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, 1998, 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)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
- ---------------------------------------- --------------------------------------
(Address of principal executive (Zip Code)
offices)
41-1-944-22-11
---------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
The Registrant has 38,336,014 shares of Common Stock outstanding at June
30, 1998.
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 December 31, 1997 3
and June 30, 1998
Interim Consolidated Statements of Operations for the six 4
months ended June 30, 1997 and 1998
Interim Consolidated Statements of Operations for the three 5
months ended June 30, 1997 and 1998
Interim Consolidated Statements of Shareholders' Equity 6
for the six months ended June 30, 1997 and 1998
Interim Consolidated Statements of Cash Flows for the six 7
months ended June 30, 1997 and 1998
Notes to the Interim Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitive and Qualitative Disclosures About Market Risk 15
Part II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and June 30, 1998
(In thousands, except per share data)
December 31, June 30,
1997 1998
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,566 $ 14,534
Trade accounts receivable, net 153,619 161,505
Inventories 101,047 100,895
Deferred taxes 7,584 7,907
Other current assets and prepaid expenses 24,066 21,511
--------- ---------
Total current assets 309,882 306,352
Property, plant and equipment, net 235,262 220,574
Excess of cost over net assets acquired, net 183,318 182,751
Non-current deferred taxes 5,045 5,307
Other assets 15,806 16,860
--------- ---------
Total assets $ 749,313 $ 731,844
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 39,342 $ 33,607
Accrued and other liabilities 80,844 86,489
Accrued compensation and related items 43,214 38,502
Taxes payable 33,267 33,186
Deferred taxes 10,486 9,796
Short-term borrowings and current maturities
of long-term debt 56,430 56,410
--------- ---------
Total current liabilities 263,583 257,990
Long-term debt 340,334 303,235
Non-current deferred taxes 25,437 24,411
Other non-current liabilities 91,011 95,434
--------- ---------
Total liabilities 720,365 681,070
Minority interest 3,549 3,503
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
38,336,014 shares (excluding 64,467 shares
held in treasury) 383 383
Additional paid-in capital 284,630 284,630
Accumulated deficit (224,152) (205,917)
Accumulated other comprehensive income (35,462) (31,825)
--------- ---------
Total shareholders' equity 25,399 47,271
Commitments and contingencies -- --
Total liabilities and shareholders' equity $ 749,313 $ 731,844
========= =========
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1997 and 1998
(In thousands, except per share data)
June 30, June 30,
1997 1998
------------ ------------
(unaudited) (unaudited)
Net sales $ 417,814 $ 444,101
Cost of sales 237,516 247,827
------------ ------------
Gross profit 180,298 196,274
Research and development 22,444 22,015
Selling, general and administrative 126,351 129,543
Amortization 2,333 3,619
Purchased research and development 29,959 --
Interest expense 19,170 11,783
Other charges, net 2,191 770
------------ ------------
Earnings (loss) before taxes,
minority interest and extraordinary item (22,150) 28,544
Provision for taxes 4,337 10,218
Minority interest 248 91
------------ ------------
Earnings (loss) before extraordinary item (26,735) 18,235
Extraordinary item - debt extinguishment (9,552) --
------------ ------------
Net earnings (loss) $ (36,287) $ 18,235
============ ============
Basic earnings (loss) per common share:
Net earnings (loss) before extraordinary item $ (0.87) $ 0.48
Extraordinary item (0.31) --
------------ ------------
Net earnings (loss) $ (1.18) $ 0.48
============ ============
Weighted average number of common shares 30,694,216 38,336,014
Diluted earnings (loss) per common share:
Net earnings (loss) before extraordinary item $ (0.87) $ 0.45
Extraordinary item (0.31) --
------------ ------------
Net earnings (loss) $ (1.18) $ 0.45
============ ============
Weighted average number of common shares 30,694,216 40,620,312
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30, 1997 and 1998
(In thousands, except per share data)
June 30, June 30,
1997 1998
------------ ------------
(unaudited) (unaudited)
Net sales $ 220,412 $ 228,446
Cost of sales 123,396 126,779
------------ ------------
Gross profit 97,016 101,667
Research and development 11,612 11,220
Selling, general and administrative 66,158 64,431
Amortization 1,176 1,801
Purchased research and development 29,959 --
Interest expense 9,724 5,904
Other charges (income), net (1,563) 316
------------ ------------
Earnings (loss) before taxes,
minority interest and extraordinary item (20,050) 17,995
Provision for taxes 5,424 6,526
Minority interest 139 72
------------ ------------
Earnings (loss) before extraordinary item (25,613) 11,397
Extraordinary item - debt extinguishment (9,552) --
------------ ------------
Net earnings (loss) $ (35,165) $ 11,397
============ ============
Basic earnings (loss) per common share:
Net earnings (loss) before extraordinary item $ (0.84) $ 0.30
Extraordinary item (0.31) --
------------ ------------
Net earnings (loss) $ (1.15) $ 0.30
============ ============
Weighted average number of common shares 30,702,367 38,336,014
Diluted earnings (loss) per common share:
Net earnings (loss) before extraordinary item $ (0.84) $ 0.28
Extraordinary item (0.31) --
------------ ------------
Net earnings (loss) $ (1.15) $ 0.28
============ ============
Weighted average number of common shares 30,702,367 40,640,516
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six months ended June 30, 1997 and 1998
(In thousands, except per share data)
Common Stock Accumulated
All Classes Additional Other
------------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Income Total
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 2,438,514 $ 25 $ 188,084 $ (159,046) $ (16,637) $ 12,426
New issuance of Class A
and C shares 3,857 -- 300 -- -- 300
Comprehensive
income:
Net loss -- -- -- (36,287) -- (36,287)
Change in currency
translation adjustment -- -- -- -- (7,570) (7,570)
-----------
Comprehensive income (43,857)
---------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 2,442,371 $ 25 $ 188,384 $ (195,333) $ (24,207) $ (31,131)
========== =========== =========== =========== =========== ===========
Balance at December 31, 1997 38,336,014 $ 383 $ 284,630 $ (224,152) $ (35,462) $ 25,399
Comprehensive
income:
Net earnings -- -- -- 18,235 -- 18,235
Change in currency
translation adjustment -- -- -- -- 3,637 3,637
-----------
Comprehensive income 21,872
---------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 38,336,014 $ 383 $ 284,630 $ (205,917) $ (31,825) $ 47,271
========== =========== =========== =========== =========== ===========
See the accompanying notes to the interim consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 and 1998
(In thousands)
June 30, June 30,
1997 1998
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (36,287) $ 18,235
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation 11,802 11,765
Amortization 2,333 3,619
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 (478) (1,905)
Deferred taxes (2,336) (1,179)
Minority interest 248 91
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable, net (7,792) (10,343)
Inventories (6,540) (2,148)
Other current assets (3,081) 3,455
Trade accounts payable (5,969) (5,106)
Accruals and other liabilities, net 16,757 5,356
--------- ---------
Net cash provided by operating
activities 10,222 21,840
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 2,297 12,863
Purchase of property, plant and equipment (8,760) (12,686)
Acquisitions (74,908) (3,902)
Other investing activities (1,629) (885)
--------- ---------
Net cash used in
investing activities (83,000) (4,610)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 312,592 5,896
Repayments of borrowings (265,780) (31,860)
New issuance of shares 300 --
--------- ---------
Net cash provided by (used in)
financing activities 47,112 (25,964)
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents (3,755) (298)
--------- ---------
Net decrease in cash and cash equivalents (29,421) (9,032)
Cash and cash equivalents:
Beginning of period 60,696 23,566
--------- ---------
End of period $ 31,275 $ 14,534
========= =========
See the accompanying notes to the interim consolidated financial statements
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"),
formerly MT Investors Inc., is a global supplier of precision instruments
and 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 analytical and measurement
technologies. The Company's manufacturing facilities are located in
Switzerland, the United States, Germany, the U.K. 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 on a basis which reflects the interim consolidated
financial statements of the Company. 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 June 30, 1998 and for the six and
three month periods ended June 30, 1997 and 1998 should be read in
conjunction with the December 31, 1996 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, 1997.
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 six and three
month periods ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1998.
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 period. Actual results may differ from
those estimates.
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 December 31, 1997 and June 30,
1998:
December 31, June 30,
1997 1998
--------- ---------
Raw materials and parts $ 42,435 $ 39,415
Work in progress 29,746 33,089
Finished goods 28,968 28,439
--------- ---------
101,149 100,943
LIFO reserve (102) (48)
========= =========
$ 101,047 $ 100,895
========= =========
Earnings (Loss) Per Common Share
Effective December 31, 1997, the Company adopted the Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
Accordingly, basic and diluted earnings (loss) per common share data for
each period presented have been determined in accordance with the
provisions of SFAS 128. In accordance with the treasury stock method, the
Company has included 2,284,298 and 2,304,502 equivalent shares related to
4,350,048 outstanding options to purchase shares of common stock, as
described in Note 11 in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, in the calculation of diluted weighted
average number of common shares for the six and three month periods ended
June 30, 1998, respectively. Such common stock equivalents were not
included in the computation of diluted loss per common share for the period
ended June 30, 1997, as the effect is antidilutive. The Company
retroactively adjusted its weighted average common shares for the purpose
of the basic and diluted loss per common share computations for the 1997
period pursuant to SFAS 128 and Securities and Exchange Commission Staff
Accounting Bulletin No. 98 issued in February 1998.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 requires that changes in the amounts of certain items,
including foreign currency translation adjustments, be shown in the
financial statements. The Company has displayed comprehensive income and
its components in the Interim Consolidated Statements of Shareholders'
Equity. Prior year financial statements have been restated to reflect the
application of SFAS 130 as required by the standard. The adoption of SFAS
130 did not have a material effect on the Company's consolidated financial
statements.
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 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. (the "Company").
Operating results for the six and three month periods ended June 30, 1998
are not necessarily indicative of the results to be expected for the full
year ending December 31, 1998.
On May 30, 1997, the Company acquired Safeline Limited. The purchase price
was (pound)63.7 million (approximately $104.4 million at May 30, 1997),
including a post-closing adjustment of (pound)1.9 million which was paid in
October 1997 and an earn-out of (pound)0.8 million which was paid in June
1998. Safeline, based in Manchester, U.K., is the world's largest
manufacturer and marketer of metal detection systems for companies that
produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Safeline's metal detectors can
also be used in conjunction with the Company's checkweighing products for
important quality and safety checks in these industries. The Safeline
Acquisition was financed by borrowings under the Company's then-existing
credit facility together with the issuance of (pound)13.7 million
(approximately $22.4 million at May 30, 1997) of seller loan notes which
mature May 30, 1999. At June 30, 1998 (pound)4.5 million (approximately
$7.4 million at June 30, 1998) remained outstanding under the seller loan
notes.
During the fourth quarter of 1997, the Company completed its initial public
offering of 7,666,667 shares of Common Stock, including the underwriters'
over-allotment option, (the "Offering") at a per share price equal to
$14.00. The Offering raised net proceeds, after underwriters' commission
and expenses, of approximately $97.3 million. In connection with the
Offering, the Company effected a merger by and between it and its direct
wholly owned subsidiary, Mettler-Toledo Holding Inc., whereby
Mettler-Toledo Holding Inc. was merged with and into the Company (the
"Merger"). In connection with the Merger, all classes of the Company's
previous outstanding common stock were converted into 30,669,347 shares of
a single class of Common Stock. Concurrently with the Offering, the Company
entered into a bank credit agreement (the "Credit Agreement") borrowings
from which, along with the proceeds from the Offering, were used to repay
substantially all of the Company's then existing debt (collectively, the
"Refinancing"). The Company also terminated its management consulting
agreement with AEA Investors Inc.
During the second quarter of 1998, the Company filed a registration
statement covering shares of its common stock sold by certain selling
stockholders which was declared effective by the U.S. Securities and
Exchange Commission (the "Secondary Offering"). Pursuant to this
registration statement the sale of 11,464,400 shares was completed in July
1998. No directors, executive officers or other employees sold shares in
the Secondary Offering. Also, the Company did not sell shares or receive
proceeds in the Secondary Offering. The Company incurred a charge of $0.7
million in conjunction with the Secondary Offering during the second
quarter of 1998.
Subsequent to the second quarter of 1998 the Company acquired Bohdan
Automation Inc., a leading supplier of laboratory automation and automated
synthesis products. The Company anticipates incurring a non-cash
acquisition charge in the third quarter of 1998 for purchased research and
development costs in connection with this acquisition.
Results of Operations
Net sales were $444.1 million and $228.4 million for the six and three
month periods ended June 30, 1998 compared to $417.8 million and $220.4
million for the corresponding periods in the prior year. This reflected
increases of 10% and 7% in local currency (5% and 3% absent the Safeline
Acquisition) for the six and three month periods, respectively. Results
were negatively impacted by the strengthening of the U.S. dollar against
other currencies. Net sales in U.S. dollars during the six and three month
periods increased 6% and 4%, respectively.
Net sales in Europe increased 13% and 10% in local currencies during the
six and three month periods ended June 30, 1998, respectively, versus the
corresponding periods in the prior year. The Company has continued to
experience favorable sales trends in Europe, which began in the second half
of 1997, as a result of the strengthening of the European economy. Net
sales in local currencies during the six and three month periods in the
Americas increased 12% and 7%, respectively, due to improved market
conditions across most product lines. Net sales in local currencies in the
six and three month periods in Asia and other markets decreased 5% and 7%,
respectively. The Company's business in Asia has deteriorated in the six
and three month periods ending June 30, 1998 primarily as a result of a
decline in net sales in Southeast Asia and Korea (which collectively
represented approximately 3% of the Company's total net sales for 1997).
The Company anticipates that market conditions in Asia will adversely
affect sales in 1998 and that margins in that region will be reduced. The
Company believes Asia and other emerging markets will continue to provide
opportunities for growth in the long term based upon the movement toward
international quality standards, the need to upgrade mechanical scales to
electronic versions and the establishment of local production facilities by
the Company's multinational client base.
The operating results for Safeline (which were included in the Company's
results from May 31, 1997) would have had the effect of increasing the
Company's net sales by $19.0 million and $8.0 million for the six and three
month periods ended June 30, 1997, respectively. Additionally, Safeline's
operating results during the same periods would have increased the
Company's Adjusted Operating Income (gross profit less research and
development and selling, general and administrative expenses before
amortization and non-recurring costs) by $4.4 million and $2.0 million,
respectively.
Gross profit as a percentage of net sales increased to 44.2% for the six
months ended June 30, 1998, compared to 43.2% for the six months ended June
30, 1997. Gross profit as a percentage of net sales increased to 44.5% for
the three months ended June 30, 1998, compared to 44.0% for the
corresponding period in the prior year. The 1997 periods include a $2.1
million non-cash charge associated with the excess of fair value over
historical cost for inventories acquired in the Safeline acquisition.
Research and development expenses as a percentage of net sales decreased to
4.9% for the six and three months ended June 30, 1998, compared to 5.4% and
5.3% for the respective corresponding periods in the prior year; however,
the local currency spending level remained relatively constant period to
period.
Selling, general and administrative expenses as a percentage of net sales
decreased to 29.2% for the six months ended June 30, 1998, compared to
30.2% for the corresponding period in the prior year. Selling, general and
administrative expenses as a percentage of sales decreased to 28.2% for the
three months ended June 30, 1998, compared to 29.9% for the three months
ended June 30, 1997. These decreases primarily reflect the benefits of
ongoing cost efficiency programs.
Adjusted Operating Income was $44.7 million, or 10.1% of sales, for the six
months ended June 30, 1998 compared to $33.6 million, or 8.0% of sales, for
the corresponding period in the prior year, an increase of 33.3%. Adjusted
Operating Income was $26.0 million, or 11.4% of sales, for the three months
ended June 30, 1998 compared to $21.3 million, or 9.7% of sales, for the
three months ended June 30, 1997, an increase of 22.1%. The 1997 periods
exclude the previously noted charge of $2.1 million for the revaluation of
inventories to fair value in connection with the Safeline acquisition.
Interest expense decreased to $11.8 million and $5.9 million for the six
and three month periods ended June 30, 1998, compared to $19.2 million and
$9.7 million for the corresponding periods in the prior year. The decreases
were principally due to benefits received from the Offering, the
Refinancing and cash flow provided by operations.
Other charges, net of $0.8 million and $0.3 million for the six and three
month periods ended June 30, 1998 compared to other charges (income), net
of $2.2 million and $(1.6) million for the corresponding periods in the
prior year, respectively. The 1998 amounts include a one-time charge of
$0.7 million in conjunction with the Secondary Offering. The amount for the
six months ended June 30, 1998 also includes gains on asset sales offset by
other charges. The 1997 periods include a charge of $3.3 million ($2.7
million after tax) and income of $1.5 million ($1.3 million after tax) for
the six and three month periods ended June 30, 1997, respectively, relating
to (i) certain derivative financial instruments acquired in 1996 and closed
in 1997 and (ii) foreign currency exchange losses resulting from certain
unhedged bank debt denominated in foreign currencies (such derivative
financial instruments and such unhedged bank debt are no longer held
pursuant to current Company policy).
The provision for taxes is based upon the Company's projected annual
effective tax rate for the related period. The decrease in the projected
annual effective tax rate from 1997 to 1998 includes a benefit of
approximately 5 percentage points based upon a change in Swiss tax law
which will only benefit the 1998 period.
The extraordinary loss of $9.6 million in the 1997 periods represents
charges for the write-off of capitalized debt issuance fees and related
expenses associated with a previous credit facility.
The net earnings of $18.2 million and $11.4 million for the six and three
month periods ended June 30, 1998 compared to net losses of $36.3 million
and $35.2 million for the corresponding periods of the prior year.
Excluding the Secondary Offering expenses in 1998 and the expense for
purchased research and development, the revaluation of inventories to fair
value, the losses and income relating to derivative financial instruments
and unhedged bank debt denominated in foreign currencies, and the
extraordinary item - debt extinguishment in 1997, net earnings would have
been $18.9 million and $12.0 million for the six and three month periods
ended June 30, 1998 compared to $7.3 million and $4.4 million for the
corresponding periods in the prior year.
Liquidity and Capital Resources
The Credit Agreement provides for term loan borrowings in aggregate
principal amounts of $97.8 million, SFr 82.3 million (approximately $53.8
million at June 30, 1998) and (pound)20.8 million (approximately $34.6
million at June 30, 1998) that are scheduled to mature in 2004, a Canadian
revolver with availability of CDN $26.3 million (approximately CDN $18.7
million of which was drawn as of June 30, 1998) which is scheduled to
mature in 2004, and a multi-currency revolving credit facility with
availability of $400.0 million (approximately $250.0 million of which was
available at June 30, 1998) which is also scheduled to mature in 2004. The
Company had borrowings of $332.8 million under the Credit Agreement and
$26.8 million under various other arrangements as of June 30, 1998. Under
the Credit Agreement, amounts outstanding under the term loans amortize in
quarterly installments. In addition, the Credit Agreement obligates the
Company to make mandatory prepayments in certain circumstances with the
proceeds of asset sales or issuance of capital stock or indebtedness and
with certain excess cash flow. The Credit Agreement imposes certain
restrictions on the Company and its subsidiaries, including restrictions on
the ability to incur indebtedness, make investments, grant liens, sell
financial assets and engage in certain other activities. The Company must
also comply with certain financial covenants. The Credit Agreement is
secured by certain assets of the Company. The Credit Agreement imposes
certain restrictions on the Company's ability to pay dividends to its
shareholders.
At June 30, 1998, approximately $110.4 million of the borrowings under the
Credit Agreement were denominated in U.S. dollars. The balance of the
borrowings under the Credit Agreement and under local working capital
facilities were also denominated in certain of the Company's other
principal trading currencies amounting to approximately $249.2 million at
June 30, 1998. Changes in exchange rates between the currencies in which
the Company generates cash flow and the currencies in which its borrowings
are denominated will affect the Company's liquidity. In addition, because
the Company borrows in a variety of currencies, its debt balances will
fluctuate due to changes in exchange rates. See "Effect of Currency on
Results of Operations" below.
The Company's cash provided by operating activities increased from $10.2
million in the six months ended June 30, 1997 to $21.8 million in the six
months ended June 30, 1998. The increase resulted principally from improved
Adjusted Operating Income and lower interest costs resulting from the
Offering and Refinancing.
At June 30, 1998, consolidated debt, net of cash, was $345.1 million.
The Company continues to explore potential acquisitions to expand its
product portfolio and improve its distribution capabilities. In connection
with any acquisition, the Company may incur additional indebtedness.
The Company currently believes that cash flow from operating activities,
together with borrowings available under the Credit Agreement and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements as well
as debt service requirements for at least several years, but there can be
no assurance that this will be the case.
Effect of Currency on Results of Operations
The Company's operations are conducted by subsidiaries in many countries,
and the results of operations and the financial position of each of those
subsidiaries are 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 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, whereas 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.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ( "SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management has not determined the effect of
the adoption of SFAS 133.
Cautionary Statement
This Quarterly Report on Form 10-Q includes forward-looking statements that
reflect the Company's current views with respect to future events and
financial performance, including capital expenditures, planned product
introductions, research and development expenditures, potential future
growth, including potential penetration of developed markets and potential
growth opportunities in emerging markets, potential future acquisitions,
potential cost savings from planned employee reductions and restructuring
programs, estimated proceeds from and timing of asset sales, planned
operational changes and research and development efforts, strategic plans
and future cash sources and requirements. The words "believe", "expect",
"anticipate" and similar expressions identify 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. These
forward-looking statements are subject to a number of risks and
uncertainties, including the risk of substantial indebtedness on operations
and liquidity, risks associated with currency fluctuations, risks
associated with international operations, highly competitive markets and
technological developments, risks relating to downturns or consolidation
affecting the Company's customers, risks relating to future acquisitions,
risks associated with reliance on key management, uncertainties associated
with environmental matters, risks relating to restrictions on payment of
dividends and risks relating to certain anti-takeover provisions, which
could cause actual results to differ materially from historical results or
those anticipated. For a more detailed discussion of these factors, see the
Mettler-Toledo International Inc. Annual Report on Form 10-K for the year
ended December 31, 1997.
Item 3. Quantitative and Qualitative Disclosures About Market Risk Not
applicable
Part II. OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults Upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Mettler-Toledo International Inc. annual meeting of
stockholders was held on May 18, 1998, at which the following
matters were submitted to a vote of security holders: the election
of directors of the Company as previously reported to the
Commission and the election of auditors for the Company.
As of March 24, 1998, the record date for said meeting, there were
38,336,014 shares of Mettler-Toledo International Inc. common stock
entitled to vote at the meeting. At such meeting, the holders of
27,841,389 shares were represented in person or by proxy,
constituting a quorum. At such meeting, the vote with respect to
the matters proposed to the stockholders was as follows:
Matter For Withheld or Against
------ --- -------------------
Election of Directors
For All Nominees 26,356,304 1,485,085
Election of Auditors 26,355,374 1,486,015
Item 5. Other information Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement Regarding Computation of Per Share Earnings
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.
Mettler-Toledo International
Inc.
Date: August 12, 1998 By:/s/ William P. Donnelly
___________________________
William P. Donnelly
Vice President, Chief
Financial Officer and
Treasurer