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 JUNE 30, 1997, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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Commission File Number 0-22493
MT Investors Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3668641
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Im Langacher, P.O. Box MT-100
CH 8608 Greifensee, Switzerland
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(Address of principal (Zip Code)
executive offices)
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 No X
-------- --------
The Registrant has 1,902,779 and 538,592 shares of Class A and
Class C Common Stock outstanding at June 30, 1997,
respectively.
MT INVESTORS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
MT INVESTORS INC.
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of December
31, 1996 and June 30, 1997 3
Interim Consolidated Statements of Operations for the
six months ended June 30, 1996 and 1997 5
Interim Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1997 6
Interim Consolidated Statements of Changes in Net
Assets / Shareholders' Equity (Deficit) for the six
months ended June 30, 1996 and 1997 7
Interim Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997 9
Notes to the Interim Consolidated Financial Statements 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
---------------------------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
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ITEM 2. CHANGES IN SECURITIES 17
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ITEM 3. DEFAULT UPON SENIOR SECURITIES 17
- ---------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 17
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ITEM 5. OTHER INFORMATION 17
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
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Signature 18
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- ------ --------------------
MT INVESTORS INC.
INTERIM CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1997
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
SUCCESSOR SUCCESSOR
--------- ---------
DECEMBER 31, JUNE 30,
1996 1997
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 60,696 $ 31,275
Trade accounts receivable, net 151,161 158,577
Inventories 102,526 109,398
Deferred taxes 7,565 9,390
Other current assets 17,268 19,854
--------- --------
Total current assets 339,216 328,494
Property, plant and equipment, net 255,292 250,381
Excess of cost over net assets
acquired, net 135,490 181,284
Long-term deferred taxes 3,916 4,324
Other assets 37,974 22,652
--------- --------
Total assets $ 771,888 $787,135
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $32,797 $28,844
Accrued and other liabilities 115,314 121,075
Taxes payable 17,580 23,683
Deferred taxes 9,132 8,606
Bank and other loans 80,446 70,476
--------- --------
Total current liabilities 255,269 252,684
Long-term debt due to third parties 373,758 440,605
Long-term deferred taxes 30,467 28,133
Other long-term liabilities 96,810 93,315
--------- --------
Total liabilities 756,304 814,737
Minority interest 3,158 3,529
Shareholders' equity (deficit):
Common stock, $0.01 par value per share:
Class A non-voting, authorized
2,233,117 shares at December 31, 1996
and 2,235,896 at June 30, 1997;
issued 1,899,779 at
December 31, 1996 and
1,902,779 at June 30, 1997 19 19
Class B voting, authorized
1,000 shares; issued 1,000 at
December 31, 1996 and June 30, 1997 1 1
Class C non-voting, authorized
541,859 shares; issued 537,735 at
December 31, 1996 and
538,592 at June 30, 1997 5 5
Additional paid-in capital 188,084 188,384
Accumulated deficit (159,046) (195,333)
Currency translation adjustment (16,637) (24,207)
--------- --------
Total shareholders' equity (deficit) 12,426 (31,131)
--------- --------
Total liabilities and shareholders'
equity (deficit) $ 771,888 $787,135
========= ========
See the accompanying notes to the interim
consolidated financial statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
JUNE 30, JUNE 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $423,802 $417,814
Cost of sales 252,203 237,516
-------- ---------
Gross profit 171,599 180,298
Research and development 25,054 22,444
Selling, general and administrative 120,531 126,351
Amortization 1,270 2,333
Purchased research and development - 29,959
Other income, net - (99)
-------- ---------
Earnings (loss) before interest,
taxes and extraordinary item 24,744 (690)
Interest expense 8,346 19,170
Financial expense (income), net (965) 2,290
-------- ---------
Earnings (loss) before taxes
minority interest and extraordinary
item 17,363 (22,150)
Provision for taxes 6,830 4,337
Minority interest 526 248
-------- ---------
Earnings (loss) before
extraordinary item 10,007 (26,735)
Extraordinary item - debt
extinguishment - 9,552
-------- ---------
Net earnings (loss) $ 10,007 $ (36,287)
======== =========
Loss per common share:
Weighted average number
of common shares - 2,440,443
Loss per common share - $ (14.87)
======== =========
See the accompanying notes to the interim
consolidated financial statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
JUNE 30, JUNE 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $222,429 $220,412
Cost of sales 131,225 123,396
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Gross profit 91,204 97,016
Research and development 12,602 11,612
Selling, general and administrative 59,051 66,158
Amortization 599 1,176
Purchased research and development - 29,959
Other income, net - (110)
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Earnings before interest,
taxes and extraordinary item 18,952 (11,779)
Interest expense 3,809 9,724
Financial income, net (569) (1,453)
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Earnings (loss) before taxes,
minority interest and
extraordinary item 15,712 (20,050)
Provision for taxes 6,182 5,424
Minority interest 452 139
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Earnings (loss) before
extraordinary item 9,078 (25,613)
Extraordinary item - debt
extinguishment - 9,552
------- ---------
Net earnings (loss) $ 9,078 $ (35,165)
======= =========
Loss per common share:
Weighted average number
of common shares - 2,442,371
Loss per common share - $(14.40)
======= ==========
See the accompanying notes to the interim
consolidated financial statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS /
SHAREHOLDERS' EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR
-----------------------------------------
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
-------- ---------- -----
Net assets at
December 31, 1995 $162,604 $30,650 $193,254
Capital transactions
with Ciba and
affiliates 1,353 - 1,353
Net earnings 10,007 - 10,007
Change in currency
translation adjustment - (11,252) (11,252)
-------- ------- --------
Net assets at June 30,
1996 $173,964 $19,398 $193,362
======== ======= ========
See the accompanying notes to the interim
consolidated financial statements
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR
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SIX MONTHS ENDED JUNE 30, 1997
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COMMON STOCK
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CLASS A CLASS B CLASS C ADDITIONAL CURRENCY
------------------ ----------------- ----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- -------- -------- -------- -------- -------- ---------- ---------- ----------- ---------
Balance at
December 31,
1996 1,899,779 $ 19 1,000 $ 1 537,735 $ 5 $ 188,084 $ (159,046) $ (16,637) $ 12,426
New issuance of
shares 3,000 - - - 857 - 300 - - 300
Net loss - - - - - - - (36,287) - (36,287)
Change in currency
translation
adjustment - - - - - - - - (7,570) (7,570)
--------- --------- -------- ------- ------- -------- ---------- ---------- ----------- ---------
Balance at
June 30, 1997 1,902,779 $ 19 1,000 $ 1 538,592 $ 5 $ 188,384 $ (195,333) $ (24,207) $ (31,131)
========= ========= ======== ======= ======= ======== ========== ========== =========== =========
See the accompanying notes to the interim
consolidated financial statements
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------- ---------
JUNE 30, JUNE 30,
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net earnings (loss) $ 10,007 $ (36,287)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation 12,942 11,802
Amortization 1,270 2,333
Write-off of purchased research and
development and cost of sales
associated with revaluation of
inventories - 32,013
Extraordinary item - debt
extinguishment - 9,552
Net gain on disposal of long-term
assets (131) (478)
Deferred taxes (191) (2,336)
Minority interest 526 248
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable, net (4,666) (7,792)
Inventories 279 (6,540)
Other current assets (352) (3,081)
Trade accounts payable 932 (5,969)
Accruals and other liabilities,
net 16,244 16,757
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Net cash provided by operating
activities 36,860 10,222
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Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 508 2,297
Purchase of property, plant and
equipment (10,053) (8,760)
Purchase of Safeline Limited - (74,908)
Investments in other long term assets,
net (37) (1,629)
-------- --------
Net cash used in investing
activities (9,582) (83,000)
-------- --------
Cash flows from financing activities:
Borrowings of third party debt - 312,592
Repayments of third party debt (1,078) (265,780)
Proceeds from issuance of common stock - 300
Ciba and affiliates repayments (16,368) -
Capital transactions with Ciba and
affiliates (2,983) -
-------- --------
Net cash provided by (used) in
financing activities (20,429) 47,112
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (2,316) (3,755)
-------- --------
Net increase (decrease) in cash and cash
equivalents 4,533 (29,421)
Cash and cash equivalents:
Beginning of period 41,402 60,696
-------- --------
End of period $ 45,935 $31,275
======== ========
See the accompanying notes to the interim
consolidated financial statements
MT INVESTORS INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise stated)
1.BASIS OF PRESENTATION
The accompanying interim consolidated financial statements
have been prepared in accordance with United States generally
accepted accounting principles on a basis which reflects the
interim consolidated financial statements of MT Investors
Inc. ("MT Investors"). MT Investors was incorporated by AEA
Investors Inc. ("AEA") in December 1991. It was recapitalized
to effect the acquisition of the Mettler-Toledo Group from
Ciba-Geigy AG ("Ciba") and its wholly owned subsidiary, AG fur
Prazisionsinstrumente ("AGP"). Pursuant to the terms of a
stock purchase agreement dated April 2, 1996 between MT
Investors, AGP and Ciba, on October 15, 1996 MT Investors
acquired the Mettler-Toledo Group in a business combination
accounted for as a purchase. Between the date of formation and
October 15, 1996, MT Investors had no substantive operations.
In the accompanying interim consolidated financial statements
the terms "Mettler-Toledo" or the "Company" when used in
situations pertaining to periods prior to October 15, 1996
refer to the combined group of businesses sold by Ciba and
when used in situations pertaining to periods subsequent to
October 15, 1996 refer to MT Investors and its consolidated
subsidiaries. The combined historical financial information of
the business acquired from Ciba prior to the Acquisition on
October 15, 1996 are referred to as "Predecessor" while the
consolidated financial information of the Company subsequent
to the date of the Acquisition are referred to as "Successor".
Because of purchase price accounting for the Acquisition and
the additional interest expense from debt incurred to finance
the Acquisition, the accompanying interim financial statements
of the Successor are not directly comparable to those of the
Predecessor.
The accompanying interim consolidated financial statements of
the Company have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations. The accompanying interim consolidated financial
statements as of June 30, 1997 and for the six months and
three months periods ended June 30, 1996 and 1997 should be
read in conjunction with the December 31, 1995 and 1996
consolidated financial statements and the notes thereto
included in MT Investors' registration statement on Form 10 for
the year ended December 31, 1996.
The accompanying unaudited interim consolidated financial
statements reflect all adjustments (consisting of only normal
recurring adjustments) which, in the opinion of management,
are necessary for a fair statement of the results of the
interim periods presented. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the full year ending December
31, 1997.
DEBT REFINANCING
On May 29, 1997, the Company refinanced its existing credit
facility (the "Credit Agreement"). The Credit Agreement
provides for term loan borrowings in an aggregate principal
amount of approximately US $133.8 million, SFr 171.5 million
and GBP 26.7 million, that are scheduled to mature between
2002 and 2004, a Canadian revolving credit facility with
availability of CDN $26.3 million and a multi-currency
revolving credit facility with availability of US $151.0
million. The revolving credit facilities are scheduled to
mature in 2002.
The Company recorded an extraordinary item - debt
extinguishment of $9.6 million representing a one time charge
for the write-off of capitalized debt issuance fees and
related expenses associated with the Company's previous credit
facility.
SAFELINE ACQUISITION
On May 30, 1997, the Company purchased (the "Safeline
Acquisition") the entire issued share capital of Safeline
Limited ("Safeline"), a manufacturer of metal detection
systems based in Manchester in the United Kingdom, for
approximately GBP 61 million (approximately US $100 million)
subject to post-closing adjustment plus up to an additional
GBP 6 million (US $10 million) for a contingent earn-out
payment. Under the terms of the agreement the Company paid
approximately GBP 47.2 million (US $77.4 million) of the
purchase price in cash, provided by amounts loaned under its
Credit Agreement, with the remaining balance of approximately
GBP 13.7 million (US $22.5 million) paid in the form of seller
loan notes which mature May 30, 1999. In connection with the
Safeline Acquisition the Company incurred expenses of
approximately $2.0 million which have been accounted for as
part of the purchase price.
The Company has accounted for the Safeline Acquisition using
the purchase method of accounting. Accordingly, the costs of
the Safeline Acquisition were allocated to the assets acquired
and liabilities assumed based upon their respective fair
values. Approximately $30 million of the purchase price was
attributed to purchased research and development in process.
Such amount was expensed immediately in the second quarter of
1997. The technological feasibility of the products being
developed had not been established as of the date of the
Safeline Acquisition. The Company expects that the projects
underlying these research and development efforts will be
substantially complete over the next two years. The Company
spends more than $40 million annually on research and
development; however, ultimately achieving technological
feasibility cannot be assured for these projects or others.
In addition, the Company allocated approximately $2.0
million of the purchase price to revalue certain finished
goods inventories to fair value. Substantially all of such
inventories were sold in the second quarter of 1997. The
excess of the cost of the Safeline Acquisition over the fair
value of the net assets acquired of approximately $62 million
is being amortized over 30 years. The purchase price
allocation is subject to adjustment. The results of operations
and cash flows of Safeline have been consolidated with those
of the Company from the date of Safeline Acquisition.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Mettler-Toledo is a manufacturer and marketer of weighing
instruments for use in laboratory, industrial and food
retailing applications. The Company also manufactures and
sells certain related laboratory measurement instruments. The
Company manufacturing facilities are located in Switzerland,
the United States, Germany, the United Kingdom and China.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost,
which includes direct materials, labor and overhead plus
indirect overhead, is determined using either the first in,
first out (FIFO) or weighted average cost method. Two
companies in the U.S. use the last in, first out (LIFO) cost
method.
Inventories consisted of the following at December 31, 1996
and June 30, 1997:
<CAPTION
December 31, June 30,
1996 1997
------------ -----------
Raw materials and parts $ 41,015 $ 42,309
Work in progress 31,534 33,078
Finished goods 29,982 34,168
------------ -----------
102,531 109,555
LIFO reserve (5) (157)
------------ -----------
$ 102,526 $ 109,398
============ ===========
INTEREST RATE AGREEMENTS
In July 1997 the Company entered into three year interest
rate cap agreements to limit the impact of increases in
interest rates on $150 million of US dollar based debt.
These agreements "cap" the effects of an increase in three
month LIBOR above 8.5%. In addition, the Company has entered
into three year interest rate swap agreements which swap the
interest obligation associated with $100 million of US dollar
based debt from variable to fixed. The fixed rate associated
with the swap is 6.09% plus the Company's normal interest
margin. The swap is effective at three month LIBOR rates up
to 7.00%.
The Company has designated such interest rate agreements as
hedges of certain of its long-term debt payable and
recognizes interest differentials as adjustments to interest
expense in the period they occur. Premiums paid on interest
rate cap agreements are amortized over the terms of the
agreements. In August 1997, the Company entered into
certain three year interest rate swap agreements that fix
the interest obligation associated with SFR 112.5 million
of Swiss Franc based debt at rates varying between 2.17% and
2.49%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's
financial condition and results of operations should be read
in conjunction with the Unaudited Interim Consolidated
Financial Statements included herein.
GENERAL
The accompanying interim consolidated financial statements
have been prepared in accordance with United States generally
accepted accounting principles on a basis which reflects the
interim consolidated financial statements of MT Investors Inc.
("MT Investors"). MT Investors was incorporated by AEA
Investors Inc. (AEA") in December 1991. It was recapitalized
to effect the acquisition of the Mettler-Toledo Group from
Ciba-Geigy AG ("Ciba") and its wholly owned subsidiary, AG fur
Prazisionsinstrumente ("AGP"). Pursuant to the terms of a
stock purchase agreement dated April 2, 1996 between MT
Investors, AGP and Ciba, on October 15, 1996 MT Investors
acquired the Mettler-Toledo Group in a business combination
accounted for as a purchase. Between the date of formation
and October 15, 1996, MT Investors had no substantive
operations.
In the accompanying interim consolidated financial
statements the terms "Mettler-Toledo" or the "Company" when
used in situations pertaining to periods prior to October
15, 1996 refer to the combined group of businesses sold by
Ciba and when used in situations pertaining to periods
subsequent to October 15, 1996 refer to MT Investors and
its consolidated subsidiaries. The combined historical
financial information of the business acquired from Ciba
prior to the Acquisition on October 15, 1996 are referred
to as "Predecessor" while the consolidated financial
information of the Company subsequent to the date of the
Acquisition are referred to as "Successor." Because of
purchase price accounting for the Acquisition and the
additional interest expense from debt incurred to finance
the Acquisition, the accompanying interim financial
statements of the Successor are not directly comparable to
those of the Predecessor.
Financial information is presented in accordance with United
States generally accepted accounting principles ("U.S. GAAP").
Operating results for the six and three months ended June 30,
1997 are not necessarily indicative of the results to be
expected for the full year ending December 31, 1997.
On May 29, 1997 the Company refinanced its credit facility
(the "Credit Agreement"). See "Liquidity and Capital
Resources".
On May 30, 1997, the Company purchased (the "Safeline
Acquisition") the entire issued share capital of Safeline
Limited ("Safeline"). The purchase price (the "Purchase
Price") for the Safeline Acquisition, subject to post closing
adjustments, was GBP 61 million (approximately US $100
million), plus up to an additional GBP 6 million (US $10
million) for a contingent earn-out payment. The Safeline
Acquisition was effected pursuant to the terms of a Share Sale
and Purchase Agreement (the "Purchase Agreement"), dated May
30, 1997, among the Company's subsidiaries Safeline Holding
Company and Mettler-Toledo Inc. (a Canadian corporation), as
purchasers, and Safeline Limited and each of the sellers named
therein as sellers.
Safeline, based in Manchester, U.K., is the world's leading
supplier of metal detection systems for companies who produce
and package goods in the food, pharmaceutical, cosmetics,
chemicals and other industries.
The source of funds for the Purchase Price was provided by GBP
13.7 million (US $22.5 million) in loan notes to be retained
by the sellers with the remaining amounts provided by amounts
loaned under its Credit Agreement. See "Liquidity and Capital
Resources".
RESULTS OF OPERATIONS
Net sales were $417.8 million and $220.4 million for the six
and three month periods ended June 30, 1997, respectively,
compared to $423.8 million and $222.4 million for the
corresponding periods in the prior year, a decrease of 1% for
the six month period and relatively unchanged for the three
month period. Results were negatively impacted in part by the
strengthening of the U.S. dollar against other currencies. Net
sales during the six month period in local currencies
increased 5%. Net sales in local currencies for the three
month period increased 6%.
Net sales in local currencies during the six and three month
periods in Europe decreased 1% principally as a result of weak
European economies adversely affecting sales to industrial
customers. Net sales in local currencies during the six and
three month periods in the Americas increased 6% principally
due to improved market conditions for sales to industrial and
food retailing customers. Net sales in local currencies in the
six and three month periods in Asia and other markets
increased 28% and 38% respectively, primarily as a result of
the establishment of additional direct marketing and
distribution in the region.
The operating results for Safeline had the effect of
increasing the Company's net sales by $3.8 million for the
period ended June 30, 1997. Earnings before interest, taxes
and extraordinary item were increased by $0.8 million for the
period ended June 30, 1997, excluding the impacts of purchase
accounting adjustments for purchased research and development
and the sale of inventories revalued (to fair value).
Gross profit as a percentage of net sales increased to 43.2%
for the six months ended June 30, 1997, compared to 40.5% for
the corresponding period in the prior year. Gross profit as a
percentage of net sales increased to 44.0% for the three
months ended June 30, 1997, compared to 41.0% for the
corresponding period in the prior year. Such increases were
adversely impacted by a non-cash charge associated with the
excess of the fair value over the historic value of inventory
acquired in the Safeline Acquisition. Absent such charge, the
gross profit percentages for the six and three month periods
would have been 43.6% and 44.9% respectively. These results
reflect the benefits of reduced product costs arising from the
Company's research and development efforts, ongoing
productivity improvements, and the depreciation of the Swiss
franc against the Company's other principal trading
currencies.
Research and development expenses as a percentage of net sales
decreased to 5.4% for the six months ended June 30, 1997,
compared to 5.9% for the corresponding period in the prior
year; however, the local currency spending level remained
relatively constant period to period. Research and development
expenses as a percentage of net sales decreased to 5.3% for
the three months ended June 30, 1997, compared to 5.7% for the
corresponding period in the prior year.
Selling, general and administrative expenses as a percentage
of net sales increased to 30.2% for the six months ended June
30, 1997, compared to 28.4% for the corresponding period in
the prior year. Selling, general and administrative expense as
a percentage of net sales increased to 30.0% for the three
months ended June 30, 1997, compared to 26.5% for the
corresponding period in the prior year. The increases are
primarily a result of establishing additional direct marketing
and distribution in Asia.
In connection with the Safeline Acquisition, approximately
$30 million of the purchase price was attributed to purchased
research and development in process. Such amount was
expensed immediately in the second quarter of 1997. The
technological feasability of the products being developed had
not been established as of the date of the Safeline
Acquisition. The Company expects that the projects underlying
these research and development efforts will be substantially
complete over the next two years. The Company spends more than
$40 million annually on research and development; however,
ultimately achieving technological feasibility cannot be
assured for these products or others.
The loss before interest, taxes and extraordinary item was
$0.7 million and $11.8 million for the six and three month
periods ended June 30, 1997, respectively, compared to
earnings of $24.7 million and $19.0 million for the
corresponding periods in the prior year. The losses during the
1997 periods include expenses of $30 million for the
allocation of purchase price to in-process research and
development projects in connection with the Safeline
Acquisition and $2.0 million for the revaluation of
inventories to fair value. Excluding these expenses, earnings
before interest, taxes and extraordinary item would have been
$31.3 million and $20.2 million for the six and three month
periods ended June 30, 1997, respectively.
Interest expense increased to $19.2 million for the six months
ended June 30, 1997, compared to $8.3 million for the
corresponding period in the prior year. The increase was
principally due to additional Acquisition related debt. Net
financial expense of $2.3 million for the six months ended
June 30, 1997 compared to net financial income of $1.0 million
for the corresponding period in the prior year as a result of
lower interest income and an increase in foreign currency
losses.
The extraordinary item - debt extinguishment of $9.6 million
represents a one time charge for the write-off of capitalized
debt issuance fees and related expenses associated with the
Company's previous credit facility. See "Liquidity and
Capital Resources".
The net loss of $36.3 million and $35.2 million for the six
and three month periods ended June 30, 1997, respectively,
compared to net earnings of $10.0 million and $9.1 million for
the corresponding periods in the prior year. Excluding the
expense for purchased research and development, the
revaluation of inventories to fair value and the extraordinary
item - debt extinguishment, net earnings would have been $4.6
million and $5.7 million for the six and three month periods
ended June 30, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Acquisition was financed principally through capital
contributions, borrowings under a credit facility and 9 3/4%
Senior Subordinated Notes due 2006 (the "Notes"). Prior to
the Acquisition, the Company's cash and other liquidity has
historically been used to fund capital expenditures, working
capital requirements, debt service and dividends to Ciba.
Following the Acquisition, interest expense associated with
borrowings under the Credit Agreement and Notes as well as
scheduled principal payments of term loans under the Credit
Agreement, has significantly increased liquidity requirements.
The Credit Agreement provides for term loan borrowings in an
aggregate principal amount of approximately US $133.8 million,
SFr 171.5 million and GBP 26.7 million that are scheduled to
mature in 2002 and 2004, a Canadian revolving credit facility
with availability of CDN $26.3 million (approximately CDN $21
million of which has been drawn), and a multi-currency
revolving credit facility with availability of US $151.0
million (approximately US $8.3 million of which has been
drawn). The revolving credit facilities are scheduled to
mature in 2002. The interest rate margin on all loans have
been reduced by 75 basis points under the Credit Agreement as
compared to the Company's prior credit facility.
Under the Credit Agreement, mandatory prepayments are required
to be made in certain circumstances with the proceeds of
asset sales or issuance of capital stock or indebtedness and
with certain excess cash flow. The Credit Agreement imposes
certain restrictions on the Company and its subsidiaries,
including restrictions on the ability to incur indebtedness,
make investments, grant liens, sell financial assets and
engage in certain other activities. The Company must also
comply with certain financial convenants. The Credit Agreement
is secured by certain assets of the Company.
The Notes will mature in 2006. The Notes may be required to
be purchased by the Company upon a Change of Control (as
defined) and in certain circumstances with the proceeds of
asset sales. The Notes are subordinated to the indebtedness
under the Credit Agreement. The indenture governing the Notes
(the "Indenture") imposes certain restrictions on the Company
and its subsidiaries, including restrictions on the ability to
incur indebtedness, make investments, grant liens and engage
in certain other activities.
Under the Credit Agreement and the Indenture, Mettler-Toledo,
Inc. is prohibited from paying dividends to Mettler-Toledo
Holding, subject to certain limited exceptions. Mettler-
Toledo, Inc.'s obligations under the Credit Agreement and Notes
are guaranteed by Mettler-Toledo Holding.
The Company's cash provided by operating activities declined
from $36.9 million in the six months ended June 30, 1996 to
$10.2 million in the six months ended June 30, 1997. The
decline resulted principally from higher interest costs
resulting from the Acquisition and higher working capital
requirements.
During the six months ended June 30, 1997, the Company's net
debt increased by $86.6 million as a result of the Safeline
Acquisition.
The Company continues to explore acquisitions to expand its
product portfolio and improve its distribution capabilities.
In connection with any acquisition, the Company may incur
additional indebtedness.
The Company currently believes that cash flow from operating
activities, together with borrowings available under the
Credit Agreement and local working capital facilities, will be
sufficient to fund currently anticipated working capital needs
and capital spending requirements as well as debt service
requirements for at least several years, but there can be no
assurance that this will be the case.
The Company holds a variety of interest swap and cap
arrangements which limits its risk of increases in interest
rates. See Note 2 to the Interim Consolidated Financial
Statements.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The Company's operations are conducted by subsidiaries in many
countries, and the results of operations and the financial
position of each of those subsidiaries is reported in the
relevant foreign currency and then translated into U.S.
dollars at the applicable foreign exchange rate for inclusion
in the Company's interim consolidated financial statements.
Accordingly, the results of operations of such subsidiaries as
reported in U.S. dollars can vary as a result of changes in
currency exchange rates. Specifically, a strengthening of the
U.S. dollar versus other currencies reduces net sales and
earnings as translated into U.S. dollars while a weakening of
the U.S. dollar has the opposite effect.
Swiss franc-denominated costs represent a much greater
percentage of the Company's total expenses than Swiss franc-
denominated sales represent of total sales. In general, an
appreciation of the Swiss franc versus the Company's other
major trading currencies, especially the principal European
currencies, has a negative impact on the Company's results of
operations and a depreciation of the Swiss franc versus the
Company's other major trading currencies, especially the
principal European currencies, has a positive impact on the
Company's results of operations. The effect of these changes
generally offsets in part the translation effect on earnings
before interest and taxes of changes in exchange rates between
the U.S. dollar and other currencies described in the
preceding paragraph.
CAUTIONARY STATEMENT
Statements in this discussion which are not historical facts
may be considered forward looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934,
as amended. The words "believe," "expect," "anticipate" and
similar expressions identify forward looking statements. Any
forward looking statements involve risks and uncertainties
that could cause actual events or results to differ, perhaps
materially, from the events or results described in the
forward looking statements. Readers are cautioned not to
place undue reliance on these forward looking statements,
which speak only as of their dates. The Company undertakes no
obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future
events or otherwise. Risks associated with the Company's
forward looking statements include, but are not limited to,
risks associated with the Company's international operations,
such as currency fluctuations, the risk of new and different
legal and regulatory requirements, governmental approvals,
tariffs and trade barriers; risks associated with competition
and technological innovation by competitors; general economic
conditions and conditions in industries that use the Company's
products, especially the pharmaceutical and chemical
industries, and risks associated with the Company's growth
strategy, including investments in emerging markets. For a
more detailed discussion of these factors, see the MT
Investors Inc. registration statement on Form 10 for the year
ended December 31, 1996.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Not applicable
- --------------------------
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
In April 1997, the Company issued 3,000 shares of Class A
Common Stock for an aggregate consideration of $300,000 and 857
shares of Class C Common Stock for an aggregate consideration of
approximately $26. The shares were offered and sold to an
executive officer of the Company in reliance on Rule 506 of
Regulation D under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable
- ----------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION Not applicable
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
MT Investors Inc.
Date: August 14, 1997 By: /s/ William P. Donnelly
--------------------------
William P. Donnelly
Vice President, Chief
Financial Officer and
Treasurer