<PAGE>
Filed pursuant to Rule 424(b)(1)
under the Securities Act of 1933
in connection with the Registration
Statement (file #333-35597)
PROSPECTUS [LOGO]
30,670,134 SHARES
METTLER-TOLEDO INTERNATIONAL INC.
COMMON STOCK
------------------------
This Prospectus is being furnished to the holders of common stock of MT
Investors Inc., a Delaware corporation (the
'Company'), in connection with the solicitation by the Board of Directors of the
Company of the written consent of shareholders in lieu of a meeting to approve
the merger (the 'Merger') of the Company with its wholly owned subsidiary,
Mettler-Toledo Holding Inc., a Delaware corporation ('Holding'), pursuant to an
Agreement of Merger (the 'Merger Agreement'), between Holding and the Company.
Pursuant to the Merger, Holding would be merged with and into the Company, with
the Company being the surviving corporation. The affirmative vote or written
consent of the holders of shares of the Class B common stock, par value $.01, of
the Company (the 'Class B Shareholders') representing a majority of the
outstanding shares of Class B common stock is required to approve and adopt the
Merger Agreement. The Class A common stock and Class C common stock of the
Company are non-voting common stock and, therefore, the affirmative vote or
written consent of the holders of such stock is not required to approve the
Merger. All holders of the Company's common stock who do not provide their
affirmative vote for or written consent to the Merger are entitled to appraisal
rights under Delaware law as set forth herein. A copy of the Merger Agreement
has been provided with this Prospectus.
The Merger Agreement provides that each share of the three classes of
common stock of the Company, the Class A common stock, Class B common stock and
Class C common stock, each with a par value of $.01, will be converted into and
represent the right to receive shares of common stock of the Company, $.01 par
value (the 'Common Stock'). A more detailed description of the Merger is set
forth in this Prospectus.
The Company is also concurrently conducting an underwritten public offering
(the 'Offerings') of shares of Common Stock and has granted the Underwriters in
connection therewith options to purchase additional shares to cover over-
allotments. The Offerings are conditioned on, among other things, the
consummation of the Merger, although consummation of the Merger is not
conditioned on the consummation of the Offerings. No assurances can be made that
the Offerings will be consummated.
------------------------
The Common Stock has been accepted for listing on the New York Stock Exchange
under the symbol 'MTD,'
subject to official notice of issuance.
------------------------
See 'Risk Factors' beginning on page 11 for a discussion of certain factors
that should be considered by the Company's shareholders.
------------------------
THE COMMON STOCK TO BE ISSUED IN THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The approximate date on which this Prospectus will first be delivered to the
Company's shareholders
will be November 13, 1997
<PAGE>
[PICTURES OF PRODUCTS WITH THE FOLLOWING CAPTIONS:]
METTLER TOLEDO
No. 1 in weighing instruments and a leader in related measurement technologies
Laboratory
Industrial/Retail
METTLER TOLEDO
Sales and service operations
Manufacturing sites
METTLER TOLEDO
A determining factor in every lab
Laboratory
pH Meters are used to measure acidity of solutions.
Titrators provide accurate measures of concentration in various industries.
Moisture Analyzers monitor reliability of production in the food and other
industries.
Analytical/Precision Balances are vital to research & development and quality
control in almost any industry.
Thermal Analysis Systems facilitate consistency of material characteristics in
the plastics and other industries.
Automatic Lab Reactors assist chemical engineers in optimizing new production
processes.
METTLER TOLEDO
Leading solutions for industrial and retail weighing applications
Industrial/Retail
Integrated Dimensioning and weighing products allow complete and accurate
freight tariff calculation for the cargo industry.
Checkweighers automatically weigh goods and control the packaging process in the
pharmaceutical, food and other industries.
Truck Scale Systems are utilized in highway enforcement and also to check
incoming goods.
Counting Scale Systems facilitate inventory control and automate shipping and
receiving applications.
Metal Detectors provide important safety and quality checks in the food and
pharmaceutical industries.
Retail Scale Systems are networked with scanners, cash registers and backroom
equipment and provide perishable goods information to in-store computers.
Prepacking Systems weigh and label products and can be networked with weighing
technology at the counter, check-out and backoffice.
Sustained technology leadership
METTLER TOLEDO's new Brickstone weighing sensor reduces manufacturing costs as
well as the time and expense of design changes.
METTLER TOLEDO
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. SEE 'RISK FACTORS-- FORWARD-LOOKING STATEMENTS AND ASSOCIATED
RISKS' AND 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.'
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
METTLER-TOLEDO(REGISTERED), METTLER(REGISTERED), INGOLD(REGISTERED),
GARVENS(REGISTERED), OHAUS(REGISTERED), DIGITOL(REGISTERED) AND
SAFELINE(REGISTERED) ARE REGISTERED TRADEMARKS OF THE COMPANY AND
BRICKSTONE(TRADEMARK), SPIDER(TRADEMARK), MENTOR SC(TRADEMARK),
MULTIRANGE(TRADEMARK), TRUCKMATE(TRADEMARK), SIGNATURE(TRADEMARK) AND
POWERPHASE(TRADEMARK) ARE TRADEMARKS OF THE COMPANY.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus. Unless
otherwise indicated, industry data contained herein is derived from publicly
available industry trade journals, government reports and other publicly
available sources, which the Company has not independently verified but which
the Company believes to be reliable, and where such sources are not available,
from Company estimates, which the Company believes to be reasonable, but which
cannot be independently verified. As used in this Prospectus, '$' refers to U.S.
dollars, 'SFr' refers to Swiss francs, 'pounds ' refers to British pounds
sterling and 'CDN' refers to Canadian dollars. Unless otherwise stated or where
the context otherwise requires, (i) references herein to the 'Company' or
'Mettler-Toledo' refer to Mettler-Toledo International Inc. and its direct and
indirect subsidiaries and (ii) all information herein gives effect to the
Reorganization (as defined below) and assumes no exercise of the Underwriters'
over-allotment options.
THE COMPANY
GENERAL
Mettler-Toledo is a leading global supplier of precision instruments. The
Company is the world's largest manufacturer and marketer of weighing instruments
for use in laboratory, industrial and food retailing applications. In addition,
the Company holds one of the top three market positions in several related
analytical instruments such as titrators, thermal analysis systems, pH meters,
automatic lab reactors and electrodes. Through its recent acquisition (the
'Safeline Acquisition') of Safeline Limited ('Safeline'), the Company is also
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. The Company focuses on high
value-added segments of its markets by providing innovative instruments, by
integrating these instruments into application-specific solutions for customers,
and by facilitating the processing of data gathered by its instruments and the
transfer of this data to customers' management information systems.
Mettler-Toledo services a worldwide customer base through its own sales and
service organization and has a global manufacturing presence in Europe, the
United States and Asia. The Company generated pro forma 1996 net sales of $889.6
million (giving effect to the Safeline Acquisition) which were derived 49% in
Europe, 40% in North and South America and 11% in Asia and other markets.
The Company believes that in 1996 the global market for the Company's
products and services was approximately $6.0 billion. Weighing instruments are
among the most broadly used measuring devices, and their results are often used
as the basis of commercial transactions. Analytical instruments are critical to
the research and development and quality control efforts of end-users, while
metal detection systems provide important quality and safety checks in
production and packaging. The Company's products are used in laboratories as an
integral part of research and quality control processes, in industry for various
manufacturing processes such as quality control, materials preparation, filling,
counting and dimensioning, and in food retailing for preparation, portioning and
inventory control. Customers include pharmaceutical, biotechnology, chemicals,
cosmetics, food and beverage, metals, electronics, logistics, transportation and
food retailing businesses, as well as schools, universities and government
standards laboratories.
MARKET LEADERSHIP
The Company believes that it maintains a leading position in each of its
markets. In the weighing instruments market, Mettler-Toledo is the only company
to offer products for laboratory, industrial and food retailing applications
throughout the world and believes that it holds a market share more than two
times greater than that of its nearest competitor. The Company believes that in
1996 it had an approximate 40% market share 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, the Company believes it has the largest
market share in Europe and the United States. In Asia, Mettler-Toledo has
substantial, rapidly growing industrial and food retailing businesses supported
by an established manufacturing presence in China. The Company also holds one of
the top three global market positions in several analytical instruments such as
titrators, thermal analysis systems, electrodes, pH meters and automatic lab
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reactors. The Company recently enhanced its leading positions in precision
instruments through the addition of Safeline's market leading metal detection
products, which can be used in conjunction with the Company's checkweighing
instruments for important quality and safety checks in the food processing,
pharmaceutical, cosmetics, chemicals and other industries. Mettler-Toledo
attributes its worldwide market leadership positions to the following
competitive strengths:
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, the Company believes customers tend to emphasize
accuracy, product reliability, technical innovation, service quality, reputation
and past experience with a manufacturer's products when making their purchasing
decisions for weighing and other precision instruments and experience high
switching costs if they attempt to change vendors. A recent independent survey
concluded that 'Mettler-Toledo' was one of the three most recognized brand names
in the laboratory. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as 'Mettlers.' The
strength of this brand name has allowed the Company to successfully extend its
laboratory product line to include titrators, thermal analysis systems,
electrodes, pH meters and automatic lab reactors.
Technological Innovation. Mettler-Toledo has a long and successful track
record of innovation, as demonstrated by the invention of the single-pan
analytical balance in 1945 and the introduction of the first fully electronic
precision balance in 1973. The Company has continued to be at the forefront of
technology with recent innovations in both weighing and related instrumentation,
including its new digital load cell, its ID 20 terminal (the first personal
computer interface to be certified by weights and measures regulators), its
Brickstone weighing sensor technology, its GOBI moisture determination
instrument, a new automatic lab reactor, the Zero Metal-Free Zone metal detector
and its new PILAR (Parallel Infrared Laser Array) dimensioning equipment. As
with many of the Company's recent innovations, the Company's new Brickstone
weighing sensor technology provides greater accuracy, while also significantly
reducing manufacturing costs and the time and expense of design changes by
reducing from approximately 100 to approximately 50 the number of parts in the
sensor. The Company believes it is the global leader in its industry in
providing innovative instruments, in integrating its instruments into
application-specific solutions for customers, and in facilitating the processing
of data gathered by its instruments and the transfer of this data to customers'
management information systems. Mettler-Toledo's technological innovation
efforts benefit from the Company's manufacturing expertise in sensor technology,
precision machining and electronics, as well as its strength in software
development.
Comprehensive, High Quality Product Range. Mettler-Toledo manufactures a
more comprehensive range of weighing instruments than any of its competitors.
The Company's broad product line addresses a wide range of weighing applications
across and within many industries and regions. Furthermore, the Company's
analytical instruments and metal detection systems complement its weighing
products, enabling the Company to offer integrated solutions. The Company
manufactures its products in its modern manufacturing facilities, most of which
are ISO 9001 certified. Mettler-Toledo's broad range of high quality products
and the ability to provide integrated solutions allows the Company to leverage
its sales and service organization, product development activities and
manufacturing and distribution capabilities.
Global Sales and Service. The Company has the only global sales and
service organization among weighing instruments manufacturers. At September 30,
1997, this organization consisted of approximately 3,000 employees organized
into locally-based, customer-focused groups that provide prompt service and
support to the Company's customers and distributors in virtually all major
markets around the world. The local focus of the Company's sales and service
organization enables the Company to provide timely, responsive support to
customers worldwide and provides feedback for manufacturing and product
development. This global infrastructure also allows the Company to capitalize on
growth opportunities in emerging markets.
Largest Installed Base. The Company believes that it has the largest
installed base of weighing instruments in the world. From this installed base,
the Company obtains service contracts which provide a strong, stable source of
recurring service revenue. Service revenue represented approximately 17% of net
sales in 1996, of which approximately 8% is derived solely from service
contracts and repairs with the remainder derived from the sale of spare parts.
The Company believes that its installed base of weighing instruments represents
a
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competitive advantage with respect to repeat purchases and purchases of related
analytical instruments and metal detection systems, because customers tend to
remain with an existing supplier that can provide accurate and reliable products
and related services. 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
its broad customer base also provide the Company with sales leads and new
product and application ideas.
Geographical, Product and Customer Diversification. The Company's revenue
base is diversified by geographic region, product range and customer. The
Company's broad range of product offerings is utilized in many different
industries, including, among others, chemicals, pharmaceuticals, food
processing, food retailing and transportation. The Company supplies customers in
over 100 countries, and no one customer accounted for more than 2% of 1996 net
sales. The Company's diverse revenue base reduces its exposure to regional or
industry-specific economic conditions, and its presence in many different
geographic markets, product markets and industries enhances its attractiveness
as a supplier to multinational customers.
GROWTH STRATEGY
Prior to its acquisition on October 15, 1996 (the 'Acquisition') in a
transaction sponsored by management and AEA Investors Inc. ('AEA Investors'),
Mettler-Toledo operated as a division of Ciba-Geigy AG ('Ciba'). In connection
with the Acquisition, Mettler-Toledo began implementing a strategy to enhance
its position as global market leader by accelerating new product introductions,
capitalizing on market opportunities, focusing on expansion in emerging markets,
pursuing selected acquisitions and reengineering its operations in order to
reduce its overall cost structure. These initiatives have contributed to an
improvement in operating income (gross profit less research and development and
selling, general and administrative expenses) before amortization and non-
recurring costs ('Adjusted Operating Income') from $37.0 million (5.9% of net
sales) for the nine months ended September 30, 1996 to $52.6 million (8.3% of
net sales) for the nine months ended September 30, 1997, an increase of 42%.
New Product Introductions. The Company intends to continue to invest in
product innovation in order to provide technologically advanced products to its
customers for existing and new applications. Over the last three calendar years,
the Company invested approximately $170.0 million in research and development
and customer engineering, which has resulted in a pipeline of innovative and new
products, significant reductions in product costs and reduced time to market for
new products. Examples of new product introductions planned for the remainder of
1997 and 1998 include: industrial and retail products that apply open-system
architecture, a higher performance titrator, a higher performance modular
thermal analysis system and new density and refractometry measurement
technology. In addition, the Company is also focused on innovations that reduce
manufacturing costs. For example, the Company is extending the utilization of
its high-accuracy, low-cost Brickstone weighing sensor technology through much
of its weighing instrument product line. The Company attributes a significant
portion of its recent margin improvement to its research and development
efforts.
Capitalize on Market Opportunities. Mettler-Toledo believes it is well
positioned to capitalize on potential market opportunities including: (i) the
integration of weighing instruments into data management software systems to
automate processes and/or improve process control; (ii) the development of
integrated solutions that combine weighing instruments and related technologies
directly into manufacturing processes; (iii) the harmonization of national
weighing standards among countries, particularly in the European Union; and (iv)
the standardization of manufacturing and laboratory practices through programs
such as ISO 9001, Good Laboratory Practices and Good Manufacturing Practices.
The Company believes that these trends, together with the Company's brand name,
global presence and the pipeline of planned new products, will allow it to
increase its penetration of developed markets such as Europe, the United States
and Japan.
Further Expansion in Emerging Markets. The Company believes that global
recognition of the Mettler-Toledo brand name and the Company's global sales,
service and manufacturing capabilities position it to take advantage of
continued growth opportunities in emerging markets. These growth opportunities
have been driven by economic development and global manufacturers' utilization
of additional and more sophisticated weighing instruments as they shift
production to these markets. The primary focus to date of the Company's emerging
market expansion has been in Asia. In Asia (excluding Japan), the Company is the
market leader in laboratory weighing instruments and has substantial and rapidly
growing industrial and food retailing businesses. The
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Company maintains two profitable operations in China: first, a 60% owned joint
venture which manufactures and sells industrial and food retailing products and,
second, a wholly owned facility which manufactures and distributes laboratory
products. Both of these operations serve the domestic and export markets.
Recently, the Company has opened direct marketing organizations in Taiwan,
Korea, Hong Kong, Thailand and Malaysia. The Company is also expanding its sales
and service presence in Latin America and other emerging markets. The Company
believes that its brand name, its global marketing and manufacturing
infrastructure and its already substantial sales in Asia and Latin America
position it to take advantage of further growth opportunities in emerging
markets.
Pursue Selected Acquisition Opportunities. Mettler-Toledo plans to
actively pursue additional complementary product lines and distribution
channels. In the laboratory market, the Company intends to leverage its existing
laboratory distribution system through the acquisition of complementary product
lines and the development of integrated laboratory solutions. In the industrial
and food retailing markets, the Company plans to pursue the acquisition of
related products and technologies that allow for the integration of weighing
with other customer operations and information systems. The Company began
implementing this strategy through the May 1997 acquisition of Safeline, which
had calendar year 1996 revenues of $40.4 million and is the world's leading
supplier of metal detection systems for companies that produce and package goods
in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Safeline's metal detection systems enable the Company to offer
integrated solutions for quality control and data management to these
industries. The Company believes that by taking advantage of its brand name and
global sales and service organization it can expand the distribution of acquired
product lines and operate acquired businesses more effectively.
Reengineering and Cost Reductions. The Company's recent increase in
profitability has been achieved in part through: (i) focusing research and
development efforts on product cost reductions; (ii) achieving greater
flexibility in, and a targeted reduction of, the Company's workforce, including
a reduction of approximately 170 personnel in 1996; (iii) consolidating
manufacturing facilities, including the closure of the Westerville, Ohio
facility; and (iv) moving production to lower-cost manufacturing facilities. The
Company has also started implementing a number of additional operational changes
such as the restructuring of its ordering process, product delivery and parts
inventory management in Europe, the consolidation of worldwide precision balance
manufacturing, the realignment of industrial product manufacturing in Europe and
the consolidation of the Company's North American laboratory, industrial and
food retailing businesses into a single marketing organization. The Company
believes that these new initiatives, as well as its continuing efforts to reduce
product costs through research and development and the move of production to
lower-cost manufacturing facilities, will place the Company in a position to
build on its recent improvement in profitability. Furthermore, the Company
believes that it can leverage its existing infrastructure, particularly the
recent investments made in Asia, to obtain continued sales growth without
significant additions to its overall cost base.
ACQUISITION AND SAFELINE ACQUISITION
Acquisition. On October 15, 1996, the Company acquired the Mettler-Toledo
Group from Ciba in a transaction sponsored by management and AEA Investors. As
of September 30, 1997, 688 of the Company's employees, including executive
officers and key management employees, owned 1,990,550 shares of Common Stock
and held options to purchase 3,537,063 additional shares of Common Stock,
collectively representing on a fully diluted basis and after giving effect to
the Offerings an aggregate ownership interest of approximately 13.5%. In
addition, at the request of the Company, the Underwriters have reserved up to
833,333 shares to be sold in the Offerings to certain employees of the Company
and certain other persons. See 'Management' and 'Security Ownership of Certain
Beneficial Owners and Management.'
Safeline Acquisition. On May 30, 1997, the Company acquired Safeline for
pounds 61.0 million (approximately $100.0 million at May 30, 1997), plus up to
an additional pounds 6.0 million (approximately $10.0 million at May 30, 1997)
for a contingent earn-out payment. In October 1997, the Company made an
additional payment, representing a post-closing adjustment, of pounds 1.9
million (approximately $3.1 million at October 3, 1997). Such amount will be
accounted for as additional purchase price. Safeline, based in Manchester, U.K.,
is the world's largest manufacturer and marketer of metal detection systems for
companies that produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Safeline's metal detectors can also
be used in conjunction with the Company's checkweighing products for important
quality and safety checks in these industries. From 1992 to 1996, Safeline's net
sales increased at a compounded annual growth rate of
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approximately 30%, in part due to the introduction of new products such as the
first digital electronic and Zero Metal-Free Zone metal detectors. Safeline had
net sales and Adjusted Operating Income of $40.4 million and $9.9 million,
respectively, for the year ended December 31, 1996.
CONCURRENT TRANSACTIONS
Credit Agreement Refinancing. In connection with the Offerings, the
Company intends to refinance its existing credit facility (the 'Credit
Agreement') by entering into a new credit facility (the 'New Credit Agreement')
with certain financial institutions. The Company expects that it will have pro
forma borrowings under the New Credit Agreement of $389.9 million (representing
an increase of $77.3 million) as of September 30, 1997 and borrowings of $38.0
million under various other credit arrangements. Of the borrowings under the New
Credit Agreement, $200.0 million will be in the form of a term loan and the
remainder will be outstanding under a revolving credit facility. The Company's
revolving credit facility commitment will increase from $170.0 million to $420.0
million under the New Credit Agreement, and this commitment will include a
$100.0 million acquisition facility. Additional borrowings under the New Credit
Agreement will be used, together with the net proceeds from the Offerings, to
repurchase the Notes (as defined below) and to pay related premiums and fees and
expenses. As a result of the Refinancing (as defined below), the Company expects
to realize significantly lower interest expense. See 'Capitalization.'
Note Repurchase. As part of the Refinancing, the Company has commenced a
tender offer (the 'Note Repurchase') for all of the 9 3/4% Senior Subordinated
Notes due 2006 (the 'Notes') of the Company's wholly owned subsidiary,
Mettler-Toledo, Inc. As of October 17, 1997, all of the Notes had been
irrevocably tendered. The Company will use net proceeds from the Offerings and
additional borrowings under the New Credit Agreement to finance the Note
Repurchase. In connection with the Note Repurchase the Company has obtained the
requisite consents to remove substantially all of the restrictive covenants and
certain other provisions from the Indenture governing the Notes. The refinancing
of the Credit Agreement and the Note Repurchase are collectively referred to as
the 'Refinancing.' See 'Capitalization.' In connection with the refinancing of
the Credit Agreement and the Note Repurchase, the Company anticipates that it
will record an extraordinary loss of approximately $30.0 million representing
the premium expected to be paid in connection with the purchase of the Notes and
the write-off of related capitalized debt issuance fees resulting from the
Refinancing.
THE MERGER
The Boards of Directors of the Company and its direct wholly owned
subsidiary, Holding, have authorized and directed their officers to enter into a
merger agreement and consummate a merger pursuant to which Holding will be
merged with and into the Company, with the Company being the surviving
corporation. Delaware law requires that, in addition to such board approval, the
affirmative vote of a majority of the outstanding stock of each of Holding and
of the Company entitled to vote thereon is required to adopt the Merger
Agreement. The Company as the sole shareholder of Holding has approved the
Merger. Since only the holders of Class B common stock of the Company have
voting rights, the affirmative vote or written consent of holders representing a
majority of the outstanding shares of Class B common stock is required to
approve the Merger. All holders of the Company's common stock who do not provide
their affirmative vote or written consent for the Merger are afforded appraisal
rights under Delaware law unless they have otherwise waived such rights. Upon
shareholder approval and consummation of the Merger, all capital stock of
Holding would be canceled and the equity securities of the Company would become
the only outstanding equity securities of the Company. In the Merger, each share
of the three classes of the Company's common stock would be converted into and
represent the right to receive 12.58392 shares of Common Stock of the Company,
except that the holders of such stock would receive a cash payment at a market
price in lieu of any fractional shares that would be required to be issued in
connection therewith. In the Merger, the Company's certificate of incorporation
and by-laws will be amended as set forth herein. See 'The Merger.' No approval
of any federal or state regulatory authority is required to consummate the
Merger.
The Merger will be effective upon filing of the Certificate of Merger with
the Secretary of State of the State of Delaware. This is expected to occur prior
to consummation of the Offerings if shareholder consent is obtained.
The receipt of shares of Common Stock issued pursuant to the Merger will
not be a taxable transaction for federal income tax purposes. See 'Certain
Federal Income Tax Consequences of the Merger' for more detailed information
regarding the federal income tax consequences of the Merger. The transaction
being effected by the Merger is referred to herein as the 'Reorganization.'
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RISK FACTORS
Before making any decision with respect to the Merger, the Company's
shareholders should carefully consider all of the information contained in this
Prospectus. In particular, shareholders should carefully consider the factors
set forth herein under 'Risk Factors.' These risks include the effect of the
Company's substantial indebtedness on operations and liquidity; risks associated
with currency fluctuations; risks associated with international operations;
risks associated with competition and improvements in technology by competitors;
risks due to significant sales to the pharmaceutical and chemicals industries;
risks relating to future acquisitions; reliance on key management; risk of
liability under environmental laws; potentially adverse effect on stock price
due to shares eligible for future sale; restrictions on payment of dividends;
certain anti-takeover provisions in the Company's certificate of incorporation;
and the absence of a prior public market for the Common Stock.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary historical financial information set forth below for the years
ended December 31, 1993, 1994 and 1995, for the period from January 1, 1996 to
October 14, 1996, and for the period from October 15, 1996 to December 31, 1996
is derived from the Company's 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 (the 'Predecessor Business'). The
summary historical financial information at September 30, 1997 and for the nine
months ended September 30, 1996 and 1997 is derived from the unaudited interim
consolidated financial statements of the Predecessor Business and of the
Company, which, in the opinion of management, include all adjustments necessary
for a fair presentation of the results for the unaudited periods. Operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. The summary pro forma financial information gives effect to the
Acquisition, the Safeline Acquisition, the Offerings and the Refinancing
(assuming all of the Notes are repurchased) and does not purport to represent
what the Company's results of operations actually would have been if such
transactions had occurred as of such dates. The combined historical data of the
Predecessor Business and the consolidated historical data of the Company are not
comparable in many respects due to the Acquisition and the Safeline Acquisition.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Unaudited Pro Forma Financial Information' and the Consolidated
Financial Statements and accompanying notes included herein. The financial
information presented below was prepared in accordance with U.S. generally
accepted accounting principles ('U.S. GAAP').
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<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
-------------------------------------------- METTLER-TOLEDO
INTERNATIONAL INC.
--------------------------------
YEAR ENDED DECEMBER 31, JANUARY 1 OCTOBER 15 TO 1996
------------------------------ TO OCTOBER DECEMBER 31, PRO FORMA
1993 1994 1995 14, 1996 1996 (A)(B)(C)
-------- -------- -------- ----------- --------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(F):
Net sales.......................... $728,958 $769,136 $850,415 $ 662,221 $ 186,912 $ 889,567
Cost of sales...................... 443,534 461,629 508,089 395,239 136,820(b) 523,783
-------- -------- -------- ----------- --------------- --------------
Gross profit....................... 285,424 307,507 342,326 266,982 50,092 365,784
Research and development........... 46,438 47,994 54,542 40,244 9,805 50,608
Selling, general and
administrative.................... 209,692 224,978 248,327 186,898 59,353 252,085
Amortization....................... 2,917 6,437 2,765 2,151 1,065 6,526
Purchased research and
development....................... -- -- -- -- 114,070(c) --
Interest expense................... 15,239 13,307 18,219 13,868 8,738 30,007
Other charges (income), net(g)..... 14,110 (7,716) (9,331) (1,332) 17,137 14,036
-------- -------- -------- ----------- --------------- --------------
Earnings (loss) before taxes,
minority interest and
extraordinary item................ (2,972) 22,507 27,804 25,153 (160,076) 12,522
Provision for taxes................ 3,041 8,676 8,782 10,055 (938) 6,956
Minority interest.................. 1,140 347 768 637 (92) 593
-------- -------- -------- ----------- --------------- --------------
Earnings (loss) before
extraordinary item................ (7,153) 13,484 18,254 14,461 (159,046) 4,973
Extraordinary item-debt
extinguishment.................... -- -- -- -- -- --
-------- -------- -------- ----------- --------------- --------------
Net earnings (loss)................ $ (7,153) $ 13,484 $ 18,254 $ 14,461 $ (159,046) $ 4,973
-------- -------- -------- ----------- --------------- --------------
-------- -------- -------- ----------- --------------- --------------
Earnings (loss) per common
share(i):
Weighted average number of common
shares.......................... 32,199,497 38,866,164
Earnings (loss) per common share
before extraordinary item....... $ (4.94) $ 0.13
Extraordinary item................ -- --
--------------- --------------
Earnings (loss) per common
share........................... $ (4.94) $ 0.13
--------------- --------------
--------------- --------------
OTHER DATA:
Local currency net sales
growth(j)......................... 7% 6% 3%
Gross profit before non-recurring
costs as a percentage of net
sales(k).......................... 39.2% 40.0% 40.3% 40.3% 44.0% 41.1%
Adjusted Operating Income(l)....... $ 29,294 $ 34,535 $ 39,457 $ 39,840 $ 17,912 $ 67,875
Adjusted Operating Income as a
percentage of net sales(l)........ 4.0% 4.5% 4.6% 6.0% 9.6% 7.6%
Depreciation and amortization
expense........................... $ 29,591 $ 34,118 $ 33,363 $ 21,663 $ 8,990 $ 34,393
Capital expenditures............... 25,122 24,916 25,858 16,649 11,928 29,417
<CAPTION>
PREDECESSOR METTLER-TOLEDO
BUSINESS INTERNATIONAL INC.
------------ -------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1997
1997 PRO FORMA
1996 (D)(E) (A)(D)(E)
------------ ----------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(F):
Net sales.......................... $ 624,733 $ 633,743 $ 652,776
Cost of sales...................... 374,121 359,080(d) 369,442
------------ ----------------- ---------------
Gross profit....................... 250,612 274,663 283,334
Research and development........... 37,930 34,494 34,769
Selling, general and
administrative.................... 175,645 189,594 190,776
Amortization....................... 2,038 4,449 5,404
Purchased research and
development....................... -- 29,959(e) --
Interest expense................... 12,579 28,199 21,943
Other charges (income), net(g)..... (226) 7,316 7,293
------------ ----------------- ---------------
Earnings (loss) before taxes,
minority interest and
extraordinary item................ 22,646 (19,348) 23,149
Provision for taxes................ 8,901 7,296 10,580
Minority interest.................. 609 375 380
------------ ----------------- ---------------
Earnings (loss) before
extraordinary item................ 13,136 (27,019) 12,189
Extraordinary item-debt
extinguishment.................... -- (9,552)(h) --
------------ ----------------- ---------------
Net earnings (loss)................ $ 13,136 $ (36,571) $ 12,189
------------ ----------------- ---------------
------------ ----------------- ---------------
Earnings (loss) per common
share(i):
Weighted average number of common
shares.......................... 32,199,497 38,866,164
Earnings (loss) per common share
before extraordinary item....... $ (0.84) $ 0.31
Extraordinary item................ (0.30) --
----------------- ---------------
Earnings (loss) per common
share........................... $ (1.14) $ 0.31
----------------- ---------------
----------------- ---------------
OTHER DATA:
Local currency net sales
growth(j)......................... 3% 6% 7%
Gross profit before non-recurring
costs as a percentage of net
sales(k).......................... 40.1% 43.7% 43.4%
Adjusted Operating Income(l)....... $ 37,037 $ 52,629 $ 57,789
Adjusted Operating Income as a
percentage of net sales(l)........ 5.9% 8.3% 8.9%
Depreciation and amortization
expense........................... $ 20,668 $ 22,233 $ 23,422
Capital expenditures............... 14,985 13,299 13,550
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
HISTORICAL PRO FORMA(M)
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 89,003 $ 89,003
Total assets....................... 768,177 762,470
Long-term third-party debt......... 429,033 367,920
Other long-term liabilities(n)..... 90,307 90,307
Shareholders' equity (deficit)..... (36,261) 15,726
</TABLE>
- - ------------------
(a) Represents the unaudited pro forma consolidated statement of operations
of the Company for fiscal year 1996 and the nine months ended September
30, 1997, assuming the Acquisition, the Safeline Acquisition, the
Offerings and the Refinancing (assuming all of the Notes are repurchased)
occurred on January 1, 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. These charges consist of certain non-recurring items for (i)
advisory fees associated with the reorganization of the Company's
structure of approximately $4,800 and (ii) restructuring charges of
approximately $12,600. The Company has
(Footnotes continued on next page)
9
<PAGE>
<TABLE>
<S> <C>
estimated that the restructurings will result in annual cost savings of approximately $8,300, of which
approximately $2,000 was realized in 1996. Such cost savings consist primarily of lower employee salary
and benefit costs and fixed manufacturing costs. In addition, at the time of the Acquisition, the Company
estimated it would incur additional selling, general and administrative expenses of $1,300 annually as a
result of the Acquisition. If adjustments had been made to the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1996 to remove these non-recurring charges and to reflect the net
unrealized cost savings, Adjusted Operating Income would have been approximately $72,800 and net earnings would
have been approximately $18,700. The 1997 period includes a non-recurring charge of $3,300 to close three
facilities in North America. This restructuring program will require an additional charge of approximately $3,000
in the fourth quarter of 1997. The Company estimates that these closures, when complete, will provide savings of
approximately $2,500 annually and will allow the Company to sell two facilities from which the Company estimates it
will realize, after 1998, proceeds in excess of $5,000. The Company believes the fair market value of these facilities
approximates their respective book values. If adjustments had been made to the unaudited pro forma consolidated
statement of operations for the nine months ended September 30, 1997 to remove this non-recurring charge, net
earnings would have been approximately $15,500. See 'Unaudited Pro Forma Financial Information.'
(b) In connection with the Acquisition, the Company 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. The
charges associated with this revaluation have been excluded from the pro forma financial information.
(c) In conjunction with the Acquisition, the Company 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. This expense has been excluded from the pro forma financial
information.
(d) In connection with the Safeline Acquisition, the Company 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. The charges associated with
this revaluation have been excluded from the pro forma financial information.
(e) In conjunction with the Safeline Acquisition, the Company 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. This expense has been excluded from the pro forma
financial information.
(f) Income statement information for the year ended December 31, 1992 is not available, except that net sales were
$769,000. Approximately 75% of the decrease in net sales in 1993 compared to 1992 resulted from appreciation
of the U.S. dollar against the Company's other principal trading currencies.
(g) Other charges (income), net generally includes interest income, foreign currency transactions (gains) losses,
(gains) losses from sales of assets and other charges (income). In 1993, the amount shown includes costs
associated with the closure of a manufacturing facility in Cologne, Germany, the restructuring of certain
manufacturing operations and an early retirement program in the United States. 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 the Company's Westerville, Ohio facility. For the period October 15, 1996 to December 31, 1996, the
amount shown includes employee severance benefits associated with the Company's general headcount reduction
programs in Europe and North America and the realignment of the analytical and precision balance business in
Switzerland. For the period ended September 30, 1997, the amount shown includes a restructuring charge of
$3,300 to close three facilities in North America. See Note 17 to the audited consolidated financial
statements (the 'Audited Consolidated Financial Statements') and Note 1 to the unaudited interim consolidated
financial statements (the 'Unaudited Interim Consolidated Financial Statements') included herein.
(h) Represents a one-time charge for the write-off of capitalized debt issuance fees and related expenses
associated with the Company's previous credit facility.
(i) Historical loss per common share has been computed assuming the number of common shares issued in connection
with the Reorganization, including common share equivalents, were outstanding during the periods presented.
Pro forma earnings per share for 1996 and the nine months ended September 30, 1997 have been computed using
the treasury stock method assuming the number of common shares issued in the Reorganization and the Offerings,
including common share equivalents, were outstanding during the periods presented. Common share equivalents
result from outstanding options to purchase Common Stock.
(j) Local currency net sales growth is adjusted for the exit from certain systems businesses. Pro forma local
currency net sales growth assumes that the Safeline Acquisition occurred on January 1, 1995. For the nine
months ended September 30, 1997, local currency net sales increased 6% absent the Safeline Acquisition (8%
including Safeline's results). Assuming the Safeline Acquisition had occurred on January 1, 1996, local
currency net sales growth would have been 7% for the three months ended September 30, 1997.
(k) Non-recurring costs represent costs associated with selling inventories revalued to fair value in connection
with the Acquisition and the Safeline Acquisition. See Notes (b) and (d) above.
(l) Adjusted Operating Income is defined as operating income (gross profit less research and development and
selling, general and administrative expenses) before amortization and non-recurring costs. Non-recurring costs
which have been excluded are the costs set forth in Note (k) above and for the period from October 15, 1996 to
December 31, 1996, and in pro forma 1996, advisory fees associated with the reorganization of the Company's
structure of approximately $4,800.
(m) The pro forma Balance Sheet Data at September 30, 1997 gives effect to the Offerings and the Refinancing
(assuming all of the Notes are repurchased) as if they had occurred on such date.
(n) Consists primarily of obligations under various pension plans and plans that provide post-retirement medical
benefits. See Note 15 to the Audited Consolidated Financial Statements included herein.
</TABLE>
10
<PAGE>
RISK FACTORS
Before making any decision with respect to the Merger, the Company's
shareholders should consider carefully the following risk factors. This
Prospectus contains forward-looking statements. These statements are subject to
a number of risks and uncertainties, certain of which are beyond the Company's
control. See '--Forward-Looking Statements and Associated Risks' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
EFFECT OF SUBSTANTIAL INDEBTEDNESS ON OPERATIONS AND LIQUIDITY
In connection with the Acquisition and the Safeline Acquisition, the
Company incurred a significant amount of indebtedness. At September 30, 1997,
the Company's consolidated indebtedness (excluding unused commitments) on a pro
forma basis giving effect to the Offerings and the Refinancing would have been
approximately $427.9 million. The Company will have additional borrowing
capacity on a revolving credit basis under the New Credit Agreement and under
local working capital facilities for acquisitions and other purposes. The
Company is required to make scheduled principal payments on the term loans under
the New Credit Agreement. See 'Capitalization' and 'Description of Certain
Indebtedness.' The Company's ability to comply with the terms of the New Credit
Agreement and its other debt obligations to make cash payments with respect to
such obligations and to satisfy its other debt or to refinance any of such
obligations will depend on the future performance of the Company, which, in
turn, is subject to prevailing economic and competitive conditions and certain
financial, business and other factors beyond its control. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources' and 'Description of Certain
Indebtedness.'
The Company's high degree of leverage could have important consequences
including but not limited to the following: (i) the Company's ability to obtain
additional financing for acquisitions, capital expenditures, working capital or
general corporate purposes may be impaired in the future; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on borrowings under the New Credit Agreement
and the Company's other indebtedness, thereby reducing the funds available to
the Company for its operations and other purposes, including investments in
research and development and capital spending; (iii) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
exposes the Company to the risk of increased interest rates; and (iv) the
Company may be substantially more leveraged than certain of its competitors,
which may place the Company at a relative competitive disadvantage and may make
the Company more vulnerable to a downturn in general economic conditions or its
business or changing market conditions and regulations. See 'Description of
Certain Indebtedness.'
The New Credit Agreement will contain and the Company's other debt
obligations contain a number of covenants that, among other things, will
restrict the ability of the Company to incur additional indebtedness, dispose of
certain assets, make capital expenditures and otherwise restrict corporate
activities. See 'Description of Certain Indebtedness.' The Company's ability to
comply with such covenants may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. A failure to
comply with the covenants and restrictions contained in the New Credit
Agreement, the Company's other debt obligations or any agreements with respect
to any additional financing could result in an event of default under its debt
agreements.
RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS
Swiss franc-denominated expenses represent a much greater percentage of the
Company's operating expenses than Swiss franc-denominated sales represent of
total net sales. Some of the Company's manufacturing costs in Switzerland relate
to products that are sold outside of Switzerland, including many technologically
sophisticated products requiring highly skilled personnel. Moreover, a
substantial percentage of the Company's research and development expenses and
general and administrative expenses are incurred in Switzerland. Appreciation of
the Swiss franc against the Company's major trading currencies (i.e., the U.S.
dollar, certain major European currencies and the Japanese yen) has a negative
impact on the Company's income from operations, whereas depreciation of the
Swiss franc has a positive impact.
The Company's operations are conducted by subsidiaries in many countries,
and the results of operations and the financial position of each of those
subsidiaries is reported in the relevant foreign currency and then translated
into U.S. dollars at the applicable foreign currency exchange rate for inclusion
in the Company's
11
<PAGE>
consolidated financial statements. As exchange rates between these foreign
currencies and the U.S. dollar fluctuate, the translation effect of such
fluctuations may have a material adverse effect on the Company's results of
operations or financial position as reported in U.S. dollars. However, the
effect of these changes on income from operations generally offsets in part the
effect on income from operations of changes in the exchange rate between the
Swiss franc and other currencies described in the preceding paragraph.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including emerging markets
in Asia, Latin America and Eastern Europe. In addition to currency risks
discussed above, the Company's international operations are subject to the risk
of new and different legal and regulatory requirements in local jurisdictions,
tariffs and trade barriers, potential difficulties in staffing and managing
local operations, credit risk of local customers and distributors, potential
difficulties in protecting intellectual property, risk of nationalization of
private enterprises, potential imposition of restrictions on investments,
potentially adverse tax consequences, including imposition or increase of
withholding and other taxes on remittances and other payments by subsidiaries,
and local economic, political and social conditions, including the possibility
of hyper-inflationary conditions, in certain countries. The Company is
increasing its presence in China, Latin America and Eastern Europe. As a result,
inflationary conditions in these countries could have an increasingly
significant effect on the Company's operating results.
The conversion into foreign currency of funds earned in local currency
through the Company's operations in the People's Republic of China and the
repatriation of such funds require certain governmental approvals. Failure to
obtain such approvals could result in the Company being unable to convert or
repatriate earnings from its Chinese operations, which may become an
increasingly important part of the Company's international operations.
COMPETITION; IMPROVEMENTS IN TECHNOLOGY
The markets in which the Company operates are highly competitive. Weighing
instruments markets are fragmented both geographically and by application,
particularly the industrial and food retailing market. As a result, the Company
competes with numerous regional or specialized competitors, many of which are
well-established in their respective markets. Some competitors are divisions of
larger companies with potentially greater financial and other resources than the
Company. The Company has, from time to time, experienced price pressures from
competitors in certain product lines and geographic markets.
The Company's competitors can be expected to continue to improve the design
and performance of their products and to introduce new products with competitive
price and performance characteristics. Although the Company believes that it has
certain technological and other advantages over its competitors, realizing and
maintaining these advantages will require the continued productive investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages.
SIGNIFICANT SALES TO PHARMACEUTICAL AND CHEMICALS INDUSTRIES
The Company's products are used extensively in the pharmaceutical and
chemicals industries. Consolidation in these industries has had an adverse
impact on the Company's sales in prior years. A prolonged downturn or any
additional consolidation in these industries could adversely affect the
Company's operating results.
RISKS RELATING TO FUTURE ACQUISITIONS
The Company may in the future pursue acquisitions of complementary product
lines, technologies or businesses. Future acquisitions by the Company may result
in potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect the Company's
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the acquired companies, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. There are currently no understandings or agreements with respect to any
material acquisition, nor can there be any assurances that the Company will be
able to identify and successfully complete and integrate potential acquisitions
in the future. In the event that any such acquisition
12
<PAGE>
does occur, however, there can be no assurance as to the effect thereof on the
Company's business or operating results.
RELIANCE ON KEY MANAGEMENT
Robert F. Spoerry, the Company's Chief Executive Officer, has an employment
contract with the Company and the Company is negotiating employment agreements
with all other key management employees of the Company. In addition, various
members of management own a portion of the shares of Common Stock of the Company
and have options to purchase additional shares of such Common Stock. See
'Security Ownership of Certain Beneficial Owners and Management.' Nonetheless,
there is no assurance that such individuals will remain with the Company. If,
for any reason, such key personnel do not continue to be active in the Company's
management, operations could be adversely affected. The Company has no key man
life insurance policies with respect to any of its senior executives.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates, including those 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. The Company, like many of its competitors, has 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. The Company is currently involved in, or has potential liability with
respect to, the remediation of past contamination in certain of its presently
and formerly owned and leased facilities in both the United States and abroad.
In addition, certain of the Company's 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 the Company has sent wastes, may in the future
be identified and become the subject of remediation. Accordingly, although the
Company believes that it is in substantial compliance with applicable
environmental requirements, it is possible that the Company could become subject
to additional environmental liabilities in the future that could result in a
material adverse effect on the Company's results of operations or financial
condition. See 'Business--Environmental Matters.'
POTENTIAL ADVERSE EFFECT ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market or the perception that such sales could occur could adversely affect
prevailing market prices for the Common Stock. Upon completion of the
Reorganization and the Offerings, the Company will have outstanding 37,336,801
shares of Common Stock. All shares of Common Stock will be freely tradeable
without restriction under the Securities Act of 1933, as amended (the
'Securities Act'), except to the extent such shares are subject to the agreement
with the Underwriters described below and for any such shares which are held by
an 'affiliate' of the Company. In connection with the Offerings the Company, the
Company's executive officers and directors and substantially all of the existing
shareholders of the Company will agree not to dispose of any shares of Common
Stock for a period of 180 days from the date of this Prospectus without the
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ('Merrill Lynch')
on behalf of the Underwriters subject to certain exceptions. Upon expiration of
the lockup period, all shares will be eligible for sale in the public market,
with shares held by 'affiliates' (as such term is defined under the Securities
Act) of the Company subject to compliance with the volume limitations and other
restrictions of Rules 144 and 145 under the Securities Act. In addition,
promptly after the closing of the Offerings, the Company intends to file a
registration statement under the Securities Act covering the sale of shares of
Common Stock reserved for issuance or sale under the Company's Stock Plan. Upon
completion of the Reorganization, there will be outstanding options to purchase
a total of 4,258,122 shares of Common Stock. The sale of such shares could have
an adverse effect on the Company's ability to raise equity capital in the public
markets. See 'Shares Eligible for Future Sale.'
13
<PAGE>
RESTRICTIONS ON PAYMENT OF DIVIDENDS; ABSENCE OF DIVIDENDS
The New Credit Agreement will restrict, among other things, the ability of
the Company to pay dividends. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. See 'Dividend Policy'
and 'Description of Certain Indebtedness.'
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's amended and restated certificate of incorporation (the
'Amended and Restated Certificate of Incorporation') and amended by-laws (the
'Amended By-laws') will contain certain provisions that could make more
difficult the acquisition of the Company by means of a tender offer, proxy
contest or otherwise. The Amended and Restated Certificate of Incorporation will
authorize the issuance of preferred stock without shareholder approval and upon
such terms as the Board of Directors may determine. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of preferred stock that may be issued in the future. In addition, the
Amended By-laws will contain advance notice procedures for shareholders to
nominate candidates for election as directors and for shareholders to submit
proposals for consideration at shareholder meetings. The Company has no present
plans to issue shares of preferred stock. Under certain circumstances, Section
203 of the Delaware General Corporation Law (the 'DGCL') makes it more difficult
for an 'interested stockholder' (generally a 15% stockholder) to effect various
business combinations with a corporation for a three-year period. See
'Description of Capital Stock.'
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been accepted for listing on the NYSE
subject to official notice of issuance, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained following the
Offerings or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price will be
determined by negotiation among the Company and the Underwriters based upon
several factors and may not be indicative of future market prices. The price at
which the Common Stock will trade will depend upon a number of factors,
including, but not limited to, the Company's historical and anticipated
operating results and general market and economic conditions, some of which
factors are beyond the Company's control. Factors such as quarterly fluctuations
in the Company's financial and operating results, announcements by the Company
or others and developments affecting the Company, its products, its customers,
the markets in which it competes or the industry generally, also could cause the
market price of the Common Stock to fluctuate substantially. In addition, the
stock market has from time to time experienced extreme price and volume
fluctuations. These broad market fluctuations may adversely affect the market
price of the Common Stock.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus includes forward-looking statements that reflect the
Company's current views with respect to future events and financial performance,
including capital expenditures, planned product introductions, research and
development expenditures, potential future growth, including potential
penetration of developed markets and potential growth opportunities in emerging
markets, potential future acquisitions, potential cost savings from planned
employee reductions and restructuring programs, estimated proceeds from and
timing of asset sales, planned operational changes and research and development
efforts, strategic plans and future cash sources and requirements. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified in 'Risk Factors,' which could cause actual results
to differ materially from historical results or those anticipated. The words
'believe,' 'expect,' 'anticipate' and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
14
<PAGE>
THE COMPANY
GENERAL
Mettler-Toledo is a leading global supplier of precision instruments. The
Company is the world's largest manufacturer and marketer of weighing instruments
for use in laboratory, industrial and food retailing applications. In addition,
the Company holds one of the top three market positions in several related
analytical instruments such as titrators, thermal analysis systems, pH meters,
automatic lab reactors and electrodes. Through the recent acquisition of
Safeline, the Company is also 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. The
Company focuses on high value-added segments of its markets by providing
innovative instruments, by integrating these instruments into
application-specific solutions for customers, and by facilitating the processing
of data gathered by its instruments and the transfer of this data to customers'
management information systems. Mettler-Toledo services a worldwide customer
base through its own sales and service organization and has a global
manufacturing presence in Europe, the United States and Asia. The Company
generated pro forma 1996 net sales of $889.6 million (giving effect to the
Safeline Acquisition) which were derived 49% in Europe, 40% in North and South
America and 11% in Asia and other markets.
The mailing address of the Company's principal executive offices is Im
Langacher, P.O. Box MT-100, CH-8606, Greifensee, Switzerland. Its telephone
number is 41-1-944-22-11.
ACQUISITION AND SAFELINE ACQUISITION
Acquisition. The Company was incorporated in December 1991. It was
recapitalized in connection with the October 15, 1996 acquisition of the
Mettler-Toledo Group from Ciba in a transaction sponsored by management and AEA
Investors. The Company 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 and its
affiliates and incurred expenses in connection with the Acquisition and related
financing of approximately $29.0 million. The Company primarily financed the
Acquisition with (i) borrowings under a credit agreement in the amount of $307.0
million, (ii) the issuance of $135.0 million of the Notes and (iii) an equity
contribution of $190.0 million primarily from AEA Investors, its
shareholder-investors and executive officers and other employees of the Company.
In connection with the Acquisition, the Company agreed that it would not, in the
18-month period following the closing of the Acquisition, without the prior
written consent of Ciba, engage in certain extraordinary dispositions, including
certain sales of assets or equity of any company in the Mettler-Toledo Group,
mergers or similar business combinations (except certain transactions the
aggregate net proceeds of which do not exceed SFr 80.0 million (approximately
$64.0 million at October 15, 1996) in a 12-month period). Consummation of the
Offerings does not require the consent of Ciba.
Safeline Acquisition. On May 30, 1997, the Company acquired Safeline for
pounds 61.0 million (approximately $100.0 million at May 30, 1997), plus up to
an additional pounds 6.0 million (approximately $10.0 million at May 30, 1997)
for a contingent earn-out payment. In October 1997, the Company made an
additional payment, representing a post-closing adjustment, of pounds 1.9
million (approximately $3.1 million at October 3, 1997). Such amount will be
accounted for as additional purchase price. Safeline, based in Manchester, U.K.,
is the world's largest manufacturer and marketer of metal detection systems for
companies that produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Safeline's metal detectors can also
be used in conjunction with the Company's checkweighing products for important
quality and safety checks in these industries. From 1992 to 1996, Safeline's
sales net increased at a compounded annual growth rate of approximately 30%, in
part due to the introduction of new products such as the first digital
electronic and Zero Metal-Free Zone metal detectors. Safeline had net sales and
Adjusted Operating Income of $40.4 million and $9.9 million, respectively, for
the year ended December 31, 1996.
15
<PAGE>
CONCURRENT TRANSACTIONS
Credit Agreement Refinancing. In connection with the Offerings, the
Company intends to refinance its Credit Agreement by entering into the New
Credit Agreement. The Company expects that it will have pro forma borrowings
under the New Credit Agreement of $389.9 million (representing an increase of
$77.3 million) as of September 30, 1997 and borrowings of $38.0 million under
various other credit arrangements. Of the borrowings under the New Credit
Agreement, $200.0 million will be in the form of a term loan and the remainder
will be outstanding under a revolving credit facility. The Company's revolving
credit facility commitment will increase from $170.0 million to $420.0 million
under the New Credit Agreement, and this commitment will include a $100.0
million acquisition facility. Additional borrowings under the New Credit
Agreement will be used, together with the net proceeds from the Offerings, to
repurchase the Notes and to pay related premiums and fees and expenses. As a
result of the Refinancing, the Company expects to realize significantly lower
interest expense. See 'Capitalization.'
Note Repurchase. As part of the Refinancing, the Company has commenced a
tender offer for all of the Notes, and all of the Notes have been irrevocably
tendered. The Company will use net proceeds from the Offerings and additional
borrowings under the New Credit Agreement to finance the Note Repurchase. See
'Capitalization.' In connection with the Note Repurchase, the Company has
obtained the requisite consents to remove substantially all of the restrictive
covenants and certain other provisions from the Indenture governing the Notes.
In connection with the refinancing of the Credit Agreement and the Note
Repurchase, the Company anticipates that it will record an extraordinary loss of
approximately $30.0 million representing the premium expected to be paid in
connection with the purchase of the Notes and the write-off of related
capitalized debt issuance fees resulting from the Refinancing.
HOLDING
Holding does not carry on any business activities other than to act as a
holding company for, and ultimate corporate parent of MTI. The Company owns all
of the common stock of Holding and such common stock represents substantially
all of the assets of the Company. Accordingly, the information contained in this
Prospectus as it relates to the Company is substantially the same as such
information as it relates to Holding. For information regarding the business,
property and legal matters of Holding, see 'Business.' For information regarding
certain relationships and related transactions of Holding, see 'Certain
Transactions.'
Holding has not declared or paid any cash dividends on its equity
securities and does not intend to do so in the foreseeable future. Since Holding
is a holding company, it relies on the dividends and other distributions of MTI
to obtain funds for distribution to the shareholders of Holding. MTI, however,
has certain restrictions on its ability to declare and pay dividends to Holding
or the Company. See 'Dividend Policy.'
The members of the Board of Directors of Holding are Robert F. Spoerry,
Thomas P. Salice and Alan W. Wilkinson, all of whom are executive officers of
the Company and all executive officers of Holding are also executive officers of
the Company. Accordingly, for information regarding directors, executive
officers and executive compensation of or relating to Holding, see 'Management.'
Since the Company acts as a holding company and has no assets other than
cash and the capital stock of Holding, the information that would be provided by
selected financial data, pro forma financial statements, management's discussion
and analysis of financial condition and results of operations and financial
statements with respect to Holding is substantially the same as the information
provided herein with respect to the Company and has not been separately provided
in this Prospectus. See 'Summary--Summary Historical and Pro Forma Financial
Information,' 'Unaudited Pro Forma Financial Information,' 'Selected Historical
Financial Information,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Company's financial statements
included herein.
The mailing address of Holding's principal executive offices is Im
Langacher, P.O. Box MT-100, CH 8606, Greifensee, Switzerland. Its telephone
number is 41-1-944-22-11.
16
<PAGE>
DIVIDEND POLICY
The Company has never paid any dividends on its common stock and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. The current policy of the Company's Board of Directors is to retain
earnings to finance the operations and expansion of the Company's business. In
addition, the Company's New Credit Agreement will restrict the Company's ability
to pay dividends to its shareholders. Any future determination to pay dividends
will depend on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant by the
Board of Directors. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources' and
'Description of Certain Indebtedness.'
17
<PAGE>
THE MERGER
It is anticipated that Holding will be merged with and into the Company
pursuant to a merger under Section 251 of the DGCL. The Company would be the
surviving corporation of such Merger. Upon receipt of the written consent of
their respective shareholders, Holding will be merged with and into the Company.
The Merger would be effected pursuant to the Merger Agreement.
The Merger Agreement. The Merger Agreement provides that, upon approval of
the shareholders of Holding and the Company entitled to vote thereon, Holding
will be merged with and into the Company, which will be the corporation
surviving the Merger. Pursuant to the Merger Agreement, all the capital stock of
Holding will be canceled and each share of the three classes of common stock of
the Company will be converted into and represent the right to receive shares of
Common Stock of the Company. Existing shareholders of the Company will receive a
cash payment at a market price in lieu of any fractional shares that would be
required to be issued as a result of the Merger. The Merger Agreement is
attached hereto as Appendix A and is hereby incorporated by reference in this
Prospectus.
Reasons for the Merger. The Boards of Directors of Holding and the Company
have deemed it advisable and in the best interest of Holding and the Company to
collapse Holding and the Company into one company in order to simplify the
Mettler-Toledo organizational structure in connection with the initial public
offering of the Company's Common Stock and to simplify the capital structure by
converting the three outstanding classes of the Company's capital stock into one
class. The Boards believe that the simplified structure will cause the Company's
Common Stock to be more amenable to sale and trading in the public equity
markets. See 'Comparison of Shareholder Rights.'
Amendment of Certificate of Incorporation and By-laws. The Merger
Agreement sets forth several proposed amendments to the Company's certificate of
incorporation. Specifically, the amendments will (i) permit the Board of
Directors, without further shareholder authorization, to issue shares of
Preferred Stock in one or more series and to determine and fix the rights,
preferences and privileges of each series, (ii) reclassify the Company's
existing Class A, Class B and Class C common stock into one class of Common
Stock, (iii) impose advance notice requirements for shareholder action and a
prohibition on the taking of shareholder action by written consent and (iv) add
director and officer indemnification provisions. See 'Description of Capital
Stock.' The name of the Company will be changed to Mettler-Toledo International
Inc.
Common Stock. For information regarding the Common Stock of the Company to
be received by the shareholders of the Company, see 'Description of Capital
Stock.'
Rights of Shareholders. For an explanation of the difference between the
rights of the holders of Class A, Class B and Class C common stock of the
Company and the rights of holders of the Company's Common Stock, see 'Comparison
of Shareholder Rights,' 'Description of Existing Capital Stock' and 'Description
of Capital Stock.'
Restrictions on Resale. All shares of the Company's Common Stock received
by the Company's shareholders in the Merger will be freely transferable, except
as set forth below and except that shares of Common Stock received by persons
who are deemed to be 'affiliates' (as such term is defined under Securities Act)
of the Company prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act (or Rule 144 in the case of such persons who become affiliates of the
Company) or as otherwise permitted under the Securities Act. In connection with
the Offerings, shareholders holding substantially all of the Company's Common
Stock, subject to certain limited exceptions, have agreed not to, among other
things, sell or otherwise dispose of any shares of the Company's Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Accounting Treatment. The Merger will be treated as a reorganization of
companies under common control and will be accounted for similar to a pooling of
interests for accounting and financial reporting purposes.
Tax Consequences. For a description of the federal income tax consequences
of the Merger, see 'Certain Federal Income Tax Consequences of the Merger.'
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements of the
Company have been prepared to give effect to (i) the Acquisition, (ii) the
Safeline Acquisition, (iii) the Reorganization and (iv) the Offerings and
Refinancing (assuming all of the Notes are repurchased). The accompanying
unaudited pro forma consolidated balance sheet at September 30, 1997 has been
prepared as if (iii) and (iv) were consummated as of that date. The accompanying
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 give effect to
items (i), (ii), (iii) and (iv) as if they had occurred at January 1, 1996.
Pro forma adjustments are applied to the historical financial statements of
the Predecessor Business and the Company to account for the Acquisition and
Safeline Acquisition under the purchase method of accounting. Under purchase
accounting, the Acquisition and Safeline Acquisition costs were allocated to the
Company's assets and liabilities based on their relative fair values. The
Company allocated a portion of the purchase prices for the Acquisition and
Safeline Acquisition to (i) in-process research and development projects and
(ii) the revaluation of inventories. In the case of in-process research and
development, the amounts allocated were expensed immediately following the
acquisitions. In the case of inventories, the revalued amounts were expensed in
periods following the acquisitions as the inventories were sold. These one-time
non-cash charges have been excluded from the accompanying unaudited pro forma
consolidated statements of operations due to their non-recurring nature and
their direct relationship to the Acquisition and Safeline Acquisition.
Certain other one-time charges incurred during 1996 have not been excluded
from the accompanying unaudited pro forma statement of operations for the year
ended December 31, 1996. These charges consist of certain non-recurring items
for (i) advisory fees associated with the reorganization of the Company's
structure of approximately $4.8 million and (ii) restructuring charges of
approximately $12.6 million. The Company has estimated that the restructurings
will result in annual cost savings of approximately $8.3 million, of which
approximately $2.0 million was realized in 1996. Such cost savings consist
primarily of lower employee salary and benefit costs and fixed manufacturing
costs. In addition, at the time of the Acquisition, the Company estimated it
would incur additional selling, general and administrative expenses of $1.3
million annually as a result of the Acquisition. If adjustments had been made to
the unaudited pro forma consolidated statement of operations for the year ended
December 31, 1996 to remove these non-recurring charges and to reflect the net
unrealized cost savings, Adjusted Operating Income would have been approximately
$72.8 million and net earnings would have been approximately $18.7 million. The
1997 period includes a non-recurring charge of $3.3 million to close three
facilities in North America. This restructuring program will require an
additional charge of approximately $3.0 million in the fourth quarter of 1997.
The Company estimates these closures, when complete, will provide savings of
approximately $2.5 million annually and will allow the Company to sell two
facilities from which the Company estimates it will realize, after 1998,
proceeds in excess of $5.0 million. The Company believes the fair market value
of these facilities approximates their respective book values. If adjustments
had been made to the unaudited pro forma consolidated statement of operations
for the nine months ended September 30, 1997 to remove this non-recurring
charge, net earnings would have been approximately $15.5 million.
The unaudited pro forma consolidated financial statements have been
prepared based upon the historical consolidated financial statements of the
Predecessor Business and the Company, which have been prepared in accordance
with U.S. GAAP. The unaudited pro forma consolidated financial statements should
be read in conjunction with the Audited Consolidated Financial Statements, the
Unaudited Interim Consolidated Financial Statements, 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' and other
financial information included elsewhere in this Prospectus. The historical
financial information regarding Safeline is unaudited. These unaudited pro forma
consolidated financial statements and related notes are provided for
informational purposes only and do not purport to be indicative of the results
which would have actually been obtained had the acquisitions and other events
been completed on the dates indicated or which may be expected to occur in the
future.
19
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------------------------
METTLER-TOLEDO
PREDECESSOR INTERNATIONAL INC.
BUSINESS OCTOBER 15,
JANUARY 1, 1996 1996 TO SAFELINE PRO FORMA
TO DECEMBER 31, ACQUISITION SAFELINE ACQUISITION BEFORE OFFERINGS
OCTOBER 14, 1996 1996 ADJUSTMENTS HISTORICAL(A) ADJUSTMENTS AND REFINANCING
---------------- ------------------ ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $662,221 $ 186,912 $40,434 $ 889,567
Cost of sales................ 395,239 136,820 $ (32,194)(b) 23,918 523,783
-------- ------------------ ----------- ------------- ----------- ----------------
Gross profit............... 266,982 50,092 32,194 16,516 365,784
Research and development..... 40,244 9,805 559 50,608
Selling, general and
administrative............. 186,898 59,353 786(c) 6,048 253,085
Amortization................. 2,151 1,065 1,471(d) $ 1,839(d) 6,526
Purchased research and
development................ 114,070 (114,070)(e) --
Interest expense............. 13,868 8,738 16,109(f) (865)(i) 37,850
Other charges (income),
net........................ (1,332) 17,137 (1,769)(g) 14,036
-------- ------------------ ----------- ------------- ----------- ----------------
Earnings (loss) before
taxes and minority
interest................. 25,153 (160,076) 129,667 9,909 (974) 3,679
Provision for taxes.......... 10,055 (938) (9,335)(h) 3,480 346(h) 3,608
Minority interest............ 637 (92) 48 593
-------- ------------------ ----------- ------------- ----------- ----------------
Earnings (loss)............ $ 14,461 $ (159,046) $ 139,002 $ 6,381 $(1,320) $ (522)
-------- ------------------ ----------- ------------- ----------- ----------------
-------- ------------------ ----------- ------------- ----------- ----------------
Pro forma earnings per
common share (n):
Weighted average number
of common shares....... 32,199,497 32,199,497
Earnings per common
share.................. $ (4.94) $ (0.02)
------------------ ----------------
------------------ ----------------
<CAPTION>
OFFERINGS AND
REFINANCING
ADJUSTMENTS PRO FORMA(M)
------------- ------------
<S> <C> <C>
Net sales.................... $ 889,567
Cost of sales................ 523,783
------------- ------------
Gross profit............... 365,784
Research and development..... 50,608
Selling, general and
administrative............. $(1,000)(j) 252,085
Amortization................. 6,526
Purchased research and
development................
Interest expense............. (7,843)(k) 30,007
Other charges (income),
net........................ 14,036
------------- ------------
Earnings (loss) before
taxes and minority
interest................. 8,843 12,522
Provision for taxes.......... 3,348(l) 6,956
Minority interest............ 593
------------- ------------
Earnings (loss)............ $ 5,495 $ 4,973
------------- ------------
------------- ------------
Pro forma earnings per
common share (n):
Weighted average number
of common shares....... 38,866,164
Earnings per common
share.................. $ 0.13
------------
------------
</TABLE>
20
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------------------------------------
METTLER-TOLEDO SAFELINE PRO FORMA OFFERINGS AND
INTERNATIONAL INC. SAFELINE ACQUISITION BEFORE OFFERINGS REFINANCING
HISTORICAL HISTORICAL (A) ADJUSTMENTS AND REFINANCING ADJUSTMENTS PRO FORMA(M)
------------------ --------------- ----------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 633,743 $19,033 $ 652,776 $ 652,776
Cost of sales.............. 359,080 12,416 $(2,054)(b) 369,442 369,442
------------------ ------- ----------- ---------------- ------ ------------
Gross profit............. 274,663 6,617 2,054 283,334 283,334
Research and development... 34,494 275 34,769 34,769
Selling, general and
administrative........... 189,594 1,932 191,526 $ (750)(j) 190,776
Amortization............... 4,449 955(d) 5,404 5,404
Purchased research and
development.............. 29,959 (29,959)(e) --
Interest expense........... 28,199 4 (537)(i) 27,666 (5,723)(k) 21,943
Other charges (income),
net...................... 7,316 (23) 7,293 7,293
------------------ ------- ----------- ---------------- ------ ------------
Earnings (loss) before
taxes and minority
interest............... (19,348) 4,429 31,595 16,676 6,473 23,149
Provision for taxes........ 7,296 1,638 907(h) 9,841 739(l) 10,580
Minority interest.......... 375 5 380 380
------------------ ------- ----------- ---------------- ------ ------------
Earnings (loss) before
extraordinary item..... $ (27,019) $ 2,786 $30,688 $ 6,455 $ 5,734 $ 12,189
------------------ ------- ----------- ---------------- ------ ------------
------------------ ------- ----------- ---------------- ------ ------------
Pro forma earnings per
common share (n):
Weighted average number
of common shares..... 32,199,497 32,199,497 38,866,164
Earnings per common
share................ $ (0.84) $ 0.20 $ 0.31
------------------ ---------------- ------------
------------------ ---------------- ------------
</TABLE>
21
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997
(DOLLARS IN THOUSANDS)
(a) Represents the unaudited historical results for Safeline for the year ended
December 31, 1996 and for the period January 1, 1997 to May 30, 1997 as if
the Safeline Acquisition occurred on January 1, 1996.
(b) For the year ended December 31, 1996, the Company allocated $32,194 of the
purchase price in connection with the Acquisition to revalue certain
inventories (principally work-in-progress and finished goods) to fair value
(net realizable value). For the nine months ended September 30, 1997, the
Company allocated $2,054 of the Safeline Acquisition purchase price 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 from October 15, 1996 to December 31, 1996 and substantially all such
inventories revalued in connection with the Safeline Acquisition were sold
during the second quarter of 1997. Adjustments have been made to exclude
such amounts from the unaudited pro forma consolidated statements of
operations due to their non-recurring nature and their direct relationship
to the Acquisition and Safeline Acquisition.
(c) Represents an annual management fee of $1,000 (of which $214 was incurred in
the period from October 15, 1996 to December 31, 1996) to be paid to AEA
Investors for various services provided to the Company.
(d) For the year ended December 31, 1996, principally represents adjustments to
reflect additional amortization of goodwill and other intangible assets
arising from the Acquisition and the Safeline Acquisition. For the nine
months ended September 30, 1997, principally represents adjustments to
reflect additional amortization of goodwill and other intangible assets
arising from the Safeline Acquisition. See Note 1 to the Audited
Consolidated Financial Statements and the unaudited Interim Consolidated
Financial Statements included herein.
(e) In connection with the Acquisition and the Safeline Acquisition, the Company
allocated $114,070 and $29,959, respectively, of the respective purchase
prices to in-process research and development. Such amounts were expensed
immediately following the acquisitions. Adjustments have been made to
exclude such amounts from the unaudited pro forma consolidated statements of
operations due to their non-recurring nature and their direct relationship
to the Acquisition and Safeline Acquisition.
(f) Represents the net increase in interest expense, including amortization of
debt issuance fees and other fees, of $16,109 in connection with the
Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Elimination of historical interest expense on refinanced debt.............. $ (22,606)
Interest on revolving credit facility...................................... 1,796
Interest on term loans..................................................... 18,759
Interest on Notes.......................................................... 13,163
Amortization of debt issuance fees and other............................... 4,997
-----------------
Net increase............................................................. $ 16,109
-----------------
-----------------
</TABLE>
(g) Represents elimination of historical interest income of $4,003 less foreign
currency exchange losses incurred in connection with the Acquisition of
$5,772. The foreign currency exchange losses have been excluded from the
unaudited pro forma consolidated statements of operations due to their
non-recurring nature and their direct relationship to the Acquisition.
(h) Represents adjustments to the provision for taxes to reflect the Company's
estimated effective income tax rate considering the income tax effects of
the pre-tax pro forma adjustments, related financing structure changes and
other adjustments.
(i) Reflects the net changes in interest expense and related capitalized debt
issuance fees associated with the Safeline Acquisition and the related
refinancing.
22
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -----------------
<S> <C> <C>
Elimination of interest expense on refinanced
Acquisition debt.............................................. $ (38,715) $ (28,199)
Interest on revolving credit facility........................... 1,861 1,284
Interest on term loan........................................... 19,452 13,976
Interest on Notes............................................... 13,163 9,872
Amortization of debt issuance fees and other.................... 3,374 2,530
----------------- -----------------
Net change.................................................... $ (865) $ (537)
----------------- -----------------
----------------- -----------------
</TABLE>
The differences in the net change of interest expense for the year ended
December 31, 1996 and the nine months ended September 30, 1997 can be
attributed to the impact of changes in foreign currency exchange rates on
interest expense related to debt that is denominated in various currencies
other than the U.S. dollar.
(j) Reflects the elimination of the AEA Investors management fee of $1,000 ($750
for the nine months ended September 30, 1997) which will be discontinued
upon consummation of the Offerings. Additionally, the Company will incur a
non-recurring charge of $2,500 in the fourth quarter of 1997 in connection
with the termination of the management services agreement with AEA
Investors. This one-time charge has been excluded from the unaudited pro
forma consolidated statements of operations.
(k) Reflects the net changes in interest expense arising from the Offerings and
the Refinancing. In connection with Offerings and Refinancing, the Company
will refinance amounts outstanding under the Credit Agreement and repurchase
the Notes. The pro forma interest expense assumes that all of the Notes are
repurchased pursuant to the Company's tender offer for the Notes. As of
October 17, 1997 all of the Notes had been irrevocably tendered.
The Company anticipates that it will record an extraordinary expense for the
early extinguishment of debt and the write-off of capitalized debt issuance
fees of approximately $30,000 during the fourth quarter of 1997. This
extraordinary expense is excluded from the unaudited pro forma consolidated
statements of operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -----------------
<S> <C> <C>
Elimination of pro forma interest expense before Offerings
and Refinancing............................................... $ (37,850) $ (27,666)
Interest on revolving credit facility........................... 13,296 9,662
Interest on term loan........................................... 13,604 9,950
Amortization of debt issuance fees and other.................... 3,107 2,331
----------------- -----------------
Net change.................................................... $ (7,843) $ (5,723)
----------------- -----------------
----------------- -----------------
</TABLE>
For each 1/8% per annum variance in interest rates for the revolving credit
facility and term loan borrowings under the New Credit Agreement, interest
expense would change by approximately $348 and $236 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
The differences in the net change of interest expense for the year ended
December 31, 1996 and the nine months ended September 30, 1997 can be
attributed to the impact of changes in foreign currency exchange rates on
interest expense related to debt that is denominated in various currencies
other than the U.S. dollar.
(l) Adjustment to provision for taxes reflects the Company's estimated
effective income tax rate at a stated level of pro forma earnings before
tax for the year ended December 31, 1996 and the nine months ended
September 30, 1997.
(m) Certain one-time charges incurred during 1996 have not been excluded from
the accompanying unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996. These charges consist of certain
non-recurring items for (i) advisory fees associated with the reorganization
of the Company's structure of approximately $4,800 and (ii) restructuring
charges of approximately $12,600. The Company has estimated that the
restructurings will result in annual cost savings of approximately $8,300,
of
23
<PAGE>
which approximately $2,000 was realized in 1996. Such cost savings consist
primarily of lower employee salary and benefit costs and fixed manufacturing
costs. In addition, at the time of the Acquisition, the Company estimated it
would incur additional selling, general and administrative expenses of
$1,300 annually as a result of the Acquisition. If adjustments had been made
to the unaudited pro forma consolidated statement of operations for the year
ended December 31, 1996 to remove these non-recurring charges and to reflect
the net unrealized cost savings, Adjusted Operating Income would have been
approximately $72,800 and net earnings would have been approximately
$18,700. The 1997 period includes a non-recurring charge of $3,300 to close
three facilities in North America. This restructuring program will require
an additional charge of approximately $3,000 in the fourth quarter of 1997.
The Company estimates that these closures, when complete, will provide
savings of approximately $2,500 annually and will allow the Company to sell
two facilities from which the Company estimates it will realize, after 1998,
proceeds in excess of $5,000. The Company believes that the fair market
value of these facilities approximates their respective book values. If
adjustments had been made to the unaudited pro forma consolidated statement
of operations for the nine months ended September 30, 1997 to remove this
non-recurring charge, net earnings would have been approximately $15,500.
(n) Historical earnings (loss) per common share has been computed assuming the
number of common shares issued in connection with the Reorganization,
including common share equivalents, were outstanding during the period
presented. Pro forma earnings per common share has been computed using the
treasury stock method assuming the number of common shares issued in
connection with the Reorganization and the Offerings, including common share
equivalents, were outstanding during the periods presented. Common share
equivalents result from outstanding options to purchase Common Stock.
24
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------------------
METTLER-TOLEDO METTLER-TOLEDO
INTERNATIONAL INC. PRO FORMA INTERNATIONAL INC.
HISTORICAL ADJUSTMENTS PRO FORMA
------------------ ----------- ------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 33,158 $ 33,158
Trade accounts receivable, net................................ 148,826 148,826
Inventories................................................... 106,129 106,129
Deferred taxes................................................ 10,956 10,956
Other current assets.......................................... 21,975 21,975
---------- ----------- ----------
Total current assets........................................ 321,044 321,044
Property, plant and equipment, net.............................. 233,480 233,480
Excess of cost over net assets acquired, net.................... 181,902 $ 3,059(a) 184,961
Long-term deferred taxes........................................ 4,825 4,825
Other assets.................................................... 26,926 (8,766)(b) 18,160
---------- ----------- ----------
Total assets................................................ $768,177 $ (5,707) $762,470
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable........................................ $ 27,226 $ 27,226
Accrued and other liabilities................................. 135,096 135,096
Taxes payable................................................. 27,940 27,940
Deferred taxes................................................ 8,621 8,621
Bank and other loans.......................................... 56,559 $ 3,419(c) 59,978
---------- ----------- ----------
Total current liabilities................................... 255,442 3,419 258,861
Long-term debt due to third parties............................. 429,033 (135,000)(c) 367,920
73,887(c)
Long-term deferred taxes........................................ 26,001 26,001
Other long-term liabilities..................................... 90,307 90,307
---------- ----------- ----------
Total liabilities........................................... 800,783 (57,694) 743,089
Minority interest............................................... 3,655 3,655
Shareholders' equity (deficit):
Common stock, $0.01 par value per share:
Class A non-voting, authorized 2,235,896 shares; issued
1,898,795 (excluding 3,984 shares held in treasury) at
September 30, 1997; pro forma for the Reorganization and
the Offerings, no shares authorized or issued............ 19 (19)(d) --
Class B voting, authorized 1,000 shares; issued 1,000 at
September 30, 1997; pro forma for the Reorganization and
the Offerings, no shares authorized or issued............ 1 (1)(d) --
Class C non-voting, authorized 541,859 shares; issued
537,453 (excluding 1,139 shares held in treasury) at
September 30, 1997; pro forma for the Reorganization and
the Offerings, no shares authorized or issued............ 5 (5)(d) --
Common Stock, no shares authorized or issued at September
30, 1997; pro forma for the Reorganization and the
Offerings, authorized 125,000,000 shares; issued
37,336,801 (excluding 64,467 shares held in treasury).... -- 307(d) 373
66(e)
Additional paid-in capital.................................... 187,986 84,385(e) 272,371
Accumulated deficit........................................... (195,617) (32,746)(f) (228,363)
Currency translation adjustment............................... (28,655) (28,655)
---------- ----------- ----------
Total shareholders' equity (deficit)........................ (36,261) 51,987 15,726
---------- ----------- ----------
Total liabilities and shareholders' equity (deficit)............ $768,177 $ (5,707) $762,470
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
25
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
(a) Represents an additional payment made in October 1997 in connection with the
Safeline Acquisition of pounds 1,892 (approximately $3,059 at October 3,
1997). Such amount will be accounted for as additional purchase price.
(b) Represents the net effect of the elimination of unamortized debt issuance
fees related to the early retirement of both the Notes and terms loans under
the existing Credit Agreement and the capitalization of debt issuance fees
in connection with borrowings under the New Credit Agreement.
(c) Represents the repayment of the Notes of $135,000 and the Company's net
change in borrowings under the New Credit Agreement in connection with the
Offerings and Refinancing.
(d) Represents adjustments to give effect to the Reorganization.
(e) Represents the expected proceeds to be received in connection with the
Offerings of $93,333 less underwriting discount and other related expenses
totaling approximately $8,600.
(f) Reflects the extraordinary loss in connection with the refinancing of the
Credit Agreement, early repayment premium on the Notes, write-off of
capitalized debt issuance fees and a non-recurring charge in connection with
the termination of the management services agreement with AEA Investors of
approximately $32,700.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information set forth below at December
31, 1994, 1995 and 1996, for the years ended December 31, 1993, 1994 and 1995,
for the period from January 1, 1996 to October 14, 1996, and for the period from
October 15, 1996 to December 31, 1996 is derived from the Company's 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 (the
'Predecessor Business'). The summary historical financial information at
September 30, 1997 and for the nine months ended September 30, 1996 and 1997 is
derived from the unaudited interim consolidated financial statements of the
Predecessor Business and of the Company, which, in the opinion of management,
include all adjustments necessary for a fair presentation of the results for the
unaudited periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. The combined historical data of the Predecessor
Business and the consolidated historical data of the Company are not comparable
in many respects due to the Acquisition and the Safeline Acquisition. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' below and the consolidated financial statements and accompanying
notes included herein. The financial information presented below was prepared in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
METTLER-TOLEDO METTLER-TOLEDO
INTERNATIONAL PREDECESSOR INTERNATIONAL
PREDECESSOR BUSINESS INC. BUSINESS INC.
-------------------------------------------- -------------- ----------- --------------
JANUARY 1 OCTOBER 15 NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, TO TO SEPTEMBER 30,
------------------------------ OCTOBER 14, DECEMBER 31, ----------------------------
1993 1994 1995 1996 1996 1996 1997
-------- -------- -------- ----------- -------------- ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(A):
Net sales................... $728,958 $769,136 $850,415 $ 662,221 $ 186,912 $ 624,733 $ 633,743
Cost of sales............... 443,534 461,629 508,089 395,239 136,820(b) 374,121 359,080(d)
-------- -------- -------- ----------- -------------- ----------- --------------
Gross profit................ 285,424 307,507 342,326 266,982 50,092 250,612 274,663
Research and development.... 46,438 47,994 54,542 40,244 9,805 37,930 34,494
Selling, general and
administrative............ 209,692 224,978 248,327 186,898 59,353 175,645 189,594
Amortization................ 2,917 6,437 2,765 2,151 1,065 2,038 4,449
Purchased research and
development............... -- -- -- -- 114,070(c) -- 29,959(e)
Interest expense............ 15,239 13,307 18,219 13,868 8,738 12,579 28,199
Other charges (income),
net(f).................... 14,110 (7,716) (9,331) (1,332) 17,137 (226) 7,316
-------- -------- -------- ----------- -------------- ----------- --------------
Earnings (loss) before
taxes, minority interest
and extraordinary item.... (2,972) 22,507 27,804 25,153 (160,076) 22,646 (19,348)
Provision for taxes......... 3,041 8,676 8,782 10,055 (938) 8,901 7,296
Minority interest........... 1,140 347 768 637 (92) 609 375
-------- -------- -------- ----------- -------------- ----------- --------------
Earnings (loss) before
extraordinary item........ (7,153) 13,484 18,254 14,461 (159,046) 13,136 (27,019)
Extraordinary item--debt
extinguishment............ -- -- -- -- -- -- (9,552)(g)
-------- -------- -------- ----------- -------------- ----------- --------------
Net earnings (loss)......... $ (7,153) $ 13,484 $ 18,254 $ 14,461 $ (159,046) $ 13,136 $ (36,571)
-------- -------- -------- ----------- -------------- ----------- --------------
-------- -------- -------- ----------- -------------- ----------- --------------
Loss per common share(h):
Weighted average number of
common shares............. 32,199,497 32,199,497
Loss per common share
before extraordinary
item.................... $ (4.94) $ (0.84)
Extraordinary item........ -- (0.30)
-------------- --------------
Loss per common share..... $ (4.94) $ (1.14)
-------------- --------------
-------------- --------------
BALANCE SHEET DATA (AT END OF
PERIOD)(A):
Cash and cash equivalents... $ 63,802 $ 41,402 $ 60,696 $ 33,158
Working capital............. 132,586 136,911 103,697 89,003
Total assets................ 683,198 724,094 771,888 768,177
Long-term third party
debt...................... 862 3,621 373,758 429,033
Net borrowing from Ciba and
affiliates(i)............. 177,651 203,157 -- --
Other long-term
liabilities(j)............ 83,964 84,303 96,810 90,307
Shareholders' equity
(deficit)(k).............. 228,194 193,254 12,426 (36,261)
OTHER DATA:
Local currency net sales
growth(l)................. 7% 6% 3% 6%
Gross profit before
non-recurring costs as a
percentage of net
sales(m).................. 39.2% 40.0% 40.3% 40.3% 44.0% 40.1% 43.7%
Adjusted Operating
Income(n)................. $ 29,294 $ 34,535 $ 39,457 $ 39,840 $ 17,912 $ 37,037 $ 52,629
Adjusted Operating Income as
a percentage
of net sales(n)........... 4.0% 4.5% 4.6% 6.0% 9.6% 5.9% 8.3%
Depreciation and
amortization expense...... $ 29,591 $ 34,118 $ 33,363 $ 21,663 $ 8,990 $ 20,668 $ 22,233
Capital expenditures........ 25,122 24,916 25,858 16,649 11,928 14,985 13,299
</TABLE>
(Footnotes on next page)
27
<PAGE>
(Footnotes from previous page)
- - ------------------
(a) Balance sheet information at December 31, 1992 and 1993 is not available.
Income statement information for the year ended December 31, 1992 is not
available, except that net sales were $769,000. Approximately 75% of the
decrease in net sales in 1993 compared to 1992 resulted from appreciation
of the U.S. dollar against the Company's other principal trading
currencies.
(b) In connection with the Acquisition, the Company 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.
(c) In conjunction with the Acquisition the Company 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, the Company 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.
(e) In conjunction with the Safeline Acquisition, the Company 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.
(f) Other charges (income), net generally includes interest income, foreign
currency transactions (gains) losses, (gains) losses from sales of assets
and other charges (income). In 1993, the amount shown includes costs
associated with the closure of a manufacturing facility in Cologne,
Germany, the restructuring of certain manufacturing operations and an early
retirement program in the United States. 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 the Company's Westerville, Ohio
facility. For the period October 15, 1996 to December 31, 1996, the amount
shown includes employee severance benefits associated with the Company's
general headcount reduction programs, in Europe and North America and the
realignment of the analytical and precision balance business in
Switzerland. For the period ended September 30, 1997, the amount shown
includes a restructuring charge of $3,300 to close three facilities in
North America. See Note 17 to the Audited Consolidated Financial Statements
and Note 1 to the Unaudited Interim Consolidated Financial Statements
included herein.
(g) Represents a one-time charge for the write-off of capitalized debt issuance
fees and related expenses associated with the Company's previous credit
facility.
(h) Loss per common share has been computed using the treasury stock method
assuming the number of common shares issued in the Reorganization,
including common share equivalents, were outstanding during the periods
presented. Common share equivalents result from outstanding options to
purchase Common Stock.
(i) Includes notes payable and long-term debt payable to Ciba and affiliates
less amounts due from Ciba and affiliates. See Notes 3 and 11 to the
Audited Consolidated Financial Statements included herein.
(j) Consists primarily of obligations under various pension plans and plans
that provide post-retirement medical benefits. See Note 15 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.
(l) Local currency net sales growth is adjusted for the exit from certain
systems businesses. For the nine months ended September 30, 1997, local
currency net sales increased 6% absent the Safeline Acquisition (8%
including Safeline's results).
(m) Non-recurring costs represent costs asssociated with selling inventories
revalued to fair value in connection with the Acquisition and the Safeline
Acquisition. See Notes (b) and (d) above.
(n) Adjusted Operating Income is operating income (gross profits less research
and development and selling, general and administrative expenses) before
amortization and non-recurring costs. Non-recurring costs which have been
excluded are the costs set forth in Note (m) above and advisory fees
associated with the reorganization of the Company's structure of
approximately $4,800.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Audited
Consolidated Financial Statements and the unaudited interim consolidated
financial statements (the 'Interim Consolidated Financial Statements') included
herein.
GENERAL
The financial statements for periods ended prior to October 15, 1996
reflect the combined operations of the Mettler-Toledo Group, while the financial
statements for periods after October 15, 1996 reflect the consolidated
operations of the Company after accounting for the Acquisition using the
purchase method of accounting. See Note 1 to the Audited Consolidated Financial
Statements included herein. Operating results subsequent to the Acquisition are
not comparable in many respects to the operating results prior to the
Acquisition and the Safeline Acquisition. Financial information is presented in
accordance with U.S. GAAP.
The Company operates a global business, with net sales that are diversified
by geographic region, product range and customer. The Company believes that it
has achieved its market leadership positions through its continued investment in
product development, the maintenance and, in some instances, expansion, of its
existing position in established markets and its pursuit of new markets. Net
sales in local currency (adjusted for the exit from certain systems businesses)
have increased in both the laboratory and industrial and food retailing product
lines, increasing by 8% in the first nine months of 1997 and by 3% and 6% in
1996 and 1995, respectively. Net sales in U.S. dollars increased by 1% in the
first nine months of 1997, as the strengthening of the U.S. dollar versus the
Company's major trading currencies reduced U.S. dollar reported sales. Net sales
in U.S. dollars were unchanged in 1996 and increased by 11% in 1995. The
Company's growth in 1997 has benefited from recent investments to establish
distribution and manufacturing infrastructure in certain emerging markets,
particularly in Asia. Net sales in Asia and other emerging markets in local
currency increased by 31% in the first nine months of 1997 over the
corresponding period in the prior year. The Company believes that its growth
over the next several years will come primarily from the needs of customers in
developed markets to continue to automate their research and development and
manufacturing processes and from the needs of customers in emerging markets to
continue modernizing these same processes through the use of increasingly
sophisticated instruments.
During the periods presented, the Company increased its gross profit
margins before non-recurring costs from 40.0% in 1994 to 43.7% for the first
nine months of 1997 and increased its 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
4.5% in 1994 to 8.3% for the nine months ended September 30, 1997. These
increases were achieved despite the Company's continued investments in product
development and in its distribution and manufacturing infrastructure. The
Company believes that a significant portion of these increases can be attributed
to its strategy to reduce costs and reengineer its operations. This strategy has
a number of key elements, such as ongoing efforts to direct more of its research
and development activities to the reduction of product costs, to re-engineer
manufacturing, distribution, sales and administrative processes, and to
consolidate operations and re-deploy resources to lower cost facilities.
Examples of recent efforts to implement the different elements of this strategy
include the introduction of several products in 1997 with significantly reduced
manufacturing costs compared to their predecessors, the closure of the
Westerville, Ohio manufacturing facility in 1996, completion of a targeted
workforce reduction of approximately 170 personnel, closure of three North
American facilities as described below and the opening of a new laboratory
manufacturing facility in Shanghai, China in 1997 with significant production
and research and development capabilities. The Company is currently implementing
several additional reengineering and cost reduction projects, including the
consolidation of worldwide precision balance manufacturing, the restructuring of
its ordering process, product delivery and parts inventory management in Europe,
the realignment of industrial product manufacturing in Europe and the
consolidation of the Company's North American laboratory, industrial and food
retailing businesses into a single marketing organization.
On May 30, 1997, the Company acquired Safeline for pounds 61.0 million
(approximately $100.0 million at May 30, 1997), plus up to an additional pounds
6.0 million (approximately $10.0 million at May 30, 1997) for a contingent
earn-out payment. In October 1997, the Company made an additional payment,
representing a post-
29
<PAGE>
closing adjustment, of pounds 1.9 million (approximately $3.1 million at October
3, 1997). Such amount will be accounted for as additional purchase price.
Safeline, based in Manchester, U.K., is the world's largest manufacturer and
marketer of metal detection systems for companies that produce and package goods
in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Safeline's metal detectors can also be used in conjunction with the
Company's checkweighing products for important quality and safety checks in
these industries. From 1992 to 1996, Safeline's sales increased at a compounded
annual growth rate of approximately 30%, in part due to the introduction of new
products such as the first digital electronic and Zero Metal-Free Zone metal
detectors. Safeline had net sales and Adjusted Operating Income of $40.4 million
and $9.9 million, respectively, for the year ended December 31, 1996. The
Safeline Acquisition was financed by pounds 47.3 million (approximately $77.4
million at May 30, 1997) loaned under the Credit Agreement together with the
issuance of pounds 13.7 million (approximately $22.4 million at May 30, 1997) of
seller loan notes which mature May 30, 1999.
In September 1997, the Company recorded a restructuring charge of
approximately $3.3 million. The Company expects to recognize an additional
restructuring charge of approximately $3.0 million during the fourth quarter
ending December 31, 1997 for restructuring activities not initiated until
October of this year. Both charges are in connection with the closure of three
facilities in North America and are comprised primarily of severance and other
related benefits and costs of exiting facilities, including lease termination
costs and write-down of existing assets to their expected net realized value.
The Company expects these actions will be completed in 1998 and that the two
owned facilities will be sold after that period. In connection with the closure
of these facilities, the Company expects to involuntarily terminate
approximately 70 employees. The Company is undertaking these actions as part of
its efforts to reduce costs through reengineering. When complete, these actions
will enable the Company to close certain operations and realize cost savings
estimated at approximately $2.5 million on an annual basis. The Company also
estimates that it will receive, after 1998, upon the sale of the two facilities
which the Company owns proceeds in excess of $5.0 million. The Company believes
that the fair market value of these facilities approximates their respective
book values.
RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of
operations in U.S. dollars as well as in percentages of net sales for the years
ended December 1, 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, pro forma
for the year 1996 and actual for the nine months ended September 30, 1996 and
1997. The pro forma information gives effect to the Acquisition, the Safeline
Acquisition, the Offerings and the Refinancing and does not purport to represent
the Company's actual results if such transactions had occurred on the dates
specified. The statement of operations data for the nine months ended September
30, 1997 include Safeline results from May 31, 1997. The pro forma information
is presented in order to facilitate management's discussion and analysis.
30
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO
PREDECESSOR BUSINESS INTERNATIONAL INC.
------------------------------------- ------------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED JANUARY 1, OCTOBER 15,
DECEMBER 31, 1996 TO 1996 TO
-------------------- OCTOBER 14, DECEMBER 31, PRO FORMA
1994 1995 1996 1996(B)(C) 1996(A)(B)(C)
-------- -------- -------------- ------------------ ---------------
(DOLLARS IN THOUSANDS)
<C> <C> <C> <C> <C> <C>
Net sales............................... $769,136 $850,415 $662,221 $ 186,912 $ 889,567
Cost of sales........................... 461,629 508,089 395,239 136,820 523,783
-------- -------- -------------- ---------- ---------------
Gross profit............................ 307,507 342,326 266,982 50,092 365,784
Research and development(e)............. 47,994 54,542 40,244 9,805 50,608
Selling, general and administrative..... 224,978 248,327 186,898 59,353 252,085
Amortization............................ 6,437 2,765 2,151 1,065 6,526
Purchased research and development...... -- -- -- 114,070
Interest expense........................ 13,307 18,219 13,868 8,738 30,007
Other charges (income), net(d).......... (7,716) (9,331) (1,332) 17,137 14,036
-------- -------- -------------- ---------- ---------------
Earnings (loss) before taxes, minority
interest and extraordinary item....... $ 22,507 $ 27,804 $ 25,153 $ (160,076) $ 12,522
-------- -------- -------------- ---------- ---------------
-------- -------- -------------- ---------- ---------------
<CAPTION>
PREDECESSOR METTLER-TOLEDO
BUSINESS INTERNATIONAL
----------- INC.
-------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997(B)(C)
----------- -------------
<C> <<S> <C>
Net sales............................... $ 624,733 $ 633,743
Cost of sales........................... 374,121 359,080
----------- -------------
Gross profit............................ 250,612 274,663
Research and development(e)............. 37,930 34,494
Selling, general and administrative..... 175,645 189,594
Amortization............................ 2,038 4,449
Purchased research and development...... 29,959
Interest expense........................ 12,579 28,199
Other charges (income), net(d).......... (226 ) 7,316
----------- -------------
Earnings (loss) before taxes, minority
interest and extraordinary item....... $ 22,646 $ (19,348 )
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------------------------------
METTLER-TOLEDO
PREDECESSOR BUSINESS INTERNATIONAL INC.
------------------------------------- ----------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED JANUARY 1, OCTOBER 15,
DECEMBER 31, 1996 TO 1996 TO
-------------------- OCTOBER 14, DECEMBER 31, PRO FORMA
1994 1995 1996 1996(B)(C) 1996(A)(B)(C)
-------- -------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 60.0 59.7 59.7 73.2 58.9
-------- -------- ------- ------- -------------
Gross profit............................ 40.0 40.3 40.3 26.8 41.1
Research and development(e)............. 6.2 6.4 6.1 5.2 5.7
Selling, general and
administrative........................ 29.3 29.2 28.2 31.8 28.3
Amortization............................ 0.8 0.3 0.3 0.6 0.7
Purchased research and development...... -- -- -- 61.0 --
Interest expense........................ 1.7 2.1 2.1 4.7 3.4
Other charges (income), net............. (1.0) (1.1) (0.2) 9.2 1.6
-------- -------- ------- ------- -------------
Earnings (loss) before taxes, minority
interest and extraordinary item....... 2.9% 3.3% 3.8% (85.6%) 1.4%
-------- -------- ------- ------- -------------
-------- -------- ------- ------- -------------
<CAPTION>
PREDECESSOR METTLER-TOLEDO
BUSINESS INTERNATIONAL INC.
------------ ------------------
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1997(B)(C)
------------ -------------
<S> <<C> <C>
Net sales............................... 100.0 % 100.0 %
Cost of sales........................... 59.9 56.7
------------ -------------
Gross profit............................ 40.1 43.3
Research and development(e)............. 6.1 5.4
Selling, general and
administrative........................ 28.1 29.9
Amortization............................ 0.3 0.7
Purchased research and development...... -- 4.7
Interest expense........................ 2.0 4.4
Other charges (income), net............. -- 1.2
------------ -------------
Earnings (loss) before taxes, minority
interest and extraordinary item....... 3.6 % (3.1 %)
------------ -------------
------------ -------------
</TABLE>
- - ------------------
(a) Represents the unaudited pro forma consolidated statement of operations of
the Company for 1996, assuming the Acquisition, the Safeline Acquisition,
the Offerings and the Refinancing (assuming all of the Notes are
repurchased) occurred on January 1, 1996.
(b) In connection with the Acquisition and the Safeline Acquisition, the Company
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 expense related to inventory revalued in
connection with the Acquisition has been excluded from the 1996 pro forma
information.
(c) In conjunction with the Acquisition and the Safeline Acquisition, the
Company 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 expensed immediately following the
Acquisition and the Safeline Acquisition, respectively. The amount of this
expense related to the Acquisition has been excluded from the 1996 pro forma
information.
(d) Other charges (income), net generally includes interest income, foreign
currency transactions (gains) losses, (gains) losses from sales of assets
and other charges (income). 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 its Westerville, Ohio facility. For the
period October 15, 1996 to December 31, 1996 the amount shown includes
employee severance benefits associated with the Company's general headcount
reduction programs in Europe and North America, and the realignment of the
analytical and precision balance business in Switzerland. For the period
ended September 30, 1997, the amount shown includes a restructuring charge
of $3,300 to close three facilities in North America. See Note 17 to the
Audited Consolidated Financial Statements and Note 1 to the Unaudited
Interim Consolidated Financial Statements included herein.
(e) Total research and development expenses including costs associated with
customer-specific engineering projects, which are included in cost of sales
for financial reporting purposes, were 7.2% in 1994, 7.3% in 1995, 6.6% in
1996 and 6.7% and 5.8% for the nine months ended September 30, 1996 and
1997, respectively.
31
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Net sales were $633.7 million for the nine months ended September 30, 1997,
compared to $624.7 million for the corresponding period in the prior year, an
increase of 1%. Results were negatively impacted by the strengthening of the
U.S. dollar against other currencies. Net sales in local currencies during the
nine-month period increased 8% (6% absent the Safeline Acquisition). Most
recently, during the three months ended September 30, 1997, net sales in local
currencies increased 16% (10% absent the Safeline Acquisition).
Net sales in local currencies during the nine months ended September 30,
1997 in Europe increased 2% versus the corresponding period in the prior year,
despite weak European economies which adversely affected sales to industrial
customers. Net sales in local currencies during the nine-month period in the
Americas increased 8%, principally due to improved market conditions for sales
to industrial and food retailing customers. Net sales in local currencies in the
nine-month period in Asia and other markets increased 31%, primarily as a result
of the establishment of additional direct marketing and distribution in the
region. During the three months ended September 30, 1997, sales trends in each
of Europe, the Americas and Asia were more favorable compared to sales trends in
the first two quarters of 1997.
The operating results for Safeline (which were included in the Company's
results from May 31, 1997) had the effect of increasing the Company's net sales
by $15.7 million for the nine months ended September 30, 1997. Additionally,
Safeline's operating results had the effect of increasing the Company's Adjusted
Operating Income by $4.3 million for the same period. The Company recorded
non-cash purchase accounting adjustments for purchased research and development
($30.0 million) and the sale of inventories revalued to fair value ($2.1
million) during such period.
Gross profit before non-recurring costs as a percentage of net sales
increased to 43.7% for the nine months ended September 30, 1997, compared to
40.1% for the corresponding period in the prior year. Gross profit in the 1997
period includes the previously noted $2.1 million non-cash charge associated
with the excess of the fair value over the historic value of inventory acquired
in the Safeline Acquisition. Including this charge, the gross profit percentage
for the nine-month period is 43.3%. The improved gross profit percentage
reflects the benefits of reduced product costs arising from the Company's
research and development efforts, ongoing productivity improvements and the
depreciation of the Swiss franc against the Company's other principal trading
currencies.
Research and development expenses as a percentage of net sales decreased to
5.4% for the nine months ended September 30, 1997, compared to 6.1% for the
corresponding period in the prior year; however, the local currency spending
level remained relatively constant period to period.
Selling, general and administrative expenses as a percentage of net sales
increased to 29.9% for the nine months ended September 30, 1997, compared to
28.1% for the corresponding period in the prior year. This increase is primarily
a result of establishing additional direct marketing and distribution in Asia.
Adjusted Operating Income was $52.6 million, or 8.3% of sales, for the nine
months ended September 30, 1997 compared to $37.0 million, or 5.9% of sales, for
the nine months ended September 30, 1996, an increase of 42%. The 1997 period
excludes non-recurring costs of $2.1 million for the revaluation of inventories
to fair value in connection with the Safeline Acquisition. Most recently, during
the three months ended September 30, 1997, Adjusted Operating Income increased
74% (44% absent the Safeline Acquisition).
As previously noted, in connection with the Safeline Acquisition, $30.0
million of the purchase price was attributed to purchased research and
development in process. Such amount was expensed immediately following the
Safeline Acquisition. The technological feasibility of the products being
developed had not been established as of the date of the Safeline Acquisition.
The Company expects that the projects underlying these research and development
efforts will be substantially complete over the next two years.
Interest expense increased to $28.2 million for the nine months ended
September 30, 1997, compared to $12.6 million for the corresponding period in
the prior year. The increase was principally due to additional acquisition
related debt.
Other charges, net of $7.3 million for the nine months ended September 30,
1997 compared to other income, net of $0.2 million for the corresponding period
in the prior year. Such decrease is principally a result of a $3.3 million
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restructuring charge to close three facilities in North America and the related
involuntary terminations, as well as lower interest income and an increase in
foreign currency losses.
The provision for taxes is based upon the Company's projected annual
effective tax rate for the related period before non-recurring acquisition and
restructuring adjustments. Such adjustments are then tax affected at the
marginal tax rate in the period in which they occur. The increase in effective
tax rate from September 30, 1996 to September 30, 1997 is due to additional
non-tax deductible goodwill and the Company's estimated earning levels.
The net loss before extraordinary item of $27.0 million for the nine months
ended September 30, 1997 compared to net earnings of $13.1 million for the
corresponding period in the prior year. Excluding the previously noted
non-recurring charges for purchased research and development, the revaluation of
inventories to fair value and the restructuring of North American operations,
net earnings would have been $7.6 million for the nine months ended September
30, 1997. Such lower earnings in the 1997 period are principally the result of
higher interest expense due to Acquisition related debt, which more than offset
higher Adjusted Operating Income.
The extraordinary item--debt extinguishment of $9.6 million represents a
one-time charge for the write-off of capitalized debt issuance fees and related
expenses associated with the Company's previous credit facility. See 'Liquidity
and Capital Resources.'
FOR THE PERIOD FROM JANUARY 1, 1996 TO OCTOBER 14, 1996, THE PERIOD FROM OCTOBER
15, 1996 TO DECEMBER 31, 1996 AND PRO FORMA 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
Net sales for the period from January 1, 1996 to October 14, 1996 and for
the period from October 15, 1996 to December 31, 1996 were $662.2 million and
$186.9 million, respectively. Pro forma 1996 net sales were $889.6 million, or
$849.1 million excluding Safeline results, compared to actual net sales of
$850.4 million in 1995. Net sales (pro forma excluding Safeline) in local
currency increased 3%, excluding the impact of reductions of the systems
business, but were offset by a strengthening of the U.S. dollar, the Company's
reporting currency, relative to the local currencies of the Company's
operations. The flat sales (pro forma excluding Safeline) in 1996 compared to
actual 1995 resulted from slightly lower sales from products in the industrial
and food retailing markets, offset by strong performance by the product lines in
the laboratory market. The growth in the laboratory market was across
substantially all product lines and geographical regions as sales in local
currency (excluding Safeline) increased 7% compared to the previous year. In
particular, new product introductions in titration, thermal and reaction
calorimetry as well as new Ohaus products for the education, laboratory and
light industrial market helped to increase laboratory market sales. The slight
decline in industrial and food retailing sales resulted from overall weakness in
the European market where the Company has been able to retain its market share.
This market weakness has persisted in early 1997.
Net sales (pro forma excluding Safeline) in Europe in local currency
decreased 2% in 1996 compared to actual 1995 due to a weaker second half of the
year in 1996 in all major markets, and especially in key countries such as
Germany, France and the United Kingdom. Net sales (pro forma excluding Safeline)
in the Americas in local currency increased by 5% over actual 1995 due to growth
in the United States and Latin America and double digit expansion in laboratory
measurement instruments other than balances and in related service. Net sales
(pro forma excluding Safeline) in Asia and other markets in local currency
increased by 8% over actual 1995, primarily as a result of significantly
increased sales in the Shanghai operation and strong sales in Japan and
Australia.
Gross profit for the period from January 1, 1996 to October 14, 1996 and
for the period from October 15, 1996 to December 31, 1996 was $267.0 million and
$50.1 million, respectively. Pro forma 1996 gross profit was $365.8 million or
$349.3 million (excluding Safeline results). This compares to $342.3 million in
actual 1995. Pro forma gross profit as a percentage of sales increased to 41.1%
in 1996 from 40.3% in actual 1995. The increased gross profit margin resulted
principally from operational improvements and the depreciation of the Swiss
franc against the Company's other principal trading currencies. See 'Effect of
Currency on Results of Operations.'
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Selling, general and administrative expenses and research and development
expenses for the period from January 1, 1996 to October 14, 1996 and for the
period from October 15, 1996 to December 31, 1996 were $227.1 million and $69.2
million, respectively. Pro forma 1996 selling, general and administrative and
research and development expenses totaled $302.7 million or $296.1 million
excluding Safeline. This compares to $302.9 million in actual 1995. Pro forma
selling, general and administrative expenses and research and development
expenses as a percentage of net sales decreased to an aggregate of 34.0% in 1996
from 35.6% in actual 1995. The cost decreases resulted primarily from the
currency effect of the depreciation of the Swiss franc against the Company's
other major trading currencies and the Company's cost control efforts. These
cost decreases were partially offset by non-recurring legal and advisory fees of
$4.8 million.
In connection with the Acquisition, the Company allocated, based upon
independent valuations, $114.1 million of the purchase price to purchased
research and development in process. Such amount was expensed immediately
following the Acquisition.
Interest expense for the period from January 1, 1996 to October 14, 1996
and for the period from October 15, 1996 to December 31, 1996 was $13.9 million
and $8.7 million, respectively. Pro forma interest expense increased to $30.0
million in 1996 from $18.2 million in actual 1995, principally due to a higher
debt level as a result of the Acquisition and the Safeline Acquisition. Interest
expense since the Acquisition and the Safeline Acquisition is materially
different. See 'Liquidity and Capital Resources.'
Other income, net for the period January 1, 1996 to October 14, 1996 of
$1.3 million includes interest income of $3.4 million and severance and other
exit costs of $1.9 million associated with the closing of its Westerville, Ohio
facility. Other charges, net for the period October 15, 1996 to December 31,
1996 of $17.1 million principally represent (i) losses on foreign currency
transactions of $8.3 million of which $5.7 million were incurred in connection
with the Acquisition, (ii) employee severance benefits associated with the
Company's general headcount reduction programs in Europe and North America of
$4.6 million which were announced during such period, and (iii) the realignment
of the analytical and precision balance business in Switzerland of $6.2 million
which was internally announced in December 1996. In connection with such
programs the Company reduced its workforce by approximately 170 employees in
1996 and intends to further reduce its workforce by approximately 70 employees
in 1997. The Company anticipates that as a result of the foregoing it will
achieve cost savings in the range of $8.3 million. Such cost savings consist
primarily of lower employee salary and benefit costs and fixed manufacturing
costs. In addition, at the time of the Acquisition, the
Company estimated it would incur additional selling, general and administrative
expenses of $1.3 million annually as a result of the Acquisition.
Earnings before taxes and minority interest for the period from January 1,
1996 to October 14, 1996 was $25.2 million. Loss before taxes and minority
interest for the period from October 15, 1996 to December 31, 1996 was $160.1
million. This loss includes non-recurring costs of $114.1 million for the
allocation of purchase price to in-process research and development projects,
$32.2 million for the revaluation of inventories to fair value, $9.9 million of
other charges (an additional $1.9 million of other charges was incurred by the
Predecessor Business in 1996) and $4.8 million for non-recurring legal and
advisory fees. Pro forma earnings before taxes and minority interest would have
been $12.5 million in 1996. Pro Forma Adjusted Operating Income would have been
$67.9 million in 1996, or $58.0 million (excluding Safeline), compared to $39.5
million in actual 1995.
Net earnings for the period from January 1, 1996 to October 14, 1996 were
$14.5 million. The net loss for the period from October 15, 1996 to December 31,
1996 was $159.0 million. Pro forma net earnings of $5.0 million in 1996 compared
to net earnings of $18.3 million in actual 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales were $850.4 million in 1995 compared to $769.1 million in 1994,
an increase of 11%. Net sales in local currency increased 5%; the remaining 6%
of the increase resulted from changes in currency exchange rates. In 1994 the
Company discontinued certain items in its systems and laboratory measurement
instruments product lines. Excluding the effect of these discontinued items, net
sales in local currency would have increased 6%. Sales growth in local currency
reflected steady growth across all major product lines in laboratory, industrial
and food retailing markets as a result of favorable economic conditions and
market share gains in selected geographic
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markets. Sales were helped by the expansion of the Company's line of titrators
and the introduction of a family of standard industrial programmable terminals
for weighing instruments.
Net sales in Europe in local currency increased 7% in 1995 over 1994,
consistent with the continuing recovery from the 1993 recession and market share
gains in selected regions and product lines. Southern Europe contributed
significantly to the increase. Net sales in the Americas in local currency
decreased 1% in 1995 from 1994. Results in the Americas reflect reduced demand
in the United States for laboratory instruments in the wake of consolidation in
the pharmaceutical and chemical industries and unusually high demand for retail
equipment in 1994 as a result of a new labeling law that caused food retailers
to buy additional retail weighing and labeling equipment. Net sales in Asia and
other markets in local currency increased 23% in 1995 over 1994, primarily as a
result of continued economic growth and the Company's increased market share in
selected markets. Sales were also helped by the recovery in China from the poor
market conditions of 1994.
Gross profit as a percentage of net sales increased slightly to 40.3% in
1995 from 40.0% in 1994. These results were achieved despite the appreciation of
the Swiss franc against the Company's other principal trading currencies, which
has the effect of increasing overall manufacturing costs due to the Company's
significant manufacturing operations in Switzerland. Improved manufacturing
productivity contributed to the increase, including the favorable effects of the
Company's mid-1994 closure of its Cologne, Germany plant, partially offset by
higher raw materials costs.
Selling, general and administrative expenses and research and development
expenses were relatively constant as a percentage of net sales. Cost increases
resulting from the currency effect of the significant appreciation of the Swiss
franc against the Company's other major trading currencies were offset by the
Company's cost control efforts. Adjusted Operating Income for 1995 was $39.5
million in 1995 compared to $34.5 million for 1994.
Interest expense rose to $18.2 million in 1995 from $13.3 million in 1994,
an increase of 37%, principally due to higher interest rates from the conversion
of a loan from Ciba from short term to long term. Interest expense since the
Acquisition is materially different. See 'Liquidity and Capital Resources.'
Other income, net increased to $9.3 million in 1995 from $7.7 million in 1994.
The higher level of other income, net resulted principally from increased gain
on foreign currency transactions.
Earnings before taxes and minority interest were $27.8 million in 1995
compared to $22.5 million in 1994. Net earnings increased to $18.3 million in
1995 from $13.5 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Acquisition was financed principally through capital contributions of
$190.0 million before related expenses from the Company, borrowings under the
Credit Agreement of $307.0 million and the issuance of 9 3/4% Senior
Subordinated Notes due 2006 of $135.0 million. The Safeline Acquisition was
financed by pounds 47.3 million ($77.4 million at May 30, 1997) loaned under the
Credit Agreement together with the issuance of pounds 13.7 million ($22.4
million at May 30, 1997) of seller loan notes which mature May 30, 1999.
Prior to the Acquisition, the Company's cash and other liquidity was used
principally to fund capital expenditures, working capital requirements, debt
service and dividends to Ciba. Following the Acquisition and the Safeline
Acquisition, the annual interest expense associated with the borrowings under
the Credit Agreement and the Notes, as well as scheduled principal payments of
term loans under the Credit Agreement, have significantly increased the
Company's liquidity requirements.
The Company's capital expenditures totaled $24.9 million in 1994, $25.9
million in 1995, $29.4 million (pro forma) in 1996 and $13.6 million (pro forma)
for the nine months ended September 30, 1997. Capital expenditures are primarily
for machinery, equipment and the purchase and expansion of facilities, including
the purchase of land for, and construction of, the Company's Shanghai
manufacturing facility. Capital expenditures for 1997, as a percentage of sales,
are expected to remain relatively constant with historical expenditures. In
connection with the transfer of the Japanese laboratory business from a former
agent to a subsidiary of the Company, the Company agreed to make total payments
of approximately SFr 8.0 million, of which only approximately SFr 1.0 million
remains to be paid. See 'Business--Customers and Distribution.'
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The Credit Agreement provides for term loan borrowings in an aggregate
principal amount of approximately $133.8 million, SFr 171.5 million and pounds
26.7 million that are scheduled to mature in 2002 and 2004, a Canadian revolver
with availability of CDN $26.3 million (approximately CDN $20.9 million of which
has been drawn as of September 30, 1997) which is scheduled to mature in 2002,
and a multi-currency revolving credit facility with availability of $151.0
million (approximately $26.7 million of which has been drawn as of September 30,
1997), which is scheduled to mature in 2002. The Company had borrowed $312.6
million under the Credit Agreement as of September 30, 1997. Under the Credit
Agreement, amounts outstanding under the loans amortize in quarterly
installments. In addition, the Credit Agreement obligates the Company to make
mandatory prepayments in certain circumstances with the proceeds of asset sales
or issuance of capital stock or indebtedness and with certain excess cash flow.
The Credit Agreement imposes certain restrictions on the Company and its
subsidiaries, including restrictions on the ability to incur indebtedness, make
investments, grant liens, sell financial assets and engage in certain other
activities. The Company must also comply with certain financial covenants. The
Credit Agreement is secured by certain assets of the Company. In connection with
the Offerings, the Company is refinancing the Credit Agreement. See 'Description
of Certain Indebtedness--New Credit Agreement.'
In connection with the Company's refinancing on May 29, 1997 of its
previous credit facility, the Company recorded an extraordinary item-debt
extinguishment of $9.6 million, representing a one-time charge for the write-off
of capitalized debt issuance fees and related expenses associated with the
previous credit facility.
The Notes will mature in 2006. The Notes may be required to be purchased by
the Company upon a Change of Control (as defined) and in certain circumstances
with the proceeds of asset sales. The Notes are subordinated to the indebtedness
under the Credit Agreement. The Indenture governing the Notes imposes certain
restrictions on the Company and its subsidiaries, including restrictions on the
ability to incur indebtedness, make investments, grant liens and engage in
certain other activities. See 'Description of Certain Indebtedness--Senior
Subordinated Notes.' The Company has commenced a tender offer for all of the
Notes, and all of the Notes have been irrevocably tendered. In connection with
the tender offer, the Company has obtained the requisite consents to remove
substantially all of the restrictive covenants and certain other provisions from
the Indenture governing the Notes. See 'Description of Certain
Indebtedness--Senior Subordinated Notes.'
Under the Credit Agreement and the Indenture, Mettler-Toledo, Inc. is
prohibited from paying dividends to Mettler-Toledo Holding Inc., subject to
certain limited exceptions. Mettler-Toledo, Inc.'s obligations under the Credit
Agreement and Notes are guaranteed by Mettler-Toledo Holding Inc.
At September 30, 1997, approximately $128.5 million of the borrowings under
the Credit Agreement and all of the borrowings under the Notes were denominated
in U.S. dollars. The balance of the borrowings under the Credit Agreement and
under local working capital facilities were denominated in certain of the
Company's other principal trading currencies. At September 30, 1997, the Company
had $222.1 million of other debt incurred by its various operating subsidiaries
primarily denominated in various currencies. Changes in exchange rates between
the currencies in which the Company generates cash flow and the currencies in
which its borrowings are denominated will affect the Company's liquidity. See
'Effect of Currency on Results of Operations.'
In connection with the Offerings, the Company intends to refinance the
Credit Agreement by entering into the New Credit Agreement. The Company expects
that it will have pro forma borrowings under the New Credit Agreement of $389.9
million (representing an increase of $77.3 million) as of September 30, 1997 and
borrowings of $38.0 million under various other credit arrangements. Of the
borrowings under the New Credit Agreement, $200.0 million will be term loans and
the remainder will be outstanding under a revolving credit facility. The
Company's revolving credit facility commitment will increase from $170.0 million
to $420.0 million under the New Credit Agreement, and this commitment includes a
$100.0 million acquisition facility. Increased borrowings under the New Credit
Agreement and the net proceeds from the Offerings will be used, together with
the net proceeds from the Offerings, to repurchase the Notes and to pay related
premiums and fees and expenses. See 'Use of Proceeds' and 'Capitalization.'
The Company's cash provided by operating activities decreased from $57.9
million in the nine months ended September 30, 1996 to $30.3 million in the nine
months ended September 30, 1997. The decline resulted principally from higher
interest costs resulting from the Acquisition and the Safeline Acquisition.
At September 30, 1997, consolidated
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debt, net of cash, was $452.4 million.
The Company continues to explore potential acquisitions to expand its
product portfolio and improve its distribution capabilities. In connection with
any acquisition, the Company may incur additional indebtedness.
The Company currently believes that cash flow from operating activities,
together with borrowings available under the New Credit Agreement and local
working capital facilities, will be sufficient to fund currently anticipated
working capital needs and capital spending requirements as well as debt service
requirements for at least several years, but there can be no assurance that this
will be the case.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The Company's operations are conducted by subsidiaries in many countries,
and the results of operations and the financial position of each of those
subsidiaries is reported in the relevant foreign currency and then translated
into U.S. dollars at the applicable foreign exchange rate for inclusion in the
Company's consolidated financial statements. Accordingly, the results of
operations of such subsidiaries as reported in U.S. dollars can vary
significantly as a result of changes in currency exchange rates. Specifically, a
strengthening of the U.S. dollar versus other currencies reduces net sales and
earnings as translated into U.S. dollars, whereas a weakening of the U.S. dollar
has the opposite effect.
Swiss franc-denominated costs represent a much greater percentage of the
Company's total expenses than Swiss franc-denominated sales represent of total
sales. In general, an appreciation of the Swiss franc versus the Company's other
major trading currencies, especially the principal European currencies, has a
negative impact on the Company's results of operations and a depreciation of the
Swiss franc versus the Company's other major trading currencies, especially the
principal European currencies has a positive impact on the Company's results of
operations. The effect of these changes generally offsets in part the effect the
translation effect on earnings before interest and taxes of changes in exchange
rate between the U.S. dollar and other currencies described in the preceding
paragraph.
TAXES
The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability will be affected by a
number of factors, such as the amount of taxable income in particular
jurisdictions, the tax rates in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and income is repatriated, and future changes in law. Generally,
the tax liability for each legal entity is determined either (i) on a
non-consolidated basis or (ii) on a consolidated basis only with other entities
incorporated in the same jurisdiction, in either case without regard to the
taxable losses of non-consolidated affiliated entities. As a result, the Company
may pay income taxes in certain jurisdictions even though the Company on an
overall basis incurs a net loss for the period.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates. The Company, like many of its competitors,
has 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. The Company does not currently anticipate any material
capital expenditures for environmental control technology. Some risk of
environmental liability is inherent in the Company's business, and there can be
no assurance that material environmental costs will not arise in the future.
However, the Company does not anticipate any material adverse effect on its
results of operations or financial condition as a result of future costs of
environmental compliance.
INFLATION
Inflation can affect the costs of goods and services used by the Company.
The competitive environment in which the Company operates limits somewhat the
Company's ability to recover higher costs through increased selling prices.
Moreover, there may be differences in inflation rates between countries in which
the Company incurs the major portion of its costs and other countries in which
the Company sells its products, which may limit the Company's ability to recover
increased costs, if not offset by future increase of selling prices. The
Company's growth strategy includes expansion in China, Latin America and Eastern
Europe, which have experienced
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inflationary conditions. To date, inflationary conditions have not had a
material effect on the Company's operating results. However, as the Company's
presence in China, Latin America and Eastern Europe increases, these
inflationary conditions could have a greater impact on the Company's operating
results.
SEASONALITY
The Company's business has historically experienced a slight amount of
seasonal variation, with sales in the first fiscal quarter slightly lower than,
and sales in the fourth fiscal quarter slightly higher than, sales in the second
and third fiscal quarters. This trend has a somewhat greater effect on income
from operations than on net sales due to the effect of fixed costs.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
Prior to 1997, the Company entered into currency forward and option
contracts primarily as a hedge against anticipated foreign currency exposures
and not for speculative purposes. Such contracts, which are types of financial
derivatives, limit the Company's exposure to both favorable and unfavorable
currency fluctuations. These contracts are adjusted to reflect market values as
of each balance sheet date, with the resulting unrealized gains and losses being
recognized in financial income or expense, as appropriate. At August 31, 1997,
all remaining derivative instruments met the requirements of hedge accounting.
During 1997, the Company has entered into certain interest rate swap and
cap agreements. See Note 2 to the unaudited Interim Consolidated Financial
Statements included herein.
NEW ACCOUNTING STANDARDS
Beginning January 1, 1996 the Company adopted Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121 ('SFAS
121'), 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.' SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, SFAS 121
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. Adoption of SFAS 121 had no effect on the Company's financial
statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ('SFAS 128'), 'Earnings per Share.'
The Company does not expect SFAS 128 to have a material effect on its earnings
per share.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus includes forward-looking statements that reflect the
Company's current views with respect to future events and financial performance,
including capital expenditures, planned product introductions, research and
development expenditures, potential future growth, including potential
penetration of developed markets and potential growth opportunities in emerging
markets, potential future acquisitions, potential cost savings from planned
employee reductions and restructuring programs, estimated proceeds from and
timing of asset sales, planned operational changes and research and development
efforts, strategic plans and future cash sources and requirements. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified in 'Risk Factors,' which could cause actual results
to differ materially from historical results or those anticipated. The words
'believe,' 'expect,' 'anticipate' and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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INDUSTRY
GENERAL
The Company believes that in 1996 the global market for the Company's
products and services was approximately $6.0 billion. Weighing instruments are
among the most broadly used measuring devices, and their results are often used
as the basis of commercial transactions. Analytical instruments are critical to
the research and development and quality control efforts of end-users, while
metal detection systems provide important quality and safety checks for
companies that produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. The Company's products are used in
laboratories as an integral part of the research and quality control processes,
in industry for various manufacturing processes such as quality control,
materials preparation, filling, counting and dimensioning, and in food retailing
for preparation, portioning and inventory control. Customers include
pharmaceutical, biotechnology, chemicals, cosmetics, food and beverage, metals,
electronics, logistics, transportation and food retailing businesses, as well as
schools, universities and government standards laboratories. The Company does
not manufacture or sell household weighing products, bulkweigh fillers or
continuous weighing products, and those markets are not discussed herein.
Weighing instruments often comprise a relatively small component of a
customer's aggregate expenditures but perform important functions in quality
control, process control and research and can improve productivity. As a result,
the Company believes customers tend to emphasize accuracy, product reliability,
technical innovation, service quality, reputation and past experience with a
manufacturer's products when making their purchasing decisions for weighing and
other precision instruments. Weighing equipment manufacturers also provide a
significant amount of service and support to their customers, including repair,
calibration, certification and preventive maintenance, which generate recurring
revenues. The Company believes that customers often continue to purchase from
their existing vendor due to the additional costs for training, spare parts,
service and systems integration associated with switching to or adding other
brands of weighing equipment to their operations. The market for weighing
instruments, particularly those used in industrial and food retailing
applications, has traditionally been fragmented both geographically and by type
of application. Many manufacturers have a strong market position in their home
countries but a much smaller presence in other markets. Similarly, manufacturers
have tended to be focused on a particular application or group of applications.
The Company believes that the developed markets (Europe, North America and
Japan) that it serves have recently experienced modest growth rates in demand
for weighing instruments. Laboratory market growth has been influenced by demand
in the principal end-user industries and customer replacement of older products
with new products designed to be integrated into an automated laboratory
environment. In the industrial and food retailing market, growth has been driven
by the increasing use of weighing applications in the control and regulation of
manufacturing and logistics processes, customers' needs to upgrade to
network-ready weighing equipment, and general growth in end-user industries.
Emerging markets, such as Asia (excluding Japan), have experienced higher growth
rates than the overall market. Growth in these markets has come from the
establishment and growth of industries requiring additional and more
sophisticated weighing instruments and systems.
End-users of laboratory analytical instruments require exceptionally high
levels of performance and reliability due to the application of these
instruments in critical steps of research and development and quality control.
In addition, analytical instruments in most cases constitute a small percentage
of customers' aggregate expenditures, are material to customers' development
efforts and can have a significant impact on users' overall productivity. As a
result, the Company believes reputation, technical leadership, service and
proven results are critical to end-user decisions to choose an equipment
supplier. In many cases, once a manufacturer's equipment is adopted in the
laboratory and test methods are established using a particular instrument, the
costs and/or risks of switching to a different manufacturer of instruments can
be high. Customers are therefore reluctant to switch suppliers and are more
likely to buy replacement products from the manufacturer of the initial system,
which leads to stable customer relationships and a potential recurring revenue
stream for the vendor. The Company believes that there are significant potential
growth opportunities in its analytical instruments markets, including: growth in
end-use markets such as pharmaceuticals, food and beverage, consumer products,
environmental
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testing and chemicals; increased research and development spending in major
customer segments such as the pharmaceutical and biotech industries; and
increased customer emphasis on productivity and automation.
The end-users of metal detection equipment are typically companies in the
food processing, pharmaceutical, cosmetics, chemicals and other industries that
must ensure that their products are free from contamination by metal particles.
Selling product that is contaminated by metal can have severe consequences for
these companies, resulting in potential litigation and product recalls.
Consequently, the Company believes that purchasers of metal detectors value
accuracy and stability of their detectors. The Company believes that there is
also a high degree of brand loyalty from customers, as switching brands requires
retraining line operators in the use of new equipment and altering quality
assurance and calibration routines. The Company believes these characteristics
lead to a high level of recurring and follow-on revenues from existing
customers. The Company believes that in developed markets, demand for metal
detectors is experiencing substantial growth as a result of both increasing
consumer and regulatory focus on product safety. Furthermore, the Company
believes exports of food products to industrialized nations from lesser
developed countries will contribute to rapid growth in demand for metal
detectors in emerging markets.
INDUSTRY TRENDS
Over the last five years, the markets for the Company's precision
instruments have experienced increasing customer demand for products with
sophisticated data handling and storage capabilities that can be integrated into
management information systems. In the laboratory market, weighing and
analytical instruments are now capable of storing a large number of results,
performing statistical analyses and transmitting results to computers and
laboratory information management systems. Laboratory customers have also
demanded instruments that improve research productivity by adding automation.
For example, titrators have been increasingly paired with auto-samplers, which
allow a technician to set up dozens of samples for testing automatically. The
industrial and food retailing market has experienced a similar trend, as small
groceries are replaced by supermarkets and hypermarkets. Retail counter-top
scales (for the weighing of perishable goods) now include database and network
functions. This enables the scale to download price information from the store's
master price database and provide information on sales by article, which can be
integrated into the store's inventory control system. The store's master
ordering system is then able to calculate shrinkage and store inventory levels
based on the weight of goods processed and automatically reorder perishable
goods via electronic data interchange when inventory levels reach a pre-set
reorder point. In manufacturing, weighing instruments also have become
integrated into manufacturing plants' information systems as the primary means
for the tracking and control of inventory. As they have become more integrated
into the manufacturing process, weighing instruments also have been combined
with dimensioning equipment as well as with multiple input/output devices:
bar-code readers, printers and data-storage devices. Similarly, metal detection
systems can be integrated with checkweighers to provide important safety and
quality checks of consumer products and are linked to customers' management
information systems to provide key process control data.
Another trend in the weighing instruments market is regional and global
harmonization of weighing and measurement standards. Weights and measures were
historically regulated at the national level. As a result, products had to meet
numerous different national regulatory requirements. More recently, certain
European national requirements have been harmonized by the European Union, and
many other national requirements have been harmonized by the Organisation
Internationale de Metrologie Legale, which sets international weights and
measures standards. Harmonization has facilitated the ability of multinational
weighing instrument manufacturers to manufacture products that meet all relevant
regulatory requirements and the development of broader-based markets for their
product lines. In recent years, some governments have begun to privatize the
inspection of weighing instruments used in commercial transactions.
ISO-certified manufacturers of weighing instruments, such as Mettler-Toledo,
whose after-sales service technicians already perform similar services for
customers, are well situated to take over the inspection process from
governments wishing to privatize this function.
As laboratory and manufacturing requirements and standards become more
widely adopted, the accuracy of weighing instruments, analytical instruments and
metal detection systems and the ability to certify the accuracy of results
become increasingly important to purchasers. For example, ISO 9001 standards and
Good Laboratory Practices and Good Manufacturing Practices, which are
voluntarily adopted by participating companies, require the development of
compliance procedures that must be adhered to throughout the relevant laboratory
or
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production process. These procedures include periodic calibration and
certification of measurement instruments. Certified instruments must be utilized
throughout the process, and each step in the process must be accurately recorded
in accordance with specified procedures so that results can be accurately traced
and reproduced. An example of this trend is the increasing adoption of ISO 9001
quality guidelines by food processors, which require all production processes to
be properly monitored for contamination by metal and other foreign substances.
BUSINESS
GENERAL
Mettler-Toledo is a leading global supplier of precision instruments. The
Company is the world's largest manufacturer and marketer of weighing instruments
for use in laboratory, industrial and food retailing applications. In addition,
the Company holds one of the top three market positions in several related
analytical instruments such as titrators, thermal analysis systems, pH meters,
automatic lab reactors and electrodes. Through its recent acquisition of
Safeline, the Company is also 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. The
Company focuses on high value-added segments of its markets by providing
innovative instruments, by integrating these instruments into
application-specific solutions for customers, and by facilitating the processing
of data gathered by its instruments and the transfer of this data to customers'
management information systems. Mettler-Toledo services a worldwide customer
base through its own sales and service organization and has a global
manufacturing presence in Europe, the United States and Asia. The Company
generated pro forma 1996 net sales of $889.6 million (giving effect to the
Safeline Acquisition) which were derived 49% in Europe, 40% in North and South
America and 11% in Asia and other markets.
HISTORY
The Company traces its 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 it
introduced the first fully electronic precision balance in 1973. The Toledo
Scale Company ('Toledo Scale') 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. Following the
1989 acquisition of Toledo Scale by Mettler, the name of the Company 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 15 years, the Company has grown through other acquisitions that
complemented the Company's existing geographic markets and products. In 1986,
Mettler acquired the Ingold Group of companies, manufacturers of electrodes, and
Garvens Kontrollwaagen AG, a maker of dynamic checkweighers. Toledo Scale
acquired Hi-Speed Checkweigher Co., in 1981. In 1990, the Company acquired Ohaus
Corporation, a manufacturer of laboratory balances.
The Company was incorporated in December 1991, and was recapitalized in
connection with the October 15, 1996 acquisition of the Mettler-Toledo Group
from Ciba in a transaction sponsored by management and AEA Investors. See Note 1
to the Audited Consolidated Financial Statements included herein for further
information with respect to the Acquisition. On May 30, 1997, the Company
purchased Safeline, the world's leading supplier of metal detection systems for
companies that produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries.
MARKET LEADERSHIP
The Company believes that it maintains a leading position in each of its
markets. In the weighing instruments market, Mettler-Toledo is the only company
to offer products for laboratory, industrial and food retailing applications
throughout the world and believes that it holds a market share more than two
times greater than that of its nearest competitor. The Company believes that in
1996 it had an approximate 40% market share 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, the Company believes it has the largest
market share in Europe and the United States. In Asia, Mettler-
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Toledo has substantial, rapidly growing industrial and food retailing businesses
supported by an established manufacturing presence in China. The Company also
holds one of the top three global market positions in several analytical
instruments such as titrators, thermal analysis systems, electrodes, pH meters
and automatic lab reactors. The Company recently enhanced its leading positions
in precision instruments through the addition of Safeline's market leading metal
detection products, which can be used in conjunction with the Company's
checkweighing instruments for important quality and safety checks in the food
processing, pharmaceutical, cosmetics, chemicals and other industries.
Mettler-Toledo attributes its worldwide market leadership positions to the
following competitive strengths:
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, the Company believes customers tend to emphasize
accuracy, product reliability, technical innovation, service quality, reputation
and past experience with a manufacturer's products when making their purchasing
decisions for weighing and other precision instruments and experience high
switching costs if they attempt to change vendors. A recent independent survey
concluded that 'Mettler-Toledo' was one of the three most recognized brand names
in the laboratory. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as 'Mettlers.' The
strength of this brand name has allowed the Company to successfully extend its
laboratory product line to include titrators, thermal analysis systems,
electrodes, pH meters and automatic lab reactors.
Technological Innovation. Mettler-Toledo has a long and successful track
record of innovation, as demonstrated by the invention of the single-pan
analytical balance in 1945 and the introduction of the first fully electronic
precision balance in 1973. The Company has continued to be at the forefront of
technology with recent innovations in both weighing and related instrumentation,
including its new digital load cell, its ID 20 terminal (the first personal
computer interface to be certified by weights and measures regulators), its
Brickstone weighing sensor technology, its GOBI moisture determination
instrument, a new automatic lab reactor, the Zero Metal-Free Zone metal detector
and its new PILAR (Parallel Infrared Laser Array) dimensioning equipment. As
with many of the Company's recent innovations, the Company's new Brickstone
weighing sensor technology provides greater accuracy while also significantly
reducing manufacturing costs and the time and expense of design changes by
reducing from approximately 100 to approximately 50 the number of parts in the
sensor. The Company believes it is the global leader in its industry in
providing innovative instruments, in integrating its instruments into
application-specific solutions for customers, and in facilitating the processing
of data gathered by its instruments and the transfer of this data to customers'
management information systems. Mettler-Toledo's technological innovation
efforts benefit from the Company's manufacturing expertise in sensor technology,
precision machining and electronics, as well as its strength in software
development.
Comprehensive, High Quality Product Range. Mettler-Toledo manufactures a
more comprehensive range of weighing instruments than any of its competitors.
The Company's broad product line addresses a wide range of weighing applications
across and within many industries and regions. Furthermore, the Company's
analytical instruments and metal detection systems complement its weighing
products, enabling the Company to offer integrated solutions. The Company
manufactures its products in its modern manufacturing facilities, most of which
are ISO 9001 certified. Mettler-Toledo's broad range of high quality products
and the ability to provide integrated solutions allows the Company to leverage
its sales and service organization, product development activities and
manufacturing and distribution capabilities.
Global Sales and Service. The Company has the only global sales and
service organization among weighing instruments manufacturers. At September 30,
1997, this organization consisted of approximately 3,000 employees organized
into locally-based, customer-focused groups that provide prompt service and
support to the Company's customers and distributors in virtually all major
markets around the world. The local focus of the Company's sales and service
organization enables the Company to provide timely, responsive support to
customers worldwide and provides feedback for manufacturing and product
development. This global infrastructure also allows the Company to capitalize on
growth opportunities in emerging markets.
Largest Installed Base. The Company believes that it has the largest
installed base of weighing instruments in the world. From this installed base,
the Company obtains service contracts which provide a strong,
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stable source of recurring service revenue. Service revenue represented
approximately 17% of net sales in 1996, of which approximately 8% is derived
from service contracts and repairs with the remainder derived from the sale of
spare parts. The Company believes that its 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 an existing supplier that can provide
accurate and reliable products and related services. 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 its broad customer base also provide the Company with
sales leads and new product and application ideas.
Geographical, Product and Customer Diversification. The Company's revenue
base is diversified by geographic region, product range and customer. The
Company's broad range of product offerings is utilized in many different
industries, including, among others, chemicals, pharmaceuticals, food
processing, food retailing and transportation. The Company supplies customers in
over 100 countries, and no one customer accounted for more than 2% of 1996 net
sales. The Company's diverse revenue base reduces its exposure to regional or
industry-specific economic conditions, and its presence in many different
geographic markets, product markets and industries enhances its attractiveness
as a supplier to multinational customers.
GROWTH STRATEGY
Prior to its acquisition on October 15, 1996 in a transaction sponsored by
management and AEA Investors, Mettler-Toledo operated as a division of Ciba. In
connection with the Acquisition, Mettler-Toledo began implementing a strategy to
enhance its position as global market leader by accelerating new product
introductions, capitalizing on market opportunities, focusing on expansion in
emerging markets, pursuing selected acquisitions and reengineering its
operations in order to reduce its overall cost structure. These initiatives have
contributed to an improvement in Adjusted Operating Income from $37.0 million
(5.9% of net sales) for the nine months ended September 30, 1996 to $52.6
million (8.3% of net sales) for the nine months ended September 30, 1997, an
increase of 42%.
New Product Introductions. The Company intends to continue to invest in
product innovation in order to provide technologically advanced products to its
customers for existing and new applications. Over the last three calendar years,
the Company invested approximately $170.0 million in research and development
and customer engineering, which has resulted in a pipeline of innovative and new
products, significant reductions in product costs and reduced time to market for
new products. Examples of new product introductions planned for the remainder of
1997 and 1998 include: industrial and retail products that apply open-system
architecture, a higher performance titrator, a higher performance modular
thermal analysis system and new density and refractometry measurement
technology. In addition, the Company is also focused on innovations that reduce
manufacturing costs. For example, the Company is extending the utilization of
its high-accuracy, low-cost Brickstone weighing sensor technology through much
of its weighing instrument product line. The Company attributes a significant
portion of its recent margin improvement to its research and development
efforts.
Capitalize on Market Opportunities. Mettler-Toledo believes it is well
positioned to capitalize on potential market opportunities including: (i) the
integration of weighing instruments into data management software systems to
automate processes and/or improve process control; (ii) the development of
integrated solutions that combine weighing instruments and related technologies
directly into manufacturing processes; (iii) the harmonization of national
weighing standards among countries, particularly in the European Union; and (iv)
the standardization of manufacturing and laboratory practices through programs
such as ISO 9001, Good Laboratory Practices and Good Manufacturing Practices.
The Company believes that these trends, together with the Company's brand name,
global presence and the pipeline of planned new products, will allow it to
increase its penetration of developed markets such as Europe, the United States
and Japan.
Further Expansion in Emerging Markets. The Company believes that global
recognition of the Mettler-Toledo brand name and the Company's global sales,
service and manufacturing capabilities position it to take advantage of
continued growth opportunities in emerging markets. These growth opportunities
have been driven by economic development and global manufacturers' utilization
of additional and more sophisticated weighing instruments as they shift
production to these markets. The primary focus to date of the Company's emerging
market expansion has been in Asia. In Asia (excluding Japan), the Company is the
market leader in laboratory
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weighing instruments and has substantial and rapidly growing industrial and food
retailing businesses. The Company maintains two profitable operations in China:
first, a 60% owned joint venture which manufactures and sells industrial and
food retailing products and, second, a wholly owned facility which manufactures
and distributes laboratory products. Both of these operations serve the domestic
and export markets. Recently, the Company has opened direct marketing
organizations in Taiwan, Korea, Hong Kong, Thailand and Malaysia. The Company is
also expanding its sales and service presence in Latin America and other
emerging markets. The Company believes that its brand name, its global marketing
and manufacturing infrastructure and its already substantial sales in Asia and
Latin America position it to take advantage of further growth opportunities in
emerging markets.
Pursue Selected Acquisition Opportunities. Mettler-Toledo plans to
actively pursue additional complementary product lines and distribution
channels. In the laboratory market, the Company intends to leverage its existing
laboratory distribution system through the acquisition of complementary product
lines and the development of integrated laboratory solutions. In the industrial
and food retailing markets, the Company plans to pursue the acquisition of
related products and technologies that allow for the integration of weighing
with other customer operations and information systems. The Company began
implementing this strategy through the May 1997 acquisition of Safeline, which
had calendar year 1996 revenues of $40.4 million and is the world's leading
supplier of metal detection systems for companies that produce and package goods
in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Safeline's metal detection systems enable the Company to offer
integrated solutions for quality control and data management to these
industries. The Company believes that by taking advantage of its brand name and
global sales and service organization it can expand the distribution of acquired
product lines and operate acquired businesses more effectively.
Reengineering and Cost Reductions. The Company's recent increase in
profitability has been achieved in part through: (i) focusing research and
development efforts on product cost reductions; (ii) achieving greater
flexibility in, and a targeted reduction of, the Company's workforce, including
a reduction of approximately 170 personnel in 1996; (iii) consolidating
manufacturing facilities, including the closure of the Westerville, Ohio
facility; and (iv) moving production to lower-cost manufacturing facilities. The
Company has also started implementing a number of additional operational changes
such as the restructuring of its ordering process, product delivery and parts
inventory management in Europe, the consolidation of worldwide precision balance
manufacturing, the realignment of industrial product manufacturing in Europe and
the consolidation of the Company's North American laboratory, industrial and
food retailing businesses into a single marketing organization. The Company
believes that these new initiatives, as well as its continuing efforts to reduce
product costs through research and development and the move of production to
lower-cost manufacturing facilities, will place the Company in a position to
build on its recent improvement in profitability. Furthermore, the Company
believes that it can leverage its existing infrastructure, particularly the
recent investments made in Asia, to obtain continued sales growth without
significant additions to its overall cost base.
PRODUCTS
Laboratory
The Company manufactures and markets 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 40% of the Company's net sales in 1996 (including revenues from
related after-sale service). The Company believes that it has an approximate 40%
share of the global market for laboratory balances and is among the top three
producers worldwide of titrators, thermal analysis systems, electrodes, pH
meters and automatic lab reactors. The Company believes it has 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. The Company believes that it sells the highest performance
laboratory balances available on the market, with weighing ranges up to 32
kilograms and down to one ten-millionth of a gram. The Mettler-Toledo name is
identified worldwide with accuracy, reliability and innovation. A recent
independent survey concluded that 'Mettler-Toledo' was one of the three most
recognized names in the laboratory. The Company's brand name is so well
recognized that
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laboratory balances are often generically referred to as 'Mettlers.' This
reputation, in management's judgment, constitutes one of the Company's principal
competitive strengths.
In order to cover a wide range of customer needs and price points,
Mettler-Toledo markets 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,
while basic level balances provide simple operations and a limited feature set.
The Company also manufactures mass comparators, which are used by weights and
measures regulators as well as laboratories to ensure the accuracy of reference
weights. Due to the wide range of functions and features offered by the
Company's 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.
The Company regularly introduces new features and updated models in its
lines of balances. For example, the Company's 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 many times in controlled environments,
with the results of the calibrations incorporated into built-in software, so
that adjustments to ambient temperature and humidity can automatically be made
at any time. The Company also offers 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, the Company also
manufactures and sells 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. The
Company's 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. Lower-range models 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.
The Company's 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. The Company manufactures 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, and permit later downloading of data 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 are used to simulate an entire chemical manufacturing
process in the laboratory before proceeding to production, in order to ensure
the safety and feasibility of the process. The Company's products are fully
computer-integrated, with a significant software component, and offer wide
flexibility in the structuring of experimental processes. Automatic lab reactors
and reaction calorimeters are typically used in the chemical and pharmaceutical
industries. A typical lab reactor is priced at approximately $140,000.
Electrodes. The Company manufactures electrodes for use in a variety of
laboratory instruments and in-line process applications. Laboratory electrodes
are consumable goods used in pH meters and titrators, which 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.
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Other Instruments. The Company sells 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, the
Company manufactures and sells 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. The Company's industrial and food retailing
weighing and related products include bench and floor scales for standard
industrial applications, truck and railcar scales for heavy industrial
applications, checkweighers (which determine the weight of goods in motion),
metal detectors, dimensioning equipment and scales for use in food retailing
establishments, and specialized software systems for industrial and perishable
goods management processes. Increasingly, many of the Company's industrial and
food retailing products can integrate weighing data into process controls and
information systems. The Company's industrial and food retailing products are
also sold to original equipment manufacturers ('OEMs'), which incorporate the
Company's products into larger process solutions and comprehensive food
retailing checkout systems. At the same time, the Company's products themselves
include significant software content and additional functions including
networking, printing and labeling capabilities and the incorporation of other
measuring technologies such as dimensioning. The Company works with customer
segments to create specific solutions to their weighing needs. The Company has
also recently worked closely with the leading manufacturer of postal meters to
develop a new generation of postal metering systems.
Industrial and food retailing products accounted for approximately 60% of
the Company's net sales in 1996 (including revenues from related after-sale
service). The Company believes that it has the largest market share in the
industrial and food retailing market in each of Europe and the United States. In
Asia, the Company has a substantial, rapidly growing industrial and food
retailing business supported by an established manufacturing presence in China.
The Company believes that it is the only company with a true global presence
across industrial and food retailing weighing applications.
Standard Industrial Products. The Company offers a complete line of
standard industrial scales, such as bench scales and floor scales, for weighing
loads from a few grams to loads of several thousand kilograms in applications
ranging from measuring materials in chemical production to weighing mail and
packages. 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. The Company's
'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 the Company's
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. The Company's 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). The Company's 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. The Company also offers advanced computer
software that can be used with its heavy industrial scales to permit a broad
range of applications. Truck scales prices generally range from $20,000 to
$50,000.
Dynamic Checkweighing. The Company offers solutions to checkweighing
requirements in the food processing, pharmaceutical, chemicals and cosmetic
industries, where accurate filling of packages is required, and in 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. Mettler-Toledo 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.
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Metal Detection Systems. Metal detection systems control the removal of
product that is 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 use of contaminated raw materials. Metal detectors are most
commonly utilized in conjunction 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. The Company recently introduced automated
dimensioning equipment that is utilized in the shipping industry to measure
package volumes. These products employ a patented Parallel Infrared Laser Array
('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 handling of
perishable goods from backroom to checkout counter. 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.
The Company offers stand-alone scales for basic counter weighing and
pricing, price finding, and printing. In addition, the Company offers 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, the Company also sells
slicing and mincing equipment. Prices for food retailing scales generally range
from $800 to $5,000, but are often sold as part of comprehensive weighing
solutions.
Systems. The Company's systems business consists of software applications
for drum filling in the food and chemical industries and batching systems in the
glass industry. The software systems control or modify the manufacturing
process.
CUSTOMERS AND DISTRIBUTION
The Company's business is geographically diversified, with pro forma 1996
net sales (giving effect to the Safeline Acquisition) derived 49% in Europe, 40%
in North and South America and 11% in Asia and other markets. The Company's
customer base is also diversified by industry and by individual customer. The
Company's largest single customer accounted for no more than 2% of 1996 net
sales.
Laboratory
Principal customers for laboratory products include chemical,
pharmaceutical and cosmetics manufacturers; food and beverage makers; the
metals, electronics, plastics, transportation, packaging, logistics and rubber
industries; the jewelry and precious metals trade; educational institutions; and
government standards labs. Balances and pH meters 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.
The Company's laboratory products are sold in more than 100 countries
through a worldwide distribution network. The Company's extensive direct
distribution network and its dealer support activities enable the Company to
maintain a significant degree of control over the distribution of its products.
In markets where there are strong laboratory distributors, such as the United
States, the Company uses them as the primary marketing channel for lower- and
mid-price point products. This strategy allows the Company to leverage the
strength of both the Mettler-Toledo brand and the laboratory distributors'
market position into sales of other laboratory measurement instruments. The
Company provides its distributors with a significant amount of technical and
sales support. High-end products are handled by the Company's own sales force.
There has been recent consolidation among distributors in the United States
market. While this consolidation could adversely affect the Company's U.S.
distribution, the Company believes its leadership position in the market gives
it a competitive advantage when dealing with its U.S. distributors. Asian
distribution is primarily through distributors, while European distribution is
primarily through direct sales. European and Asian distributors are generally
fragmented on a
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country-by-country basis. The Company negotiated a transfer of the laboratory
business in Japan from its former agent to a subsidiary of the Company effective
January 1, 1997. In addition, the Company began to distribute laboratory
products directly in certain other Asian countries.
Ohaus branded products are generally positioned in alternative distribution
channels to those of Mettler-Toledo branded products. In this way, the Company
is able to fill a greater number of distribution channels and increase
penetration of its existing markets. Since the acquisition of Ohaus in 1990, the
Company has expanded the Ohaus brand beyond its historical U.S. focus. Ohaus
branded products are sold exclusively through distributors.
Industrial and Food Retailing
Customers for Mettler-Toledo industrial products include chemical companies
(e.g., formulating, filling and bagging 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. The Company's products for these
industries share weighing technology, and often minor modifications of existing
products can make them useful for applications in a variety of industrial
processes. The Company also sells to OEMs which integrate the Company's modules
into larger process control applications, or comprehensive packaging lines. OEM
applications often include software content and technical support, as the
Company's modules must communicate with a wide variety of other process modules
and data management functions. The Company's 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 who must ensure that their
products are free from contamination by metal particles. Selling product that is
contaminated by metal can have severe consequences for these companies,
resulting in potential litigation and product recalls. Metal detection systems
are most commonly utilized in conjunction with checkweighers as components of
integrated packaging lines as important safety checks before food and other
products are delivered to customers. Other applications of metal detection
systems include pipeline detectors for dairy and other liquids, gravity fall
systems for grains and sugar and throat detection systems for raw material
monitoring.
Customers for food retailing products include supermarkets, hypermarkets
and smaller food retailing establishments. The North American and European
markets include many large supermarket chains. In most of the Company's markets,
food retailing continues to shift to supermarkets and hypermarkets from 'mom and
pop' grocery stores. While supermarkets and hypermarkets generally buy less
equipment per customer, they tend to buy more advanced products that require
more electronic and software content. In emerging markets, however, the highest
growth is in basic scales. As with industrial products, the Company also sells
food retailing products to OEMs for inclusion in more comprehensive checkout
systems. For example, the Company's checkout scales are incorporated into
scanner-scales, which can both 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.
The Company's industrial products are sold in more than 100 countries and
its food retailing products in 20 countries. In the industrial and food
retailing markets, the Company distributes directly to customers (including
OEMs) and through distributors. In the United States, direct sales slightly
exceed distributor sales. Distributors are highly fragmented in the U.S. In
Europe, direct sales predominate, with distributors used in certain cases. As in
its laboratory distribution, the Company provides significant support to its
distributors.
SALES AND SERVICE
Market Organizations
The Company has over 30 geographically-focused market organizations ('MOs')
around the world that are responsible for all aspects of the Company's sales and
service. The MOs are local marketing and service organizations designed to
maintain close relationships with the Company's customer base. Each MO has the
flexibility to adapt its marketing and service efforts to account for different
cultural and economic conditions.
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MOs also work closely with the Company's producing organizations (described
below) by providing feedback on manufacturing and product development
initiatives and relaying innovative product and application ideas.
The Company has the only global sales and service organization among
weighing instruments manufacturers. At September 30, 1997, this organization
consisted of approximately 3,000 employees in sales, marketing and customer
service (including related administration) and after-sales technical service.
This field organization has the capability to provide service and support to the
Company's 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. The Company classifies 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 are specialized by product line.
Sales representatives call directly on end-users either alone or, in regions
where sales are made through distributors, jointly with distributors. The
Company utilizes a variety of advertising media, including trade journals,
catalogs, exhibitions and trade shows. The Company also sponsors seminars,
product demonstrations and customer training programs. An extensive database on
markets helps the Company to gauge growth opportunities, target its message to
appropriate customer groups and monitor competitive developments.
After-Sales Service
The Company employs service technicians who provide contract and repair
services in all countries in which the Company's products are sold. Service
(representing service contracts, repairs and replacement parts) accounted for
approximately 17% of the Company's total net sales in 1996 (service revenue is
included in the laboratory and industrial and food retailing sales percentages
given above). Management believes that service is a key part of its product
offering and helps significantly in generating repeat sales. Moreover, the
Company believes that it has the largest installed base of weighing instruments
in the world. The close relationships and frequent contact with its large
customer base provide the Company with sales opportunities and innovative
product and application ideas. A global service network also is an important
factor in the ability to expand in emerging markets. Widespread adoption of
quality laboratory and manufacturing standards and the privatization of weights
and measures certification represent favorable trends for the Company's service
business, as they tend to increase demand for on-site calibration services.
The Company's 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. The Company's own employees directly
provide all service on the Company's products. If the service contract also
includes products of other manufacturers, the Company will generally perform
calibration, testing and basic repairs directly, and contract out more
significant repair work. As application software becomes more complex, the
Company's service efforts increasingly include installation and customer
training programs as well as product service.
Warranties on Mettler-Toledo products are generally one year. Based on past
experience, the Company believes its reserves for warranty claims are adequate.
RESEARCH AND DEVELOPMENT; MANUFACTURING
Producing Organizations
The Company is organized into a number of producing organizations ('POs'),
which are specialized centers responsible for product development, research and
manufacturing. At September 30, 1997, POs included approximately 3,800 employees
worldwide, and consisted of product development teams whose members are from
marketing, development, research, manufacturing, engineering and purchasing. POs
also often seek customer input to ensure that the products developed are
tailored to market needs. The Company has organized POs in order to reduce
product development time, improve its customer focus, reduce costs and maintain
technological leadership. The POs work together to share ideas and best
practices. Some employees are in both MOs and POs. The Company is currently
implementing a number of projects that it believes will result in increased
productivity and lower costs. For example, the Company is restructuring the
order and product delivery process in Europe to enable the Company to deliver
many of its products to its customers directly from the
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manufacturing facility within several days, which minimizes the need to store
products in decentralized warehouses. In addition, the Company is centralizing
its European spare parts inventory management system.
Research and Product Development
The Company closely integrates research and development with marketing,
manufacturing and product engineering. The Company has nearly 600 professionals
in research and development and product engineering. The Company's principal
product development activities involve applications improvements to provide
enhanced customer solutions, systems integration and product cost reduction.
However, the Company also actively conducts research in basic weighing
technologies. As part of its research and development activities, the Company
has frequent contact with university experts, industry professionals and the
governmental agencies responsible for weights and measures, analytical
instruments and metal detectors. In addition, the Company's in-house development
is complemented by technology and product development alliances with customers
and OEMs.
A recent example of innovation at the Company is the Brickstone weighing
sensor technology, which eliminates many of the complex mechanical linkages in a
weighing sensor and reduces the number of parts in the sensor from approximately
100 to approximately 50. The Brickstone sensor permits more accurate weighing,
lower manufacturing costs and cheaper and faster design changes. Brickstone
technology has been incorporated into certain of the Company's products, and the
Company is extending the utilization of its Brickstone technology through much
of its weighing instrument product lines.
The Company has been spending an increasing proportion of its research and
development budget on 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 the Company's broad product lines.
The Company spent $50.0 million on research and development in 1996
(excluding research and development purchased in connection with the
Acquisition), $54.5 million in 1995 and $48.0 million in 1994, which the Company
believes was more than any of its competitors. Including costs associated with
customer-specific engineering projects, which are included in cost of sales for
financial reporting purposes, the Company spent approximately 6.6% of net sales
on research and development in 1996. Application-specific projects include the
Company's recently developed thermal analysis system, memory cards used in
titrators to perform industry-specific processes, and software for use in truck
scales.
Manufacturing
The Company's manufacturing strategy is to produce directly those
components that require its specific technical competence, or for which
dependable, high-quality suppliers cannot be found. The Company contracts out
the manufacture of its other component requirements. Consequently, much of the
Company's manufacturing capability consists of assembly of components sourced
from others. The Company utilizes a wide range of suppliers and it believes its
supply arrangements to be adequate. From time to time the Company relies on one
supplier for all of its requirements of a particular component, but in such
cases the Company believes adequate alternative sources would be available if
necessary. Supply arrangements for electronics are generally made globally. For
mechanical components, the Company generally uses local sources to optimize
materials flow.
The Company's manufacturing operations emphasize product quality. Most of
its products require very strict tolerances and exact specifications. The
Company utilizes 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 the Company's 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.
The Company has seven manufacturing plants in the U.S., four in
Switzerland, two in Germany, one in the U.K. and two in China, of which one is a
joint venture in which the Company owns a 60% interest and the other, the
Shanghai facility, was completed and commenced production of laboratory products
at the end of 1996. 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. The Company's metal
detectors are
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produced in the U.K. The Company has manufacturing expertise in sensor
technology, precision machining and electronics, as well as strength in software
development. Furthermore, most of the Company's manufacturing facilities have
achieved ISO 9001 certification. The Company believes its manufacturing capacity
is sufficient to meet its present and currently anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently short so as to
permit the Company to manufacture to fill orders for most of its 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 September 30, 1997, the Company had approximately 6,800 employees
throughout the world, including more than 3,500 in Europe, more than 2,500 in
North and South America, and more than 700 in Asia and other countries.
Management believes that its relations with employees are good. The Company has
not suffered any material employee work stoppage or strike in its worldwide
operations during the last five years. Labor unions do not represent a
meaningful number of the Company's employees.
In certain of its facilities, the Company has instituted a flexible
workforce environment, in which hours vary depending on the quantity of
workload. The Company believes that this flexible working environment enhances
employees' involvement, thus increasing productivity, and improves efficient
payroll management by permitting the Company to adjust staffing to match
workload to a greater degree without changing the size of the overall workforce.
INTELLECTUAL PROPERTY
The Company holds more than 1,100 patents and trademarks, primarily in the
United States, Switzerland, Germany and Japan and, to a lesser extent, in China.
The Company's 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 the
Company's business. The Company also has numerous trademarks and considers the
Mettler-Toledo name and logo to be material to its business. The Company
regularly protects against infringement of its intellectual property.
REGULATION
The Company's products are subject to regulatory standards and approvals by
weights and measures regulatory authorities in the countries in which it sells
its products. Weights and measures regulation has been harmonized across the
European Union. The Company's 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 the Company's
electrical components are subject to electrical safety standards. The Company
believes that it is in compliance in all material respects with applicable
regulations.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates, including those 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. The Company wholly or partly owns, leases or holds 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. The Company, like many of its competitors,
has 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.
The Company is currently involved in, or has potential liability with
respect to, the remediation of past contamination in certain of its presently
and formerly owned and leased facilities in both the United States and abroad.
In addition, certain of the Company's 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
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by third parties to which the Company has sent wastes, may in the future be
identified and become the subject of remediation. Accordingly, although the
Company believes that it is in substantial compliance with applicable
environmental requirements and the Company to date has not incurred material
expenditures in connection with environmental matters, it is possible that the
Company could become subject to additional environmental liabilities in the
future that could result in a material adverse effect on the Company's financial
condition or results of operations.
The Company is involved in litigation concerning remediation of hazardous
substances at its operating 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 ('NJDEP') pursuant to the
New Jersey Environmental Cleanup Responsibility Act ('ECRA'). ECRA is now the
Industrial Site Recovery Act. Pursuant to a 1988 NJDEP 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., a wholly owned subsidiary of the Company that currently
owns the facility, to recover certain costs incurred by GEI in connection with
the site. Based on currently available information and the Company's rights of
indemnification from GEI, the Company believes that its ultimate allocation of
costs associated with the past and future investigation and remediation of this
site will not have a material adverse effect on the Company's financial
condition or results of operations.
In addition, the Company is aware that Toledo Scale, the former owner of
Toledo Scale or the Company has been named a potentially responsible party under
CERCLA or analogous state statutes at the following third-party owned sites with
respect to the alleged disposal at the sites by Toledo Scale during the period
it was owned by such former owner: Granville Solvents Site, Granville, Ohio;
Aqua-Tech Environmental, Inc. Site, Greer, South Carolina; and Seaboard Chemical
Company Site, Jamestown, North Carolina. The former owner has also been named in
a lawsuit seeking contribution pursuant to CERCLA with respect to the Caldwell
Trucking Site, New Jersey based on the alleged disposal at the site by Toledo
Scale during the former owner's period of ownership. Pursuant to the terms of
the stock purchase agreement between Mettler and the former owner of Toledo
Scale, the former owner is obligated to indemnify Mettler 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 the Company's contractual rights of
indemnification, the Company believes that the costs associated with the
investigation and remediation of these sites will not have a material adverse
effect on the Company's financial condition or results of operations.
COMPETITION
The markets in which the Company operates are highly competitive. Because
of the fragmented nature of certain of the Company's weighing instruments
markets, particularly the industrial and food retailing weighing instruments
markets, both geographically and by application, the Company competes with
numerous regional or specialized competitors, many of which are well-established
in their markets. Some competitors are less leveraged than the Company and/or
are divisions of larger companies with potentially greater financial and other
resources than the Company. Although the Company believes that it has certain
competitive advantages over its competitors, realizing and maintaining these
advantages will require continued investment by the Company in research and
development, sales and marketing and customer service and support. The Company
has, from time to time, experienced price pressures from competitors in certain
product lines and geographic markets.
In the United States, the Company believes that the principal competitive
factors in its markets on which purchasing decisions are made 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 through which the Company and its competitors
sell many of their products.
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PROPERTIES
The following table lists the Company's principal operating facilities,
indicating the location, primary use and whether the facility is owned or
leased.
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE(1) OWNED/LEASED
- - ------------------------------------------------------ ----------------------------------- ----------------
<S> <C> <C>
Europe:
Greifensee/Nanikon, Switzerland..................... Production, Corporate Headquarters Owned
Uznach, Switzerland................................. Production Owned
Urdorf, Switzerland................................. Production Owned
Schwerzenbach, Switzerland.......................... Production Leased
Albstadt, Germany................................... Production Owned
Giessen, 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
Tiel, Netherlands................................... Sales and Service Owned
Leicester, England.................................. Sales and Service Leased
Manchester, England................................. Production, Sales and Service Leased
Americas:
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 Leased
Tampa, Florida...................................... Production, Sales and Service Leased
Hightstown, New Jersey.............................. Sales and Service Owned
Burlington, Canada.................................. Sales and Service Owned
Mexico City, Mexico................................. Sales and Service Leased
Other:
Shanghai, China..................................... Production Building Owned;
Land Leased
Changzhou, China(2)................................. Production Building Owned;
Land Leased
Melbourne, Australia................................ Sales and Service Leased
</TABLE>
- - ------------------
(1) The Company also conducts 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 the Company owns a 60% interest.
The Company believes its facilities are adequate for its current and
reasonably anticipated future needs.
LEGAL PROCEEDINGS
The Company is subject to routine litigation incidental to its business.
The Company is currently not involved in any legal proceeding that it believes
could have a material adverse effect upon its financial condition or results of
operations. See 'Environmental Matters' for information concerning legal
proceedings relating to certain environmental claims.
The Company has received a Notice of Proposed Adjustment from the Internal
Revenue Service disallowing $20.4 million of intercompany interest deductions
taken by the Company in its 1994 and 1995 tax returns when the Company was a
subsidiary of Ciba. The Company is indemnified under the acquisition agreement
with Ciba against any loss that may arise from the proposed adjustment. However,
the Company believes that such deductions were properly made and intends to
assist Ciba in contesting the proposed adjustment.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth below.
All directors hold office until the annual meeting of shareholders following
their election or until their successors are duly elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion
thereof.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Philip Caldwell...................................... 77 Chairman of the Board of Directors
Robert F. Spoerry.................................... 42 President, Chief Executive Officer and Director
William P. Donnelly.................................. 36 Vice President, Chief Financial Officer, Treasurer
and Assistant Secretary
Karl M. Lang......................................... 50 Head, Laboratory Division
Lukas Braunschweiler................................. 41 Head, Industrial and Retail (Europe)
John D. Robechek..................................... 49 Head, Industrial and Retail (Americas)
Peter Burker......................................... 51 Head, Human Resources
Thomas Rubbe......................................... 43 Head, Logistics and Information Systems
Reginald H. Jones.................................... 80 Director
John D. Macomber..................................... 69 Director
John M. Manser....................................... 50 Director
Laurence Z.Y. Moh.................................... 71 Director
Thomas P. Salice..................................... 37 Director
Alan W. Wilkinson.................................... 41 Director
</TABLE>
Philip Caldwell has been Chairman of the Board of Directors since October
1996. Mr. Caldwell has been Senior Managing Director of Lehman Brothers Inc. and
its predecessor, Shearson Lehman Brothers Holdings Inc., since 1985. During a 32
year career at Ford Motor Company, Mr. Caldwell was Chairman of the Board of
Directors and Chief Executive Officer from 1980 to 1985 and a Director from 1973
to 1990. Mr. Caldwell is also a Director of Lehman Brothers Inc., Zurich Holding
Company of America, Inc., American Guarantee & Liability Insurance Company, The
Mexico Fund, Waters Corporation and Russell Reynolds Associates, Inc. He has
served as a Director of the Chase Manhattan Corporation, the Chase Manhattan
Bank, N.A., Digital Equipment Corporation, Federated Department Stores Inc., the
Kellogg Company, Shearson Lehman Brothers Holdings Inc., CasTech Aluminum Group,
Inc., Specialty Coatings International Inc., and Zurich Reinsurance Centre
Holdings, Inc.
Robert F. Spoerry has been President and Chief Executive Officer of the
Company since 1993. He served as Head, Industrial and Retail (Europe) of the
Company from 1987 to 1993. Mr. Spoerry has been a Director since October 1996.
William P. Donnelly has been Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company since April 1, 1997. From 1993
until joining the Company, he held various senior financial and management
positions, including most recently Group Vice President and Chief Financial
Officer, with Elsag Bailey Process Automation, a global manufacturer of
instrumentation and analytical products, and developer of distributed control
systems. Prior to 1993, Mr. Donnelly was associated with the international
accounting firm of Price Waterhouse.
Karl M. Lang has been Head, Laboratory Division of the Company since 1994.
From 1991 to 1994 he was based in Japan as a representative of senior management
with responsibility for expansion of the Asian operations.
Lukas Braunschweiler has been Head, Industrial and Retail (Europe) of the
Company since 1995. From 1992 until 1995 he held various senior management
positions with the Landis & Gyr Group, a manufacturer of electrical meters.
Prior to August 1992 he was a Vice President in the Technology Group of Saurer
Group, a manufacturer of textile machinery.
John D. Robechek has been Head, Industrial and Retail (Americas) of the
Company and President of Mettler-Toledo, Inc., a U.S.-based subsidiary of the
Company, since 1995. From 1990 through 1994 he served as Senior Vice President
and managed all of the Company's U.S. subsidiaries.
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Peter Burker has been Head, Human Resources of the Company since 1994. From
1992 to 1994 he was Mettler-Toledo's General Manager in Spain, and from 1989 to
1991 he headed the Company's operations in Italy.
Thomas Rubbe has been Head, Logistics and Information Systems of the
Company since 1995. From 1990 to 1995 he was head of Controlling, Finance and
Administration with the Company's German marketing organization.
Reginald H. Jones has been a Director since October 1996. Mr. Jones retired
as Chairman of the Board of Directors of General Electric Company ('General
Electric') in April 1981. At General Electric, he served as Chairman of the
Board of Directors and Chief Executive Officer from December 1972 through April
1981, President from June 1972 to December 1972 and a Director from August 1971
to April 1981. Mr. Jones is also a Director of ASA Limited and Birmingham Steel
Corporation.
John D. Macomber has been a Director since October 1996. He has been a
principal of JDM Investment Group since 1992. He was Chairman and President of
the Export-Import Bank of the United States (an agency of the U.S. Government)
from 1989 to 1992. From 1973 to 1986 Mr. Macomber was Chairman and Chief
Executive Officer of Celanese Corporation. Prior to that, Mr. Macomber was a
Senior Partner of McKinsey & Company. Mr. Macomber is also a Director of Textron
Inc., Bristol-Myers Squibb Company, Xerox Corporation, Lehman Brothers Holdings
Inc., Pilkington plc and Brown Group, Inc.
John M. Manser has been a Director since August 1997. He is the Treasurer
of the Worldwide Life Science Group of Novartis, which has its headquarters in
Switzerland. He has been with Novartis (and its predecessor Ciba-Geigy) since
1981.
Laurence Z. Y. Moh has been a Director since October 1996. He is Chairman
Emeritus of Universal Furniture Limited, which he founded in 1959.
Thomas P. Salice has been a Director since October 1996. Mr. Salice is a
Managing Director of AEA Investors and has been associated with AEA Investors
since June 1989. Mr. Salice is also a Director of Waters Corporation.
Alan W. Wilkinson has been a Director since October 1996. Mr. Wilkinson has
been a Managing Director of AEA Investors since September 1989. Prior to his
association with AEA Investors, Mr. Wilkinson was a Vice President in the
Merchant Banking and Mergers and Acquisitions divisions of Lehman Brothers Inc.
EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 1996 and
1995 the compensation paid to or accrued for services performed by the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company who were serving as executive officers at December 31,
1996 (collectively, the 'Named Executive Officers').
55
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSIITION YEAR SALARY BONUS(2) COMPENSATION OPTIONS(#) COMPENSATION
- - ------------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Spoerry, President and 1996 $435,135 $276,521 $8,857(3) -- $124,431
Chief Executive Officer........... 1995 289,343 85,871 -- 300(4) 54,346(5)
Fred Ort, 1996 207,221 99,325 -- -- 52,745
Corporate Controller.............. 1995 227,284 69,701 -- -- 70,804(5)
Karl M. Lang, 1996 212,997 88,375 -- -- 61,901
Head, Laboratory.................. 1995 228,427 38,071 -- -- 60,321(5)
Lukas Braunschweiler,
Head, Industrial and Retail 1996 210,893 66,162 -- -- 62,482
(Europe).......................... 1995 228,427 25,381 -- -- 50,460(5)
John D. Robechek, Head, Industrial 1996 233,754 88,137 -- -- 6,215
and Retail (Americas)............. 1995 225,000 40,563 -- -- 6,168(6)
</TABLE>
- - ------------------
(1) Amounts paid in Swiss francs (all amounts except those paid to Mr. Robechek)
converted to U.S. dollars at a rate of SFr 1.182 to $1.00 for 1995 and SFr
1.2355 to $1.00 for 1996, in each case the average exchange rate during such
year.
(2) Does not include Ciba bonuses to the Named Executive Officers for services
rendered to Ciba in connection with its efforts to sell the Company.
(3) Represents additional compensation paid to fully offset, after payment of
all taxes and social security contributions, interest charged to Mr. Spoerry
on a loan to Mr. Spoerry from Mettler-Toledo AG, a subsidiary of the
Company. See 'Certain Relationships and Related Transactions.'
(4) Option to purchase the specified number of shares of Ciba common stock at an
exercise price of SFr 750 ($665 at the date of grant) per share. The fair
market value at the date of grant was SFr 764 ($678) per share.
(5) Represents Company contributions to the Mettler-Toledo Fonds (a Swiss
pension plan similar to a defined contribution plan under U.S. law). Fifty
percent of the amount shown is a required employee contribution under the
plan which the Company has contributed on behalf of the Named Executive
Officers, and the other 50% is a required matching employer contribution.
(6) Includes $1,024 for 1995 and $1,071 for 1996 for the value of group life
insurance over $50,000, $4,500 for the Company's contribution to Mr.
Robechek's 401(k) plan account and $644 for Mr. Robechek's profit sharing
payout under the Company's Performance Dividend Plan.
Stock Options. The following table sets forth information concerning the
grant of stock options under the Company's Stock Plan to each of the Named
Executive Officers during 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SARS ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE/BASE APPRECIATION FOR OPTION/SAR TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH)(1) DATE 5% ($)
- - --------------------------- ------------ ------------ ------------- ---------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Robert F. Spoerry.......... 1,047,976 29.85 7.95 2006 5,237,372
Fred Ort................... 78,599 2.24 7.95 2006 392,808
Karl M. Lang............... 209,597 5.97 7.95 2006 1,046,858
Lukas Braunschweiler....... 209,597 5.97 7.95 2006 1,046,858
John D. Robechek........... 209,597 5.97 7.95 2006 1,046,858
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION/SAR TERM(2)
------------------------------------
NAME 10% ($)
- - --------------------------- ------------------------------------
<S> <C>
Robert F. Spoerry.......... 13,272,528
Fred Ort................... 995,452
Karl M. Lang............... 2,652,944
Lukas Braunschweiler....... 2,652,944
John D. Robechek........... 2,652,944
</TABLE>
(Footnotes on next page)
56
<PAGE>
(Footnotes from previous page)
- - ------------------
(1) The exercise prices and the number of securities underlying the options in
each case give effect to the Reorganization.
(2) The assumed annual rates of appreciation over the term of the option are set
forth in accordance with rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
appreciation price.
Option Exercises and Holdings. No options to purchase Common Stock were
exercised by the Named Executive Officers in 1996. The following table sets
forth information with respect to the aggregate number of unexercised options to
purchase Common Stock granted to the Named Executive Officers and held by them
as of December 31, 1996, and the value of unexercised in-the-money options
(i.e., options that had a positive spread between the exercise price and the
fair market value of the Common Stock) as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND OPTION/SAR VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
SHARES ACQUIRED VALUE YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
ON EXERCISE REALIZED ---------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- - ---------------------------- --------------- -------- ----------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
Robert F. Spoerry........... 0 0 0 1,047,976 0
Fred Ort.................... 0 0 0 78,599 0
Karl M. Lang................ 0 0 0 209,597 0
Lukas Braunschweiler........ 0 0 0 209,597 0
John D. Robechek............ 0 0 0 209,597 0
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END($)(2)
-------------------------
NAME UNEXERCISABLE
- - ---------------------------- -------------------------
<S> <C>
Robert F. Spoerry........... 0
Fred Ort.................... 0
Karl M. Lang................ 0
Lukas Braunschweiler........ 0
John D. Robechek............ 0
</TABLE>
- - ------------------
(1) The numbers of securities underlying the options give effect to the
Reorganization.
(2) Estimated value, as determined by the Company, at December 31, 1996 does not
exceed the exercise price.
EMPLOYMENT AGREEMENTS
Mettler-Toledo AG, a subsidiary of the Company, entered into an employment
agreement (the 'Agreement') with Robert F. Spoerry (the 'Executive') dated as of
October 30, 1996. The Agreement provides for annual base salary of SFr 560,000
(approximately $435,135 at December 31, 1996), which may be increased from time
to time in accordance with the Company's normal business practices, and for
participation in the Company's bonus plan. In addition, the Agreement provides
for payment of the amount necessary, after payment of all taxes and social
security contributions, to fully offset the interest charged to the Executive on
a certain loan to the Executive. See 'Certain Relationships and Related
Transactions' for a description of the loan. The Agreement prohibits the
Executive from competing with the Company for a period of twenty-four months
after termination of employment. The Agreement may be terminated without cause,
on thirty-six months notice during which period the Executive is entitled to
full compensation under the Agreement.
The Company is negotiating employment agreements with the other Named
Executive Officers. Base salary of executive officers under these agreements in
the aggregate will not be materially different from historical practice. The
agreements will also include bonuses contingent on meeting performance
objectives in amounts to be determined.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of the Company who are officers of the
Company or employees of AEA Investors have not received additional compensation
for being on the Board or its committees. The non-executive directors were given
a one-time opportunity to purchase stock in the Company upon their election to
the Board. Mr. Caldwell purchased 35,940 shares of common stock and each of
Messrs. Jones, Macomber and Moh
57
<PAGE>
purchased 23,972 shares of common stock. It is anticipated that members of the
Board of Directors of the Company initially will receive no cash compensation
for their service on the Board or its committees, but the members will receive
reimbursement for traveling costs and other out-of-pocket expenses incurred in
attending board and committee meetings. The Board of Directors may determine in
the future to pay cash compensation to non-executive directors.
RETIREMENT PLANS
Mr. Robechek is covered under two pension plans, the Mettler-Toledo
Retirement Plan and the Mettler-Toledo Supplemental Retirement Income Plan.
Benefits under these plans are determined by career average compensation rather
than final compensation. The annual accrual for each year under both plans is
the difference of 2% of annual compensation in a plan year and 0.6% of the
lesser of annual compensation or covered compensation (defined under the plans
as the average of the Social Security Taxable Wage Bases in effect for each
calendar year during the 35-year period ending on the last day of a given plan
year). The Mettler-Toledo Retirement Plan includes all compensation up to the
qualified plan limitations under the Internal Revenue Code of 1986, as amended
($150,000 per year in 1996), and the Mettler-Toledo Supplemental Retirement
Income Plan pays for benefits in excess of these limits. The accrued annual
benefit payable to Mr. Robechek under the Mettler-Toledo Retirement Plan is
$45,693 and the accrued annual benefit under the Mettler-Toledo Supplemental
Plan is $11,329, for a total annual retirement benefit of $57,022.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Company's Compensation Committee
during the fiscal year ended December 31, 1996: Reginald H. Jones, Laurence Z.
Y. Moh and Thomas P. Salice. Mr. Salice also served as an officer of the Company
and certain of its subsidiaries during such fiscal year. Mr. Salice is an
officer of AEA Investors, a shareholder of the Company. See 'Certain
Relationships and Related Transactions' for a description of relationships
between AEA Investors and the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AEA Investors and the Company entered into a management agreement (the
'Management Agreement') pursuant to which AEA Investors has provided management,
consulting and financial services to the Company. Services covered by the
Management Agreement include such areas as the preparation and evaluation of
strategic, operating, financial and capital plans and the development and
implementation of compensation and other incentive programs. Such services are
provided by the executive staff of AEA Investors. In consideration of such
services, AEA Investors is entitled to an annual fee of $1.0 million, plus
reimbursement for certain expenses and indemnification against certain
liabilities. The agreement further provides that in the event the Company
employs any employee of AEA Investors as an officer of the Company or otherwise,
and such employment includes a substantial amount of such employee's time, the
Company will compensate such employee at a reasonable rate. The Company believes
that the terms of these management arrangements are as favorable as could be
obtained from an unaffiliated third party. It is expected that the Management
Agreement will be terminated upon consummation of the Offerings contemplated
hereby. In consideration of services by AEA Investors in arranging, structuring
and negotiating the terms of the Acquisition, the Company paid AEA Investors
transaction fees of $5.5 million and reimbursed AEA Investors for certain
related expenses. In connection with the termination of the Management
Agreement, the Company will pay AEA Investors $2.5 million and will reimburse
AEA Investors for certain related expenses.
Management and other employees of the Company have contributed
approximately $12 million of the equity of the Company. For information
regarding the number of shares purchased by each Named Executive Officer, see
'Security Ownership of Certain Beneficial Owners and Management.'
On October 7, 1996, in order to fund a portion of the purchase price for
the shares purchased by Mr. Spoerry, Mettler-Toledo AG entered into a loan
agreement with Mr. Spoerry, in the amount of SFr 1.0 million (approximately
$742,000 at December 31, 1996). The loan bears interest at a rate of 5% and is
payable upon demand, which may not be made until seven years after the date of
the loan.
58
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock immediately prior to the Offering and as
adjusted to reflect the sale of the shares of Common Stock pursuant to the
Offering, by (a) each person who is known to the Company to be the beneficial
owner of more than five percent of the Company's Common Stock, (b) each director
of the Company, (c) each of the Named Executive Officers and (d) all directors
and executive officers of the Company as a group. Except as otherwise indicated,
the persons or entities listed below have sole voting and investment power with
respect to all shares of Common Stock owned by them, except to the extent such
power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERINGS THE OFFERINGS(1)
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(2) NUMBER PERCENT(2)
- - ----------------------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
5% SHAREHOLDERS:
Finlayson Fund Investments PTE LTD ............................ 2,900,921 9.46% 2,900,921 7.77%
Temasek Holdings (Private) Limited
8 Shenton Way
#38-03 Treasury Building
Singapore 0106
National Union Fire Insurance Company of Pittsburgh, PA ....... 2,239,611 7.30 2,239,611 6.00
c/o AIG Global Investment Corp.
175 Water Street - 24th Floor
New York, NY 10038
FORMA Investments Limited ..................................... 1,705,385 5.56 1,705,385 4.57
Woodbourne Hall
P.O. Box 3162
Main Street
Road Town, Tortola
British Virgin Islands
Nassau Capital Funds L.P. ..................................... 1,586,203 5.17 1,586,203 4.25
22 Chambers Street
Princeton, NJ 08542
Novartis AG ................................................... 1,537,038 5.01 1,537,038 4.12
S-210.1737
Lichtstrasse 35
CH-4056 Basel
Switzerland
DIRECTORS:
Philip Caldwell(3)............................................. 102,383 * 102,383 *
Robert F. Spoerry(4)........................................... 644,384 2.09 644,384 1.72
Reginald H. Jones.............................................. 46,598 * 46,598 *
John D. Macomber............................................... 43,742 * 43,742 *
John M. Manser................................................. -- -- -- --
Laurence Z. Y. Moh............................................. 356,779 1.16 356,779 0.96
Thomas P. Salice(3)............................................ 556,058 1.81 556,058 1.49
Alan W. Wilkinson(3)........................................... 556,058 1.81 556,058 1.49
NAMED EXECUTIVE OFFICERS:
Fred Ort(5).................................................... 92,177 * 92,177 *
Karl M. Lang(6)................................................ 118,377 * 118,377 *
Lukas Braunschweiler(7)........................................ 118,377 * 118,377 *
John D. Robechek(3)(8)......................................... 107,530 * 107,530 *
All directors and executive officers as a
group (15 persons)(9)....................................... 2,958,063 9.53 2,958,063 7.84
</TABLE>
(Footnotes on next page)
59
<PAGE>
(Footnotes from previous page)
- - ------------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
(1) Assumes no exercise of the Underwriters' over-allotment options and no
purchases by any such persons in the Offerings.
(2) Calculations of percentage of beneficial ownership are based on 30,670,134
shares of Common Stock outstanding prior to the Offerings and 37,336,801
shares of Common Stock outstanding after the Offerings, and in each case
assume the exercise by only the named shareholder of all options for the
purchase of Common Stock held by such shareholder which are exercisable
within 60 days of the date hereof.
(3) Includes shares held by, or in trust for, members of such individual's
family for which Messrs. Caldwell, Salice, Wilkinson and Robechek disclaim
beneficial ownership. Does not include shares held by AEA Investors, of
which Messrs. Salice and Wilkinson are officers.
(4) Mr. Spoerry is also a Named Executive Officer. Includes 209,597 shares of
Common Stock issuable upon exercise of options that are exercisable within
60 days from the date hereof.
(5) Includes 15,717 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(6) Includes 41,917 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(7) Includes 41,917 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(8) Includes 41,917 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(9) Includes William P. Donnelly, who became Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary on April 1, 1997, and Fred Ort,
who ceased to be an executive officer on April 1, 1997.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following statements are brief summaries of certain provisions of the
New Credit Agreement and the Company's Senior Subordinated Notes. Copies of the
New Credit Agreement and the Indenture which governs the Senior Subordinated
Notes are incorporated by reference as exhibits to the Registration Statement of
which this Prospectus is a part. The following description does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the New Credit Agreement and the Indenture.
NEW CREDIT AGREEMENT
The Company intends to refinance its existing Credit Agreement by entering
into the New Credit Agreement as part of the Refinancing. The New Credit
Agreement will provide for a variety of floating rate loans with interest based
on LIBOR. The Company's wholly owned subsidiaries Mettler-Toledo, Inc. ('M-T,
Inc.'), Mettler-Toledo Holding AG, Mettler-Toledo (Canada) Inc. and Safeline
Holding Company will be borrowers under the New Credit Agreement, and the
Company will be a guarantor under the New Credit Agreement. The Company expects
that it will have pro forma borrowings under the New Credit Agreement of $389.9
million (representing an increase of $77.3 million) as of September 30, 1997 and
borrowings of $38.0 million under various other credit arrangements. Of the
borrowings under the New Credit Agreement, $200.0 million will be in the form of
a term loan and the remainder will be outstanding under a revolving credit
facility. The Company's revolving credit facility commitment will increase from
$170.0 million to $420.0 million under the New Credit Agreement, and this
commitment will include a $100.0 million acquisition facility. Merrill Lynch
served as the Arranger and Documentation Agent and an affiliate of Credit Suisse
First Boston Corporation served as co-agent in connection with the Company's
Credit Agreement in November 1996 and May 1997 and are acting in similar roles
in connection with the New Credit Agreement. See 'Underwriting.'
Maturity, Amortization and Mandatory Prepayments
The term loans and the revolving credit facility will mature in May 2004.
Beginning in 1998, amounts outstanding under the term loan will amortize on a
quarterly basis in annual amounts ranging from $15.0 million to a maximum of
$40.0 million.
60
<PAGE>
The term loans will be subject to mandatory prepayments in an amount equal
to, subject to certain exceptions, (i) 75% of annual Excess Cash Flow (as
defined in the New Credit Agreement), (ii) the net proceeds received from
certain sales of assets, (iii) the net proceeds from the issuance of debt, and
(iv) 50% of the net proceeds from the issuance of equity.
Security and Guarantees
The obligations of the Mettler-Toledo Holding AG under the New Credit
Agreement will be (i) secured by a first priority security interest in all of
the material assets of the Mettler-Toledo Holding AG, (ii) guaranteed, to the
extent permitted by applicable law by all of the direct and indirect
subsidiaries of the Mettler-Toledo Holding AG, with certain exceptions, and each
such guarantee is, to the extent permitted by applicable law and with certain
exceptions, secured by a first priority security interest in all of the material
assets of each such guarantor, and (iii) guaranteed by the Company and its
direct and indirect U.S. subsidiaries, and each such guarantee will be secured
by a first priority security interest in all of the material assets of each such
guarantor, except that each such guarantor has pledged only 65% of the stock of
any non-U.S. subsidiary held by it. The obligations of M-T, Inc. under the New
Credit Agreement will be (i) secured by a first priority security interest in
all of the material assets of M-T, Inc., except that M-T, Inc. will pledge only
65% of the stock of each non-U.S. subsidiary held by it, (ii) guaranteed by each
direct and indirect U.S. subsidiary of M-T, Inc., and each such guarantee is
secured by a first priority security interest in all of the material assets of
each such guarantor, and (iii) guaranteed by the Company, and such guarantee is
secured by a first priority security interest in all of the stock of M-T, Inc.
held by the Company. The obligations of Safeline Holding Company are also
secured by limited guarantees and pledges.
Covenants and Events of Default
The New Credit Agreement will contain covenants that, among other things,
limit the Company's and its subsidiaries' ability to incur liens; merge,
consolidate or dispose of assets; make loans and investments; incur
indebtedness; engage in certain transactions with affiliates; incur certain
contingent obligations; pay dividends and other distributions; or make capital
expenditures. The New Credit Agreement also will require the Company to maintain
a minimum net worth and a minimum fixed charge coverage ratio, and to maintain a
ratio of total debt to EBITDA below a specified maximum.
The New Credit Agreement will contain customary events of default,
including, without limitation, nonpayment of principal, interest, fees or other
amounts when due; violation of covenants; breach of any representation or
warranty; cross-default and cross-acceleration; Change in Control (as defined in
the New Credit Agreement); bankruptcy events; material judgments; certain ERISA
matters; and invalidity of loan documents or security interests.
SENIOR SUBORDINATED NOTES
General. M-T, Inc. issued $135.0 million of 9 3/4% Senior Subordinated
Notes due 2006 in connection with the Acquisition pursuant to an Indenture among
M-T, Inc., Holding, and United States Trust Company of New York, as trustee.
Note Repurchase. The Company has commenced a tender offer for all of the
Notes. The proposed aggregate consideration is 112.6% of the principal amount
plus accrued interest to the date of repurchase, consisting of a purchase price
of 111.6% and a fee of 1% for each Noteholder that timely delivered a written
consent that the Company solicited from the Noteholders. As of October 17, 1997,
all of the Notes have been irrevocably tendered. The Company will use net
proceeds from the Offerings and additional borrowings under the New Credit
Agreement to finance the Note Repurchase. In connection with the Note
Repurchase, the Company has obtained the requisite consents to remove
substantially all of the restrictive covenants and certain other provisions from
the Indenture governing the Notes. The tender offer is scheduled to terminate on
November 11, 1997, unless extended.
Principal Maturity and Interest. The Notes are limited in aggregate
principal amount to $135.0 million and will mature on October 1, 2006. Interest
on the Notes accrues at 9 3/4% per annum and is payable semiannually in arrears
on April 1 and October 1 of each year commencing April 1, 1997.
Guarantees. The Notes are unsecured senior subordinated general
obligations of M-T, Inc. and are unconditionally guaranteed on a senior
subordinated and unsecured basis by Holding. The Indenture also provides that
certain U.S. subsidiaries of M-T, Inc. are required to guarantee payment of the
Notes under certain circumstances.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock which will be contained in the Amended
and Restated Certificate of Incorporation and Amended By-laws, copies of which
are incorporated by reference as exhibits to the Registration Statement. The
following description does not purport to be complete and is subject in all
respects to applicable Delaware law and to the provisions of the Amended and
Restated Certificate of Incorporation and Amended By-laws.
Concurrently with the Offerings, the Company will consummate the
Reorganization. The authorized capital stock of the Company will consist of
125,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share (the 'Preferred Stock').
Immediately following the consummation of the Offerings, there will be
37,336,801 shares of Common Stock outstanding, 4,258,122 shares of Common Stock
issuable upon exercise of outstanding options and no shares of Preferred Stock
outstanding. Prior to the consummation of the Offerings, there were 857 holders
of the Company's Common Stock.
COMMON STOCK
Holders of Common Stock will be entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders (including
the election of directors) and have no preemptive, subscription or redemption
rights. Holders of Common Stock do not have cumulative voting rights, and
therefore holders of a majority of the shares voting for the election of
directors can elect all of the directors. In such event, the holders of the
remaining shares will not be able to elect any directors.
Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors of the Company out of funds legally available therefor. All
outstanding shares of Common Stock are, and the shares to be sold by the Company
in the Offerings when issued and paid for will be, fully paid and nonassessable.
In the event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of Common Stock will be entitled to share ratably in the assets
of the Company remaining after payment or provision for payment of all of the
Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock.
Prior to the Offering, there has been no public market for the Common
Stock. The Common Stock has been accepted for listing on the NYSE under the
symbol 'MTD,' subject to official notice of issuance. In order to meet the
requirements for listing of the Common Stock on the NYSE, the representatives of
the Underwriters have assured the NYSE that the distribution of the shares of
Common Stock offered hereby will meet or exceed the listing requirements of the
NYSE.
PREFERRED STOCK
The Board of Directors, without further shareholder authorization, will be
authorized to issue shares of Preferred Stock in one or more series and to
determine and fix the rights, preferences and privileges of each series,
including dividend rights and preferences over dividends on the Common Stock and
one or more series of the Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the Common Stock and one or more series of the
Preferred Stock. Although the Company has no present plans to issue any shares
of Preferred Stock following the consummation of the Offerings, the issuance of
shares of Preferred Stock, or the issuance of rights to purchase such shares,
may have the effect of delaying, deferring or preventing a change in control of
the Company or an unsolicited acquisition proposal.
CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, AMENDED BY-LAWS AND DELAWARE LAW
The Amended and Restated Certificate of Incorporation, Amended By-laws and
Delaware law contain provisions that could make more difficult the acquisition
of the Company by means of a tender offer, a proxy contest or otherwise. Such
provisions could have the effect of discouraging open market purchases of the
Common Stock because they may be considered disadvantageous by a shareholder who
desires to participate in a business combination or elect a new director.
62
<PAGE>
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 ('Section 203') of the Delaware General Corporation Law
(the 'DGCL'). In general, Section 203 prevents an 'interested stockholder'
(defined as a person who, together with affiliates and associates, beneficially
owns, or if an affiliate or associate of the corporation did beneficially own
within the last three years, 15% or more of a corporation's outstanding voting
stock) from engaging in a 'business combination' (as defined) with a Delaware
corporation for three years following the time such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation, and shares held
by certain employee stock ownership plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the 'interested stockholder.' A 'business combination' generally
includes mergers, stock or asset sales involving 10% or more of the market value
of the corporation's assets or stock, certain stock transactions and certain
other transactions resulting in a financial benefit to the interested
stockholder or an increase in their proportionate share of any class or series
of a corporation. The existence of Section 203 of the DGCL could have the effect
of discouraging an acquisition of the Company or stock purchasers in furtherance
of an acquisition.
Limitation on Directors' Liabilities and Indemnification. The Amended and
Restated Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL as it currently exists, a director of the Company shall
not be liable to the Company or its shareholders for monetary damages for breach
of fiduciary duty as a director. Under the current DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's Amended
and Restated Certificate of Incorporation is to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as director (including breaches resulting from negligent
or grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. The provision does not exonerate the directors from
liability under federal securities laws or limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Amended By-laws provide that the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by DGCL.
Advance Notice for Shareholder Nomination of Directors and Shareholder
Proposals. The Amended By-laws establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors (the
'Nomination Procedure') and with regard to other matters to be brought by
shareholders before an annual meeting of shareholders of the Company (the
'Business Procedure').
The Nomination Procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Amended By-laws. If the Chairman of the Board of
Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a shareholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Amended By-laws. If the Chairman of the Board
of Directors
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determines that the other business was not properly brought before such meeting
in accordance with the Business Procedure, such business will not be conducted
at such meeting.
Although the Amended By-laws do not give the Board of Directors any power
to approve or disapprove shareholder nominations for the election of directors
or of any business desired by shareholders to be conducted at an annual meeting,
the Amended By-laws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed or (ii) may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its shareholders.
REGISTRATION RIGHTS
Current holders of the Company's Common Stock (other than certain members
of senior management) have rights to require the Company to register such shares
of Common Stock for resale pursuant to subscription agreements pursuant to which
they acquired their shares. After securities of the Company have been sold
pursuant to a registration statement under the Securities Act, upon the request
of persons owning at least 25% of the sum of all outstanding shares of Common
Stock which are then 'restricted securities' (as defined by Rule 144 under the
Securities Act) and which have a value of at least $5,000,000, the Company would
be required to register the sale of such securities, subject to certain
limitations and requirements. The Company is not required to file any
registration statement within six months of the effective date of any earlier
registration statement and is not required to file more than three registration
statements pursuant to such requests. In addition, under certain circumstances,
should the Company file a registration statement with the Securities and
Exchange Commission registering shares of the Common Stock of the Company, the
owners of restricted securities would be entitled to include their restricted
securities in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be ChaseMellon
Shareholder Services L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the shares of
Common Stock. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, future sales of substantial
amounts of Common Stock in the public market could adversely affect market
prices of the Common Stock.
Upon the closing of the Offerings the Company expects to have 37,336,801
shares of Common Stock outstanding (assuming that the Underwriters do not
exercise their over-allotment options). Except to the extent such shares are
subject to the agreement with the Underwriters described below, shares of Common
Stock will be freely tradable without restriction or further registration under
the Securities Act, unless held by an 'affiliate' of the Company as that term is
defined in the Securities Act, which shares will be subject to the resale
limitations of Rules 144 and 145.
In general, under Rules 144 and 145 as currently in effect, a shareholder
(or shareholders whose shares are aggregated) who is an 'affiliate' of the
Company is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the outstanding Common Stock
or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed pursuant
to Rule 144. The holder may only sell such shares through unsolicited brokers'
transactions. Sales under Rules 144 and 145 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A shareholder (or
shareholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a proposed transaction is entitled to sell such
shares under Rule 144 without regard to the limitations described above. Holders
which were affiliates of the Company at the time of the Reorganization may sell
free of restrictions one year from the date of the Reorganization.
Notwithstanding the foregoing, in connection with the Offerings, the
Company, the Company's executive officers and directors and substantially all of
the existing shareholders of the Company will agree, subject to
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certain exceptions, not to directly or indirectly (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch on behalf of the Underwriters for a
period of 180 days after the date of this Prospectus, other than (i) the sale to
the Underwriters of the shares of Common Stock in connection with the Offerings,
(ii) upon the exercise of outstanding stock options, (iii) the issuance of
options pursuant to the Stock Plan, or (iv) the filing of a registration
statement on Form S-8 under the Securities Act relating to Common Stock of the
Company issued pursuant to the Company's Stock Plan.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register approximately 6,500,000 shares of Common Stock which
are reserved for issuance under the Company's Stock Plan. The Form S-8 will
include, in some cases, shares for which an exemption under Rule 144 or Rule 701
would also be available, thus permitting the resale of shares issued under the
Stock Plan by non-affiliates in the public market, without restriction under the
Securities Act. Such registration statement is expected to become effective
immediately upon filing whereupon shares registered thereunder will become
eligible for sale in the public market, subject to vesting and, in certain
cases, subject to the lock-up agreements described above. At the date of this
Prospectus, options to purchase 4,258,122 shares of Common Stock are outstanding
under the Stock Plan.
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CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. A 'Non-U.S. Holder' is a
person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state (other than any partnership
treated as foreign under U.S. Treasury regulations), or (iii) an estate or trust
whose income is includable in gross income for United States federal income tax
purposes regardless of source.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to tax as if they were U.S. citizens.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of Common Stock may be affected
by certain determinations made at the partner level) and does not consider U.S.
state and local or non-U.S. tax consequences. This discussion also does not
consider the tax consequences for any person who is a shareholder, partner or
beneficiary of a holder of the Common Stock. Further, it does not consider
Non-U.S. Holders subject to special tax treatment under the federal tax laws
(including but not limited to banks and insurance companies, dealers in
securities and holders of securities held as part of a 'straddle,' 'hedge,' or
'conversion transaction'). The following discussion is based on provisions of
the U.S. Internal Revenue Code of 1986, as amended (the 'Code'), the applicable
Treasury regulations promulgated and proposed thereunder, and administrative and
judicial interpretations as of the date hereof, all of which are subject to
change either retroactively or prospectively. The following summary is included
herein for general information. ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS
URGED TO CONSULT A TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES
OF HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR OTHER U.S. OR NON-U.S.
TAXING JURISDICTION.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. Non-U.S. Holders
should consult their tax advisors regarding their entitlement to benefits under
a relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or, in the case of the individual, a
'fixed base,' in the United States ('U.S. trade or business income') are
generally subject to U.S. federal income tax on a net income basis at regular
graduated rates, but are not generally subject to the 30% withholding tax if the
Non-U.S. Holder files the appropriate U.S. Internal Revenue Service ('IRS') form
with the payor (which form, under U.S. Treasury regulations generally effective
for payments made after December 31, 1998 (the 'Final Regulations'), will
require the Non-U.S. Holder to provide a U.S. taxpayer identification number).
Any U.S. trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
'branch profits tax' at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under the Final Regulations, however, a Non-U.S. Holder of
Common Stock who wishes to claim the benefit of an applicable treaty rate
generally will be required to satisfy applicable certification and other
requirements. In
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addition, under the Final Regulations, in the case of Common Stock held by a
foreign partnership, (x) the certification requirement will generally be applied
to the partners of the partnership and (y) the partnership will be required to
provide certain information, including a United States taxpayer identification
number. The Final Regulations also provide look-through rules for tiered
partnerships.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless: (i) the
gain is U.S. trade or business income (in which case, the branch profits tax
described above may also apply to a corporate Non-U.S. Holder), (ii) the
Non-U.S. Holder is an individual who holds the Common Stock as a capital asset
within the meaning of Section 1221 of the Code, is present in the United States
for 183 or more days in the taxable year of the disposition and meets certain
other requirements, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provision of the U.S. tax law applicable to certain United States expatriates or
(iv) the Company is or has been a 'U.S. real property holding corporation' for
federal income tax purposes at any time during the shorter of the five-year
period ending on the date of disposition and such period that the Common Stock
was held. The tax with respect to stock in a 'U.S. real property holding
corporation' does not apply to a Non-U.S. Holder whose holdings, direct and
indirect, at all times during the applicable period, constitute 5% or less of
the Common Stock, provided that the Common Stock is regularly traded on an
established securities market. Generally, a corporation is a 'U.S. real property
holding corporation' if the fair market value of its 'U.S. real property
interests' equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business. The Company is not, and does not anticipate becoming, a
'U.S. real property holding corporation' for U.S. federal income tax purposes.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise. Such individual's estate may be subject to U.S. federal
estate tax on the property includable in the gross estate for U.S. federal
estate tax purposes.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under U.S. Treasury Regulations, the Company may be required to report
annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to
such holder and any tax withheld with respect to such dividends. The information
reporting requirements apply regardless of whether withholding is required.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the Non
U.S.-Holder is a resident under the provisions of an applicable income tax
treaty or agreement.
Under certain circumstances, the IRS requires 'information reporting' and
'backup withholding' at a rate of 31% with respect to certain payments on Common
Stock. Under currently applicable law, Non-U.S. Holders of Common Stock
generally will be exempt from IRS reporting requirements and U.S. backup
withholding with respect to dividends payable on Common Stock. Under the Final
Regulations, however, a Non-U.S Holder of Common Stock that fails to certify its
Non-U.S. Holder status in accordance with the requirements of the Final
Regulations may be subject to U.S. backup withholding at a rate of 31% on
payments of dividends.
The payment of the proceeds of the disposition of Common Stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup withholding
at a rate of 31% unless the holder either certifies its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a Non-U.S. Holder of Common Stock
to or through a non-U.S. office of a non-U.S. broker will not be subject to
backup withholding or information reporting unless the non-U.S. broker has
certain U.S. relationships. In the
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case of the payment of proceeds from the disposition of Common Stock effected by
a foreign office of a broker that is a U.S. person or a 'U.S. related person,'
existing regulations require information reporting on the payment unless the
broker receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary. For this purpose, a 'U.S. related person' is (i) a
'controlled foreign corporation' for U.S. federal income tax purposes or (ii) a
foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's U.S. federal
income tax liability, if any) provided that the required information is
furnished to the IRS.
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SOLICITATION OF CONSENTS
Under the DGCL the affirmative vote of a majority of the outstanding shares
of Class B common stock of the Company is required to approve the Merger. In
lieu of a meeting and vote, holders of a majority of the outstanding shares of
Class B common stock of the Company can consent in writing and deliver such
consent or consents to the Company's registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of shareholders are
recorded. All holders of Class B common stock will be entitled to give their
written consent to approve and adopt the Merger. The record date for determining
the shareholders of record for the written consents is November 13, 1997. Prompt
notice of any actions taken by written consent as required by the DGCL will be
given to those shareholders of the Company who do not consent in writing.
The solicitation of written consents is made by the Company. The Company
will bear the cost of the solicitation.
The Class B shareholders' consents solicited pursuant to this Prospectus
must be submitted to the Company promptly. The Company plans to consummate the
Merger as soon as sufficient consents have been obtained.
The written consents shall be revocable by the Company's shareholders
submitting such consents until such consents are submitted to the Company as set
forth above. Upon delivery of a consent to the Company pursuant to the DGCL,
such consent will not be revocable. However, the Merger Agreement may be
terminated or amended (subject to certain limitations) by the Board of Directors
of either Holding or the Company at any time prior to the filing of such
agreement with the State of Delaware, notwithstanding the approval of such
agreement by the written consent of the Company's shareholders.
Under Delaware law, appraisal rights are available to all holders of common
stock of the Company who do not provide their affirmative vote or written
consent for the adoption and approval of the Merger. In connection with the
Merger and in accordance with Delaware law, the shareholders of the Company were
given notice of their rights to appraisal. Additional notice of such rights to
the extent required by Delaware law is provided herewith. Attached hereto as
Appendix B is a copy of Section 262 of the DGCL regarding appraisal rights.
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, all outstanding shares of common stock of
Holding will be canceled and the existing shares of Class A, Class B and Class C
common stock of the Company will be converted into and represent the right to
receive 12.58392 shares of Common Stock. Following the Merger, the rights of the
shareholders of the Company will thereafter be governed by the Company's Amended
and Restated Certificate of Incorporation and Amended By-laws.
Voting. Holders of the Company's Common Stock are entitled to one vote per
share on all matters to be voted upon by the shareholders. The entire voting
power of the shareholders of the Company is vested exclusively in the Class B
shareholders. Upon consummation of the Merger all classes of stock of the
Company will be converted pro rata into shares of Common Stock of the Company.
The Merger will thus effectively dilute the Class B shareholders' voting power
from 100% of the outstanding voting stock of the Company to less than 1% of the
outstanding voting stock of the Company. See 'Description of Capital Stock' and
'Description of Existing Capital Stock.'
Preference. Holders of the Company's common stock are entitled to share
ratably in dividends and, in the event of the liquidation, dissolution or
winding up of the Company, in all the assets remaining after payment of
liabilities. See 'Description of Capital Stock.' Holders of Class A common stock
of the Company have a dividend and liquidation preference over the holders of
Class B and Class C common stock of the Company. See 'Description of Existing
Capital Stock.' Upon consummation of the Merger shareholders who held shares of
Class A common stock will no longer have this distribution and liquidation
preference.
Notice Provisions. The Company's amended by-laws will contain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise, including provisions regarding
advance notice for shareholders' nominations of directors and other shareholder
proposals. See 'Description of Capital Stock.' These provisions are not present
in the Company's existing by-laws.
<PAGE>
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NYSE Listing. Upon consummation of the Merger and Offerings, the Common
Stock of the Company will be listed on the NYSE. The shares of common stock of
the Company currently outstanding are not publicly traded.
DESCRIPTION OF EXISTING CAPITAL STOCK
The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Company's Restated Certificate of Incorporation
(the 'Restated Certificate of Incorporation') and By-laws (the 'By-laws').
Pursuant to the Merger, all of the capital stock of Holding will be canceled and
each outstanding share of the three classes of common stock of the Company will
be converted into and represent the right to receive shares of Common Stock of
the Company. The description of the capital stock and the Restated Certificate
of Incorporation and By-law provisions set forth below are relevant only to the
Company as in existence prior to the Merger.
As of September 30, 1997, the authorized capital stock of the Company
consisted of 2,778,755 shares of Common Stock, $.01 par value of which 2,235,896
shares are designated as Class A common stock, 1,000 shares are designated Class
B common stock and 541,859 shares are designated Class C common stock. As of
September 30, 1997, the Company had outstanding 1,898,795 shares of Class A
common stock (excluding 3,984 shares held in treasury), 1,000 shares of Class B
common stock and 537,453 (excluding 1,139 shares held in treasury) shares of
Class C common stock, and an additional 338,378 shares of Class A common stock
were issuable upon exercise of outstanding employee stock options. As of the
date hereof, there were approximately 823 holders of record of Class A common
stock, 8 holders of record of Class B common stock and 841 holders of record of
Class C common stock.
Currently there is no public market for any of the shares of capital stock
of the Company.
COMMON STOCK
Holders of common stock of the Company have no preemptive, subscription or
redemption rights. Except for the Class A dividend and distribution preference
and the Class B voting rights (each as described below) the three classes of
common stock of the Company have identical rights under the Company's Restated
Certificate of Incorporation and By-laws.
Preference. Dividends or distributions in connection with the liquidation,
dissolution or winding up of the affairs of the Company or not paid out of the
current and accumulated earnings and profits shall be paid in the following
manner: First, exclusively to the holders of the shares of Class A common stock,
ratably to each such holder, until the sum of all dividends and distributions to
each holder of Class A common stock equals $100 for each share of Class A common
stock held by such holder. After each holder of shares of Class A common stock
shall have received dividends and distributions totaling $100, then exclusively
to the holders of the shares of Class B common stock and Class C common stock
ratably to each such holder until the sum of all dividends and distributions to
each holder of Class B common stock and/or Class C common stock equals $100 for
each share of Class B common stock and/or Class C common stock held by such
shareholder. After each holder of Class B common stock and Class C common stock
shall have received such dividends and distributions, then to all holders of
Class A common stock, Class B common stock and/or Class C common stock, ratably
to each holder of such shares.
Voting. The entire voting power of the Company's common stock is vested
exclusively in Class B common stock. Each holder of shares of Class B common
stock shall be entitled to one vote for each share of Class B common stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Director's Liability. The Amended and Restated Certificate of
Incorporation provides that to the fullest extent permitted by the DGCL as it
currently exists, a director of the Company shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. See 'Description of Capital Stock--Certain Provisions of the Company's
Amended and Restated Certificate of Incorporation, Amended By-laws and Delaware
Law.'
Section 203 of Delaware Law. The Company is subject to Section 203 of the
DGCL. See 'Description of Capital Stock--Certain Provisions of the Company's
Amended and Restated Certificate of Incorporation, Amended By-laws and Delaware
Law.' Such provision could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise.
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REGISTRATION RIGHTS
Current holders of the Company's Common Stock (other than certain members
of senior management) have rights to require the Company to register such shares
of Common Stock for resale pursuant to subscription agreements pursuant to which
they acquired their shares. After securities of the Company have been sold
pursuant to a registration statement under the Securities Act, upon the request
of persons owning at least 25% of the sum of all outstanding shares of Common
Stock which are then 'restricted securities' (as defined by Rule 144 under the
Securities Act) and which have a value of at least $5,000,000, the Company would
be required to register the sale of such securities, subject to certain
limitations and requirements. The Company is not required to file any
registration statement within six months of the effective date of any earlier
registration statement and is not required to file more than three registration
statements pursuant to such requests. In addition, under certain circumstances,
should the Company file a registration statement with the Securities and
Exchange Commission registering shares of the Common Stock of the Company, the
owners of restricted securities would be entitled to include their restricted
securities in such registration.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the voting and non-voting classes of capital stock of the Company
prior to the Merger and the beneficial ownership of the Company's Common Stock
after the Merger by (i) each director of the Company, (ii) the Named Executive
Officers of the Company, (iii) all directors and executive officers of the
Company as a group and (iv) each person who is the beneficial owner of more than
five percent of any class of the Company's common stock:
<TABLE>
<CAPTION>
SHARES OF
SHARES OF THE COMPANY'S
SHARES OF THE THE COMPANY'S COMMON STOCK
COMPANY'S VOTING NON-VOTING CAPITAL AFTER THE
CAPITAL STOCK(1) STOCK(1)(2) MERGER(1)
------------------ --------------------- ------------------
NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF
NAME SHARES CLASS SHARES CLASS SHARES CLASS
- - ------------------------------------------------------- --------- ----- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS:
Philip Caldwell(3)................................... 0 -- 8,136 * 102,383 *
Robert F. Spoerry(4)................................. 0 -- 34,551 1.42 % 644,384 1.72 %
Reginald H. Jones.................................... 70 7.0% 3,633 * 46,598 *
John D. Macomber..................................... 75 7.5 3,401 * 43,742 *
Laurence Z.Y. Moh.................................... 0 -- 28,352 1.16 356,779 0.96
Thomas P. Salice(3).................................. 0 -- 44,188 1.81 556,058 1.49
Alan W. Wilkinson(3)................................. 0 -- 44,188 1.81 556,058 1.49
NAMED EXECUTIVE OFFICERS:
Fred Ort(5).......................................... 0 -- 6,076 * 92,177 *
Karl M. Lang(6)...................................... 0 -- 6,076 * 118,377 *
Lukas Braunschweiler(7).............................. 0 -- 6,076 * 118,377 *
John D. Robechek(3)(8)............................... 0 -- 5,214 * 107,530 *
All directors and executive officers as a group (15
persons)(9).......................................... 145 14.5 204,526 9.53 2,958,063 7.84
OTHER 5% SHAREHOLDERS:
AEA Investors Inc.................................... 490 49.0 41,162 1.69 524,145 1.40
Finlayson Fund Investments PTE LTD................... 0 -- 230,526 9.46 2,900,921 7.77
National Union Fire Insurance Company of Pittsburgh,
PA................................................ 0 -- 177,974 7.31 2,239,611 6.00
Clifton C. Garvin, Jr................................ 75 7.5 1,738 * 22,815 *
Edmund T. Pratt, Jr.................................. 75 7.5 5,215 * 66,569 *
Francis C. Rooney, Jr................................ 75 7.5 1,506 * 19,895 *
Geoffrey T. Boisi.................................... 65 6.5 2,579 * 33,272 *
John R. Opel, Trustee for John R. Opel Revocable
Trust U/A dated April 7, 1997..................... 75 7.5 2,666 * 34,493 *
FORMA Investments Limited............................ 0 -- 135,521 5.6 1,705,385 4.57
Nassau Capital Funds L.P............................. 0 -- 126,050 5.2 1,586,203 4.25
Novartis AG.......................................... 0 -- 122,143 5.0 1,537,038 4.12
</TABLE>
(Footnotes next page)
71
<PAGE>
(Footnotes from previous page)
- - ------------------
* Less than 1%
(1) Based on 1,000 shares of the Company's voting capital stock and 2,436,248
shares of the Company's non-voting capital stock outstanding prior to the
Merger and 37,336,801 shares of the Company's Common Stock outstanding after
the Merger. The number of shares held by such persons after the Merger
assumes no purchases by any such persons in the Offerings. Calculations of
percentage of beneficial ownership as of a certain date assume the exercise
by only the respective named shareholder of all options for the purchase of
common stock held by such shareholder which are exercisable within 60 days
from such date.
(2) The shares of the Company's non-voting capital stock include the shares of
its Class A common stock and Class C common stock. The percentage of class
is determined by combining the Class A common stock and Class C common stock
into one class of non-voting capital stock.
(3) Include shares held by, or in trust for, members of such individual's family
for which Messrs. Caldwell, Salice, Wilkinson and Robechek disclaim
beneficial ownership. Does not include shares held by AEA Investors, of
which Messrs. Salice and Wilkinson are officers.
(4) Mr. Spoerry is also a Named Executive Officer. Includes 16,656 shares of
common stock issuable upon exercise of options that are exercisable within
60 days from the date hereof.
(5) Includes 1,249 shares of common stock issuable upon exercise of options that
are exercisable within 60 days from the date hereof.
(6) Includes 3,331 shares of common stock issuable upon exercise of options that
are exercisable within 60 days from the date hereof.
(7) Includes 3,331 shares of common stock issuable upon exercise of options that
are exercisable within 60 days from the date hereof.
(8) Includes 3,331 shares of common stock issuable upon exercise of options that
are exercisable within 60 days from the date hereof.
(9) Includes William Donnelly, who became Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary on April 1, 1997, and Fred Ort
who ceased to be an executive officer on April 1, 1997 but who remains a
non-executive officer.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes the material federal income tax
consequences of the Merger to Holding, the Company and the stockholders of the
Company. It does not discuss all the tax consequences that may be relevant to
the Company's shareholders in special tax situations (such as insurance
companies, financial institutions, securities dealers, tax-exempt organizations
or shareholders who exercise dissenter's rights) or to the Company's
shareholders who acquired their shares of Company common stock pursuant to the
exercise of employee stock options or warrants, or otherwise as compensation.
The summary also does not discuss tax consequences to holders of the Company's
outstanding warrants or stock options. Neither Holding nor the Company has
requested a ruling from the Internal Revenue Service (the 'IRS') or an opinion
of counsel with regard to any of the tax consequences of the Merger.
Under present federal income tax law, based upon the assumption that the
Merger will take place as described in the Merger Agreement, no gain or loss
will be recognized upon the receipt of shares of Common Stock in exchange for
shares of the Company's common stock (except to the extent cash is received in
lieu of fractional shares). The tax basis of the shares of Common Stock received
in the Merger (including any fractional shares of Common Stock deemed received)
will be the same as the tax basis of the common stock exchanged therefor, and
the holding period for shares of Common Stock received will include the period
that the exchanged shares were held by the holder, provided such shares were
held as a capital asset. In addition, the Company and Holding will not recognize
gain or loss in connection with the Merger.
A shareholder of the Company who receives cash in lieu of a fractional
share of Common Stock will be treated as if the cash were received in payment
for such fractional share, and, except as discussed below, such shareholder will
therefore recognize gain or loss equal to the difference between the cash
received and such shareholder's tax basis in the fractional share. Such gain or
loss will be capital gain or loss if the common stock was held as a capital
asset and will be long-term capital gain or loss if the common stock was held
for more than one year as of the consummation of the Merger. In the case of a
non-corporate shareholder of the Company, such long-term capital gain generally
will be subject to a maximum tax rate of 28% if the common stock was held for
more than 1 year but not more than 18 months and to a maximum tax rate of 20% if
the common stock was held for more than 18 months. Shareholders of the Company
who are Non-U.S. Holders will generally not recognize gain or loss for federal
income tax purposes with respect to the receipt of cash in lieu of fractional
shares, unless such stockholders would be subject to federal income tax on a
sale of common stock under the rules discussed in 'Certain United States Federal
Tax Considerations for Non-United States Holders--Disposition of Common Stock.'
See 'Certain United States Federal Tax Considerations for Non-United States
Holders.'
The foregoing discussion is for general information only and is based on
currently existing federal income tax law which is subject to change. Any change
in applicable law would affect the continuing validity of the discussion. ALL
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME TAX LAWS.
72
<PAGE>
MT INVESTORS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and
for the period January 1, 1996 to October 14, 1996 and for the period October 15, 1996 to December 31,
1996.................................................................................................. F-4
Consolidated Statements of Changes in Net Assets / Shareholders' Equity for the years ended December 31,
1994 and 1995 and for the period January 1, 1996 to October 14, 1996 and
for the period October 15, 1996 to December 31, 1996.................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the period
January 1, 1996 to October 14, 1996 and for the period October 15, 1996 to December 31, 1996.......... F-7
Notes to Audited Consolidated Financial Statements....................................................... F-8
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Interim Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997....................... F-27
Interim Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1997...... F-28
Interim Consolidated Statements of Changes in Net Assets / Shareholders' Equity for the nine months ended
September 30, 1996 and 1997........................................................................... F-29
Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1997...... F-31
Notes to the Interim Consolidated Financial Statements................................................... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
MT Investors Inc.
We have audited the accompanying consolidated balance sheets of MT Investors
Inc. and subsidiaries (as defined in Note 1 to the Audited Consolidated
Financial Statements) as of December 31, 1995 and 1996 and the related
consolidated statements of operations, net assets / shareholders' equity and
cash flows for each of the years ended December 31, 1994 and 1995 and for the
period January 1, 1996 to October 14, 1996, the Predecessor periods, and for the
period October 15, 1996 to December 31, 1996, the Successor period. These
Audited Consolidated Financial Statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
Audited Consolidated Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Audited Consolidated Financial Statements referred to above
present fairly, in all material respects, the consolidated financial position of
MT Investors Inc. and subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
years ended December 31, 1994 and 1995 and for the period January 1, 1996 to
October 14, 1996, the Predecessor periods, and for the period October 15, 1996
to December 31, 1996, the Successor period, in conformity with generally
accepted accounting principles in the United States of America.
As more fully described in Note 1 to the Audited Consolidated Financial
Statements, MT Investors Inc. acquired the Mettler-Toledo Group as of October
15, 1996 in a business combination accounted for as a purchase. As a result of
the acquisition, the Audited Consolidated Financial Statements for the Successor
period are presented on a different basis of accounting than that of the
Predecessor periods, and therefore are not directly comparable.
KPMG FIDES PEAT
Zurich, Switzerland
April 18, 1997
F-2
<PAGE>
MT INVESTORS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 41,402 $ 60,696
Due from Ciba and affiliates....................................................... 33,072 --
Trade accounts receivable, less allowances of $9,292 in 1995 and $8,388 in 1996.... 159,218 151,161
Inventories........................................................................ 110,986 102,526
Deferred taxes..................................................................... 6,180 7,565
Other current assets............................................................... 21,469 17,268
------------ ------------
Total current assets 372,327 339,216
Property, plant and equipment, net................................................... 241,018 255,292
Excess of cost over net assets acquired, net of accumulated amortization of $17,268
in 1995 and $982 in 1996........................................................... 84,425 135,490
Long-term deferred taxes............................................................. 14,312 3,916
Other assets......................................................................... 12,012 37,974
------------ ------------
Total assets.................................................................. $724,094 $771,888
------------ ------------
------------ ------------
LIABILITIES AND NET ASSETS / SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................................. $ 34,389 $ 32,797
Accrued and other liabilities...................................................... 107,118 115,314
Taxes payable...................................................................... 11,737 17,580
Deferred taxes..................................................................... 7,698 9,132
Bank and other loans............................................................... 29,513 80,446
Notes payable to Ciba and affiliates............................................... 91,132 --
------------ ------------
Total current liabilities..................................................... 281,587 255,269
Long-term debt payable to Ciba and affiliates........................................ 145,097 --
Long-term debt due to third parties.................................................. 3,621 373,758
Long-term deferred taxes............................................................. 13,502 30,467
Other long-term liabilities.......................................................... 84,303 96,810
------------ ------------
Total liabilities............................................................. 528,110 756,304
Minority interest.................................................................... 2,730 3,158
Net assets / shareholders' equity:
Common stock, $0.01 par value per share:
Class A non-voting, authorized 2,233,117 shares; issued 1,899,779 at December
31, 1996....................................................................... -- 19
Class B voting, authorized 1,000 shares; issued 1,000 at December 31, 1996...... -- 1
Class C non-voting, authorized 541,859 shares; issued 537,735 at December 31,
1996........................................................................... -- 5
Additional paid-in capital......................................................... -- 188,084
Accumulated deficit................................................................ -- (159,046)
Capital employed................................................................... 162,604 --
Currency translation adjustment.................................................... 30,650 (16,637)
------------ ------------
Total net assets / shareholders' equity....................................... 193,254 12,426
------------ ------------
Commitments and contingencies........................................................
Total liabilities and net assets / shareholders' equity.............................. $724,094 $771,888
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to the audited consolidated financial statements
F-3
<PAGE>
MT INVESTORS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------- ----------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996 OCTOBER 15, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14, TO DECEMBER 31,
1994 1995 1996 1996
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales................................. $ 769,136 $ 850,415 $ 662,221 $ 186,912
Cost of sales............................. 461,629 508,089 395,239 136,820
------------- ------------- --------------- ----------------
Gross profit......................... 307,507 342,326 266,982 50,092
Research and development.................. 47,994 54,542 40,244 9,805
Selling, general and administrative....... 224,978 248,327 186,898 59,353
Amortization.............................. 6,437 2,765 2,151 1,065
Purchased research and development........ -- -- -- 114,070
Interest expense.......................... 13,307 18,219 13,868 8,738
Other charges (income), net............... (7,716) (9,331) (1,332) 17,137
------------- ------------- --------------- ----------------
Earnings (loss) before taxes and
minority interest.................. 22,507 27,804 25,153 (160,076)
Provision for taxes....................... 8,676 8,782 10,055 (938)
Minority interest......................... 347 768 637 (92)
------------- ------------- --------------- ----------------
Net earnings (loss).................. $ 13,484 $ 18,254 $ 14,461 $ (159,046)
------------- ------------- --------------- ----------------
------------- ------------- --------------- ----------------
Loss per common share:
Weighted average number of common
shares............................. 32,199,497
Loss per common share................ $ (4.94)
----------------
----------------
</TABLE>
See the accompanying notes to the audited consolidated financial statements
F-4
<PAGE>
MT INVESTORS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS / SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------
FOR THE TWELVE MONTH PERIODS ENDED
DECEMBER 31, 1994 AND 1995 AND FOR THE
PERIOD JANUARY 1, 1996 TO OCTOBER 14,
1996
--------------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
-------- ---------- --------
<S> <C> <C> <C>
Net assets at December 31, 1993........................................ $202,643 $ (9,122) $193,521
Capital transactions with Ciba and affiliates.......................... 2,002 -- 2,002
Net earnings........................................................... 13,484 -- 13,484
Change in currency translation adjustment.............................. -- 19,187 19,187
-------- ---------- --------
Net assets at December 31, 1994........................................ 218,129 10,065 228,194
Capital transactions with Ciba and affiliates.......................... (73,779) -- (73,779)
Net earnings........................................................... 18,254 -- 18,254
Change in currency translation adjustment.............................. -- 20,585 20,585
-------- ---------- --------
Net assets at December 31, 1995........................................ 162,604 30,650 193,254
Capital transactions with Ciba and affiliates.......................... (88,404) -- (88,404)
Net earnings........................................................... 14,461 -- 14,461
Change in currency translation adjustment.............................. -- (6,538) (6,538)
-------- ---------- --------
Net assets at October 14, 1996......................................... $ 88,661 $ 24,112 $112,773
-------- ---------- --------
-------- ---------- --------
</TABLE>
See the accompanying notes to the audited consolidated financial statements
F-5
<PAGE>
MT INVESTORS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS/SHAREHOLDERS'
EQUITY--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------------------------------------------------
FOR THE PERIOD FROM OCTOBER 15, 1996 TO DECEMBER 31, 1996
---------------------------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL
------------------- ------------------ ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- -------- -------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 15, 1996...... -- $ -- 1,000 $ 1 -- $ -- $ -- $ --
New issuance of shares........... 1,899,779 19 -- -- 537,735 5 188,084 --
Net loss......................... -- -- -- -- -- -- -- (159,046)
Change in currency translation
adjustment..................... -- -- -- -- -- -- -- --
--------- --- -------- --- ------- --- ------------ -------------
Balance at December 31, 1996..... 1,899,779 $ 19 1,000 $ 1 537,735 $ 5 $188,084 $ (159,046)
--------- --- -------- --- ------- --- ------------ -------------
--------- --- -------- --- ------- --- ------------ -------------
<CAPTION>
CURRENCY
TRANSLATION
ADJUSTMENT TOTAL
------------- ----------
<S> <C> <C>
Balance at October 15, 1996...... $ -- $ 1
New issuance of shares........... -- 188,108
Net loss......................... -- (159,046)
Change in currency translation
adjustment..................... (16,637) (16,637)
------------- ----------
Balance at December 31, 1996..... $ (16,637) $ 12,426
------------- ----------
------------- ----------
</TABLE>
See the accompanying notes to the audited consolidated financial statements
F-6
<PAGE>
MT INVESTORS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------- ----------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996 OCTOBER 15, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14, TO DECEMBER 31,
1994 1995 1996 1996
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).......................... $13,484 $18,254 $14,461 $ (159,046)
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation............................. 27,681 30,598 19,512 7,925
Amortization............................. 6,437 2,765 2,151 1,065
Write-off of purchased research and
development and cost of sales
associated with revaluation of
inventories............................ -- -- -- 146,264
Net gain on disposal of long-term
assets................................. (1,396) (1,053) (768) --
Deferred taxes........................... 740 (551) (1,934) (4,563)
Minority interest........................ 347 768 637 (92)
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable, net....... (7,410) (9,979) 9,569 (10,159)
Inventories.......................... (574) (607) 1,276 3,350
Other current assets................. 1,636 (3,058) 14,748 (10,605)
Trade accounts payable............... (1,123) 1,437 (3,065) 3,415
Accruals and other liabilities,
net................................ (5,728) 13,095 5,948 32,030
------------- ------------- ------- ----------------
Net cash provided by operating
activities....................... 34,094 51,669 62,535 9,584
------------- ------------- ------- ----------------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment.................................. 12,454 4,000 1,606 736
Purchase of property, plant and equipment.... (24,916) (25,858) (16,649) (11,928)
Acquisition of Mettler-Toledo from Ciba...... -- -- -- (314,962)
Investments in other long term assets, net... 162 (7,484) (1,632) 4,857
------------- ------------- ------- ----------------
Net cash used in investing
activities....................... (12,300) (29,342) (16,675) (321,297)
------------- ------------- ------- ----------------
Cash flows from financing activities:
Borrowings of third party debt............... -- 3,983 -- 414,170
Repayments of third party debt............... (311) -- (13,464) --
Proceeds from issuance of common stock....... -- -- -- 188,108
Ciba and affiliates borrowings
(repayments)............................... (9,187) (15,693) (26,589) (184,666)
Capital transactions with Ciba and
affiliates................................. 2,002 (37,361) (7,716) (80,687)
------------- ------------- ------- ----------------
Net cash provided by (used in)
financing activities............. (7,496) (49,071) (47,769) 336,925
------------- ------------- ------- ----------------
Effect of exchange rate changes on cash and
cash equivalents............................. 10,040 4,344 (3,394) (615)
------------- ------------- ------- ----------------
Net increase (decrease) in cash and cash
equivalents.................................. 24,338 (22,400) (5,303) 24,597
Cash and cash equivalents:
Beginning of period.......................... 39,464 63,802 41,402 36,099
------------- ------------- ------- ----------------
End of period................................ $63,802 $41,402 $36,099 $ 60,696
------------- ------------- ------- ----------------
------------- ------------- ------- ----------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest................................... $13,225 $18,927 $ 6,524 $ 17,874
Taxes...................................... 9,370 9,970 9,385 2,470
Non-cash financing and investing activities:
Due to Ciba for capital transactions......... -- 36,418 -- --
</TABLE>
See the accompanying notes to the audited consolidated financial statements
F-7
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION AND ACQUISITION
MT Investors Inc. ('MT Investors') was incorporated by AEA Investors Inc.
('AEA') in December 1991. It was recapitalized to effect the acquisition of the
Mettler-Toledo Group from Ciba-Geigy AG ('Ciba') and its wholly owned
subsidiary, AG fur Prazisionsinstrumente ('AGP'). Pursuant to the terms of a
stock purchase agreement dated April 2, 1996 between MT Investors, AGP and Ciba,
on October 15, 1996 MT Investors acquired the Mettler-Toledo Group in a
transaction more fully described below. Between the date of formation and
October 15, 1996, MT Investors had no substantive operations.
In the accompanying Audited Consolidated Financial Statements the terms
'Mettler-Toledo' or the 'Company' when used in situations pertaining to periods
prior to October 15, 1996 refer to the combined group of businesses sold by Ciba
and when used in situations pertaining to periods subsequent to October 15, 1996
refer to MT Investors Inc. and its consolidated subsidiaries. The combined
historical financial information of the business acquired from Ciba prior to the
acquisition on October 15, 1996 are referred to as 'Predecessor' while the
consolidated financial information of the Company subsequent to the date of
acquisition are referred to as 'Successor.'
The accompanying Audited Consolidated Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles.
MT Investors acquired the Company on October 15, 1996 from a subsidiary of
Ciba for cash consideration of SFr 504,996 (approximately $402,000) including
dividends of SFr 109,406 (approximately $87,100) which were paid to Ciba by the
Company in conjunction with the acquisition. In addition, the Company incurred
expenses in connection with the acquisition and related financing of
approximately $29,000, including approximately $5,500 paid to AEA Investors, and
paid approximately $185,000 to settle amounts due to Ciba and affiliates. The
Company has accounted for the acquisition using the purchase method of
accounting. Accordingly, the costs of the acquisition were allocated to the
assets acquired and liabilities assumed based upon their respective fair values.
The excess of the cost of the acquisition over the fair value of the net assets
acquired of approximately $137,500 is being amortized over 32 years. Because of
this purchase price allocation, the accompanying financial statements of
Successor are not directly comparable to those of the Predecessor.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition had been completed as of the
beginning of each of the periods presented, after giving effect to certain
adjustments, including the depreciation and amortization of the assets acquired
based upon their fair values, increased interest expense from the financing of
the acquisition and income tax effects. The Company allocated a portion of the
purchase price to (i) in-process research and development projects, that have
economic value (see Note 2) and (ii) the revaluation of inventories (see Note
4). These adjustments have not been reflected in the following pro forma summary
due to their unusual and non-recurring nature. This pro forma summary does not
necessarily reflect the results of operations as they would have been if the
acquisition had been completed as of the beginning of such periods and is not
necessarily indicative of the results which may be obtained in the future.
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
----------------------------------------------------------
PREDECESSOR SUCCESSOR
----------------------------------- -------------------
YEAR ENDED FOR THE PERIOD FROM FOR THE PERIOD FROM
DECEMBER 31, JANUARY 1, 1996 TO OCTOBER 15, 1996
1995 OCTOBER 14, 1996 DECEMBER 31, 1996
------------ ------------------- -------------------
<S> <C> <C> <C>
Net sales................................................. $850,415 $ 662,221 $ 186,912
Net loss.................................................. (5,396) (3,181) (3,182)
Loss per common share(1).................................. N/A N/A (0.10)
</TABLE>
- - ------------------
N/A--Not applicable
(1) The loss per common share for the Successor has been computed assuming the
common shares issued in the Acquisition were outstanding at the beginning of
the period.
F-8
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION AND ACQUISITION--(CONTINUED)
The foregoing pro forma financial information does not reflect the
anticipated benefits to be derived in the future from the Company's 1996
employee reduction programs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Mettler-Toledo is a manufacturer and marketer of weighing instruments for
use in laboratory, industrial and food retailing applications. The Company also
manufacturers and sells certain related laboratory measurement instruments. The
Company's manufacturing facilities are located in Switzerland, the United
States, Germany and China. The Company's principal executive offices are located
in Greifensee, Switzerland.
Principles of Consolidation
The Audited Consolidated Financial Statements include all of the entities
of the Company. All intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturity dates of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost, which includes
direct materials, labor and overhead plus indirect overhead, is determined using
the first in, first out (FIFO) or weighted average cost methods and to a lesser
extent the last in, first out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is charged on a straight line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements................. 15 to 50 years
Machinery and equipment.................... 3 to 12 years
Computer software.......................... 3 years
Leasehold improvements..................... Shorter of useful life or lease term
</TABLE>
Beginning January 1, 1996 the Company adopted Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121 (SFAS
121), 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.' SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, SFAS 121
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. Adoption of SFAS 121 had no material effect on the Audited Consolidated
Financial Statements.
Excess of cost over net assets acquired
The excess of purchase price over the fair value of net assets acquired, is
amortized on a straight-line basis over 32 years being the expected period to be
benefited. The Company assesses the recoverability of such amount by determining
whether the amortization of the balance over its remaining life can be recovered
from the undiscounted future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the
F-9
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Company's average cost of funds. The assessment of the recoverability of the
excess of cost over net assets acquired will be impacted if estimated future
operating cash flows are not achieved.
Deferred Financing Costs
Debt financing costs, which were incurred by the Company in connection with
borrowings incurred in connection with the acquisition discussed at Note 1, are
deferred and amortized, over the life of the underlying indebtedness using the
interest method.
Taxation
The Company files its own tax returns in each jurisdiction in which it
operates. Prior to the acquisition discussed in Note 1, in certain jurisdictions
the Company filed its tax returns jointly with other Ciba subsidiaries. The
Company had a tax sharing arrangement with Ciba in these countries to share the
tax burden or benefits. Such arrangement resulted in each company's tax burden
or benefit equating to that which it would have incurred or received if it had
been filing a separate tax return.
Taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in the respective jurisdictions in which the
Company operates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Generally, deferred taxes are not provided on the unremitted earnings of
subsidiaries outside of the United States because it is expected that these
earnings are permanently reinvested. Such earnings may become taxable upon the
sale or liquidation of these subsidiaries or upon the remittance of dividends.
Deferred taxes are provided in situations where the Company's subsidiaries plan
to make future dividend distributions.
Research and Development
Research and development costs are expensed as incurred. Research and
development costs, including customer engineering (which represents research and
development charged to customers and, accordingly, is included in cost of
sales), amounted to approximately $55,600, $62,400, $45,100 and $11,100 for the
years ended 1994 and 1995 and for the period from January 1, 1996 to October 14,
1996 and for the period from October 15, 1996 to December 31, 1996,
respectively. In connection with the acquisition discussed in Note 1 the Company
allocated, based upon independent valuations, $114,070 of the purchase price to
purchased research and development in process. Such amount was recorded as an
expense in the period from October 15, 1996 to December 31, 1996.
Currency Translation and Transactions
The reporting currency for the Audited Consolidated Financial Statements of
the Company is the United States dollar (USD). The functional currency for the
Company's operations is generally the applicable local currency. Accordingly,
the assets and liabilities of companies whose functional currency is other than
the USD are included in the consolidation by translating the assets and
liabilities into the reporting currency at the exchange rates applicable at the
end of the reporting year. The statements of operations and cash flows of such
non-USD functional currency operations are translated at the monthly average
exchange rates during the year. Translation gains or losses are accumulated as a
separate component of net assets/shareholders' equity. Currency transaction
gains or losses arising from transactions of Mettler-Toledo companies in
currencies other than the functional currency are included in operations at each
reporting period.
F-10
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative financial
instruments in the form of currency forward and option contracts are entered
into by the Company primarily as a hedge against anticipated currency exposures.
Such contracts limit the Company's exposure to both favorable and unfavorable
currency fluctuations. These contracts are adjusted to reflect market values as
of each balance sheet date, with the resulting unrealized gains and losses being
recognized in financial income or expense, as appropriate.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
other current assets and current liabilities approximates fair market value
because of the short term maturity of these financial instruments. It is not
practical to determine the fair value of balances with Ciba due to the related
party nature of these financial instruments. See Note 5 and Note 12 for the fair
values of the Company's derivative financial instruments and third party debt,
respectively. Other financial instruments are not significant to the Audited
Consolidated Financial Statements.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25 'Accounting
for Stock Issued to Employees' and related interpretations in accounting for its
stock option plan.
Loss per Common Share
Loss per common share has been computed using the treasury stock method
based upon the weighted average number of common shares, including common share
equivalents, outstanding during the Successor period. Common share equivalents
result from outstanding options to purchase common stock. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, all common shares and
common share equivalents issued and options granted by the Company at a price
less than the initial public offering price during the twelve months preceding
the initial filing of the Registration Statement have been included in the loss
per common share calculation as if they were outstanding during the period
presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, 'Earnings per Share.' The Company has
yet to determine the effect of this statement on its earnings per share.
Concentration of Credit Risk
The Company's revenue base is widely diversified by geographic region and
by individual customer. The Company's products are utilized in many different
industries, although extensively in the pharmaceutical and chemical industries.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
Revenue Recognition
Revenue is recognized when title to a product has transferred or services
have been rendered. Revenues from service contracts are recognized over the
contract period.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
F-11
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. DUE FROM CIBA AND AFFILIATES, NET
The amount due from Ciba, net was comprised of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Cash pool deposits......................................................... $ 22,239 $ --
Due from AGP, 6.5%, revolving repayment terms.............................. 10,833 --
------------ ------------
$ 33,072 $ --
------------ ------------
------------ ------------
</TABLE>
Prior to the acquisition discussed in Note 1, certain Mettler-Toledo
companies participated in an arrangement with Ciba whereby excess cash was
pooled into an account maintained by Ciba. The net deposit with Ciba in
connection with this arrangement bore interest at the short-term money market
rates available to Ciba.
Prior to the acquisition Ciba also performed certain limited administrative
services on behalf of the Company. The cost of such services, which was not
charged to the Company nor included in the Audited Consolidated Financial
Statements, was not significant.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials and parts.................................................... $ 45,523 $ 41,015
Work-in-progress........................................................... 38,191 31,534
Finished goods............................................................. 30,149 29,982
------------ ------------
113,863 102,531
LIFO reserve............................................................... (2,877) (5)
------------ ------------
$110,986 $102,526
------------ ------------
------------ ------------
</TABLE>
At December 31, 1995 and 1996, 8.8% and 13.2% respectively, of the
Company's inventories (certain U.S. companies only) were valued using the LIFO
method of accounting. There were no material liquidations of LIFO inventories
during the periods presented.
In connection with the acquisition discussed in Note 1, the Company
allocated approximately $32,200 of the purchase price to revalue certain
inventories (principally work-in-process and finished goods) to fair value (net
realizable value). Substantially all of such inventories were sold during the
period from October 15, 1996 to December 31, 1996.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
The Company may be exposed to credit losses in the event of nonperformance
by the counterparties to its currency forward and option contracts. The Company
has no reason to believe, however, that such counterparties will not be able to
fully satisfy their obligations under these contracts.
At December 31, 1995, the Company had contracts maturing during 1996 to
purchase the equivalent of approximately $23,300 and to sell the equivalent of
approximately $27,900 in various currencies. At December 31, 1996, the Company
had contracts maturing during 1997 to sell the equivalent of approximately
$135,000 in various currencies in exchange for Swiss francs. These contracts
were used to limit its exposure to
F-12
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS--(CONTINUED)
currency fluctuations on anticipated future cash flows, primarily for the
delivery of United States dollars, German marks, French francs, British pounds
and Japanese yen in exchange for Swiss francs.
At December 31, 1995 and 1996, the fair value of such financial
instruments, which the Company recognized as net unrealized gains (losses), was
approximately $2,400 and $(5,100), respectively.
6. OTHER CURRENT ASSETS
Other current assets consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Prepaid expenses........................................................... $ 4,703 $ 5,302
Other (including in 1995 net gains on derivative financial instruments).... 16,766 11,966
------------ ------------
$ 21,469 $ 17,268
------------ ------------
------------ ------------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Land....................................................................... $ 31,535 $ 63,514
Buildings and leasehold improvements....................................... 186,608 120,173
Machinery and equipment.................................................... 237,457 75,675
Computer software.......................................................... 5,373 3,067
------------ ------------
460,973 262,429
Less accumulated depreciation and amortization............................. (219,955) (7,137)
------------ ------------
$241,018 $255,292
------------ ------------
------------ ------------
</TABLE>
8. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Deferred financing fees, net of accumulated amortization of $820 in 1996... $ -- $ 22,015
Bank deposits--restricted cash............................................. 4,697 5,960
Secured loans.............................................................. 2,911 2,805
Other...................................................................... 4,404 7,194
------------ ------------
$ 12,012 $ 37,974
------------ ------------
------------ ------------
</TABLE>
Bank deposits--restricted cash at December 31, 1995 and 1996 principally
represented deposits collateralizing a letter of credit given by a financial
institution in connection with one of the Company's subsidiaries in the Peoples
Republic of China. Other assets at December 31, 1996 included a loan due from
the Company's Chief Executive Officer of approximately $740. Such loan bears an
interest rate of 5% and is payable upon demand, which may not be made until 7
years after the date of the loan.
F-13
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
9. BANK AND OTHER LOANS
Bank and other loans consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Current maturities of long-term debt....................................... $ -- $ 8,968
Borrowings under revolving credit facility................................. -- 51,928
Other short-term borrowings................................................ 19,408 19,550
Borrowings under line of credit............................................ 10,105 --
------------ ------------
$ 29,513 $ 80,446
------------ ------------
------------ ------------
</TABLE>
The weighted average interest rate at December 31, 1995 on the borrowings
under the line of credit was approximately 8.0%. The weighted average interest
rate at December 31, 1996 on the borrowings under the revolving credit facility
was approximately 4.1%. The Company had available revolving lines of credit and
swingline facilities for short-term financing of approximately $75,000 at
December 31, 1996 (See Note 12).
10. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Accrued payroll and vacation............................................... $ 26,400 $ 26,239
Social benefits and payroll taxes.......................................... 9,563 9,218
Severance and other cost provisions........................................ 1,890 12,783
Interest................................................................... 4,731 6,858
Losses on derivative financial instruments................................. -- 5,137
Other taxes payable........................................................ 8,190 5,402
Warranty................................................................... 6,420 6,803
Other liabilities.......................................................... 49,924 42,874
------------ ------------
$107,118 $115,314
------------ ------------
------------ ------------
</TABLE>
Warranties on Mettler-Toledo products are generally for one year. The
Company provides for warranty costs, which have not been significant, based on
historical experience.
11. DEBT PAYABLE TO CIBA AND AFFILIATES
The Company's debt obligations to Ciba and affiliates consisted of the
following:
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Unsecured notes payable:
AGP, 4.25%, due February 29, 1996.......................................... $ 26,517 $ --
Due to Ciba for capital transactions....................................... 36,418 --
Other unsecured short-term debt to Ciba, varying interest rates and
maturities............................................................... 28,197 --
------------ ------------
$ 91,132 $ --
------------ ------------
------------ ------------
</TABLE>
F-14
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
11. DEBT PAYABLE TO CIBA AND AFFILIATES--(CONTINUED)
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Unsecured notes payable to Ciba and affiliates:
AGP, 8.4%, due October 14, 1996.......................................... $122,000 $ --
AGP, 6%, due October 14, 1996............................................ 20,000 --
Other unsecured long-term debt to Ciba, varying interest rates and
maturities............................................................ 3,097 --
------------ ------------
$145,097 $ --
------------ ------------
------------ ------------
</TABLE>
Interest expense on debt payable to Ciba and affiliates for the years ended
December 31, 1994 and 1995 and for the period January 1, 1996 to October 14,
1996 was $10,506, $15,693, and $10,955, respectively.
12. DEBT PAYABLE TO THIRD PARTIES
Long-term debt payable to third parties consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
9.75% Senior Subordinated Notes due October 1, 2006........................ $ -- $135,000
Credit Agreement:
Term A Loans, interest at LIBOR plus 2.5% (4.38% at December 31, 1996)
payable in quarterly installments beginning March 31, 1997 due December
31, 2002................................................................. -- 92,730
Term B Loans, interest at LIBOR plus 3.00% (8.53% at December 31, 1996)
payable in quarterly installments beginning March 31, 1997 due December
31, 2003................................................................. -- 75,000
Term C(CH) and C(US) Loans, interest at LIBOR plus 3.25% (8.78% at
December 31, 1996) payable in quarterly installments beginning March 31,
1997 due December 31, 2004............................................... -- 72,000
Revolving credit facility................................................ -- 51,928
Other...................................................................... 3,621 27,546
------------ ------------
3,621 454,204
Less current maturities.................................................... -- 80,446
------------ ------------
$ 3,621 $373,758
------------ ------------
------------ ------------
</TABLE>
To provide a portion of the financing required for the acquisition and for
working capital and for general corporate purposes thereafter, in October, 1996
Mettler-Toledo Holding Inc., a wholly owned subsidiary of the Company, entered
into a credit agreement with various banks.
Loans under the credit agreement consist of: (i) Term A Loans in an
aggregate principal amount of SFr. 125,000 ($92,730 at December 31, 1996), (ii)
Term B Loans in an aggregate principal amount of $75,000, (iii) Term C(CH) loans
in an aggregate principal amount of $32,000, and (iv) Term C(US) Loans in an
aggregate principal amount of $40,000 (the Term A Loans, the Term B Loans, the
Term C(CH) Loans and Term C(US) Loans are referred to collectively as the 'term
loans'), and (v) a multi-currency revolving credit facility that may be borrowed
in an aggregate principal amount of $140,000, and includes letter of credit and
swingline
F-15
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. DEBT PAYABLE TO THIRD PARTIES--(CONTINUED)
subfacilities available to certain subsidiaries (the 'revolving facility' and
together with the term loans, the 'credit facilities').
Loans under the revolving facility may be repaid and reborrowed and are due
in full on February 18, 1997. The Company is required to pay a facility fee
equal to 0.05% per annum on the amount of the revolving facility and letter of
credit fees on the aggregate face amount of letters of credit under the
revolving facility. At December 31, 1996 the Company had available approximately
$75,000 of additional borrowing capacity.
The credit agreement contains covenants that, among other things, limit the
Company's ability to incur liens; merge, consolidate or dispose of assets; make
loans and investments; incur indebtedness; engage in certain transactions with
affiliates; incur certain contingent obligations; pay dividends and other
distributions; prepay the Notes; or make capital expenditures. The credit
agreement also requires the Company to maintain a minimum net worth and a
minimum fixed charge coverage ratio, and to maintain a ratio of total debt to
EBITDA below a specified maximum.
The aggregate maturities of long-term obligations during each of the years
1998 through 2001 are approximately $12,800, $15,600, $19,300 and $23,000,
respectively.
The estimated fair value of the Company's Senior Subordinated Notes at
December 31, 1996 was approximately $142,000. The estimated fair value of the
obligations under the credit agreement approximate fair value due to the
variable rate nature of the obligations. Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. Fair value estimates were based on the amount of
future cash flows discounted using the Company's current borrowing rate for
loans of comparable maturity. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
13. SHAREHOLDERS' EQUITY
As of December 31, 1996, the authorized capital stock of the Company
consisted of 2,775,976 shares of common stock, $.01 par value of which 2,233,117
shares were designated as Class A common stock, 1,000 shares were designated as
Class B common stock and 541,859 shares were designated as Class C common stock.
As of December 31, 1996, the Company had outstanding 1,899,779 shares of Class A
common stock, 1,000 shares of Class B common stock and 537,735 shares of Class C
common stock. Additionally, 333,117 shares of Class A common stock are reserved
for the Company's stock option plan (See Note 14).
Holders of the Company's common stock have no preemptive, subscription or
redemption rights. Except as described below, the Company's three classes of
common stock have identical rights under the Company's Certificate of
Incorporation and By-laws.
Dividends or distributions in connection with the liquidation, dissolution
or winding up of the affairs of the Company or not paid out of the current and
accumulated earnings and profits shall be paid in the following manner. First,
exclusively to the holders of the shares of Class A common stock, ratably to
each such holder, until the sum of all dividends and distributions to each
holder of Class A common stock equals $100 for each share of Class A common
stock held by such holder. After each holder of shares of Class A common stock
shall have received dividends and distributions totaling $100, then exclusively
to the holders of the shares of Class B common and Class C common stock ratably
to each such holder until the sum of all dividends and distributions to each
holder of Class B common stock and/or Class C common stock equals $100 for each
share of Class B common stock and/or Class C common stock held by such holder.
After each holder of Class B common stock and Class C common stock shall have
received such dividends and distributions, then to all holders of Class A common
stock, Class B common stock and/or Class C common stock, ratably to each holder
of such shares.
Class A and C common stock shareholders have no voting rights.
F-16
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. SHAREHOLDERS' EQUITY--(CONTINUED)
The foregoing share amounts do not give effect to the conversion of each
share of Class A, B and C common stock into 12.58392 shares of Common Stock
which will be effective concurrent with the Offerings described elsewhere in
this Prospectus (the 'Reorganization') (See Note 20).
14. STOCK OPTION PLAN
Effective October 15, 1996, MT Investors adopted a stock option plan to
provide certain key employees and/or directors of the Company additional
incentive to join and/or remain in the service of the Company as well as to
maintain and enhance the long-term performance and profitability of the Company.
The plan reserves 333,117 shares of Class A non-voting common stock of MT
Investors.
Under the terms of the plan, options granted shall be nonqualified and the
exercise price, as determined by the committee, shall not be less than 100% of
the fair market value of the share of such common stock on the date of grant.
Options may not be exercised until the fifth anniversary of the date of grant,
subject to certain acceleration clauses and expire on October 15, 2006.
Stock option activity is shown below (per share average option price
amounts in whole dollars):
<TABLE>
<CAPTION>
OPTION PRICE
--------------------
NUMBER PER SHARE TOTAL
OF SHARES AVERAGE PRICE
--------- --------- -------
<S> <C> <C> <C>
Granted during the period October 15, 1996,
to December 31, 1996................................................ 278,988 $ 100.00 $27,899
Exercised............................................................. -- -- --
Forfeited............................................................. -- -- --
--------- --------- -------
Outstanding at December 31, 1996...................................... 278,988 $ 100.00 $27,899
--------- --------- -------
--------- --------- -------
Shares exerciseable at December 31, 1996.............................. -- $ -- $ --
--------- --------- -------
--------- --------- -------
</TABLE>
As of the date granted, the weighted-average grant-date fair value of the
options was approximately $25.00 per share. Such weighted-average grant-date
fair value was determined using an option pricing model assuming: (i) an
expected option life of seven years, (ii) no dividends are expected to be paid
in the foreseeable future, and (iii) a risk free interest rate of 4%.
The Company applies Accounting Standards Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plan as all options have been issued at
fair market value. The Company's net loss for the period October 15, 1996 to
December 31, 1996 would not have been materially different had compensation cost
been determined consistent with Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 123 'Accounting for Stock Based
Compensation.'
The foregoing share and per share amounts do not give effect to the
Reorganization whereby each outstanding option to purchase shares of the
Company's Class A common stock will convert into 12.58392 outstanding options to
purchase shares of Common Stock (See Note 20).
15. BENEFIT PLANS
Mettler-Toledo maintains a number of retirement plans for the benefit of
its employees.
Certain companies sponsor defined contribution plans. Benefits are
determined and funded annually based upon the terms of the plans. Contributions
under these plans amounted to $9,042, $9,413, $9,484 and $2,496 in 1994, 1995,
for the period January 1, 1996 to October 14, 1996 and for the period October
15, 1996 to December 31, 1996, respectively.
F-17
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
15. BENEFIT PLANS--(CONTINUED)
Certain companies sponsor defined benefit plans. Benefits are also provided
to employees under defined benefit plans primarily based upon years of service
and employees' compensation for certain periods during the last years of
employment.
The following table sets forth the funded status and amounts recognized in
the Audited Consolidated Financial Statements for the Company's principal
defined benefit plans at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31,
1995 1996
---------------------------- ----------------------------
ACCUMULATED ACCUMULATED
ASSETS EXCEED BENEFITS ASSETS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefits............................. $ 8,582 $ 90,698 $10,211 $ 97,639
Non-vested benefits......................... 90 3,122 16 2,280
------------- ----------- ------------- -----------
8,672 93,820 10,227 99,919
------------- ----------- ------------- -----------
Projected benefit obligations................. 10,737 100,820 12,458 108,504
Plan assets at fair value..................... 10,546 40,091 13,336 50,609
------------- ----------- ------------- -----------
Projected benefit obligations in excess of
(less than) plan assets..................... 191 60,729 (878) 57,895
Unrecognized prior service (cost) benefit..... (183) 252 -- --
Unrecognized net (losses) gains............... (188) (247) 22 1,479
Unrecognized transition obligations........... -- (3,851) -- --
------------- ----------- ------------- -----------
(Prepaid) accrued pension costs............... $ (180) $ 56,883 $ (856) $ 59,374
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
The (prepaid) accrued pension costs are recognized in the accompanying
Audited Consolidated Financial Statements as other long-term assets and other
long term liabilities, respectively.
The assumed discount rates and rates of increase in future compensation
level used in calculating the projected benefit obligations vary according to
the economic conditions of the country in which the retirement plans are
situated. The range of rates used for the purposes of the above calculations are
as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Discount rates........................................................ 6.5% to 8.0% 6.0% to 8.5%
Compensation increase rates........................................... 2.5% to 6.0% 2.0% to 6.5%
</TABLE>
The expected long term rates of return on plan assets ranged between 9.5%
and 11.0% in 1994, 9.5% and 10.0% for 1995, and 7.0% and 10.0% for 1996.
The assumptions used above have a significant effect on the reported
amounts of projected benefit obligations and net periodic pension cost. For
example, increasing the assumed discount rate would have the effect of
decreasing the projected benefit obligation and increasing unrecognized net
gains.
Increasing the assumed compensation increase rate would increase the
projected benefit obligation and decrease unrecognized net gains. Increasing the
expected long-term rate of return on investments would decrease unrecognized net
gains.
Plan assets relate principally to the Company's U.S. companies and consist
of equity investments, obligations of the U.S. Treasury or other governmental
agencies, and other interest-bearing investments.
F-18
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
15. BENEFIT PLANS--(CONTINUED)
Net periodic pension cost for all of the plans above includes the following
components:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------- ----------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996 OCTOBER 15, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14, TO DECEMBER 31,
1994 1995 1996 1996
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Service cost (benefits earned during
the period)........................ $ 3,833 $ 3,668 $ 3,850 $ 1,013
Interest cost on projected benefit
obligations........................ 6,426 7,561 6,540 1,721
Actual return on plan assets......... (2,725) (8,653) (6,079) (1,600)
Net amortization and deferral........ (170) 5,137 2,485 --
------------- ------------- --------------- --------
Net periodic pension expense......... $ 7,364 $ 7,713 $ 6,796 $ 1,134
------------- ------------- --------------- --------
------------- ------------- --------------- --------
</TABLE>
The Company's U.S. operations provide postretirement medical benefits to
their employees. Employee contributions for medical benefits are related to
employee years of service.
The following table sets forth the status of the U.S. postretirement plans
and amounts recognized in the Company's Audited Consolidated Financial
Statements at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retire................................................................... $ 27,682 $ 25,894
Fully eligible........................................................... 1,196 3,033
Other.................................................................... 2,361 3,098
------------ ------------
31,239 32,025
Unrecognized net loss...................................................... (6,261) (540)
Unrecognized prior service benefit......................................... 692 --
Unrecognized transition obligation......................................... (1,389) --
------------ ------------
Accrued postretirement benefit cost........................................ $ 24,281 $ 31,485
------------ ------------
------------ ------------
</TABLE>
Net periodic postretirement benefit cost for the above plans includes the
following components:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------- ----------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996 OCTOBER 15, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14, TO DECEMBER 31,
1994 1995 1996 1996
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Service cost (benefits earned during
the period)........................ $ 333 $ 285 $ 431 $ 114
Interest cost on projected benefit
obligations........................ 2,193 2,371 1,795 472
Net amortization and deferral........ 82 99 343 --
------------- ------------- --------------- --------
Net periodic postretirement benefit
cost............................... $ 2,608 $ 2,755 $ 2,569 $ 586
------------- ------------- --------------- --------
------------- ------------- --------------- --------
</TABLE>
The accumulated postretirement benefit obligation and net periodic
postretirement benefit cost were principally determined using discount rates of
7.3% in 1994 and 1995, and 7.6% in 1996, and health care cost trend rates
ranging from 9.5% to 12.25% in 1994, 1995, and 1996 decreasing to 5.0% in 2005.
The health care cost trend rate assumption has a significant effect on the
accumulated postretirement benefit obligation and net periodic postretirement
benefit cost. For example, in 1996 the effect of a one-percentage-point
F-19
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
15. BENEFIT PLANS--(CONTINUED)
increase in the assumed health care cost trend rate would be an increase of
$3,064 on the accumulated postretirement benefit obligations and an increase of
$71 on the aggregate of the service and interest cost components of the net
periodic benefit cost.
16. TAXES
The sources of the Company's earnings (loss) before taxes and minority
interest were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14,
1994 1995 1996
------------- ------------- ----------------
<S> <C> <C> <C>
Switzerland............................................ $ 9,855 $11,431 $ 21,241
Non-Switzerland........................................ 12,652 16,373 3,912
------------- ------------- ----------------
Earnings before taxes and minority interest............ $22,507 $27,804 $ 25,153
------------- ------------- ----------------
------------- ------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
----------------
FOR THE PERIOD
OCTOBER 15, 1996
TO DECEMBER 31,
1996
----------------
<S> <C>
United States.......................................................................... $ (37,293)
Non-United States...................................................................... (122,783)
----------------
Earnings before taxes and minority interest............................................ $ (160,076)
----------------
----------------
</TABLE>
The provision (benefit) for taxes consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Predecessor:
Year ended December 31, 1994:
Switzerland Federal..................................................... $ 1,182 $ (32) $ 1,150
Switzerland Canton (State) and Local.................................... 1,215 (53) 1,162
Non-Switzerland......................................................... 5,538 826 6,364
------- -------- -------
$ 7,935 $ 741 $ 8,676
------- -------- -------
------- -------- -------
Year ended December 31, 1995:
Switzerland Federal..................................................... $ 513 $ (92) $ 421
Switzerland Canton (State) and Local.................................... 481 (505) (24)
Non-Switzerland......................................................... 8,339 46 8,385
------- -------- -------
$ 9,333 $ (551) $ 8,782
------- -------- -------
------- -------- -------
For the period January 1, 1996 to October 14, 1996:
Switzerland Federal..................................................... $ 2,152 $ (172) $ 1,980
Switzerland Canton (State) and Local.................................... 4,305 (344) 3,961
Non-Switzerland......................................................... 5,532 (1,418) 4,114
------- -------- -------
$11,989 $ (1,934) $10,055
------- -------- -------
------- -------- -------
Successor:
For the period October 15, 1996 to December 31, 1996:
United States Federal................................................... $ 475 $ (1,556) $(1,081)
United States State and Local........................................... 696 (183) 513
Non-United States....................................................... 2,454 (2,824) (370)
------- -------- -------
$ 3,625 $ (4,563) $ (938)
------- -------- -------
------- -------- -------
</TABLE>
F-20
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. TAXES--(CONTINUED)
The provision for tax expense (benefit) for the years ended December 31,
1994 and 1995 and for the period January 1, 1996 to October 14, 1996 where the
Company operated as a group of businesses owned by Ciba differed from the
amounts computed by applying the Switzerland federal income tax rate of 9.8% to
earnings before taxes and minority interest as a result of the following:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14,
1994 1995 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Expected tax........................................... $ 2,206 $ 2,725 $ 2,465
Switzerland Canton (state) and local income taxes, net
of federal income tax benefit........................ 1,048 (21) 3,573
Non-deductible intangible amortization................. 249 248 205
Change in valuation allowance.......................... (716) 1,603 1,235
Non-Switzerland income taxes in excess of 9.8%......... 5,591 4,968 2,291
Other, net............................................. 298 (741) 286
------------- ------------- ---------------
Total provision for taxes.............................. $ 8,676 $ 8,782 $10,055
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
The provision for tax expense (benefit) for the period October 15, 1996 to
December 31, 1996, subsequent to the reorganization of the Company under MT
Investors Inc. and the acquisition described in Note 1, differed from the
amounts computed by applying the United States federal income tax rate of 35% to
the loss before taxes and minority interest.
<TABLE>
<CAPTION>
SUCCESSOR
----------------
FOR THE PERIOD
OCTOBER 15, 1996
TO DECEMBER 31,
1996
----------------
<S> <C>
Expected tax........................................................................... $(56,027)
United States state and local income taxes, net of federal income tax benefit.......... 333
Non-deductible purchased research and development...................................... 39,925
Non-deductible intangible amortization................................................. 336
Change in valuation allowance.......................................................... 4,662
Benefits of Non-United States income taxes less than 35%............................... 10,037
Other, net............................................................................. (204)
----------------
Total provision for taxes.............................................................. $ (938)
----------------
----------------
</TABLE>
F-21
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory................................................................ $ 9,706 $ 7,974
Accrued and other liabilities............................................ 6,129 7,046
Deferred loss on sale of subsidiaries.................................... 7,807 7,907
Accrued postretirement benefit costs..................................... 9,227 11,334
Accrued pension costs.................................................... 6,276 7,709
Net operating loss carryforwards......................................... 10,140 15,817
Other.................................................................... 3,000 408
------------ ------------
Total deferred tax assets.................................................. 52,285 58,195
Less valuation allowance................................................... (21,166) (46,714)
------------ ------------
Total deferred tax assets less valuation allowance......................... 31,119 11,481
------------ ------------
Deferred tax liabilities:
Inventory................................................................ 5,952 5,618
Property, plant and equipment............................................ 21,675 31,123
Other.................................................................... 4,200 2,858
------------ ------------
Total deferred tax liabilities............................................. 31,827 39,599
------------ ------------
Net deferred tax liability................................................. $ 708 $ 28,118
------------ ------------
------------ ------------
</TABLE>
The net change in the total valuation allowance, including changes
resulting from translation of such amounts from the local functional currencies
to the reporting currency and the effect of the acquisition discussed in Note 1,
for the years ended December 31, 1994 and 1995 and for the period January 1,
1996 to October 14, 1996 and for the period October 15, 1996 to December 31,
1996 was a decrease of $716 for the year ended December 31, 1994, an increase of
$1,603 for the year ended December 31, 1995, an increase of $1,111 for the
period January 1, 1996 to October 14, 1996 and an increase of $24,437 for the
period October 15, 1996 to December 31, 1996. Of the increase in the valuation
allowance of $24,437 during the period October 15, 1996 to December 31, 1996,
$19,882 was recognized as an increase in goodwill resulting from the acquisition
discussed in Note 1. Should a reduction of such valuation allowance be justified
in the future, the amount of any reduction would accordingly reduce goodwill.
The Company has established valuation allowances primarily for net
operating losses, deferred losses on the sale of subsidiaries as well as
postretirement and pension costs as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Summary of valuation allowances:
Cumulative net operating losses.......................................... $ 10,140 $ 15,817
Deferred losses on sale of subsidiaries.................................. 7,807 7,907
Accrued postretirement benefit costs..................................... -- 10,786
Accrued pension costs.................................................... -- 7,336
Other.................................................................... 3,219 4,868
------------ ------------
Total valuation allowance................................................ $ 21,166 $ 46,714
------------ ------------
------------ ------------
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards in
various countries for income tax purposes of $59,076. Of this amount, $25,131
had no expiration date, relating to subsidiaries in Sweden,
F-22
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. TAXES--(CONTINUED)
Belgium, Australia, United Kingdom, Austria, Brazil and France. Additionally,
there were operating losses at that date in various other countries in the
amount of $33,945 which expire in varying amounts through 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
17. OTHER CHARGES (INCOME), NET
Other charges (income) consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------------------------- ----------------
TWELVE MONTHS TWELVE MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED ENDED JANUARY 1, 1996 OCTOBER 15, 1996
DECEMBER 31, DECEMBER 31, TO OCTOBER 14, TO DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest income...................... $(4,386) $(5,388) $ (3,424) $ (1,079)
Foreign currency transactions, net... (478) (3,242) 220 8,324
Severance and other exit costs....... -- -- 1,872 10,762
Other................................ (2,852) (701) -- (870)
------------- ------------- -------- ----------------
Total................................ $(7,716) $(9,331) $ (1,332) $ 17,137
------------- ------------- -------- ----------------
------------- ------------- -------- ----------------
</TABLE>
Severance and other exit costs for the period January 1, 1996 to October
14, 1996 of $1,872 represent employee severance of $1,545 and other exit costs
of $327 associated with the closing of its Westerville, Ohio facility. Severance
costs for the period October 15, 1996 to December 31, 1996 principally represent
employee severance benefits associated with (i) the Company's general headcount
reduction programs, in Europe and North America, of $4,557 which were announced
during such period, and (ii) the realignment of the analytical and precision
balance business in Switzerland of $6,205 which was internally announced in
December, 1996. In connection with such programs the Company reduced its
workforce by 168 employees in 1996 and intends to further reduce its workforce
by approximately 70 employees.
Other income in 1994 and 1995 primarily relates to gains from sales of
property, and in 1994 to a gain on sale of a cost basis investment.
18. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain of its facilities and equipment under operating
leases. The future minimum lease payments under non-cancelable operating leases
are as follows at December 31, 1996:
1997........................................................... $11,582
1998........................................................... 8,521
1999........................................................... 5,494
2000........................................................... 2,236
2001........................................................... 1,298
Thereafter..................................................... 1,447
-------
Total........................................................ $30,578
-------
-------
Rent expense for operating leases amounted to $16,493, $13,034 and $3,430
in 1995 and for the period January 1, 1996 to October 14, 1996 and for the
period October 15, 1996 to December 31, 1996, respectively.
Legal
The Company is party to various legal proceedings, including certain
environmental matters, incidental to the normal course of business. Management
does not expect that any of such proceedings will have a material adverse effect
on the Company's financial condition or results of operations.
F-23
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
19. GEOGRAPHIC SEGMENT INFORMATION
The tables below shows the Company's operations by geographic region.
Transfers between geographic regions are priced to reflect consideration of
market conditions and the regulations of the countries in which the transferring
entities are located.
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL EARNINGS
TWELVE MONTHS ENDED NET SALES BY NET SALES BY GEOGRAPHIC NET SALES BEFORE INTEREST
DECEMBER 31 1994 DESTINATION ORIGIN AREAS BY ORIGIN AND TAXES
- - --------------------------------- ------------ ------------ ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Switzerland (1).................. $ 31,992 $ 89,495 $ 133,583 $ 223,078 $10,516
Germany.......................... 126,527 133,772 37,056 170,828 10,034
Other Europe..................... 215,230 192,557 776 193,333 1,665
------------ ------------ ---------- --------- ---------------
Total Europe..................... 373,749 415,824 171,415 587,239 22,215
United States.................... 269,034 300,244 29,877 330,121 10,111
Other Americas................... 56,628 33,204 64 33,268 939
------------ ------------ ---------- --------- ---------------
Total Americas................... 325,662 333,448 29,941 363,389 11,050
Asia and other................... 69,725 19,864 75 19,939 238
Eliminations..................... -- -- (201,431) (201,431) (2,553)
------------ ------------ ---------- --------- ---------------
Totals........................... $769,136 $769,136 $ -- $ 769,136 $30,950
------------ ------------ ---------- --------- ---------------
------------ ------------ ---------- --------- ---------------
</TABLE>
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL EARNINGS
TWELVE MONTHS ENDED NET SALES BY NET SALES BY GEOGRAPHIC NET SALES BEFORE INTEREST TOTAL
DECEMBER 31, 1995 DESTINATION ORIGIN AREAS BY ORIGIN AND TAXES ASSETS
- - -------------------------------- ------------ ------------ ---------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Switzerland (1)................. $ 41,820 $102,712 $ 159,453 $ 262,165 $ 6,316 $ 593,955
Germany......................... 151,974 158,393 47,379 205,772 14,799 196,460
Other Europe.................... 247,802 228,939 799 229,738 2,080 123,431
------------ ------------ ---------- --------- --------------- ---------
Total Europe.................... 441,596 490,044 207,631 697,675 23,195 913,846
United States................... 263,945 298,053 29,578 327,631 7,363 257,956
Other Americas.................. 52,966 32,732 131 32,863 950 14,474
------------ ------------ ---------- --------- --------------- ---------
Total Americas.................. 316,911 330,785 29,709 360,494 8,313 272,430
Asia and other.................. 91,908 29,586 97 29,683 2,331 31,777
Eliminations.................... -- -- (237,437) (237,437) 3,554 (493,959)
------------ ------------ ---------- --------- --------------- ---------
Totals.......................... $850,415 $850,415 $ -- $ 850,415 $37,393 $ 724,094
------------ ------------ ---------- --------- --------------- ---------
------------ ------------ ---------- --------- --------------- ---------
</TABLE>
<TABLE>
<CAPTION>
TRANSFERS
FOR THE PERIOD BETWEEN TOTAL EARNINGS
JANUARY 1, 1996 TO NET SALES BY NET SALES BY GEOGRAPHIC NET SALES BEFORE INTEREST
OCTOBER 14, 1996 DESTINATION ORIGIN AREAS BY ORIGIN AND TAXES
- - -------------------------------- ------------ ------------ ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Switzerland (1)................. $ 32,282 $ 74,303 $ 126,423 $ 200,726 $17,299
Germany......................... 104,961 114,015 35,583 149,598 9,631
Other Europe.................... 186,823 171,061 840 171,901 1,928
------------ ------------ ---------- --------- ---------------
Total Europe.................... 324,066 359,379 162,846 522,225 28,858
United States................... 217,636 246,180 22,753 268,933 8,508
Other Americas.................. 47,473 25,925 3 25,928 618
------------ ------------ ---------- --------- ---------------
Total Americas.................. 265,109 272,105 22,756 294,861 9,126
Asia and other.................. 73,046 30,737 265 31,002 1,241
Eliminations.................... -- -- (185,867) (185,867) (3,408)
------------ ------------ ---------- --------- ---------------
Totals.......................... $662,221 $662,221 $ -- $ 662,221 $35,817
------------ ------------ ---------- --------- ---------------
------------ ------------ ---------- --------- ---------------
</TABLE>
F-24
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
19. GEOGRAPHIC SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
TRANSFERS
FOR THE PERIOD BETWEEN TOTAL EARNINGS
OCTOBER 15, 1996 TO NET SALES BY NET SALES BY GEOGRAPHIC NET SALES BEFORE INTEREST TOTAL
DECEMBER 31, 1996 DESTINATION ORIGIN AREAS BY ORIGIN AND TAXES(2) ASSETS
- - ----------------------------------- ------------ ------------ ---------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Switzerland (1).................... $ 8,415 $ 15,892 $ 39,570 $ 55,462 $ (99,233) $432,387
Germany............................ 29,688 29,117 10,965 40,082 (5,209) 170,845
Other Europe....................... 58,598 59,688 485 60,173 (4,971) 126,063
------------ ------------ ---------- --------- --------------- --------
Total Europe....................... 96,701 104,697 51,020 155,717 (109,413) 729,295
United States...................... 56,405 64,109 6,731 70,840 (32,519) 477,762
Other Americas..................... 13,436 7,371 3 7,374 (753) 17,730
------------ ------------ ---------- --------- --------------- --------
Total Americas..................... 69,841 71,480 6,734 78,214 (33,272) 495,492
Asia and other..................... 20,370 10,735 28 10,763 (1,919) 48,245
Eliminations....................... -- -- (57,782) (57,782) 511 (501,144)
------------ ------------ ---------- --------- --------------- --------
Totals............................. $186,912 $186,912 $ -- $ 186,912 $(144,093) $771,888
------------ ------------ ---------- --------- --------------- --------
------------ ------------ ---------- --------- --------------- --------
</TABLE>
- - ------------------
(1) Includes Corporate.
(2) The effect of non-recurring acquisition charges arising from in-process
research and development projects ($114.1 million) and the revaluation of
inventories to fair value ($32.2 million) by region are as follows:
Europe........................... $108,100
Americas......................... 36,000
Asia/Rest of World............... 2,200
--------
--------
20. SUBSEQUENT EVENTS (UNAUDITED)
Reorganization
Concurrently with the Offerings described elsewhere in this Prospectus (i)
Mettler-Toledo Holding, Inc. will be merged with and into MT Investors (the
'Merger'), with MT Investors being the surviving corporation, (ii) as part of
the Merger, MT Investors will convert each share of its existing Class A, Class
B and Class C common stock, into 12.58392 shares of Common Stock and (iii) MT
Investors will change its name to Mettler-Toledo International Inc. In the
Merger, holders who would receive fractional shares will instead receive a cash
payment at the public offering price.
The following table presents the Company's actual shareholders' equity at
December 31, 1996 and pro forma shareholders' equity at such date after giving
effect to the Reorganization. Concurrent with the Reorganization, the Company
will increase its authorized shares of Common Stock to 125,000,000 shares.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
Common stock, $0.01 par value per share:
Class A non-voting, authorized 2,233,117 shares; issued 1,899,779..................... $ 19 --
Class B voting, authorized 1,000 shares; issued 1,000................................. 1 --
Class C non-voting, authorized 541,859 shares; issued 537,735......................... 5 --
Common Stock, authorized 125,000,000 shares; issued 30,686,065 shares................. -- $ 307
Additional paid-in capital.............................................................. 188,084 187,802
Accumulated deficit..................................................................... (159,046) (159,046)
Currency translation adjustment......................................................... (16,637) (16,637)
--------- ---------
Total shareholders' equity......................................................... $ 12,426 $ 12,426
--------- ---------
--------- ---------
</TABLE>
F-25
<PAGE>
MT INVESTORS INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
20. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
At December 31, 1996, after giving effect to the Reorganization, the
Company has outstanding 3,510,763 options to purchase Common Stock at a per
share average price of $7.95.
Preferred Stock
The Board of Directors, without further shareholder authorization, will be
authorized to issue up to 10 million shares of preferred stock, par value $0.01
per share (the 'Preferred Stock') in one or more series and to determine and fix
the rights, preferences and privileges of each series, including dividend rights
and preferences over dividends on the Common Stock and one or more series of the
Preferred Stock, conversion rights, voting rights (in addition to those provided
by law), redemption rights and the terms of any sinking fund therefor, and
rights upon liquidation, dissolution or winding up, including preferences over
the Common Stock and one or more series of the Preferred Stock. Although the
Company has no present plans to issue any shares of Preferred Stock following
the consummation of the Offerings, the issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Company or an unsolicited
acquisition proposal.
F-26
<PAGE>
MT INVESTORS INC.
INTERIM CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR
------------ -------------
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 60,696 $ 33,158
Trade accounts receivable, net.................................................... 151,161 148,826
Inventories....................................................................... 102,526 106,129
Deferred taxes.................................................................... 7,565 10,956
Other current assets.............................................................. 17,268 21,975
------------ -------------
Total current assets......................................................... 339,216 321,044
Property, plant and equipment, net.................................................. 255,292 233,480
Excess of cost over net assets acquired, net........................................ 135,490 181,902
Long-term deferred taxes............................................................ 3,916 4,825
Other assets........................................................................ 37,974 26,926
------------ -------------
Total assets................................................................. $771,888 $ 768,177
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable............................................................ $ 32,797 $ 27,226
Accrued and other liabilities..................................................... 115,314 135,096
Taxes payable..................................................................... 17,580 27,940
Deferred taxes.................................................................... 9,132 8,621
Bank and other loans.............................................................. 80,446 56,559
------------ -------------
Total current liabilities.................................................... 255,269 255,442
Long-term debt due to third parties................................................. 373,758 429,033
Long-term deferred taxes............................................................ 30,467 26,001
Other long-term liabilities......................................................... 96,810 90,307
------------ -------------
Total liabilities............................................................ 756,304 800,783
Minority interest................................................................... 3,158 3,655
Shareholders' equity (deficit):
Common stock, $0.01 par value per share:
Class A non-voting, authorized 2,233,117 shares at December 31, 1996 and
2,235,896 at September 30, 1997; issued 1,899,779 at December 31, 1996 and
1,898,795 (excluding 3,984 shares held in treasury) at September 30, 1997..... 19 19
Class B voting, authorized 1,000 shares; issued 1,000 at December 31, 1996 and
September 30, 1997............................................................ 1 1
Class C non-voting, authorized 541,859 shares; issued 537,735 at December 31,
1996 and 537,453 (excluding 1,139 shares held in treasury) at September 30,
1997.......................................................................... 5 5
Additional paid-in capital........................................................ 188,084 187,986
Accumulated deficit............................................................... (159,046) (195,617)
Currency translation adjustment................................................... (16,637) (28,655)
------------ -------------
Total shareholders' equity (deficit)......................................... 12,426 (36,261)
------------ -------------
Total liabilities and shareholders' equity (deficit)................................ $771,888 $ 768,177
------------ -------------
------------ -------------
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-27
<PAGE>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales....................................................................... $ 624,733 $ 633,743
Cost of sales................................................................... 374,121 359,080
------------- -------------
Gross profit.................................................................. 250,612 274,663
Research and development........................................................ 37,930 34,494
Selling, general and administrative............................................. 175,645 189,594
Amortization.................................................................... 2,038 4,449
Purchased research and development.............................................. -- 29,959
Interest expense................................................................ 12,579 28,199
Other charges (income), net..................................................... (226) 7,316
------------- -------------
Earnings (loss) before taxes
minority interest and extraordinary item................................... 22,646 (19,348)
Provision for taxes............................................................. 8,901 7,296
Minority interest............................................................... 609 375
------------- -------------
Earnings (loss) before extraordinary item..................................... 13,136 (27,019)
Extraordinary item--debt extinguishment......................................... -- (9,552)
------------- -------------
Net earnings (loss)........................................................... $ 13,136 $ (36,571)
------------- -------------
------------- -------------
Loss per common share:
Weighted average number of common shares...................................... 32,199,497
Loss per common share before extraordinary item............................... $ (0.84)
Extraordinary item............................................................ (0.30)
-------------
Loss per common share......................................................... $ (1.14)
-------------
-------------
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-28
<PAGE>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS / SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1996
----------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
-------- ---------- --------
<S> <C> <C> <C>
Net assets at December 31, 1995.................................... $162,604 $ 30,650 $193,254
Capital transactions with Ciba and affiliates...................... (88,404) -- (88,404)
Net earnings....................................................... 13,136 -- 13,136
Change in currency translation adjustment.......................... -- (6,301) (6,301)
-------- ---------- --------
Net assets at September 30, 1996................................... $ 87,336 $ 24,349 $111,685
-------- ---------- --------
-------- ---------- --------
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-29
<PAGE>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS / SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL CURRENCY
------------------- ------------------ ----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- -------- -------- -------- ------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 1,899,779 $ 19 1,000 $ 1 537,735 $ 5 $188,084 $(159,046) $ (16,637)
New issuance of shares... 3,000 -- -- -- 857 -- 300 -- --
Net loss................. -- -- -- -- -- -- -- (36,571) --
Change in currency
translation
adjustment............. -- -- -- -- -- -- -- -- (12,018)
Purchase of treasury
stock.................. (3,984) -- -- -- (1,139) -- (398) -- --
--------- --- -------- --- ------- --- ------------ ------------- -------------
Balance at September 30,
1997................... 1,898,795 $ 19 1,000 $ 1 537,453 $ 5 $187,986 $(195,617) $ (28,655)
--------- --- -------- --- ------- --- ------------ ------------- -------------
--------- --- -------- --- ------- --- ------------ ------------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
Balance at December 31,
1996................... $ 12,426
New issuance of shares... 300
Net loss................. (36,571)
Change in currency
translation
adjustment............. (12,018)
Purchase of treasury
stock.................. (398)
--------
Balance at September 30,
1997................... $(36,261)
--------
--------
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-30
<PAGE>
MT INVESTORS INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................................................. $ 13,136 $ (36,571)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation............................................................ 18,630 17,784
Amortization............................................................ 2,038 4,449
Write-off of purchased research and development and cost of sales
associated with revaluation of inventories........................... -- 32,013
Extraordinary item--debt extinguishment................................. -- 9,552
Net gain on disposal of long-term assets................................ (768) (126)
Deferred taxes.......................................................... (1,211) (6,804)
Minority interest....................................................... 272 375
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net........................................ 9,707 (920)
Inventories........................................................... (502) (4,715)
Other current assets.................................................. (29,261) (3,404)
Trade accounts payable................................................ (3,525) (7,344)
Accruals and other liabilities, net................................... 49,408 25,987
------------- -------------
Net cash provided by operating activities.......................... 57,924 30,276
------------- -------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment............................. 1,254 15,913
Purchase of property, plant and equipment....................................... (14,985) (13,299)
Purchase of Safeline Limited.................................................... -- (74,908)
Investments in other long term assets, net...................................... (2,869) (6,679)
------------- -------------
Net cash used in investing activities.............................. (16,600) (78,973)
------------- -------------
Cash flows from financing activities:
Borrowings of third party debt.................................................. -- 314,657
Repayments of third party debt.................................................. (13,464) (289,392)
Proceeds from issuance of common stock.......................................... -- 300
Purchase of treasury stock...................................................... -- (398)
Ciba and affiliates repayments.................................................. (26,589) --
Capital transactions with Ciba and affiliates................................... (7,716) --
------------- -------------
Net cash provided by (used) in financing activities................ (47,769) 25,167
------------- -------------
Effect of exchange rate changes on cash and cash equivalents...................... (1,879) (4,008)
------------- -------------
Net increase (decrease) in cash and cash equivalents.............................. (8,324) (27,538)
Cash and cash equivalents:
Beginning of period............................................................. 41,402 60,696
------------- -------------
End of period................................................................... $ 33,078 $ 33,158
------------- -------------
------------- -------------
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-31
<PAGE>
MT INVESTORS INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles on a basis which reflects the interim consolidated financial
statements of MT Investors Inc. ('MT Investors'). MT Investors was incorporated
by AEA Investors Inc. ('AEA') in December 1991. It was recapitalized to effect
the acquisition (the 'Acquisition') of the Mettler-Toledo Group from Ciba-Geigy
AG ('Ciba') and its wholly owned subsidiary, AG fur Prazisionsinstrumente
('AGP'). Pursuant to the terms of a stock purchase agreement dated April 2, 1996
between MT Investors, AGP and Ciba, on October 15, 1996 MT Investors acquired
the Mettler-Toledo Group in a business combination accounted for as a purchase.
Between the date of formation and October 15, 1996, MT Investors had no
substantive operations.
In the accompanying interim consolidated financial statements the terms
'Mettler-Toledo' or the 'Company' when used in situations pertaining to periods
prior to October 15, 1996 refer to the combined group of businesses sold by Ciba
and when used in situations pertaining to periods subsequent to October 15, 1996
refer to MT Investors and its consolidated subsidiaries. The combined historical
financial information of the business acquired from Ciba prior to the
Acquisition on October 15, 1996 are referred to as 'Predecessor' while the
consolidated financial information of the Company subsequent to the date of the
Acquisition are referred to as 'Successor'. Because of purchase price accounting
for the Acquisition and the additional interest expense from debt incurred to
finance the Acquisition, the accompanying interim financial statements of the
Successor are not directly comparable to those of the Predecessor.
The accompanying interim consolidated financial statements of the Company
have been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The accompanying interim consolidated financial
statements as of September 30, 1997 and for the nine months ended September 30,
1996 and 1997 should be read in conjunction with the December 31, 1995 and 1996
Audited Consolidated Financial Statements and the notes thereto included
elsewhere in this Registration Statement.
The accompanying unaudited interim consolidated financial statements
reflect all adjustments (consisting of only normal recurring adjustments) which,
in the opinion of management, are necessary for a fair statement of the results
of the interim periods presented. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1997.
Debt refinancing
On May 29, 1997, the Company refinanced its previous credit facility and
entered into the Company's current credit facility (the 'Credit Agreement'). The
Credit Agreement provides for term loan borrowings in an aggregate principal
amount of approximately $133.8 million, SFr 171.5 million and pounds 26.7
million, that are scheduled to mature between 2002 and 2004, a Canadian
revolving credit facility with availability of CDN $26.3 million and a
multi-currency revolving credit facility with availability of $151.0 million.
The revolving credit facilities are scheduled to mature in 2002.
The Company recorded an extraordinary item--debt extinguishment of $9.6
million representing a one time charge for the write-off of capitalized debt
issuance fees and related expenses associated with the Company's previous credit
facility.
Safeline acquisition
On May 30, 1997, the Company purchased (the 'Safeline Acquisition') the
entire issued share capital of Safeline Limited ('Safeline'), a manufacturer of
metal detection systems based in Manchester in the United Kingdom, for
approximately pounds 61.0 million (approximately $100.0 million), plus up to an
additional pounds 6.0 million ($10.0 million) for a contingent earn-out payment.
In October 1997, the Company made an additional payment, representing a
post-closing adjustment, of pounds 1.9 million (approximately $3.1 million at
October 3, 1997). Such
F-32
<PAGE>
MT INVESTORS INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION--(CONTINUED)
amount will be accounted for as additional purchase price. Under the terms of
the agreement the Company paid approximately pounds 47.3 million ($77.4 million)
of the purchase price in cash, provided by amounts loaned under its Credit
Agreement, with the remaining balance of approximately pounds 13.7 million
($22.4 million) paid in the form of seller loan notes which mature May 30, 1999.
In connection with the Safeline Acquisition the Company incurred expenses of
approximately $2.0 million which have been accounted for as part of the purchase
price.
The Company has accounted for the Safeline Acquisition using the purchase
method of accounting. Accordingly, the costs of the Safeline Acquisition were
allocated to the assets acquired and liabilities assumed based upon their
respective fair values. Approximately $30.0 million of the purchase price was
attributed to purchased research and development in process. Such amount was
expensed immediately in the second quarter of 1997. The technological
feasibility of the products being developed had not been established as of the
date of the Safeline Acquisition. The Company expects that the projects
underlying these research and development efforts will be substantially complete
over the next two years. The Company spends more than $40.0 million annually on
research and development; however, ultimately achieving technological
feasibility cannot be assured for these projects or others. In addition, the
Company allocated approximately $2.1 million of the purchase price to revalue
certain finished goods inventories to fair value. Substantially all of such
inventories were sold in the second quarter of 1997. The excess of the cost of
the Safeline Acquisition over the fair value of the net assets acquired of
approximately $62.0 million is being amortized over 30 years. The purchase price
allocation is subject to adjustment. The results of operations and cash flows of
Safeline have been consolidated with those of the Company from the date of the
Safeline Acquisition.
Restructuring charge
The Company recorded a restructuring charge of approximately $3.3 million
during the third quarter ended September 30, 1997. The Company expects to
recognize an additional restructuring charge of approximately $3.0 million
during the fourth quarter ending December 31, 1997 for restructuring activities
not initiated until October of this year. Both charges are in connection with
the closure of three facilities in North America and are comprised primarily of
severance and other related benefits and costs of existing facilities, including
lease termination costs and write-down of existing assets to their expected net
realizable value. The Company expects these actions will be completed in 1998
and that the two owned facilities will be sold after that period. In connection
with the closure of these facilities, the Company expects to involuntarily
terminate approximately 70 employees. The Company is undertaking these actions
as part of its efforts to reduce costs through reengineering. When complete,
these actions will enable the Company to close certain operations and realize
cost savings estimated at approximately $2.5 million on an annual basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Mettler-Toledo is a manufacturer and marketer of weighing instruments for
use in laboratory, industrial and food retailing applications. The Company also
manufactures and sells certain related laboratory measurement instruments. The
Company's manufacturing facilities are located in Switzerland, the United
States, Germany, the U.K. and China.
Inventories
Inventories are valued at the lower of cost or market. Cost, which includes
direct materials, labor and overhead plus indirect overhead, is determined using
either the first in, first out (FIFO) or weighted average cost method. Two
companies in the U.S. use the last in, first out (LIFO) cost method.
F-33
<PAGE>
MT INVESTORS INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories consisted of the following at December 31, 1996 and September 30,
1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Raw materials and parts.............................................. $ 41,015 $ 41,843
Work in progress..................................................... 31,534 33,206
Finished goods....................................................... 29,982 31,204
------------ -------------
102,531 106,253
LIFO reserve......................................................... (5) (124)
------------ -------------
$102,526 $ 106,129
------------ -------------
------------ -------------
</TABLE>
Interest Rate Agreements
In July 1997, the Company entered into three year interest rate cap
agreements to limit the impact of increases in interest rates on $150.0 million
of U.S. dollar based debt. These agreements 'cap' the effects of an increase in
three month LIBOR above 8.5%. In addition, the Company has entered into three
year interest rate swap agreements which swap the interest obligation associated
with $100.0 million of U.S. dollar based debt from variable to fixed. The fixed
rate associated with the swap is 6.09% plus the Company's normal interest
margin. The swap is effective at three month LIBOR rates up to 7.00%.
In August 1997, the Company entered into certain three year interest rate
swap agreements that fix the interest obligation associated with SFr 112.5
million of Swiss Franc based debt at rates varying between 2.17% and 2.49%.
The Company has designated such interest rate agreements as hedges of
certain of its long-term debt payable and recognizes interest differentials as
adjustments to interest expense in the period they occur. Premiums paid on
interest rate cap agreements are amortized over the terms of the agreements.
Loss per Common Share
Loss per common share has been computed using the treasury stock method
based upon the weighted average number of common shares, including common share
equivalents, outstanding during the Successor period. Common share equivalents
result from outstanding options to purchase common stock. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, all common shares and
common share equivalents issued and options granted by the Company at a price
less than the initial public offering price during the twelve months preceding
the initial filing of the Registration Statement have been included in the loss
per common share calculation as if they were outstanding during the period
presented.
Stock Option Plan
At September 30, 1997, the Company has outstanding 281,078 options to
purchase the Company's Class A common stock at a per share average price of
$100.00. After giving effect to the Reorganization (See Note 3), the Company has
outstanding 3,537,063 options to purchase common stock at a per share average
price of $7.95.
3. SUBSEQUENT EVENTS
Reorganization
Concurrently with the Offerings described elsewhere in this Prospectus (i)
Mettler-Toledo Holding, Inc. will be merged with and into MT Investors (the
'Merger'), with MT Investors being the surviving corporation, (ii) as part of
the Merger, MT Investors will convert each share of its existing Class A, Class
B and Class C
F-34
<PAGE>
MT INVESTORS INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. SUBSEQUENT EVENTS--(CONTINUED)
common stock, into 12.58392 shares of Common Stock and (iii) MT Investors will
change its name to Mettler-Toledo International Inc. In the Merger, holders who
would receive fractional shares will instead receive a cash payment at the
public offering price.
The following table presents the Company's actual shareholders' deficit at
September 30, 1997 and pro forma shareholders' deficit at such date after giving
effect to the Reorganization. Concurrent with the Reorganization, the Company
will increase its authorized shares of Common Stock to 125,000,000 shares.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
Shareholders' deficit:
Common stock, $0.01 par value per share:
Class A non-voting, authorized 2,235,896 shares; issued 1,898,795 (excluding 3,984
shares held in treasury).......................................................... $ 19 --
Class B voting, authorized 1,000 shares; issued 1,000.............................. 1 --
Class C non-voting, authorized 541,859 shares; issued 537,453 (excluding 1,139
shares held in treasury).......................................................... 5 --
Common stock, authorized 125,000,000 shares; issued 30,670,134 (excluding 64,467
shares held in treasury) on a pro forma basis..................................... -- $ 307
Additional paid-in capital............................................................ 187,986 187,704
Accumulated deficit................................................................... (195,617) (195,617)
Currency translation adjustment....................................................... (28,655) (28,655)
--------- ---------
Total shareholders' deficit...................................................... $ (36,261) $ (36,261)
--------- ---------
--------- ---------
</TABLE>
Stock Option Plan
In October 1997, the Company granted, under its stock option plan, 57,300
options to purchase the Company's Class A common stock at a per share average
price of $200. After giving effect to the Reorganization, the total number of
options granted in October 1997 is 721,059 at a per share average price of
$15.89.
Preferred Stock
The Board of Directors, without further shareholder authorization, will be
authorized to issue up to 10 million shares of preferred stock, par value $0.01
per share (the 'Preferred Stock') in one or more series and to determine and fix
the rights, preferences and privileges of each series, including dividend rights
and preferences over dividends on the Common Stock and one or more series of the
Preferred Stock, conversion rights, voting rights (in addition to those provided
by law), redemption rights and the terms of any sinking fund therefor, and
rights upon liquidation, dissolution or winding up, including preferences over
the Common Stock and one or more series of the Preferred Stock. Although the
Company has no present plans to issue any shares of Preferred Stock following
the consummation of the Offerings, the issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Company or an unsolicited
acquisition proposal.
F-35
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREROF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 11
The Company.................................... 15
Holding........................................ 16
Dividend Policy................................ 17
The Merger..................................... 18
Unaudited Pro Forma Financial
Information.................................. 19
Selected Historical Financial Information...... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 29
Industry....................................... 39
Business....................................... 41
Management..................................... 54
Certain Relationships and Related
Transactions................................. 58
Security Ownership of Certain Beneficial Owners
and Management............................... 59
Description of Certain Indebtedness............ 60
Description of Capital Stock................... 62
Shares Eligible for Future Sale................ 64
Certain United States Federal Tax
Considerations For Non-United States
Holders...................................... 66
Solicitation of Consents....................... 69
Comparison of Shareholder Rights............... 69
Description of Existing Capital Stock.......... 70
Principal Shareholders......................... 71
Certain Federal Income Tax Consequences of the
Merger....................................... 72
Index to Financial Statements.................. F-1
</TABLE>
================================================================================
================================================================================
[LOGO]
METTLER-TOLEDO
INTERNATIONAL INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NOVEMBER 13, 1997
================================================================================
