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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, 2000
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 16, 2001 there were 39,681,536 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
16, 2001) was approximately $1.655 billion. 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 2001 Into which Incorporated
Annual Meeting of Stockholders Part III
METTLER-TOLEDO INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
PART I
ITEM 1. BUSINESS.........................................................1
ITEM 2. PROPERTIES......................................................23
ITEM 3. LEGAL PROCEEDINGS...............................................24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................25
ITEM 6. SELECTED FINANCIAL DATA.........................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............40
ITEM 11. EXECUTIVE COMPENSATION..........................................42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.....................................................42
SIGNATURES....................................................................43
i
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.
We use the following registered and unregistered trademarks, which are
found in this Report: APPLIED SYSTEMS, ASI, AVS, AX, BERGER, BERGER INSTRUMENTS,
BOHDAN, CARGOSCAN, DELTARANGE, DIGITOL, FORMWEIGH, FREEWEIGH, FTIR, JAGUAR,
JAGXTREME, LABMAX, LUTRANA, MENTOR SC, METTLER, METTLER-TOLEDO, MT-SHOP,
MULTIMAX, MultiRange, MYRIAD, OHAUS, OPRA, SAFELINE, SPIDER, TESTUT,
TESTUT-LUTRANA, THORNTON, TRIMWEIGH , TRUCKMATE, VIPER, WINBRIDGE.
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 of weighing instruments for use in
laboratory, industrial and food retailing applications. We hold top-three 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. In addition, we are the world's largest manufacturer and marketer
of metal detection and other end-of-line inspection systems used in production
and packaging.
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We focus on the high value-added segments of our markets by providing
innovative instruments that are often integrated into application-specific
solutions for customers. We design our instruments not only to capture valuable
data but also to facilitate the processing and transfer of this data into
customers' management information systems.
Competitive Strengths
We believe our franchise has a number of competitive strengths, which
allow us to compete successfully in high value-added segments:
o Worldwide Market Leadership Positions. 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 2000 we
had approximately 50% 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 to our
weighing franchise, most of our other sales come from product lines
where we hold a top-three global position.
o Global Brand and Reputation. The Mettler-Toledo brand name is
identified worldwide with accuracy, reliability and innovation.
Customers value these characteristics because most of our 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, rather than cost alone. We have
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
balance line to include other analytical instruments.
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
measurement solutions to enhance our customers' processes. Our
technological innovation efforts benefit from our knowledge of
customer processes and related requirements, our manufacturing
expertise in sensor technology, precision machining and electronics,
as well as our strength in software development.
o Comprehensive, High Quality Solution Offering. We offer a more
comprehensive range of instruments and solutions than any of our key
competitors. Our broad product line addresses a wide range of
applications across and within many industries and regions. 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
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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 one of the
largest of any precision instrument company. We believe that this
capability is a major competitive advantage. At December 31, 2000, this
organization consisted of more than 4,000 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, we believe there is a
trend in may of our customer segments to outsource service activities,
which provides us a growth opportunity for the future.
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
18% of net sales in 2000, of which approximately half 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
instruments represents a competitive advantage with respect to repeat
purchases and purchases of other instruments we offer, 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 pharmaceuticals, food processing, food
retailing and chemicals, cosmetics and logistics 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 2000. Our diverse
revenue base reduces our 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. In 2000, our sales were $1.1
billion. Of this total 44% came from Europe, 44% from North and South
America and 12% from Asia and other countries. For additional
information regarding our segment disclosure, see Note 15 to our
audited consolidated financial statements.
3
Growth Strategies
We believe that our growth opportunities arise from our solutions
approach to the principal challenges facing our customer base. These include the
need for increased efficiency (for example, in accelerating time to market,
achieving better yields, improving work processes and outsourcing non-core
activities), the desire to integrate information captured by instruments into
management information systems, the drive for ever higher quality products and
services, including the need to adhere to stringent regulatory and industry
standards, and the move towards globalization in all major customer groups.
We continue to execute the business strategies that we outlined at the
time of our buy-out in 1996, which are described below. The successful
implementation of these strategies has allowed us to achieve a compound annual
sales growth rate in local currencies of 11% since 1996, and to improve our
Adjusted Operating Income (gross profit less research and development and
selling, general and administrative expenses before amortization and
non-recurring costs) from $57.8 million (6.8% of net sales) for 1996 to $142.8
million (13.0% of net sales) for 2000. Earnings per share increased from $0.14
in 1996 (pro forma for our buy-out) to $1.70 in 2000 before non-recurring items.
In addition, our ratio of net debt to EBITDA decreased from 4.6 in 1996 to 1.6
in 2000 and our interest coverage increased from 2.3 to 8.4 during the same
period.
Our key growth strategies are as follows:
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 approximately $160
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 our new products. Examples of recent product introductions
include:
o our new AX line of analytical balances, which gives scientists a
wealth of new capabilities through its embedded software, Internet
connection for remote monitoring and downloadable applications,
and sensors that provide for single-handed operation,
o our Internet-enabled industrial terminal, JagXtreme, which gives
production managers the ability to perform monitoring and
diagnostics off-site, including predicting equipment problems
before they disrupt manufacturing processes and
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o MultiMax, our high-throughput lab reactor, which combines multiple
vessels with robotic and FTIR technologies that enable chemists to
reduce process development time by running real-time chemical
analysis.
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 solutions, but we must market and distribute them
effectively--more effectively than our competitors. We view the key elements of
our sales and service strategy as follows:
o 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. The transparency of the
marketplace created through these databases allows us to more
effectively identify penetration opportunities among customers and
non-customers.
o With our developing E-commerce project, we plan to create a
configurable Internet portal which will allow customers, channel
partners and suppliers to customize the information presented to
them and to interact with us in the way they choose. Over time, we
will develop a knowledge base which will allow us to gain deeper
insight into our customers' patterns of behavior and give us
better market transparency. From this, we will be able to refine
our marketing efforts, gain quicker market penetration with new
products and services, and also ultimately reduce our marketing
costs.
o Our service capabilities stretch across the globe and include
around-the-clock availability of well-trained technicians, which
is highly valued by our customers. We believe that no other
competitor has our capabilities and that our service capabilities
are a critical success factor for us. Customers are continuing to
outsource non-core activities, such as service. In almost all
cases, we can provide higher-quality service at lower costs than
the customer can. Therefore, it is important that our customers
have the right partner in these outsourcing efforts. Our
value-added services encompass maintenance, calibration,
traceability of weights, certification, asset management, software
upgrades, data integration and training.
o 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, such
as the education market.
Capitalizing on Opportunities in Emerging Markets. We believe that
emerging markets will continue to provide growth opportunities for us. These
growth opportunities are being driven primarily by economic development and
multinationals' use of additional and more sophisticated precision instruments
as they shift production to emerging 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.
5
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. We also have direct marketing organizations in Taiwan, Korea, Hong
Kong, Singapore, India, Thailand, Malaysia and Eastern Europe. Beyond Asia, we
are also expanding our sales and service presence in Latin America and other
emerging markets.
We want to continue leveraging our Chinese manufacturing and R&D as a
platform for low-end products, which are necessary to increase our penetration
of emerging markets. At the same time, we are supplying these products to
complementary channels in North America and Europe. We are also transferring
production of many of our low-end products from Europe and North America to
China - the most recent example being our Ohaus electronic laboratory balances
and our shipping scales.
China is itself a great market for us. China is striving to meet global
quality standards so it can be a significant exporter. An increasing number of
multinationals are investing in China. Also, the local market is continuing to
switch over from mechanical to electronic weighing. For these reasons, we are
working to win a larger share of the market. We developed and launched a host of
new products in China in the past two years and our objective is to continue to
gain momentum.
Pursuing Selected Acquisition Opportunities. Acquisitions are an
integral part of our growth strategy. We believe that we have a powerful
acquisition platform in the instrument industry. Our acquisitions leverage our
global sales and service network, respected brand, extensive distribution
channels and technological leadership. We are interested in pursuing
acquisitions which have strong strategic fit - for example, companies with
complementary products that will benefit from our brand name and global
distribution channels, and companies with solutions we can combine with our own
technologies to create overall better solutions for our customers. In addition,
our acquisitions should anchor more of our business in faster-growing markets.
We are particularly attracted to the following end markets:
o Drug Discovery. The impact of scientific developments, including
the human genome project, is fundamentally changing the
pharmaceutical industry and its need for automation. In recent
years, we have acquired a variety of companies in the field of
drug discovery, including ASI, Bohdan, Myriad and Berger. We offer
these companies the infrastructure to expand globally and take
advantage of the Mettler-Toledo brand name. We now offer one of
the industry's broadest range of automation solutions for drug
discovery and research.
o Process Analytics. Our pharmaceutical and biotech customers need
to comply with increasing quality standards. At the same time,
they are seeking in-line control instruments to improve their
yields. In December 2000 we announced the acquisition of Thornton.
Thornton is the leader in pure and ultra-pure industrial water
monitoring instrumentation used in semi-conductor,
micro-electronics, pharmaceutical and biotech applications. We
believe the acquisition of Thornton is an excellent strategic move
to expand our process analytics business, and gain access to new
markets. Their conductivity technology and know-how are
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complementary to our strength in pH and oxygen measurements. With
a broader technology offering, we will be better able to serve our
expanded customer base.
o Food and Drug Packaging. Increasing safety and consumer
protection requirements are driving the need for more and more
sophisticated end-of-line inspection systems. We are the world's
leading provider of metal detectors and checkweighers, which, when
combined with our application-specific software packages, provide
food and drug packaging lines an integrated solution to check the
quality and quantity of their packages. In 2000, we acquired AVS,
which allowed us to add x-ray-based vision technology to our
offering. X-ray-based vision inspection is effective in detecting
non-metallic contamination in packages and where metal packaging
prevents detection by conventional means.
o Transportation and Logistics. The effects of globalization, the
move to just-in-time processes, and e-commerce are all causing our
customers to invest in our weighing and dimensioning solutions.
Our customers are the major express carriers, freight forwarders,
third-party logistic entities and warehousing and distribution
companies. We are currently the leading supplier of automatic
identification and data capture solutions which incorporate
weighing and dimensioning technology to optimize the shipment and
tracking of packages worldwide. In 2000, we announced that we
would acquire full ownership of our Cargoscan joint venture, the
premier provider of dimensioning technology. This transaction
underscores our commitment to the transportation and logistics
sector and will allow us the flexibility and faster
decision-making necessary to exploit the substantial growth of
this market.
These are not the only opportunities and end markets we are focusing
on. We are also alert for opportunities to expand our solution scope,
particularly by adding more application-specific software, and to consolidate
fragmented markets or expand geographically.
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 undertake similar initiatives in the future with the goal
of further improving our operating margins. These initiatives include:
o Continuing to leverage our Chinese manufacturing and R&D as a
platform for low-end products, which are necessary to increase our
penetration of emerging markets. We are also transferring
production of many of our low-end products from Europe and North
America to China - the most recent example being our Ohaus
electronic laboratory balances and our shipping scales. We now
have over 600 employees in China, including approximately 75 R&D
professionals.
o Our procurement initiative, launched in 1999, which is expected to
bring us substantial cost savings. Our global procurement
initiative aims to reduce our supplier base to a select group of
high-quality suppliers from all parts of the world. By doing so,
we believe we can ensure maximum cost effectiveness and improve
the quality of our product and processes. We expect to improve
operating margins through a more effective procurement effort over
the coming years.
o Opportunities in our service business. We have approximately 2,000
employees worldwide engaged in service, which generates
approximately 18% of our annual sales. We believe our customers
are looking far beyond repair to value-added
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services that give them competitive advantages in the marketplace.
Customers are also increasingly looking to outsource processes,
which provides us additional growth opportunities. By exploiting
available technology and best practices, we believe we can
increase the efficiency of our service business and expand our
margins.
o We are taking advantage of the globalization of our customer
base and the harmonization of regulatory standards worldwide to
standardize our product lines on a global basis and streamline our
organizational structure. As much as possible, we will harmonize
our product lines worldwide. With global standardized offerings,
our sales and service professionals will require less frequent
training and reduced parts inventory. R&D resources will be
re-deployed for new value-added products, allowing us to gain
incremental growth. In addition, consolidated operations will
produce significant savings and more efficient use of invested
capital.
We believe that these initiatives and others 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.
Instruments and Solutions
Laboratory Instruments and Solutions
We manufacture and market a broad range of instruments for use in the
laboratory. Our largest product line is laboratory balances, where we are a
clear global market leader. We estimate that approximately 40% of our sales are
to customers using our instruments and services in laboratory environments. Our
drug discovery group provides customers with integrated solutions that enable
chemists to increase their productivity and accelerate the drug discovery
process. Drug discovery products include a variety of synthesizers, robotic
workstations, automatic lab reactors, purification systems and reaction
calorimeters. We also offer selected analytical instruments, such as titrators,
thermal analysis systems and other analytical instruments. Our process analytics
business provides instruments for the in-line measurement of liquid parameters
in the production process of pharmaceutical and biotech companies.
We estimate that we have approximately one half of the global market
for laboratory balances. Our drug discovery business is the global leader in
synthesis, supercritical fluid chromatography, and reaction engineering. In the
analytical instrument field, we are the global number two in titrators and
number three in thermal analysis, and we are among the top three suppliers
worldwide of other analytical instruments. Our process analytics business is the
global leader in measuring liquid parameters for the pharmaceutical and biotech
industries.
Laboratory 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. Our 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.
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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.
Drug Discovery
Our pharmaceutical and biotechnology customers are all too aware of the
costs involved in drug research and development. To take a drug from "the bench
to the bottle" costs on average $500 million and takes in the region of ten to
twelve years. The mission of our drug discovery group is to provide our
customers with integrated solutions that enable chemists to increase their
productivity and accelerate the drug discovery process. The potential benefits
to our customers are enormous: each day that a pharmaceutical company is able to
accelerate the introduction of a blockbuster drug can translate into millions of
dollars of additional revenue.
The number of drug targets and potential lead compounds has increased
significantly as a result of combinatorial chemistry techniques, high-throughput
screening methods and the initial findings of the human genome project. The
increasing number of targets and compounds resulting from these developments
have created severe bottlenecks in the drug discovery process. We believe that
our portfolio of integrated technologies can bring significant efficiencies to
the drug discovery process, enabling our customers to create larger numbers of
higher quality candidate compounds.
The drug R&D process essentially comprises six distinct phases:
o Target identification
o Lead identification
o Lead optimization
o Preclinical development and product development
o Clinical development and process development
o Production
Our current drug discovery solution offering is focused on key aspects
of the lead identification, lead optimization, and process development phases of
the drug R&D process. Our overall value proposition is to speed up and integrate
these phases by offering systems which perform the many tasks which a chemist
has to perform, in parallel and fully automated.
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In the target identification phase, researchers seek to identify the
genes responsible for disease states and ultimately the proteins produced by
these genes which become the target for a therapeutic drug.
Lead identification is the process of producing large, diverse,
libraries of tens of thousands of potential drug candidates which are then
screened for possible biological activity against the target protein.
Lead optimization is the process used by chemists to evaluate the
hundreds of drug candidates that may emerge from the lead identification phase.
Chemists perform successive rounds of chemical synthesis to create numerous
variants of the drug candidates to find compounds likely to have appropriate
drug properties. Chemists then optimize the compounds for their biological
potency, thus creating lead compounds.
In pre-clinical development and product development, process research
chemists investigate practical ways to produce individual lead compounds in
larger quantities. Also, laboratory tests are performed to check the compound's
ability to pass into, and out of, the body without seriously toxic side-effects.
Clinical development and process development is the process in which
chemists test clinical candidates in animals and humans to demonstrate their
safety and as well as efficacy. The successful outcome of clinical trials may
result in regulatory approval to commercialize the new drug product. During this
time period, process chemists optimize the method of compound synthesis prior to
commencement of large scale manufacturing of the drug.
Production is the process of manufacturing bulk quantities of the final
drug. Both the production methodology and the analytical methods which check the
drug's composition are tightly regulated and monitored.
Within our drug discovery group, the Chemistry Systems team focuses on
lead identification and optimization, and the Reaction Engineering team focuses
on process research and development. The Chemistry Systems business offers the
following solutions to combinatorial and medicinal chemists working on lead
identification and optimization:
o the Mini-Block manual parallel synthesizer, which has become a
standard tool among medicinal chemists for chemistry development
and lead optimization
o the Discoverer automated synthesizer, capable of extremely
sophisticated chemistry
o the Myriad Core System, the top-of the range automated parallel
synthesizer, capable of producing hundreds of thousands of new
drug candidates per year
o automated workstations for reagent preparation, weighing,
labeling and dispensing to support the synthesis process
o the ALLEX automated liquid/liquid extraction system for cleaning
up synthesis products, and
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o Berger's supercritical fluid chromatographs, which are capable
of purifying synthesis products in a fraction of the time of
conventional HPLC instruments.
Our Reaction Engineering business offers products to help speed up
process research and development. 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:
o the Process Development Workstation, which has 16 separate
reactors and is used for process screening (finding possible
pathways to make the drug candidate economically and safely)
o the new Multimax and Labmax automated laboratory reactors, with
four and one separately-controlled reactors respectively, which
are used in process optimization to find the precise reaction
parameters to make larger quantities of the drug candidate
o the RC-1, which combines a laboratory reactor with calorimetry and
is used to ensure the process remains economical as well as safe
as the manufactured quantities are scaled up
o the React-IR 4000 in-situ infrared analyzer, which can be used
with the laboratory reactors to monitor the chemistry in
real-time, and
o React-IR MP and Process-IR, which are hardened infrared
analyzers used in scale-up applications and production.
We continue to pursue opportunities that will enable us to extend our
drug discovery and development solutions by internal research and development
and by acquiring businesses that have technologies and capabilities
complementary to ours. In particular, we recognize the importance of software as
an integral part of any solution offering. Effective integration of automation
instruments with data recording and analysis software represents an attractive
solution to our customers. We believe that our drug discovery group is well
positioned to support and grow with the pharmaceutical and biotechnology
industries in their exciting challenge to discover and develop new drugs.
Analytical Instruments
The research and quality control labs of our customers, especially
those in the pharmaceutical, chemical, food and cosmetics industries, use our
analytical instruments to help them understand the properties of the liquid and
solid compounds used in their products. We offer a broad range of such
analytical instruments, taking advantage of our strong position in the balance
market. We also offer a host of value-added services to support our customers,
including calibration, validation and maintenance services.
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
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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.
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.
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. The pH meters we offer measure acidity in laboratory samples,
and are the second most widely used measurement instruments in the laboratory,
after the balance. Data collected from our pH meters can be downloaded to a
computer or printer using an interface kit and custom software. 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.
Process Analytics
Our process analytics business provides instruments for the in-line
measurement of liquid parameters in the production process of pharmaceutical and
biotech companies. In the ongoing quest to improve product quality and
production efficiency, manufacturers are adopting sensor technologies for
in-line process control. Our process analytics business is the leading supplier
of pH and oxygen measurement instruments used in bio-pharmaceutical
manufacturing, and is well positioned to accelerate its growth in this market.
With our acquisition of Thornton, we have expanded our technology offering in
process analytics to include Thornton's conductivity technology and know-how in
determining water purity.
More than half of our process analytics sales are to the pharmaceutical
and biotech markets. Our customers need fast and secure scale-up and production
that meets the validation processes required for GMP (Good Manufacturing
Processes) and other regulatory standards. Our in-line process analytics
solutions help these customers ensure reproducible and consistent product
quality, while ensuring compliance within relevant regulatory standards.
Industrial Instruments and Solutions
We offer industrial measurement solutions to customers in a variety of
industries, often in the same end markets where we sell our laboratory
instruments. Weighing instruments are among the most broadly used measurement
devices in industry. We estimate that approximately 40% of our sales are to
customers using our instruments and services in industrial environments. We
believe that we have the largest market share in the industrial market in each
of Europe and the United States. In Asia, we have a substantial industrial
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 weighing and
related applications.
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In recent years, we have continued the globalization of our industrial
businesses. This anticipates the continued emergence of a global marketplace, as
our customers set up operations worldwide and as industry standards are
harmonized globally. We want to 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
instruments at their facilities worldwide. The industrial instruments and
solutions that we offer are described in more detail below.
Industrial Weighing Solutions
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 Terminals. Our latest industrial scale terminal is the
JagXtreme, which is our fastest, most powerful scale terminal ever. It harnesses
the power and flexibility of the internet to help integrate and control
information, equipment management, and automation in manufacturing processes.
The JagXtreme terminal is two and a half times faster than our industry-leading
Jaguar terminal - but it works like a Jaguar terminal so there is little
training time required. It allows users to download programs or access setup
data from across the plant - or across the globe. The JagXtreme terminal can
also maximize up time by dispatching emails when the unit needs service - and
minimize down time through predictive rather than reactive maintenance. The
JagXtreme terminal can serve up data across the web through an internet browser.
It also provides users with the tools to design their own user interface. Prices
for industrial weighing terminals vary significantly based on functionality of
the application, generally ranging from $500 to $10,000.
Vehicle 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 vehicle 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. Our WinBridge software provides a complete system for
managing vehicle weighing transactions. Vehicle scale prices generally range
from $20,000 to $50,000.
Application Software for Weighing. Our software for industrial weighing
applications are based on an open-system architecture that enables interaction
with customers' enterprise software packages. For example, FreeWeigh is a
powerful standard software package that covers the entire range of prepackage
and filling process control. FreeWeigh is distinguished by its large number of
standard functions and by its high flexibility in meeting customers' specific
application needs. The modular structure of the software allows for gradual
expansion and great flexibility to meet often rapid changes in production
conditions. FormWeigh is our formulation/batching solution used in chemistry,
pharmaceutical and food
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production processes. Using FormWeigh, weighing is made simple and reliable,
including for a host of customized configurations. We also offer a variety of
solutions in the industrial filling process to meet our customers' statistical
process and quality control needs. 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.
Packaging
Dynamic Checkweighers. We are the world's leading provider of metal
detectors, checkweighers and x-ray visioning, which, when combined with our
application-specific software packages, provide food and drug packaging lines an
integrated solution to check the quality and quantity of their packages. 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.
End-of-line Inspection Solutions. Increasing safety and consumer
protection requirements are driving the need for more and more sophisticated
end-of-line inspection systems. We are the leading global provider of integrated
end-of-line inspection solutions. These high throughput solutions incorporate
sensor technologies and software to assist customers in fulfilling validation
requirements and in improving their quality and yield. For example, 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. Through our recent acquisition
of AVS, we added x-ray-based vision inspection, which is ideal for identifying
non-metallic contamination. We feel that AVS is an excellent strategic
complement to our existing offering of metal detection, checkweighing and
related quality control software systems.
Transportation / Shipping and Logistics
Companies are increasingly conducting business across geographic
boundaries, and transportation/logistics suppliers are instrumental in
supporting those efforts. Speed is also critical, as evidenced by the growth in
e-commerce and just-in-time methods. Customers are seeking solutions to speed
throughput, lower costs, increase revenue and ensure first-rate service to their
own customers. We are addressing those needs as the leading global supplier of
automatic identification and data capture solutions, which integrate in-motion
weighing, dimensioning and identification technologies. With these solutions,
companies such as FedEx can measure the weigh and cubic volume of packages for
appropriate billing, logistics and quality control. Our solutions also integrate
into information systems that allow customers to
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track the progress of packages via the Internet. Prices for integrated
dimensioning/weighing systems range from $5,000 to $20,000.
We believe our solutions provide our customers with greater accuracy
and higher throughput than competitors' products. Based on a thorough
understanding of customer processes, we can match our solutions precisely to
customer needs. Our global presence gives us the ability to provide world-class
service in most major locations around the world. What's more, our technical
knowledge of local weights and measures regulations and our application know-how
result in effective installations and provides ongoing support for customers.
Food Retailing Instruments and Solutions
We offer food retailing measurement solutions to customers in a variety
of industries, often in the same end markets where we sell our industrial
solutions. Weighing instruments are among the most broadly used measurement
devices in industry and food retailing. We estimate that approximately 20% of
our sales are to customers in food retailing environments. We believe that we
have the largest market share in the food retailing market in each of Europe and
the United States. In Asia, we have a substantial 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 food retailing weighing applications.
Retail Weighing Solutions
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.
Our OPRA retail scale, a key element of our perishable goods management
solution, is the first Internet-enabled weighing instrument in the industry.
OPRA enables customers to remotely manage pricing, run promotions, support
frequent-shopper programs, download software, manage inventory and more. Our
equipment can also accommodate required dual-currency displays and, thorugh its
Internet capabilities, can automatically adjust for conversion to the euro.
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 2000 derived
44% from Europe, 44% from North and South America and 12% 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 2000 net
sales.
Principal customers for our solutions include companies in the
following key end markets: the life science industry (pharmaceutical and biotech
companies, as well as independent research organizations), food processors,
packagers and retailers, specialty chemicals and cosmetics companies, the
transportation and logistics industry, the metals industry, the electronics
industry and the academic market.
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. Mid to high-end products in the United States are
handled by our own sales force. We sell laboratory 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.
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.
We also 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 multiple 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.
Sales and Service
Market Organizations
We have a host of 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
16
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, 2000, our sales and services group
consisted of more than 4,000 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. 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.
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 several thousand pages of information, our Web site has
become a principal source of answers for customers' questions on many
laboratory, industrial and food retailing processes.
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.
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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 2000,
service (representing service contracts, repairs and replacement parts)
accounted for approximately 18% 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"). 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.
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Research and 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 last three years, we have
invested more than $160 million in research and development. In 2000, we spent
approximately 5.1% 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.
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We are a worldwide manufacturer, with manufacturing plants in the
United States, Switzerland, Germany, the United Kingdom, France and 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 worldwide. 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, 2000, we had approximately 8,250 employees
throughout the world, including approximately 4,500 in Europe, 2,750 in North
and South America, and 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, some
of which are protected by patents and some of which are not. Products are
generally not protected as a whole by individual patents, and as a result, no
one patent or group of related patents is material to our business. We 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.
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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.
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 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
21
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.
History
Mettler-Toledo International Inc. was incorporated as a Delaware
Corporation 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 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.
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.
In November 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 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 1998 and 1999, certain selling shareholders completed secondary
offerings of 11,464,400 and 6,099,250 shares of our common stock, respectively.
Neither we nor any of our directors, executive officers or other employees sold
shares or received any proceeds from these offerings.
22
ITEM 2. PROPERTIES
The following table lists our principal manufacturing facilities,
indicating the location and whether the facility is owned or leased. Our
Greifensee, Switzerland facility also serves as our worldwide headquarters and
our Columbus, Ohio, facility serves as our North American headquarters. We
believe our facilities are adequate for our current and reasonably anticipated
future needs.
Location Owned/Leased
Europe:
Greifensee/Nanikon, Switzerland........ Owned
Uznach, Switzerland.................... Owned
Urdorf, Switzerland.................... Owned
Schwerzenbach, Switzerland............. Leased
Albstadt, Germany...................... Owned
Giesen, Germany........................ Owned
Bethune, France........................ Leased
Manchester, England.................... Leased
Royston, England....................... Leased
Americas:
Columbus, Ohio......................... Leased
Worthington, Ohio...................... Owned
Spartanburg, South Carolina............ Owned
Ithaca, New York....................... Owned
Woburn, Massachusetts.................. Leased
Millersville, Maryland................. Leased
Tampa, Florida......................... Leased
Vernon Hills, Illinois................. Leased
Other:
Shanghai, China............................ Building Owned; Land Leased
Changzhou, China........................... Building Owned; Land Leased
Mumbai, India.............................. Leased
23
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
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
---- ---
2000
Fourth Quarter $56.00 $39.50
Third Quarter $48.81 $37.75
Second Quarter $45.75 $30.00
First Quarter $44.50 $31.81
1999
Fourth Quarter $39.50 $27.63
Third Quarter $30.44 $23.81
Second Quarter $29.00 $22.63
First Quarter $27.94 $19.63
HOLDERS
At March 16, 2001 there were 229 holders of record of common stock
and 39,681,536 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.
25
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31, 2000, 1999, 1998, 1997 and 1996, for the years ended December 31,
2000, 1999, 1998 and 1997, for the period from October 15, 1996 to December 31,
1996 and for the period from January 1, 1996 to October 14, 1996 is derived from
our consolidated financial statements. The financial information for the period
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").
Predecessor
Mettler-Toledo International Inc. Business
------------------------------------------------------------------------ -----------
October 15 January 1
Year ended Year ended Year ended Year ended to to
December 31, December 31, December 31, December 31, December 31, October 14,
2000 1999 1998 1997 1996 1996
------------ ------------ ------------ ------------ ----------- ------------
Statement of Operations Data:
Net sales............................... $1,095,547 $1,065,473 $935,658 $878,415 $ 186,912 $662,221
Cost of sales........................... 600,185 585,007 (a) 520,190 493,480 (c) 136,820 (f) 395,239
------- ------- ------- ------- -------- -------
Gross profit............................ 495,362 480,466 415,468 384,935 50,092 266,982
Research and development................ 56,334 57,393 48,977 47,551 9,805 40,244
Selling, general and administrative..... 296,187 300,389 265,511 260,397 59,353 186,898
Amortization............................ 11,564 10,359 7,634 6,222 1,065 2,151
Purchased research and development...... - - 9,976 (b) 29,959 (d) 114,070 (g) -
Interest expense........................ 20,034 21,980 22,638 35,924 8,738 13,868
Other charges (income), net (h)......... 2,638 10,468 1,197 10,834 17,137 (1,332)
------- ------- ------ ------ ------ -------
Earnings (loss) before taxes, minority
interest and extraordinary items....... 108,605 79,877 59,535 (5,952) (160,076) 25,153
Provision for taxes..................... 38,510 31,398 20,999 17,489 (938) 10,055
Minority interest....................... (24) 378 911 468 (92) 637
-------- ------- ------ ------ ------- -------
Earnings (loss) before
extraordinary items.................... 70,119 48,101 37,625 (23,909) (159,046) 14,461
Extraordinary items -
debt extinguishments................... - - - (41,197) (e) - -
---------- ---------- -------- --------- ---------- --------
Net earnings (loss)..................... $ 70,119 $ 48,101 $ 37,625 $(65,106) $(159,046) $ 14,461
========== ========== ======== ========= ========== ========
Basic earnings (loss) per common share:
Net earnings (loss) before
extraordinary items.................. $ 1.80 $ 1.25 $ 0.98 $ (0.76) $ (5.18)
Extraordinary items................... - - - (1.30) -
------- ------- -------- -------- --------
Net earnings (loss)................... $ 1.80 $ 1.25 $ 0.98 $ (2.06) $ (5.18)
======= ======= ======= ======== ========
Weighted average number
of common shares..................... 38,897,879 38,518,084 38,357,079 31,617,071 30,686,065
Diluted earnings (loss) per common share:
Net earnings (loss) before
extraordinary items.................. $ 1.66 $ 1.16 $ 0.92 $ (0.76) $ (5.18)
Extraordinary items................... - - - (1.30) -
-------- -------- -------- -------- --------
Net earnings (loss)................... $ 1.66 $ 1.16 $ 0.92 $ (2.06) $ (5.18)
======= ======= ======= ======== ========
Weighted average number
of common shares..................... 42,141,548 41,295,757 40,682,211 31,617,071 30,686,065
Balance Sheet Data (at end of period):
Cash and cash equivalents............... $ 21,725 $ 17,179 $ 21,191 $ 23,566 $ 60,696
Working capital......................... 103,021 81,470 90,042 79,163 103,697
Total assets............................ 887,582 820,973 820,441 749,313 771,888
Long-term debt.......................... 237,807 249,721 340,246 340,334 373,758
Other non-current liabilities (i)....... 95,843 100,334 103,201 91,011 96,810
Shareholders' equity..................... 178,840 112,015 53,835 25,399 12,426
(Footnotes on next page)
26
(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
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.
The 2000 amount also includes a charge of $1,425 related to the close-down
and consolidation of operations. The 1999 amount 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 years ended
December 31, 1999 and 1998, the amount shown also includes $825 and $650,
respectively, of expenses incurred on behalf of certain selling
shareholders in connection with the secondary offerings. 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) Consists primarily of obligations under various pension plans and plans
that provide postretirement medical benefits. See Note 11 to the audited
consolidated financial statements included herein.
27
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
worldwide in many of our markets and attribute this leadership to several
factors, including the strength of our brand name and reputation, our
comprehensive solution offering, 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. While all of our businesses have significant
strategic links in terms of technology or customer base, we have a
geographically diverse business which serves customers in relatively healthy and
stable end markets, including the pharmaceutical, biotech and food industries.
Our financial information is presented in accordance with generally
accepted accounting principles in the United States of America ("U.S. GAAP").
Net sales in local currency increased 9% in 2000, 16% in 1999 and 8% in
1998. 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 3% in 2000, 14% in 1999 and 7% in 1998. In 2000, we had local
currency sales growth of 11% in Europe, 6% in the Americas and 13% in Asia and
other markets.
We believe our sales growth over the next several years will come
primarily from our solutions approach to the principal challenges facing our
customer base. These include the need for increased efficiency (for example, in
accelerating time to market for new products, achieving better yields, improving
work processes and outsourcing non-core activities), the desire to integrate
information captured by instruments into management information systems, the
drive for ever higher quality of our customers' products and services, including
the need to adhere to stringent regulatory and industry standards, and the move
towards globalization in all major customer groups.
Acquisitions are also an integral part of our growth strategy. Our
acquisitions leverage our global sales and service network, respected brand,
extensive distribution channels and technological leadership. We are
particularly attracted to acquisitions which leverage these attributes or
increase our solutions capability (for example, software acquisitions). In
addition, we are most attracted to the following end markets: drug discovery,
process analytics, food and drug packaging and transportation and logistics.
We 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 10.8% in
1998 to 13.0% in 2000. 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 increase 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.
28
Recent Acquisitions
In 2000, we acquired Berger Instruments, Thornton Inc. and AVS. We also
increased our shareholding in Cargoscan to 100%.
Berger Instruments, based in Delaware, USA, is the market leader in
Supercritical Fluid Chromatography (SFC), a high-performance technology used to
analyze and purify chemical compounds during drug discovery. Berger Instruments
is an excellent complement to our portfolio of automated drug discovery
solutions. We already have a leading position in sample preparation and
synthesis. Purification is the next process step after synthesis. Berger allows
us to further our strategy of providing solutions that automate and integrate
the drug discovery process and therefore help our customers improve the
efficiency, throughput and accuracy of their processes.
Thornton Inc., based in Massachusetts, USA, is the leader in pure and
ultra-pure industrial water monitoring instrumentation used in semi-conductor,
micro-electronics, pharmaceutical, and biotech applications. We believe the
acquisition of Thornton is an excellent strategic move to expand our process
analytics business and gain access to new markets. Their conductivity technology
and know-how are complementary to our strength in pH and oxygen measurements.
With a broader technology offering, we will be better able to serve our expanded
customer base.
AVS, UK-based, is a leader in x-ray visioning solutions used in the
inspection of packaged goods. We are the leading global provider of integrated
end-of-line inspection solutions. These high throughput solutions incorporate
sensor technologies and software to assist customers in fulfilling validation
requirements and in improving their quality and yield. Through AVS, we add
x-ray-based vision inspection, which is ideal for identifying non-metallic
contamination in packages and where metal packaging prevents detection by
conventional means. We feel that AVS is an excellent strategic complement to our
existing offering of metal detection, checkweighing and related quality control
software systems.
Cargoscan is the premier provider of dimensioning technology used by
major express carriers, freight forwarders, third-party logistic entities and
distribution companies. We believe we are uniquely positioned to serve this
industry given our global presence and our technical knowledge of local
regulatory requirements. This transaction underscores our commitment to the
transportation and logistics sector and will allow us the flexibility and faster
decision-making necessary to exploit the substantial growth of this market.
In 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
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 1999, we also 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 are able to fully leverage this low-cost
manufacturing base for international markets. This move underscores our
strategic commitment to Asia and our belief in the fundamental growth factors
for the region.
29
In 1998, we acquired three technologically advanced instrument
companies in the drug discovery sector: Applied Systems, Bohdan Automation Inc.
and Myriad.
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.
Bohdan is a leading supplier of laboratory automation and automated
synthesis products to the automated drug and chemical compound discovery market
used in research for life science applications. Myriad 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.
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. In 2000, we
recorded a charge of $1.4 million related to the close-down and consolidation of
operations. Over the next few years, we also 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. These charges relate primarily to
severance and other related benefits and costs of exiting facilities, including
lease termination costs and the write-down of impaired assets. We believe that
the future cash benefits of these programs will exceed the costs, although the
cash outflows will precede the cash flow benefits. Activities related to the
charge recorded in 1999 were significantly completed in 2000.
In 1999, we launched a worldwide procurement project. The project is
intended to eliminate price differences between units, leverage potential
opportunities to increase buying power, and establish worldwide sourcing
arrangements. We envision it will take at least two years to obtain anticipated
benefits from this project.
During 1999, we also exited our glass batching business based in
Belgium. In this respect, we incurred losses of $4.1 million during 1999
primarily for severance and other costs of exiting this business. We completed
our exit of the glass batching business by the end of 1999.
30
Results of Operations
The following table sets forth certain items from our consolidated
statements of operations for the years ended December 31, 2000, 1999 and 1998
(amounts in thousands).
2000 1999 (a) 1998(b)
---- -------- -------
Net sales.............................. $1,095,547 $1,065,473 $935,658
Cost of sales.......................... 600,185 585,007 520,190
------- ------- -------
Gross profit........................... 495,362 480,466 415,468
Research and development............... 56,334 57,393 48,977
Selling, general and administrative.... 296,187 300,389 265,511
Amortization........................... 11,564 10,359 7,634
Purchased research and development..... - - 9,976
Interest expense....................... 20,034 21,980 22,638
Other charges, net (c)................. 2,638 10,468 1,197
--------- -------- --------
Earnings before taxes and minority interest $ 108,605 $ 79,877 $ 59,535
========== ========== ========
Adjusted Operating Income (d).......... $ 142,841 $ 123,682 $100,980
========== ========== ========
(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) Other charges, net generally includes interest income, foreign currency
transactions, (gains) losses from sales of assets and other items. The
2000 amount also includes a charge of $1,425 related to the close-down and
consolidation of operations. The 1999 amount 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 years ended December 31,
1999 and 1998, the amount shown also includes $825 and $650, respectively,
of expenses incurred on behalf of certain selling shareholders in
connection with our secondary offerings in 1999 and 1998, respectively.
(d) Adjusted Operating Income is defined as operating income (gross profit
less research and development and selling, general and administrative
expenses) before amortization and non-recurring costs. Non-recurring costs
which have been excluded are the costs set forth in Note (a) above. We
believe that Adjusted Operating Income provides important financial
information in measuring and comparing our operating performance. Adjusted
Operating Income is not intended to represent operating income under U.S.
GAAP and should not be considered as an alternative to net earnings as an
indicator of our operating performance.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales were $1,095.5 million for the year ended December 31, 2000,
compared to $1,065.5 million in the prior year. This reflected an increase of 9%
in local currencies during 2000. Results for 2000 were negatively impacted by
the strengthening of the U.S. dollar against other currencies. Net sales in U.S.
dollars during 2000 increased 3%.
Net sales by geographic customer location were as follows: Net sales in
Europe increased 11% in local currencies during 2000, versus the prior year. The
increase reflected organic growth in our business and the effect of the
Testut-Lutrana acquisition. Net sales in local currencies during 2000 in the
Americas increased 6%. Net sales in Asia and other markets increased 13% in
local currencies during 2000. The results of our business in Asia and other
markets during 2000 reflect strong sales performance in China and Japan.
The operating results for Testut-Lutrana (which were included in our
results from May 1, 1999) would have had the effect of increasing our net sales
by an additional $16.3 million in 1999.
31
Gross profit as a percentage of net sales was 45.2% for 2000 and 1999,
before non-recurring acquisition costs in 1999. During 2000, we experienced an
increase in certain raw material costs, including electronics.
Research and development expenses as a percentage of net sales were
5.1% for 2000, compared to 5.4% for the prior year. This decrease is the result
of exchange rate movements.
Selling, general and administrative expenses as a percentage of net
sales decreased to 27.1% for 2000, compared to 28.2% for the prior year.
Adjusted Operating Income increased 15% to $142.8 million, or 13.0% of
net sales, for 2000, compared to $123.7 million, or 11.6% of net sales, for the
prior year. The 1999 period excludes the previously noted non-recurring
acquisition charge of $1.0 million for the revaluation of inventories to fair
value. The increased operating profit reflected the benefits of higher sales
levels and our continuous efforts to improve productivity.
Interest expense decreased to $20.0 million for 2000, compared to $22.0
million for the prior year. The decr