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, 1999, 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 1-13595
Mettler-Toledo International 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)
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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 had 38,553,843 shares of Common Stock outstanding at September
30, 1999.
<PAGE>
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 September 30, 1999 3
and December 31, 1998
Interim Consolidated Statements of Operations for the nine 4
months ended September 30, 1999 and 1998
Interim Consolidated Statements of Operations for the three 5
months ended September 30, 1999 and 1998
Interim Consolidated Statements of Shareholders' Equity 6
for the nine months ended September 30, 1999 and 1998
Interim Consolidated Statements of Cash Flows for the nine 7
months ended September 30, 1999 and 1998
Notes to the Interim Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Security 20
Item 3. Default upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 1999 and December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $14,901 $21,191
Trade accounts receivable, net 190,667 178,525
Inventories, net 120,737 112,059
Other current assets and prepaid expenses 42,610 46,455
---------- ----------
Total current assets 368,915 358,230
Property, plant and equipment, net 204,500 230,264
Excess of cost over net assets acquired, net 214,793 213,772
Other assets 22,592 18,175
---------- ----------
Total assets $810,800 $820,441
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $58,978 $58,740
Accrued and other liabilities 103,936 91,049
Accrued compensation and related items 51,094 45,906
Taxes payable 38,477 51,302
Short-term borrowings and current maturities of long-term debt 47,199 46,432
---------- ----------
Total current liabilities 299,684 293,429
Long-term debt 284,324 340,246
Non-current deferred taxes 22,753 25,566
Other non-current liabilities 108,866 103,201
---------- ----------
Total liabilities 715,627 762,442
Minority interest - 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 38,553,843 shares at September 30, 1999 and 38,400,363 shares at
December 31, 1998 (excluding 64,467 shares held in treasury) 386 384
Additional paid-in capital 286,537 285,161
Accumulated deficit (151,337) (186,527)
Accumulated other comprehensive loss (40,413) (45,183)
---------- ----------
Total shareholders' equity 95,173 53,835
Commitments and contingencies
---------- ----------
Total liabilities and shareholders' equity $810,800 $820,441
========== ==========
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 OPERATIONS
Nine months ended September 30, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net sales $761,186 $669,747
Cost of sales 422,476 374,594
---------- ----------
Gross profit 338,710 295,153
Research and development 40,235 33,551
Selling, general and administrative 216,818 192,844
Amortization 7,635 5,473
Purchased research and development - 9,976
Interest expense 16,567 17,153
Other charges, net 1,638 1,606
---------- ----------
Earnings before taxes and minority interest 55,817 34,550
Provision for taxes 20,174 13,552
Minority interest 453 233
---------- ----------
Net earnings $35,190 $20,765
========== ==========
Basic earnings per common share:
Net earnings $0.91 $0.54
Weighted average number of common shares 38,465,856 38,342,651
Diluted earnings per common share:
Net earnings $0.85 $0.51
Weighted average number of common shares 41,175,684 40,619,050
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 OPERATIONS
Three months ended September 30, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net sales $268,006 $225,646
Cost of sales 148,278 126,767
---------- ----------
Gross profit 119,728 98,879
Research and development 13,913 11,536
Selling, general and administrative 75,496 63,301
Amortization 2,666 1,854
Purchased research and development - 9,976
Interest expense 5,579 5,370
Other charges, net 1,131 836
---------- ----------
Earnings before taxes and minority interest 20,943 6,006
Provision for taxes 7,329 3,334
Minority interest (44) 142
---------- ----------
Net earnings $13,658 $ 2,530
========== ==========
Basic earnings per common share:
Net earnings $0.35 $0.07
Weighted average number of common shares 38,553,843 38,355,926
Diluted earnings per common share:
Net earnings $0.33 $0.06
Weighted average number of common shares 41,310,499 40,616,526
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 SHAREHOLDERS' EQUITY
Nine months ended September 30, 1999 and 1998
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
All Classes Additional Other
-------------------------------- Paid-in Accumulated 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
Exercise of stock options 153,480 2 1,376 - - 1,378
Comprehensive income:
Net earnings - - - 35,190 - 35,190
Change in currency
translation adjustment - - - - 4,770 4,770
----------
Comprehensive income 39,960
------------ ---------- ----------- ----------- ------------ ----------
Balance at September 30, 1999 38,553,843 $386 $286,537 $(151,337) $(40,413) $95,173
============ ========== =========== =========== ============ ==========
Balance at December 31, 1997 38,336,014 $383 $284,630 $(224,152) $(35,462) $25,399
Exercise of stock options 19,912 1 157 158
Comprehensive income:
Net earnings - - - 20,765 - 20,765
Change in currency
translation adjustment - - - - (3,418) (3,418)
----------
Comprehensive income 17,347
------------ ---------- ----------- ----------- ------------ ----------
Balance at September 30, 1998 38,355,926 $384 $284,787 $(203,387) $(38,880) $42,904
============ ========== =========== =========== ============ ==========
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
Nine months ended September 30, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net earnings $35,190 $20,765
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 18,900 18,022
Amortization 7,635 5,473
Revaluation of acquired inventory and purchased
research and development 998 9,976
Net gain on disposal of property, plant and equipment (3,355) (2,495)
Deferred taxes (33) (883)
Minority interest 453 233
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net (3,830) (5,681)
Inventories (3,808) (4,170)
Other current assets 2,499 3,040
Trade accounts payable (6,667) (3,468)
Accruals and other liabilities, net 3,140 (2,272)
---------- ----------
Net cash provided by operating activities 51,122 38,540
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 9,673 15,938
Purchase of property, plant and equipment (16,837) (17,348)
Acquisitions (18,468) (14,945)
Other investing activities - (885)
---------- ----------
Net cash used in investing activities (25,632) (17,240)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 12,937 20,035
Repayments of borrowings (45,755) (49,513)
New issuance of shares 1,378 158
---------- ----------
Net cash used in financing activities (31,440) (29,320)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (340) 58
---------- ----------
Net decrease in cash and cash equivalents (6,290) (7,962)
Cash and cash equivalents:
Beginning of period $21,191 $23,566
---------- ----------
End of period $14,901 $15,604
========== ==========
The accompanying notes are an integral part of these interim consolidated financial statements.
</TABLE>
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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 September 30, 1999 and for the nine and three month
periods ended September 30, 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 nine and three months ended
September 30, 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.
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.
- 8 -
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories consisted of the following at September 30, 1999 and
December 31, 1998:
September 30, December 31,
1999 1998
--------------- ---------------
Raw materials and parts $49,406 $48,718
Work in progress 34,231 32,416
Finished goods 37,331 30,956
--------------- ---------------
120,968 112,090
LIFO reserve (231) (31)
--------------- ---------------
$120,737 $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 the following equivalent shares relating to 4,676,857
outstanding options to purchase shares of common stock in the calculation of
diluted weighted average number of common shares for the nine and three month
periods ended September 30, 1999 and 1998, respectively.
September 30, September 30,
1999 1998
--------------- ---------------
Nine months ended 2,709,828 2,276,399
Three months ended 2,756,656 2,260,600
3. BUSINESS COMBINATIONS
During the nine months ended September 30, 1999 the Company spent
approximately $18.5 million on acquisitions, including the net assets of the
Testut-Lutrana group, a leading manufacturer and marketer of industrial and
retail weighing instruments in France. The Company accounted for the
acquisitions using the purchase method of accounting. Accordingly, the costs of
the acquisitions were allocated to the assets acquired and liabilities assumed
based upon their respective fair values. In this respect the Company allocated
$1.0 million of the purchase price to revalue certain finished goods inventories
to fair value. Substantially all of such inventories were sold in the three
months ending June 30, 1999.
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<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
4. OTHER CHARGES, NET
Other charges, net consists primarily of foreign currency transactions,
interest income, gains on asset sales and other charges.
The Company incurred losses of approximately $4.1 million during the
nine months ending September 30, 1999, of which $1.0 million was recorded in the
third quarter of 1999, in connection with the exit from its glass batching
business, based in Belgium. This amount primarily comprises severance and other
costs of exiting this business. The Company expects to complete the exit of this
business by the end of 1999. These losses were offset by a gain of $3.1 million
recorded in the first quarter of 1999 in connection with an asset sale.
5. SEGMENT REPORTING
The Company has five reportable segments: Principal U.S. Operations,
Principal Central European Operations, Swiss R&D and Manufacturing Operations,
Other Western European 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. European and Mfg. European Corporate
September 30, 1999 Operations Operations Operations Operations Other (a) (b) Total
- ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to external
customers................... $257,645 $135,066 $16,920 $185,636 $165,919 $ 0 $761,186
Net sales to other segments. 131,710 41,576 109,389 14,833 79,901 (377,409) 0
---------- ---------- --------- ---------- ---------- ----------- ---------
Total net sales............. $389,355 $176,642 $126,309 $200,469 $245,820 $(377,409) $761,186
========== ========== ========= ========== ========== =========== =========
Adjusted operating income... $ 28,093 $ 15,579 $ 20,676 $ 14,655 $ 18,161 $ (14,509) $ 82,655
Principal Other Eliminations
For the period Principal Central Swiss R&D Western and
January 1, 1998 to U.S. European and Mfg. European Corporate
September 30, 1998 Operations Operations Operations Operations Other (a) (b) Total
- ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
Net sales to external
customers................... $238,740 $129,782 $ 17,354 $158,122 $125,749 $ 0 $669,747
Net sales to other segments. 28,216 41,527 103,595 16,105 74,938 (264,381) 0
---------- ---------- --------- ---------- ---------- ----------- ---------
Total net sales............. $266,956 $171,309 $120,949 $174,227 $200,687 $(264,381) $669,747
========== ========== ========= ========== ========== =========== =========
Adjusted operating income... $ 18,023 $ 14,568 $ 21,763 $ 12,263 $ 16,487 $ (14,346) $ 68,758
(Footnotes on following page)
</TABLE>
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<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -
(Continued) (In thousands unless
otherwise stated)
5. 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
September 30, 1999 September 30, 1998
------------------ ------------------
Adjusted operating income.................. $ 82,655 $ 68,758
Amortization............................... 7,635 5,473
Interest expense........................... 16,567 17,153
Revaluation of acquired inventory.......... 998(a) -
Purchased research and development......... - 9,976
Other charges, net......................... 1,638 1,606
-------- --------
Earnings before taxes and minority interest $ 55,817 $ 34,550
======== ========
(a) Represents a charge for the excess of fair value over historical cost for
inventories acquired in certain acquisitions.
- 11 -
<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 nine and three
months ended September 30, 1999 are not necessarily indicative of the results to
be expected for the full year ending December 31, 1999.
In May 1999, we completed the acquisition of the Testut-Lutrana group,
a leading manufacturer and marketer of industrial and retail weighing
instruments in France.
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 $761.2 million and $268.0 million for the nine and three
month periods ended September 30, 1999 compared to $669.7 million and $225.6
million for the corresponding periods in the prior year. This reflected
increases of 14% and 21% in local currency for the nine and three month periods,
respectively. Results were negatively impacted by the strengthening of the U.S.
dollar against other currencies in the third quarter. Net sales in U.S. dollars
during the nine and three month periods increased 14% and 19%, respectively.
Net sales by geographic customer location were as follows: Net sales in
Europe increased 14% and 21% in local currencies during the nine and three month
periods ended September 30, 1999 versus the corresponding periods in the prior
year. The increase largely reflects the effect of Testut-Lutrana, as well as
organic growth in our business. Net sales in local currencies during the nine
and three month periods in the Americas increased 14% and 16% as compared to the
corresponding periods in 1998, principally due to organic growth in our business
as well as the effect of businesses acquired in 1998. Net sales in local
currencies during the nine and three month periods in Asia and other markets
increased 17% and 40% compared to the same periods in the prior year. The
results of our business in Asia and other markets during the nine and three
month periods ending September 30, 1999 primarily reflect improved economic
conditions throughout the region.
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<PAGE>
The operating results for Testut-Lutrana (which were included in our
results from the beginning of May 1999) would have had the effect of increasing
our net sales by an additional $22.8 million and $12.5 million in 1998, if
included during the comparable five and three month periods.
Gross profit as a percentage of net sales increased to 44.6% and 44.7%
for the nine and three month periods ended September 30, 1999, respectively,
compared to 44.1% and 43.8% for the corresponding periods in the prior year,
before $1.0 million of non-recurring acquisition costs.
Research and development expenses as a percentage of net sales
increased to 5.3% and 5.2% for the nine and three month periods ended September
30, 1999, respectively, compared to 5.0% and 5.1% for the corresponding periods
in the prior 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 28.5% for the nine months ended September 30, 1999, compared
to 28.8% for the corresponding period in the prior year. Selling, general and
administrative expenses as a percentage of net sales were 28.2% for the three
months ended September 30, 1999, compared to 28.1% for the three months ended
September 30, 1998.
Adjusted Operating Income (gross profit less research and development
and selling, general and administrative expenses before amortization and other
charges, net) increased 20.2% to $82.7 million, or 10.9% of net sales, for the
nine months ended September 30, 1999, compared to $68.8 million, or 10.3% of net
sales, for the corresponding period in the prior year. Adjusted Operating Income
was $30.3 million, or 11.3% of net sales, for the three months ended September
30, 1999, compared to $24.0 million, or 10.7% of net sales for the three months
ended September 30, 1998, an increase of 26.1%. The increased operating margin
reflects the benefits of higher sales levels and our continuous efforts to
improve productivity.
Interest expense decreased to $16.6 million for the nine months ended
September 30, 1999, compared to $17.2 million for the corresponding period in
the prior year. The decrease for the nine months was principally due to reduced
debt levels. Interest expense was $5.6 million for the three months ended
September 30, 1999, compared to $5.4 million for the three months ended
September 30, 1998.
Other charges, net of $1.6 million and $1.1 million for the nine and
three month periods ended September 30, 1999 compared to other charges, net of
$1.6 million and $0.8 million for the corresponding periods in the prior year,
respectively. The 1999 nine month amount includes a gain on an asset sale of
$3.1 million; losses of $4.1 million to exit our glass batching business based
in Belgium, of which $1.0 million was recorded in the third quarter of 1999; and
a one-time charge of $0.8 million relating to the secondary offering completed
in February 1999. The 1998 amounts include a one-time charge of $0.7 million
relating to the secondary offering completed in July 1998.
- 13 -
<PAGE>
The provision for taxes is based upon our projected annual effective
tax rate for the relevant period. Our effective tax rate for the nine and three
month periods ended September 30, 1999 was approximately 35% before the one-time
costs relating to the secondary offering and the non-recurring acquisition
related charge. During the three month period ended September 30, 1998, we
reduced our effective tax rate based upon a change in Swiss tax law which only
benefited the 1998 period and had the effect of reducing our provision for taxes
by approximately $2.3 million.
Net earnings before the one-time charges relating to the secondary
offerings and the non-recurring acquisition related charge, as well as purchased
research and development and certain one-time tax benefits realized in the three
months ending September 30, 1998, were $37.0 million and $13.7 million for the
nine and three month periods ended September 30, 1999, compared to net earnings
of $29.1 million and $10.2 million for the corresponding periods of the prior
year.
Liquidity and Capital Resources
At September 30, 1999, our consolidated debt, net of cash, was $316.6
million. We had borrowings of $311.9 million under our credit agreement and
$19.6 million under various other arrangements as of September 30, 1999. Of our
credit agreement borrowings, approximately $160.3 million was borrowed as term
loans scheduled to mature in 2004 and $151.6 million was borrowed under our
multi-currency revolving credit facility. At September 30, 1999, we had $250.6
million of availability remaining under our revolving credit facility.
At September 30, 1999, approximately $127.1 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 $204.4 million at
September 30, 1999. Changes in exchange rates between the currencies in which we
generate cash flow 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 $53.2 million for the
nine months ended September 30, 1999. In the nine months ended September 30,
1998, cash provided by operating activities totalled $38.5 million. The increase
resulted principally from improved Adjusted Operating Income.
- 14 -
<PAGE>
During the nine months ended September 30, 1999 we spent approximately
$18.5 million on acquisitions, including Testut-Lutrana. These purchases were
funded from cash generated from operations and additional borrowings. 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.
As part of our efforts to reduce costs, we evaluate from time to time
the cost effectiveness of our global manufacturing strategy. Over the next few
years we intend to continue to develop China as a low cost manufacturing
resource and to seek other manufacturing cost saving opportunities. In this
respect, we anticipate that we will record a restructuring charge in the fourth
quarter of 1999 associated with transfer of production lines from the Americas
to China and Europe and the closure of facilities. We believe that the future
cash benefits of these potential programs will exceed any future restructuring
costs, although the restructuring cash flows will precede the cash flow
benefits. We currently estimate that these initiatives will require cash
expenditures in 2000 of between approximately $6 and $7 million. We expect that
the fourth quarter restructuring charge will include a significant portion of
the estimated cash expenditures plus the non-cash carrying value of any impaired
assets.
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 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.
- 15 -
<PAGE>
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, have been 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 the remediation phase for all of our
major facilities. With respect to our non-information technology systems, we
have completed the assessment phase and all of the remediation phase. Selected
areas, both internal and external, have been tested to assure the integrity of
our remediation programs. We believe that all internal mission-critical
information technology and non-information technology systems are Year 2000
compliant.
We have also reviewed our products, including products sold in recent
years, to determine if they are Year 2000 compliant. We believe that our
products are Year 2000 compliant.
We have also been 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. This process has been completed and 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 have been 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 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 have been completed by September 1999 and, by way of
example, 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.
- 16 -
<PAGE>
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, 2002. Beginning
on January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of nine 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. Nonparticipating European Union
countries where we also have operations may eventually join the EMU.
- 17 -
<PAGE>
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
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.
- 18 -
<PAGE>
New Accounting Standards
In September 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, 2000.
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.
- 19 -
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 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 Security Not applicable
Item 3. Defaults Upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders Not applicable
Item 5. Other information Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K - None
- 20 -
<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: November 15, 1999 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President and
Chief Financial Officer
- 21 -
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