-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MNQvBYu+sLi3lZjBdxpIPIPBetexjuukRqMV4JWWW77Niw6RJNgnQ1cFAbD/blWP KBqGLqqXW7BasjVvW1Km/g== 0001037646-99-000014.txt : 19991117 0001037646-99-000014.hdr.sgml : 19991117 ACCESSION NUMBER: 0001037646-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METTLER TOLEDO INTERNATIONAL INC/ CENTRAL INDEX KEY: 0001037646 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 133668641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13595 FILM NUMBER: 99751975 BUSINESS ADDRESS: STREET 1: IM LANGACHER P O BOX MT-100 STREET 2: CH 8606 GREIFENSEE CITY: SWITZERLAND STATE: V8 BUSINESS PHONE: 2126445900 MAIL ADDRESS: STREET 1: IM LANGACHER STREET 2: P O BOX MT 100 CH 8606 GREIFENSEE CITY: SWITZERLAND STATE: V8 FORMER COMPANY: FORMER CONFORMED NAME: METTLER TOLEDO INTERNATIONAL INC DATE OF NAME CHANGE: 19971117 FORMER COMPANY: FORMER CONFORMED NAME: MT INVESTORS INC DATE OF NAME CHANGE: 19970411 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999, OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ---------------- Commission File Number 1-13595 Mettler-Toledo International Inc. - --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3668641 (State or other jurisdiction of (IRS Employer Identification No.) - ----------------------------------------- Incorporation or organization) - ----------------------------------------- Im Langacher, P.O. Box MT-100 - ----------------------------------------- CH 8606 Greifensee, Switzerland - ----------------------------------------- (Address of principal executive offices) (Zip Code) - ----------------------------------------- - ----------------------------------------- 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 had 38,553,843 shares of Common Stock outstanding at September 30, 1999. METTLER-TOLEDO INTERNATIONAL INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q Page No. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Interim Consolidated Financial Statements: Interim Consolidated Balance Sheets as of September 30, 1999 3 and December 31, 1998 Interim Consolidated Statements of Operations for the nine 4 months ended September 30, 1999 and 1998 Interim Consolidated Statements of Operations for the three 5 months ended September 30, 1999 and 1998 Interim Consolidated Statements of Shareholders' Equity 6 for the nine months ended September 30, 1999 and 1998 Interim Consolidated Statements of Cash Flows for the nine 7 months ended September 30, 1999 and 1998 Notes to the Interim Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition 12 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Part II. OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 2. Changes in Security 20 Item 3. Default upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21 Part I. FINANCIAL INFORMATION Item 1. Financial Statements METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED BALANCE SHEETS As of September 30, 1999 and December 31, 1998 (In thousands, except per share data)
September 30, December 31, 1999 1998 ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents $14,901 $21,191 Trade accounts receivable, net 190,667 178,525 Inventories, net 120,737 112,059 Other current assets and prepaid expenses 42,610 46,455 ---------- ---------- Total current assets 368,915 358,230 Property, plant and equipment, net 204,500 230,264 Excess of cost over net assets acquired, net 214,793 213,772 Other assets 22,592 18,175 ---------- ---------- Total assets $810,800 $820,441 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $58,978 $58,740 Accrued and other liabilities 103,936 91,049 Accrued compensation and related items 51,094 45,906 Taxes payable 38,477 51,302 Short-term borrowings and current maturities of long-term debt 47,199 46,432 ---------- ---------- Total current liabilities 299,684 293,429 Long-term debt 284,324 340,246 Non-current deferred taxes 22,753 25,566 Other non-current liabilities 108,866 103,201 ---------- ---------- Total liabilities 715,627 762,442 Minority interest - 4,164 Shareholders' equity: Preferred stock, $0.01 par value per share; authorized 10,000,000 shares - - Common stock, $0.01 par value per share; authorized 125,000,000 shares; issued 38,553,843 shares at September 30, 1999 and 38,400,363 shares at December 31, 1998 (excluding 64,467 shares held in treasury) 386 384 Additional paid-in capital 286,537 285,161 Accumulated deficit (151,337) (186,527) Accumulated other comprehensive loss (40,413) (45,183) ---------- ---------- Total shareholders' equity 95,173 53,835 Commitments and contingencies ---------- ---------- Total liabilities and shareholders' equity $810,800 $820,441 ========== ========== The accompanying notes are an integral part of these interim consolidated financial statements.
- 3 - METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS Nine months ended September 30, 1999 and 1998 (In thousands, except per share data)
September 30, September 30, 1999 1998 ---- ---- (unaudited) (unaudited) Net sales $761,186 $669,747 Cost of sales 422,476 374,594 ---------- ---------- Gross profit 338,710 295,153 Research and development 40,235 33,551 Selling, general and administrative 216,818 192,844 Amortization 7,635 5,473 Purchased research and development - 9,976 Interest expense 16,567 17,153 Other charges, net 1,638 1,606 ---------- ---------- Earnings before taxes and minority interest 55,817 34,550 Provision for taxes 20,174 13,552 Minority interest 453 233 ---------- ---------- Net earnings $35,190 $20,765 ========== ========== Basic earnings per common share: Net earnings $0.91 $0.54 Weighted average number of common shares 38,465,856 38,342,651 Diluted earnings per common share: Net earnings $0.85 $0.51 Weighted average number of common shares 41,175,684 40,619,050 The accompanying notes are an integral part of these interim consolidated financial statements.
- 4 - METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended September 30, 1999 and 1998 (In thousands, except per share data)
September 30, September 30, 1999 1998 ---- ---- (unaudited) (unaudited) Net sales $268,006 $225,646 Cost of sales 148,278 126,767 ---------- ---------- Gross profit 119,728 98,879 Research and development 13,913 11,536 Selling, general and administrative 75,496 63,301 Amortization 2,666 1,854 Purchased research and development - 9,976 Interest expense 5,579 5,370 Other charges, net 1,131 836 ---------- ---------- Earnings before taxes and minority interest 20,943 6,006 Provision for taxes 7,329 3,334 Minority interest (44) 142 ---------- ---------- Net earnings $13,658 $ 2,530 ========== ========== Basic earnings per common share: Net earnings $0.35 $0.07 Weighted average number of common shares 38,553,843 38,355,926 Diluted earnings per common share: Net earnings $0.33 $0.06 Weighted average number of common shares 41,310,499 40,616,526 The accompanying notes are an integral part of these interim consolidated financial statements.
- 5 - METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Nine months ended September 30, 1999 and 1998 (In thousands, except per share data) (unaudited)
Common Stock Accumulated All Classes Additional Other -------------------------------- Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Loss Total ------ ------ ------- ------- ---- ----- Balance at December 31, 1998 38,400,363 $384 $285,161 $(186,527) $(45,183) $53,835 Exercise of stock options 153,480 2 1,376 - - 1,378 Comprehensive income: Net earnings - - - 35,190 - 35,190 Change in currency translation adjustment - - - - 4,770 4,770 ---------- Comprehensive income 39,960 ------------ ---------- ----------- ----------- ------------ ---------- Balance at September 30, 1999 38,553,843 $386 $286,537 $(151,337) $(40,413) $95,173 ============ ========== =========== =========== ============ ========== Balance at December 31, 1997 38,336,014 $383 $284,630 $(224,152) $(35,462) $25,399 Exercise of stock options 19,912 1 157 158 Comprehensive income: Net earnings - - - 20,765 - 20,765 Change in currency translation adjustment - - - - (3,418) (3,418) ---------- Comprehensive income 17,347 ------------ ---------- ----------- ----------- ------------ ---------- Balance at September 30, 1998 38,355,926 $384 $284,787 $(203,387) $(38,880) $42,904 ============ ========== =========== =========== ============ ========== The accompanying notes are an integral part of these interim consolidated financial statements.
- 6 - METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 1999 and 1998 (In thousands)
September 30, September 30, 1999 1998 ---- ---- (unaudited) (unaudited) Cash flow from operating activities: Net earnings $35,190 $20,765 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 18,900 18,022 Amortization 7,635 5,473 Revaluation of acquired inventory and purchased research and development 998 9,976 Net gain on disposal of property, plant and equipment (3,355) (2,495) Deferred taxes (33) (883) Minority interest 453 233 Increase (decrease) in cash resulting from changes in: Trade accounts receivable, net (3,830) (5,681) Inventories (3,808) (4,170) Other current assets 2,499 3,040 Trade accounts payable (6,667) (3,468) Accruals and other liabilities, net 3,140 (2,272) ---------- ---------- Net cash provided by operating activities 51,122 38,540 ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 9,673 15,938 Purchase of property, plant and equipment (16,837) (17,348) Acquisitions (18,468) (14,945) Other investing activities - (885) ---------- ---------- Net cash used in investing activities (25,632) (17,240) ---------- ---------- Cash flows from financing activities: Proceeds from borrowings 12,937 20,035 Repayments of borrowings (45,755) (49,513) New issuance of shares 1,378 158 ---------- ---------- Net cash used in financing activities (31,440) (29,320) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (340) 58 ---------- ---------- Net decrease in cash and cash equivalents (6,290) (7,962) Cash and cash equivalents: Beginning of period $21,191 $23,566 ---------- ---------- End of period $14,901 $15,604 ========== ========== The accompanying notes are an integral part of these interim consolidated financial statements.
- 7 - METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (In thousands unless otherwise stated) 1. BASIS OF PRESENTATION Mettler-Toledo International Inc. ("Mettler Toledo" or the "Company") is a global manufacturer and marketer of precision instruments, including weighing and certain analytical and measurement technologies, for use in laboratory, industrial and food retailing applications. The Company's primary manufacturing facilities are located in Switzerland, the United States, Germany, the United Kingdom and China. The Company's principal executive offices are located in Greifensee, Switzerland. The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements as of September 30, 1999 and for the nine and three month periods ended September 30, 1999 and 1998 should be read in conjunction with the December 31, 1998 and 1997 consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The accompanying interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the nine and three months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year ending December 31, 1999. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Inventories Inventories are valued at the lower of cost or market. Cost, which includes direct materials, labor and overhead plus indirect overhead, is determined using either the first in, first out (FIFO) or weighted average cost methods and to a lesser extent the last in, first out (LIFO) method. - 8 - METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories consisted of the following at September 30, 1999 and December 31, 1998: September 30, December 31, 1999 1998 --------------- --------------- Raw materials and parts $49,406 $48,718 Work in progress 34,231 32,416 Finished goods 37,331 30,956 --------------- --------------- 120,968 112,090 LIFO reserve (231) (31) --------------- --------------- $120,737 $112,059 =============== =============== Earnings per Common Share As described in Note 11 in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, in accordance with the treasury stock method, the Company has included the following equivalent shares relating to 4,676,857 outstanding options to purchase shares of common stock in the calculation of diluted weighted average number of common shares for the nine and three month periods ended September 30, 1999 and 1998, respectively. September 30, September 30, 1999 1998 --------------- --------------- Nine months ended 2,709,828 2,276,399 Three months ended 2,756,656 2,260,600 3. BUSINESS COMBINATIONS During the nine months ended September 30, 1999 the Company spent approximately $18.5 million on acquisitions, including the net assets of the Testut-Lutrana group, a leading manufacturer and marketer of industrial and retail weighing instruments in France. The Company accounted for the acquisitions using the purchase method of accounting. Accordingly, the costs of the acquisitions were allocated to the assets acquired and liabilities assumed based upon their respective fair values. In this respect the Company allocated $1.0 million of the purchase price to revalue certain finished goods inventories to fair value. Substantially all of such inventories were sold in the three months ending June 30, 1999. - 9 - METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 4. OTHER CHARGES, NET Other charges, net consists primarily of foreign currency transactions, interest income, gains on asset sales and other charges. The Company incurred losses of approximately $4.1 million during the nine months ending September 30, 1999, of which $1.0 million was recorded in the third quarter of 1999, in connection with the exit from its glass batching business, based in Belgium. This amount primarily comprises severance and other costs of exiting this business. The Company expects to complete the exit of this business by the end of 1999. These losses were offset by a gain of $3.1 million recorded in the first quarter of 1999 in connection with an asset sale. 5. SEGMENT REPORTING The Company has five reportable segments: Principal U.S. Operations, Principal Central European Operations, Swiss R&D and Manufacturing Operations, Other Western European Operations and Other. The following tables show the operations of the Company's operating segments:
Principal Other Eliminations For the period Principal Central Swiss R&D Western and January 1, 1999 to U.S. European and Mfg. European Corporate September 30, 1999 Operations Operations Operations Operations Other (a) (b) Total - ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ --------- Net sales to external customers................... $257,645 $135,066 $16,920 $185,636 $165,919 $ 0 $761,186 Net sales to other segments. 131,710 41,576 109,389 14,833 79,901 (377,409) 0 ---------- ---------- --------- ---------- ---------- ----------- --------- Total net sales............. $389,355 $176,642 $126,309 $200,469 $245,820 $(377,409) $761,186 ========== ========== ========= ========== ========== =========== ========= Adjusted operating income... $ 28,093 $ 15,579 $ 20,676 $ 14,655 $ 18,161 $ (14,509) $ 82,655 Principal Other Eliminations For the period Principal Central Swiss R&D Western and January 1, 1998 to U.S. European and Mfg. European Corporate September 30, 1998 Operations Operations Operations Operations Other (a) (b) Total - ------------------------------ ---------- ---------- ---------- ---------- --------- ------------ --------- Net sales to external customers................... $238,740 $129,782 $ 17,354 $158,122 $125,749 $ 0 $669,747 Net sales to other segments. 28,216 41,527 103,595 16,105 74,938 (264,381) 0 ---------- ---------- --------- ---------- ---------- ----------- --------- Total net sales............. $266,956 $171,309 $120,949 $174,227 $200,687 $(264,381) $669,747 ========== ========== ========= ========== ========== =========== ========= Adjusted operating income... $ 18,023 $ 14,568 $ 21,763 $ 12,263 $ 16,487 $ (14,346) $ 68,758 (Footnotes on following page)
- 10 - METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 5. SEGMENT REPORTING (Continued) (a) Other includes reporting units in Asia, Eastern Europe, Latin America and segments from other countries that do not meet the aggregation criteria of SFAS 131. (b) Eliminations and Corporate includes the elimination of intersegment transactions as well as certain corporate expenses, intercompany investments and certain goodwill, which are not included in the Company's operating segments. A reconciliation of adjusted operating income to earnings before taxes and minority interest follows: For the period For the period January 1, 1999 January 1, 1998 to to September 30, 1999 September 30, 1998 ------------------ ------------------ Adjusted operating income.................. $ 82,655 $ 68,758 Amortization............................... 7,635 5,473 Interest expense........................... 16,567 17,153 Revaluation of acquired inventory.......... 998(a) - Purchased research and development......... - 9,976 Other charges, net......................... 1,638 1,606 -------- -------- Earnings before taxes and minority interest $ 55,817 $ 34,550 ======== ======== (a) Represents a charge for the excess of fair value over historical cost for inventories acquired in certain acquisitions. - 11 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein. General Our interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America on a basis which reflects the interim consolidated financial statements of Mettler-Toledo International Inc. Operating results for the nine and three months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year ending December 31, 1999. In May 1999, we completed the acquisition of the Testut-Lutrana group, a leading manufacturer and marketer of industrial and retail weighing instruments in France. In February 1999, certain selling shareholders completed a secondary offering of a total of 6,099,250 shares of our common stock, including the underwriters' over-allotment options. No directors, executive officers or other employees sold shares, and we did not sell shares or receive proceeds in the offering. We incurred a charge of $0.8 million in connection with the offering during the first quarter of 1999. Results of Operations Net sales were $761.2 million and $268.0 million for the nine and three month periods ended September 30, 1999 compared to $669.7 million and $225.6 million for the corresponding periods in the prior year. This reflected increases of 14% and 21% in local currency for the nine and three month periods, respectively. Results were negatively impacted by the strengthening of the U.S. dollar against other currencies in the third quarter. Net sales in U.S. dollars during the nine and three month periods increased 14% and 19%, respectively. Net sales by geographic customer location were as follows: Net sales in Europe increased 14% and 21% in local currencies during the nine and three month periods ended September 30, 1999 versus the corresponding periods in the prior year. The increase largely reflects the effect of Testut-Lutrana, as well as organic growth in our business. Net sales in local currencies during the nine and three month periods in the Americas increased 14% and 16% as compared to the corresponding periods in 1998, principally due to organic growth in our business as well as the effect of businesses acquired in 1998. Net sales in local currencies during the nine and three month periods in Asia and other markets increased 17% and 40% compared to the same periods in the prior year. The results of our business in Asia and other markets during the nine and three month periods ending September 30, 1999 primarily reflect improved economic conditions throughout the region. - 12 - The operating results for Testut-Lutrana (which were included in our results from the beginning of May 1999) would have had the effect of increasing our net sales by an additional $22.8 million and $12.5 million in 1998, if included during the comparable five and three month periods. Gross profit as a percentage of net sales increased to 44.6% and 44.7% for the nine and three month periods ended September 30, 1999, respectively, compared to 44.1% and 43.8% for the corresponding periods in the prior year, before $1.0 million of non-recurring acquisition costs. Research and development expenses as a percentage of net sales increased to 5.3% and 5.2% for the nine and three month periods ended September 30, 1999, respectively, compared to 5.0% and 5.1% for the corresponding periods in the prior year. This increase primarily reflects increased research and development activity connected with product introductions. Selling, general and administrative expenses as a percentage of net sales decreased to 28.5% for the nine months ended September 30, 1999, compared to 28.8% for the corresponding period in the prior year. Selling, general and administrative expenses as a percentage of net sales were 28.2% for the three months ended September 30, 1999, compared to 28.1% for the three months ended September 30, 1998. Adjusted Operating Income (gross profit less research and development and selling, general and administrative expenses before amortization and other charges, net) increased 20.2% to $82.7 million, or 10.9% of net sales, for the nine months ended September 30, 1999, compared to $68.8 million, or 10.3% of net sales, for the corresponding period in the prior year. Adjusted Operating Income was $30.3 million, or 11.3% of net sales, for the three months ended September 30, 1999, compared to $24.0 million, or 10.7% of net sales for the three months ended September 30, 1998, an increase of 26.1%. The increased operating margin reflects the benefits of higher sales levels and our continuous efforts to improve productivity. Interest expense decreased to $16.6 million for the nine months ended September 30, 1999, compared to $17.2 million for the corresponding period in the prior year. The decrease for the nine months was principally due to reduced debt levels. Interest expense was $5.6 million for the three months ended September 30, 1999, compared to $5.4 million for the three months ended September 30, 1998. Other charges, net of $1.6 million and $1.1 million for the nine and three month periods ended September 30, 1999 compared to other charges, net of $1.6 million and $0.8 million for the corresponding periods in the prior year, respectively. The 1999 nine month amount includes a gain on an asset sale of $3.1 million; losses of $4.1 million to exit our glass batching business based in Belgium, of which $1.0 million was recorded in the third quarter of 1999; and a one-time charge of $0.8 million relating to the secondary offering completed in February 1999. The 1998 amounts include a one-time charge of $0.7 million relating to the secondary offering completed in July 1998. - 13 - The provision for taxes is based upon our projected annual effective tax rate for the relevant period. Our effective tax rate for the nine and three month periods ended September 30, 1999 was approximately 35% before the one-time costs relating to the secondary offering and the non-recurring acquisition related charge. During the three month period ended September 30, 1998, we reduced our effective tax rate based upon a change in Swiss tax law which only benefited the 1998 period and had the effect of reducing our provision for taxes by approximately $2.3 million. Net earnings before the one-time charges relating to the secondary offerings and the non-recurring acquisition related charge, as well as purchased research and development and certain one-time tax benefits realized in the three months ending September 30, 1998, were $37.0 million and $13.7 million for the nine and three month periods ended September 30, 1999, compared to net earnings of $29.1 million and $10.2 million for the corresponding periods of the prior year. Liquidity and Capital Resources At September 30, 1999, our consolidated debt, net of cash, was $316.6 million. We had borrowings of $311.9 million under our credit agreement and $19.6 million under various other arrangements as of September 30, 1999. Of our credit agreement borrowings, approximately $160.3 million was borrowed as term loans scheduled to mature in 2004 and $151.6 million was borrowed under our multi-currency revolving credit facility. At September 30, 1999, we had $250.6 million of availability remaining under our revolving credit facility. At September 30, 1999, approximately $127.1 million of the borrowings under the credit agreement and local working capital facilities were denominated in U.S. dollars. The balance of the borrowings under the credit agreement and local working capital facilities were denominated in certain of our other principal trading currencies amounting to approximately $204.4 million at September 30, 1999. Changes in exchange rates between the currencies in which we generate cash flow and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates. Under the credit agreement, amounts outstanding under the term loans are payable in quarterly installments. In addition, the credit agreement obligates us to make mandatory prepayments in certain circumstances with the proceeds of asset sales or issuance of capital stock or indebtedness and with certain excess cash flow. The credit agreement imposes certain restrictions on us and our subsidiaries, including restrictions and limitations on the ability to pay dividends to our shareholders, incur indebtedness, make investments, grant liens, sell financial assets and engage in certain other activities. We must also comply with certain financial covenants. The credit agreement is secured by certain of our assets. Cash provided by operating activities totalled $53.2 million for the nine months ended September 30, 1999. In the nine months ended September 30, 1998, cash provided by operating activities totalled $38.5 million. The increase resulted principally from improved Adjusted Operating Income. - 14 - During the nine months ended September 30, 1999 we spent approximately $18.5 million on acquisitions, including Testut-Lutrana. These purchases were funded from cash generated from operations and additional borrowings. We continue to explore potential acquisitions to expand our product portfolio and improve our distribution capabilities. In connection with any acquisition, we may incur additional indebtedness. We currently believe that cash flow from operating activities, together with borrowings available under the credit agreement and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements as well as debt service requirements for at least the next several years, but there can be no assurance that this will be the case. As part of our efforts to reduce costs, we evaluate from time to time the cost effectiveness of our global manufacturing strategy. Over the next few years we intend to continue to develop China as a low cost manufacturing resource and to seek other manufacturing cost saving opportunities. In this respect, we anticipate that we will record a restructuring charge in the fourth quarter of 1999 associated with transfer of production lines from the Americas to China and Europe and the closure of facilities. We believe that the future cash benefits of these potential programs will exceed any future restructuring costs, although the restructuring cash flows will precede the cash flow benefits. We currently estimate that these initiatives will require cash expenditures in 2000 of between approximately $6 and $7 million. We expect that the fourth quarter restructuring charge will include a significant portion of the estimated cash expenditures plus the non-cash carrying value of any impaired assets. Effect of Currency on Results of Operations Because we conduct operations in many countries, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our operating expenses than Swiss franc-denominated sales represent of our net sales. In part, this is because most of our manufacturing costs in Switzerland relate to products that are sold outside of Switzerland. Moreover, a substantial percentage of our research and development expenses and general and administrative expenses are incurred in Switzerland. Therefore, if the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the Euro, other major European currencies and the Japanese Yen), our operating profit is reduced. We also have significantly more sales in European currencies (other than the Swiss franc) than we have expenses in those currencies. Therefore, when European currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating profits. In recent years, the Swiss franc and other European currencies have generally moved in a consistent manner versus the U.S. dollar. Therefore, because the two effects previously described have offset each other, our operating profits have not been materially affected by movements in the U.S. dollar exchange rate versus European currencies. However, there can be no assurance that these currencies will continue to move in a consistent manner in the future. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. - 15 - Year 2000 Issue We have in place detailed programs to address Year 2000 readiness internally and with certain suppliers. The Year 2000 issue is the result of computer logic that was written using two digits rather than four to define the applicable year. Any computer logic that processes date-sensitive information may recognize dates using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system or equipment failures. Pursuant to our readiness programs, all major categories of information technology systems and non-information technology systems (e.g., equipment with embedded microprocessors) in use by the Company, including manufacturing, sales, financial and human resources, have been inventoried and assessed. In addition, plans have been developed for the required systems modifications or replacements. With respect to our information technology systems, we have completed the entire assessment phase and the remediation phase for all of our major facilities. With respect to our non-information technology systems, we have completed the assessment phase and all of the remediation phase. Selected areas, both internal and external, have been tested to assure the integrity of our remediation programs. We believe that all internal mission-critical information technology and non-information technology systems are Year 2000 compliant. We have also reviewed our products, including products sold in recent years, to determine if they are Year 2000 compliant. We believe that our products are Year 2000 compliant. We have also been communicating with our major suppliers to assess the potential impact on our operations if those parties fail to become Year 2000 compliant in a timely manner. This process has been completed and based upon responses to date, it appears that many of those suppliers have only indicated that they have in place Year 2000 readiness programs, without specifically confirming that they will be Year 2000 compliant in a timely manner. Risk assessment, readiness evaluation, action plans and contingency plans related to our significant suppliers have been completed by September 1999. The costs incurred to date related to our Year 2000 activities have not been material and, based upon current estimates, we do not believe that the total cost of our Year 2000 readiness programs will have a material adverse impact on our results of operations or financial condition. The total costs are not easy to quantify since many of the steps we are taking relate to ongoing systems updating, a small component of which relates to Year 2000 compliance. In certain instances we have accelerated such updates. As a result of our ongoing systems updating, we do not expect to realize a significant reduction in related expenditures once the work on Year 2000 compliance is completed. Our readiness programs also include the development of contingency plans to protect our business and operations from Year 2000-related interruptions. These plans have been completed by September 1999 and, by way of example, include back-up procedures, identification of alternate suppliers, where possible, and increases in safety inventory levels. Based upon our current assessment of our non-information technology systems, we do not believe it necessary to develop an extensive contingency plan for those systems. There can be no assurances, however, that any of our contingency plans will be sufficient to handle all problems or issues which may arise. - 16 - We believe that we are taking reasonable steps to identify and address those matters that could cause serious interruptions in our business and operations due to Year 2000 issues. However, delays in the implementation of new systems, a failure to fully identify all Year 2000 dependencies in our systems and in the systems of our suppliers, a failure of such third parties to adequately address their respective Year 2000 issues, or a failure of a contingency plan could have a material adverse effect on our business, financial condition and results of operations. For example, we would experience a material adverse impact on our business if significant suppliers of components were unable to deliver on a timely basis, if major utilities failed, such as those providing water, electricity and telephone services, causing us to lose production capabilities or limit other operations, if a significant portion of our billing system was not functioning, causing a working capital deficit, or if costs increased from warranty claims or customer claims of product liability. The statements set forth herein concerning Year 2000 issues which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. In particular, the costs associated with our Year 2000 programs and the time-frame in which we plan to complete Year 2000 modifications are based upon management's best estimates. These estimates were derived from internal assessments and assumptions of future events. These estimates may be adversely affected by the continued availability of personnel and system resources, and by the failure of significant third parties to properly address Year 2000 issues. Therefore, there can be no guarantee that any estimates, or other forward-looking statements will be achieved, and actual results could differ significantly from those contemplated. European Monetary Union Within Europe, the European Economic and Monetary Union (the "EMU") introduced a new currency, the Euro, on January 1, 1999. The new currency is in response to the EMU's policy of economic convergence to harmonize trade policy, eliminate business costs associated with currency exchange and to promote the free flow of capital, goods and services. Switzerland is not part of the EMU. On January 1, 1999, the participating countries adopted the Euro as their local currency, initially available for currency trading on currency exchanges and noncash (banking) transactions. The existing local currencies, or legacy currencies, will remain legal tender through January 1, 2002. Beginning on January 1, 2002, Euro-denominated bills and coins will be issued for cash transactions. For a period of nine months from this date, both legacy currencies and the Euro will be legal tender. On or before July 1, 2002, the participating countries will withdraw all legacy currency and use exclusively the Euro. We have recognized the introduction of the Euro as a significant event with potential implications for existing operations. Currently, we operate in all of the participating countries in the EMU. Nonparticipating European Union countries where we also have operations may eventually join the EMU. - 17 - We have committed resources to conduct risk assessments and to take corrective actions, where required, to ensure we are prepared for the introduction of the Euro. We have undertaken a review of the Euro implementation and have concentrated on areas such as operations, finance, treasury, legal, information management, procurement and others, both in participating and nonparticipating European Union countries where we operate. Also, existing legacy accounting and business systems and other business assets have been reviewed for Euro compliance, including assessing any risks from third parties. Progress regarding Euro implementation is reported periodically to management. Because of the staggered introduction of the Euro regarding noncash and cash transactions, we have developed our plans to address our accounting and business systems first and our business assets second. We expect to be Euro compliant within our accounting and business systems by the end of 1999 and compliant within our other business assets prior to the introduction of the Euro bills and coins. Compliance in participating and nonparticipating countries will be achieved primarily through upgraded systems, which were previously planned to be upgraded. Remaining systems will be modified to achieve compliance. We do not currently expect to experience any significant operational disruptions or to incur any significant costs, including any currency risk, which could materially affect our liquidity or capital resources. We are preparing plans to address issues within the transitional period when both legacy and Euro currencies may be used. We are reviewing our pricing strategy throughout Europe due to the increased price transparency created by the Euro and are attempting to adjust prices in some of our markets. We are also encouraging our suppliers, even in Switzerland, to commence transacting in Euro. We do not believe that the effect of these adjustments will be material. We have a disproportionate amount of our costs in Swiss francs relative to sales. Historically, the potential currency impact has been muted because currency fluctuations between the Swiss franc and other major European currencies have been minimal and there is greater balance between total European (including Swiss) sales and costs. However, if the introduction of the Euro results in a significant weakening of the Euro against the Swiss franc, our financial performance could be harmed. The statements set forth herein concerning the introduction of the Euro which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. In particular, the costs associated with our Euro programs and the time-frame in which we plan to complete Euro modifications are based upon management's best estimates. These estimates were derived from internal assessments and assumptions of future events. There can be no guarantee that any estimates or other forward-looking statements will be achieved, and actual results could differ significantly from those contemplated. - 18 - New Accounting Standards In September 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management has not determined the effect of the adoption of this statement. Forward-Looking Statements and Associated Risks This Quarterly Report on Form 10-Q includes forward-looking statements based on our current expectations and projections about future events, including: strategic plans; potential growth, including penetration of developed markets and opportunities in emerging markets; planned product introductions; planned operational changes; research and development efforts and expenditures; Year 2000 issues; Euro conversion issues; future financial performance, including expected capital expenditures; estimated proceeds from and the timing of asset sales; potential acquisitions; future cash sources and requirements; and potential cost savings from restructuring programs. These forward-looking statements are subject to a number of risks and uncertainties, certain of which are beyond our control, which could cause our actual results to differ materially from historical results or those anticipated. Certain of these risks and uncertainties have been identified in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 1998. The words "believe," "expect," "anticipate" and similar expressions identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. - 19 - Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 1999, there was no material change in the information provided under Item 7A in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Part II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Security Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K - None - 20 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Mettler-Toledo International Inc. Date: November 15, 1999 By: /s/ William P. Donnelly ------------------------ William P. Donnelly Vice President and Chief Financial Officer - 21 - EX-27 2
5 9-MOS DEC-31-1999 SEP-30-1999 14,901 0 200,576 (9,909) 120,737 368,915 276,493 (71,993) 810,800 299,684 0 0 0 386 94,787 810,800 761,186 761,186 422,476 422,476 265,613 713 16,567 55,817 20,174 35,190 0 0 0 35,190 0.91 0.85
-----END PRIVACY-ENHANCED MESSAGE-----