,818
Net gain on disposal of property,
plant and equipment (3,293) (2,142)
Deferred taxes (565) (611)
Minority interest 135 19
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable, net (3,862) (164)
Inventories (3,962) (1,121)
Other current assets (314) (2,247)
Trade accounts payable (9,972) (6,729)
Accruals and other liabilities, net 8,612 10,623
---------- ----------
Net cash provided by operating activities 3,692 12,161
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 9,176 12,183
Purchase of property, plant and equipment (5,090) (7,417)
Acquisitions (516) (2,573)
---------- ----------
Net cash provided by investing activities 3,570 2,193
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 4,774 3,447
Repayments of borrowings (16,485) (19,922)
---------- ----------
Net cash used in financing activities (11,711) (16,475)
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (449) (142)
---------- ----------
Net decrease in cash and cash equivalents (4,898) (2,263)
Cash and cash equivalents:
Beginning of period $21,191 $23,566
---------- ----------
End of period $16,293 $21,303
========== ==========
The accompanying notes are an integral part of these interim consolidated
financial statements.
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<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands unless otherwise stated)
1. BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler Toledo" or the "Company")
is a global manufacturer and marketer of precision instruments, including
weighing and certain analytical and measurement technologies, for use in
laboratory, industrial and food retailing applications. The Company's primary
manufacturing facilities are located in Switzerland, the United States, Germany,
the United Kingdom and China. The Company's principal executive offices are
located in Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("U.S. GAAP"). The interim consolidated financial
statements 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 interim consolidated
financial statements as of March 31, 1999 and for the three month periods ended
March 31, 1999 and 1998 should be read in conjunction with the December 31, 1998
and 1997 consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The accompanying 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 three months ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1999.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ from those
estimates.
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
methods and to a lesser extent the last in, first out (LIFO) method.
Inventories consisted of the following at March 31, 1999 and December
31, 1998:
March 31, December 31,
1999 1998
------------- -------------
Raw materials and parts $45,141 $48,718
Work in progress 34,466 32,416
Finished goods 31,912 30,956
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111,519 112,090
LIFO reserve (131) (31)
------------- -------------
$111,388 $112,059
============= =============
Earnings per Common Share
As described in Note 11 in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, in accordance with the treasury stock method,
the Company has included 2,681,654 and 2,264,095 equivalent shares relating
to 4,871,842 outstanding options to purchase shares of common stock in the
calculation of diluted weighted average number of common shares for the three
month periods ended March 31, 1999 and 1998, respectively.
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<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
3. OTHER CHARGES, NET
Other charges, net consists primarily of foreign currency transactions,
interest income, gains on asset sales and other charges.
The Company incurred a charge of approximately $3.1 million during the
three months ending March 31, 1999 in connection with the exit from its glass
batching business, based in Belgium. This charge primarily comprises severance,
the write-down of existing assets to their expected net realizable value and
other costs of exiting this business. The Company expects to exit this business
over the next year. This charge was offset by a gain of a similar amount in
connection with an asset sale.
4. SEGMENT REPORTING
The Company has five reportable segments: Principal U.S. Operations,
Principal Central European Operations, Swiss R&D and Manufacturing Operations,
Other Western Europe Operations and Other. The following tables show the
operations of the Company's operating segments:
<TABLE>
<CAPTION>
Principal Other Eliminations
For the period Principal Central Swiss R&D Western and
January 1, 1999 to U.S. Europe and Mfg. Europe Corporate
March 31, 1999 Operations Operations Operations Operations Other (a) (b) Total
- ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to external
customers................. $ 79,698 $ 46,182 $ 5,453 $ 55,647 $ 48,735 $ - $ 235,715
Net sales to other segments. 39,881 13,312 36,329 5,554 25,818 (120,894) -
--------- --------- --------- --------- -------- ----------- ---------
Total net sales............. $ 119,579 $ 59,494 $ 41,782 $ 61,201 $ 74,553 $ (120,894) $ 235,715
========= ========= ========= ========= ======== ========== =========
Adjusted operating income... $ 6,985 $ 4,696 $ 5,540 $ 4,431 $ 5,666 $ (5,230) $ 22,088
Principal Other Eliminations
For the period Principal Central Swiss R&D Western and
January 1, 1998 to U.S. Europe and Mfg. Europe Corporate
March 31, 1998 Operations Operations Operations Operations Other (a) (b) Total
- ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
Net sales to external
customers................. $ 75,097 $ 43,306 $ 6,143 $ 50,883 $ 40,226 $ - $ 215,655
Net sales to other segments. 8,001 12,412 34,309 4,645 24,754 (84,121) -
--------- --------- --------- --------- -------- ----------- ---------
Total net sales............. $ 83,098 $ 55,718 $ 40,452 $ 55,528 $ 64,980 $ (84,121) $ 215,655
========= ========= ========= ========= ======== ========== =========
Adjusted operating income... $ 3,156 $ 4,863 $ 8,221 $ 4,094 $ 6,081 $ (7,715) $ 18,700
(Footnotes on following page)
</TABLE>
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
4 SEGMENT REPORTING (Continued)
(a) Other includes reporting units in Asia, Eastern Europe, Latin America
and segments from other countries that do not meet the aggregation
criteria of SFAS 131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions as well as certain corporate expenses, intercompany
investments and certain goodwill, which are not included in the Company's
operating segments.
A reconciliation of adjusted operating income to earnings before taxes
and minority interest follows:
For the period For the period
January 1, 1999 January 1, 1998
to to
March 31, 1999 March 31, 1998
-------------- --------------
Adjusted operating income.................. $22,088 $18,700
Amortization............................... 2,535 1,818
Interest expense........................... 5,576 5,879
Other charges, net......................... 917 454
------- -------
Earnings before taxes and minority interest $13,060 $10,549
======= =======
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Unaudited Interim
Consolidated Financial Statements included herein.
General
Our interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America on a basis which reflects the interim consolidated financial statements
of Mettler-Toledo International Inc. Operating results for the three months
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full year ending December 31, 1999.
On February 2, 1999, we announced that we had entered into an agreement
to acquire the Testut-Lutrana group, a leading manufacturer and marketer of
industrial and retail weighing instruments in France. The agreement is subject
to certain closing conditions. The acquisition is expected to close during our
second quarter ended June 30, 1999.
In February 1999, certain selling shareholders completed a secondary
offering of a total of 6,099,250 shares of our common stock, including the
underwriters' over-allotment options. No directors, executive officers or other
employees sold shares, and we did not sell shares or receive proceeds in the
offering. We incurred a charge of $0.8 million in connection with the offering
during the first quarter of 1999.
Results of Operations
Net sales were $235.7 million for the three months ended March 31, 1999
compared to $215.7 million for the corresponding period in the prior year. This
represents an increase of 9%, reflecting an 8% increase in local currencies and
the benefit of favorable exchange rates.
Net sales by geographic customer location were as follows: Net sales
in Europe increased 6% in local currencies during the three months ended March
31, 1999 versus the corresponding period in the prior year. Net sales in local
currencies during the three month period in the Americas increased 12% as
compared to the corresponding period in 1998, principally due to organic growth
in our business and the effect of businesses acquired in 1998. Net sales in
local currencies during the three month period in Asia and other markets
decreased 3% compared to the same period in the prior year. The results of our
business in Asia and other markets during the three months ending March 31, 1999
primarily reflect the economic conditions in the region, particularly in Japan.
Gross profit as a percentage of net sales increased to 44.6% for the
three months ended March 31, 1999, compared to 43.9% for the corresponding
period in the prior year.
Research and development expenses as a percentage of net sales
increased to 5.4% for the three months ended March 31, 1999, compared to 5.0%
for the corresponding period in the prior
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<PAGE>
year. This increase primarily reflects increased research and development
activity connected with product introductions.
Selling, general and administrative expenses as a percentage of net
sales decreased to 29.9% for the three months ended March 31, 1999, compared to
30.2% for the corresponding period in the prior year.
Adjusted Operating Income (gross profit less research and development
and selling, general and administrative expenses before amortization and other
charges, net) increased 18.1% to $22.1 million, or 9.4% of net sales, for the
three months ended March 31, 1999, compared to $18.7 million, or 8.7% of net
sales, for the corresponding period in the prior year. The increased operating
margin reflects the benefits of higher sales levels and our continuous efforts
to improve productivity.
Interest expense decreased to $5.6 million for the three months ended
March 31, 1999, compared to $5.9 million for the corresponding period in the
prior year. The decrease was principally due to reduced debt levels.
Other charges, net of $0.9 million for the three months ended March 31,
1999 compared to other charges, net of $0.5 million for the corresponding period
in the prior year. The 1999 period included a gain on an asset sale of $3.1
million offset by a charge to exit our glass batching business based in Belgium.
The 1999 amount also includes a one-time charge of $0.8 million relating to the
secondary offering completed in February 1999.
The provision for taxes is based upon our projected annual effective
tax rate for the related period. Our effective tax rate for the three months
ended March 31, 1999 was approximately 35% before the one-time costs relating to
the secondary offering which are non-deductible.
Net earnings before the one-time charge relating to the secondary
offering were $8.9 million for the three months ended March 31, 1999, compared
to net earnings of $6.8 million for the corresponding period of the prior year,
an increase of 30%.
Liquidity and Capital Resources
At March 31, 1999, our consolidated debt, net of cash, was $341.0
million. We had borrowings of $336.3 million under our credit agreement and
$21.0 million under various other arrangements as of March 31, 1999. Of our
credit agreement borrowings, approximately $170.7 million was borrowed as term
loans scheduled to mature in 2004 and $165.6 million was borrowed under our
multi-currency revolving credit facility. At March 31, 1999, we had $235.1
million of availability remaining under our revolving credit facility.
At March 31, 1999, approximately $98.7 million of the borrowings under
the credit agreement and local working capital facilities were denominated in
U.S. dollars. The balance of the borrowings under the credit agreement and local
working capital facilities were denominated in certain of our other principal
trading currencies amounting to approximately $258.6 million at March 31, 1999.
Changes in exchange rates between the currencies in which we generate cash flow
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<PAGE>
and the currencies in which our borrowings are denominated affect our liquidity.
In addition, because we borrow in a variety of currencies, our debt balances
fluctuate due to changes in exchange rates.
Under the credit agreement, amounts outstanding under the term loans
are payable in quarterly installments. In addition, the credit agreement
obligates us 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
us and our subsidiaries, including restrictions and limitations on the ability
to pay dividends to our shareholders, incur indebtedness, make investments,
grant liens, sell financial assets and engage in certain other activities. We
must also comply with certain financial covenants. The credit agreement is
secured by certain of our assets.
Cash provided by operating activities totalled $3.7 million for the
three months ended March 31, 1999. This amount reflects bonus payments to
employees of $8.8 million that were historically paid in our second quarter. In
the three months ended March 31, 1998, cash provided by operating activities
totalled $12.2 million.
We continue to explore potential acquisitions to expand our product
portfolio and improve our distribution capabilities. In connection with any
acquisition, we may incur additional indebtedness.
We currently believe 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 the next several years, but there can be no assurance that this will be
the case.
Effect of Currency on Results of Operations
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates. Swiss
franc-denominated expenses represent a much greater percentage of our operating
expenses than Swiss franc-denominated sales represent of our net sales. In part,
this is because most of our manufacturing costs in Switzerland relate to
products that are sold outside of Switzerland. Moreover, a substantial
percentage of our research and development expenses and general and
administrative expenses are incurred in Switzerland. Therefore, if the Swiss
franc strengthens against all or most of our major trading currencies (e.g., the
U.S. dollar, the Euro, other major European currencies and the Japanese Yen),
our operating profit is reduced. We also have significantly more sales in
European currencies (other than the Swiss franc) than we have expenses in those
currencies. Therefore, when European currencies weaken against the U.S. dollar
and the Swiss franc, it also decreases our operating profits. In recent years,
the Swiss franc and other European currencies have generally moved in a
consistent manner versus the U.S. dollar. Therefore, because the two effects
previously described have offset each other, our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these currencies
will continue to move in a consistent manner in the future. In addition to the
effects
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<PAGE>
of exchange rate movements on operating profits, our debt levels can
fluctuate due to changes in exchange rates, particularly between the U.S. dollar
and the Swiss franc.
Year 2000 Issue
We have in place detailed programs to address Year 2000 readiness
internally and with certain suppliers. The Year 2000 issue is the result of
computer logic that was written using two digits rather than four to define the
applicable year. Any computer logic that processes date-sensitive information
may recognize dates using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system or equipment failures.
Pursuant to our readiness programs, all major categories of information
technology systems and non-information technology systems (e.g., equipment with
embedded microprocessors) in use by the Company, including manufacturing, sales,
financial and human resources, are being inventoried and assessed. In addition,
plans have been developed for the required systems modifications or
replacements. With respect to our information technology systems, we have
completed the entire assessment phase and most of the remediation phase. The
remediation phase has been completed for most major facilities with the
exception of facilities in Spain, Sweden and certain U.S. and German facilities.
With respect to our non-information technology systems, we have completed the
assessment phase and nearly all of the remediation phase. Selected areas, both
internal and external, will be tested to assure the integrity of our remediation
programs. The testing is expected to be completed by September 1999. We plan to
have all internal mission-critical information technology and non-information
technology systems Year 2000 compliant by September 1999.
We have also reviewed our products, including products sold in recent
years, to determine if they are Year 2000 compliant. In our current product line
we believe that most of our products are Year 2000 compliant. For products
currently in use, we are reviewing the risks by product item with many customers
and in many instances have suggested that the customer replace the older
product.
We are also communicating with our major suppliers to assess the
potential impact on our operations if those parties fail to become Year 2000
compliant in a timely manner. While this process is not yet completed, based
upon responses to date, it appears that many of those suppliers have only
indicated that they have in place Year 2000 readiness programs, without
specifically confirming that they will be Year 2000 compliant in a timely
manner. Risk assessment, readiness evaluation, action plans and contingency
plans related to our significant suppliers are expected to be completed by
September 1999.
The costs incurred to date related to our Year 2000 activities have not
been material and, based upon current estimates, we do not believe that the
total cost of our Year 2000 readiness programs will have a material adverse
impact on our results of operations or financial condition. The total costs are
not easy to quantify since many of the steps we are taking relate to ongoing
systems updating, a small component of which relates to Year 2000 compliance. In
certain
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<PAGE>
instances we have accelerated such updates. As a result of our ongoing systems
updating, we do not expect to realize a significant reduction in related
expenditures once the work on Year 2000 compliance is completed.
Our readiness programs also include the development of contingency
plans to protect our business and operations from Year 2000-related
interruptions. These plans should be completed by September 1999 and, by way of
example, will include back-up procedures, identification of alternate suppliers,
where possible, and increases in safety inventory levels. Based upon our current
assessment of our non-information technology systems, we do not believe it
necessary to develop an extensive contingency plan for those systems. There can
be no assurances, however, that any of our contingency plans will be sufficient
to handle all problems or issues which may arise.
We believe that we are taking reasonable steps to identify and address
those matters that could cause serious interruptions in our business and
operations due to Year 2000 issues. However, delays in the implementation of new
systems, a failure to fully identify all Year 2000 dependencies in our systems
and in the systems of our suppliers, a failure of such third parties to
adequately address their respective Year 2000 issues, or a failure of a
contingency plan could have a material adverse effect on our business, financial
condition and results of operations. For example, we would experience a material
adverse impact on our business if significant suppliers of components were
unable to deliver on a timely basis, if major utilities failed, such as those
providing water, electricity and telephone services, causing us to lose
production capabilities or limit other operations, if a significant portion of
our billing system was not functioning, causing a working capital deficit, or if
costs increased from warranty claims or customer claims of product liability.
The statements set forth herein concerning Year 2000 issues which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. In particular, the costs associated with our
Year 2000 programs and the time-frame in which we plan to complete Year 2000
modifications are based upon management's best estimates. These estimates were
derived from internal assessments and assumptions of future events. These
estimates may be adversely affected by the continued availability of personnel
and system resources, and by the failure of significant third parties to
properly address Year 2000 issues. Therefore, there can be no guarantee that any
estimates, or other forward-looking statements will be achieved, and actual
results could differ significantly from those contemplated.
European Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services. Switzerland is not part of the EMU.
On January 1, 1999, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and noncash (banking) transactions. The existing local currencies, or
legacy currencies, will remain legal tender through January 1,
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<PAGE>
2002. Beginning on January 1, 2002, Euro-denominated bills and coins will be
issued for cash transactions. For a period of six months from this date, both
legacy currencies and the Euro will be legal tender. On or before July 1, 2002,
the participating countries will withdraw all legacy currency and use
exclusively the Euro.
We have recognized the introduction of the Euro as a significant event
with potential implications for existing operations. Currently, we operate in
all of the participating countries in the EMU. We expect nonparticipating
European Union countries, such as Great Britain, where we also have operations,
to eventually join the EMU.
We have committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure we are
prepared for the introduction of the Euro. We have undertaken a review of the
Euro implementation and have concentrated on areas such as operations, finance,
treasury, legal, information management, procurement and others, both in
participating and nonparticipating European Union countries where we operate.
Also, existing legacy accounting and business systems and other business assets
have been reviewed for Euro compliance, including assessing any risks from third
parties. Progress regarding Euro implementation is reported periodically to
management.
Because of the staggered introduction of the Euro regarding noncash and
cash transactions, we have developed our plans to address our accounting and
business systems first and our business assets second. We expect to be Euro
compliant within our accounting and business systems by the end of 1999 and
compliant within our other business assets prior to the introduction of the Euro
bills and coins. Compliance in participating and nonparticipating countries will
be achieved primarily through upgraded systems, which were previously planned to
be upgraded. Remaining systems will be modified to achieve compliance. We do not
currently expect to experience any significant operational disruptions or to
incur any significant costs, including any currency risk, which could materially
affect our liquidity or capital resources. We are preparing plans to address
issues within the transitional period when both legacy and Euro currencies may
be used.
We are reviewing our pricing strategy throughout Europe due to the
increased price transparency created by the Euro and are attempting to adjust
prices in some of our markets. We are also encouraging our suppliers, even in
Switzerland, to commence transacting in Euro. We do not believe that the effect
of these adjustments will be material.
We have a disproportionate amount of our costs in Swiss francs relative
to sales. Historically, the potential currency impact has been muted because
currency fluctuations between the Swiss franc and other major European
currencies have been minimal and there is greater balance between total European
(including Swiss) sales and costs. However, if the introduction of the Euro
results in a significant weakening of the Euro against the Swiss franc, our
financial performance could be harmed.
The statements set forth herein concerning the introduction of the Euro
which are not historical facts are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. In particular, the costs associated
with our Euro programs and the time-frame in which we plan to complete Euro
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<PAGE>
modifications are based upon management's best estimates. These estimates were
derived from internal assessments and assumptions of future events. There can be
no guarantee that any estimates or other forward-looking statements will be
achieved, and actual results could differ significantly from those contemplated.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not determined the effect of the adoption of this statement.
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q includes forward-looking statements
based on our current expectations and projections about future events,
including: strategic plans; potential growth, including penetration of developed
markets and opportunities in emerging markets; planned product introductions;
planned operational changes; research and development efforts and expenditures;
Year 2000 issues; Euro conversion issues; future financial performance,
including expected capital expenditures; estimated proceeds from and the timing
of asset sales; potential acquisitions; future cash sources and requirements;
and potential cost savings from restructuring programs.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond our control, which could cause our
actual results to differ materially from historical results or those
anticipated. Certain of these risks and uncertainties have been identified in
Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31,
1998. The words "believe," "expect," "anticipate" and similar expressions
identify forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. New risk factors emerge from time to
time and it is not possible for us to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
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<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 1999, there was no material change in the information
provided under Item 7A in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults Upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting will be held on May 18, 1999.
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
Form 8-K, dated March 17, 1999, regarding change in the
Company's certifying accountant.
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<PAGE>
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 International Inc.
Date: May 7, 1999 By: /s/ William P. Donnelly
-------------------------
William P. Donnelly
Vice President and
Chief Financial Officer
- 19 -
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