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, 2000,
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.
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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.)
----------------------------------------- -----------------------------------
Incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
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(Address of principal executive offices) (Zip Code)
41-1-944-22-11
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
The Registrant had 38,753,185 shares of Common Stock outstanding at September
30, 2000.
<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, 2000 3
and December 31, 1999
Interim Consolidated Statements of Operations for the nine 4
months ended September 30, 2000 and 1999
Interim Consolidated Statements of Operations for the three 5
months ended September 30, 2000 and 1999
Interim Consolidated Statements of Shareholders' Equity 6
for the nine months ended September 30, 2000 and 1999
Interim Consolidated Statements of Cash Flows for the nine 7
months ended September 30, 2000 and 1999
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 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
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(In thousands, except per share data)
September 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $15,683 $17,179
Trade accounts receivable, net 201,765 203,750
Inventories, net 130,717 123,901
Other current assets and prepaid expenses 34,090 43,115
------- -------
Total current assets 382,255 387,945
Property, plant and equipment, net 186,473 199,723
Excess of cost over net assets acquired, net 195,129 204,395
Other assets 34,649 28,910
-------- --------
Total assets $798,506 $820,973
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $60,266 $81,234
Accrued and other liabilities 106,384 105,783
Accrued compensation and related items 46,509 53,510
Taxes payable 48,776 48,769
Short-term borrowings and current maturities of long-term debt 45,783 46,879
------- -------
Total current liabilities 307,718 336,175
Long-term debt 232,944 249,721
Non-current deferred taxes 21,928 22,728
Other non-current liabilities 90,330 100,334
------- -------
Total liabilities 652,920 708,958
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 38,753,185 shares at September 30, 2000 and 38,674,768 shares at
December 31, 1999 (excluding 64,467 shares held in treasury) 387 386
Additional paid-in capital 288,945 288,092
Accumulated deficit (91,607) (138,426)
Accumulated other comprehensive loss (52,139) (38,037)
-------- ---------
Total shareholders' equity 145,586 112,015
Commitments and contingencies
-------- --------
Total liabilities and shareholders' equity $798,506 $820,973
======== ========
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
3
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended September 30, 2000 and 1999
(In thousands, except per share data)
September 30 September 30
2000 1999
---- ----
(unaudited) (unaudited)
Net sales $797,677 $761,186
Cost of sales 443,166 422,476
------- -------
Gross profit 354,511 338,710
Research and development 41,375 40,235
Selling, general and administrative 216,698 216,818
Amortization 8,403 7,635
Interest expense 15,212 16,567
Other charges, net 847 1,638
------ ------
Earnings before taxes and minority interest 71,976 55,817
Provision for taxes 25,195 20,174
Minority interest (38) 453
------- -------
Net earnings $46,819 $35,190
======= =======
Basic earnings per common share:
Net earnings $1.21 $0.91
Weighted average number of common shares 38,739,547 38,465,856
Diluted earnings per common share:
Net earnings $1.11 $0.85
Weighted average number of common shares 42,032,434 41,175,684
The accompanying notes are an integral part of these interim
consolidated financial statements.
4
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 2000 and 1999
(In thousands, except per share data)
September 30 September 30
2000 1999
---- ----
(unaudited) (unaudited)
Net sales $270,003 $268,006
Cost of sales 149,319 148,278
------- -------
Gross profit 120,684 119,728
Research and development 14,093 13,913
Selling, general and administrative 72,460 75,496
Amortization 2,785 2,666
Interest expense 4,813 5,579
Other charges, net 220 1,131
------ ------
Earnings before taxes and minority interest 26,313 20,943
Provision for taxes 9,216 7,329
Minority interest (37) (44)
------- -------
Net earnings $17,134 $13,658
======= =======
Basic earnings per common share:
Net earnings $0.44 $0.35
Weighted average number of common shares 38,753,185 38,553,843
Diluted earnings per common share:
Net earnings $0.41 $0.33
Weighted average number of common shares 42,198,943 41,310,499
The accompanying notes are an integral part of these interim
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 2000 and 1999
(In thousands, except per share data)
(unaudited)
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, 1999 38,674,768 $386 $288,092 $(138,426) $(38,037) $112,015
Exercise of stock options 78,417 1 853 - - 854
Comprehensive income:
Net earnings - - - 46,819 - 46,819
Change in currency
translation adjustment - - - - (14,102) (14,102)
-------
Comprehensive income 32,717
---------- ---- -------- ---------- --------- --------
Balance at September 30, 2000 38,753,185 $387 $288,945 $ (91,607) $(52,139) $145,586
========== ==== ======== ========== ========= ========
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
========== ==== ======== ========== ========= ========
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2000 and 1999
(In thousands)
September 30, September 30,
2000 1999
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net earnings $46,819 $35,190
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 16,011 18,900
Amortization 8,403 7,635
Revaluation of acquired inventory - 998
Net loss (gain) on disposal of property, plant and equipment 129 (3,355)
Deferred taxes (288) (33)
Minority interest (38) 453
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net (10,060) (3,830)
Inventories (13,193) (3,808)
Other current assets (4,417) 2,499
Trade accounts payable (19,152) (6,667)
Accruals and other liabilities, net 13,623 3,140
------ ------
Net cash provided by operating activities 37,837 51,122
------ ------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 635 9,673
Purchase of property, plant and equipment (18,317) (16,837)
Acquisitions (18,170) (18,468)
-------- --------
Net cash used in investing activities (35,852) (25,632)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 46,203 12,937
Repayments of borrowings (50,111) (45,755)
Proceeds from issuance of common stock 854 1,378
------ --------
Net cash used in financing activities (3,054) (31,440)
------- --------
Effect of exchange rate changes on cash and cash equivalents (427) (340)
----- -----
Net decrease in cash and cash equivalents (1,496) (6,290)
Cash and cash equivalents:
Beginning of period $17,179 $21,191
------- -------
End of period $15,683 $14,901
======= =======
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
7
<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, France 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, 2000 and for the nine and three month
periods ended September 30, 2000 and 1999 should be read in conjunction with the
December 31, 1999 and 1998 consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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 month
periods ended September 30, 2000 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2000.
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.
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
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 September 30, 2000 and
December 31, 1999:
September 30, December 31,
2000 1999
------------- -------------
Raw materials and parts $58,051 $53,685
Work in progress 38,382 33,073
Finished goods 34,947 37,769
------- -------
131,380 124,527
LIFO reserve (663) (626)
-------- --------
$130,717 $123,901
========= =========
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, 1999, in accordance with the treasury stock method,
the Company has included the following equivalent shares relating to 5,096,495
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, 2000 and 1999, respectively.
September 30, September 30,
2000 1999
------------- -------------
Nine months ended 3,292,887 2,709,828
Three months ended 3,445,758 2,756,656
3. BUSINESS COMBINATIONS
During the nine months ended September 30, 2000 the Company spent
approximately $18.2 million on acquisitions, including approximately $10.2
million of additional consideration related to earn-out payments associated with
acquisitions consummated in December of 1998.
9
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands unless otherwise stated)
3. BUSINESS COMBINATIONS (Continued)
The Company accounted for the acquisition payments using the purchase method of
accounting.
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 ended September 30,
1999 in connection with the exit from its glass batching business based in
Belgium. The Company completed its exit of this business by the end of 1999.
These losses were offset by a gain of $3.1 million recorded 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 for the nine months ended
September 30:
<TABLE>
<CAPTION>
Principal Other Eliminations
Principal Central Swiss R&D Western and
U.S. European and Mfg. European Corporate
September 30, 2000 Operations Operations Operations Operations Other (a) (b) Total
------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to external
customers................. $ 271,219 $ 131,256 $ 20,787 $ 185,506 $188,909 $ - $ 797,677
Net sales to other segments. 30,638 37,840 104,460 30,722 86,719 (290,379) -
--------- --------- --------- --------- -------- ----------- ---------
Total net sales............. $ 301,857 $ 169,096 $ 125,247 $ 216,228 $275,628 $ (290,379) $ 797,677
========= ========= ========= ========= ======== ========== =========
Adjusted operating income... $ 31,412 $ 14,816 $ 25,636 $ 12,184 $ 18,695 $ (6,305) $ 96,438
Principal Other Eliminations
Principal Central Swiss R&D Western and
U.S. European and Mfg. European Corporate
September 30, 1999 Operations Operations Operations Operations Other (a) (b) Total
------------------------------ ---------- ---------- ---------- ---------- --------- ------------ ---------
Net sales to external
customers................. $ 257,645 $ 135,066 $ 16,920 $ 185,636 $165,919 $ - $ 761,186
Net sales to other segments. 131,710 41,576 109,389 14,833 79,901 (377,409) -
--------- --------- --------- --------- -------- ----------- ---------
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
Footnotes on following page
</TABLE>
10
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands unless otherwise stated)
5. SEGMENT REPORTING (Continued)
Footnotes from previous page
(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 for the nine months ended September 30 follows:
September 30, September 30,
2000 1999
------------- -------------
Adjusted operating income..................... $96,438 $82,655
Amortization.................................. 8,403 7,635
Interest expense.............................. 15,212 16,567
Revaluation of acquired inventory............. - 998 (a)
Other charges, net............................ 847 1,638
--- -----
Earnings before taxes and minority interest... $71,976 $55,817
======= =======
(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, 2000 are not necessarily indicative of the results to
be expected for the full year ending December 31, 2000.
Results of Operations
Net sales were $797.7 million and $270.0 million for the nine and three
month periods ended September 30, 2000 compared to $761.2 million and $268.0
million for the corresponding periods in the prior year. This represents
increases of 10% and 7% in local currencies for the nine and three month
periods, respectively. The second half of 1999 benefited from Year 2000 and euro
conversion related spending by our large retail customers. Results were
negatively impacted by the strengthening of the U.S. dollar against other
currencies. Net sales in U.S. dollars during the nine and three month periods
increased 5% and 1%, respectively.
Net sales by geographic customer location were as follows: Net sales in
Europe increased 14% and 10% in local currencies during the nine and three month
periods ended September 30, 2000 versus the corresponding periods in the prior
year, principally due to organic growth in our business and, with respect to the
nine-month period, the effect of businesses acquired in May 1999. Net sales in
local currencies during the nine and three month periods in the Americas
increased 6% as compared to the corresponding periods in 1999. Net sales in
local currencies during the nine-month period in Asia and other markets
increased 12%, while net sales in local currencies in the three-month period
were flat, compared to the same periods in the prior year. The results of our
business in Asia and other markets during the three-month period ending
September 30, 2000 reflect strong performance in China and Japan, offset
primarily by results in other markets.
The operating results for Testut-Lutrana (which were included in our
results from May 1, 1999) would have had the effect of increasing our net sales
by an additional $16.3 million for the nine months ended September 30, 1999.
Gross profit as a percentage of net sales was 44.4% for the nine months
ended September 30, 2000, compared to 44.6% before $1.0 million of non-recurring
acquisition costs for the comparable period in the prior year and 44.7% for the
three months ended September 30, 2000 and 1999. Current year results reflect
changes in our sales mix, as well as increased raw material costs, including
electronics.
12
<PAGE>
Research and development expenses as a percentage of net sales were
5.2% for the nine and three month periods ended September 30, 2000, compared to
5.3% and 5.2% for the corresponding periods in the prior year.
Selling, general and administrative expenses as a percentage of net
sales decreased to 27.2% and 26.8% for the nine and three months ended September
30, 2000, compared to 28.5% and 28.2% for the corresponding periods in the prior
year in part due to the lower distribution costs associated with the changes in
our sales mix.
Adjusted Operating Income (gross profit less research and development
and selling, general and administrative expenses before amortization, other
charges, net and non-recurring costs) increased 17% to $96.4 million, or 12.1%
of net sales, for the nine months ended September 30, 2000, compared to $82.7
million, or 10.9% of net sales, for the corresponding period in the prior year.
Adjusted Operating Income was $34.1 million, or 12.6% of net sales, for the
three months ended September 30, 2000, compared to $30.3 million, or 11.3% 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 $15.2 million and $4.8 million for the
nine and three month periods ended September 30, 2000, compared to $16.6 million
and $5.6 million for the corresponding periods in the prior year. The decrease
was principally due to reduced debt levels.
Other charges, net of $0.8 million and $0.2 million for the nine and
three months ended September 30, 2000 compared to other charges, net of $1.6
million and $1.1 million for the corresponding periods in the prior year. The
1999 nine month amount included a gain on an asset sale of $3.1 million offset
by 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. The 1999
amounts also included 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 nine and three
month periods ended September 30, 2000 was approximately 35%.
Net earnings were $46.8 million and $17.1 million for the nine and
three month periods ended September 30, 2000, compared to net earnings of $37.0
million and $13.7 million before the one-time charge relating to the secondary
offering and the non-recurring acquisition related charge for the corresponding
periods of the prior year.
Liquidity and Capital Resources
At September 30, 2000, our consolidated debt, net of cash, was $263.0
million. We had borrowings of $265.4 million under our credit agreement and
$13.3 million under various other arrangements as of September 30, 2000. Of our
credit agreement borrowings, approximately $130.6 million was borrowed as term
loans scheduled to mature in 2004 and $134.8 million was borrowed under our
multi-currency revolving credit facility. At September 30, 2000, we had $273.9
million of availability remaining under our revolving credit facility.
13
<PAGE>
At September 30, 2000, approximately $83.7 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 $195.0 million at
September 30, 2000. 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 totaled $37.8 million for the
nine months ended September 30, 2000. In the nine months ended September 30,
1999, cash provided by operating activities totaled $51.1 million. We
experienced increased inventory levels during the nine months ended September
30, 2000, in part due to additional purchases of electronic components to reduce
our exposure to potential supply shortages, and the introduction of new product
lines.
During the nine months ended September 30, 2000, we spent approximately
$18.2 million on acquisitions, including approximately $10.2 million of
additional consideration related to earn-out payments associated with
acquisitions consummated in December 1998. These payments 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.
In November 2000, we announced agreements to acquire Berger Instruments
and AVS. We also announced that we had increased our shareholding in Cargoscan
to greater than 90% and our intention to purchase the minority shareholding in
Cargoscan by the end of the year. Payments related to these acquisitions will be
made in the remainder of 2000 and in subsequent periods. Berger Instruments is
the market leader in Supercritical Fluid Chromatography (SFC), a
high-performance technology used to analyze and purify chemical compounds during
drug discovery. AVS is a leader in x-ray visioning solutions used in the
inspection of packaged goods. Cargoscan is the leading provider of dimensioning
technology used by major express carriers, freight forwarders, third-party
logistic entities and distribution companies.
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.
14
<PAGE>
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.
European Economic and Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the euro, on January 1, 1999. 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 non-cash (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. We expect nonparticipating
European Union countries, where we also have operations, may 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
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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 non-cash
and cash transactions, we have developed our plans to address our accounting and
business systems first and our business assets second. We were euro compliant
within our accounting and business systems by the end of 1999 and expect to be
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 the 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.
New Accounting Standards
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. In June 2000, the SEC issued an
amendment SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements" which further delays implementation of SAB 101 until the Company's
fourth fiscal quarter of 2000. Management is currently evaluating the impact of
SAB No. 101 to determine what effect, if any, it could have on our financial
position and results of operations.
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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 recognizes
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 and research and development efforts;
euro-conversion issues; future financial performance, including expected capital
expenditures; research and development 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,
1999. 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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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2000, 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, 1999.
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) Exhibit 27 - Financial data schedule
(b) Reports on Form 8-K - None
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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, 2000 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President and
Chief Financial Officer
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