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United States
Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
OR
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee
Required] For the transition period from _______
to _______
Commission file number 0-22493
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Mettler-Toledo International Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3668641
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Im Langacher
P.O. Box MT-100
CH 8606 Greifensee, Switzerland
(Address of principal executive offices) (Zip Code)
011-41-1-944-22-11
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
As of March 7, 2000 there were 38,712,272 shares of the Registrant's
Common Stock, $0.01 par value per share, outstanding. The aggregate market value
of the shares of common stock held by non-affiliates of the Registrant (based on
the closing price for the Common Stock on the New York Stock Exchange on March
7, 2000) was approximately $1,419,732,122. For purposes of this computation,
shares held by affiliates and by directors of the Registrant have been excluded.
Such exclusion of shares held by directors is not intended, nor shall it be
deemed, to be an admission that such persons are affiliates of the Registrant.
Documents Incorporated by Reference
Document Part of Form 10-K
Proxy Statement for 2000 Into which Incorporated
Annual Meeting of Stockholders Part III
METTLER-TOLEDO INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PAGE
PART I
ITEM 1. BUSINESS........................................................1
ITEM 2. PROPERTIES.....................................................24
ITEM 3. LEGAL PROCEEDINGS..............................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............25
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................26
ITEM 6. SELECTED FINANCIAL DATA........................................27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............43
ITEM 11. EXECUTIVE COMPENSATION.........................................46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.....................................................46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K....................................................47
SIGNATURES...................................................................48
Unless otherwise stated or where the context otherwise requires,
references herein to we, our, the "Company" or "Mettler-Toledo" refer to
Mettler-Toledo International Inc. and its direct and indirect subsidiaries.
This Annual Report on Form 10-K includes forward-looking statements
based on our current expectations and projections about future events. These
forward-looking statements are subject to a number of risks and uncertainties
which could cause our actual results to differ materially from historical
results or those anticipated and certain of which are beyond our control. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Exhibit 99.1 to
this Report.
METTLER-TOLEDO(R), METTLER(R), INGOLD(R), GARVENS(R), OHAUS(R),
DELTARANGE(R), DIGITOL(R), E-WEIGH(R), JAGUAR(R), JAGXTREME(R), MENTOR SC(R),
OPRA(R), PANTHER(R), PILAR(R), SAFELINE(R), SPIDER(R), TRIMWEIGH(R) and
TRUCKMATE(R) are among our registered trademarks used in this Report and
MONOBLOC(TM), MULTIRANGE(TM), POWERPHASE(TM), SIGNATURE(TM) and VIPER(TM) are
among our trademarks used in this Report.
Unless otherwise indicated, industry data contained herein is derived
from publicly available industry trade journals, government reports and other
publicly available sources. We have not independently verified this data but we
believe the data is reliable. Where such sources are not available, industry
data is derived from our internal estimates, which we believe to be reasonable,
but which cannot be independently verified. As used in this Annual Report, "$"
refers to U.S. dollars, "CHF" or "SFr" refers to Swiss francs, "(pound)" refers
to British pounds sterling and "CDN $" refers to Canadian dollars.
PART I
ITEM 1. BUSINESS
Overview
Mettler-Toledo is a leading global supplier of precision instruments.
We are the world's largest manufacturer and marketer of weighing instruments for
use in laboratory, industrial and food retailing applications. We hold leading
market positions in several related analytical instruments, and are a leading
provider of automated chemistry systems used in drug and chemical compound
discovery and development. For instance, we hold one of the top three global
market positions in the following analytical instruments: titrators, thermal
analysis systems, automatic lab reactors, automated synthesis products, pH
meters and electrodes. In addition, we are the world's largest manufacturer and
marketer of metal detection systems used in the production and packaging of
goods in industries such as food processing, pharmaceutical, cosmetics,
chemicals and other industries.
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Market leadership and technology leadership are critical components of
our success, and we have used these advantages to build our business. For
instance, using our leading position in weighing instruments as our base, we
have added other products, such as analytical instruments, automated chemistry
systems and metal detectors, that appeal to our existing customer base. In
addition, we focus on the high value-added segments of our markets by delivering
innovation to the marketplace. Some examples of our innovations include more
accurate forms of measurement, an increased use of automation or robotics in our
products and the use of custom-designed software or open-system architectures to
allow data gathered by our instruments to be more easily integrated into our
customers' management information systems.
We believe our ability to maintain and enhance the strength of our
leadership position in high value-added segments is due in part to the strength
of our brand name and the quality of our global sales and service organization.
We service a worldwide customer base through our own sales and service
organization and we have a global manufacturing presence in Europe, the United
States and Asia. Overall, we estimate the global market for weighing instruments
to be approximately $4.5 billion and the market for other measurement
instruments to be approximately $1.5 billion.
In 1999, our sales were $1.1 billion. Of this total 46% came from
Europe, 43% from North and South America and 11% from Asia and other countries.
For additional information regarding our segment disclosure, see Note 16 to our
audited consolidated financial statements. We attribute the strength of our
sales growth to the non-cyclical nature of our two largest markets, the
pharmaceutical and food and beverage industries. Moreover, the diversified
nature of our customer base and product offerings provides an additional
competitive strength on a global basis and limits our exposure to local economic
trends.
History
We trace our roots to the invention of the single-pan analytical
balance by Dr. Erhard Mettler and the formation of Mettler Instruments AG
("Mettler") in 1945. During the 1970s and 1980s, Mettler expanded from
laboratory balances into industrial and food retailing products, and introduced
the first fully electronic precision balance in 1973. The Toledo Scale Company,
which we acquired in 1989, was founded in 1901 and developed a leading market
position in the industrial weighing market in the United States. During the
1970s, Toledo Scale expanded into the food retailing market. When we acquired
Toledo Scale, our name was changed to Mettler-Toledo to reflect the combined
strengths of the two companies and to capitalize on their historic reputations
for quality and innovation. During the past two decades, we have grown through
additional acquisitions intended to complement our existing geographic markets
and products. For instance, in 1986, we acquired the Ingold Group of companies,
which manufacture electrodes, and Garvens Kontrollwaagen AG, which builds
dynamic checkweighers. Toledo Scale acquired Hi-Speed Checkweigher Co. in 1981.
In 1990, we acquired Ohaus Corporation, which manufactures laboratory balances.
More recently, in 1997 we acquired Safeline, in 1998 we acquired Bohdan
Automation, Applied Systems and Myriad Synthesizer Technology, and in 1999 we
acquired the Testut-Lutrana group.
Mettler-Toledo International Inc. was incorporated in December 1991 and
was recapitalized in connection with the October 15, 1996 acquisition of the
Mettler-Toledo group of companies from Ciba-Geigy. In the acquisition, we paid
cash consideration of approximately SFr 505.0 million (approximately $402.0
million at October 15, 1996), including dividends of approximately SFr 109.4
million (approximately $87.1 million at October 15, 1996), paid
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approximately $185.0 million to settle amounts due to Ciba-Geigy and its
affiliates and incurred expenses in connection with the acquisition and related
financing of approximately $29.0 million. We financed the acquisition primarily
with (i) borrowings under a credit agreement in the amount of $307.0 million,
(ii) the issuance of $135.0 million of senior subordinated notes and (iii) an
equity contribution of $190.0 million primarily from AEA Investors Inc., its
shareholder-investors and our executive officers and other employees. Following
the completion of our initial public offering in November 1997, management,
employees and Company sponsored benefit funds held approximately 18% of the
Company's shares on a fully diluted basis.
During the fourth quarter of 1997, we completed our initial public
offering of 7,666,667 shares of common stock, including the underwriters'
over-allotment options, at a per share price of $14.00. The offering raised net
proceeds, after underwriters' commissions and expenses, of approximately $97.3
million. Concurrently with the offering, we refinanced our prior credit facility
and used proceeds from the refinancing and the offering to repay the senior
subordinated notes of our wholly owned subsidiary, Mettler-Toledo, Inc.
In 1999 and 1998, certain selling shareholders completed secondary
offerings of 6,099,250 and 11,464,400 shares of our common stock, respectively,
including the underwriters' over-allotment options. Neither we nor any of our
directors, executive officers or other employees sold shares or received any
proceeds from these offerings.
Recent Acquisitions
In May 1999, we acquired the Testut-Lutrana group, a leading
manufacturer and marketer of industrial and retail weighing instruments in
France with annual sales of approximately $50 million. We believe this
acquisition is an excellent strategic fit given Testut-Lutrana's extensive sales
and service network in France and excellent brand recognition. By virtue of this
acquisition, we have assumed the leading position in food retail weighing in
Europe and are well positioned to meet the rapidly changing demands of our
European customer base.
In April 1999 we announced that we had signed an agreement to convert
our 60% joint venture in Changzhou, China, into a legal structure that provides
us with full control through this change in ownership, we will be able to fully
leverage this low cost manufacturing base for international markets. This move
further demonstrates our strategic commitment to Asia and our belief in the
fundamental growth factors for the region.
In 1998, we decided to pursue opportunities in the automated drug and
chemical compound discovery and development market, and build on our leadership
position as a provider of automated lab reactors and reaction calorimeters.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples. Myriad Synthesizer Technology designs, assembles
and markets instruments that facilitate and automate the synthesis of large
numbers of chemical compounds in parallel, which
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is a key step in the chemical compound discovery process. Its products can be
used in all stages of synthesis in drug discovery.
In July 1998, we also extended our product offerings to the automated
drug and chemical compound discovery market with our acquisition of Bohdan
Automation Inc. Bohdan is a leading supplier of laboratory automation and
automated synthesis products used in research for life science applications for
pharmaceutical and agricultural products and in other applications in the food
and chemicals industries.
These acquisitions enable us to offer a strong and comprehensive array
of solutions, from sample preparation to compound synthesis to process
development. We believe that our customers want solutions in this market from a
company like Mettler-Toledo, with a reputation for innovation and quality and
with a global presence and service network.
In May 1997, we acquired Safeline Limited for (pound)63.7 million
(approximately $104.4 million at May 30, 1997). Safeline 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 combined with our
checkweighing products for important quality and safety checks in these
industries.
Market Leadership
We believe that we have a leading position in each of our markets, and
at least 80% of our product sales are from products that are the global leaders
in their segment. In the weighing instruments market, we are the only company to
offer products for laboratory, industrial and food retailing applications
globally and we believe that we hold a market share more than twice that of our
nearest competitor. We believe that in 1999 we had approximately 45% of the
global market for laboratory balances, including the largest market share in
each of Europe, the United States and Asia (excluding Japan), and the number two
position in Japan. In the industrial and food retailing markets, we believe we
have the largest market share in Europe and the United States. In Asia, we have
a substantial industrial and food retailing business which has gained market
share in recent years. This business is supported by our established
manufacturing presence in China. In addition, we also have one of the top three
positions in the global market for several analytical instruments including
titrators, thermal analysis systems, automatic lab reactors, automated synthesis
products, pH meters and electrodes. We attribute our worldwide market leadership
positions to the following competitive strengths:
o Global Brand and Reputation. The Mettler-Toledo brand name is
identified worldwide with accuracy, reliability and innovation.
Customers value these characteristics because precision instruments,
particularly weighing and analytical instruments, significantly impact
customers' product quality, productivity, costs and regulatory
compliance. Furthermore, precision instruments generally constitute a
small percentage of customers' aggregate expenditures. As a result, we
believe customers focus on accuracy, product reliability, technical
innovation, service quality, reputation and past experience when
choosing precision instruments. We also believe that our customers
experience high switching costs if they attempt to change vendors.
Mettler-Toledo has one of the strongest brand names in the laboratory.
In fact laboratory balances are often generically referred to as
"Mettlers". The strength of this brand name has allowed us to
successfully extend our laboratory product line to include other
laboratory instruments.
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o Technological Innovation. We have a long and successful track record
of innovation and remain at the forefront of technological development
by focusing on the high value-added segments of our markets. We
believe that we are the global leader in our industry in providing
innovative instruments, in integrating our instruments into
application-specific solutions for customers and in facilitating the
processing of data gathered by our instruments and the transfer of
this data to customers' management information systems. Our
technological innovation efforts benefit from our manufacturing
expertise in sensor technology, precision machining and electronics,
as well as our strength in software development.
o Comprehensive, High Quality Product Range. We manufacture a more
comprehensive range of weighing instruments than any of our
competitors. Our broad product line addresses a wide range of weighing
applications across and within many industries and regions.
Furthermore, our analytical instruments and metal detection systems
complement our weighing products, enabling us to offer integrated
solutions. We manufacture our products in modern facilities, most of
which are ISO 9001 certified. Our broad range of high quality products
and the ability to provide integrated solutions allows us to leverage
our sales and service organization, product development activities and
manufacturing and distribution capabilities.
o Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and we believe
that this capability is a major competitive advantage. At December 31,
1999, this organization consisted of more than 3,800 employees
organized into locally based, customer-focused groups that provide
prompt service and support to our customers and distributors in
virtually all major markets around the world. The local focus of our
sales and service organization enables us to provide timely,
responsive support to our customers worldwide and provides feedback
for manufacturing and product development. When we survey our current
and potential customers on their needs, they often name service as the
most important criteria for choosing their instrument suppliers. In
addition to the service capability, this global infrastructure also
allows us to capitalize on growth opportunities in emerging markets.
o Largest Installed Base. We believe that we have the largest installed
base of weighing instruments in the world. From this installed base,
we obtain service contracts that provide a strong, stable source of
recurring service revenue. Service revenue represented approximately
17% of net sales in 1999, of which approximately 8% was derived solely
from service contracts and repairs with the remainder derived from the
sale of spare parts. We believe that our installed base of weighing
instruments represents a competitive advantage with respect to repeat
purchases and purchases of related analytical instruments and metal
detection systems, because customers tend to remain with their
existing suppliers. In addition, switching to a new instrument
supplier entails additional costs to the customer for training, spare
parts, service and systems integration requirements. Close
relationships and frequent contact with our broad customer base also
provide us with sales leads and new product and application ideas.
o Geographical, Product and Customer Diversification. Our revenue base
is diversified by geographic region, product range and customer. Many
different industries, including chemicals, pharmaceuticals, food
processing, food retailing and transportation utilize our broad
product range. We supply customers all over the world, and no one
customer accounted for more than 3% of net sales in 1999. Our diverse
revenue base reduces our
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exposure to regional or industry-specific economic conditions, and our
presence in many different geographic markets, product markets and
industries enhances our attractiveness as a supplier to multinational
customers.
Growth Strategies
We are implementing strategies relating to expanding our technology
leadership, increasing our market share and capitalizing on opportunities in
developed markets, capitalizing on opportunities in emerging markets, pursuing
selected acquisition opportunities and re-engineering and cost savings. These
strategies are designed to reduce our overall cost structure and enhance our
position as a global market leader. The successful implementation of these
strategies has contributed to an improvement in Adjusted Operating Income (gross
profit less research and development and selling, general and administrative
expenses before amortization and non-recurring costs) from $39.5 million (4.6%
of net sales) for 1995 to $123.7 million (11.6% of net sales) for 1999. We are
committed to improving our performance and are pursuing the following
strategies:
Expanding Our Technology Leadership. We attribute a significant portion
of our recent margin improvement to our research and development efforts. We
intend to continue to invest in product innovation in order to provide
technologically advanced products to our customers for existing and new
applications. Over the last three years, we have invested more than $150 million
in research and development. Our research and development efforts fall into two
categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
Our research and development efforts have contributed to a pipeline of
innovative and new products, significant reductions in product costs and reduced
time to market for new products. Examples of recent product introductions
include:
o a family of highly automated parallel synthesis systems for drug
and new chemical compound discovery
o ALLex, an automated liquid/liquid extraction system, incorporating
robotics and unique sample handling technology
o additional modules for our high performance modular thermal
analysis system
o WinBridge, our global software solution for vehicle weighing
o FormWeigh, our global software solution handling automated
industrial batching processes (certified interface to SAP ERP
software)
o FreeWeigh, our latest generation software package for integrated
process validation and statistical process control
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o S-Line, our new open system modular checkweigher family for end-
of-line inspection in chemical, pharmaceutical, cosmetic and food
packaging processes
o OPRA, the first internet-enabled retail scale, based on open PC
architecture and Windows platforms
o VIPER, an innovative compact scale family for basic industrial
process application
o CountWeigh, our global software solution linking into integrated
parts inventory control systems
o a fully integrated metal detector and checkweigher (Combichecker)
o a new density and refractometry measurement technology
o a higher performance Karl Fischer titrator
o the first Chinese-designed and manufactured laboratory balance
line
o a cost reduced basic level laboratory balance product family
o a number of industrial and retail products that deploy open-system
architecture
Increasing Our Market Share and Capitalizing on Opportunities in
Developed Markets. We recognize that to be a successful company, we must not
only develop excellent products, but we must market and distribute them
effectively- more effectively than our competitors. We utilize what we believe
are the most sophisticated marketing and sales techniques in our industry. These
techniques include the development and utilization of marketing databases. We
develop these databases to better understand the full potential of our market by
customer, location, industry, instrument and related application. We then
utilize this data to more efficiently direct our field resources and complement
our direct and distributor sales forces with targeted mailing and telemarketing
campaigns to more fully exploit our market's potential. We also utilize a dual
brand strategy for certain market segments to improve our overall market
penetration. For example, we sell balances under the Ohaus brand name as an
alternative to the Mettler-Toledo brand name in certain distribution channels.
We believe that service capabilities are a critical success factor in
our business. Our service capabilities, which provide support to our customers
and distributors in virtually all major markets across the globe and include
around-the-clock availability of well-trained technicians, are highly valued by
our customers. We believe that no other competitor has global service
capabilities.
The combination of our sophisticated marketing and sales techniques and
service capabilities help us capitalize on growth opportunities in our developed
markets. These opportunities include:
o integrating information from our measurement instruments into our
customers' data management software systems
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o automating and/or improving process control, in part by developing
integrated solutions which combine instruments and related
technologies to optimize manufacturing processes
o harmonization of national weighing standards across countries
o increasing standardization of manufacturing and laboratory
practices programs like ISO 9001, Good Laboratory Practices and
Good Manufacturing Practices
o increasing recognition by our customers of the importance of
preventive maintenance in reducing down time
Capitalizing on Opportunities in Emerging Markets. We believe that
emerging markets will continue to provide growth opportunities for us in the
long term. These growth opportunities are being driven primarily by economic
development and global manufacturers' utilization of additional and more
sophisticated precision instruments as they shift production to these markets.
In addition, we believe that over the long term, the trend toward international
quality standards, the need to upgrade mechanical scales to electronic versions
and the establishment of local production facilities by our multinational client
base will add to the opportunities in emerging markets. To date our emerging
market expansion has primarily focused on Asia. In Asia (excluding Japan), we
are the market leader in laboratory weighing instruments and have a substantial
industrial and food retailing business that has gained market share in recent
years. For instance, we have two profitable operations in China: a facility that
manufactures and sells industrial and food retailing products and a facility
that manufactures and distributes laboratory products. Both of these operations
serve the domestic and export markets. We have also opened direct marketing
organizations in Taiwan, Korea, Hong Kong, Thailand, Malaysia and Eastern
Europe. Recognizing the strategic importance of Asia, we created a new executive
committee position to head our Asian business. Beyond Asia, we are also
expanding our sales and service presence in Latin America and other emerging
markets.
We believe that to succeed in emerging markets, there are several
advantages we must offer to our customer base:
o to our multinational customers, we must offer the same level of
service and problem-solving capabilities that we offer them in
developed countries. We accomplish this through extensive
training, including factory training, of our employees
o to our local customers, we must offer lower cost and less complex
products than are required by our customers in Japan, Europe and
North America. We accomplish this through the increased research
and development and manufacturing capabilities at our two Chinese
production facilities
o we must have a direct local presence to ensure that our
combination of quality products and excellent service is
effectively carried out at a local level so that we achieve the
same level of brand awareness in emerging markets that we enjoy in
developed markets. We have accomplished this in part by
establishing ten new sales and service operations in emerging
markets since 1996
Pursuing Selected Acquisition Opportunities. We believe that the
combination of our market leadership, our strong brand name and our
comprehensive sales and distribution network
8
supports an attractive platform for acquisitions. We are interested in acquiring
companies that provide us with:
o complementary products that will benefit from our brand name and
global distribution channels. An example is our drug discovery
acquisitions that we made in 1998 and whose products we have now
added to our global distribution network. We offer these companies
the infrastructure to expand globally and take advantage of the
Mettler-Toledo brand name
o integrated technology solutions, which we can combine with our own
technologies to create an overall better solution for our
customers. An example is Safeline Limited, which we acquired in
1997. We combined its metal detection equipment with our
checkweighers to create one instrument, featuring integrated data
management, a smaller footprint and only one man-machine
interface- a better solution for many of our customers than
separate products
o consolidation opportunities in fragmented markets. Examples
include our recent acquisition of the Testut-Lutrana group in
France and our acquisitions of a number of independent industrial
and retail weighing distributors in the United States
o geographic expansion into markets where we do not have a direct
presence. For example, in 1998 we established a small presence in
India by acquiring a local manufacturer
Re-engineering and Cost Savings. We have improved our profitability in
recent years partly through a series of initiatives aimed at reducing our cost
structure. We plan to take similar initiatives in the future with the goal of
further improving our operating margins. These initiatives include:
o moving the production of certain product lines to lower cost
locations and consolidating the production of others. For example,
in 2000 we are planning to transfer production lines from the
Americas to China and Europe and close facilities in order to
continue to exploit our low cost Chinese manufacturing base and
better utilize existing capacity in Europe
o our worldwide procurement project, launched last year, is expected
to bring us substantial cost savings. To take full advantage of
our global purchasing power, we are working to eliminate price
differences between units, leverage high-potential opportunities
to increase buying power and establish a worldwide sourcing
arrangement
o increasing sales force productivity through telemarketing,
increased training and other focused initiatives. For example, we
have recently initiated an internet sales channel for certain
product categories and have also significantly increased our
telemarketing initiatives. We believe both of these programs will
increase the productivity of our sales force
o reducing distribution costs by using existing infrastructure more
efficiently and centralizing processes where economies of scale
can be obtained. For example, we recently consolidated most of our
North American order processing and billing functions into one
location
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o reducing product cost through research and development, improved
manufacturing processes and reducing the purchased cost of
components. For example, we will introduce a number of products in
2000 with lower costs than the previous generation, including a
number manufactured at our Chinese facilities
o continually reviewing operations to identify additional
opportunities to reduce costs
We believe that these initiatives will place us in a position to build
on our recent improvement in profitability. Furthermore, we believe that we can
leverage our existing infrastructure, particularly our recent investments in
Asia, to obtain continued sales growth without significant additions to our
overall cost base.
Drug Discovery
Virtually all our efforts center on improving customers' processes. By
working side-by-side with customers, we gain an in-depth understanding of their
processes and how we can help them become more efficient.
Increasingly, the answer is automation. And, frequently, the tools are
Mettler-Toledo's advanced robotics, intelligent software, and/or a combination
of technologies into integrated, more powerful instruments. Our automated
solutions provide excellent value and paybacks, ranging from time savings and
better yields to higher-quality products and tighter inventory control.
We offer products with advanced automation in areas from food retailing
to packaged goods. Where we are making the greatest difference is in the
high-growth field of drug discovery. Each day that automation accelerates the
introduction of a blockbuster drug can translate into millions of additional
sales for a pharmaceutical company. Such tremendous payback opportunities on
automation are driving our pharmaceutical customers to significantly increase
their spending on these techniques.
With a comprehensive array of automated solutions for drug discovery,
we can help customers achieve "leapfrog" improvements in efficiency. One such
solution, our Myriad synthesizer, uses robotics and software to automate the
generation of large libraries of compounds for screening. The benefits of this
automation are dramatic. A chemist can manually synthesize about 50 to 200
compounds per year; with Myriad, he or she can synthesize as many as 100,000. By
freeing scientists from time-consuming, routine tasks, our synthesizer allows
them to focus on intellectually demanding elements of their work and pursue
other value-creating activities.
In addition, we are establishing another unprecedented market position
by combining our technologies to condense the sequence of the drug discovery
process - further helping customers increase throughput. Our revolutionary
approaches will enable customers to simultaneously carry out steps that
historically have been done sequentially.
For example, we are launching an automatic lab reactor with multiple
reaction vessels combined with an infrared multi-sensor device that provides
real-time reaction analysis for each vessel. The combined instrument bridges the
gap between parallel synthesizers for drug discovery and single-vessel reactor
systems for process development. The combination also
10
forms a fully integrated solution for the process screening of drug candidates
and creates exceptional customer value.
Instruments and Solutions
Laboratory Instruments and Solutions
We manufacture and market a complete range of laboratory balances, as
well as other selected laboratory instruments, such as titrators, thermal
analysis systems, automatic lab reactors, automated synthesis products, pH
meters and electrodes, for laboratory applications in research and development,
quality assurance, production and education. We estimate that approximately 40%
of our sales are to customers using our instruments and services in laboratory
environments. We estimate that we have approximately 45% share of the global
market for laboratory balances and we are among the top three producers
worldwide of titrators, thermal analysis systems, automatic lab reactors,
automated synthesis products, pH meters and electrodes. We have also established
a leading position in the drug discovery market. We believe that we have the
leading market share for laboratory balances in each of Europe, the United
States and Asia (excluding Japan) and the number two position in Japan.
Balances. The balance is the most common piece of equipment in the
laboratory. We believe that we sell the highest performance laboratory balances
available on the market, with weighing ranges from one ten-millionth of a gram
up to 32 kilograms. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as "Mettlers." The
Mettler-Toledo name is identified worldwide with accuracy, reliability and
innovation. In our judgment, this reputation constitutes one of our principal
competitive strengths.
In order to cover a wide range of customer needs and price points, we
market laboratory balances in three principal product tiers offering different
levels of functionality. High-end balances provide maximum automation of
calibration, application support and additional functions. Mid-level balances
provide a more limited but still extensive set of automated features and
software applications. Basic level balances provide simple operations and a
limited feature set. We also manufacture mass comparators, which are used by
weights and measures regulators as well as laboratories to ensure the accuracy
of reference weights. Due to the wide range of functions and features offered by
our products, prices vary significantly. A typical mid-range precision balance
is priced at approximately $2,500 and a typical microbalance is priced at
approximately $14,000.
In addition to Mettler-Toledo branded products, we also manufacture and
sell balances under the brand name "Ohaus." Ohaus branded products include
mechanical balances and electronic balances for the educational market and other
markets in which customers are interested in lower cost, a more limited set of
features and less comprehensive support and service.
Titrators. Titrators measure the chemical composition of samples. Our
high-end titrators are multi-tasking models, which can perform two
determinations simultaneously. They permit high sample throughputs and have
extensive expansion capability and flexibility in calculations, functions and
parameters. Most models, including those in the lower-range, permit common
determinations to be stored in a database for frequent use. Titrators are used
heavily in the food and beverage industry. A typical titrator is priced at
approximately $12,000.
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Thermal Analysis Systems. Thermal analysis systems measure different
properties, such as weight, dimension and energy flow, at varying temperatures.
Our thermal analysis products include full computer integration and a
significant amount of proprietary software. Thermal analysis systems are used
primarily in the plastics and polymer industries. A typical thermal analysis
system is priced at approximately $50,000.
pH Meters. A pH meter measures acidity in a laboratory sample and is
the second most widely used measurement instrument in the laboratory, after the
balance. We manufacture desktop models and portable models. Desktop models are
microprocessor-based instruments, offering a wide range of features and
self-diagnostic functions. Portable models are waterproof, ultrasonically welded
and ergonomically designed. Data collected from a portable meter can be
downloaded to a computer or printer using an interface kit and custom software.
pH meters are used in a wide range of industries. A typical pH meter is priced
at approximately $1,200.
Automatic Lab Reactors and Reaction Calorimeters. Automatic lab
reactors and reaction calorimeters simulate an entire chemical manufacturing
process in the laboratory. Customers use the simulation test before proceeding
to production, in order to test the safety and feasibility of new processes. Our
products are fully computer-integrated, with a significant software component
that we also provide. They also offer wide flexibility in the structuring of
experimental processes. Automatic lab reactors and reaction calorimeters are
typically used in the chemicals and pharmaceutical industries. A typical lab
reactor is priced at approximately $140,000.
Synthesizers. We manufacture automated parallel synthesizers for use in
sophisticated chemistry environments, such as pharmaceutical laboratories. These
synthesizers allow scientists to develop new compounds more efficiently and to
create large libraries of molecules at the same time instead of creating them
one by one as is done traditionally. This is an important aspect of
combinatorial chemistry in the drug and chemical compound discovery process. Our
synthesizers use robotics and sophisticated software to automate what was
previously a manual process. A synthesizer costs between $75,000 and $1,000,000,
depending on its functionality.
Robotic Workstations. Robotic workstations include dedicated automated
instruments for weighing, pH meter measurement, titration and other analytical
technologies, particularly in the area of sample preparation. Sample preparation
has historically been a manual process for our customers and accounts for a
significant cost in chemical analysis. By automating these manual processes, our
robotic workstations significantly increase productivity in the laboratory and
specifically meet our pharmaceutical, chemical and other customers' needs for
automated solutions for drug and chemical compound discovery. Our robotic
workstations include sophisticated software and cost between $20,000 and $75,000
depending on its functionality.
Other Instruments. We have recently introduced single-channel and
multi-channel pipettes which are used for liquid handling in the laboratory.
These devices are the most widely used instruments in the rapidly growing life
science market. We sell density and refractometry instruments, which measure
chemical concentrations in solutions. These instruments are sourced through a
marketing joint venture with a third-party manufacturer, but are sold under the
Mettler-Toledo brand name. In addition, we manufacture and sell moisture
analyzers, which precisely determine the moisture content of a sample by
utilizing an infrared dryer to evaporate moisture. We also manufacture
electrodes for use in a variety of laboratory instruments and in-line process
applications. Laboratory electrodes are used in pH meters and titrators, and may
be replaced many times during the life of the instrument.
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Industrial and Food Retailing Instruments and Solutions
In 1999, we continued the globalization of our industrial and retail
businesses, which historically were distinct entities in North America and
Europe, by reorganizing the businesses under a global head. Our reorganization
anticipates the continued emergence of a global marketplace, as our customers
set up operations worldwide and as industry standards are harmonized globally.
The new organization will improve customer service and support by
ensuring we offer state-of-the-art solutions and consistent quality and service
levels around the globe. It is this powerful combination that continues to
attract major customers who have standardized on our weighing instruments at
their facilities worldwide. Our reorganization also will increase our
cost-effectiveness by eliminating duplicate costs and standardizing product
lines. By reducing 25 regional product groups to 15 global lines, we are better
leveraging our R&D and other recources to develop even more advanced solutions
for customers.
We offer industrial measurement solutions, principally the measurement
of weight, to customers in a variety of industries, often in the same end
markets where we sell our laboratory instruments. The key end markets for these
solutions are the food, pharmaceutical, chemical, cosmetics and logistics
industries. We also sell weighing instruments and solutions to the electronics,
metal, rubber and plastics industries and to the public sector in connection
with the control and tariff of trucks.
Weighing instruments are among the most broadly used measurement
devices in industry and food retailing. We estimate that approximately 40% of
our sales are to customers using our instruments and services in industrial
environments and 20% to customers in food retailing environments. We believe
that we have the largest market share in the industrial and food retailing
market in each of Europe and the United States. In Asia, we have a substantial
industrial and food retailing business which has gained market share in recent
years. This business is supported by an established manufacturing presence in
China. We believe that we are the only company with a true global presence
across industrial and food retailing weighing applications.
Our industrial measurement solutions cover many customer processes from
raw material management, to production, through to packaging and into the
logistics industry. We can walk through the steps in a typical production
process to illustrate some of the solutions we offer:
o For food and pharmaceutical companies, as well as other process
industries, the production process begins with the receipt of bulk
materials, such as ingredients for food or chemicals. We offer
integrated solutions to help customers manage these inventory
items from the time they enter a facility to when they move into
production. This is accomplished through weigh stations with our
industrial terminals and application-specific software which helps
manage the inventory flow at each step. The data collected by our
instruments is usually interfaced with customers' ERP systems.
o Production processes often require the mixing of inventory items
or ingredients using a formula or recipe. Since these formulas are
based on weight, we offer
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integrated weighing solutions, including our FormWeigh software
package to control the formulation process and manage production.
o After the food item or drug has been manufactured, it must go
through a packaging process where it is sorted and enclosed in a
container. Two standard quality control processes in virtually all
packaging lines are tests for over- or under-filling and for metal
contamination. We offer instruments for both these applications.
In addition, we offer specialized industrial terminals and
software for statistical quality control which allows a customer
to run a number of standard quality control applications and to
send instructions to earlier phases in the packaging process to
correct off-specification conditions.
o Finally, after the food or drug item has been packaged, it enters
a logistics process in which the item ultimately reaches an end
customer. We offer highly advanced solutions for logistics
companies like FedEx and DHL to capture the weight and dimension
of packages as they move through their hub systems. Logistics
companies then use the data captured in these systems to manage
loads and bill their customers.
We also offer perishable goods management systems to assist large food
retailers in their management of fresh goods, such as meats, fruits, vegetables
and cheese. These perishable goods management systems are networked computers
deployed in a store, each with weighing sensors, which are linked together with
an array of software packages that assist in the management of perishable goods.
We offer these solutions for individual stores or can network together large
numbers of stores. Many food retailers are considering the movement of these
solutions to the internet, where they can manage their perishable goods
inventory and control pricing of individual items in real-time. Our perishable
goods management systems can also be used as merchandising tools, for example by
showing promotional information on the display.
The industrial and food retailing products that we offer in providing
these solutions are described in more detail below.
Industrial Scales and Balances. We offer a complete line of industrial
scales and balances, such as bench scales and floor scales, for weighing loads
from a few grams to several thousand kilograms in applications ranging from
measuring materials in chemical production to weighing mail and packages. Our
product lines include the "Viper" and "Spider" range of scales, often used in
receiving and shipping departments in counting applications; "TrimWeigh" scales,
which determine whether an item falls within a specified weight range, and are
used primarily in the food industry; "Mentor SC" scales, for counting parts; and
precision scales for formulating and mixing ingredients. Prices vary
significantly with the size and functions of the scale, generally ranging from
$1,000 to $20,000.
Industrial Weighing Terminals. Our industrial weighing terminals, such
as "FormWeigh," are based on an open-system architecture that enables
interaction with customers' enterprise software packages. Prices for industrial
weighing terminals vary significantly based on functionality of the application,
generally ranging from $500 to $10,000. Our "MultiRange" products also include
standardized software which uses the weight data obtained to calculate other
parameters, such as price or number of pieces. The modular design of these
products facilitates the integration of our weighing equipment into a computer
system performing other functions, like inventory control or batch management.
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Truck Scale Systems. Our primary heavy industrial products are scales
for weighing trucks or railcars (i.e., weighing bulk goods as they enter a
factory or at a toll station). Our truck scales, such as the "DigiTol
TRUCKMATE," generally have digital load cells, which offer significant
advantages in serviceability over analog load cells. Heavy industrial scales are
capable of measuring weights up to 500 tons and permit accurate weighing under
extreme environmental conditions. We also offer advanced computer software, such
as "WinBridge," that can be used with our heavy industrial scales to permit a
broad range of applications. Truck scale prices generally range from $20,000 to
$50,000.
Dynamic Checkweighers. We offer solutions to checkweighing requirements
in the food processing, pharmaceutical, chemicals and cosmetic industries, where
customers are required to accurately measure portions for packaging. We also
offer checkweighing solutions to the transportation and package delivery
industries, where tariffs are levied based on weight. Customizable software
applications utilize the information generated by checkweighing hardware to find
production flaws, packaging and labeling errors and nonuniform products, as well
as to sort rejects and record the results. Our checkweighing equipment can
accurately determine weight in dynamic applications at speeds of up to several
hundred units per minute. Checkweighers generally range in price from $8,000 to
$40,000.
Metal Detection Systems. Metal detection systems control the removal of
products that are identified as contaminated by metal during the manufacturing
process in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Metal detectors therefore provide manufacturers with vital
protection against metal contamination arising from their own production
processes or from using contaminated raw materials. Metal detectors are most
commonly used with checkweighers as components of integrated packaging lines in
the food processing, pharmaceutical and other industries. Prices for metal
detection systems generally range from $5,000 to $20,000.
Dimensioning Equipment. We offer automated dimensioning equipment for
use in the shipping industry to measure package volumes. These products employ
the patented PILAR technology and are integrated with industrial scales to
combine volume-based and weight-based tariff calculations. Prices for integrated
dimensioning/weighing systems range from $5,000 to $20,000.
Retail Scale Systems and Prepackaging Systems. Supermarkets,
hypermarkets and other food retail establishments make use of multiple weighing
applications for the full handling of perishable goods. For example, perishable
goods are weighed on arrival to determine payment to suppliers and some of these
goods are repackaged, priced and labeled for sale to customers. Other goods are
kept loose and selected by customers and either weighed at the produce or
delicatessen counter or at the checkout counter.
We offer stand-alone scales for basic counter weighing and pricing,
price finding, and printing. In addition, we offer network scales and software,
which can integrate backroom, counter, self-service and checkout functions, and
can incorporate weighing data into a supermarket's overall perishable goods
management system. Backroom products include dynamic weighing products, labeling
and wrapping machines, perishable goods management and data processing systems.
In some countries in Europe, we also sell slicing and mincing equipment. Prices
for food retailing scales generally range from $500 to $5,000, but are often
sold as part of comprehensive weighing solutions.
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Customers and Distribution
Our business is geographically diversified, with sales in 1999 derived
46% from Europe, 43% from North and South America and 11% from Asia and other
countries. Our customer base is also diversified by industry and by individual
customer. Our largest single customer accounted for no more than 3% of 1999 net
sales.
We use the Mettler-Toledo Web site, www.mt.com, to provide current and
prospective customers and other audiences with the information they need in a
convenient manner. With more than 2,500 pages of information, our Web site has
become a principal source of answers for customers' questions on many
laboratory, industrial and food retailing processes. Customers repeatedly tell
us how much they value this resource, reinforcing their belief in our
unparalleled applications support and further strengthening our brand.
In addition, we use the information gained through visits to our site
to make our marketing messages even more relevant to customers. This includes
employing one-to-one marketing techniques, which are already proving successful.
Laboratory
Principal customers for laboratory products include: chemicals
manufacturers, pharmaceutical manufacturers, cosmetics manufacturers, food and
beverage makers, the metals industry, the electronics industry, the plastics
industry, the transportation industry, the packaging industry, the logistics
industry, the rubber industry, the jewelry and precious metals trade,
educational institutions and government standards laboratories. Balances, pH
meters and pipettes are the most widely used laboratory measurement instruments
and are found in virtually every laboratory across a wide range of industries.
Other products have more specialized uses.
Our laboratory products are sold through a worldwide distribution
network. Our extensive direct distribution network and our dealer support
activities enable us to maintain a significant degree of control over the
distribution of our products.
We now offer customers the ability to shop online for basic instruments
with global appeal, such as balances, pipettes, pH meters, electrodes, titrators
and density meters. Launched in mid-1999, www.MT-Shop.com presents customers
with unique options, including the ability to customize a product down to a
specific color or design motif. Users also can access the site in five
languages.
Our virtual shop is aimed principally at small start-up companies and
individual scientists segments of the market that previously were difficult to
reach cost-effectively. The site is expected to increase brand awareness and
market penetration with these new target groups.
In the United States where there are strong independent laboratory
distributors, we use them as the primary marketing channel for lower to
mid-price products. This strategy allows us to leverage the strength of both the
Mettler-Toledo brand and the laboratory distributors' market position into sales
of other laboratory measurement instruments. We provide our distributors with a
significant amount of technical and sales support. Mid to high-end products in
the United States are handled by our own sales force. There has been recent
consolidation among distributors in the United States market. While this
consolidation could adversely affect our
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U.S. distribution, we believe our leadership position in the market gives us a
competitive advantage when dealing with our U.S. distributors.
We sell products in Asia through our own sales force and distributors,
and in Europe primarily through direct sales. European and Asian distributors
are generally fragmented on a country-by-country basis.
Ohaus branded laboratory balances are generally positioned in
alternative distribution channels to those of Mettler-Toledo branded products.
This means that we can fill a greater number of distribution channels and
increase penetration of our existing markets. Since acquiring Ohaus in 1990, we
have expanded this brand beyond its historical U.S. focus. Ohaus branded
products are sold exclusively through distributors.
Industrial and Food Retailing
We offer industrial and food retailing measurement solutions,
principally the measurement of weight, to customers in a variety of industries,
often in the same end markets where we sell our laboratory instruments. The key
end markets for these solutions are the food, pharmaceutical, chemical,
cosmetics and logistics industries. We also sell weighing instruments and
solutions to the electronics, metal, rubber and plastics industries and to the
public sector in connection with the control and tariff of trucks.
Our industrial products share weighing technology, and often minor
modifications to existing products make them useful for applications in a
variety of industrial processes. We also sell to original equipment
manufacturers ("OEMs") which integrate our modules into larger process control
applications or comprehensive packaging lines. Our products are also purchased
by engineering firms, systems integrators and vertical application software
companies.
Customers for metal detection systems are typically food processing,
pharmaceutical, cosmetics and chemicals manufacturers that must ensure that
their products are free from contamination by metal particles. Undetected metal
contamination can have severe consequences for these companies, including
potential litigation and product recalls. Metal detection systems are most
commonly utilized together with checkweighers as components of integrated
packaging lines. Metal detectors provide important safety checks before food and
other products are delivered to customers. Metal detection systems are also used
in pipeline detectors for dairy and other liquids, gravity fall systems for
grains and sugar and throat detection systems for raw material monitoring.
Our food retailing products customers include supermarkets,
hypermarkets and smaller food retailing establishments. The North American and
European markets already include many large supermarket chains, and there is an
on-going shift in most of our food retailing markets from "mom and pop" grocery
stores to supermarkets and hypermarkets. While supermarkets and hypermarkets
generally buy less equipment per customer, they tend to buy more advanced
products that require more electronic and software content. In emerging markets,
however, the highest growth is in basic scales. As with industrial products, we
also sell food retailing products to OEMs for inclusion in more comprehensive
checkout systems. For example, our OEMs often incorporate our checkout scales
into scanner-scales, which can weigh perishable goods and also read bar codes on
other items. Scanner-scales are in turn integrated with cash registers to form a
comprehensive checkout system.
17
In the industrial and food retailing market, we sell both directly to
customers (including OEMs) and through distributors. In the United States,
direct sales exceed distribution sales and in Europe, direct sales predominate,
with distributors used in certain cases. We sell products in Asia primarily
through distributors, except in China where we sell products through our own
sales force and distributors. Where we use distributors, we seek to provide them
with significant support.
Sales and Service
Market Organizations
We have over 30 geographically focused market organizations ("MOs")
around the world that are responsible for all aspects of our sales and service.
The MOs are local marketing and service organizations designed to maintain close
relationships with our customer base. Each MO has the flexibility to adapt its
marketing and service efforts to account for different cultural and economic
conditions. MOs also work closely with our producing organizations (described
below) by providing feedback on manufacturing and product development
initiatives and relaying innovative product and application ideas.
We have the only global sales and service organization among weighing
instruments manufacturers. At December 31, 1999, our sales and services group
consisted of more than 3,800 employees in sales, marketing and customer service
(including related administration) and after-sales technical service. This field
organization has the capability to provide service and support to our customers
and distributors in virtually all major markets across the globe.
Sales managers and representatives interact across product lines and
markets in order to serve customers that have a wide range of instrument needs,
such as pharmaceutical companies that purchase both laboratory and industrial
products. We classify customers according to their potential for sales and the
appropriate distribution channel is selected to service the customer as
efficiently as possible. Larger accounts tend to have dedicated sales
representatives. Other representatives specialize by product line. Sales
representatives call directly on end-users either alone or, in regions where
sales are made through distributors, jointly with distributors.
We utilize a variety of advertising media, including trade journals,
catalogs, exhibitions and trade shows. In addition, we also sponsor seminars,
product demonstrations and customer training programs. Our high market share
helps us to gauge growth opportunities, target our message to appropriate
customer groups and monitor competitive developments. We utilize sophisticated
marketing techniques in our sales efforts. These techniques include the
development and utilization of marketing databases. We develop these databases
to better understand the full potential of our market by customer, location,
industry, instruments and related application. We then utilize this data to more
efficiently direct our field resources and complement our direct and distributor
sales forces with targeted mailing and telemarketing campaigns to more fully
exploit our market's potential.
We also utilize a dual brand strategy for certain market segments to
improve our overall market penetration. For example, we sell laboratory balances
under the Ohaus brand name as an alternative to the Mettler-Toledo brand name in
certain distribution channels.
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After-Sales Service
We believe service capabilities are a critical success factor in our
business. Through our own dedicated service technicians, we provide contract and
repair services in all countries in which our products are sold. We estimate
that we have the largest installed base of weighing instruments in the world,
and our contract and repair services generate significant revenues. In 1999,
service (representing service contracts, repairs and replacement parts)
accounted for approximately 17% of our total net sales (service revenue is
included in the laboratory and industrial and food retailing sales percentages
given above). Approximately half of this amount is derived from spare parts with
the remaining portion derived from service contacts. Beyond revenue
opportunities, service is a key part of our product offering and helps
significantly in generating repeat sales. The close relationships and frequent
contact with our large customer base provides us with sales opportunities and
innovative product and application ideas. A global service network also is an
important factor in our ability to expand in emerging markets. Moreover, the
widespread adoption of quality laboratory and manufacturing standards and the
privatization of weights and measures certification represent favorable trends
for our service business, as they tend to increase demand for on-site
calibration services.
Our service contracts provide for repair services within various
guaranteed response times, depending on the level of service selected. Many
contracts also include periodic calibration and testing. Contracts are generally
one year in length, but may be longer. If the service contract also includes
products of other manufacturers, we will generally perform calibration, testing
and basic repairs directly, and contract out more significant repair work. As
application software becomes more complex, our service efforts increasingly
include installation and customer training programs as well as product service.
Research and Development; Manufacturing
Producing Organizations
Our product development, research and manufacturing efforts are
organized into a number of producing organizations ("POs"). At December 31,
1999, POs included approximately 4,100 employees worldwide. POs are product
development teams comprised of personnel from our marketing, development,
research, manufacturing, engineering and purchasing departments. POs often seek
customer input to ensure that the products developed are tailored to market
needs. We have organized our POs to reduce product development time, improve
customer focus, reduce costs and maintain technological leadership. The POs work
together to share ideas and best practices, and some employees are in both MOs
and POs. We recently implemented a number of projects that we believe will
further increase productivity and lower costs. For example, we restructured the
order and product delivery process in Europe to enable us to deliver many of our
products to our customers directly from the manufacturing facility within
several days, which minimizes the need to store products in decentralized
warehouses. In addition, we have centralized our European spare parts inventory
management system allowing all spare parts for Europe to be delivered from a
single, highly automated location.
Research and Product Development
We attribute a significant portion of our recent margin improvement to
our research and development efforts. We intend to continue to invest in product
innovation in order to provide technologically advanced products to our
customers for existing and new applications. Over the
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last three years, we have invested more than $150 million in research and
development. In 1999, we spent approximately 5.8% of net sales on research and
development (including costs associated with customer-specific engineering
projects, which are included in cost of sales for financial reporting purposes).
Our research and development efforts fall into two categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
We have devoted an increasing proportion of our research and
development budget to software development. Software development for weighing
applications includes application-specific software, as well as software
utilized in sensor mechanisms, displays, and other common components, which can
be leveraged across our broad product lines.
We closely integrate research and development with marketing,
manufacturing and product engineering. We have over 700 professionals in
research and development and product engineering. As part of our research and
development activities, we have frequent contact with university experts,
industry professionals and the governmental agencies responsible for weights and
measures, analytical instruments and metal detectors. In addition, our in-house
development is complemented by technology and product development alliances with
customers and original equipment manufacturers.
Manufacturing
We manufacture some of our own components, usually components that
contain proprietary technology. However, when outside manufacturing is more
efficient, we contract with others for certain components and in turn use these
components in our own manufacturing processes. We use a wide range of suppliers
and we believe our supply arrangements to be adequate. From time to time we rely
on a single supplier for all of our requirements of a particular component. Even
then, adequate alternative sources are generally available if necessary. Supply
arrangements for electronics are generally made globally. For mechanical
components, we generally use local sources to optimize materials flow.
We strive to emphasize product quality in our manufacturing operations,
and most of our products require very strict tolerances and exact
specifications. We use an extensive quality control system that is integrated
into each step of the manufacturing process. This integration permits field
service technicians to trace important information about the manufacture of a
particular unit, which facilitates repair efforts and permits fine-tuning of the
manufacturing process. Many of our measuring instruments are subjected to an
extensive calibration process that allows the software in the unit to
automatically adjust for the impact of temperature and humidity.
We are a worldwide manufacturer, with nine manufacturing plants in the
United States, four in Switzerland, two in Germany, two in the United Kingdom,
one in France and two in China. Laboratory products are produced mainly in
Switzerland and to a lesser extent in the United States and China, while
industrial and food retailing products are produced in all six countries. We
produce our metal detectors in the United Kingdom. We have manufacturing
20
expertise in sensor technology, precision machining and electronics, as well as
strength in software development. Furthermore, most of our manufacturing
facilities have achieved ISO 9001 certification. We believe that our
manufacturing capacity is sufficient to meet our present and currently
anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently short so as to
permit us to manufacture to fill orders for most of our products, which helps to
limit inventory costs. Backlog is therefore generally a function of requested
customer delivery dates and is typically no longer than one to two months.
Employees
As of December 31, 1999, we had approximately 7,900 employees
throughout the world, including more than 4,200 in Europe, more than 2,700 in
North and South America, and approximately 1,000 in Asia and other countries. We
believe our employee relations are good, and we have not suffered any material
employee work stoppage or strike during the last five years. Labor unions do not
represent a meaningful number of our employees.
In certain of our facilities, we have a flexible workforce environment,
in which hours vary depending on the workload. This flexible working environment
enhances employees' involvement, thus increasing productivity. It also improves
efficient payroll management by permitting us to adjust staffing to match
workload to a greater degree without changing the size of the overall workforce.
Intellectual Property
We hold more than 1,100 patents and trademarks, primarily in the United
States, Switzerland, Germany, the United Kingdom, France, Japan and China. Our
products generally incorporate a wide variety of technological innovations, many
of which are protected by patents and many of which are not. Moreover, products
are generally not protected as a whole by individual patents. Accordingly, no
one patent or group of related patents is material to our business. We also have
numerous trademarks, including the Mettler-Toledo name and logo which are
material to our business. We regularly protect against infringement of our
intellectual property.
Regulation
Our products are subject to various regulatory standards and approvals
by weights and measures regulatory authorities. Although there are a large
number of regulatory agencies across our markets, there is an increasing trend
toward harmonization of standards, and weights and measures regulation is
harmonized across the European Union. Our food processing and food retailing
products are subject to regulation and approvals by relevant governmental
agencies, such as the United States Food and Drug Administration. Products used
in hazardous environments may also be subject to special requirements. All of
our electrical components are subject to electrical safety standards. We believe
that we are in compliance in all material respects with applicable regulations.
21
Environmental Matters
We are subject to a variety of environmental laws and regulations in
the jurisdictions in which we operate, including provisions relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. We wholly or partly own, lease or hold a
direct or indirect equity interest in a number of properties and manufacturing
facilities around the world, including North and South America, Europe,
Australia and China. Like many of our competitors, we have incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations in both the United States and abroad.
We are currently involved in, or have potential liability with respect
to, the remediation of past contamination in certain of our facilities in both
the United States and abroad. In addition, certain of our present and former
facilities have or had been in operation for many decades and, over such time,
some of these facilities may have used substances or generated and disposed of
wastes which are or may be considered hazardous. It is possible that such sites,
as well as disposal sites owned by third parties to which we have sent wastes,
may in the future be identified and become the subject of remediation.
Accordingly, although we believe that we are in substantial compliance with
applicable environmental requirements and to date we have not incurred material
expenditures in connection with environmental matters, it is possible that we
could become subject to additional environmental liabilities in the future that
could result in a material adverse effect on our financial condition or results
of operations.
Our operating facility in Landing, New Jersey is the subject of an
investigation and clean-up of hazardous substance contamination pursuant to the
New Jersey Industrial Site Recovering Act. On or about July 1988, an affiliate
of Ciba ("AGP") purchased 100% of the outstanding stock of Metramatic
Corporation ("Metramatic"), a manufacturer of checkweighing equipment located in
Landing, from GEI International Corporation ("GEI"). GEI agreed to indemnify and
hold harmless AGP for certain pre-closing environmental conditions, including
those resulting in cleanup responsibilities required by the New Jersey
Department of Environmental Protection pursuant to the New Jersey Environmental
Cleanup Responsibility Act ("ECRA"). ECRA is now the Industrial Site Recovery
Act. Pursuant to a 1988 New Jersey Department of Environmental Protection
administrative consent order naming GEI and Metramatic as respondents, GEI has
spent approximately $2 million in the performance of certain investigatory and
remedial work addressing groundwater contamination at the site. However,
implementation of a final remedy has not yet been completed, and, therefore,
future remedial costs are currently unknown. In 1992, GEI filed a suit against
various parties including Hi-Speed Checkweigher Co., Inc. ("Hi-Speed"), our
wholly owned subsidiary that currently owns the facility, to recover certain
costs incurred by GEI in connection with the site. Pursuant to a 2000 settlement
agreement, GEI agreed to dismiss the litigation and covenanted not to sue us for
investigation, remediation and monitoring costs and natural resource damages
associated with contamination at the facility in exchange for our agreement to
assign to GEI certain potential insurance recovery rights relating to the
facility. Based on currently available information and our settlement agreement
with GEI, we believe that costs associated with the future investigation and
remediation of this site will not have a material adverse effect on our
financial condition or results of operations.
We, or in some cases the former owner of Toledo Scale, have been named
a potentially responsible party under CERCLA or analogous state statutes at the
following third-party owned sites with respect to the alleged disposal at the
sites by Toledo Scale during the period before we
22
owned it: Granville Solvents Site, Granville, Ohio; Aqua-Tech Environmental,
Inc. Site, Greer, South Carolina; and Seaboard Chemical Company Site, Jamestown,
North Carolina. Pursuant to the terms of the stock purchase agreement between us
and the former owner of Toledo Scale, the former owner is obligated to indemnify
us for various environmental liabilities. To date, with respect to each of the
foregoing sites, the former owner has undertaken the defense and indemnification
of Toledo Scale. Based on currently available information and given our
contractual rights of indemnification, we believe that the costs associated with
the investigation and remediation of these sites will not have a material
adverse effect on our financial condition or results of operations.
Competition
Our markets are highly competitive. Furthermore, weighing instruments
markets are fragmented both geographically and by application, particularly the
industrial and food retailing weighing instruments market. As a result, we face
numerous regional or specialized competitors, many of which are well established
in their markets. In addition, some of our competitors are divisions of larger
companies with potentially greater financial and other resources than our own.
Taken together, the competitive forces present in our markets can impair our
operating margins in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive, we must continue to
invest in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
We believe that the principal competitive factors in our U.S. markets
for purchasing decisions are accuracy and durability, while in Europe accuracy
and service are the most important factors. In emerging markets, where there is
greater demand for less sophisticated products, price is a more important factor
than in developed markets. Competition in the United States laboratory market is
also influenced by the presence of large distributors that sell not only our
products but those of our competitors as well.
23
ITEM 2. PROPERTIES
The following table lists our principal operating facilities,
indicating the location, primary use and whether the facility is owned or
leased.
Location Principal Use (1) Owned/Leased
- -------- ----------------- ------------
Europe:
Greifensee/Nanikon, Switzerland........ Production, Corporate Headquarters Owned
Uznach, Switzerland.................... Production Owned
Urdorf, Switzerland.................... Production Owned
Schwerzenbach, Switzerland............. Production Leased
Albstadt, Germany...................... Production Owned
Giesen, Germany........................ Production Owned
Giessen, Germany....................... Sales and Service Owned
Steinbach, Germany..................... Sales and Service Owned
Bethune, France........................ Production Leased
Viroflay, France....................... Sales and Service Owned
Beersel, Belgium....................... Sales and Service Owned
Sint-Michielsgestel, Netherlands....... Sales and Service Leased
Tiel, Netherlands...................... Sales and Service Owned
Leicester, England..................... Sales and Service Leased
Manchester, England.................... Production, Sales and Service Leased
Royston, England....................... Production, Sales and Service Leased
Americas:
Columbus, Ohio......................... Sales and Service, North American Leased
Headquarters
Worthington, Ohio...................... Production Owned
Spartanburg, South Carolina............ Production Owned
Franksville, Wisconsin................. Production Owned
Ithaca, New York....................... Production Owned
Woburn, Massachusetts.................. Production Leased
Florham Park, New Jersey............... Production, Sales and Service Leased
Millersville, Maryland................. Production, Sales and Service Leased
Tampa, Florida......................... Production, Sales and Service Leased
Vernon Hills, Illinois................. Production, Sales and Service Leased
Mexico City, Mexico.................... Sales and Service Leased
San Paolo, Brazil...................... Production and Sales Leased
Other:
Shanghai, China........................ Production Building Owned;
Land Leased
Changzhou, China....................... Production Building Owned;
Land Leased
Melbourne, Australia................... Sales and Service Leased
Mumbai, India.......................... Production, Sales and Service Leased
(1) We also conduct research and development activities at certain of the
listed facilities in Switzerland, Germany, France, the United Kingdom,
the United States and China.
We believe our facilities are adequate for our current and reasonably
anticipated future needs.
24
ITEM 3. LEGAL PROCEEDINGS
Routine litigation is incidental to our business. Nevertheless, we are
not currently involved in any legal proceeding which we believe could have a
material adverse effect upon our financial condition or results of operations.
See "Environmental Matters" under Part I, Item 1 for information concerning
legal proceedings relating to certain environmental claims.
Our products generally are sold with a limited warranty for defects. We
have reviewed our products currently in use by customers or being sold and do
not believe that we will have material increase in warranty or product liability
claims arising out of Year 2000 non-compliance. However, any material increase
in these claims could harm our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION FOR COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the
symbol "MTD". The following table sets forth on a per share basis the high and
low sales prices for consolidated trading in our common stock as reported on the
New York Stock Exchange Composite Tape for the quarters indicated.
Common Stock
Price Range
------------
High Low
---- ---
1999
First Quarter $27 15/16 $19 5/8
Second Quarter $29 $22 5/8
Third Quarter $30 7/16 $23 13/16
Fourth Quarter $39 1/2 $27 5/8
1998
First Quarter $22 3/8 $16 9/16
Second Quarter $22 1/4 $18
Third Quarter $22 11/16 $16 1/4
Fourth Quarter $28 15/16 $16 3/4
HOLDERS
At March 7, 2000 there were 391 holders of record of common stock and
38,712,272 shares of common stock outstanding. The number of holders of record
excludes beneficial owners of common stock held in street name.
DIVIDEND POLICY
We have never paid any dividends on our common stock and we do not
anticipate paying any cash dividends on the common stock in the foreseeable
future. The current policy of our Board of Directors is to retain earnings to
finance the operations and expansion of our business. Moreover, our credit
agreement restricts our ability to pay dividends. Any future determination to
pay dividends will depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
by our Board of Directors.
26
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31, 1999, 1998, 1997, 1996 and 1995, for the years ended December 31,
1999, 1998 and 1997, for the period from October 15, 1996 to December 31, 1996,
for the period from January 1, 1996 to October 14, 1996 and for the year ended
December 31, 1995 is derived from our consolidated financial statements. The
financial information for all periods prior to October 15, 1996, the date of our
acquisition from Ciba-Geigy (the "Acquisition"), is combined financial
information of the Mettler-Toledo group of companies (the "Predecessor
Business"). The combined historical data of the Predecessor Business and the
consolidated historical data of the Company are not comparable in many respects
due to the Acquisition and the Safeline acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and accompanying notes. The financial
information presented below, in thousands except per share data, was prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP").
Mettler-Toledo International Inc. Predecessor Business
--------------------------------------------------------- --------------------------
October 15 January 1
Year ended Year ended Year ended to to Year ended
December 31, December 31, December 31, December 31, October 14, December 31,
1999 1998 1997 1996 1996 1995
------------ ------------ ------------ ------------ ----------- ------------
Statement of Operations Data:
Net sales................................ $1,065,473 $935,658 $878,415 $186,912 $662,221 $850,415
Cost of sales............................ 585,007(a) 520,190 493,480(c) 136,820(f) 395,239 508,089
---------- -------- -------- --------- ------- -------
Gross profit............................. 480,466 415,468 384,935 50,092 266,982 342,326
Research and development................. 57,393 48,977 47,551 9,805 40,244 54,542
Selling, general and administrative...... 300,389 265,511 260,397 59,353 186,898 248,327
Amortization............................. 10,359 7,634 6,222 1,065 2,151 2,765
Purchased research and development....... - 9,976(b) 29,959(d) 114,070(g) - -
Interest expense......................... 21,980 22,638 35,924 8,738 13,868 18,219
Other charges (income), net (h).......... 10,468 1,197 10,834 17,137 (1,332) (9,331)
------- ------- ------- ------- -------- --------
Earnings (loss) before taxes, minority
interest and extraordinary items....... 79,877 59,535 (5,952) (160,076) 25,153 27,804
Provision for taxes...................... 31,398 20,999 17,489 (938) 10,055 8,782
Minority interest........................ 378 911 468 (92) 637 768
------- ------- ------- -------- ------- -------
Earnings (loss) before extraordinary
items.................................. 48,101 37,625 (23,909) (159,046) 14,461 18,254
Extraordinary items -
debt extinguishments..................... - - (41,197)(e) - - -
------- ------- --------- ---------- ------- -------
Net earnings (loss)...................... $48,101 $37,625 $(65,106) $(159,046) $14,461 $18,254
======= ======= ========= ========== ======= =======
Basic earnings (loss) per common share:
Net earnings (loss) before
extraordinary items................. $ 1.25 $ 0.98 $ (0.76) $ (5.18)
Extraordinary items.................... - - (1.30) -
------- ------- --------- --------
Net earnings (loss).................... $ 1.25 $ 0.98 $ (2.06) $ (5.18)
======= ======= ========= ========
Weighted average number of common shares 38,518,084 38,357,079 31,617,071 30,686,065
Diluted earnings (loss) per common share:
Net earnings (loss) before
extraordinary items................. $ 1.16 $ 0.92 $ (0.76) $ (5.18)
Extraordinary items.................... - - (1.30) -
-------- ------- --------- --------
Net earnings (loss).................... $ 1.16 $ 0.92 $ (2.06) $ (5.18)
======= ======= ========= ========
Weighted average number of common shares 41,295,757 40,682,211 31,617,071 30,686,065
Balance Sheet Data (at end of period):
Cash and cash equivalents................ $ 17,179 $ 21,191 $ 23,566 $ 60,696 $ 41,402
Working capital.......................... 81,470 90,042 79,163 103,697 136,911
Total assets............................. 820,973 820,441 749,313 771,888 724,094
Long-term third party debt............... 249,721 340,246 340,334 373,758 3,621
Net borrowing from Ciba and
affiliates (i)......................... - - - - 203,157
Other non-current liabilities (j)........ 100,334 103,201 91,011 96,810 84,303
Shareholders' equity (k)................. 112,015 53,835 25,399 12,426 193,254
(Footnotes on next page)
27
(Footnotes from previous page)
- -----------------------------
(a) In connection with acquisitions in 1999, including the acquisition of
the Testut-Lutrana group, we allocated $998 of the purchase price to
revalue certain inventories (principally work-in-progress and finished
goods) to fair value (net realizable value). Substantially all such
inventories were sold during the second quarter of 1999.
(b) In connection with the Bohdan acquisition, we allocated, based upon
independent valuations, $9,976 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Bohdan acquisition.
(c) In connection with the Safeline acquisition, we allocated $2,054 of the
purchase price to revalue certain inventories (principally work-in-progress
and finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the second quarter of 1997.
(d) In connection with the Safeline acquisition, we allocated, based upon
independent valuations, $29,959 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Safeline acquisition.
(e) Represents charges for the write-off of capitalized debt issuance fees and
related expenses associated with our previous credit facilities. The amount
for the year ended December 31, 1997 also includes the prepayment premium
on the senior subordinated notes which were repurchased and the write-off
of the related capitalized debt issuance fees.
(f) In connection with the Acquisition, we allocated $32,194 of the purchase
price to revalue certain inventories (principally work-in-progress and
finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the period October 15, 1996 to December
31, 1996.
(g) In connection with the Acquisition, we allocated, based upon independent
valuations, $114,070 of the purchase price to purchased research and
development in process. This amount was recorded as an expense immediately
following the Acquisition.
(h) Other charges (income), net generally includes interest income, foreign
currency transactions, (gains) losses from sales of assets and other items.
For the years ended December 31, 1999 and 1998, the amount shown includes
$825 and $650, respectively, of expenses incurred on behalf of certain
selling shareholders in connection with the secondary offerings. The 1999
amount also includes a gain on an asset sale of approximately $3,100, a
charge of $8,007 to transfer production lines from the Americas to China
and Europe and the closure of facilities and losses of approximately $4,100
in connection with the exit from our glass batching business based in
Belgium. For the year ended December 31, 1997, the amount shown includes a
restructuring charge of $6,300 to consolidate three facilities in North
America.
(i) Includes notes payable and long-term debt payable to Ciba and affiliates
less amounts due from Ciba and affiliates.
(j) Consists primarily of obligations under various pension plans and plans
that provide post-retirement medical benefits. See Note 12 to the audited
consolidated financial statements included herein.
(k) Shareholders' equity for the Predecessor Business consists of the combined
net assets of the Mettler-Toledo group of companies.
28
ITEM 7. 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 our audited
consolidated financial statements.
Overview
We operate a global business, with net sales that are diversified by
geographic region, product range and customer. We hold leading positions in many
of our markets and attribute this leadership to several factors, including the
strength of our brand name, the quality of our global sales and service network,
our continued investment in product development, our pursuit of technology
leadership and our focus on capitalizing on opportunities in developed and
emerging markets.
Our financial information is presented in accordance with generally
accepted accounting principles in the United States of America ("U.S. GAAP").
Financial results following our initial public offering in November 1997 and the
Safeline acquisition in May 1997 are not comparable in many respects to the
financial results prior to those events.
In 1999, we attained two important financial milestones. Our net sales
exceeded $1 billion and our total debt was reduced below $300 million, despite
spending approximately $175 million on acquisitions in the last three years.
Net sales in local currency increased 16% in 1999, 8% in 1998 and 11%
in 1997. The strengthening of the U.S. dollar versus our major trading
currencies reduced U.S. dollar - reported sales growth in each year. Net sales
in U.S. dollars increased 14% in 1999, 7% in 1998 and 3% in 1997.
In 1999, we had solid local currency sales growth of 19% in Europe, 15%
in the Americas and 11% in Asia and other markets. We believe our sales growth
over the next several years will come primarily from (i) the needs of our lab
and industrial customers in developed markets to continue to automate their
research and development and manufacturing processes, (ii) the needs of our
retail customers in Europe to upgrade their scales for the implementation of the
euro, (iii) the needs of our retail customers to implement sophisticated
perishable goods management systems using weighing and PC technology in a
networked environment, (iv) the needs of customers in emerging markets to
continue modernizing research and development and manufacturing processes
through the use of increasingly sophisticated instruments and (v) acquisition
opportunities.
We increased our gross profit margin before non-recurring acquisition
costs from 44.1% in 1997 to 45.2% in 1999 and increased our Adjusted Operating
Income (gross profit less research and development and selling, general and
administrative expenses before amortization and non-recurring costs) as a
percentage of net sales from 9.3% in 1997 to 11.6% in 1999.
This improved performance was achieved while we continued to invest in
product development and in our distribution and manufacturing infrastructure. We
believe that a significant portion of the increases in our Adjusted Operating
Income resulted from our strategy to reduce costs, re-engineer our operations
and focus on the highest value-added segments of the markets in which we
compete.
29
Recent Acquisitions
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, with annual sales of approximately $50 million. We
believe this acquisition is an excellent strategic fit given Testut-Lutrana's
extensive sales and service network in France and excellent brand recognition.
By virtue of this acquisition, we have assumed the leading position in food
retail weighing in Europe and are well positioned to meet the rapidly changing
demands of our European customer base.
In April 1999, we announced that we had signed an agreement to convert
our 60% joint venture in Changzhou, China, into a legal structure that provides
us with full control. Through this change in ownership, we will be able to fully
leverage this low-cost manufacturing base for international markets. This move
further demonstrates our strategic commitment to Asia and our belief in the
fundamental growth factors for the region.
In 1998, we decided to pursue opportunities in the automated drug and
chemical compound discovery and development market, and build on our leadership
position as a provider of automated lab reactors and reaction calorimeters.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples. Myriad Synthesizer Technology designs, assembles
and markets instruments that facilitate and automate the synthesis of large
numbers of chemical compounds in parallel, which is a key step in the chemical
compound discovery process. Its products can be used in all stages of synthesis
in drug discovery.
In July 1998, we also extended our product offerings to the automated
drug and chemical compound discovery market with our acquisition of Bohdan
Automation Inc. Bohdan is a leading supplier of laboratory automation and
automated synthesis products used in research for life science applications for
pharmaceutical and agricultural products and in other applications in the food
and chemicals industries.
These acquisitions enable us to offer a strong and comprehensive array
of solutions, from sample preparation to compound synthesis to process
development. We believe that our customers want solutions in this market from a
company like Mettler-Toledo, with a reputation for innovation and quality and
with a global presence and service network.
Secondary Offerings and IPO
In 1999 and 1998, certain selling shareholders completed secondary
offerings totalling 6,099,250 and 11,464,400 shares, respectively, 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 offerings. We incurred charges of $0.8 million and $0.7
million in connection with the offerings during 1999 and 1998, respectively.
30
During the fourth quarter of 1997, we completed our initial public
offering of 7,666,667 shares of common stock at a per share price of $14.00. The
offering raised net proceeds, after underwriters' commission and expenses, of
approximately $97.3 million. Concurrently with the offering, we refinanced our
existing credit facility by entering into a new credit facility, borrowings from
which, along with the proceeds from the offering, were used to repay
substantially all of our then-existing debt, including all of our 9 3/4% senior
subordinated notes due 2006. In connection with this refinancing, we recorded an
extraordinary charge of $31.6 million, net of tax, principally for prepayment
premiums on certain debt repaid and for the write-off of existing deferred
financing fees. We also paid a one-time termination fee of $2.5 million in
connection with the termination of our management services agreement with AEA
Investors Inc.
Cost Reduction Programs
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 recorded a charge of $8.0 million in 1999 associated with the
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
programs will exceed the costs, although the cash outflows will precede the cash
flow benefits. The charge relates primarily to severance and other related
benefits and costs of exiting facilities, including lease termination costs and
the write-down of impaired assets.
An initiative that we launched in 1999 is a worldwide procurement
project. The project is i