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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, 1998
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
incorporation or organization) No.)
IM LANGACHER
P.O. BOX MT-100
CH 8606 GREIFENSEE, SWITZERLAND
(Address of principal executive (Zip Code)
offices)
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 New York Stock
value Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
- --------------------------------------------------------------------------------
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 8, 1999 there were 38,400,363 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
8, 1999) was approximately $922,851,527. 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 1999 Into which Incorporated
Annual Meeting of Stockholders Part III
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METTLER-TOLEDO INTERNATIONAL INC.
annual report on form 10-K
for the fiscal year ended DECEMBER 31, 1998
PAGE
PART I
ITEM 1. BUSINESS........................................................1
ITEM 2. PROPERTIES.....................................................22
ITEM 3. LEGAL PROCEEDINGS..............................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................24
ITEM 6. SELECTED FINANCIAL DATA........................................25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............44
ITEM 11. EXECUTIVE COMPENSATION.........................................46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K....................................................47
SIGNATURES...................................................................48
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Unless otherwise stated or where the context otherwise requires,
references herein to we, our, the "Company" or "Mettler-Toledo" refer to
Mettler-Toledo International Inc. and its direct and indirect subsidiaries.
This Annual Report on Form 10-K includes forward-looking statements
based on our current expectations and projections about future events. These
forward-looking statements are subject to a number of risks and uncertainties
which could cause our actual results to differ materially from historical
results or those anticipated and certain of which are beyond our control. The
words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. New risk factors emerge from time to time and it is
not possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Exhibit 99.1 to
this Report.
Mettler-Toledo(R), Mettler(R), Ingold(R), Garvens(R), Ohaus(R),
DeltaRange(R), DigiTol(R), Mentor SC(R), OPRA(R), PILAR(R), Safeline(R),
Spider(R), TrimWeigh(R) and TRUCKMATE(R) are our registered trademarks and
MonoBloc(TM), MultiRange(TM), Signature(TM) and Powerphase(TM) are our
trademarks.
Unless otherwise indicated, industry data contained herein is derived
from publicly available industry trade journals, government reports and other
publicly available sources. We have not independently verified this data but we
believe the data is reliable. Where such sources are not available, industry
data is derived from our internal estimates, which we believe to be reasonable,
but which cannot be independently verified. As used in this Annual Report, "$"
refers to U.S. dollars, "CHF" or "SFr" refers to Swiss francs, "(pound)" refers
to British pounds sterling and "CDN $" refers to Canadian dollars.
PART I
Item 1. Business
Overview
Mettler-Toledo is a leading global supplier of precision instruments.
We are the world's largest manufacturer and marketer of weighing instruments for
use in laboratory, industrial and food retailing applications. We also hold
leading positions in various related precision measurement instrument
technologies which we sell to the same customer base. For instance, we hold one
of the top three global market positions in the following analytical
instruments: titrators, thermal analysis systems, automatic lab reactors,
automated synthesis products, pH meters and electrodes. In addition, we are the
global market leader in metal detection equipment for use in the production and
packaging of goods in industries such as food processing, pharmaceutical,
cosmetics, chemicals and other industries.
Market leadership and technology leadership are critical components of
our success, and we have used these advantages to build our business. For
instance, using our leading position in weighing instruments as our base, we
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have added other products, such as analytical instruments and metal detectors,
that appeal to our existing customer base. In addition, we focus on the high
value-added segments of our markets by delivering innovation to the marketplace.
Some examples of our innovations include more accurate forms of measurement, an
increased use of automation or robotics in our products and the use of
custom-designed software or open-system architectures to allow data gathered by
our instruments to be more easily integrated into our customers' management
information systems.
We believe our ability to maintain and enhance the strength of our
leadership position in high value-added segments is due in part to the strength
of our brand name and the quality of our global sales and service organization.
We service a worldwide customer base through our own sales and service
organization and we have a global manufacturing presence in Europe, the United
States and Asia. Overall, we estimate the global market for weighing instruments
to be approximately $4.5 billion and the market for other measurement
instruments to be approximately $1.5 billion.
In 1998, our sales were $935.7 million. Of this total 46% came from
Europe, 43% from North and South America and 11% from Asia and other countries.
For additional information regarding our segment disclosure, see Note 16 to our
audited consolidated financial statements. Despite poor economic conditions in
parts of the world during 1998, our sales have remained strong. We attribute
this strength to the non-cyclical nature of our two largest markets, the
pharmaceutical and food and beverage industries. Moreover, the diversified
nature of our customer base and product offerings provides an additional
competitive strength on a global basis and limits our exposure to local economic
trends.
History
We trace our roots to the invention of the single-pan analytical
balance by Dr. Erhard Mettler and the formation of Mettler Instruments AG
("Mettler") in 1945. During the 1970s and 1980s, Mettler expanded from
laboratory balances into industrial and food retailing products, and introduced
the first fully electronic precision balance in 1973. The Toledo Scale Company,
which we acquired in 1989, was founded in 1901 and developed a leading market
position in the industrial weighing market in the United States. During the
1970s, Toledo Scale expanded into the food retailing market. When we acquired
Toledo Scale, our name was changed to Mettler-Toledo to reflect the combined
strengths of the two companies and to capitalize on their historic reputations
for quality and innovation. During the past two decades, we have grown through
additional acquisitions intended to complement our existing geographic markets
and products. For instance, in 1986, we acquired the Ingold Group of companies,
which manufacture electrodes, and Garvens Kontrollwaagen AG, which builds
dynamic checkweighers. Toledo Scale acquired Hi-Speed Checkweigher Co., in 1981.
In 1990, we acquired Ohaus Corporation, which manufactures laboratory balances.
More recently, in 1997 we acquired Safeline and in 1998 we acquired Bohdan
Automation, Applied Systems and Myriad Synthesizer Technology.
Mettler-Toledo International Inc. was incorporated in December 1991 and
was recapitalized in connection with the October 15, 1996 acquisition (the
"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
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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, its
shareholder-investors and our executive officers and other employees. Following
the completion of our initial public offering ("IPO") 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. Safeline's metal detectors can also be combined with our
checkweighing products for important quality and safety checks in these
industries.
During the fourth quarter of 1997, we completed our IPO of 7,666,667
shares of common stock, including the underwriters' over-allotment options, at a
per share price of $14.00. The IPO raised net proceeds, after underwriters'
commissions and expenses, of approximately $97.3 million. Concurrently with the
IPO, we refinanced our prior credit facility and used proceeds from the
refinancing and the IPO to repay the senior subordinated notes of our wholly
owned subsidiary, Mettler-Toledo, Inc.
In July 1998, certain selling shareholders completed a secondary
offering of a total of 11,464,400 shares of our common stock, including the
underwriters' over-allotment options. Neither we nor any of our directors,
executive officers or other employees sold shares or received any proceeds from
the offering.
In February and March 1999, certain selling shareholders completed a
secondary offering of a total of 6,099,250 shares of our common stock, including
the underwriters' over-allotment options. Neither we nor any of our directors,
executive officers or other employees sold shares or received any proceeds from
the offering.
Recent Acquisitions
We are the leading provider of automated lab reactors and reaction
calorimeters to the automated drug and chemical compound discovery and
development market. We believe that our customers want solutions in this market
from a company like Mettler-Toledo, with a reputation for innovation and quality
and with a global presence and service network.
We extended our product offerings to the automated drug and compound
discovery market with our July 1998 acquisition of Bohdan Automation Inc. Bohdan
is a leading supplier of laboratory automation and automated synthesis products
used in research for life science applications for pharmaceutical and
agricultural products and in other applications in the food and chemicals
industries.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Although these businesses are not currently significant in size, we
believe these acquisitions are key elements in our strategic effort to further
build a leading position in the field of automated solutions for drug and
chemical compound discovery and development. These acquisitions enable us to
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offer a strong and comprehensive array of solutions, from sample preparation to
compound synthesis to process development.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Myriad Synthesizer Technology designs, assembles and markets
instruments that facilitate and automate the synthesis of large numbers of
chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
In February 1999, we announced that we had entered into an agreement to
acquire the Testut-Lutrana group, a leading manufacturer and marketer of
industrial and retail scales in France with annual sales of approximately $50
million. The agreement is subject to approvals by the French Ministry of Economy
and Finance and other closing conditions. The acquisition is expected to close
in the next several months.
Market Leadership
We believe that we have a leading position in each of our markets, and
at least 80% of our product sales are from products that are the global leaders
in their segment. In the weighing instruments market, we are the only company to
offer products for laboratory, industrial and food retailing applications
globally and we believe that we hold a market share more than twice that of our
nearest competitor. We believe that in 1998 we had approximately 40% of the
global market for laboratory balances, including the largest market share in
each of Europe, the United States and Asia (excluding Japan), and the number two
position in Japan. In the industrial and food retailing markets, we believe we
have the largest market share in Europe and the United States. In Asia, we have
a substantial industrial and food retailing business which has gained market
share in recent years. This business is supported by our established
manufacturing presence in China. In addition, we also have one of the top three
positions in the global market for several analytical instruments including
titrators, thermal analysis systems, electrodes, pH meters and automatic lab
reactors. We are also working to enhance our leading position in precision
instruments. For instance, in 1997 we added Safeline's market leading metal
detection products, which can be used with our checkweighing instruments for
important quality and safety checks in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Also, we believe that Bohdan will
provide robotics capabilities to our analytical instruments and will further
enhance our product offerings. We attribute our worldwide market leadership
positions to the following competitive strengths:
o Global Brand and Reputation. The Mettler-Toledo brand name is identified
worldwide with accuracy, reliability and innovation. Customers value
these characteristics because precision instruments, particularly
weighing and analytical instruments, significantly impact customers'
product quality, productivity, costs and regulatory compliance.
Furthermore, precision instruments generally constitute a small
percentage of customers' aggregate expenditures. As a result, we believe
customers focus on accuracy, product reliability, technical innovation,
service quality, reputation and past experience when choosing precision
instruments. We also believe that our customers experience high
switching costs if they attempt to change vendors. A recent independent
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survey concluded that "Mettler-Toledo" was one of the three most
recognized brand names in the laboratory. In fact laboratory balances
are often generically referred to as "Mettlers." The strength of this
brand name has allowed us to successfully extend our laboratory product
line to include titrators, thermal analysis systems, electrodes, pH
meters and automatic lab reactors.
o Technological Innovation. We focus on the high value-added segments of
our markets by delivering innovation to the marketplace. We have a long
and successful track record of innovation and remain at the forefront of
technological development. Recent innovations in both weighing and
related instrumentation include:
-- a new digital load cell
-- the first personal computer interface to be certified by weights
and measures regulators (the ID 20 terminal)
-- significantly improved weighing sensor technology (MonoBloc)
-- a new moisture determination instrument (GOBI)
-- a new automatic lab reactor
-- a new, enhanced sensitivity metal detector (the Safeline Zero
Metal-Free Zone detector)
-- new dimensioning equipment using our patented PILAR technology
As with many of our recent innovations, the new MonoBloc weighing
sensor technology is more accurate and significantly reduces
manufacturing costs and the time and expense of design changes. These
improvements resulted from a reduction in the number of parts used in
prior sensors from around 100 to around 50 used in the MonoBloc sensor.
We believe that we are the global leader in our industry in providing
innovative instruments, in integrating our instruments into
application-specific solutions for customers and in facilitating the
processing of data gathered by our instruments and the transfer of this
data to customers' management information systems. Our technological
innovation efforts benefit from our manufacturing expertise in sensor
technology, precision machining and electronics, as well as our
strength in software development.
o Comprehensive, High Quality Product Range. We manufacture a more
comprehensive range of weighing instruments than any of our
competitors. Our broad product line addresses a wide range of weighing
applications across and within many industries and regions.
Furthermore, our analytical instruments and metal detection systems
complement our weighing products, enabling us to offer integrated
solutions. We manufacture our products in modern facilities, most of
which are ISO 9001 certified. Our broad range of high quality products
and the ability to provide integrated solutions allows us to leverage
our sales and service organization, product development activities and
manufacturing and distribution capabilities.
o Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and we believe
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that this capability is a major competitive advantage. At December 31,
1998, this organization consisted of approximately 3,250 employees
organized into locally based, customer-focused groups that provide
prompt service and support to our customers and distributors in
virtually all major markets around the world. The local focus of our
sales and service organization enables us to provide timely, responsive
support to our customers worldwide and provides feedback for
manufacturing and product development. When we survey our current and
potential customers on their needs, they often name service as the most
important criteria for choosing their instrument suppliers. In addition
to the service capability, this global infrastructure also allows us to
capitalize on growth opportunities in emerging markets.
o Largest Installed Base. We believe that we have the largest installed
base of weighing instruments in the world. From this installed base, we
obtain service contracts that provide a strong, stable source of
recurring service revenue. Service revenue represented approximately
16% of net sales in 1998, of which approximately 9% was derived solely
from service contracts and repairs with the remainder derived from the
sale of spare parts. We believe that our installed base of weighing
instruments represents a competitive advantage with respect to repeat
purchases and purchases of related analytical instruments and metal
detection systems, because customers tend to remain with their existing
suppliers. In addition, switching to a new instrument supplier entails
additional costs to the customer for training, spare parts, service and
systems integration requirements. Close relationships and frequent
contact with our broad customer base also provide us with sales leads
and new product and application ideas.
o Geographical, Product and Customer Diversification. Our revenue base is
diversified by geographic region, product range and customer. Many
different industries, including chemicals, pharmaceuticals, food
processing, food retailing and transportation utilize our broad product
range. We supply customers all over the world, and no one customer
accounted for more than 2.6% of net sales in 1998. 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.
Growth Strategies
We are implementing strategies relating to expanding our technology
leadership, increasing our market share and capitalizing on opportunities in
developed markets, capitalizing on opportunities in emerging markets, pursuing
selected acquisition opportunities and re-engineering and cost savings. These
strategies are designed to reduce our overall cost structure and enhance our
position as a global market leader. The successful implementation of these
strategies has contributed to an improvement in Adjusted Operating Income (gross
profit less research and development and selling, general and administrative
expenses before amortization and non-recurring costs) from $39.5 million (4.6%
of net sales) for 1995 to $101.0 million (10.8% of net sales) for 1998. We are
committed to improving our performance and are pursuing the following
strategies:
Expanding Our Technology Leadership. We attribute a significant portion
of our recent margin improvement to our research and development efforts. We
intend to continue to invest in product innovation in order to provide
technologically advanced products to our customers for existing and new
applications. Over the last three years, we have invested approximately $150
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million in research and development. Our research and development efforts fall
into two categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
Our research and development efforts have contributed to a pipeline of
innovative and new products, significant reductions in product costs and reduced
time to market for new products. Examples of recent product introductions
include:
o industrial and retail products that apply open-system architecture
o MonoBloc, a high accuracy, low-cost weighing sensor technology
which is being incorporated throughout our product lines
o a higher performance titrator
o an improved performance modular thermal analysis system
o a new density and refractometry measurement technology
o a fully integrated metal detector and checkweigher
o the first Chinese-designed and manufactured laboratory balance
Increasing Our Market Share and Capitalizing on Opportunities in
Developed Markets. We recognize that to be a successful company, we must not
only develop excellent products, but we must market and distribute them
effectively--more effectively than our competitors. We utilize what we believe
are the most sophisticated marketing and sales techniques in our industry. These
techniques include the development and utilization of marketing databases. We
develop these databases to better understand the full potential of our market by
customer, location, industry, instrument and related application. We then
utilize this data to more efficiently direct our field resources and complement
our direct and distributor sales forces with targeted mailing and telemarketing
campaigns to more fully exploit our market's potential. We also utilize a dual
brand strategy for certain market segments to improve our overall market
penetration. For example, we sell laboratory balances under the Ohaus brand name
as an alternative to the Mettler-Toledo brand name in certain distribution
channels for laboratory balances.
We believe that service capabilities are a critical success factor in
our business. Our service capabilities, which provide support to our customers
and distributors in virtually all major markets across the globe and include
around-the-clock availability of well-trained technicians, are highly valued by
our customers. We believe that no other competitor has global service
capabilities.
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The combination of our sophisticated marketing and sales techniques and
service capabilities help us capitalize on growth opportunities in our developed
markets. These opportunities include:
o integrating information from our measurement instruments into our
customers' data management software systems
o automating and/or improving process control, in part by developing
integrated solutions which combine measurement instruments and
related technologies directly into manufacturing processes
o harmonization of national weighing standards across countries
o increasing standardization of manufacturing and laboratory
practices programs like ISO 9001, Good Laboratory Practices and
Good Manufacturing Practices
o increasing recognition by our customers of the importance of
preventive maintenance in reducing down time
Capitalizing on Opportunities in Emerging Markets. While emerging
markets were not a source of growth in 1998 due to weak economic conditions, we
believe that these markets will provide growth opportunities for us in the long
term. These growth opportunities are being driven primarily by economic
development and global manufacturers' utilization of additional and more
sophisticated precision measurement instruments as they shift production to
these markets. In addition, we believe that over the long term, the trend toward
international quality standards, the need to upgrade mechanical scales to
electronic versions and the establishment of local production facilities by our
multinational client base will add to the opportunities in emerging markets. To
date our emerging market expansion has primarily focused on Asia. In Asia
(excluding Japan), we are the market leader in laboratory weighing instruments
and have a substantial industrial and food retailing business that has gained
market share in recent years. For instance, we have two profitable operations in
China: first, a 60% owned joint venture that manufactures and sells industrial
and food retailing products and, second, a wholly owned facility that
manufactures and distributes laboratory products. Both of these operations serve
the domestic and export markets. We have also opened direct marketing
organizations in Taiwan, Korea, Hong Kong, Thailand, Malaysia and Eastern
Europe. Beyond Asia, we are also expanding our sales and service presence in
Latin America and other emerging markets.
We believe that to succeed in emerging markets, there are several
advantages we must offer to our customer base:
o to our multinational customers, we must offer the same level of
service and problem-solving capabilities that we offer them in
developed countries. We accomplish this through extensive
training, including factory training, of our employees
o to our local customers, we must offer lower cost and less complex
products than are required by our customers in Japan, Europe and
North America. We accomplish this through the increased research
and development and manufacturing capabilities at our two Chinese
production facilities
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o we must have a direct local presence to ensure that our
combination of quality products and excellent service is
effectively carried out at a local level so that we achieve the
same level of brand awareness in emerging markets that we enjoy in
developed markets. We have accomplished this in part by
establishing ten new sales and service operations in emerging
markets since 1996
Pursuing Selected Acquisition Opportunities. We believe that the
combination of our market leadership, our strong brand name and our
comprehensive sales and distribution network supports an attractive platform for
acquisitions. We are interested in acquiring companies that provide us with:
o Complementary products that will benefit from our brand name and
global distribution channels. An example is Bohdan Automation, a
leading supplier of laboratory automation and automated synthesis
products, which we acquired in 1998 and whose products we have now
added to our global distribution network. Because of its small
size as a stand-alone company, Bohdan lacked a global presence and
did not serve customers on a worldwide basis. We offer it the
infrastructure to expand its business globally.
o Integrated technology solutions, which we can combine with our own
technologies to create an overall better solution for our
customers. An example is Safeline Limited, which we acquired in
1997. We combined its metal detection equipment with our
checkweighers to create one instrument, featuring integrated data
management, a smaller footprint and only one man-machine
interface--a better solution for many of our customers than
separate products.
o Consolidation opportunities in fragmented markets. Examples
include our recently announced agreement to acquire the
Testut-Lutrana group in France and our acquisitions of a number of
independent industrial and retail weighing distributors in the
United States.
o Geographic expansion into markets where we do not have a direct
presence. For example, earlier this year we established a small
presence in India by acquiring a local manufacturer.
Re-engineering and Cost Savings. We have improved our profitability in
recent years partly through a series of initiatives aimed at reducing our cost
structure. We plan to take similar initiatives in the future with the goal of
further improving our operating margins. These initiatives include:
o moving the production of certain product lines to lower cost
locations and consolidating the production of others For example,
in 1999 we are planning to consolidate development and
manufacturing of all balances using magnetic force restoration
technology in Switzerland and introduce a number of products to
our global distribution channel that are manufactured in China
o increasing sales force productivity through telemarketing,
increased training and other focused initiatives. For example, we
have recently initiated an internet sales channel for certain
product categories and have also significantly increased our
telemarketing initiatives. We believe both of these programs will
increase the productivity of our sales force
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o reducing distribution costs by using existing infrastructure more
efficiently and centralizing processes where economies of scale
can be obtained. For example, we recently consolidated most of our
North American order processing and billing functions into one
location
o reducing product cost through research and development, improved
manufacturing processes and reducing the purchased cost of
components. For example, we will introduce a number of products in
1999 with lower costs than the previous generation, including a
basic balance. In addition, we have recently initiated a program
to reduce the cost of printed circuit boards used in many of our
scales and balances
o continually reviewing operations to identify additional
opportunities to reduce costs
We believe that these initiatives will place us in a position to build
on our recent improvement in profitability. Furthermore, we believe that we can
leverage our existing infrastructure, particularly our recent investments in
Asia, to obtain continued sales growth without significant additions to our
overall cost base.
Products
Laboratory
We manufacture and market a complete range of laboratory balances, as
well as other selected laboratory measurement instruments, such as titrators,
thermal analysis systems, electrodes, pH meters and automatic lab reactors, for
laboratory applications in research and development, quality assurance,
production and education. Laboratory products accounted for approximately 38% of
our net sales in 1998 (including revenues from related after-sale service). We
estimate that we have approximately 40% share of the global market for
laboratory balances and we are among the top three producers worldwide of
titrators, thermal analysis systems, electrodes, pH meters and automatic lab
reactors. We believe that we have the leading market share for laboratory
balances in each of Europe, the United States and Asia (excluding Japan) and the
number two position in Japan.
Balances. The balance is the most common piece of equipment in the
laboratory. We believe that we sell the highest performance laboratory balances
available on the market, with weighing ranges from one ten-millionth of a gram
up to 32 kilograms. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as "Mettlers." The
Mettler-Toledo name is identified worldwide with accuracy, reliability and
innovation. In our judgment, this reputation constitutes one of our principal
competitive strengths.
In order to cover a wide range of customer needs and price points, we
market precision balances, semimicrobalances, microbalances and
ultramicrobalances 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.
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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.
We regularly introduce new features and updated models in our lines of
balances. For example, our DeltaRange models permit weighing of light and heavy
samples on the same balance without the need for difficult adjustments, a
function particularly useful in dispensing and formula weighing. High-end
balances are equipped with fully automatic calibration technology. These
balances are carefully calibrated by us many times in controlled environments,
with the results of the calibrations incorporated into built-in software, so
that adjustments for ambient temperature and humidity can automatically be made
at any time once the balances are in use by our customers. We also offer
universal interfaces that offer simultaneous connection of up to five peripheral
devices. The customer can then interface one balance with, for example, a
computer for further processing of weighing data, a printer for automatically
printing results and a bar-code reader for sample identification.
In addition to Mettler-Toledo branded products, we also manufacture and
sell balances under the brand name "Ohaus." Ohaus branded products include
mechanical balances and electronic balances for the educational market and other
markets in which customers are interested in lower cost, a more limited set of
features and less comprehensive support and service.
Titrators. Titrators measure the chemical composition of samples. Our
high-end titrators are multi-tasking models, which can perform two
determinations simultaneously. They permit high sample throughputs and have
extensive expansion capability and flexibility in calculations, functions and
parameters. Most models, including those in the lower-range, permit common
determinations to be stored in a database for frequent use. Titrators are used
heavily in the food and beverage industry. A typical titrator is priced at
approximately $12,000.
Thermal Analysis Systems. Thermal analysis systems measure different
properties, such as weight, dimension and energy flow, at varying temperatures.
Our thermal analysis products include full computer integration and a
significant amount of proprietary software. Thermal analysis systems are used
primarily in the plastics and polymer industries. A typical thermal analysis
system is priced at approximately $50,000.
pH Meters. A pH meter measures acidity in a laboratory sample and is
the second most widely used measurement instrument in the laboratory, after the
balance. We manufacture desktop models and portable models. Desktop models are
microprocessor-based instruments, offering a wide range of features and
self-diagnostic functions. Portable models are waterproof, ultrasonically welded
and ergonomically designed. Data collected from a portable meter can be
downloaded to a computer or printer using an interface kit and custom software.
pH meters are used in a wide range of industries. A typical pH meter is priced
at approximately $1,200.
Automatic Lab Reactors and Reaction Calorimeters. Automatic lab
reactors and reaction calorimeters simulate an entire chemical manufacturing
process in the laboratory. Customers use the simulation test before proceeding
to production, in order to test the safety and feasibility of new processes. Our
products are fully computer-integrated, with a significant software component
that we also provide. They also offer wide flexibility in the structuring of
experimental processes. Automatic lab reactors and reaction calorimeters are
typically used in the chemicals and pharmaceutical industries. A typical lab
reactor is priced at approximately $140,000.
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Synthesizers. We manufacture automated parallel synthesizers for use in
sophisticated chemistry environments, such as pharmaceutical laboratories. These
synthesizers allow scientists to develop new compounds more efficiently and to
create large libraries of molecules at the same time instead of creating them
one by one as is done traditionally. This is an important aspect of
combinatorial chemistry. Our synthesizers use robotics and sophisticated
software to automate what was previously a manual process. A synthesizer costs
between $75,000 and $1,000,000, depending on its functionality.
Electrodes. We manufacture electrodes for use in a variety of
laboratory instruments and in-line process applications. Laboratory electrodes
are used in pH meters and titrators, and may be replaced many times during the
life of the instrument. In-line process electrodes are used to monitor
production processes, for example, in the beverage industry. A typical in-line
process electrode is priced at approximately $160.
Pipettes. 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.
Pipettes range in price from approximately $270 to $780, depending on their
functionality.
Other Instruments. 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.
Industrial and Food Retailing
Weighing instruments are among the most broadly used measurement
devices in industry and food retailing. Our industrial and food retailing
weighing and related products include:
o bench and floor scales for standard industrial applications
o truck and railcar scales for heavy industrial applications
o scales for use in food retailing establishments
o checkweighers (which determine the weight of goods in motion)
o metal detectors
o dimensioning equipment
o specialized software systems for industrial and perishable goods
management processes
Increasingly, many of our industrial and food retailing products can
integrate weighing data into process controls and information systems. Our
industrial and food retailing products are also sold to original equipment
manufacturers, which incorporate our products into larger process solutions and
comprehensive food retailing checkout systems. At the same time, our products
themselves include significant software and additional functions including
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networking, printing and labeling capabilities. They also include other
measuring technologies such as dimensioning. We work with customer segments to
create specific solutions to their weighing needs. For instance, working closely
with the leading manufacturer of postal meters, we developed a new generation of
postal metering systems.
Industrial and food retailing products accounted for approximately 62%
of our net sales in 1998 (including revenues from related after-sale service).
We believe that we have the largest market share in the industrial and food
retailing market in each of Europe and the United States. In Asia, we have a
substantial industrial and food retailing business which has gained market share
in recent years. This business is supported by an established manufacturing
presence in China. We believe that we are the only company with a true global
presence across industrial and food retailing weighing applications.
Standard Industrial Products. We offer a complete line of standard
industrial scales, 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 "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. Our "MultiRange"
products 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. Prices vary significantly with the size and functions of the
scale, generally ranging from $1,000 to $20,000.
Heavy Industrial Products. Our primary heavy industrial products are
scales for weighing trucks or railcars (i.e., weighing bulk goods as they enter
a factory or at a toll station). Our truck scales, such as the "DigiTol
TRUCKMATE," generally have digital load cells, which offer significant
advantages in serviceability over analog load cells. Heavy industrial scales are
capable of measuring weights up to 500 tons and permit accurate weighing under
extreme environmental conditions. We also offer advanced computer software that
can be used with our heavy industrial scales to permit a broad range of
applications. Truck scale prices generally range from $20,000 to $50,000.
Dynamic Checkweighing. We offer solutions to checkweighing requirements
in the food processing, pharmaceutical, chemicals and cosmetic industries, where
customers are required to accurately measure portions for packaging. We also
offer checkweighing solutions to the transportation and package delivery
industries, where tariffs are levied based on weight. Customizable software
applications utilize the information generated by checkweighing hardware to find
production flaws, packaging and labeling errors and nonuniform products, as well
as to sort rejects and record the results. Our checkweighing equipment can
accurately determine weight in dynamic applications at speeds of up to several
hundred units per minute. Checkweighers generally range in price from $8,000 to
$40,000.
Metal Detection Systems. Metal detection systems control the removal of
products that are identified as contaminated by metal during the manufacturing
process in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Metal detectors therefore provide manufacturers with vital
protection against metal contamination arising from their own production
processes or from using contaminated raw materials. Metal detectors are most
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commonly used with checkweighers as components of integrated packaging lines in
the food processing, pharmaceutical and other industries. Prices for metal
detection systems generally range from $5,000 to $20,000.
Dimensioning Equipment. We recently introduced automated dimensioning
equipment for use in the shipping industry to measure package volumes. These
products employ the patented PILAR technology and are integrated with industrial
scales to combine volume-based and weight-based tariff calculations. Prices for
integrated dimensioning/weighing systems range from $5,000 to $20,000.
Food Retailing Products. Supermarkets, hypermarkets and other food
retail establishments make use of multiple weighing applications for the full
handling of perishable goods. For example, perishable goods are weighed on
arrival to determine payment to suppliers and some of these goods are
repackaged, priced and labeled for sale to customers. Other goods are kept loose
and selected by customers and either weighed at the produce or delicatessen
counter or at the checkout counter.
We offer stand-alone scales for basic counter weighing and pricing,
price finding, and printing. In addition, we offer network scales and software,
which can integrate backroom, counter, self-service and checkout functions, and
can incorporate weighing data into a supermarket's overall perishable goods
management system. Backroom products include dynamic weighing products, labeling
and wrapping machines, perishable goods management and data processing systems.
In some countries in Europe, we also sell slicing and mincing equipment. Prices
for food retailing scales generally range from $500 to $5,000, but are often
sold as part of comprehensive weighing solutions.
Systems. Our systems business consists of software applications for
drum filling in the food and chemicals industries and batching systems in the
glass industry. The software systems control or modify the manufacturing
process.
Customers and Distribution
Our business is geographically diversified, with sales in 1998 derived
46% from Europe, 43% from North and South America and 11% from Asia and other
countries. Our customer base is also diversified by industry and by individual
customer. Our largest single customer accounted for no more than 2.6% of 1998
net sales.
Laboratory
Principal customers for laboratory products include: chemicals
manufacturers, pharmaceutical manufacturers, cosmetics manufacturers, food and
beverage makers, the metals industry, the electronics industry, the plastics
industry, the transportation industry, the packaging industry, the logistics
industry, the rubber industry, the jewelry and precious metals trade,
educational institutions and government standards laboratories. Balances, pH
meters and pipettes are the most widely used laboratory measurement instruments
and are found in virtually every laboratory across a wide range of industries.
Other products have more specialized uses.
Our laboratory products are sold through a worldwide distribution
network. Our extensive direct distribution network and our dealer support
activities enable us to maintain a significant degree of control over the
distribution of our products.
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In the United States where there are strong laboratory distributors, we
use them as the primary marketing channel for lower to mid-price products. This
strategy allows us to leverage the strength of both the Mettler-Toledo brand and
the laboratory distributors' market position into sales of other laboratory
measurement instruments. We provide our distributors with a significant amount
of technical and sales support. Mid to high-end products in the United States
are handled by our own sales force. There has been recent consolidation among
distributors in the United States market. While this consolidation could
adversely affect our U.S. distribution, we believe our leadership position in
the market gives us a competitive advantage when dealing with our U.S.
distributors.
We sell products in Asia through our own sales force and distributors,
and in Europe primarily through direct sales. European and Asian distributors
are generally fragmented on a country-by-country basis.
Ohaus branded laboratory balances are generally positioned in
alternative distribution channels to those of Mettler-Toledo branded products.
This means that we can fill a greater number of distribution channels and
increase penetration of our existing markets. Since acquiring Ohaus in 1990, we
have expanded this brand beyond its historical U.S. focus. Ohaus branded
products are sold exclusively through distributors.
Industrial and Food Retailing
Our industrial products customers include chemicals companies (e.g.,
formulating, filling and batching applications), food companies (e.g., packaging
and filling applications), electronics and metal processing companies (e.g.,
piece counting and logistical applications), pharmaceutical companies (e.g.,
formulating and filling applications), transportation companies (e.g., sorting,
dimensioning and vehicle weighing applications) and auto body paint shops, which
mix paint colors based on weight.
Our industrial products share weighing technology, and often minor
modifications to existing products can make them useful for applications in a
variety of industrial processes. We also sell to original equipment
manufacturers ("OEM's") which integrate our modules into larger process control
applications or comprehensive packaging lines. Our products are also purchased
by engineering firms, systems integrators and vertical application software
companies.
Customers for metal detection systems are typically food processing,
pharmaceutical, cosmetics and chemicals manufacturers that must ensure that
their products are free from contamination by metal particles. Undetected metal
contamination can have severe consequences for these companies, including
potential litigation and product recalls. Metal detection systems are most
commonly utilized together with checkweighers as components of integrated
packaging lines. Metal detectors provide important safety checks before food and
other products are delivered to customers. Metal detection systems are also used
in pipeline detectors for dairy and other liquids, gravity fall systems for
grains and sugar and throat detection systems for raw material monitoring.
Our food retailing products customers include supermarkets,
hypermarkets and smaller food retailing establishments. The North American and
European markets already include many large supermarket chains, and there is an
on-going shift in most of our food retailing markets from "mom and pop" grocery
stores to supermarkets and hypermarkets. While supermarkets and hypermarkets
generally buy less equipment per customer, they tend to buy more advanced
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products that require more electronic and software content. In emerging markets,
however, the highest growth is in basic scales. As with industrial products, we
also sell food retailing products to OEMs for inclusion in more comprehensive
checkout systems. For example, our OEMs often incorporate our checkout scales
into scanner-scales, which can weigh perishable goods and also read bar codes on
other items. Scanner-scales are in turn integrated with cash registers to form a
comprehensive checkout system.
In the industrial and food retailing market, we sell both directly to
customers (including OEMs) and through distributors. In the United States,
direct sales slightly exceed distribution sales in part because distributors are
highly fragmented in the United States. In Europe, direct sales predominate,
with distributors used in certain cases. We sell products in Asia primarily
through distributors, except in China where we sell products through our own
sales force and distributors. Where we use distributors, we seek to provide them
with significant support.
Sales and Service
Market Organizations
We have over 30 geographically focused market organizations ("MOs")
around the world that are responsible for all aspects of our sales and service.
The MOs are local marketing and service organizations designed to maintain close
relationships with our customer base. Each MO has the flexibility to adapt its
marketing and service efforts to account for different cultural and economic
conditions. MOs also work closely with our producing organizations (described
below) by providing feedback on manufacturing and product development
initiatives and relaying innovative product and application ideas.
We have the only global sales and service organization among weighing
instruments manufacturers. At December 31, 1998, our sales and services group
consisted of approximately 3,250 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 weighing needs,
such as pharmaceutical companies that purchase both laboratory and industrial
products. We classify customers according to their potential for sales and the
appropriate distribution channel is selected to service the customer as
efficiently as possible. Larger accounts tend to have dedicated sales
representatives. Other representatives specialize by product line. Sales
representatives call directly on end-users either alone or, in regions where
sales are made through distributors, jointly with distributors.
We utilize a variety of advertising media, including trade journals,
catalogs, exhibitions and trade shows. In addition, we also sponsor seminars,
product demonstrations and customer training programs. Our high market share
helps us to gauge growth opportunities, target our message to appropriate
customer groups and monitor competitive developments. We utilize sophisticated
marketing techniques in our sales efforts. These techniques include the
development and utilization of marketing databases. We develop these databases
to better understand the full potential of our market by customer, location,
industry, instruments and related application. We then utilize this data to more
efficiently direct our field resources and complement our direct and distributor
sales forces with targeted mailing and telemarketing campaigns to more fully
exploit our market's potential.
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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.
After-Sales Service
We believe service capabilities are a critical success factor in our
business. Through our own dedicated service technicians, we provide contract and
repair services in all countries in which our products are sold. We estimate
that we have the largest installed base of weighing instruments in the world,
and our contract and repair services generate significant revenues. In 1998,
service (representing service contracts, repairs and replacement parts)
accounted for approximately 16% of our total net sales (service revenue is
included in the laboratory and industrial and food retailing sales percentages
given above). Approximately half of this amount is derived from spare parts with
the remaining portion derived from service contacts. Beyond revenue
opportunities, service is a key part of our product offering and helps
significantly in generating repeat sales. The close relationships and frequent
contact with our large customer base provides us with sales opportunities and
innovative product and application ideas. A global service network also is an
important factor in our ability to expand in emerging markets. Moreover, the
widespread adoption of quality laboratory and manufacturing standards and the
privatization of weights and measures certification represent favorable trends
for our service business, as they tend to increase demand for on-site
calibration services.
Our service contracts provide for repair services within various
guaranteed response times, depending on the level of service selected. Many
contracts also include periodic calibration and testing. Contracts are generally
one year in length, but may be longer. If the service contract also includes
products of other manufacturers, we will generally perform calibration, testing
and basic repairs directly, and contract out more significant repair work. As
application software becomes more complex, our service efforts increasingly
include installation and customer training programs as well as product service.
Research and Development; Manufacturing
Producing Organizations
Our product development, research and manufacturing efforts are
organized into a number of producing organizations ("POs"). At December 31,
1998, POs included approximately 3,950 employees worldwide. POs are product
development teams comprised of personnel from our marketing, development,
research, manufacturing, engineering and purchasing departments. POs often seek
customer input to ensure that the products developed are tailored to market
needs. We have organized our POs to reduce product development time, improve
customer focus, reduce costs and maintain technological leadership. The POs work
together to share ideas and best practices, and some employees are in both MOs
and POs. We recently implemented a number of projects that we believe will
further increase productivity and lower costs. For example, we restructured the
order and product delivery process in Europe to enable us to deliver many of our
products to our customers directly from the manufacturing facility within
several days, which minimizes the need to store products in decentralized
warehouses. In addition, we have centralized our European spare parts inventory
management system allowing all spare parts for Europe to be delivered from a
single, highly automated location.
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Research and Product Development
We closely integrate research and development with marketing,
manufacturing and product engineering. We have over 600 professionals in
research and development and product engineering. Our principal product
development activities involve applications improvements to provide enhanced
customer solutions, systems integration and product cost reduction. However, we
also conduct research in basic weighing technologies. 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.
Our MonoBloc weighing sensor technology, which eliminates many of the
complex mechanical linkages in a weighing sensor and reduces the number of parts
in a sensor from approximately 100 to approximately 50, is an excellent example
of our technological innovation. The MonoBloc sensor permits more accurate
weighing, and lower manufacturing costs allow us to make design changes more
cheaply and quickly. MonoBloc technology is already incorporated into a number
of our products, and we are extending the MonoBloc technology through much of
our weighing instrument product lines.
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.
Over the last three years, we have spent approximately $150 million on
research and development (excluding research and development purchased in
connection with acquisitions). In 1998, we spent approximately 5.6% 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).
Manufacturing
We manufacture many of our own components, including components that
require specific technical competence, or for which dependable, high quality
suppliers cannot be found. 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 nine manufacturing plants in the
United States, four in Switzerland, two in Germany, two in the United Kingdom
and two in China. One of our Chinese plants is a joint venture in which we own a
60% interest. Laboratory products are produced mainly in Switzerland and to a
lesser extent in the United States and China, while industrial and food
retailing products are produced in all five countries. We produce our metal
detectors in the United Kingdom. We have manufacturing expertise in sensor
technology, precision machining and electronics, as well as strength in software
development. Furthermore, most of our manufacturing facilities have achieved ISO
9001 certification. We believe that our manufacturing capacity is sufficient to
meet our present and currently anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently short so as to
permit us to manufacture to fill orders for most of our products, which helps to
limit inventory costs. Backlog is therefore generally a function of requested
customer delivery dates and is typically no longer than one to two months.
Employees
As of December 31, 1998, we had approximately 7,200 employees
throughout the world, including more than 3,600 in Europe, approximately 2,650
in North and South America, and approximately 950 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 and Japan and, to a lesser extent, in China. Our
products generally incorporate a wide variety of technological innovations, many
of which are protected by patents and many of which are not. Moreover, products
are generally not protected as a whole by individual patents. Accordingly, no
one patent or group of related patents is material to our business. We also have
numerous trademarks, including the Mettler-Toledo name and logo which are
material to our business. We regularly protect against infringement of our
intellectual property.
Regulation
Our products are subject to various regulatory standards and approvals
by weights and measures regulatory authorities. Although there are a large
number of regulatory agencies across our markets, there is an increasing trend
toward harmonization of standards, and weights and measures regulation is
harmonized across the European Union. Our food processing and food retailing
products are subject to regulation and approvals by relevant governmental
agencies, such as the United States Food and Drug Administration. Products used
in hazardous environments may also be subject to special requirements. All of
our electrical components are subject to electrical safety standards. We believe
that we are in compliance in all material respects with applicable regulations.
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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 the United States, Europe, Canada,
Mexico, Brazil, 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 are involved in litigation concerning remediation of hazardous
substances at a facility in Landing, New Jersey. On or about July 1988, an
affiliate of Ciba ("AGP") purchased 100% of the outstanding stock of Metramatic
Corporation ("Metramatic"), a manufacturer of checkweighing equipment located in
Landing, from GEI International Corporation ("GEI"). GEI agreed to indemnify and
hold harmless AGP for certain pre-closing environmental conditions, including
those resulting in cleanup responsibilities required by the New Jersey
Department of Environmental Protection pursuant to the New Jersey Environmental
Cleanup Responsibility Act ("ECRA"). ECRA is now the Industrial Site Recovery
Act. Pursuant to a 1988 New Jersey Department of Environmental Protection
administrative consent order naming GEI and Metramatic as respondents, GEI has
spent approximately $2 million in the performance of certain investigatory and
remedial work addressing groundwater contamination at the site. However,
implementation of a final remedy has not yet been completed, and, therefore,
future remedial costs are currently unknown. In 1992, GEI filed a suit against
various parties including Hi-Speed Checkweigher Co., Inc., our wholly owned
subsidiary that currently owns the facility, to recover certain costs incurred
by GEI in connection with the site. Based on currently available information and
our rights of indemnification from GEI, we believe that our ultimate allocation
of costs associated with the past and future investigation and remediation of
this site will not have a material adverse effect on our financial condition or
results of operations.
We, or in some cases the former owner of Toledo Scale, have been named
a potentially responsible party under CERCLA or analogous state statutes at the
following third-party owned sites with respect to the alleged disposal at the
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sites by Toledo Scale during the period before we owned it: Granville Solvents
Site, Granville, Ohio; Aqua-Tech Environmental, Inc. Site, Greer, South
Carolina; Seaboard Chemical Company Site, Jamestown, North Carolina; and the
Stickney and Tyler Landfills in Toledo, Ohio. Pursuant to the terms of the stock
purchase agreement between us and the former owner of Toledo Scale, the former
owner is obligated to indemnify us for various environmental liabilities. To
date, with respect to each of the foregoing sites, the former owner has
undertaken the defense and indemnification of Toledo Scale. Based on currently
available information and given our contractual rights of indemnification, we
believe that the costs associated with the investigation and remediation of
these sites will not have a material adverse effect on our financial condition
or results of operations.
Competition
Our markets are highly competitive. Furthermore, weighing instruments
markets are fragmented both geographically and by application, particularly the
industrial and food retailing weighing instruments market. As a result, we face
numerous regional or specialized competitors, many of which are well established
in their markets. In addition, some of our competitors are divisions of larger
companies with potentially greater financial and other resources than our own.
Taken together, the competitive forces present in our markets can impair our
operating margins in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive, we must continue to
invest in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
We believe that the principal competitive factors in our U.S. markets
for purchasing decisions are accuracy and durability, while in Europe accuracy
and service are the most important factors. In emerging markets, where there is
greater demand for less sophisticated products, price is a more important factor
than in developed markets. Competition in the United States laboratory market is
also influenced by the presence of large distributors that sell not only our
products but those of our competitors as well.
21
Item 2. PROPERTIES
The following table lists our principal operating facilities,
indicating the location, primary use and whether the facility is owned or
leased.
Location Principal Use (1) Owned/Leased
Europe:
Greifensee/Nanikon, Switzerland.. Production,
Corporate Headquarters Owned
Uznach, Switzerland.............. Production Owned
Urdorf, Switzerland.............. Production Owned
Schwerzenbach, Switzerland....... Production Leased
Albstadt, Germany................ Production Owned
Giesen, Germany.................. Production Owned
Giessen, Germany................. Sales and Service Owned
Steinbach, Germany............... Sales and Service Owned
Viroflay, France................. Sales and Service Owned
Beersel, Belgium................. Sales and Service Owned
Sint-Michielsgestel, Netherlands. Sales and Service Leased
Tiel, Netherlands................ Sales and Service Owned
Leicester, England............... Sales and Service Leased
Manchester, England.............. Production, Sales and Service Leased
Royston, England................. Production, Sales and Service Leased
Americas:
Columbus, Ohio................... Sales and Service,
North America Headquarters Leased
Worthington, Ohio................ Production Owned
Spartanburg, South Carolina...... Production Owned
Franksville, Wisconsin........... Production Owned
Ithaca, New York................. Production Owned
Wilmington, Massachusetts........ Production Leased
Florham Park, New Jersey......... Production, Sales and Service Leased
Millersville, Maryland........... Production, Sales and Service Leased
Tampa, Florida................... Production, Sales and Service Leased
Vernon Hills, Illinois........... Production, Sales and Service Leased
Burlington, Canada............... Sales and Service Leased
Mexico City, Mexico.............. Sales and Service Leased
San Paolo, Brazil................ Production and Sales Leased
Other:
Shanghai, China.................. Production Building Owned;
Land Leased
Changzhou, China (2)............. Production Building Owned;
Land Leased
Melbourne, Australia............. Sales and Service Leased
Mumbai, India.................... Production, Sales and Service Leased
(1) We also conduct research and development activities at certain of the
listed facilities in Switzerland, Germany, the United States and, to a
lesser extent, China.
(2) Held by a joint venture in which we own a 60% interest.
We believe our facilities are adequate for our current and reasonably
anticipated future needs.
22
ITEM 3. LEGAL PROCEEDINGS
Routine litigation is incidental to our business. Nevertheless, we are
not currently involved in any legal proceeding which we believe could have a
material adverse effect upon our financial condition or results of operations.
See "Environmental Matters" under Part I, Item 1 for information concerning
legal proceedings relating to certain environmental claims.
Our products generally are sold with a limited warranty for defects. We
have reviewed our products currently in use by customers or being sold and do
not believe that we will have material increase in warranty or product liability
claims arising out of Year 2000 non-compliance. However, any material increase
in these claims could harm our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION FOR COMMON STOCK
Our common stock began trading on the New York Stock Exchange on
November 14, 1997 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.
Price Range
High Low
1997
Fourth Quarter (beginning November 14, 1997) $18 3/4 $14 1/16
1998
First Quarter 22 3/8 16 9/16
Second Quarter 22 1/4 18
Third Quarter 22 11/16 16 1/4
Fourth Quarter 28 15/16 16 3/4
HOLDERS
At March 8, 1999 there were 556 holders of record of common stock
and 38,400,363 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.
24
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31, 1994, 1995, 1996, 1997 and 1998, for the years ended December 31,
1994 and 1995, for the period from January 1, 1996 to October 14, 1996, for the
period from October 15, 1996 to December 31, 1996 and for the years ended
December 31, 1997 and 1998 is derived from our consolidated financial
statements, which were audited by KPMG Fides Peat, independent auditors. The
financial information for all periods prior to October 15, 1996, the date of 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 Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below and the consolidated financial
statements and accompanying notes included herein. The financial information
presented below was prepared in accordance with U.S. GAAP.
Predecessor Business Mettler-Toledo International Inc.
-------------------------------------- ------------------------------------------
January 1 October 15
Year ended Year ended to to Year ended Year ended
December 31, December 31, October 14, December 31, December 31, December 31,
1994 1995 1996 1996 1997 1998
----------- ----------- ---------- ----------- ----------- -----------
(In thousands, except per share data)
Statement of Operations Data:
Net sales......................... $769,136 $850,415 $662,221 $ 186,912 $878,415 $935,658
Cost of sales..................... 461,629 508,089 395,239 136,820 (a) 493,480 (b) 520,190
------- ------- ------- ------- ------- --------
Gross profit...................... 307,507 342,326 266,982 50,092 384,935 415,468
Research and development.......... 47,994 54,542 40,244 9,805 47,551 48,977
Selling, general and
administrative................. 224,978 248,327 186,898 59,353 260,397 265,511
Amortization...................... 6,437 2,765 2,151 1,065 6,222 7,634
Purchased research and development -- -- -- 114,070 (c) 29,959 (d) 9,976 (e)
Interest expense.................. 13,307 18,219 13,868 8,738 35,924 22,638
Other charges (income), net(f).... (7,716) (9,331) (1,332) 17,137 10,834 1,197
-------- -------- -------- ------- ------- --------
Earnings (loss) before taxes,
minority interest and
extraordinary items............. 22,507 27,804 25,153 (160,076) (5,952) 59,535
Provision for taxes............... 8,676 8,782 10,055 (938) 17,489 20,999
Minority interest................. 347 768 637 (92) 468 911
------- ------- ------- --------- --------- --------
Earnings (loss) before
extraordinary items............. 13,484 18,254 14,461 (159,046) (23,909) 37,625
Extraordinary items - debt
extinguishments................. -- -- -- -- (41,197) (g) --
------- ------- ------- -------- --------- ---------
Net earnings (loss)............... $13,484 $18,254 $14,461 $(159,046) $ (65,106) $ 37,625
====== ====== ====== ======== ======== ========
Basic earnings (loss) per common share(h):
Net earnings (loss) before
extraordinary items........... $ (5.18) $ (0.76) $ 0.98
Extraordinary items............. -- (1.30) --
--------- --------- ---------
Net earnings (loss)............. $ (5.18) $ (2.06) $ 0.98
========= ========= ========
Weighted average number of
common shares................. 30,686,065 31,617,071 38,357,079
Diluted earnings (loss) per common share(h):
Net earnings (loss) before
extraordinary items........... $ (5.18) $ (0.76) $ 0.92
Extraordinary items............. -- (1.30) --
--------- --------- --------
Net earnings (loss)............. $ (5.18) $ (2.06) $ 0.92
========= ========= ========
Weighted average number of
common shares........... 30,686,065 31,617,071 40,682,211
Balance Sheet Data (at end of period):
Cash and cash equivalents......... $ 63,802 $ 41,402 $ 60,696 $ 23,566 $ 21,191
Working capital................... 132,586 136,911 103,697 79,163 90,042
Total assets...................... 683,198 724,094 771,888 749,313 820,441
Long-term third party debt........ 862 3,621 373,758 340,334 340,246
Net borrowing from Ciba and
affiliates (i)................ 177,651 203,157 -- -- --
Other non-current liabilities (j). 83,964 84,303 96,810 91,011 103,201
Shareholders' equity (k).......... 228,194 193,254 12,426 25,399 53,835
(Footnotes on next page)
25
(Footnotes from previous page)
- ------------------------------
(a) 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.
(b) 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.
(c) 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.
(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) 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.
(f) Other charges (income), net generally includes interest income, foreign
currency transactions, (gains) losses from sales of assets and other items.
For the period January 1, 1996 to October 14, 1996, the amount shown
includes employee severance and other exit costs associated with the
closing of our Westerville, Ohio facility. For the period October 15, 1996
to December 31, 1996, the amount shown includes employee severance benefits
associated with our general headcount reduction programs in Europe and
North America and the realignment of the analytical and precision balance
business in Switzerland. For the year ended December 31, 1997, the amount
shown includes a restructuring charge of $6,300 to consolidate three
facilities in North America. For the year ended December 31, 1998, the
amount shown includes $650 of expenses incurred on behalf of certain
selling shareholders in connection with the secondary offering completed in
July 1998. See Note 14 to the audited consolidated financial statements
included herein.
(g) Represents charges for the write-off of capitalized debt issuance fees and
related expenses associated with our previous credit facilities. The amount
for the year ended December 31, 1997 also includes the prepayment premium
on the senior subordinated notes which were repurchased and the write-off
of the related capitalized debt issuance fees.
(h) Effective December 31, 1997, we adopted the Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Accordingly, basic and
diluted loss per common share data for each period presented have been
determined in accordance with the provisions of this Statement.
(i) Includes notes payable and long-term debt payable to Ciba and affiliates
less amounts due from Ciba and affiliates.
(j) Consists primarily of obligations under various pension plans and plans
that provide post-retiremen medical benefits. See Note 12 to the audited
consolidated financial statements included herein.
(k) Shareholders' equity for the Predecessor Business consists of the combined
net assets of the Mettler-Toledo group of companies.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements.
Overview
We operate a global business, with net sales that are diversified by
geographic region, product range and customer. We hold leading positions in many
of our markets and attribute this leadership to several factors, including the
strength of our brand name, the quality of our global sales and service network,
our continued investment in product development, our pursuit of technology
leadership and our focus on capitalizing on opportunities in developed and
emerging markets.
Our financial information is presented in accordance with U.S. GAAP.
Financial results following the acquisition of Mettler-Toledo from Ciba-Geigy in
October 1996, the Safeline acquisition in May 1997 and our initial public
offering in November 1997 are not comparable in many respects to the financial
results prior to those events.
Net sales in local currency increased 8% in 1998, 11% in 1997 and 3% in
1996 (adjusted for our exit in 1996 from certain systems businesses). The
strengthening of the U.S. dollar versus our major trading currencies reduced
U.S. dollar reported sales growth in 1998 and 1997. Net sales in U.S. dollars
increased by 7% and 3% during 1998 and 1997, respectively. Net sales in U.S.
dollars were unchanged in 1996.
In 1998, we had solid local currency sales growth of 10% in both Europe
and the Americas. However, economic conditions in emerging markets have
deteriorated significantly and some emerging markets are experiencing
recessionary trends, severe currency devaluations and inflationary prices.
Moreover, economic problems in individual markets are increasingly spreading to
other economies, adding to the adverse conditions facing nearly all emerging
markets. The effects of these economic conditions can be seen in the 1998 local
currency sales decline in Asia and other markets of 4% compared to 1997. We
remain committed to emerging markets, particularly those in Asia, Latin America
and Eastern Europe. We believe emerging markets will provide opportunities for
growth in the long term based upon the movement toward international quality
standards, the need to upgrade mechanical scales to electronic versions and the
establishment of local production facilities by our multinational client base.
However, we expect current economic conditions may affect our financial results
in these markets for the foreseeable future.
We believe our sales growth over the next several years will come
primarily from (i) the needs of our lab and industrial customers in developed
markets to continue to automate their research and development and manufacturing
processes, (ii) the needs of our retail customers in Europe to upgrade their
scales for the implementation of the Euro, (iii) the needs of our retail
customers to implement sophisticated perishable goods management systems using
weighing and PC technology in a networked environment, (iv) the needs of
customers in emerging markets to continue modernizing research and development
and manufacturing processes through the use of increasingly sophisticated
instruments, and (v) acquisition opportunities.
27
We increased our gross profit margin before non-recurring acquisition
costs from 41.1% in 1996 to 44.4% in 1998 and increased our Adjusted Operating
Income (gross profit less research and development and selling, general and
administrative expenses before amortization and non-recurring costs) as a
percentage of net sales from 6.8% in 1996 to 10.8% in 1998.
This improved performance was achieved despite our continued
investments in product development and in our distribution and manufacturing
infrastructure. We believe that a significant portion of the increases in our
Adjusted Operating Income resulted from our strategy to reduce costs,
re-engineer our operations and focus on the highest value-added segments of the
markets in which we compete.
Recent Acquisitions
We are the leading provider of automated lab reactors and reaction
calorimeters to the automated drug and chemical compound discovery and
development market. We believe that our customers want solutions in this market
from a company like Mettler-Toledo, with a reputation for innovation and quality
and with a global presence and service network.
In July 1998, we extended our product offerings to the automated drug
and chemical compound discovery market with our acquisition of Bohdan Automation
Inc. Bohdan is a leading supplier of laboratory automation and automated
synthesis products used in research for life science applications for
pharmaceutical and agricultural products and in other applications in the food
and chemicals industries.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Although these businesses are not currently significant in size, we
believe these acquisitions are key elements in our strategic effort to further
build a leading position in the field of automated solutions for drug and
chemical compound discovery and development. These acquisitions enable us to
offer a strong and comprehensive array of solutions, from sample preparation to
compound synthesis to process development.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Myriad Synthesizer Technology designs, assembles and markets
instruments that facilitate and automate the synthesis of large numbers of
chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
In May 1997, we acquired Safeline Limited. Safeline is the world's
largest manufacturer and marketer of metal detection systems for companies that
produce and package goods in the food processing, pharmaceutical, cosmetics,
chemicals and other industries. Safeline's metal detectors can also be combined
with our checkweighing products for important quality and safety checks in these
industries. The financing of the Safeline acquisition is discussed in
"--Liquidity and Capital Resources."
28
Secondary Offering and IPO
In July 1998, certain selling shareholders completed a secondary
offering of a total of 11,464,400 shares of our common stock, including the
underwriters' over-allotment options. No directors, executive officers or other
employees sold shares, and we did not sell shares or receive proceeds in the
offering. We incurred a charge of $0.7 million in connection with the offering
during the second quarter of 1998.
During the fourth quarter of 1997, we completed our initial public
offering of 7,666,667 shares of common stock, including the underwriters'
over-allotment options, at a per share price of $14.00 (the "IPO"). The IPO
raised net proceeds, after underwriters' commission and expenses, of
approximately $97.3 million. Concurrently with the IPO, we refinanced our
existing credit facility by entering into a new credit facility, borrowings from
which, along with the proceeds from the IPO, were used to repay substantially
all of our then-existing debt, including all of our 9 3/4% senior subordinated
notes due 2006 (collectively, the "Refinancing"). In connection with the
Refinancing, we recorded an extraordinary charge of $31.6 million, net of tax,
principally for prepayment premiums on certain debt repaid and for the write-off
of existing deferred financing fees. We also paid a one-time termination fee of
$2.5 million in connection with the termination of our management consulting
agreement with AEA Investors Inc.
Cost Reduction Programs
In 1997, we recorded restructuring charges totaling approximately $6.3
million in connection with the consolidation of three facilities in North
America. The charges related to severance and other related benefits and costs
of exiting facilities, including lease termination costs and write-down of
existing assets to their expected net realizable value. The facility
consolidations are part of our ongoing efforts to reduce costs through
re-engineering. When complete, the facility consolidations will result in annual
cost savings estimated at approximately $2.5 million. During 1998 most of these
actions were completed, including the sale of two of the facilities for over
$5.0 million. We continuously implement cost reduction programs.
29
Results of Operations
The following table sets forth certain items from the consolidated
statements of operations for the period from January 1, 1996 to October 14,
1996, for the period from October 15, 1996 to December 31, 1996, pro forma for
the year 1996 and actual for the years ended December 31, 1997 and 1998. The pro
forma 1996 information gives effect to the Acquisition, the Safeline
acquisition, the IPO and the Refinancing as if such transactions had occurred on
January 1, 1996, and does not purport to represent our actual results if such
transactions had occurred on such date. The pro forma 1996 information reflects
the historical results of operations of the Predecessor Business for the period
from January 1, 1996 to October 14, 1996 and the historical results of
operations of the Company for the period from October 15, 1996 to December 31,
1996, together with certain pro forma adjustments as described below. The
consolidated statement of operations data for the year ended December 31, 1997
includes Safeline results from May 31, 1997. The pro forma 1996 information
includes Safeline's historical results of operations for all of 1996. The pro
forma information is presented in order to facilitate management's discussion
and analysis.
Predecessor
Business Mettler-Toledo International Inc.
-------------- ------------------------------------------------------------
For the period For the period Pro forma Year ended Year ended
Jan.1, 1996 to Oct. 15,1996 to 1996 December 31, December 31,
Oct. 14, 1996 Dec. 31, 1996(a)(b) (a)(b)(c)(d) 1997(a)(b) 1998(e)
-------------- ------------------- ------------ ----------- -----------
(In thousands)
Net sales....................... $662,221 $186,912 $889,567 $878,415 $935,658
Cost of sales................... 395,239 136,820 523,783 493,480 520,190
-------- -------- -------- -------- -------
Gross profit.................... 266,982 50,092 365,784 384,935 415,468
Research and development........ 40,244 9,805 50,608 47,551 48,977
Selling, general and administrative 186,898 59,353 252,085 260,397 265,511
Amortization.................... 2,151 1,065 6,526 6,222 7,634
Purchased research and development - 114,070 - 29,959 9,976
Interest expense................ 13,868 8,738 30,007 35,924 22,638
Other charges (income), net(f).. (1,332) 17,137 14,036 10,834 1,197
-------- --------- -------- -------- --------
Earnings (loss) before taxes,
minority interest and extraordinary items $ 25,153 $(160,076) $ 12,522 $ (5,952) $ 59,535
======== ========= ========= ======== ========
Adjusted Operating Income(g).... $ 39,840 $ 17,912 $ 67,875 $ 81,541 $100,980
======== ========= ========= ======== ========
(a) In connection with the Acquisition and the Safeline acquisition, we
allocated $32,194 and $2,054, respectively, of the purchase prices to
revalue certain inventories (principally work-in-progress and finished
goods) to fair value (net realizable value). Substantially all such
inventories revalued in connection with the Acquisition were sold
during the period October 15, 1996 to December 31, 1996, and
substantially all such inventories revalued in connection with the
Safeline acquisition were sold in the second quarter of 1997. The
charges associated with these revaluations have been excluded from the
1996 pro forma financial information.
(b) In connection with the Acquisition and the Safeline acquisition, we
allocated, based upon independent valuations, $114,070 and $29,959,
respectively, of the purchase prices to purchased research and
development in process. These amounts were recorded as expenses
immediately following the Acquisition and the Safeline acquisition,
respectively. The amounts related to the Acquisition and the Safeline
acquisition have been excluded from the 1996 pro forma information.
(c) Represents the unaudited pro forma consolidated statement of operations
for fiscal year 1996, assuming the Acquisition, the Safeline
acquisition, the IPO and the refinancing occurred on January 1, 1996.
The 1996 pro forma data includes certain adjustments to historical
results to reflect: (i) an increase in interest expense resulting from
acquisition-related borrowings, which expense has been partially offset
by reduced borrowings following application of IPO proceeds and a lower
effective interest rate following the Refinancing, (ii) an increase in
amortization of goodwill and other intangible assets following the
Acquisition and the Safeline acquisition, (iii) a decrease in selling,
general and administrative expense to eliminate the AEA Investors Inc.
(Footnotes continued on following page)
30
(Footnotes continued from previous page)
annual management fee of $1,000, payment of which was discontinued upon
consummation of the IPO and (iv) changes to the provision for taxes to
reflect our estimated effective income tax rate at a stated level of
pro forma earnings before tax for the year ended December 31, 1996.
Certain other one-time charges incurred during 1996 have not been
excluded from the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1996.
(d) Certain one-time charges incurred during 1996 have not been excluded
from the 1996 pro forma information. These charges consist of certain
non-recurring items for (i) advisory fees associated with the
reorganization of our structure of approximately $4,800 and (ii)
restructuring charges of approximately $12,600.
(e) 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.
(f) Other charges (income), net generally includes interest income, foreign
currency transactions, gains and losses from sales of assets and other
items. For the period January 1, 1996 to October 14, 1996, the amount
shown includes employee severance and other exit costs associated with
the closing of our Westerville, Ohio facility. For the period October
15, 1996 to December 31, 1996, the amount shown includes employee
severance benefits associated with our general headcount reduction
programs in Europe and North America and the realignment of the
analytical and precision balance business in Switzerland. For