UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
|-| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ------- TO -------
COMMISSION FILE NUMBER 0-22493
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METTLER-TOLEDO INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3668641
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
IM LANGACHER
P.O. BOX MT-100
CH 8606 GREIFENSEE, SWITZERLAND
(Address of principal executive (Zip Code)
offices)
011-41-1-944-22-11
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par New York Stock
value Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.[ ]
As of March 8, 1999 there were 38,400,363 shares of the Registrant's
Common Stock, $0.01 par value per share, outstanding. The aggregate market value
of the shares of common stock held by non-affiliates of the Registrant (based on
the closing price for the Common Stock on the New York Stock Exchange on March
8, 1999) was approximately $922,851,527. For purposes of this computation,
shares held by affiliates and by directors of the Registrant have been excluded.
Such exclusion of shares held by directors is not intended, nor shall it be
deemed, to be an admission that such persons are affiliates of the Registrant.
Documents Incorporated by Reference
Document Part of Form 10-K
Proxy Statement for 1999 Into which Incorporated
Annual Meeting of Stockholders Part III
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METTLER-TOLEDO INTERNATIONAL INC.
annual report on form 10-K
for the fiscal year ended DECEMBER 31, 1998
PAGE
PART I
ITEM 1. BUSINESS........................................................1
ITEM 2. PROPERTIES.....................................................22
ITEM 3. LEGAL PROCEEDINGS..............................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................24
ITEM 6. SELECTED FINANCIAL DATA........................................25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............44
ITEM 11. EXECUTIVE COMPENSATION.........................................46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K....................................................47
SIGNATURES...................................................................48
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Unless otherwise stated or where the context otherwise requires,
references herein to we, our, the "Company" or "Mettler-Toledo" refer to
Mettler-Toledo International Inc. and its direct and indirect subsidiaries.
This Annual Report on Form 10-K includes forward-looking statements
based on our current expectations and projections about future events. These
forward-looking statements are subject to a number of risks and uncertainties
which could cause our actual results to differ materially from historical
results or those anticipated and certain of which are beyond our control. The
words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. New risk factors emerge from time to time and it is
not possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Exhibit 99.1 to
this Report.
Mettler-Toledo(R), Mettler(R), Ingold(R), Garvens(R), Ohaus(R),
DeltaRange(R), DigiTol(R), Mentor SC(R), OPRA(R), PILAR(R), Safeline(R),
Spider(R), TrimWeigh(R) and TRUCKMATE(R) are our registered trademarks and
MonoBloc(TM), MultiRange(TM), Signature(TM) and Powerphase(TM) are our
trademarks.
Unless otherwise indicated, industry data contained herein is derived
from publicly available industry trade journals, government reports and other
publicly available sources. We have not independently verified this data but we
believe the data is reliable. Where such sources are not available, industry
data is derived from our internal estimates, which we believe to be reasonable,
but which cannot be independently verified. As used in this Annual Report, "$"
refers to U.S. dollars, "CHF" or "SFr" refers to Swiss francs, "(pound)" refers
to British pounds sterling and "CDN $" refers to Canadian dollars.
PART I
Item 1. Business
Overview
Mettler-Toledo is a leading global supplier of precision instruments.
We are the world's largest manufacturer and marketer of weighing instruments for
use in laboratory, industrial and food retailing applications. We also hold
leading positions in various related precision measurement instrument
technologies which we sell to the same customer base. For instance, we hold one
of the top three global market positions in the following analytical
instruments: titrators, thermal analysis systems, automatic lab reactors,
automated synthesis products, pH meters and electrodes. In addition, we are the
global market leader in metal detection equipment for use in the production and
packaging of goods in industries such as food processing, pharmaceutical,
cosmetics, chemicals and other industries.
Market leadership and technology leadership are critical components of
our success, and we have used these advantages to build our business. For
instance, using our leading position in weighing instruments as our base, we
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have added other products, such as analytical instruments and metal detectors,
that appeal to our existing customer base. In addition, we focus on the high
value-added segments of our markets by delivering innovation to the marketplace.
Some examples of our innovations include more accurate forms of measurement, an
increased use of automation or robotics in our products and the use of
custom-designed software or open-system architectures to allow data gathered by
our instruments to be more easily integrated into our customers' management
information systems.
We believe our ability to maintain and enhance the strength of our
leadership position in high value-added segments is due in part to the strength
of our brand name and the quality of our global sales and service organization.
We service a worldwide customer base through our own sales and service
organization and we have a global manufacturing presence in Europe, the United
States and Asia. Overall, we estimate the global market for weighing instruments
to be approximately $4.5 billion and the market for other measurement
instruments to be approximately $1.5 billion.
In 1998, our sales were $935.7 million. Of this total 46% came from
Europe, 43% from North and South America and 11% from Asia and other countries.
For additional information regarding our segment disclosure, see Note 16 to our
audited consolidated financial statements. Despite poor economic conditions in
parts of the world during 1998, our sales have remained strong. We attribute
this strength to the non-cyclical nature of our two largest markets, the
pharmaceutical and food and beverage industries. Moreover, the diversified
nature of our customer base and product offerings provides an additional
competitive strength on a global basis and limits our exposure to local economic
trends.
History
We trace our roots to the invention of the single-pan analytical
balance by Dr. Erhard Mettler and the formation of Mettler Instruments AG
("Mettler") in 1945. During the 1970s and 1980s, Mettler expanded from
laboratory balances into industrial and food retailing products, and introduced
the first fully electronic precision balance in 1973. The Toledo Scale Company,
which we acquired in 1989, was founded in 1901 and developed a leading market
position in the industrial weighing market in the United States. During the
1970s, Toledo Scale expanded into the food retailing market. When we acquired
Toledo Scale, our name was changed to Mettler-Toledo to reflect the combined
strengths of the two companies and to capitalize on their historic reputations
for quality and innovation. During the past two decades, we have grown through
additional acquisitions intended to complement our existing geographic markets
and products. For instance, in 1986, we acquired the Ingold Group of companies,
which manufacture electrodes, and Garvens Kontrollwaagen AG, which builds
dynamic checkweighers. Toledo Scale acquired Hi-Speed Checkweigher Co., in 1981.
In 1990, we acquired Ohaus Corporation, which manufactures laboratory balances.
More recently, in 1997 we acquired Safeline and in 1998 we acquired Bohdan
Automation, Applied Systems and Myriad Synthesizer Technology.
Mettler-Toledo International Inc. was incorporated in December 1991 and
was recapitalized in connection with the October 15, 1996 acquisition (the
"Acquisition") of the Mettler-Toledo group of companies from Ciba-Geigy. In the
Acquisition, we paid cash consideration of approximately SFr 505.0 million
(approximately $402.0 million at October 15, 1996), including dividends of
approximately SFr 109.4 million (approximately $87.1 million at October 15,
1996), paid approximately $185.0 million to settle amounts due to Ciba-Geigy and
its affiliates and incurred expenses in connection with the Acquisition and
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related financing of approximately $29.0 million. We financed the Acquisition
primarily with (i) borrowings under a credit agreement in the amount of $307.0
million, (ii) the issuance of $135.0 million of senior subordinated notes and
(iii) an equity contribution of $190.0 million primarily from AEA Investors, its
shareholder-investors and our executive officers and other employees. Following
the completion of our initial public offering ("IPO") in November 1997,
management, employees and Company sponsored benefit funds held approximately 18%
of the Company's shares on a fully diluted basis.
In May 1997, we acquired Safeline Limited for (pound)63.7 million
(approximately $104.4 million at May 30, 1997). Safeline is the world's largest
manufacturer and marketer of metal detection systems for companies that produce
and package goods in the food processing, pharmaceutical, cosmetics, chemicals
and other industries. Safeline's metal detectors can also be combined with our
checkweighing products for important quality and safety checks in these
industries.
During the fourth quarter of 1997, we completed our IPO of 7,666,667
shares of common stock, including the underwriters' over-allotment options, at a
per share price of $14.00. The IPO raised net proceeds, after underwriters'
commissions and expenses, of approximately $97.3 million. Concurrently with the
IPO, we refinanced our prior credit facility and used proceeds from the
refinancing and the IPO to repay the senior subordinated notes of our wholly
owned subsidiary, Mettler-Toledo, Inc.
In July 1998, certain selling shareholders completed a secondary
offering of a total of 11,464,400 shares of our common stock, including the
underwriters' over-allotment options. Neither we nor any of our directors,
executive officers or other employees sold shares or received any proceeds from
the offering.
In February and March 1999, certain selling shareholders completed a
secondary offering of a total of 6,099,250 shares of our common stock, including
the underwriters' over-allotment options. Neither we nor any of our directors,
executive officers or other employees sold shares or received any proceeds from
the offering.
Recent Acquisitions
We are the leading provider of automated lab reactors and reaction
calorimeters to the automated drug and chemical compound discovery and
development market. We believe that our customers want solutions in this market
from a company like Mettler-Toledo, with a reputation for innovation and quality
and with a global presence and service network.
We extended our product offerings to the automated drug and compound
discovery market with our July 1998 acquisition of Bohdan Automation Inc. Bohdan
is a leading supplier of laboratory automation and automated synthesis products
used in research for life science applications for pharmaceutical and
agricultural products and in other applications in the food and chemicals
industries.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Although these businesses are not currently significant in size, we
believe these acquisitions are key elements in our strategic effort to further
build a leading position in the field of automated solutions for drug and
chemical compound discovery and development. These acquisitions enable us to
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offer a strong and comprehensive array of solutions, from sample preparation to
compound synthesis to process development.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Myriad Synthesizer Technology designs, assembles and markets
instruments that facilitate and automate the synthesis of large numbers of
chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
In February 1999, we announced that we had entered into an agreement to
acquire the Testut-Lutrana group, a leading manufacturer and marketer of
industrial and retail scales in France with annual sales of approximately $50
million. The agreement is subject to approvals by the French Ministry of Economy
and Finance and other closing conditions. The acquisition is expected to close
in the next several months.
Market Leadership
We believe that we have a leading position in each of our markets, and
at least 80% of our product sales are from products that are the global leaders
in their segment. In the weighing instruments market, we are the only company to
offer products for laboratory, industrial and food retailing applications
globally and we believe that we hold a market share more than twice that of our
nearest competitor. We believe that in 1998 we had approximately 40% of the
global market for laboratory balances, including the largest market share in
each of Europe, the United States and Asia (excluding Japan), and the number two
position in Japan. In the industrial and food retailing markets, we believe we
have the largest market share in Europe and the United States. In Asia, we have
a substantial industrial and food retailing business which has gained market
share in recent years. This business is supported by our established
manufacturing presence in China. In addition, we also have one of the top three
positions in the global market for several analytical instruments including
titrators, thermal analysis systems, electrodes, pH meters and automatic lab
reactors. We are also working to enhance our leading position in precision
instruments. For instance, in 1997 we added Safeline's market leading metal
detection products, which can be used with our checkweighing instruments for
important quality and safety checks in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Also, we believe that Bohdan will
provide robotics capabilities to our analytical instruments and will further
enhance our product offerings. We attribute our worldwide market leadership
positions to the following competitive strengths:
o Global Brand and Reputation. The Mettler-Toledo brand name is identified
worldwide with accuracy, reliability and innovation. Customers value
these characteristics because precision instruments, particularly
weighing and analytical instruments, significantly impact customers'
product quality, productivity, costs and regulatory compliance.
Furthermore, precision instruments generally constitute a small
percentage of customers' aggregate expenditures. As a result, we believe
customers focus on accuracy, product reliability, technical innovation,
service quality, reputation and past experience when choosing precision
instruments. We also believe that our customers experience high
switching costs if they attempt to change vendors. A recent independent
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survey concluded that "Mettler-Toledo" was one of the three most
recognized brand names in the laboratory. In fact laboratory balances
are often generically referred to as "Mettlers." The strength of this
brand name has allowed us to successfully extend our laboratory product
line to include titrators, thermal analysis systems, electrodes, pH
meters and automatic lab reactors.
o Technological Innovation. We focus on the high value-added segments of
our markets by delivering innovation to the marketplace. We have a long
and successful track record of innovation and remain at the forefront of
technological development. Recent innovations in both weighing and
related instrumentation include:
-- a new digital load cell
-- the first personal computer interface to be certified by weights
and measures regulators (the ID 20 terminal)
-- significantly improved weighing sensor technology (MonoBloc)
-- a new moisture determination instrument (GOBI)
-- a new automatic lab reactor
-- a new, enhanced sensitivity metal detector (the Safeline Zero
Metal-Free Zone detector)
-- new dimensioning equipment using our patented PILAR technology
As with many of our recent innovations, the new MonoBloc weighing
sensor technology is more accurate and significantly reduces
manufacturing costs and the time and expense of design changes. These
improvements resulted from a reduction in the number of parts used in
prior sensors from around 100 to around 50 used in the MonoBloc sensor.
We believe that we are the global leader in our industry in providing
innovative instruments, in integrating our instruments into
application-specific solutions for customers and in facilitating the
processing of data gathered by our instruments and the transfer of this
data to customers' management information systems. Our technological
innovation efforts benefit from our manufacturing expertise in sensor
technology, precision machining and electronics, as well as our
strength in software development.
o Comprehensive, High Quality Product Range. We manufacture a more
comprehensive range of weighing instruments than any of our
competitors. Our broad product line addresses a wide range of weighing
applications across and within many industries and regions.
Furthermore, our analytical instruments and metal detection systems
complement our weighing products, enabling us to offer integrated
solutions. We manufacture our products in modern facilities, most of
which are ISO 9001 certified. Our broad range of high quality products
and the ability to provide integrated solutions allows us to leverage
our sales and service organization, product development activities and
manufacturing and distribution capabilities.
o Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and we believe
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that this capability is a major competitive advantage. At December 31,
1998, this organization consisted of approximately 3,250 employees
organized into locally based, customer-focused groups that provide
prompt service and support to our customers and distributors in
virtually all major markets around the world. The local focus of our
sales and service organization enables us to provide timely, responsive
support to our customers worldwide and provides feedback for
manufacturing and product development. When we survey our current and
potential customers on their needs, they often name service as the most
important criteria for choosing their instrument suppliers. In addition
to the service capability, this global infrastructure also allows us to
capitalize on growth opportunities in emerging markets.
o Largest Installed Base. We believe that we have the largest installed
base of weighing instruments in the world. From this installed base, we
obtain service contracts that provide a strong, stable source of
recurring service revenue. Service revenue represented approximately
16% of net sales in 1998, of which approximately 9% was derived solely
from service contracts and repairs with the remainder derived from the
sale of spare parts. We believe that our installed base of weighing
instruments represents a competitive advantage with respect to repeat
purchases and purchases of related analytical instruments and metal
detection systems, because customers tend to remain with their existing
suppliers. In addition, switching to a new instrument supplier entails
additional costs to the customer for training, spare parts, service and
systems integration requirements. Close relationships and frequent
contact with our broad customer base also provide us with sales leads
and new product and application ideas.
o Geographical, Product and Customer Diversification. Our revenue base is
diversified by geographic region, product range and customer. Many
different industries, including chemicals, pharmaceuticals, food
processing, food retailing and transportation utilize our broad product
range. We supply customers all over the world, and no one customer
accounted for more than 2.6% of net sales in 1998. Our diverse revenue
base reduces our exposure to regional or industry-specific economic
conditions, and our presence in many different geographic markets,
product markets and industries enhances our attractiveness as a
supplier to multinational customers.
Growth Strategies
We are implementing strategies relating to expanding our technology
leadership, increasing our market share and capitalizing on opportunities in
developed markets, capitalizing on opportunities in emerging markets, pursuing
selected acquisition opportunities and re-engineering and cost savings. These
strategies are designed to reduce our overall cost structure and enhance our
position as a global market leader. The successful implementation of these
strategies has contributed to an improvement in Adjusted Operating Income (gross
profit less research and development and selling, general and administrative
expenses before amortization and non-recurring costs) from $39.5 million (4.6%
of net sales) for 1995 to $101.0 million (10.8% of net sales) for 1998. We are
committed to improving our performance and are pursuing the following
strategies:
Expanding Our Technology Leadership. We attribute a significant portion
of our recent margin improvement to our research and development efforts. We
intend to continue to invest in product innovation in order to provide
technologically advanced products to our customers for existing and new
applications. Over the last three years, we have invested approximately $150
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million in research and development. Our research and development efforts fall
into two categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
Our research and development efforts have contributed to a pipeline of
innovative and new products, significant reductions in product costs and reduced
time to market for new products. Examples of recent product introductions
include:
o industrial and retail products that apply open-system architecture
o MonoBloc, a high accuracy, low-cost weighing sensor technology
which is being incorporated throughout our product lines
o a higher performance titrator
o an improved performance modular thermal analysis system
o a new density and refractometry measurement technology
o a fully integrated metal detector and checkweigher
o the first Chinese-designed and manufactured laboratory balance
Increasing Our Market Share and Capitalizing on Opportunities in
Developed Markets. We recognize that to be a successful company, we must not
only develop excellent products, but we must market and distribute them
effectively--more effectively than our competitors. We utilize what we believe
are the most sophisticated marketing and sales techniques in our industry. These
techniques include the development and utilization of marketing databases. We
develop these databases to better understand the full potential of our market by
customer, location, industry, instrument and related application. We then
utilize this data to more efficiently direct our field resources and complement
our direct and distributor sales forces with targeted mailing and telemarketing
campaigns to more fully exploit our market's potential. We also utilize a dual
brand strategy for certain market segments to improve our overall market
penetration. For example, we sell laboratory balances under the Ohaus brand name
as an alternative to the Mettler-Toledo brand name in certain distribution
channels for laboratory balances.
We believe that service capabilities are a critical success factor in
our business. Our service capabilities, which provide support to our customers
and distributors in virtually all major markets across the globe and include
around-the-clock availability of well-trained technicians, are highly valued by
our customers. We believe that no other competitor has global service
capabilities.
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The combination of our sophisticated marketing and sales techniques and
service capabilities help us capitalize on growth opportunities in our developed
markets. These opportunities include:
o integrating information from our measurement instruments into our
customers' data management software systems
o automating and/or improving process control, in part by developing
integrated solutions which combine measurement instruments and
related technologies directly into manufacturing processes
o harmonization of national weighing standards across countries
o increasing standardization of manufacturing and laboratory
practices programs like ISO 9001, Good Laboratory Practices and
Good Manufacturing Practices
o increasing recognition by our customers of the importance of
preventive maintenance in reducing down time
Capitalizing on Opportunities in Emerging Markets. While emerging
markets were not a source of growth in 1998 due to weak economic conditions, we
believe that these markets will provide growth opportunities for us in the long
term. These growth opportunities are being driven primarily by economic
development and global manufacturers' utilization of additional and more
sophisticated precision measurement instruments as they shift production to
these markets. In addition, we believe that over the long term, the trend toward
international quality standards, the need to upgrade mechanical scales to
electronic versions and the establishment of local production facilities by our
multinational client base will add to the opportunities in emerging markets. To
date our emerging market expansion has primarily focused on Asia. In Asia
(excluding Japan), we are the market leader in laboratory weighing instruments
and have a substantial industrial and food retailing business that has gained
market share in recent years. For instance, we have two profitable operations in
China: first, a 60% owned joint venture that manufactures and sells industrial
and food retailing products and, second, a wholly owned facility that
manufactures and distributes laboratory products. Both of these operations serve
the domestic and export markets. We have also opened direct marketing
organizations in Taiwan, Korea, Hong Kong, Thailand, Malaysia and Eastern
Europe. Beyond Asia, we are also expanding our sales and service presence in
Latin America and other emerging markets.
We believe that to succeed in emerging markets, there are several
advantages we must offer to our customer base:
o to our multinational customers, we must offer the same level of
service and problem-solving capabilities that we offer them in
developed countries. We accomplish this through extensive
training, including factory training, of our employees
o to our local customers, we must offer lower cost and less complex
products than are required by our customers in Japan, Europe and
North America. We accomplish this through the increased research
and development and manufacturing capabilities at our two Chinese
production facilities
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o we must have a direct local presence to ensure that our
combination of quality products and excellent service is
effectively carried out at a local level so that we achieve the
same level of brand awareness in emerging markets that we enjoy in
developed markets. We have accomplished this in part by
establishing ten new sales and service operations in emerging
markets since 1996
Pursuing Selected Acquisition Opportunities. We believe that the
combination of our market leadership, our strong brand name and our
comprehensive sales and distribution network supports an attractive platform for
acquisitions. We are interested in acquiring companies that provide us with:
o Complementary products that will benefit from our brand name and
global distribution channels. An example is Bohdan Automation, a
leading supplier of laboratory automation and automated synthesis
products, which we acquired in 1998 and whose products we have now
added to our global distribution network. Because of its small
size as a stand-alone company, Bohdan lacked a global presence and
did not serve customers on a worldwide basis. We offer it the
infrastructure to expand its business globally.
o Integrated technology solutions, which we can combine with our own
technologies to create an overall better solution for our
customers. An example is Safeline Limited, which we acquired in
1997. We combined its metal detection equipment with our
checkweighers to create one instrument, featuring integrated data
management, a smaller footprint and only one man-machine
interface--a better solution for many of our customers than
separate products.
o Consolidation opportunities in fragmented markets. Examples
include our recently announced agreement to acquire the
Testut-Lutrana group in France and our acquisitions of a number of
independent industrial and retail weighing distributors in the
United States.
o Geographic expansion into markets where we do not have a direct
presence. For example, earlier this year we established a small
presence in India by acquiring a local manufacturer.
Re-engineering and Cost Savings. We have improved our profitability in
recent years partly through a series of initiatives aimed at reducing our cost
structure. We plan to take similar initiatives in the future with the goal of
further improving our operating margins. These initiatives include:
o moving the production of certain product lines to lower cost
locations and consolidating the production of others For example,
in 1999 we are planning to consolidate development and
manufacturing of all balances using magnetic force restoration
technology in Switzerland and introduce a number of products to
our global distribution channel that are manufactured in China
o increasing sales force productivity through telemarketing,
increased training and other focused initiatives. For example, we
have recently initiated an internet sales channel for certain
product categories and have also significantly increased our
telemarketing initiatives. We believe both of these programs will
increase the productivity of our sales force
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o reducing distribution costs by using existing infrastructure more
efficiently and centralizing processes where economies of scale
can be obtained. For example, we recently consolidated most of our
North American order processing and billing functions into one
location
o reducing product cost through research and development, improved
manufacturing processes and reducing the purchased cost of
components. For example, we will introduce a number of products in
1999 with lower costs than the previous generation, including a
basic balance. In addition, we have recently initiated a program
to reduce the cost of printed circuit boards used in many of our
scales and balances
o continually reviewing operations to identify additional
opportunities to reduce costs
We believe that these initiatives will place us in a position to build
on our recent improvement in profitability. Furthermore, we believe that we can
leverage our existing infrastructure, particularly our recent investments in
Asia, to obtain continued sales growth without significant additions to our
overall cost base.
Products
Laboratory
We manufacture and market a complete range of laboratory balances, as
well as other selected laboratory measurement instruments, such as titrators,
thermal analysis systems, electrodes, pH meters and automatic lab reactors, for
laboratory applications in research and development, quality assurance,
production and education. Laboratory products accounted for approximately 38% of
our net sales in 1998 (including revenues from related after-sale service). We
estimate that we have approximately 40% share of the global market for
laboratory balances and we are among the top three producers worldwide of
titrators, thermal analysis systems, electrodes, pH meters and automatic lab
reactors. We believe that we have the leading market share for laboratory
balances in each of Europe, the United States and Asia (excluding Japan) and the
number two position in Japan.
Balances. The balance is the most common piece of equipment in the
laboratory. We believe that we sell the highest performance laboratory balances
available on the market, with weighing ranges from one ten-millionth of a gram
up to 32 kilograms. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as "Mettlers." The
Mettler-Toledo name is identified worldwide with accuracy, reliability and
innovation. In our judgment, this reputation constitutes one of our principal
competitive strengths.
In order to cover a wide range of customer needs and price points, we
market precision balances, semimicrobalances, microbalances and
ultramicrobalances in three principal product tiers offering different levels of
functionality. High-end balances provide maximum automation of calibration,
application support and additional functions. Mid-level balances provide a more
limited but still extensive set of automated features and software applications.
Basic level balances provide simple operations and a limited feature set. We
also manufacture mass comparators, which are used by weights and measures
regulators as well as laboratories to ensure the accuracy of reference weights.
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Due to the wide range of functions and features offered by our products, prices
vary significantly. A typical mid-range precision balance is priced at
approximately $2,500 and a typical microbalance is priced at approximately
$14,000.
We regularly introduce new features and updated models in our lines of
balances. For example, our DeltaRange models permit weighing of light and heavy
samples on the same balance without the need for difficult adjustments, a
function particularly useful in dispensing and formula weighing. High-end
balances are equipped with fully automatic calibration technology. These
balances are carefully calibrated by us many times in controlled environments,
with the results of the calibrations incorporated into built-in software, so
that adjustments for ambient temperature and humidity can automatically be made
at any time once the balances are in use by our customers. We also offer
universal interfaces that offer simultaneous connection of up to five peripheral
devices. The customer can then interface one balance with, for example, a
computer for further processing of weighing data, a printer for automatically
printing results and a bar-code reader for sample identification.
In addition to Mettler-Toledo branded products, we also manufacture and
sell balances under the brand name "Ohaus." Ohaus branded products include
mechanical balances and electronic balances for the educational market and other
markets in which customers are interested in lower cost, a more limited set of
features and less comprehensive support and service.
Titrators. Titrators measure the chemical composition of samples. Our
high-end titrators are multi-tasking models, which can perform two
determinations simultaneously. They permit high sample throughputs and have
extensive expansion capability and flexibility in calculations, functions and
parameters. Most models, including those in the lower-range, permit common
determinations to be stored in a database for frequent use. Titrators are used
heavily in the food and beverage industry. A typical titrator is priced at
approximately $12,000.
Thermal Analysis Systems. Thermal analysis systems measure different
properties, such as weight, dimension and energy flow, at varying temperatures.
Our thermal analysis products include full computer integration and a
significant amount of proprietary software. Thermal analysis systems are used
primarily in the plastics and polymer industries. A typical thermal analysis
system is priced at approximately $50,000.
pH Meters. A pH meter measures acidity in a laboratory sample and is
the second most widely used measurement instrument in the laboratory, after the
balance. We manufacture desktop models and portable models. Desktop models are
microprocessor-based instruments, offering a wide range of features and
self-diagnostic functions. Portable models are waterproof, ultrasonically welded
and ergonomically designed. Data collected from a portable meter can be
downloaded to a computer or printer using an interface kit and custom software.
pH meters are used in a wide range of industries. A typical pH meter is priced
at approximately $1,200.
Automatic Lab Reactors and Reaction Calorimeters. Automatic lab
reactors and reaction calorimeters simulate an entire chemical manufacturing
process in the laboratory. Customers use the simulation test before proceeding
to production, in order to test the safety and feasibility of new processes. Our
products are fully computer-integrated, with a significant software component
that we also provide. They also offer wide flexibility in the structuring of
experimental processes. Automatic lab reactors and reaction calorimeters are
typically used in the chemicals and pharmaceutical industries. A typical lab
reactor is priced at approximately $140,000.
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Synthesizers. We manufacture automated parallel synthesizers for use in
sophisticated chemistry environments, such as pharmaceutical laboratories. These
synthesizers allow scientists to develop new compounds more efficiently and to
create large libraries of molecules at the same time instead of creating them
one by one as is done traditionally. This is an important aspect of
combinatorial chemistry. Our synthesizers use robotics and sophisticated
software to automate what was previously a manual process. A synthesizer costs
between $75,000 and $1,000,000, depending on its functionality.
Electrodes. We manufacture electrodes for use in a variety of
laboratory instruments and in-line process applications. Laboratory electrodes
are used in pH meters and titrators, and may be replaced many times during the
life of the instrument. In-line process electrodes are used to monitor
production processes, for example, in the beverage industry. A typical in-line
process electrode is priced at approximately $160.
Pipettes. We have recently introduced single-channel and multi-channel
pipettes which are used for liquid handling in the laboratory. These devices are
the most widely used instruments in the rapidly growing life science market.
Pipettes range in price from approximately $270 to $780, depending on their
functionality.
Other Instruments. We sell density and refractometry instruments, which
measure chemical concentrations in solutions. These instruments are sourced
through a marketing joint venture with a third-party manufacturer, but are sold
under the Mettler-Toledo brand name. In addition, we manufacture and sell
moisture analyzers, which precisely determine the moisture content of a sample
by utilizing an infrared dryer to evaporate moisture.
Industrial and Food Retailing
Weighing instruments are among the most broadly used measurement
devices in industry and food retailing. Our industrial and food retailing
weighing and related products include:
o bench and floor scales for standard industrial applications
o truck and railcar scales for heavy industrial applications
o scales for use in food retailing establishments
o checkweighers (which determine the weight of goods in motion)
o metal detectors
o dimensioning equipment
o specialized software systems for industrial and perishable goods
management processes
Increasingly, many of our industrial and food retailing products can
integrate weighing data into process controls and information systems. Our
industrial and food retailing products are also sold to original equipment
manufacturers, which incorporate our products into larger process solutions and
comprehensive food retailing checkout systems. At the same time, our products
themselves include significant software and additional functions including
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networking, printing and labeling capabilities. They also include other
measuring technologies such as dimensioning. We work with customer segments to
create specific solutions to their weighing needs. For instance, working closely
with the leading manufacturer of postal meters, we developed a new generation of
postal metering systems.
Industrial and food retailing products accounted for approximately 62%
of our net sales in 1998 (including revenues from related after-sale service).
We believe that we have the largest market share in the industrial and food
retailing market in each of Europe and the United States. In Asia, we have a
substantial industrial and food retailing business which has gained market share
in recent years. This business is supported by an established manufacturing
presence in China. We believe that we are the only company with a true global
presence across industrial and food retailing weighing applications.
Standard Industrial Products. We offer a complete line of standard
industrial scales, such as bench scales and floor scales, for weighing loads
from a few grams to several thousand kilograms in applications ranging from
measuring materials in chemical production to weighing mail and packages. Our
product lines include the "Spider" range of scales, often used in receiving and
shipping departments in counting applications; "TrimWeigh" scales, which
determine whether an item falls within a specified weight range, and are used
primarily in the food industry; "Mentor SC" scales, for counting parts; and
precision scales for formulating and mixing ingredients. Our "MultiRange"
products include standardized software which uses the weight data obtained to
calculate other parameters, such as price or number of pieces. The modular
design of these products facilitates the integration of our weighing equipment
into a computer system performing other functions, like inventory control or
batch management. Prices vary significantly with the size and functions of the
scale, generally ranging from $1,000 to $20,000.
Heavy Industrial Products. Our primary heavy industrial products are
scales for weighing trucks or railcars (i.e., weighing bulk goods as they enter
a factory or at a toll station). Our truck scales, such as the "DigiTol
TRUCKMATE," generally have digital load cells, which offer significant
advantages in serviceability over analog load cells. Heavy industrial scales are
capable of measuring weights up to 500 tons and permit accurate weighing under
extreme environmental conditions. We also offer advanced computer software that
can be used with our heavy industrial scales to permit a broad range of
applications. Truck scale prices generally range from $20,000 to $50,000.
Dynamic Checkweighing. We offer solutions to checkweighing requirements
in the food processing, pharmaceutical, chemicals and cosmetic industries, where
customers are required to accurately measure portions for packaging. We also
offer checkweighing solutions to the transportation and package delivery
industries, where tariffs are levied based on weight. Customizable software
applications utilize the information generated by checkweighing hardware to find
production flaws, packaging and labeling errors and nonuniform products, as well
as to sort rejects and record the results. Our checkweighing equipment can
accurately determine weight in dynamic applications at speeds of up to several
hundred units per minute. Checkweighers generally range in price from $8,000 to
$40,000.
Metal Detection Systems. Metal detection systems control the removal of
products that are identified as contaminated by metal during the manufacturing
process in the food processing, pharmaceutical, cosmetics, chemicals and other
industries. Metal detectors therefore provide manufacturers with vital
protection against metal contamination arising from their own production
processes or from using contaminated raw materials. Metal detectors are most
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commonly used with checkweighers as components of integrated packaging lines in
the food processing, pharmaceutical and other industries. Prices for metal
detection systems generally range from $5,000 to $20,000.
Dimensioning Equipment. We recently introduced automated dimensioning
equipment for use in the shipping industry to measure package volumes. These
products employ the patented PILAR technology and are integrated with industrial
scales to combine volume-based and weight-based tariff calculations. Prices for
integrated dimensioning/weighing systems range from $5,000 to $20,000.
Food Retailing Products. Supermarkets, hypermarkets and other food
retail establishments make use of multiple weighing applications for the full
handling of perishable goods. For example, perishable goods are weighed on
arrival to determine payment to suppliers and some of these goods are
repackaged, priced and labeled for sale to customers. Other goods are kept loose
and selected by customers and either weighed at the produce or delicatessen
counter or at the checkout counter.
We offer stand-alone scales for basic counter weighing and pricing,
price finding, and printing. In addition, we offer network scales and software,
which can integrate backroom, counter, self-service and checkout functions, and
can incorporate weighing data into a supermarket's overall perishable goods
management system. Backroom products include dynamic weighing products, labeling
and wrapping machines, perishable goods management and data processing systems.
In some countries in Europe, we also sell slicing and mincing equipment. Prices
for food retailing scales generally range from $500 to $5,000, but are often
sold as part of comprehensive weighing solutions.
Systems. Our systems business consists of software applications for
drum filling in the food and chemicals industries and batching systems in the
glass industry. The software systems control or modify the manufacturing
process.
Customers and Distribution
Our business is geographically diversified, with sales in 1998 derived
46% from Europe, 43% from North and South America and 11% from Asia and other
countries. Our customer base is also diversified by industry and by individual
customer. Our largest single customer accounted for no more than 2.6% of 1998
net sales.
Laboratory
Principal customers for laboratory products include: chemicals
manufacturers, pharmaceutical manufacturers, cosmetics manufacturers, food and
beverage makers, the metals industry, the electronics industry, the plastics
industry, the transportation industry, the packaging industry, the logistics
industry, the rubber industry, the jewelry and precious metals trade,
educational institutions and government standards laboratories. Balances, pH
meters and pipettes are the most widely used laboratory measurement instruments
and are found in virtually every laboratory across a wide range of industries.
Other products have more specialized uses.
Our laboratory products are sold through a worldwide distribution
network. Our extensive direct distribution network and our dealer support
activities enable us to maintain a significant degree of control over the
distribution of our products.
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In the United States where there are strong laboratory distributors, we
use them as the primary marketing channel for lower to mid-price products. This
strategy allows us to leverage the strength of both the Mettler-Toledo brand and
the laboratory distributors' market position into sales of other laboratory
measurement instruments. We provide our distributors with a significant amount
of technical and sales support. Mid to high-end products in the United States
are handled by our own sales force. There has been recent consolidation among
distributors in the United States market. While this consolidation could
adversely affect our U.S. distribution, we believe our leadership position in
the market gives us a competitive advantage when dealing with our U.S.
distributors.
We sell products in Asia through our own sales force and distributors,
and in Europe primarily through direct sales. European and Asian distributors
are generally fragmented on a country-by-country basis.
Ohaus branded laboratory balances are generally positioned in
alternative distribution channels to those of Mettler-Toledo branded products.
This means that we can fill a greater number of distribution channels and
increase penetration of our existing markets. Since acquiring Ohaus in 1990, we
have expanded this brand beyond its historical U.S. focus. Ohaus branded
products are sold exclusively through distributors.
Industrial and Food Retailing
Our industrial products customers include chemicals companies (e.g.,
formulating, filling and batching applications), food companies (e.g., packaging
and filling applications), electronics and metal processing companies (e.g.,
piece counting and logistical applications), pharmaceutical companies (e.g.,
formulating and filling applications), transportation companies (e.g., sorting,
dimensioning and vehicle weighing applications) and auto body paint shops, which
mix paint colors based on weight.
Our industrial products share weighing technology, and often minor
modifications to existing products can make them useful for applications in a
variety of industrial processes. We also sell to original equipment
manufacturers ("OEM's") which integrate our modules into larger process control
applications or comprehensive packaging lines. Our products are also purchased
by engineering firms, systems integrators and vertical application software
companies.
Customers for metal detection systems are typically food processing,
pharmaceutical, cosmetics and chemicals manufacturers that must ensure that
their products are free from contamination by metal particles. Undetected metal
contamination can have severe consequences for these companies, including
potential litigation and product recalls. Metal detection systems are most
commonly utilized together with checkweighers as components of integrated
packaging lines. Metal detectors provide important safety checks before food and
other products are delivered to customers. Metal detection systems are also used
in pipeline detectors for dairy and other liquids, gravity fall systems for
grains and sugar and throat detection systems for raw material monitoring.
Our food retailing products customers include supermarkets,
hypermarkets and smaller food retailing establishments. The North American and
European markets already include many large supermarket chains, and there is an
on-going shift in most of our food retailing markets from "mom and pop" grocery
stores to supermarkets and hypermarkets. While supermarkets and hypermarkets
generally buy less equipment per customer, they tend to buy more advanced
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products that require more electronic and software content. In emerging markets,
however, the highest growth is in basic scales. As with industrial products, we
also sell food retailing products to OEMs for inclusion in more comprehensive
checkout systems. For example, our OEMs often incorporate our checkout scales
into scanner-scales, which can weigh perishable goods and also read bar codes on
other items. Scanner-scales are in turn integrated with cash registers to form a
comprehensive checkout system.
In the industrial and food retailing market, we sell both directly to
customers (including OEMs) and through distributors. In the United States,
direct sales slightly exceed distribution sales in part because distributors are
highly fragmented in the United States. In Europe, direct sales predominate,
with distributors used in certain cases. We sell products in Asia primarily
through distributors, except in China where we sell products through our own
sales force and distributors. Where we use distributors, we seek to provide them
with significant support.
Sales and Service
Market Organizations
We have over 30 geographically focused market organizations ("MOs")
around the world that are responsible for all aspects of our sales and service.
The MOs are local marketing and service organizations designed to maintain close
relationships with our customer base. Each MO has the flexibility to adapt its
marketing and service efforts to account for different cultural and economic
conditions. MOs also work closely with our producing organizations (described
below) by providing feedback on manufacturing and product development
initiatives and relaying innovative product and application ideas.
We have the only global sales and service organization among weighing
instruments manufacturers. At December 31, 1998, our sales and services group
consisted of approximately 3,250 employees in sales, marketing and customer
service (including related administration) and after-sales technical service.
This field organization has the capability to provide service and support to our
customers and distributors in virtually all major markets across the globe.
Sales managers and representatives interact across product lines and
markets in order to serve customers that have a wide range of weighing needs,
such as pharmaceutical companies that purchase both laboratory and industrial
products. We classify customers according to their potential for sales and the
appropriate distribution channel is selected to service the customer as
efficiently as possible. Larger accounts tend to have dedicated sales
representatives. Other representatives specialize by product line. Sales
representatives call directly on end-users either alone or, in regions where
sales are made through distributors, jointly with distributors.
We utilize a variety of advertising media, including trade journals,
catalogs, exhibitions and trade shows. In addition, we also sponsor seminars,
product demonstrations and customer training programs. Our high market share
helps us to gauge growth opportunities, target our message to appropriate
customer groups and monitor competitive developments. We utilize sophisticated
marketing techniques in our sales efforts. These techniques include the
development and utilization of marketing databases. We develop these databases
to better understand the full potential of our market by customer, location,
industry, instruments and related application. We then utilize this data to more
efficiently direct our field resources and complement our direct and distributor
sales forces with targeted mailing and telemarketing campaigns to more fully
exploit our market's potential.
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We also utilize a dual brand strategy for certain market segments to
improve our overall market penetration. For example, we sell laboratory balances
under the Ohaus brand name as an alternative to the Mettler-Toledo brand name in
certain distribution channels.
After-Sales Service
We believe service capabilities are a critical success factor in our
business. Through our own dedicated service technicians, we provide contract and
repair services in all countries in which our products are sold. We estimate
that we have the largest installed base of weighing instruments in the world,
and our contract and repair services generate significant revenues. In 1998,
service (representing service contracts, repairs and replacement parts)
accounted for approximately 16% of our total net sales (service revenue is
included in the laboratory and industrial and food retailing sales percentages
given above). Approximately half of this amount is derived from spare parts with
the remaining portion derived from service contacts. Beyond revenue
opportunities, service is a key part of our product offering and helps
significantly in generating repeat sales. The close relationships and frequent
contact with our large customer base provides us with sales opportunities and
innovative product and application ideas. A global service network also is an
important factor in our ability to expand in emerging markets. Moreover, the
widespread adoption of quality laboratory and manufacturing standards and the
privatization of weights and measures certification represent favorable trends
for our service business, as they tend to increase demand for on-site
calibration services.
Our service contracts provide for repair services within various
guaranteed response times, depending on the level of service selected. Many
contracts also include periodic calibration and testing. Contracts are generally
one year in length, but may be longer. If the service contract also includes
products of other manufacturers, we will generally perform calibration, testing
and basic repairs directly, and contract out more significant repair work. As
application software becomes more complex, our service efforts increasingly
include installation and customer training programs as well as product service.
Research and Development; Manufacturing
Producing Organizations
Our product development, research and manufacturing efforts are
organized into a number of producing organizations ("POs"). At December 31,
1998, POs included approximately 3,950 employees worldwide. POs are product
development teams comprised of personnel from our marketing, development,
research, manufacturing, engineering and purchasing departments. POs often seek
customer input to ensure that the products developed are tailored to market
needs. We have organized our POs to reduce product development time, improve
customer focus, reduce costs and maintain technological leadership. The POs work
together to share ideas and best practices, and some employees are in both MOs
and POs. We recently implemented a number of projects that we believe will
further increase productivity and lower costs. For example, we restructured the
order and product delivery process in Europe to enable us to deliver many of our
products to our customers directly from the manufacturing facility within
several days, which minimizes the need to store products in decentralized
warehouses. In addition, we have centralized our European spare parts inventory
management system allowing all spare parts for Europe to be delivered from a
single, highly automated location.
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Research and Product Development
We closely integrate research and development with marketing,
manufacturing and product engineering. We have over 600 professionals in
research and development and product engineering. Our principal product
development activities involve applications improvements to provide enhanced
customer solutions, systems integration and product cost reduction. However, we
also conduct research in basic weighing technologies. As part of our research
and development activities, we have frequent contact with university experts,
industry professionals and the governmental agencies responsible for weights and
measures, analytical instruments and metal detectors. In addition, our in-house
development is complemented by technology and product development alliances with
customers and original equipment manufacturers.
Our MonoBloc weighing sensor technology, which eliminates many of the
complex mechanical linkages in a weighing sensor and reduces the number of parts
in a sensor from approximately 100 to approximately 50, is an excellent example
of our technological innovation. The MonoBloc sensor permits more accurate
weighing, and lower manufacturing costs allow us to make design changes more
cheaply and quickly. MonoBloc technology is already incorporated into a number
of our products, and we are extending the MonoBloc technology through much of
our weighing instrument product lines.
We have devoted an increasing proportion of our research and
development budget to software development. Software development for weighing
applications includes application-specific software, as well as software
utilized in sensor mechanisms, displays, and other common components, which can
be leveraged across our broad product lines.
Over the last three years, we have spent approximately $150 million on
research and development (excluding research and development purchased in
connection with acquisitions). In 1998, we spent approximately 5.6% of net sales
on research and development (including costs associated with customer-specific
engineering projects, which are included in cost of sales for financial
reporting purposes).
Manufacturing
We manufacture many of our own components, including components that
require specific technical competence, or for which dependable, high quality
suppliers cannot be found. However, when outside manufacturing is more
efficient, we contract with others for certain components and in turn use these
components in our own manufacturing processes. We use a wide range of suppliers
and we believe our supply arrangements to be adequate. From time to time we rely
on a single supplier for all of our requirements of a particular component. Even
then, adequate alternative sources are generally available if necessary. Supply
arrangements for electronics are generally made globally. For mechanical
components, we generally use local sources to optimize materials flow.
We strive to emphasize product quality in our manufacturing operations,
and most of our products require very strict tolerances and exact
specifications. We use an extensive quality control system that is integrated
into each step of the manufacturing process. This integration permits field
service technicians to trace important information about the manufacture of a
particular unit, which facilitates repair efforts and permits fine-tuning of the
manufacturing process. Many of our measuring instruments are subjected to an
extensive calibration process that allows the software in the unit to
automatically adjust for the impact of temperature and humidity.
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We are a worldwide manufacturer, with nine manufacturing plants in the
United States, four in Switzerland, two in Germany, two in the United Kingdom
and two in China. One of our Chinese plants is a joint venture in which we own a
60% interest. Laboratory products are produced mainly in Switzerland and to a
lesser extent in the United States and China, while industrial and food
retailing products are produced in all five countries. We produce our metal
detectors in the United Kingdom. We have manufacturing expertise in sensor
technology, precision machining and electronics, as well as strength in software
development. Furthermore, most of our manufacturing facilities have achieved ISO
9001 certification. We believe that our manufacturing capacity is sufficient to
meet our present and currently anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently short so as to
permit us to manufacture to fill orders for most of our products, which helps to
limit inventory costs. Backlog is therefore generally a function of requested
customer delivery dates and is typically no longer than one to two months.
Employees
As of December 31, 1998, we had approximately 7,200 employees
throughout the world, including more than 3,600 in Europe, approximately 2,650
in North and South America, and approximately 950 in Asia and other countries.
We believe our employee relations are good, and we have not suffered any
material employee work stoppage or strike during the last five years. Labor
unions do not represent a meaningful number of our employees.
In certain of our facilities, we have a flexible workforce environment,
in which hours vary depending on the workload. This flexible working environment
enhances employees' involvement, thus increasing productivity. It also improves
efficient payroll management by permitting us to adjust staffing to match
workload to a greater degree without changing the size of the overall workforce.
Intellectual Property
We hold more than 1,100 patents and trademarks, primarily in the United
States, Switzerland, Germany and Japan and, to a lesser extent, in China. Our
products generally incorporate a wide variety of technological innovations, many
of which are protected by patents and many of which are not. Moreover, products
are generally not protected as a whole by individual patents. Accordingly, no
one patent or group of related patents is material to our business. We also have
numerous trademarks, including the Mettler-Toledo name and logo which are
material to our business. We regularly protect against infringement of our
intellectual property.
Regulation
Our products are subject to various regulatory standards and approvals
by weights and measures regulatory authorities. Although there are a large
number of regulatory agencies across our markets, there is an increasing trend
toward harmonization of standards, and weights and measures regulation is
harmonized across the European Union. Our food processing and food retailing
products are subject to regulation and approvals by relevant governmental
agencies, such as the United States Food and Drug Administration. Products used
in hazardous environments may also be subject to special requirements. All of
our electrical components are subject to electrical safety standards. We believe
that we are in compliance in all material respects with applicable regulations.
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Environmental Matters
We are subject to a variety of environmental laws and regulations in
the jurisdictions in which we operate, including provisions relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. We wholly or partly own, lease or hold a
direct or indirect equity interest in a number of properties and manufacturing
facilities around the world, including the United States, Europe, Canada,
Mexico, Brazil, Australia and China. Like many of our competitors, we have
incurred, and will continue to incur, capital and operating expenditures and
other costs in complying with such laws and regulations in both the United
States and abroad.
We are currently involved in, or have potential liability with respect
to, the remediation of past contamination in certain of our facilities in both
the United States and abroad. In addition, certain of our present and former
facilities have or had been in operation for many decades and, over such time,
some of these facilities may have used substances or generated and disposed of
wastes which are or may be considered hazardous. It is possible that such sites,
as well as disposal sites owned by third parties to which we have sent wastes,
may in the future be identified and become the subject of remediation.
Accordingly, although we believe that we are in substantial compliance with
applicable environmental requirements and to date we have not incurred material
expenditures in connection with environmental matters, it is possible that we
could become subject to additional environmental liabilities in the future that
could result in a material adverse effect on our financial condition or results
of operations.
We are involved in litigation concerning remediation of hazardous
substances at a facility in Landing, New Jersey. On or about July 1988, an
affiliate of Ciba ("AGP") purchased 100% of the outstanding stock of Metramatic
Corporation ("Metramatic"), a manufacturer of checkweighing equipment located in
Landing, from GEI International Corporation ("GEI"). GEI agreed to indemnify and
hold harmless AGP for certain pre-closing environmental conditions, including
those resulting in cleanup responsibilities required by the New Jersey
Department of Environmental Protection pursuant to the New Jersey Environmental
Cleanup Responsibility Act ("ECRA"). ECRA is now the Industrial Site Recovery
Act. Pursuant to a 1988 New Jersey Department of Environmental Protection
administrative consent order naming GEI and Metramatic as respondents, GEI has
spent approximately $2 million in the performance of certain investigatory and
remedial work addressing groundwater contamination at the site. However,
implementation of a final remedy has not yet been completed, and, therefore,
future remedial costs are currently unknown. In 1992, GEI filed a suit against
various parties including Hi-Speed Checkweigher Co., Inc., our wholly owned
subsidiary that currently owns the facility, to recover certain costs incurred
by GEI in connection with the site. Based on currently available information and
our rights of indemnification from GEI, we believe that our ultimate allocation
of costs associated with the past and future investigation and remediation of
this site will not have a material adverse effect on our financial condition or
results of operations.
We, or in some cases the former owner of Toledo Scale, have been named
a potentially responsible party under CERCLA or analogous state statutes at the
following third-party owned sites with respect to the alleged disposal at the
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sites by Toledo Scale during the period before we owned it: Granville Solvents
Site, Granville, Ohio; Aqua-Tech Environmental, Inc. Site, Greer, South
Carolina; Seaboard Chemical Company Site, Jamestown, North Carolina; and the
Stickney and Tyler Landfills in Toledo, Ohio. Pursuant to the terms of the stock
purchase agreement between us and the former owner of Toledo Scale, the former
owner is obligated to indemnify us for various environmental liabilities. To
date, with respect to each of the foregoing sites, the former owner has
undertaken the defense and indemnification of Toledo Scale. Based on currently
available information and given our contractual rights of indemnification, we
believe that the costs associated with the investigation and remediation of
these sites will not have a material adverse effect on our financial condition
or results of operations.
Competition
Our markets are highly competitive. Furthermore, weighing instruments
markets are fragmented both geographically and by application, particularly the
industrial and food retailing weighing instruments market. As a result, we face
numerous regional or specialized competitors, many of which are well established
in their markets. In addition, some of our competitors are divisions of larger
companies with potentially greater financial and other resources than our own.
Taken together, the competitive forces present in our markets can impair our
operating margins in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive, we must continue to
invest in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
We believe that the principal competitive factors in our U.S. markets
for purchasing decisions are accuracy and durability, while in Europe accuracy
and service are the most important factors. In emerging markets, where there is
greater demand for less sophisticated products, price is a more important factor
than in developed markets. Competition in the United States laboratory market is
also influenced by the presence of large distributors that sell not only our
products but those of our competitors as well.
21
<PAGE>
Item 2. PROPERTIES
The following table lists our principal operating facilities,
indicating the location, primary use and whether the facility is owned or
leased.
Location Principal Use (1) Owned/Leased
Europe:
Greifensee/Nanikon, Switzerland.. Production,
Corporate Headquarters Owned
Uznach, Switzerland.............. Production Owned
Urdorf, Switzerland.............. Production Owned
Schwerzenbach, Switzerland....... Production Leased
Albstadt, Germany................ Production Owned
Giesen, Germany.................. Production Owned
Giessen, Germany................. Sales and Service Owned
Steinbach, Germany............... Sales and Service Owned
Viroflay, France................. Sales and Service Owned
Beersel, Belgium................. Sales and Service Owned
Sint-Michielsgestel, Netherlands. Sales and Service Leased
Tiel, Netherlands................ Sales and Service Owned
Leicester, England............... Sales and Service Leased
Manchester, England.............. Production, Sales and Service Leased
Royston, England................. Production, Sales and Service Leased
Americas:
Columbus, Ohio................... Sales and Service,
North America Headquarters Leased
Worthington, Ohio................ Production Owned
Spartanburg, South Carolina...... Production Owned
Franksville, Wisconsin........... Production Owned
Ithaca, New York................. Production Owned
Wilmington, Massachusetts........ Production Leased
Florham Park, New Jersey......... Production, Sales and Service Leased
Millersville, Maryland........... Production, Sales and Service Leased
Tampa, Florida................... Production, Sales and Service Leased
Vernon Hills, Illinois........... Production, Sales and Service Leased
Burlington, Canada............... Sales and Service Leased
Mexico City, Mexico.............. Sales and Service Leased
San Paolo, Brazil................ Production and Sales Leased
Other:
Shanghai, China.................. Production Building Owned;
Land Leased
Changzhou, China (2)............. Production Building Owned;
Land Leased
Melbourne, Australia............. Sales and Service Leased
Mumbai, India.................... Production, Sales and Service Leased
(1) We also conduct research and development activities at certain of the
listed facilities in Switzerland, Germany, the United States and, to a
lesser extent, China.
(2) Held by a joint venture in which we own a 60% interest.
We believe our facilities are adequate for our current and reasonably
anticipated future needs.
22
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Routine litigation is incidental to our business. Nevertheless, we are
not currently involved in any legal proceeding which we believe could have a
material adverse effect upon our financial condition or results of operations.
See "Environmental Matters" under Part I, Item 1 for information concerning
legal proceedings relating to certain environmental claims.
Our products generally are sold with a limited warranty for defects. We
have reviewed our products currently in use by customers or being sold and do
not believe that we will have material increase in warranty or product liability
claims arising out of Year 2000 non-compliance. However, any material increase
in these claims could harm our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION FOR COMMON STOCK
Our common stock began trading on the New York Stock Exchange on
November 14, 1997 under the symbol "MTD." The following table sets forth on a
per share basis the high and low sales prices for consolidated trading in our
common stock as reported on the New York Stock Exchange Composite Tape for the
quarters indicated.
Price Range
High Low
1997
Fourth Quarter (beginning November 14, 1997) $18 3/4 $14 1/16
1998
First Quarter 22 3/8 16 9/16
Second Quarter 22 1/4 18
Third Quarter 22 11/16 16 1/4
Fourth Quarter 28 15/16 16 3/4
HOLDERS
At March 8, 1999 there were 556 holders of record of common stock
and 38,400,363 shares of common stock outstanding. The number of holders of
record excludes beneficial owners of common stock held in street name.
DIVIDEND POLICY
We have never paid any dividends on our common stock and we do not
anticipate paying any cash dividends on the common stock in the foreseeable
future. The current policy of our Board of Directors is to retain earnings to
finance the operations and expansion of our business. Moreover, our credit
agreement restricts our ability to pay dividends. Any future determination to
pay dividends will depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
by our Board of Directors.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31, 1994, 1995, 1996, 1997 and 1998, for the years ended December 31,
1994 and 1995, for the period from January 1, 1996 to October 14, 1996, for the
period from October 15, 1996 to December 31, 1996 and for the years ended
December 31, 1997 and 1998 is derived from our consolidated financial
statements, which were audited by KPMG Fides Peat, independent auditors. The
financial information for all periods prior to October 15, 1996, the date of the
Acquisition, is combined financial information of the Mettler-Toledo group of
companies (the "Predecessor Business"). The combined historical data of the
Predecessor Business and the consolidated historical data of the Company are not
comparable in many respects due to the Acquisition and the Safeline acquisition.
See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below and the consolidated financial
statements and accompanying notes included herein. The financial information
presented below was prepared in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Predecessor Business Mettler-Toledo International Inc.
-------------------------------------- ------------------------------------------
January 1 October 15
Year ended Year ended to to Year ended Year ended
December 31, December 31, October 14, December 31, December 31, December 31,
1994 1995 1996 1996 1997 1998
----------- ----------- ---------- ----------- ----------- -----------
(In thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $769,136 $850,415 $662,221 $ 186,912 $878,415 $935,658
Cost of sales..................... 461,629 508,089 395,239 136,820 (a) 493,480 (b) 520,190
------- ------- ------- ------- ------- --------
Gross profit...................... 307,507 342,326 266,982 50,092 384,935 415,468
Research and development.......... 47,994 54,542 40,244 9,805 47,551 48,977
Selling, general and
administrative................. 224,978 248,327 186,898 59,353 260,397 265,511
Amortization...................... 6,437 2,765 2,151 1,065 6,222 7,634
Purchased research and development -- -- -- 114,070 (c) 29,959 (d) 9,976 (e)
Interest expense.................. 13,307 18,219 13,868 8,738 35,924 22,638
Other charges (income), net(f).... (7,716) (9,331) (1,332) 17,137 10,834 1,197
-------- -------- -------- ------- ------- --------
Earnings (loss) before taxes,
minority interest and
extraordinary items............. 22,507 27,804 25,153 (160,076) (5,952) 59,535
Provision for taxes............... 8,676 8,782 10,055 (938) 17,489 20,999
Minority interest................. 347 768 637 (92) 468 911
------- ------- ------- --------- --------- --------
Earnings (loss) before
extraordinary items............. 13,484 18,254 14,461 (159,046) (23,909) 37,625
Extraordinary items - debt
extinguishments................. -- -- -- -- (41,197) (g) --
------- ------- ------- -------- --------- ---------
Net earnings (loss)............... $13,484 $18,254 $14,461 $(159,046) $ (65,106) $ 37,625
====== ====== ====== ======== ======== ========
Basic earnings (loss) per common share(h):
Net earnings (loss) before
extraordinary items........... $ (5.18) $ (0.76) $ 0.98
Extraordinary items............. -- (1.30) --
--------- --------- ---------
Net earnings (loss)............. $ (5.18) $ (2.06) $ 0.98
========= ========= ========
Weighted average number of
common shares................. 30,686,065 31,617,071 38,357,079
Diluted earnings (loss) per common share(h):
Net earnings (loss) before
extraordinary items........... $ (5.18) $ (0.76) $ 0.92
Extraordinary items............. -- (1.30) --
--------- --------- --------
Net earnings (loss)............. $ (5.18) $ (2.06) $ 0.92
========= ========= ========
Weighted average number of
common shares........... 30,686,065 31,617,071 40,682,211
Balance Sheet Data (at end of period):
Cash and cash equivalents......... $ 63,802 $ 41,402 $ 60,696 $ 23,566 $ 21,191
Working capital................... 132,586 136,911 103,697 79,163 90,042
Total assets...................... 683,198 724,094 771,888 749,313 820,441
Long-term third party debt........ 862 3,621 373,758 340,334 340,246
Net borrowing from Ciba and
affiliates (i)................ 177,651 203,157 -- -- --
Other non-current liabilities (j). 83,964 84,303 96,810 91,011 103,201
Shareholders' equity (k).......... 228,194 193,254 12,426 25,399 53,835
(Footnotes on next page)
25
<PAGE>
<FN>
(Footnotes from previous page)
- ------------------------------
(a) In connection with the Acquisition, we allocated $32,194 of the
purchase price to revalue certain inventories (principally work-in-progress
and finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the period October 15, 1996 to December
31, 1996.
(b) In connection with the Safeline acquisition, we allocated $2,054 of the
purchase price to revalue certain inventories (principally work-in-progress
and finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the second quarter of 1997.
(c) In connection with the Acquisition, we allocated, based upon independent
valuations, $114,070 of the purchase price to purchased research and
development in process. This amount was recorded as an expense immediately
following the Acquisition.
(d) In connection with the Safeline acquisition, we allocated, based upon
independent valuations, $29,959 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Safeline acquisition.
(e) In connection with the Bohdan acquisition, we allocated, based upon
independent valuations, $9,976 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Bohdan acquisition.
(f) Other charges (income), net generally includes interest income, foreign
currency transactions, (gains) losses from sales of assets and other items.
For the period January 1, 1996 to October 14, 1996, the amount shown
includes employee severance and other exit costs associated with the
closing of our Westerville, Ohio facility. For the period October 15, 1996
to December 31, 1996, the amount shown includes employee severance benefits
associated with our general headcount reduction programs in Europe and
North America and the realignment of the analytical and precision balance
business in Switzerland. For the year ended December 31, 1997, the amount
shown includes a restructuring charge of $6,300 to consolidate three
facilities in North America. For the year ended December 31, 1998, the
amount shown includes $650 of expenses incurred on behalf of certain
selling shareholders in connection with the secondary offering completed in
July 1998. See Note 14 to the audited consolidated financial statements
included herein.
(g) Represents charges for the write-off of capitalized debt issuance fees and
related expenses associated with our previous credit facilities. The amount
for the year ended December 31, 1997 also includes the prepayment premium
on the senior subordinated notes which were repurchased and the write-off
of the related capitalized debt issuance fees.
(h) Effective December 31, 1997, we adopted the Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Accordingly, basic and
diluted loss per common share data for each period presented have been
determined in accordance with the provisions of this Statement.
(i) Includes notes payable and long-term debt payable to Ciba and affiliates
less amounts due from Ciba and affiliates.
(j) Consists primarily of obligations under various pension plans and plans
that provide post-retiremen medical benefits. See Note 12 to the audited
consolidated financial statements included herein.
(k) Shareholders' equity for the Predecessor Business consists of the combined
net assets of the Mettler-Toledo group of companies.
</FN>
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements.
Overview
We operate a global business, with net sales that are diversified by
geographic region, product range and customer. We hold leading positions in many
of our markets and attribute this leadership to several factors, including the
strength of our brand name, the quality of our global sales and service network,
our continued investment in product development, our pursuit of technology
leadership and our focus on capitalizing on opportunities in developed and
emerging markets.
Our financial information is presented in accordance with U.S. GAAP.
Financial results following the acquisition of Mettler-Toledo from Ciba-Geigy in
October 1996, the Safeline acquisition in May 1997 and our initial public
offering in November 1997 are not comparable in many respects to the financial
results prior to those events.
Net sales in local currency increased 8% in 1998, 11% in 1997 and 3% in
1996 (adjusted for our exit in 1996 from certain systems businesses). The
strengthening of the U.S. dollar versus our major trading currencies reduced
U.S. dollar reported sales growth in 1998 and 1997. Net sales in U.S. dollars
increased by 7% and 3% during 1998 and 1997, respectively. Net sales in U.S.
dollars were unchanged in 1996.
In 1998, we had solid local currency sales growth of 10% in both Europe
and the Americas. However, economic conditions in emerging markets have
deteriorated significantly and some emerging markets are experiencing
recessionary trends, severe currency devaluations and inflationary prices.
Moreover, economic problems in individual markets are increasingly spreading to
other economies, adding to the adverse conditions facing nearly all emerging
markets. The effects of these economic conditions can be seen in the 1998 local
currency sales decline in Asia and other markets of 4% compared to 1997. We
remain committed to emerging markets, particularly those in Asia, Latin America
and Eastern Europe. We believe emerging markets will provide opportunities for
growth in the long term based upon the movement toward international quality
standards, the need to upgrade mechanical scales to electronic versions and the
establishment of local production facilities by our multinational client base.
However, we expect current economic conditions may affect our financial results
in these markets for the foreseeable future.
We believe our sales growth over the next several years will come
primarily from (i) the needs of our lab and industrial customers in developed
markets to continue to automate their research and development and manufacturing
processes, (ii) the needs of our retail customers in Europe to upgrade their
scales for the implementation of the Euro, (iii) the needs of our retail
customers to implement sophisticated perishable goods management systems using
weighing and PC technology in a networked environment, (iv) the needs of
customers in emerging markets to continue modernizing research and development
and manufacturing processes through the use of increasingly sophisticated
instruments, and (v) acquisition opportunities.
27
<PAGE>
We increased our gross profit margin before non-recurring acquisition
costs from 41.1% in 1996 to 44.4% in 1998 and increased our Adjusted Operating
Income (gross profit less research and development and selling, general and
administrative expenses before amortization and non-recurring costs) as a
percentage of net sales from 6.8% in 1996 to 10.8% in 1998.
This improved performance was achieved despite our continued
investments in product development and in our distribution and manufacturing
infrastructure. We believe that a significant portion of the increases in our
Adjusted Operating Income resulted from our strategy to reduce costs,
re-engineer our operations and focus on the highest value-added segments of the
markets in which we compete.
Recent Acquisitions
We are the leading provider of automated lab reactors and reaction
calorimeters to the automated drug and chemical compound discovery and
development market. We believe that our customers want solutions in this market
from a company like Mettler-Toledo, with a reputation for innovation and quality
and with a global presence and service network.
In July 1998, we extended our product offerings to the automated drug
and chemical compound discovery market with our acquisition of Bohdan Automation
Inc. Bohdan is a leading supplier of laboratory automation and automated
synthesis products used in research for life science applications for
pharmaceutical and agricultural products and in other applications in the food
and chemicals industries.
In December 1998, we announced that we had acquired two technologically
advanced instrument companies, Applied Systems and Myriad Synthesizer
Technology. Although these businesses are not currently significant in size, we
believe these acquisitions are key elements in our strategic effort to further
build a leading position in the field of automated solutions for drug and
chemical compound discovery and development. These acquisitions enable us to
offer a strong and comprehensive array of solutions, from sample preparation to
compound synthesis to process development.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Myriad Synthesizer Technology designs, assembles and markets
instruments that facilitate and automate the synthesis of large numbers of
chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
In May 1997, we acquired Safeline Limited. Safeline is the world's
largest manufacturer and marketer of metal detection systems for companies that
produce and package goods in the food processing, pharmaceutical, cosmetics,
chemicals and other industries. Safeline's metal detectors can also be combined
with our checkweighing products for important quality and safety checks in these
industries. The financing of the Safeline acquisition is discussed in
"--Liquidity and Capital Resources."
28
<PAGE>
Secondary Offering and IPO
In July 1998, certain selling shareholders completed a secondary
offering of a total of 11,464,400 shares of our common stock, including the
underwriters' over-allotment options. No directors, executive officers or other
employees sold shares, and we did not sell shares or receive proceeds in the
offering. We incurred a charge of $0.7 million in connection with the offering
during the second quarter of 1998.
During the fourth quarter of 1997, we completed our initial public
offering of 7,666,667 shares of common stock, including the underwriters'
over-allotment options, at a per share price of $14.00 (the "IPO"). The IPO
raised net proceeds, after underwriters' commission and expenses, of
approximately $97.3 million. Concurrently with the IPO, we refinanced our
existing credit facility by entering into a new credit facility, borrowings from
which, along with the proceeds from the IPO, were used to repay substantially
all of our then-existing debt, including all of our 9 3/4% senior subordinated
notes due 2006 (collectively, the "Refinancing"). In connection with the
Refinancing, we recorded an extraordinary charge of $31.6 million, net of tax,
principally for prepayment premiums on certain debt repaid and for the write-off
of existing deferred financing fees. We also paid a one-time termination fee of
$2.5 million in connection with the termination of our management consulting
agreement with AEA Investors Inc.
Cost Reduction Programs
In 1997, we recorded restructuring charges totaling approximately $6.3
million in connection with the consolidation of three facilities in North
America. The charges related to severance and other related benefits and costs
of exiting facilities, including lease termination costs and write-down of
existing assets to their expected net realizable value. The facility
consolidations are part of our ongoing efforts to reduce costs through
re-engineering. When complete, the facility consolidations will result in annual
cost savings estimated at approximately $2.5 million. During 1998 most of these
actions were completed, including the sale of two of the facilities for over
$5.0 million. We continuously implement cost reduction programs.
29
<PAGE>
Results of Operations
The following table sets forth certain items from the consolidated
statements of operations for the period from January 1, 1996 to October 14,
1996, for the period from October 15, 1996 to December 31, 1996, pro forma for
the year 1996 and actual for the years ended December 31, 1997 and 1998. The pro
forma 1996 information gives effect to the Acquisition, the Safeline
acquisition, the IPO and the Refinancing as if such transactions had occurred on
January 1, 1996, and does not purport to represent our actual results if such
transactions had occurred on such date. The pro forma 1996 information reflects
the historical results of operations of the Predecessor Business for the period
from January 1, 1996 to October 14, 1996 and the historical results of
operations of the Company for the period from October 15, 1996 to December 31,
1996, together with certain pro forma adjustments as described below. The
consolidated statement of operations data for the year ended December 31, 1997
includes Safeline results from May 31, 1997. The pro forma 1996 information
includes Safeline's historical results of operations for all of 1996. The pro
forma information is presented in order to facilitate management's discussion
and analysis.
<TABLE>
<CAPTION>
Predecessor
Business Mettler-Toledo International Inc.
-------------- ------------------------------------------------------------
For the period For the period Pro forma Year ended Year ended
Jan.1, 1996 to Oct. 15,1996 to 1996 December 31, December 31,
Oct. 14, 1996 Dec. 31, 1996(a)(b) (a)(b)(c)(d) 1997(a)(b) 1998(e)
-------------- ------------------- ------------ ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales....................... $662,221 $186,912 $889,567 $878,415 $935,658
Cost of sales................... 395,239 136,820 523,783 493,480 520,190
-------- -------- -------- -------- -------
Gross profit.................... 266,982 50,092 365,784 384,935 415,468
Research and development........ 40,244 9,805 50,608 47,551 48,977
Selling, general and administrative 186,898 59,353 252,085 260,397 265,511
Amortization.................... 2,151 1,065 6,526 6,222 7,634
Purchased research and development - 114,070 - 29,959 9,976
Interest expense................ 13,868 8,738 30,007 35,924 22,638
Other charges (income), net(f).. (1,332) 17,137 14,036 10,834 1,197
-------- --------- -------- -------- --------
Earnings (loss) before taxes,
minority interest and extraordinary items $ 25,153 $(160,076) $ 12,522 $ (5,952) $ 59,535
======== ========= ========= ======== ========
Adjusted Operating Income(g).... $ 39,840 $ 17,912 $ 67,875 $ 81,541 $100,980
======== ========= ========= ======== ========
<FN>
(a) In connection with the Acquisition and the Safeline acquisition, we
allocated $32,194 and $2,054, respectively, of the purchase prices to
revalue certain inventories (principally work-in-progress and finished
goods) to fair value (net realizable value). Substantially all such
inventories revalued in connection with the Acquisition were sold
during the period October 15, 1996 to December 31, 1996, and
substantially all such inventories revalued in connection with the
Safeline acquisition were sold in the second quarter of 1997. The
charges associated with these revaluations have been excluded from the
1996 pro forma financial information.
(b) In connection with the Acquisition and the Safeline acquisition, we
allocated, based upon independent valuations, $114,070 and $29,959,
respectively, of the purchase prices to purchased research and
development in process. These amounts were recorded as expenses
immediately following the Acquisition and the Safeline acquisition,
respectively. The amounts related to the Acquisition and the Safeline
acquisition have been excluded from the 1996 pro forma information.
(c) Represents the unaudited pro forma consolidated statement of operations
for fiscal year 1996, assuming the Acquisition, the Safeline
acquisition, the IPO and the refinancing occurred on January 1, 1996.
The 1996 pro forma data includes certain adjustments to historical
results to reflect: (i) an increase in interest expense resulting from
acquisition-related borrowings, which expense has been partially offset
by reduced borrowings following application of IPO proceeds and a lower
effective interest rate following the Refinancing, (ii) an increase in
amortization of goodwill and other intangible assets following the
Acquisition and the Safeline acquisition, (iii) a decrease in selling,
general and administrative expense to eliminate the AEA Investors Inc.
(Footnotes continued on following page)
30
<PAGE>
(Footnotes continued from previous page)
annual management fee of $1,000, payment of which was discontinued upon
consummation of the IPO and (iv) changes to the provision for taxes to
reflect our estimated effective income tax rate at a stated level of
pro forma earnings before tax for the year ended December 31, 1996.
Certain other one-time charges incurred during 1996 have not been
excluded from the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1996.
(d) Certain one-time charges incurred during 1996 have not been excluded
from the 1996 pro forma information. These charges consist of certain
non-recurring items for (i) advisory fees associated with the
reorganization of our structure of approximately $4,800 and (ii)
restructuring charges of approximately $12,600.
(e) In connection with the Bohdan acquisition, we allocated, based upon
independent valuations, $9,976 of the purchase price to purchased
research and development in process. This amount was recorded as an
expense immediately following the Bohdan acquisition.
(f) Other charges (income), net generally includes interest income, foreign
currency transactions, gains and losses from sales of assets and other
items. For the period January 1, 1996 to October 14, 1996, the amount
shown includes employee severance and other exit costs associated with
the closing of our Westerville, Ohio facility. For the period October
15, 1996 to December 31, 1996, the amount shown includes employee
severance benefits associated with our general headcount reduction
programs in Europe and North America and the realignment of the
analytical and precision balance business in Switzerland. For the year
ended December 31, 1997, the amount shown includes a restructuring
charge of $6,300 to consolidate three facilities in North America. The
amount for the year ended December 31, 1998 includes $650 of expenses
incurred on behalf of certain selling shareholders in connection with
the secondary offering completed in July 1998. See Note 14 to the
audited consolidated financial statements.
(g) Adjusted Operating Income is defined as operating income (gross profit
less research and development and selling, general and administrative
expenses) before amortization and non-recurring costs. Non-recurring
costs which have been excluded are the costs set forth in Note (a)
above and for the period from October 15, 1996 to December 31, 1996,
and in pro forma 1996, advisory fees associated with the reorganization
of our structure of approximately $4,800. Non-recurring costs for the
year ended December 31, 1997 include a charge of $2,500 in connection
with the termination of our management services agreement with AEA
Investors. We believe that Adjusted Operating Income provides important
financial information in measuring and comparing our operating
performance. Adjusted Operating Income is not intended to represent
operating income under U.S. GAAP and should not be considered as an
alternative to net earnings (loss) as an indicator of our operating
performance.
</FN>
</TABLE>
31
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales were $935.7 million for the year ended December 31, 1998,
compared to $878.4 million in the prior year. This reflected an increase of 8%
in local currency (6% including Safeline for full year 1997) during 1998.
Results for 1998 were negatively impacted by the strengthening of the U.S.
dollar against other currencies. Net sales in U.S. dollars during 1998 increased
7%.
Net sales in Europe increased 10% in local currencies during 1998,
versus the prior year. We have continued to experience favorable sales trends in
Europe, which began in the second half of 1997, as a result of the strengthening
of the European economy. Net sales in local currencies during 1998 in the
Americas also increased 10% due to improved market conditions across most
product lines, offset in part by weakness in Latin America. Net sales in local
currencies in 1998 in Asia and other markets decreased 4%. The sales decline in
Asia during 1998 results in part from a decline in net sales in Southeast Asia
and Korea. In addition, during the second half of 1998 we also experienced a
decline in net sales in Japan. Our sales and operating results in Asia and other
emerging markets deteriorated due to poor economic conditions. These results in
U.S. dollar terms have also been affected by severe currency devaluations. We
anticipate that market conditions in Asia and other emerging markets may
continue to adversely affect sales and that margins in that region may be
reduced. We believe that our sales growth on a U.S. dollar basis was reduced by
1 to 2 percentage points during 1998 as a result of these poor economic
conditions and devaluations.
The operating results for Safeline (which were included in our results
from May 31, 1997) would have had the effect of increasing our net sales by an
additional $19.0 million in 1997, if included from January 1, 1997.
Additionally, Safeline's operating results during the same period would have
increased our Adjusted Operating Income (gross profit less research and
development and selling, general and administrative expenses before amortization
and non-recurring costs) by $4.4 million.
Gross profit as a percentage of net sales increased to 44.4% for 1998,
compared to 44.1% for 1997 before non-recurring acquisition costs. The 1997
period excludes a $2.1 million non-cash charge associated with the excess of
fair value over historical cost for inventories acquired in the Safeline
acquisition.
Research and development expenses as a percentage of net sales
decreased to 5.2% for 1998, compared to 5.4% for the prior year. However, the
local currency spending level remained relatively constant for the year.
In July 1998, we acquired Bohdan Automation Inc., a leading supplier of
laboratory automation and automated synthesis products. We incurred a charge of
$10.0 million immediately following the acquisition based upon an independent
valuation for purchased research and development costs for products being
developed that have not established technological feasibility as of the date of
the acquisition which, if unsuccessful, have no alternative future use. We
expect that the projects underlying these research and development efforts will
be substantially completed over the next two years.
Selling, general and administrative expenses as a percentage of net
sales decreased to 28.4% for 1998, compared to 29.6% for the prior year. This
decrease primarily reflects the benefits of ongoing cost efficiency programs.
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Adjusted Operating Income was $101.0 million, or 10.8% of sales, for
1998, compared to $81.5 million, or 9.3% of sales, for the prior year, an
increase of 23.8%. The 1997 period excludes the previously noted charge of $2.1
million for the revaluation of inventories to fair value in connection with the
Safeline acquisition and $2.5 million in connection with the termination of our
management services agreement with AEA Investors at the time of our IPO.
Interest expense decreased to $22.6 million for 1998, compared to $35.9
million for the prior year. The decrease was principally due to benefits
received from our IPO, Refinancing and cash flow provided by operations.
Other charges, net were $1.2 million for 1998, compared to other
charges, net of $10.8 million for the prior year. The 1998 amount includes a
one-time charge of $0.7 million relating to the secondary offering completed in
July 1998. The 1998 amount also includes gains on asset sales offset by other
charges. The 1997 period includes restructuring related charges of $6.3 million
and other charges of $3.5 million ($2.9 million after tax) relating to (i)
certain derivative financial instruments acquired in 1996 and closed in 1997 and
(ii) foreign currency exchange losses resulting from certain unhedged bank debt
denominated in foreign currencies. Such derivative financial instruments and
such unhedged bank debt are no longer held pursuant to current Company policy.
The tax rate for 1998 includes a benefit of approximately 5 percentage
points based upon a one-time change in Swiss tax law which benefited only the
1998 period. The 1998 period also includes efficiencies in our global tax
structure, offset by the non-deductibility of purchased research and development
charges incurred in connection with the Bohdan acquisition.
The extraordinary loss of $41.2 million in 1997 represents charges for
the early repayment premium on our senior subordinated notes and the write-off
of capitalized debt issuance fees and related expenses associated with our
senior subordinated notes and previous credit facilities.
Net earnings excluding the expenses for purchased research and
development and the secondary offering were $48.3 million in 1998, compared with
net earnings before non-recurring items of $19.1 million in 1997. Such
non-recurring items in 1997 include the previously mentioned charges for
purchased research and development, the revaluation of inventories to fair
value, the termination fee paid to AEA Investors, restructuring charges, losses
relating to derivative financial instruments and unhedged bank debt denominated
in foreign currencies, and extraordinary items - debt extinguishment. Including
non-recurring items, net earnings for 1998 were $37.6 million, compared with a
net loss in 1997 of $65.1 million.
Year Ended December 31, 1997 Compared to Pro Forma Year Ended December 31, 1996
Net sales were $878.4 million for 1997, compared to pro forma 1996 net
sales of $889.6 million. As previously described, pro forma 1996 includes a full
year of Safeline's operating results, while 1997 only includes the operating
results of Safeline from May 31, 1997. Net sales in local currencies during the
year increased 11% (excluding Safeline results from pro forma 1996) and 7%
(excluding Safeline results from both pro forma 1996 and actual 1997).
Net sales in local currencies in 1997 in Europe increased 6% as
compared to net sales in local currencies in pro forma 1996 (excluding Safeline
results from pro forma 1996). Net sales in local currencies during 1997 in the
Americas increased 11%, principally due to improved market conditions for sales
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to industrial and food retailing customers. Net sales in local currencies in
1997 in Asia and other markets increased 30%, primarily as a result of the
establishment of additional direct marketing and distribution in the region.
During the six months ended December 31, 1997, sales trends in Europe were more
favorable compared to sales trends in the first two quarters of 1997. Overall,
our business in Asia and other markets remained solid. However, growth in net
sales in Southeast Asia and Korea (which collectively represent approximately 3%
of our total net sales for 1997) slowed.
The operating results for Safeline (which as previously noted were
included in our results from May 31, 1997) had the effect of increasing our net
sales by $28.5 million for 1997. Additionally, Safeline's operating results had
the effect of increasing our Adjusted Operating Income by $7.1 million for the
same period. We recorded non-cash purchase accounting adjustments for purchased
research and development of $30.0 million and the sale of inventories revalued
to fair value of $2.1 million during such period.
Gross profit before non-recurring acquisition costs as a percentage of
net sales increased to 44.1% for 1997, compared to 41.1% for pro forma 1996.
Gross profit in 1997 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. The improved gross profit
percentage reflects the benefits of reduced product costs arising from our
research and development efforts, ongoing productivity improvements and the
depreciation of the Swiss franc against our other principal trading currencies.
Research and development expenses as a percentage of net sales
decreased to 5.4% for 1997, compared to 5.7% for pro forma 1996; 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 29.6% for 1997, compared to 28.3% for pro forma 1996. This
increase was primarily a result of establishing additional direct marketing and
distribution in Asia.
Adjusted Operating Income was $81.5 million, or 9.3% of net sales in
1997 compared to $67.9 million, or 7.6% of net sales in pro forma 1996, an
increase of 20.1% (28.4% excluding Safeline results from both pro forma 1996 and
actual 1997). 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 and $2.5 million paid to terminate the management contract with AEA
Investors.
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.
Interest expense was $35.9 million for 1997, compared to $30.0 million
for pro forma 1996. The difference is principally due to the fact that the pro
forma 1996 information reflects a full year of the benefits of reduced borrowing
costs in connection with our IPO and Refinancing which occurred in November
1997.
Other charges, net of $10.8 million for 1997 includes restructuring
related charges of approximately $6.3 million and other charges of approximately
$3.5 million relating to (i) certain financial derivative financial instruments
acquired in 1996 and closed in 1997 and (ii) foreign currency exchange losses
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resulting from certain unhedged bank debt denominated in foreign currencies
(such derivative financial instruments and such unhedged bank debt are no longer
held pursuant to current Company policy). The decrease compared to other
charges, net of $14.0 million for pro forma 1996 is principally a result of
lower restructuring related charges in 1997 compared to pro forma 1996 ($6.3
million versus $12.6 million).
The significant increase in our effective tax rate in 1997 was
primarily attributable to the nondeductibility of goodwill and purchased
research and development charges incurred in connection with the Safeline
acquisition.
Net earnings before non-recurring items were $19.1 million in 1997.
Such non-recurring items in 1997 include the previously mentioned charges for
purchased research and development, the revaluation of inventories to fair
value, the termination fee paid to AEA Investors, the restructuring of North
American operations and losses relating to derivative financial instruments and
unhedged bank debt denominated in foreign currencies. Including these charges of
$43.0 million after taxes, the net loss before extraordinary items was $23.9
million for 1997 compared to net earnings of $5.0 million for pro forma 1996.
The extraordinary loss of $41.2 million in 1997 represents charges for
the early repayment premium on our senior subordinated notes and the write-off
of capitalized debt issuance fees associated with our senior subordinated notes
and previous credit facilities.
Liquidity and Capital Resources
Prior to the acquisition of the Mettler-Toledo group from Ciba-Geigy,
our cash was used primarily for working capital requirements and to fund capital
expenditures, service debt and pay dividends to Ciba-Geigy. Our liquidity was
affected by the Acquisition from Ciba-Geigy as well as by subsequent
acquisitions that we completed. The Acquisition was financed principally through
capital contributions of $190.0 million before related expenses, borrowings
under a previous credit agreement of $307.0 million and $135.0 million from the
issuance of our 9 3/4% senior subordinated notes due 2006 (the "Notes").
In May 1997, additional leverage was added through the acquisition of
Safeline. The purchase price for Safeline was (pound)63.7 million (approximately
$104.4 million at May 30, 1997), including a post-closing adjustment of
(pound)1.9 million which was paid in October 1997 and an earn-out of (pound)0.8
million which was paid in June 1998.
We continue to explore potential acquisitions. In connection with any
acquisition, we may incur additional indebtedness.
Our liquidity was improved as a result of our initial public offering
("IPO") in November 1997 and the refinancing undertaken at that time. In the
refinancing, we entered into a new credit agreement and repurchased all of the
Notes using proceeds from the IPO and borrowings under the credit agreement.
At December 31, 1998, our consolidated debt, net of cash, was $365.5
million. We had borrowings of $351.3 million under our credit agreement and
$35.4 million under various other arrangements as of December 31, 1998. Of our
credit agreement borrowings, approximately $184.6 million was borrowed as term
loans scheduled to mature in 2004 and $166.7 million was borrowed under a
multi-currency revolving credit facility. At December 31, 1998, we had $233.6
million of availability remaining under the revolving credit facility.
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At December 31, 1998, approximately $119.1 million of the borrowings
under the credit agreement and local working capital facilities were denominated
in U.S. dollars. The balance of the borrowings under the credit agreement and
local working capital facilities were denominated in certain of our other
principal trading currencies amounting to approximately $267.6 million at
December 31, 1998. Changes in exchange rates between the currencies in which we
generate cash flow and the currencies in which our borrowings are denominated
affect our liquidity. In addition, because we borrow in a variety of currencies,
our debt balances fluctuate due to changes in exchange rates.
Under the credit agreement, amounts outstanding under the term loans
amortize in quarterly installments. In addition, the credit agreement obligates
us to make mandatory prepayments in certain circumstances with the proceeds of
asset sales or issuance of capital stock or indebtedness and with certain excess
cash flow. The credit agreement imposes certain restrictions on us and our
subsidiaries, including restrictions and limitations on the ability to pay
dividends to our shareholders, incur indebtedness, make investments, grant
liens, sell financial assets and engage in certain other activities. We must
also comply with certain financial covenants. The credit agreement is secured by
certain of our assets.
Cash provided by operating activities continues to significantly exceed
our capital expenditure requirements. Our cash provided by operating activities
increased to $72.0 million in 1998 from $55.6 million in 1997. The increase
resulted principally from improved Adjusted Operating Income and lower interest
costs resulting from our IPO and related refinancing and reduced debt levels.
During 1998, we spent approximately $44.9 million on acquisitions and
other investing activities including seller financing of $12.0 million and
assumed debt of $3.1 million as well as contingent and other payments associated
with acquisitions consummated in 1997. These purchases were funded from cash
generated from operations and additional borrowings. We may be required to make
additional earn-out payments relating to certain of these acquisitions in the
future.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment and the purchase and expansion of facilities,
including the purchase of land for, and construction of, our Shanghai, China
manufacturing facility. Our capital expenditures totaled $29.4 million in pro
forma 1996, $22.3 million in 1997 and $28.6 million in 1998. Capital
expenditures for 1999 are expected to be similar to 1998 levels.
We currently believe that cash flow from operating activities, together
with borrowings available under the credit agreement and local working capital
facilities, will be sufficient to fund currently anticipated working capital
needs and capital spending requirements as well as debt service requirements for
at least several years, but there can be no assurance that this will be the
case.
Effect of Currency on Results of Operations
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates. Swiss
franc-denominated expenses represent a much greater percentage of our operating
expenses than Swiss franc-denominated sales represent of our net sales. In part,
this is because most of our manufacturing costs in Switzerland relate to
products that are sold outside of Switzerland. Moreover, a substantial
percentage of our research and development expenses and general and
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administrative expenses are incurred in Switzerland. Therefore, if the Swiss
franc strengthens against all or most of our major trading currencies (e.g., the
U.S. dollar, the Euro, other major European currencies and the Japanese Yen),
our operating profit is reduced. We also have significantly more sales in
European currencies (other than the Swiss franc) than we have expenses in those
currencies. Therefore, when European currencies weaken against the U.S. dollar
and the Swiss franc, it also decreases our operating profits. In recent years,
the Swiss franc and other European currencies have generally moved in a
consistent manner versus the U.S. dollar. Therefore, because the two effects
previously described have offset each other, our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these currencies
will continue to move in a consistent manner in the future. In addition to the
effects of exchange rate movements on operating profits, our debt levels can
fluctuate due to changes in exchange rates, particularly between the U.S. dollar
and the Swiss franc.
Year 2000 Issue
We have in place detailed programs to address Year 2000 readiness
internally and with certain suppliers. The Year 2000 issue is the result of
computer logic that was written using two digits rather than four to define the
applicable year. Any computer logic that processes date-sensitive information
may recognize dates using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system or equipment failures.
Pursuant to our readiness programs, all major categories of information
technology systems and non-information technology systems (e.g., equipment with
embedded microprocessors) in use by the Company, including manufacturing, sales,
financial and human resources, are being inventoried and assessed. In addition,
plans have been developed for the required systems modifications or
replacements. With respect to our information technology systems, we have
completed the entire assessment phase and most of the remediation phase. The
remediation phase has been completed for most major facilities with the
exception of facilities in Spain, Sweden and certain U.S. and German facilities.
With respect to our non-information technology systems, we have completed the
assessment phase and nearly all of the remediation phase. Selected areas, both
internal and external, will be tested to assure the integrity of our remediation
programs. The testing is expected to be completed by September 1999. We plan to
have all internal mission-critical information technology and non-information
technology systems Year 2000 compliant by September 1999.
We have also reviewed our products, including products sold in recent
years, to determine if they are Year 2000 compliant. In our current product line
we believe that most of our products are Year 2000 compliant. For products
currently in use, we are reviewing the risks by product item with many customers
and in many instances have suggested that the customer replace the older
product.
We are also communicating with our major suppliers to assess the
potential impact on our operations if those parties fail to become Year 2000
compliant in a timely manner. While this process is not yet completed, based
upon responses to date, it appears that many of those suppliers have only
indicated that they have in place Year 2000 readiness programs, without
specifically confirming that they will be Year 2000 compliant in a timely
manner. Risk assessment, readiness evaluation, action plans and contingency
plans related to our significant suppliers are expected to be completed by
September 1999.
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The costs incurred to date related to our Year 2000 activities have not
been material and, based upon current estimates, we do not believe that the
total cost of our Year 2000 readiness programs will have a material adverse
impact on our results of operations or financial condition. The total costs are
not easy to quantify since many of the steps we are taking relate to ongoing
systems updating, a small component of which relates to Year 2000 compliance. In
certain instances we have accelerated such updates. As a result of our ongoing
systems updating, we do not expect to realize a significant reduction in related
expenditures once the work on Year 2000 compliance is completed.
Our readiness programs also include the development of contingency
plans to protect our business and operations from Year 2000-related
interruptions. These plans should be completed by September 1999 and, by way of
example, will include back-up procedures, identification of alternate suppliers,
where possible, and increases in safety inventory levels. Based upon our current
assessment of our non-information technology systems, we do not believe it
necessary to develop an extensive contingency plan for those systems. There can
be no assurances, however, that any of our contingency plans will be sufficient
to handle all problems or issues which may arise.
We believe that we are taking reasonable steps to identify and address
those matters that could cause serious interruptions in our business and
operations due to Year 2000 issues. However, delays in the implementation of new
systems, a failure to fully identify all Year 2000 dependencies in our systems
and in the systems of our suppliers, a failure of such third parties to
adequately address their respective Year 2000 issues, or a failure of a
contingency plan could have a material adverse effect on our business, financial
condition and results of operations. For example, we would experience a material
adverse impact on our business if significant suppliers of components were
unable to deliver on a timely basis, if major utilities failed, such as those
providing water, electricity and telephone services, causing us to lose
production capabilities or limit other operations, if a significant portion of
our billing system was not functioning, causing a working capital deficit, or if
costs increased from warranty claims or customer claims of product liability.
The statements set forth herein concerning Year 2000 issues which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. In particular, the costs associated with our
Year 2000 programs and the time-frame in which we plan to complete Year 2000
modifications are based upon management's best estimates. These estimates were
derived from internal assessments and assumptions of future events. These
estimates may be adversely affected by the continued availability of personnel
and system resources, and by the failure of significant third parties to
properly address Year 2000 issues. Therefore, there can be no guarantee that any
estimates, or other forward-looking statements will be achieved, and actual
results could differ significantly from those contemplated.
European Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services. Switzerland is not part of the EMU.
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On January 1, 1999, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and noncash (banking) transactions. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the Euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.
We have recognized the introduction of the Euro as a significant event
with potential implications for existing operations. Currently, we operate in
all of the participating countries in the EMU. We expect nonparticipating
European Union countries, such as Great Britain, where we also have operations,
to eventually join the EMU.
We have committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure we are prepared for the
introduction of the Euro. We have undertaken a review of the Euro implementation
and have concentrated on areas such as operations, finance, treasury, legal,
information management, procurement and others, both in participating and
nonparticipating European Union countries where we operate. Also, existing
legacy accounting and business systems and other business assets have been
reviewed for Euro compliance, including assessing any risks from third parties.
Progress regarding Euro implementation is reported periodically to management.
Because of the staggered introduction of the Euro regarding noncash and
cash transactions, we have developed our plans to address our accounting and
business systems first and our business assets second. We expect to be Euro
compliant within our accounting and business systems by the end of 1999 and
compliant within our other business assets prior to the introduction of the Euro
bills and coins. Compliance in participating and nonparticipating countries will
be achieved primarily through upgraded systems, which were previously planned to
be upgraded. Remaining systems will be modified to achieve compliance. We do not
currently expect to experience any significant operational disruptions or to
incur any significant costs, including any currency risk, which could materially
affect our liquidity or capital resources. We are preparing plans to address
issues within the transitional period when both legacy and Euro currencies may
be used.
We are reviewing our pricing strategy throughout Europe due to the
increased price transparency created by the Euro and are attempting to adjust
prices in some of our markets. We are also encouraging our suppliers, even in
Switzerland, to commence transacting in Euro. We do not believe that the effect
of these adjustments will be material.
We have a disproportionate amount of our costs in Swiss francs relative
to sales. Historically, the potential currency impact has been muted because
currency fluctuations between the Swiss franc and other major European
currencies have been minimal and there is greater balance between total European
(including Swiss) sales and costs. However, if the introduction of the Euro
results in a significant weakening of the Euro against the Swiss franc, our
financial performance could be harmed.
The statements set forth herein concerning the introduction of the Euro
which are not historical facts are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. In particular, the costs associated
with our Euro programs and the time-frame in which we plan to complete Euro
modifications are based upon management's best estimates. These estimates were
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derived from internal assessments and assumptions of future events. There can be
no guarantee that any estimates or other forward-looking statements will be
achieved, and actual results could differ significantly from those contemplated.
Taxes
We are subject to taxation in many jurisdictions throughout the world.
Our 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 we transfer funds between jurisdictions and repatriate income, and
changes in law. Generally, the tax liability for each legal entity is determined
either (i) on a non-consolidated/combined basis or (ii) on a
consolidated/combined basis only with other eligible entities subject to tax in
the same jurisdiction, in either case without regard to the taxable losses of
non-consolidated/combined affiliated entities. As a result, we may pay income
taxes to certain jurisdictions even though on an overall basis we incur a net
loss for the period.
Environmental Matters
We are subject to various environmental laws and regulations, 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.
We incur capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. We are
currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the United States and
abroad. In addition, some of these facilities have or had been in operation for
many decades and may have used substances or generated and disposed of wastes
that are hazardous or may be considered hazardous in the future. Such sites and
disposal sites owned by others to which we sent waste may in the future be
identified as contaminated and require remediation. Accordingly, it is possible
that we could become subject to additional environmental liabilities in the
future that may harm our results of operations or financial condition. However,
we do not anticipate any material adverse effect on our 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 that we use. The
competitive environment in which we operate limits somewhat our ability to
recover higher costs through increased selling prices. Moreover, there may be
differences in inflation rates between countries in which we incur the major
portion of our costs and other countries in which we sell products, which may
limit our ability to recover increased costs. We remain committed to operations
in China, Latin America and Eastern Europe, which have experienced inflationary
conditions. To date, inflationary conditions have not had a material effect on
our operating results. However, if our presence in China, Latin America and
Eastern Europe increases, these inflationary conditions could have a greater
impact on our operating results.
Seasonality
Our business has historically experienced a slight amount of seasonal
variation, with sales in the first quarter slightly lower than, and sales in the
fourth quarter slightly higher than, sales in the second and third quarters.
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This trend has a somewhat greater effect on income from operations than on net
sales because fixed costs are spread evenly across all quarters.
Quantitative and Qualitative Disclosures About Market Risk
We have only limited involvement with derivative financial instruments
and do not use them for trading purposes.
We have entered into foreign currency forward contracts to hedge
short-term intercompany balances with our foreign businesses. Such contracts
limit our exposure to both favorable and unfavorable currency fluctuations. A
sensitivity analysis to changes in the U.S. dollar on these foreign currency
denominated contracts indicates that if the U.S. dollar weakened by 10% against
all of our currency exposures, the fair value of these instruments would
decrease by $2.6 million. Any resulting changes in fair value would be offset by
changes in the underlying hedged balance sheet position. The sensitivity
analysis assumes a parallel shift in foreign currency exchange rates. The
assumption that exchange rates change in parallel fashion may overstate the
impact of changing exchange rates on assets and liabilities denominated in a
foreign currency. We also have other currency risks as described under "Effect
of Currency on Results of Operations."
We have entered into certain interest rate swap and cap agreements in
order to limit our exposure to increases in interest rates. These contracts are
more fully described in Note 5 to our audited consolidated financial statements.
Based on our agreements outstanding at December 31, 1998, a 100 basis point
increase in interest rates would result in an increase in the net aggregate
market value of these instruments of $8.2 million. Conversely, a 100 basis point
decrease in interest rates would result in a $8.8 million net reduction in the
net aggregate market value of these instruments. Any change in fair value would
not effect our Consolidated Statement of Operations unless such agreements and
the variable rate debt they hedge were prematurely settled.
We have designated certain of our Swiss franc debt as a hedge of our
net investments. A sensitivity analysis to changes in the U.S. dollar on such
debt at December 31, 1998 indicates that if the U.S. dollar weakened by 10%
against the Swiss franc, the fair value of such debt would increase by $26.2
million. Any changes in fair value of the debt are recorded in comprehensive
income and offset the impact on comprehensive income of foreign exchange changes
on the net investments which they hedge.
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This statement requires entities to capitalize certain
internal-use software costs once certain criteria are met, and is effective for
financial statements for fiscal years beginning after December 15, 1998.
Management estimates the adoption of this statement will not have an adverse
effect on our consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
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Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not determined the effect of the adoption of this statement.
Recent SEC Announcements
In September 1998, the SEC raised the concern that U.S. reporting
companies were classifying an ever-growing portion of the acquisition price for
acquisitions as purchased in-process research and development. We recorded a
charge for purchased in-process research and development in 1998 based upon an
independent valuation relating to the acquisition of Bohdan Automation Inc. We
believe that this charge was calculated in accordance with U.S. GAAP and recent
SEC guidance. However, if the SEC were to adopt a different standard on a
retroactive basis than that applied by the Company or object to our application
of the recent SEC guidance, we could be required to restate our earnings.
Moreover, any adjustment could result in earnings in the future being reduced by
additional goodwill amortization. We recorded similar charges in our 1996 and
1997 consolidated financial statements relating to prior acquisitions. These
consolidated financial statements were audited by our independent accountants.
Forward-Looking Statements and Associated Risks
This annual report includes forward-looking statements based on our
current expectations and projections about future events, including: strategic
plans; potential growth, including penetration of developed markets and
opportunities in emerging markets; planned product introductions; planned
operational changes and research and development efforts; Year 2000 issues; Euro
conversion issues; future financial performance, including expected capital
expenditures; research and development expenditures; estimated proceeds from and
the timing of asset sales; potential acquisitions; future cash sources and
requirements; and potential cost savings from planned employee reductions and
restructuring programs.
These forward-looking statements are subject to a number of risks and
uncertainties, including those identified in Exhibit 99.1 to this Annual Report
on Form 10-K, which could cause our actual results to differ materially from
historical results or those anticipated and certain of which are beyond our
control. The words "believe," "expect," "anticipate" and similar expressions
identify forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. New risk factors emerge from time to
time and it is not possible for us to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
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ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Discussion of this item is on page 41 of Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-30 and the related financial schedule is set forth on page S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 10, 1999, the Company dismissed KPMG Fides Peat as its
independent auditors. The reports of KPMG Fides Peat on the Company's financial
statements for the fiscal years ended December 31, 1998 and December 31, 1997
did not contain an adverse opinion or a disclaimer of opinion, or a
qualification or modification as to uncertainty, audit scope, or accounting
principles. In connection with its audits for the Company's two most recent
fiscal years, and through March 10, 1999, there were no disagreements with KPMG
Fides Peat on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of KPMG Fides Peat, would have caused it to
make a reference to the subject matter of the disagreement(s) in connection with
its reports covering such periods. None of the reportable events listed in Item
304(a)(1)(v) of Regulation S-K occurred with respect to the Company and KPMG
Fides Peat.
On March 10, 1999, the Company engaged PricewaterhouseCoopers ("PWC")
as its independent auditors for the fiscal year ending December 31, 1999. During
the Company's two most recent fiscal years, and through March 10, 1999, the
Company did not consult with PWC as to either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements
and the Company did not consult with PWC as to any matter that was either the
subject of a disagreement or reportable event.
The decision to dismiss KPMG Fides Peat as the Company's independent
auditors was approved by the Audit Committee of the Company's Board of
Directors.
43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 of the Board.
Name Age Position
Robert F. Spoerry 43 President, Chief Executive Officer and Chairman
of the Board of Directors
William P. Donnelly 37 Chief Financial Officer
Karl M. Lang 52 Head, Laboratory Division
Lukas Braunschweiler 42 Head, Industrial and Retail (Europe)
John D. Robechek 50 Head, Industrial and Retail (Americas)
Peter Burker 53 Head, Human Resources
Thomas Rubbe 44 Head, Logistics and Information Systems
Philip Caldwell 79 Director
Reginald H. Jones 81 Director
John D. Macomber 71 Director
Laurence Z. Y. Moh 73 Director
Thomas P. Salice 39 Director
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 1996. Mr.
Spoerry has been Chairman of the Board of Directors since May 1998.
William P. Donnelly has been Chief Financial Officer of the Company
since 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.
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 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.
44
<PAGE>
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.
Philip Caldwell has been a Director since 1996. Prior to May 1998, Mr.
Caldwell served as Chairman of the Board of Directors. Mr. Caldwell spent 32
years at Ford Motor Company, where he served as Chairman of the Board of
Directors and Chief Executive Officer from 1980 to 1985 and a Director from 1973
to 1990. He served as a Director and Senior Managing Director of Lehman Brothers
Inc. and its predecessor, Shearson Lehman Brothers Holdings, Inc., from 1985 to
February 1998. Mr. Caldwell is also a Director of American Guarantee & Liability
Insurance Company, The Mexico Fund, Russell Reynolds Associates, Inc., Waters
Corporation and Zurich Holding Company of America, Inc. He has served as a
Director of CasTech Aluminum Group Inc., the Chase Manhattan Bank, N.A., the
Chase Manhattan Corporation, Digital Equipment Corporation, Federated Department
Stores Inc., the Kellogg Company, Shearson Lehman Brothers Holdings Inc.,
Specialty Coatings International Inc. and Zurich Reinsurance Centre Holdings,
Inc.
Reginald H. Jones has been a Director since 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.
John D. Macomber has been a Director since 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.
Laurence Z. Y. Moh has been a Director since 1996. At present, he is
Chairman and CEO of Plantation Timber Products Limited (CHINA), which he founded
in 1996. He is Chairman Emeritus of Universal Furniture Limited, which he
founded in 1959.
Thomas P. Salice has been a Director since 1996. Mr. Salice is
President of AEA Investors and has been associated with AEA Investors since June
1989. Mr. Salice is also a Director of Waters Corporation.
45
<PAGE>
Item 11. Executive Compensation
The information appearing in the sections captioned "Directors'
Compensation," "Executive Compensation" and "Compensation Committee Interlocks
and Insider Participation" in the Registrant's Proxy Statement for the 1999
Annual Meeting of Stockholders (the "1999 Proxy Statement") is incorporated by
reference herein.
Item 12. Security ownership of certain beneficial owners and management
The information appearing in the section "Principal Shareholders" in
the 1999 Proxy Statement is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section captioned "Certain
Transactions" in the 1999 Proxy Statement is incorporated by reference herein.
46
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report:
1. Financial Statements. See Index to Consolidated Financial
Statements included on page F-1.
2. Financial Statement Schedule and related Audit Report. See
Schedule I, which is included on pages S-1 and S-2.
3. List of Exhibits. See Index of Exhibits included on page E-1.
(b) Reports on Form 8-K:
None.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mettler-Toledo International Inc.
(Registrant)
Date: March 18, 1999 By: /s/ ROBERT F. SPOERRY
---------------------
Robert F. Spoerry
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board,
President and
/s/ ROBERT F. SPOERRY Chief Executive Officer March 18, 1999
- ------------------------
Robert F. Spoerry
Vice President and
Chief Financial Officer
(Principal financial and accounting
/s/ WILLIAM P. DONNELLY officer) March 18, 1999
- ------------------------
William P. Donnelly
/s/ PHILIP CALDWELL Director March 18, 1999
- ------------------------
Philip Caldwell
/s/ REGINALD H. JONES Director March 18, 1999
- ------------------------
Reginald H. Jones
/s/ JOHN D. MACOMBER Director March 18, 1999
- ------------------------
John D. Macomber
/s/ LAURENCE Z.Y. MOH Director March 18, 1999
- ------------------------
Laurence Z.Y. Moh
/s/ THOMAS P. SALICE Director March 18, 1999
- ------------------------
Thomas P. Salice
48
<PAGE>
PAGE NUMBER OR
EXHIBIT NO. DESCRIPTION INCORPORATION BY REFERENCE
- ----------- ----------- --------------------------
2.1 Stock Purchase Agreement Filed as Exhibit 2.1 to the
between AEA-MT Inc., AG Registration Statement, as amended,
fur Prazisionsinstrumente on Form S-1, of the Company
and Ciba-Geigy AG, as (Reg. No. 33-09621) and
amended incorporated herein by
reference
2.2 Share Sale and Purchase Filed as Exhibit 2 to the
Agreement relating to the Current Report on Form 8-K
acquisition of the entire of Mettler-Toledo Holding
issued share capital Inc. dated June 3, 1997
of Safeline Limited and incorporated herein by reference
3.1 Amended and Restated Filed as Exhibit 3.1 to the Annual
Certificate of Report on Form10-K of the Company
Incorporation of the dated March 13, 1998 and incorporated
Company herein by reference
3.2* Amended By-laws of the Page 85
Company effective
April 23, 1999
4.1 Specimen Form of the Filed as Exhibit 4.3 to the
Company's Stock Certificate Statement, as amended, on
Form S-1 of the Company
(Reg. No. 333-35597) and
incorporated herein by
reference
10.1 Employment Agreement between Filed as Exhibit 10.4 to the
Robert F. Spoerry and Annual Report on Form 10-K of
Mettler-Toledo AG, dated Mettler-Toledo Holding Inc.
as of October 30, 1996 dated March 31, 1997 and
incorporated herein by reference
10.2 Employment Agreement between Filed as Exhibit 10.2 to the
Lukas Braunschweiler and Annual Report on Form 10-K of
Mettler-Toledo GmbH dated as the Company dated March 13,1998
of November 10, 1997 and incorporated herein by reference
10.3 Employment Agreement between Filed as Exhibit 10.3 to the
William P. Donnelly and Annual Report on Form 10-K of
Mettler-Toledo GmbH dated as the Company dated March 13, 1998
of November 10, 1997 and incorporated herein by reference
10.4 Employment Agreement between Filed as Exhibit 10.4 to the
Karl M. Lang and Mettler- Annual Report on Form 10-K of
Toledo GmbH dated as of the Company dated March 13, 1998
November 10, 1997 and incorporated herein by reference
10.5 Employment Agreement between Filed as Exhibit 10.5 to the
John D. Robachek and Mettler- Annual Report on Form 10-K of
Toledo, Inc. dated as of the Company dated March 13, 1998
November 10, 1997 and incorporated herein by reference
10.6 Loan Agreement between Filed as Exhibit 10.5 to the
Robert F. Spoerry and Annual Report on Form 10-K of
Mettler-Toledo AG, dated Mettler-Toledo Holding Inc.
as of October 7, 1996 dated March 31, 1997 and
incorporated herein by
reference
10.7* Regulations of the Page 97
Performance Oriented
Bonus System (POBS) -
Incentive System for the
Management of Mettler Toledo,
effective as of November 5,
1998
10.8* Regulations of the POBS Plus- Page 102
Incentive Scheme for Senior
Management of Mettler Toledo,
effective as of November 5,
1998
E-1
<PAGE>
PAGE NUMBER OR
EXHIBIT NO. DESCRIPTION INCORPORATION BY REFERENCE
- ----------- ----------- --------------------------
10.9 Credit Agreement, dated Filed as Exhibit 10.9 to the
as of November 19, Annual Report on Form 10-K of
1997, between Mettler- the Company dated March 13, 1998
Toledo International Inc., and incorporated herein by reference
as Guarantor, Mettler-
Toledo, Inc., Mettler-Toledo
AG, as Borrowers, Safeline
Holding Company as UK
Borrower, Mettler-Toledo,
Inc., as Canadian Borrower
and Merrill Lynch & Co. as
Arranger and Documentation
Agent, and the Lenders
thereto
10.10 Amendment No.1, dated as Filed as Exhibit 10 to the Quarterly
of September 30, 1998, to Report on Form 10-Q of the Company,
the Second Amended and dated November 16, 1998 and
Restated Credit Agreement, incorporated herein by reference
dated as of November 19,
1997
10.11 Agreement of Merger, dated Filed as Exhibit 10.10 to the
November 13, 1997, between Annual Report on Form 10-K of
MT Investors Inc. and the Company dated March 13, 1998
Mettler-Toledo Holding Inc. and incorporated herein by reference
10.12 1997 Amended and Restated Filed as Exhibit 10.10 to the
Stock Option Plan Registration Statement on Form
S-1 of the Company (Reg. No.
333-35597) and incorporated
herein by reference
10.13 Form of Participants' Filed as Exhibit 10.11 to the
Subscription Agreement Registration Statement, as
amended, on Form S-1 of the
Company (Reg. No. 333-35597)
and incorporated herein by
reference
10.14 Form of GMC Subscription Filed as Exhibit 10.12 to the
Agreement Registration Statement, as
amended, on Form S-1 of the
Company (Reg. No. 333-35597)
and incorporated herein by
reference
11* Statements regarding Page 106
computation of per share
earnings
21* Subsidiaries of the Page 107
Company
27.1* Financial Data Schedule Page 110
99.1* Factors Affecting Future Page 111
Operating Results
- ----------------
* Filed herewith
E-2
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998.......... F-3
Consolidated Statements of Operations for the period
January 1, 1996 to October 14, 1996, for the period October 15,
1996 to December 31, 1996 and for the years ended December 31,
1997 and 1998...................................................... F-4
Consolidated Statements of Changes in Net Assets / Shareholders'
Equity for the period January 1, 1996 to October 14, 1996, for
the period October 15, 1996 to December 31, 1996 and for the
years ended December 31, 1997 and 1998............................. F-5
Consolidated Statements of Cash Flows for the period
January 1, 1996 to October 14, 1996, for the period October 15,
1996 to December 31, 1996 and for the years ended December 31,
1997 and 1998...................................................... F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mettler-Toledo International Inc.
We have audited the accompanying consolidated balance sheets of Mettler-Toledo
International Inc. and subsidiaries (as defined in Note 1 to the consolidated
financial statements) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, net assets / shareholders' equity and
cash flows for the period January 1, 1996 to October 14, 1996, the Predecessor
period, for the period October 15, 1996 to December 31, 1996, and for the years
ended December 31, 1997 and 1998, the Successor periods. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mettler-Toledo International Inc. and subsidiaries as of December 31, 1997 and
1998, and the consolidated results of their operations and their cash flows for
the period January 1, 1996 to October 14, 1996, the Predecessor period, for the
period October 15, 1996 to December 31, 1996, and for the years ended December
31, 1997 and 1998, the Successor periods, in conformity with generally accepted
accounting principles in the United States of America.
As more fully described in Note 1 to the consolidated financial statements,
Mettler-Toledo International 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 consolidated financial statements for the
Successor periods 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
February 5, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Successor Successor
----------- -----------
December 31, December 31,
1997 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $23,566 $21,191
Trade accounts receivable, less allowances of $7,669 in 1997
and $9,443 in 1998.................................................... 153,619 178,525
Inventories, net........................................................ 101,047 112,059
Other current assets and prepaid expenses............................... 31,650 46,455
------- -------
Total current assets.................................................. 309,882 358,230
Property, plant and equipment, net......................................... 235,262 230,264
Excess of cost over net assets acquired, net of accumulated amortization
of $6,427 in 1997 and $13,911 in 1998................................... 183,318 213,772
Other non-current assets .................................................. 20,851 18,175
------- -------
Total assets.......................................................... $749,313 $820,441
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $39,342 $58,740
Accrued and other liabilities........................................... 91,330 91,049
Accrued compensation and related items.................................. 43,214 45,906
Taxes payable........................................................... 33,267 51,302
Short-term borrowings and current maturities of long-term debt......... 56,430 46,432
------- -------
Total current liabilities............................................. 263,583 293,429
Long-term debt............................................................. 340,334 340,246
Non-current deferred taxes................................................. 25,437 25,566
Other non-current liabilities.............................................. 91,011 103,201
------- -------
Total liabilities.................................................... 720,365 762,442
Minority interest.......................................................... 3,549 4,164
Shareholders' equity:
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares -- --
Common stock, $0.01 par value per share; authorized 125,000,000 shares;
issued 38,336,014 and 38,400,363 (excluding 64,467 shares held in
treasury) at December 31, 1997 and 1998............................... 383 384
Additional paid-in capital.............................................. 284,630 285,161
Accumulated deficit .................................................... (224,152) (186,527)
Accumulated other comprehensive loss.................................... (35,462) (45,183)
-------- --------
Total shareholders' equity ........................................... 25,399 53,835
Commitments and contingencies..............................................
------- --------
Total liabilities and shareholders' equity ........................... $749,313 $820,441
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Predecessor Successor
-------------- ---------------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................. $662,221 $186,912 $878,415 $935,658
Cost of sales.............................. 395,239 136,820 493,480 520,190
------- ------- ------- -------
Gross profit........................... 266,982 50,092 384,935 415,468
Research and development................... 40,244 9,805 47,551 48,977
Selling, general and administrative........ 186,898 59,353 260,397 265,511
Amortization............................... 2,151 1,065 6,222 7,634
Purchased research and development......... -- 114,070 29,959 9,976
Interest expense........................... 13,868 8,738 35,924 22,638
Other charges (income), net................ (1,332) 17,137 10,834 1,197
------- ------- ------ -------
Earnings (loss) before taxes,
minority interest and
extraordinary items................. 25,153 (160,076) (5,952) 59,535
Provision for taxes........................ 10,055 (938) 17,489 20,999
Minority interest.......................... 637 (92) 468 911
------- --------- -------- -------
Net earnings (loss) before
extraordinary items................. 14,461 (159,046) (23,909) 37,625
Extraordinary items-
debt extinguishments, net of tax.... -- -- (41,197) --
-------- ---------- ------- -------
Net earnings (loss).................... $14,461 $(159,046) $(65,106) $37,625
======= ========== ======== =======
Basic earnings (loss) per common share:
Net earnings (loss) before
extraordinary items................. $(5.18) $(0.76) $0.98
Extraordinary items.................... - (1.30) -
------ ------- -----
Net earnings (loss).................... $(5.18) $(2.06) $0.98
====== ====== =====
Weighted average number of common shares 30,686,065 31,617,071 38,357,079
Diluted earnings (loss) per common share:
Net earnings (loss) before
extraordinary items................. $(5.18) $(0.76) $0.92
Extraordinary items.................... -- (1.30) --
------ ------ -----
Net earnings (loss).................... $(5.18) $(2.06) $0.92
====== ====== =====
Weighted average number of common shares 30,686,065 31,617,071 40,682,211
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS / SHAREHOLDERS' EQUITY
(In thousands, except per share data)
Predecessor
-----------
For the period from January 1, 1996 to October 14, 1996
-------------------------------------------------------
Accumulated
Other
Capital Comprehensive
Employed Income 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)
Comprehensive income:
Net earnings.................................. 14,461 -- 14,461
Change in currency translation adjustment .... -- (6,538) (6,538)
------
Comprehensive income ............................. 7,923
------ ------ -------
Net assets at October 14, 1996.................... $88,661 $24,112 $112,773
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Successor
---------------------------------------------------------------------------------------
For the period from October 15, 1996 to December 31, 1996
and for the years ended December 31, 1997 and 1998
Common Stock Accumulated
All Classes Additional Other
--------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
-------- ------- ------------ ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 15, 1996..... 1,000 $ 1 $ -- $ -- $ -- $ 1
New issuance of Class A and C
shares....................... 2,437,514 24 188,084 -- -- 188,108
Comprehensive loss:
Net loss..................... -- -- -- (159,046) -- (159,046)
Change in currency translation
adjustment................ -- -- -- -- (16,637) (16,637)
--------
Comprehensive loss.............. (175,683)
---------- ------- --------- --------- --------- --------
Balance at December 31, 1996.... 2,438,514 25 188,084 (159,046) (16,637) 12,426
New issuance of Class A and C
shares....................... 3,857 -- 300 -- -- 300
Purchase of Class A and C
treasury stock............... (5,123) (1) (668) -- -- (669)
Common stock conversion......... 28,232,099 282 (282) -- -- --
Proceeds from stock offering.... 7,666,667 77 97,196 -- -- 97,273
Comprehensive loss:
Net loss..................... -- -- -- (65,106) -- (65,106)
Change in currency translation
adjustment................ -- -- -- -- (18,825) (18,825)
-------
Comprehensive loss.............. (83,931)
---------- ------- --------- --------- --------- ---------
Balance at December 31, 1997.... 38,336,014 383 284,630 (224,152) (35,462) 25,399
Exercise of stock options....... 64,349 1 531 -- 532
Comprehensive income:
Net earnings................. -- -- -- 37,625 -- 37,625
Change in currency translation
adjustment................ -- -- -- -- (4,962) (4,962)
Minimum pension liability.... -- -- -- -- (4,759) (4,759)
------
Comprehensive income............ 27,904
---------- ------- --------- --------- --------- -------
Balance at December 31, 1998.... 38,400,363 $384 $285,161 $(186,527) $(45,183) $53,835
========== ======= ========= ========= ========= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Predecessor Successor
--------------- ----------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................. $14,461 $ (159,046) $(65,106) $37,625
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation............................. 19,512 7,925 25,613 24,592
Amortization............................. 2,151 1,065 6,222 7,634
Write-off of purchased research and
development and cost of sales
associated with revaluation of inventories -- 146,264 32,013 9,976
Extraordinary items...................... -- -- 41,197 --
Net loss (gain) on disposal of long-term
assets................................. (768) -- 33 (2,868)
Deferred taxes and adjustments to goodwill (1,934) (4,563) 4,244 (1,200)
Minority interest........................ 637 (92) 468 911
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net............ 9,569 (10,159) (8,113) (16,391)
Inventories............................... 1,276 3,350 (2,740) (5,953)
Other current assets...................... 14,748 (10,605) (7,177) 3,300
Trade accounts payable.................... (3,065) 3,415 4,936 17,523
Accruals and other liabilities............ 5,948 32,030 24,059 (3,107)
------- ------ ------ -------
Net cash provided by operating
activities........................... 62,535 9,584 55,649 72,042
------- ------ ------ -------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment.................................... 1,606 736 15,913 22,500
Purchase of property, plant and equipment...... (16,649) (11,928) (22,251) (28,633)
Acquisition of Mettler-Toledo from Ciba........ -- (314,962) -- --
Acquisitions, net of seller financings......... -- -- (80,469) (a) (28,925) (a)
Other investing activities..................... (1,632) 4,857 (9,184) (885)
------- ------ ------ -------
Net cash used in investing activities. (16,675) (321,297) (95,991) (35,943)
------- ------ ------ -------
Cash flows from financing activities:
Proceeds from borrowings....................... -- 414,170 614,245 23,019
Repayments of borrowings....................... (13,464) -- (703,201) (62,376)
Proceeds from issuance of common stock......... -- 188,108 97,573 532
Purchase of treasury stock..................... -- -- (669) --
Ciba and affiliates repayments................. (26,589) (184,666) -- --
Capital transactions with Ciba and affiliates.. (7,716) (80,687) -- --
------- ------ ------ -------
Net cash provided by (used in)
financing activities................ (47,769) 336,925 7,948 (38,825)
------- ------ ------ -------
Effect of exchange rate changes on cash and cash
equivalents.................................... (3,394) (615) (4,736) 351
------- ------ ------ -------
Net increase (decrease) in cash and cash equivalents (5,303) 24,597 (37,130) (2,375)
------- ------ ------ -------
Cash and cash equivalents:
Beginning of period............................ 41,402 36,099 60,696 23,566
------- ------ ------ -------
End of period.................................. $36,099 $60,696 $23,566 $21,191
======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................................... $6,524 $17,874 $38,345 $21,109
Taxes........................................ 9,385 2,470 6,140 20,285
Non-cash investing activities:
Seller financings on acquisitions.............. -- -- $22,514 $11,960
(a) Amounts paid for acquisitions including seller financing and assumed debt were $44.0 million and
$103.0 million in 1998 and 1997, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands unless otherwise stated)
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo," the "Company" or
"Successor") is a global manufacturer and marketer of precision instruments,
including weighing and certain analytical and measurement technologies, for use
in laboratory, industrial and food retailing applications. The Company's
manufacturing facilities are located in Switzerland, the United States, Germany,
the United Kingdom and China. The Company's principal executive offices are
located in Greifensee, Switzerland.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
("U.S. GAAP") and include all entities in which the Company has control,
including its majority owned subsidiaries. Financial results following the
acquisition of Mettler-Toledo from Ciba-Geigy on October 15, 1996, the Safeline
acquisition on May 30, 1997 and the initial public offering in November 1997 are
not comparable in many respects to the financial results prior to those events.
These events are further described in Notes 3, 9 and 10. Certain amounts in the
prior period financial statements have been reclassified to conform with current
year presentation.
All intercompany transactions and balances have been eliminated.
Investments in which the Company has voting rights between 20% to 50% are
generally accounted for using the equity method of accounting.
The combined financial statements of the Predecessor (see Note 3)
include the combined historical assets and liabilities and combined results of
operations of the Mettler-Toledo Group. All intergroup transactions have been
eliminated as part of the combination process.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
F-7
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
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:
Buildings and improvements 15 to 50 years
Machinery and equipment 3 to 12 years
Computer software 3 to 5 years
Leasehold improvements Shorter of useful life or lease term
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 the expected period to be benefited.
The Company assesses the recoverability of such amounts 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 operations.
Taxation
The Company files tax returns in each jurisdiction in which it
operates. Prior to the Acquisition discussed in Note 3, in certain jurisdictions
the Company filed its tax returns jointly with other Ciba-Geigy subsidiaries.
The Company had a tax sharing arrangement with Ciba-Geigy 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.
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. 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.
Generally, deferred taxes are not provided on the unremitted earnings
of subsidiaries outside of the U.S. because it is expected that these earnings
are permanently reinvested and such determination is not practicable. 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.
F-8
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
Currency Translation and Transactions
The reporting currency for the consolidated financial statements of the
Company is the U.S. dollar. 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 U.S. dollar
are included in the consolidated financial statements by translating the assets
and liabilities into the reporting currency at the exchange rates applicable at
the end of the reporting period. The statements of operations and cash flows of
such non-U.S. dollar functional currency operations are translated at the
monthly average exchange rates during the year. Translation gains or losses are
accumulated in other comprehensive income/(loss) in the Consolidated Statements
of Changes in Net Assets/Shareholders' Equity.
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.
Research and Development
Research and development costs are expensed as incurred.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters into
foreign currency forward contracts to hedge short-term intercompany transactions
with its foreign businesses. 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 changes
in fair value being recognized in other charges (income), net.
The Company also enters into certain interest rate cap and swap
agreements in order to reduce its exposure to changes in interest rates. The
differential paid or received on interest rate swap agreements is recognized as
interest expense over the life of the agreements as incurred. Realized and
unrealized gains on interest rate cap agreements are recognized as adjustments
to interest expense as incurred.
The Company has entered into certain foreign currency forward contracts
in order to convert certain U.S. dollar based debt into Swiss franc based debt.
The Company has also designated certain of its Swiss franc debt as a hedge of
its net investments. Any changes in fair value of the forward contracts and the
debt are recorded in comprehensive income/(loss) and offset the net investments
which they hedge.
F-9
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
Earnings (loss) per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." Accordingly,
basic and diluted earnings (loss) per common share data for each period
presented have been determined in accordance with the provisions of SFAS 128. In
accordance with the treasury stock method, the Company has included 2,325,132
equivalent shares related to 4,871,842 outstanding options to purchase shares of
common stock, as described in Note 11, in the calculation of diluted weighted
average number of common shares for 1998. Such common stock equivalents were not
included in the computation of diluted loss per common share for 1996 and 1997,
as the effect is antidilutive. The Company retroactively adjusted its weighted
average common shares for the purpose of the basic and diluted loss per common
share computations for the 1996 and 1997 periods pursuant to SFAS 128 and
Securities and Exchange Commission Staff Accounting Bulletin No. 98 issued in
February 1998.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 requires that changes in the amounts of certain items, including
foreign currency translation adjustments, be shown in the financial statements.
The Company has displayed comprehensive income/(loss) and its components in the
Consolidated Statements of Changes in Net Assets/Shareholders' Equity. Prior
year financial statements have been restated to reflect the application of SFAS
130 as required by the standard. The adoption of SFAS 130 did not have a
material effect on the Company's 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.
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 chemicals
industries. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
F-10
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
3. BUSINESS COMBINATIONS
During 1998, the Company spent approximately $44.9 million on
acquisitions and other investing activities including seller financing of $12.0
million and assumed debt of $3.1 million as well as contingent and other
payments associated with acquisitions consummated in 1997. The Company may be
required to make additional earn-out payments relating to certain of these
acquisitions in the future.
In July 1998, the Company acquired Bohdan Automation Inc., a leading
supplier of laboratory automation and automated synthesis products. The Company
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 Company
incurred a charge of $10.0 million immediately following the acquisition based
upon an independent valuation for purchased research and development costs for
products being developed that have not established technological feasibility as
of the date of acquisition which, if unsuccessful, have no alternative future
use in research and development activities or otherwise. The Company expects
that the projects underlying these research and development efforts will be
substantially completed over the next two years.
In December 1998, the Company announced that it had acquired Applied
Systems and Myriad Synthesizer Technology. The Company accounted for these
acquisitions using the purchase method of accounting.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Myriad Synthesizer Technology designs, assembles and markets
instruments that facilitate and automate the synthesis of large numbers of
chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
In May 1997, the Company purchased the entire issued share capital of
Safeline Limited ("Safeline"), a manufacturer of metal detection systems based
in Manchester in the United Kingdom, for approximately (pound)63.7 million
(approximately $104.4 million at May 30, 1997), including a post-closing
adjustment of (pound)1.9 million which was paid in October 1997 and an earn-out
of (pound)0.8 million which was paid in June 1998. Under the terms of the
agreement, the Company paid approximately (pound)13.7 million (approximately
$22.4 million) in the form of seller loan notes which mature May 30, 1999.
The Company accounted for the Safeline acquisition using the purchase
method of accounting. The Company incurred a charge of $30.0 million immediately
following the acquisition based upon an independent valuation for purchased
research and development costs. The technological feasibility of the products
being developed had not been established as of the date of the acquisition and,
if unsuccessful, had no alternative future use in research and development
activities or otherwise. In addition, the Company allocated $2.1 million of
F-11
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
3. BUSINESS COMBINATIONS-(CONTINUED)
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 acquisition over the fair value of the net assets
acquired is being amortized over 30 years.
On October 15, 1996, the Company acquired the Mettler-Toledo group
("Predecessor") from Ciba-Geigy for cash consideration of CHF 505.0 million
(approximately $402.0 million) including dividends of CHF 109.4 million
(approximately $87.1 million) which were paid to Ciba-Geigy by the Company
("Acquisition"). The Company accounted for the Acquisition using the purchase
method of accounting.
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 for products being developed that had not
established technological feasibility as of the date of acquisition which, if
unsuccessful, had no alternative future use in research and development
activities or otherwise. Such amount was recorded as an expense in the period
from October 15, 1996 to December 31, 1996. Additionally, the Company allocated
approximately $32.2 million of the purchase price to revalue certain inventories
(principally work-in-process and finished goods) to fair value. Substantially
all of such inventories were sold during the period from October 15, 1996 to
December 31, 1996. The excess of the cost of the Acquisition over the fair value
of the net assets is being amortized over 32 years.
4. INVENTORIES, NET
Inventories, net consisted of the following:
Successor
-----------------------------
December 31, December 31,
1997 1998
------------ -----------
Raw materials and parts................ $ 42,435 $ 48,718
Work-in-progress....................... 29,746 32,416
Finished goods......................... 28,968 30,956
----------- -----------
101,149 112,090
LIFO reserve........................... (102) (31)
----------- ----------
$ 101,047 $ 112,059
=========== ===========
F-12
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
In 1998, the Company entered into certain five-year interest rate swap
agreements that fix the interest obligation associated with $50 million of U.S.
dollar based debt and CHF 207.5 million of Swiss franc based debt from variable
to fixed. Certain of these agreements have forward starting dates commencing in
2000, expiring in 2003. The fixed rate associated with the swap on the U.S.
dollar based debt is 5.93% plus the Company's normal interest margin. The fixed
rates on the swaps of Swiss franc debt vary between 2.84% and 3.35% plus the
Company's normal interest margin. The swaps are effective at either one-month or
three-month LIBOR rates.
In 1997, the Company entered into three-year interest rate cap
agreements to limit the impact of increases in interest rates on its 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%. During 1997, the
Company also entered into certain three-year interest rate swap agreements that
fix the interest obligation associated with CHF 112.5 million of Swiss franc
based debt at rates varying between 2.17% and 2.49% plus the Company's normal
interest margin. The swaps are effective at one-month LIBOR of which a certain
portion are at rates up to 3.5%.
The Company may be exposed to credit losses in the event of
nonperformance by the counterparties to its derivative financial instrument
contracts. Counterparties are established banks and financial institutions with
high credit ratings. The Company has no reason to believe that such
counterparties will not be able to fully satisfy their obligations under these
contracts.
At December 31, 1997 and 1998, the fair value of such financial
instruments was approximately $(1.1) million and $(6.6) million, respectively.
The fair values of all derivative financial instruments are estimated based on
current settlement prices of comparable contracts obtained from dealer quotes.
The values represent the estimated amount the Company would pay to terminate the
agreements at the reporting date, taking into account current creditworthiness
of the counterparties.
F-13
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the following:
Successor
--------------------------------
December 31, December 31,
1997 1998
------------ -----------
Land................................. $ 58,226 $ 48,080
Buildings and leasehold improvements. 111,065 113,473
Machinery and equipment.............. 93,418 117,032
Computer software.................... 3,948 6,942
---------- ----------
266,657 285,527
Less accumulated depreciation
and amortization..................... (31,395) (55,263)
---------- ----------
$ 235,262 $ 230,264
========== ==========
7. OTHER NON-CURRENT ASSETS
Other assets include deferred financing fees of $3.8 million and $3.1
million, net of accumulated amortization of $0.1 million and $0.6 million at
December 31, 1997 and 1998, respectively. Also included in other assets are
restricted bank deposits of $1.8 million and $1.6 million at December 31, 1997
and 1998, respectively. Other assets at December 31, 1997 and 1998 also included
a loan due from the Company's Chief Executive Officer of approximately $0.7
million. This loan bears an interest rate of 5% and is payable upon demand,
which may not be made until 2003.
8. SHORT-TERM BORROWINGS AND CURRENT MATURITIES OF LONG-TERM DEBT
Short-term borrowings and current maturities of long-term debt
consisted of the following:
Successor
---------------------------
December 31, December 31,
1997 1998
------------ -----------
Current maturities of long-term debt....... $ 14,915 $ 19,955
Borrowings under revolving credit facility. 33,320 --
Other short-term borrowings................ 8,195 26,477
-------- --------
$ 56,430 $ 46,432
======== ========
F-14
<PAGE>
<TABLE>
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
9. LONG-TERM DEBT
Long-term debt consisted of the following:
Successor
-----------------------------
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Credit Agreement Term Loans:
Term A USD Loans, interest at LIBOR plus 0.75% (6.07% at December 31,
1998) payable in quarterly installments due May 19, 2004........ $101,573 $93,953
Term A CHF Loans, interest at LIBOR plus 0.75% (2.41% at December 31,
1998) payable in quarterly installments due May 19, 2004........ 58,991 57,330
Term A GBP Loans, interest at LIBOR plus 0.75% (7.66% at December 31,
1998) payable in quarterly installments due May 19, 2004........ 36,198 33,279
Safeline Seller Notes, interest at LIBOR plus 0.26% (7.2% at December
31, 1998) due May 30, 1999..................................... 22,946 7,433
Revolving credit facilities......................................... 160,862 166,723
Other............................................................... 16,194 27,960
--------- ---------
396,764 386,678
Less current maturities............................................. (56,430) (46,432)
---------- ----------
$340,334 $ 340,246
========= =========
</TABLE>
The Acquisition from Ciba-Geigy was financed in part from borrowings
under a previous credit agreement of $307.0 million and $135.0 million from the
issuance of 9 3/4% senior subordinated notes due 2006 (the "Notes").
At the time of the Safeline acquisition in May 1997, the Company
refinanced its previous credit facility and entered into a new credit facility.
The Company recorded an extraordinary loss of approximately $9.6 million
representing a charge for the write-off of capitalized debt issuance fees and
related expenses associated with the Company's previous credit facility.
In connection with the Company's initial public offering in November
1997, the Company refinanced its existing credit facility by entering into a new
credit facility (the "Credit Agreement"). Concurrent with the initial public
offering and refinancing, the Company consummated a tender offer to repurchase
the Notes. In connection with the refinancing and the Notes repurchase, the
Company recorded an extraordinary loss of $31.6 million primarily representing
the premium paid in connection with the early extinguishment of the Notes of
$17.9 million and the write-off of capitalized debt issuance fees associated
with the Notes and the Company's previous credit facility.
The Company has a multi-currency $400.0 million revolving credit
facility and a CDN $26.3 million Canadian revolving credit facility under the
Credit Agreement. Loans under these revolving credit facilities may be repaid
and reborrowed and are due in full on May 19, 2004. At December 31, 1998, the
Company had approximately $233.6 million of additional borrowing capacity under
its Credit Agreement. The Company has the ability to refinance its short-term
borrowings through its revolving facilities for an uninterrupted period
extending beyond one year. Accordingly, approximately $166.7 million of the
Company's short-term borrowings at December 31, 1998 have been reclassified to
long-term.
F-15
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
9. LONG-TERM DEBT -(CONTINUED)
The aggregate maturities of long-term obligations during each of the
years 2000 through 2003 are approximately $24.9 million, $34.9 million, $34.9
million and $39.9 million, respectively.
The Company is required to pay a facility fee based upon certain
financial ratios per annum on the amount of its revolving facilities. The
facility fee at December 31, 1998 was equal to 0.25%. At December 31, 1998,
borrowings under the Company's revolving facilities carried an interest rate of
LIBOR plus 0.50%. The Company's weighted average interest rate for the year
ended December 31, 1998 was approximately 6.0%.
The Credit Agreement contains covenants, including limitations on the
Company's ability to pay dividends to shareholders, incur indebtedness, make
investments, grant liens, sell financial assets and engage in certain other
activities. The Credit Agreement also requires the Company to maintain a minimum
net worth, a minimum fixed charge coverage ratio, and a ratio of total debt to
EBITDA below a specified maximum.
The estimated fair value of the Company's obligations under the Credit
Agreement approximate fair value due to the variable rate nature of the
obligations.
10. SHAREHOLDERS' EQUITY
Common Stock
In November 1997, pursuant to a merger with its wholly owned subsidiary
Mettler-Toledo Holding Inc., each share of the Company's existing Class A, Class
B and Class C common stock was converted into 12.58392 shares of common stock
and the number of authorized shares was increased to 125,000,000 shares with a
par value of $0.01 per share. Concurrently therewith, the Company completed an
underwritten initial public offering of 7,666,667 shares at a public offering
price of $14.00 per share. The net proceeds from the offering of approximately
$97.3 million were used to repay a portion of the Company's 9 3/4% senior
subordinated notes (see Note 9). As part of the offering the Company sold
approximately 287,000 shares of its common stock to Company sponsored benefit
funds at the public offering price. Holders of the Company's common stock are
entitled to one vote per share.
At December 31, 1998, 6,327,573 shares of the Company's common stock
were reserved for the Company's stock option plan.
Preferred Stock
The Board of Directors, without further shareholder authorization, is
authorized to issue up to 10,000,000 shares of preferred stock, par value $0.01
per share 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 therefore, and rights upon
liquidation, dissolution or winding up, including preferences over the common
stock and one or more
F-16
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
11. STOCK OPTION PLAN
series of the preferred stock. 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.
Effective October 15, 1996, the Company adopted a stock option plan to
provide certain key employees and 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.
Under the terms of the plan, options granted shall be nonqualified and
the exercise price shall not be less than the fair market value of the common
stock on the date of grant. Options vest equally over a five year period from
the date of grant.
Stock option activity is shown below:
Weighted Average
Number of Shares Exercise Price
---------------- ----------------
Outstanding at December 31, 1996........... 3,510,747 $7.95
Granted.................................... 1,028,992 14.68
Forfeited.................................. (130,999) (7.95)
--------- ------
Outstanding at December 31, 1997........... 4,408,740 $9.75
Granted.................................... 670,000 21.48
Exercised.................................. (64,349) (8.26)
Forfeited.................................. (142,549) (7.95)
--------- ------
Outstanding at December 31, 1998........... 4,871,842 $11.30
========= ======
Shares exercisable at December 31, 1998.... 1,507,399 $8.87
========= ====
At December 31, 1998, the weighted average remaining contractual life
of outstanding options was approximately 8.0 years. These options have exercise
prices ranging from $7.95 to $21.50.
As of the date granted, the weighted average grant-date fair value of
the options granted during the period from October 15, 1996 to December 31, 1996
and for the years ended December 31, 1997 and 1998 was approximately $1.99,
$3.37 and $8.11 per share, respectively. Such weighted average grant-date fair
value was determined using an option pricing model which incorporated the
following assumptions:
Successor
--------------------------------------------------
For the period Year ended Year ended
October 15, 1996 to December 31, December 31,
December 31, 1996 1997 1998
------------------- ------------ ------------
Risk-free interest rate... 4.0% 5.4% 5.2%
Expected life in years.... 7 4 4
Expected volatility....... -- 26% 39%
Expected dividend yield... -- -- --
F-17
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
11. STOCK OPTION PLAN -(CONTINUED)
The Company applies Accounting Standards Board Opinion No. 25 and
related interpretations in accounting for its plans. Had compensation cost for
the Company's stock option plan been determined based upon the fair value of
such awards at the grant date, consistent with the methods of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation," the Company's net earnings (loss) and basic and diluted net
earnings (loss) per common share for the years ended December 31, 1997 and 1998
would have been as follows:
Successor
----------------------------
Year ended Year ended
December 31, December 31,
1997 1998
------------ -----------
Net earnings (loss):
As reported........................... $(65,106) $37,625
Pro forma............................. (66,417) 35,475
======= ======
Basic earnings (loss) per common share:
As reported........................... $(2.06) $0.98
Pro forma............................. (2.10) 0.92
====== ====
Diluted earnings (loss) per common share:
As reported........................... $(2.06) $0.92
Pro forma............................. (2.10) 0.87
===== ====
12. 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. Amounts
recognized as cost under these plans amounted to $9.5 million, $2.5 million,
$8.9 million and $8.2 million for the period January 1, 1996 to October 14,
1996, for the period October 15, 1996 to December 31, 1996 and for the years
ended December 31, 1997 and 1998, respectively.
Certain companies sponsor defined benefit plans. Benefits are provided
to employees primarily based upon years of service and employees' compensation
for certain periods during the last years of employment. The Company's U.S.
operations also provide postretirement medical benefits to their employees.
Contributions for medical benefits are related to employee years of service.
F-18
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
12. BENEFIT PLANS -(CONTINUED)
The following table sets forth the change in benefit obligation, the
change in plan assets, the funded status and amounts recognized in the
consolidated financial statements for the Company's principal defined benefit
plans and postretirement plans at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Successor
------------------------------------------------------
Pension Benefits Other Benefits
------------------------ -----------------------
1997 1998 1997 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year...... $ 120,962 $ 124,958 $ 32,025 $ 36,112
Service cost................................. 5,655 5,929 440 507
Interest cost................................ 8,020 8,624 2,296 2,360
Actuarial (gains) losses..................... 4,316 7,977 3,549 821
Plan amendments and other.................... (35) 4,584 10 (184)
Benefits paid................................ (5,435) (5,541) (2,204) (2,515)
Impact of foreign currency................... (8,525) 3,399 (4) (6)
------- ------- ------ ------
Benefit obligation at end of year............ 124,958 149,930 36,112 37,095
------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at beginning of
year...................................... 63,945 73,075 - -
Actual return on plan assets................. 9,316 4,921 - -
Employer contributions....................... 6,064 4,759 2,204 2,515
Plan participants' contributions............. 277 281 - -
Benefits paid................................ (5,435) (5,541) (2,204) (2,515)
Impact of foreign currency................... (1,092) (120) - -
------- ----- ----- -----
Fair value of plan assets at end of year..... 73,075 77,375 - -
------ ------ ------- --------
Funded status................................ (51,883) (72,555) (36,112) (37,095)
Unrecognized actuarial (gain) / loss......... (1,105) 9,855 4,465 5,110
------- -------- -------- --------
Net amount recognized........................ $ (52,988) $ (62,700) $ (31,647) $ (31,985)
========== ========== ========== ==========
Amounts recognized in the Consolidated Balance Sheets consist of:
Successor
------------------------------------------------------
Pension Benefits Other Benefits
------------------------ -----------------------
1997 1998 1997 1998
------- ------- ------ ------
Other non-current assets..................... $ 1,005 $ 1,294 $ - $ -
Other non-current liabilities................ (53,993) (68,753) (31,647) (31,985)
Accumulated other comprehensive income....... - 4,759 - -
------- -------- ------- -------
Net amount recognized........................ $(52,988) $(62,700) $(31,647) $(31,985)
========= ========= ========= =========
</TABLE>
F-19
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
12. BENEFIT PLANS -(CONTINUED)
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:
1997 1998
------------ ------------
Discount rate......................... 6.0% to 8.5% 5.0% to 8.5%
Compensation increase rate............ 2.0% to 6.5% 2.0% to 6.5%
The expected long term rates of return on plan assets ranged between
7.0% and 10.0% for 1996, 6.0% and 9.5% for 1997 and 5.0% and 9.5% in 1998.
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.
Net periodic pension cost for the defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
Predecessor Successor
--------------- ----------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Service cost.......................... $ 3,850 $ 1,013 $ 5,655 $ 5,929
Interest cost on projected benefit
obligations........................ 6,540 1,721 8,020 8,624
Expected gain on plan assets.......... (3,562) (1,600) (5,976) (6,613)
Recognition of actuarial (gains) losses (32) - (51) (104)
--------- -------- -------- ---------
Net periodic pension cost............. $ 6,796 $ 1,134 $ 7,648 $ 7,836
========= ======== ======== ========
Net periodic postretirement benefit cost for the U.S. postretirement plans includes the following components:
</TABLE>
<TABLE>
<CAPTION>
Predecessor Successor
--------------- ----------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Service cost.......................... $ 431 $ 114 $ 440 $ 507
Interest cost on projected benefit
obligations........................ 1,795 472 2,296 2,360
Net amortization and deferral......... 343 - 33 26
---------- ------ ------- -------
Net periodic postretirement benefit cost $ 2,569 $ 586 $ 2,769 $ 2,893
========== ====== ======= =======
</TABLE>
The accumulated postretirement benefit obligation and net periodic
postretirement benefit cost were principally determined using discount rates of
7.6% in 1996, 7.0% in 1997 and 6.7% in 1998 and health care cost trend rates
ranging from 8.0% to 9.5% in 1996, 1997 and 1998, 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. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
F-20
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
12. BENEFIT PLANS -(CONTINUED)
One-Percentage- One-Percentage-
Point Increase Point Decrease
-------------- ---------------
Effect on total of service and
interest cost components......... $ 486 $ (278)
Effect on postretirement benefit
obligation....................... $4,044 $ (3,627)
13. TAXES
The sources of the Company's earnings (loss) before taxes, minority
interest and extraordinary items were as follows:
Predecessor
------------------
For the period
January 1, 1996 to
October 14, 1996
------------------
Switzerland.................................................. $ 21,241
Non-Switzerland.............................................. 3,912
Earnings before taxes, minority interest and extraordinary --------
items...................................................... $ 25,153
========
Successor
-----------------------------------------------
For the period Year ended Year ended
October 15, 1996 to December 31, December 31,
December 31, 1996 1997 1998
------------------- ----------- ------------
United States.................. $ (37,293) $(14,178) $ (2,172)
Non-United States.............. (122,783) 8,226 61,707
-------- ------- ------
Earnings (loss) before taxes,
minority interest and
extraordinary items......... $ (160,076) $ (5,952) $ 59,535
========== ========= ========
F-21
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
13. TAXES -(CONTINUED)
The provision (benefit) for taxes consists of:
<TABLE>
<CAPTION>
Predecessor: Current Deferred Total
-------- -------- --------
<S> <C> <C> <C>
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: Current Deferred Total
-------- -------- --------
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>
<TABLE>
<CAPTION>
Adjustments
to
Current Deferred Goodwill Total
------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
United States federal........................ $ -- $ (351) $ -- $ (351)
State and local.............................. 466 (41) 107 532
Non-United States............................ 12,779 2,600 1,929 17,308
------ ------ ------ ------
$13,245 $2,208 $2,036 $17,489
======= ====== ====== =======
Adjustments
to
Current Deferred Goodwill Total
------- --------- ----------- ---------
Year ended December 31, 1998:
United States federal........................ $ 517 $ (700) $ 591 $ 408
State and local.............................. 561 (102) 351 810
Non-United States............................ 21,121 (2,642) 1,302 19,781
------ ------- ------ ------
$22,199 $(3,444) $2,244 $20,999
======= ======== ====== =======
</TABLE>
The adjustments to goodwill during the years ending December 31, 1997 and
1998 relate to tax benefits utilized which were not previously recognized in the
purchase price allocation pertaining to previous acquisitions.
F-22
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
13. TAXES -(CONTINUED)
The provision for tax expense for the period January 1, 1996 to October 14,
1996 where the Company operated as a group of businesses owned by Ciba-Geigy
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:
Predecessor
-----------------
For the period
January 1, 1996 to
October 14, 1996
------------------
Expected tax....................................... $ 2,465
Switzerland Canton (state) and local income taxes,
net of federal income tax benefit................ 3,573
Non-deductible intangible amortization............. 205
Change in valuation allowance...................... 1,235
Non-Switzerland income taxes in excess of 9.8%..... 2,291
Other, net......................................... 286
--------
Total provision for taxes.......................... $ 10,055
========
The provision for tax expense (benefit) for the period October 15,
1996 to December 31, 1996 and for the years ended December 31, 1997
and 1998, subsequent to the Acquisition described in Note 3, differed
from the amounts computed by applying the United States federal income
tax rate of 35% to the earnings/(loss) before taxes, minority interest and
extraordinary items as a result of the following:
<TABLE>
<CAPTION>
Successor
-----------------------------------------------------
For the period Year ended Year ended
October 15, 1996 to December 31, December 31,
December 31, 1996 1997 1998
------------------- ----------- -----------
<S> <C> <C> <C>
Expected tax......................................... $(56,027) $(2,083) $20,837
United States state and local income taxes, net of
federal income tax benefit....................... 333 276 810
Non-deductible purchased research and development.... 39,925 10,486 3,492
Non-deductible intangible amortization............... 336 2,073 2,459
Change in valuation allowance........................ 4,662 263 4,964
Non-United States income taxes at
other than a 35% rate............................ 10,037 5,545 (6,708)
Changes in Swiss tax law/rates....................... - - (4,963)
Other, net........................................... (204) 929 108
------- ------- -------
Total provision (benefit) for taxes.................. $ (938) $17,489 $20,999
======= ======= =======
</TABLE>
F-23
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
13. 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>
Successor
---------------------------------
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory............................................ $ 7,552 $ 6,055
Accrued and other liabilities........................ 9,278 12,601
Deferred loss on sale of subsidiaries................ 7,907 7,907
Accrued postretirement benefit and pension costs..... 19,161 24,983
Net operating loss carryforwards..................... 27,345 20,856
Other................................................ 678 2,743
------- -------
Total deferred tax assets................................ 71,921 75,145
Less valuation allowance................................. (59,292) (64,640)
------- --------
Total deferred tax assets less valuation allowance....... 12,629 10,505
------- -------
Deferred tax liabilities:
Inventory............................................ 6,177 2,302
Property, plant and equipment........................ 24,081 24,534
Other................................................ 5,665 3,565
------- -------
Total deferred tax liabilities........................... 35,923 30,401
------- -------
Net deferred tax liability............................... $23,294 $19,896
======= =======
</TABLE>
The Company has established valuation allowances primarily for net
operating losses, deferred losses as well as postretirement and pension costs as
follows:
<TABLE>
<CAPTION>
Successor
--------------------------------
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Summary of valuation allowances:
Cumulative net operating losses....................... $27,345 $20,856
Deferred loss......................................... 7,907 7,907
Accrued postretirement and pension benefit costs...... 17,104 23,300
Other................................................. 6,936 12,577
------- -------
Total valuation allowance................................. $59,292 $64,640
======= =======
</TABLE>
The total valuation allowances relating to acquired businesses amount
to $35.5 million and $35.0 million at December 31, 1997 and 1998, respectively.
Future reductions of these valuation allowances will be credited to goodwill.
At December 31, 1998, the Company had net operating loss carryforwards
for U.S. federal income tax purposes of $27.4 million, all of which expire in
2012. The Company has various U.S. state net operating losses and various
foreign operating losses which expire in varying amounts through 2012.
F-24
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
14. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of foreign currency
transactions, interest income, charges related to the Company's restructuring
programs and gains on the sale of property, plant and equipment.
The Company recorded restructuring charges of $6.3 million during 1997.
These charges were incurred in connection with the closure of three facilities
in North America and comprised primarily severance and other related benefits
and costs of exiting facilities, including lease termination costs and the
write-down of existing assets to their expected net realizable value. In
connection with the closure of these facilities, the Company involuntarily
terminated approximately 70 employees. The Company had also recorded
restructuring charges of $2.6 million in 1998 primarily for workforce reductions
and other cash outflows. The Company undertook these actions as part of its
efforts to reduce costs through re-engineering.
The period October 15, 1996 to December 31, 1996 included employee
severance benefits associated with the Company's general headcount reduction
programs in Europe and North America of $4.6 million and the realignment of the
analytical and precision balance business in Switzerland of $6.2 million.
Severance and other exit costs of $1.9 million for the period January 1, 1996 to
October 14, 1996 represented employee severance of $1.6 million and other exit
costs of $0.3 million associated with the closing of the Company's Westerville,
Ohio facility. In connection with such programs the Company reduced its
workforce by 168 employees in 1996.
A rollforward of the components of the Company's accrual for
restructuring activities is as follows:
Successor
---------------------
1997 1998
---- ----
Beginning of the year........................... $10,762 $8,758
Restructuring accrual for North American
operations and other.......................... 6,300 2,611
Reductions in workforce and other cash outflows. (7,182) (9,441)
Non-cash write-downs of property, plant and
equipment..................................... (540) (188)
Impact of foreign currency...................... (582) 91
------ -------
End of the year................................. $8,758 $1,831
====== ======
The Company's accrual for restructuring activities at December 31, 1998
primarily consisted of lease termination, other costs of exiting facilities and
severance.
F-25
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
15. 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, 1998:
1999................... $14,702
2000................... 11,141
2001................... 7,986
2002................... 6,375
2003................... 4,895
Thereafter............. 8,088
-----
Total.................. $53,187
=======
Rent expense for operating leases amounted to $13.0 million, $3.4
million, $16.4 million and $17.7 million for the period January 1, 1996 to
October 14, 1996, for the period October 15, 1996 to December 31, 1996 and for
the years ended December 31, 1997 and 1998, 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.
16. SEGMENT REPORTING
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and
Related Information." SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. The Company's chief operating
decision-maker directs the allocation of resources to operating segments based
on the profitability and cash flows of each respective segment. Operating
segments are the individual reporting units within the Company. These units are
managed separately, and it is at this level where the determination of resource
allocation is made.
The units have been aggregated based on operating segments in
geographical regions that have similar economic characteristics and meet the
aggregation criteria of SFAS 131. The Company has determined that there are five
reportable segments: Principal U.S. Operations, Principal Central European
Operations, Swiss R&D and Manufacturing Operations, Other Western Europe
Operations and Other. Principal U.S. Operations represent certain of the
Company's marketing and producing organizations located in the United States.
Principal Central European Operations primarily includes the Company's German
marketing and producing organizations that primarily serve the German market
F-26
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
16. SEGMENT REPORTING -(CONTINUED)
and, to a lesser extent, Europe. Swiss R&D and Manufacturing Operations consist
of the organizations located in Switzerland that are responsible for the
development, production and marketing of precision instruments, including
weighing, analytical and measurement technologies for use in a variety of
industrial and laboratory applications. Other Western European Operations
include the Company's market organizations in Western Europe that are not
included in Principal Central European Operations. The Company's market
organizations are geographically focused and are responsible for all aspects of
the Company's sales and service. Operating segments that exist outside these
reportable segments are included in Other.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on adjusted operating income (gross profit less
research and development and selling, general and administration expenses before
amortization and non-recurring costs). Intersegment sales and transfers are
priced to reflect consideration of market conditions and the regulations of the
countries in which the transferring entities are located. The following tables
show the operations of the Company's operating segments:
<TABLE>
<CAPTION>
Principal Other
For the period Principal Other Swiss R&D Western Eliminations
January 1, 1996 to U.S. Europe and Mfg. Europe Other and
October 14, 1996 Operations Operations Operations Operations (a) Corporate (b) Total
- ---------------------------- ---------- ---------- ---------- ---------- ----- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to external
customers................ $232,866 $148,782 $33,336 $162,694 $ 84,543 $ - $662,221
Net sales to other segments. 23,860 36,413 88,484 3,750 84,361 (236,868) -
---------- ---------- ------- -------- ------ -------- --------
Total net sales............. $256,726 $185,195 $121,820 $166,444 $168,904 $(236,868) $662,221
======== ======== ======== ======== ======== ========== ========
Adjusted operating income... $11,998 $10,258 $14,373 $4,522 $ 8,200 $ (9,511) $ 39,840
Depreciation................ 5,294 2,633 2,786 2,032 6,641 126 19,512
Purchase of property, plant
and equipment............ 5,273 1,500 1,148 1,478 6,455 795 16,649
Principal Other
For the period Principal Other Swiss R&D Western Eliminations
October 15, 1996 to U.S. Europe and Mfg. Europe Other and
December 31, 1996 Operations Operations Operations Operations (a) Corporate (b) Total
- ---------------------------- ---------- ---------- ---------- ---------- ----- ------------- --------
Net sales to external
customers................ $ 65,727 $41,994 $ 9,409 $ 45,920 $ 23,862 $ - $186,912
Net sales to other segments. 6,734 10,277 24,975 1,059 23,811 (66,856) -
-------- -------- -------- -------- ------ ------- --------
Total net sales............. $72,461 $52,271 $ 34,384 $ 46,979 $ 47,673 $ (66,856) $186,912
======== ======== ======== ======== ======== ========= =========
Adjusted operating income... $5,394 $4,612 $6,462 $2,033 $ 3,687 $ (4,276) $ 17,912
Depreciation................ 2,150 1,069 1,131 825 2,698 52 7,925
Purchase of property, plant
and equipment............ 3,777 1,075 822 1,059 4,625 570 11,928
F-27
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
16. SEGMENT REPORTING -(CONTINUED)
Principal Other
Principal Other Swiss R&D Western Eliminations
For the year ended U.S. Europe and Mfg. Europe Other and
December 31, 1997 Operations Operations Operations Operations (a) Corporate (b) Total
- --------------------------- ---------- ---------- ---------- ---------- ------- ------------- --------
Net sales to external
customers............... $311,760 $163,976 $ 27,174 $209,995 $165,510 $ - $878,415
Net sales to other segments 39,138 51,692 137,797 14,458 105,113 (348,198) -
-------- -------- ------- -------- ------ ------- --------
Total net sales............ $350,898 $215,668 $164,971 $224,453 $270,623 $(348,198) $878,415
======== ======== ======== ======== ======== ======== ========
Adjusted operating income.. $18,973 $ 17,479 $ 33,708 $ 15,242 $ 22,350 $(26,211) $81,541
Depreciation............... 9,273 3,316 2,420 2,583 7,789 232 25,613
Total assets............... 150,753 131,309 107,007 110,983 539,237 (289,976) 749,313
Purchase of property, plant
and equipment........... 6,882 2,390 2,455 2,612 7,147 765 22,251
Principal Other
Principal Other Swiss R&D Western Eliminations
For the year ended U.S. Europe and Mfg. Europe Other and
December 31, 1998 Operations Operations Operations Operations (a) Corporate (b) Total
- ---------------------------- ---------- ---------- ---------- ---------- ----- ------------- -------
Net sales to external
customers.................. $324,455 $181,377 $ 23,554 $220,543 $185,729 $ - $935,658
Net sales to other segments... 39,634 58,035 148,062 22,848 104,585 (373,164) -
-------- -------- ------- -------- ------ ------- --------
Total net sales................ $364,089 $239,412 $171,616 $243,391 $290,314 $(373,164) $935,658
======== ======== ======== ======== ======== ======== ========
Adjusted operating income...... $ 26,283 $ 20,314 $ 30,155 $ 17,795 $23,576 $(17,143) $100,980
Depreciation................... 8,132 3,081 2,506 2,748 7,770 355 24,592
Total assets................... 166,934 146,754 142,717 125,621 597,175 (358,760) 820,441
Purchase of property, plant
and equipment............... 8,296 2,957 2,922 3,562 8,886 2,010 28,633
<FN>
(a) Other includes reporting units in Asia, Eastern Europe, Latin America and
segments from other countries that do not meet the aggregation criteria
of SFAS 131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions as well as certain corporate expenses, intercompany
investments and certain goodwill, which are not included in the Company's
operating segments.
</FN>
</TABLE>
A reconciliation of adjusted operating income to earnings (loss) before
taxes, minority interest and extraordinary items follows:
<TABLE>
<CAPTION>
Predecessor Successor
--------------- ----------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Adjusted operating income............. $ 39,840 $ 17,912 $ 81,541 $ 100,980
Revaluation of inventories............ - 32,194 2,054 -
Purchased research and development.... - 114,070 29,959 9,976
Reorganization advisory fees (a)...... - 4,784 - -
Termination fee at IPO (b)............ - - 2,500 -
Amortization.......................... 2,151 1,065 6,222 7,634
Interest expense...................... 13,868 8,738 35,924 22,638
Other charges (income), net........... (1,332) 17,137 10,834 1,197
------- ------- ------ ------
Earnings (loss) before taxes, minority
interest and extraordinary items.... $ 25,153 $(160,076) $ (5,952) $ 59,535
======== ========== ========= ========
<FN>
(a) This charge represents advisory fees associated with the reorganization of
the Company's structure.
(b) At the time of the IPO, the Company incurred fees associated with the
termination of its management consulting agreement with AEA Investors.
</FN>
</TABLE>
F-28
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
16. SEGMENT REPORTING -(CONTINUED)
The Company sells precision instruments, including weighing instruments
and certain analytical and measurement technologies, and related after-market
support to a variety of customers and industries. None of these customers
account for more than 2.6% of net sales. After-market support revenues are
primarily derived from parts and services such as calibration, certification and
repair, much of which is provided under contracts. A break-down of the Company's
sales by product category follows:
<TABLE>
<CAPTION>
Predecessor Successor
--------------- ----------------------------------------------
For the period For the period
January 1, 1996 October 15, 1996 Year ended Year ended
to October 14, to December 31, December 31, December 31,
1996 1996 1997 1998
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Weighing-related instruments $453,489 $127,998 $587,067 $600,450
Non-weighing instruments 94,332 26,625 147,281 183,259
After-market 114,400 32,289 144,067 151,949
------- ------- ------- -------
Total net sales $662,221 $186,912 $878,415 $935,658
======== ======== ======== ========
</TABLE>
The breakdown of net sales by geographic customer destination and
property, plant and equipment, net are as follows:
<TABLE>
<CAPTION>
Predecessor Successor Successor
----------- ------------------------------------------ -------------------------
Property, plant and
Net sales equipment, net
---------------------------------------------------------- -------------------------
January 1 October 15
to to Year ended Year ended Year ended Year ended
October 14, December 31, December 31, December 31, December 31, December 31,
1996 1996 1997 1998 1997 1998
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States....... $217,636 $56,405 $297,688 $328,448 $50,651 $ 47,771
Other Americas...... 47,473 13,436 71,403 74,951 3,317 1,511
-------- ------- -------- -------- ------- --------
Total Americas...... 265,109 69,841 369,091 403,399 53,968 49,282
Germany............. 104,961 29,688 115,665 129,464 28,094 27,812
Switzerland......... 32,282 8,415 34,555 40,158 120,647 119,093
Other Europe........ 186,823 58,598 245,945 260,660 15,957 17,265
-------- ------- -------- -------- ------- --------
Total Europe........ 324,066 96,701 396,165 430,282 164,698 164,170
Rest of World....... 73,046 20,370 113,159 101,977 16,596 16,812
-------- ------- -------- -------- ------- --------
Totals.............. $662,221 $186,912 $878,415 $935,658 $235,262 $230,264
======== ======== ======== ======== ======== ========
</TABLE>
F-29
<PAGE>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands unless otherwise stated)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter(a)(b) Quarter(c) Quarter(b)
------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
1997
Net sales.......................... $197,402 $220,412 $215,929 $244,672
Gross profit....................... 83,282 97,016 94,365 110,272
Net earnings (loss) before
extraordinary items.............. (1,122) (25,613) (284) 3,110
Extraordinary items (b)............ - (9,552) - (31,645)
------- ------- ------ ------
Net earnings (loss)................ $(1,122) $(35,165) $ (284) $(28,535)
======= ======== ====== ========
Basic earnings per common share:
Earnings (loss) before
extraordinary items........... $(0.04) $(0.84) $(0.01) $0.09
Extraordinary items.............. - (0.31) - (0.92)
------- ------ ------ ------
Net loss........................... $(0.04) $(1.15) $(0.01) $(0.83)
====== ======= ======= ======
Diluted earnings (loss) per common share:
Earnings (loss) before
extraordinary items .......... $(0.04) $(0.84) $(0.01) $0.09
Extraordinary items.............. - (0.31) - (0.88)
------- ------ ------ ------
Net loss......................... $(0.04) $(1.15) $(0.01) $(0.79)
======= ====== ====== ======
Market price per share: (d)
High............................. - - - $18 3/4
Low.............................. - - - $14 1/16
1998
Net sales ......................... $215,655 $228,446 $225,646 $265,911
Gross profit....................... 94,607 101,667 98,879 120,315
Net earnings (loss)................ $ 6,838 $ 11,397 $ 2,530 $ 16,860
====== ======= ====== =======
Basic earnings per common share: $0.18 $0.30 $0.07 $0.44
Diluted earnings per common share: $0.17 $0.28 $0.06 $0.41
Market price per share:
High............................. $22 3/8 $ 22 1/4 $22 11/16 $28 15/16
Low.............................. $16 9/16 $ 18 $16 1/4 $16 3/4
<FN>
(a) The financial data for the second quarter of 1997 includes charges in
connection with the Safeline acquisition, as discussed in Note 3, for
the sale of inventories revalued to fair value of $2.1 million and
in-process research and development of $30.0 million.
(b) The second and fourth quarters of 1997 include extraordinary charges
for prepayment premiums on the Company's senior subordinated notes and
for the write-off of capitalized debt issuance fees as discussed in
Note 9.
(c) The financial data for the third quarter of 1998 includes a charge of
$10.0 million for in-process research and development in connection
with the Bohdan acquisition.
(d) The Company's shares began trading on the New York Stock Exchange
on November 14, 1997.
</FN>
</TABLE>
F-30
<PAGE>
Schedule I
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors and Shareholders
Mettler-Toledo International Inc.:
Under date of February 5, 1999, we reported on the consolidated balance sheets
of Mettler-Toledo International Inc. and subsidiaries (as defined in Note 1 to
the consolidated financial statements) as of December 31, 1997 and 1998, and the
related consolidated statements of operations, net assets / shareholders' equity
and cash flows for the period January 1, 1996 to October 14, 1996, the
Predecessor period, for the period October 15, 1996 to December 31, 1996, and
for the years ended December 31, 1997 and 1998, the Successor periods, included
herein. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule included under Item 14 of the Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Fides Peat
Zurich, Switzerland
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
Schedule I- Valuation and Qualifying Accounts
- -------------------------------- ---------------- ---------------------------------- ---------------- -----------------
Column A Column B Column C Column D Column E
- -------------------------------- ---------------- ---------------------------------- ---------------- -----------------
Additions
----------------------------------
(1) (2)
Balance at Charged Charged to
the beginning to costs and other accounts -Deductions- Balance at
Description of period expenses describe describe end of period
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
Note (A)
<S> <C> <C> <C> <C> <C>
Accounts Receivable-
allowance for doubtful
accounts:
Year ended
December 31, 1998 7,669 2,008 - 234 9,443
Year ended
December 31, 1997 8,388 1,516 - 2,235 7,669
For the period
October 15, 1996 to
December 31, 1996 9,429 97 - 1,138 8,388
For the period
January 1, 1996
to October 14, 1996 9,292 370 - 233 9,429
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
<FN>
Note A
Represents excess of uncollectable balances written off over recoveries of
accounts previously written off. Additionally, amounts are net of foreign
currency translation effect of $(375), $(159), $(552) and $239 for the
period from January 1, 1996 to October 14, 1996, for the period from
October 15, 1996 to December 31, 1996 and for the years ended December 31,
1997 and 1998, respectively.
</FN>
</TABLE>
Exhibit 3.2
AMENDED BY-LAWS
OF
METTLER-TOLEDO INTERNATIONAL INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President and shall be called by the Chairman of the Board, the
President or the Secretary at the request in writing of stockholders holding
together at least twenty-five percent of the number of shares of stock
outstanding and entitled to vote at such meeting. Any special meeting of the
stockholders shall be held on such date, at such time and at such place within
or without the State of Delaware as the Board of Directors or the officer
calling the meeting may designate. At a special meeting of the stockholders, no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting unless all of the stockholders are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these BY-LAWS or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
1
<PAGE>
Exhibit 3.2
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by Proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in his
absence, the President shall call all meetings of the stockholders to order, and
shall act as Chairman of such meetings. In the absence of the Chairman of the
Board and the President, the holders of a majority in number of the shares of
stock of the Corporation present in person or represented by proxy and entitled
to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
2
<PAGE>
Exhibit 3.2
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholder in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 10. Advance Notice Provisions for Election of Directors.
Only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 10 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for a nomination
to be made by a stockholder such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the date of the annual meeting;
provided, however, that in the event that less than seventy (70) days notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
3
<PAGE>
Exhibit 3.2
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy, at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 10. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 11. Advance Notice Provisions for Business to be
Transacted at Annual Meeting. No business may be transacted at an annual meeting
of stockholders, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 11 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 11.
In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the date of the annual meeting; provided, however, that in the event that
less than seventy (70) days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs.
4
<PAGE>
Exhibit 3.2
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 11, provided, however that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
SECTION 12. Order of Business.
The order of business at all meetings of the stockholders shall be determined
by the Chairman of the meeting.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of seven (7)
Directors, who need not be stockholders of the Corporation. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal. The number of Directors may be altered from time to time by amendment
of these By-Laws.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
5
<PAGE>
Exhibit 3.2
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future
date, a majority of Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be delivered personally or transmitted by telegraph,
facsimile, telex or sent by certified, registered or overnight mail at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors, If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of the Chairman of the Board and the President, a Chairman shall
be elected from the Directors present. The Secretary of the Corporation shall
act as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
6
<PAGE>
Exhibit 3.2
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporations property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these By-Laws; and unless such resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Chief
Financial Officer, a Secretary and a Treasurer, and such additional officers, if
any, as shall be elected by the Board of Directors pursuant to the provisions of
Section 7 of this Article III. The Chairman of the Board, the President, one or
more Vice Presidents, a Chief Financial Officer, the Secretary and the Treasurer
shall be elected by the Board of Directors at its first meeting after each
annual meeting of the stockholders. The failure to hold such election shall not
of itself terminate the term of office of any officer. All officers shall hold
office at the pleasure of the Board of Directors. Any officer may resign at any
time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any number of offices may be held by the same person.
7
<PAGE>
Exhibit 3.2
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation,
his removal, or otherwise, may be filled by the Board of Directors, and any
officer so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board, The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned to him by these
By-Laws or by the Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall
be the chief executive officer of the Corporation and, subject to the control of
the Board of Directors and the Chairman of the Board, shall have general charge
and control of all its operations and shall perform all duties incident to the
office of President. In the absence of the Chairman of the Board, he shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors and shall have such other powers and perform such other duties as may
from time to time be assigned to him by these By-Laws or by the Board of
Directors or the Chairman of the Board.
SECTION 4. Powers and Duties of the Vice Presidents. Each Vice
President shall perform all duties incident to the office of Vice President and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these By-Laws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 5. Powers and Duties of the Chief Financial Officer. The
Chief Financial Officer shall be the principal financial officer of the
Corporation, and shall be in charge of, and have control over, all financial
accounting and tax matters regarding the Corporation. The Chief Financial
Officer shall have such other powers and perform such other duties as may from
time to time be assigned to him by these By-Laws or by the Board of Directors,
the Chairman of the Board or the President.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors, the Chairman of the
Board or the President shall authorize and direct; he shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors, the Chairman of the Board or the President
shall direct, all of which shall at reasonable times be open to the examination
of any Director, upon application, at the office of the Corporation during
8
<PAGE>
Exhibit 3.2
business hours; and he shall perform duties incident to the office of Secretary
and shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these By-Laws or the Board of Directors,
the Chairman of the Board or the President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
act at the direction of the Chief Financial Officer. At the direction of the
Chief Financial Officer, the Treasurer shall have custody of, and when proper
shall pay out, disburse or otherwise dispose of, all funds and securities of the
Corporation which may have come into his hands; he may endorse on behalf of the
Corporation for collection checks, notes and other obligations and shall deposit
the same to the credit of the Corporation in such bank or banks or depository or
depositories as the Board of Directors may designate; he shall enter or cause to
be entered regularly in the books of the Corporation kept for the purpose full
and accurate accounts of all moneys received or paid or otherwise disposed of by
him and whenever required by the Board of Directors, or the President or Chief
Financial Officer shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall perform all duties incident to the office of Treasurer and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these By-Laws or by the Board of
Directors, the Chairman of the Board, or the President or the Chief Financial
Officer.
SECTION 8. Additional Officers. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned to them by the Board of Directors, the Chairman of the Board or the
President.
The Board of Directors may from time to time by resolution
delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or
duties herein assigned to the Treasurer; and may similarly delegate to any
Assistant Secretary or Assistant Secretaries any of the powers or duties herein
assigned to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the President or any Vice
President shall have full power and authority on behalf of the Corporation to
attend and to act and to vote, or in the name of the Corporation to execute
proxies to vote, at any meetings of stockholders of any corporation in which the
Corporation may hold stock, and at any such meetings shall possess and may
exercise, in person or by proxy, any and all rights, powers and privileges
incident to the ownership of such stock. The Board of Directors may from time to
time, by resolution, confer like powers upon any other person or persons.
SECTION 11. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
9
<PAGE>
Exhibit 3.2
ARTICLE IV
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to
the Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost stolen or destroyed, he shall in the office of the Corporation an
affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in the preceding section.
SECTION 4. Regulations. The Board of Directors shall have power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
10
<PAGE>
Exhibit 3.2
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock Or
for the purpose of any other lawful action, as the case may be, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available f6r the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall
be such fiscal year as the Board of Directors from time to time by resolution
shall determine.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
11
<PAGE>
Exhibit 3.2
endorsed for deposit to the credit of the Corporation with a duly authorized
depository by the Treasurer, or otherwise as the Board of Directors may from
time to time, by resolution, determine.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 4. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors, the Chairman of the Board or the President.
SECTION 5. Indemnification of Directors Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any person
made or threatened to be made a party to an action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer, employee or agent of
the Corporation or is or was serving, at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE VI
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, including the By-Laws
adopted by the Board of Directors, may be altered, amended or repealed and other
By-Laws may be adopted by the holders of a majority of the total outstanding
stock of the Corporation entitled to vote at any annual meeting or at any
special meeting, provided, in the case of any special meeting, that notice of
such proposed alteration, amendment, repeal or adoption is included in the
notice of the meeting.
12
Exhibit 10.7
POBS -
Incentive System for the Management of METTLER TOLEDO
Regulations, valid as of Nov. 5, 1998
1. Objectives and Participants
With this incentive plan, our aim is to pursue two main objectives:
. To emphasize the responsibility of each manager for the top-ranking
interest of the Group and to promote the attainment of the overall
corporate goals; orientation to overall success of the corporation.
. To orient the remuneration of each manager directly to his / her
performance by setting clearly defined targets that can be met by the
manager, and subsequent measurement of target achievement.
Participation in the POBS must be agreed in writing. Participation must be
commensurate with the function, appropriate goals must be definable and
assessable in a realistic manner.
2. Mechanics
2.1 Participants are assigned to one of two categories in agreement with POBS.
Category Minimum Maximum
Annual Salary Annual Salary
---------- ------------- -------------------------------
Category 1 90 % 120 % (of actual Target Salary)
Category 2 95 % 110 %
2.2 For each manager, targets are agreed for each calendar year with his / her
supervisor. Each individual target is given a weighting. The sum of the
weightings must equal 100 %.
2.3 Criteria for the assessment of the attainment of each individual target
are specified:
Target
Achievement
-----------
90 % Target not reached - result unsatisfactory
100 % Target reached, corresponding to the requirements - good result
110 % Clearly more than target achieved, requirements clearly exceeded,
in terms of value, time limits, quality, additional related success
- very good result
1
<PAGE>
Exhibit 10.7
120 % Target achievement outstanding, additional major benefits / success
for the company reached - excellent result
2.4 The annual target salary is determined for the period January 1 to
December 31 (Switzerland: April 1st to March 31) of the upcoming year. It
should be commensurate with the requirements of the function and, hence,
conform to the market. It is reached when each of the set targets has been
achieved well and completely.
2.5 At the end of the calendar year, target achievement is assessed by the
superior manager. The degree of achievement of each individual target (90
to 120 %), see above) is multiplied by the weighting of the individual
target to give a points award for each individual target. The total score
for all targets lies between 90 and 120 points. The effective annual
salary (in % of target salary) is the result of target salary multiplied
by the total score and divided by 100 (Category 1). For Category 2, the
conversion has to be made to the total number of points:
Annual Salary in % of Annual Target Salary
with different Degree of Target Achievement
Total Point achieved Category 1 Category 2
90 points 90 % minimum 95 %
100 points 100 % 100 %
110 points 110 % 105 %
120 points 120 % maximum 110 %
The intermediate steps are linear:
. 1 point counts 1 % of target salary in Category 1
. 1 point counts 0.5 % of target salary in Category 2
3. Target Setting
3.1 The requirements for complete and proper target achievement (100 %) should
be challenging and ambitious, on the other hand, they have to be realistic
and attainable. For each participant, they should be set in such a way
that they can be fulfilled clearly and to the full extent so that payment
of the target salary can be realized on the yearly average.
3.2 Each POBS sheet includes the following target categories
A Group targets - as a rule 1 - 2 targets
B Targets of operative unit - as a rule 1 - 4 targets
C Personal targets - as a rule 1 - 2 targets.
The GMC establishes the basic weighing of the targets annually.
In case of the change of important conditions by internal reasons (e.g.
changes in the mission, the assignment, the scope, the available means),
the targets will be adjusted in a fair way by dialogue with the superior
manager.
2
<PAGE>
Exhibit 10.7
4. Yardsticks for Target Achievement
A correct determination of target achievement is of prime importance. It
is decisive that the activities of the participants are really oriented to
the desired targets. Specification of the correct yardsticks helps
visualize the intended direction. In particular, it must be ensured that
quantitative targets are set in the right context and do not lead to wrong
decision processes and behavior, e.g. local optimization regardless of
negative effects in other units. It is advisable to specify relative
numbers and not absolute values (e.g. % of budget). Targets should not
overlap with nor be in contradiction to each other.
A Group Targets
As a basis target, values referring to the profit and / or liquidity
of the METTLER TOLEDO Group are determined annually by the GMC
together with the weighting. They have to be approved by our Board of
Directors.
B Targets of Operative Unit
Emphasis is placed on the operative performance of the business unit.
The targets must be agreed between the employee and his superior
manager in a target dialogue and authorized by their responsible
supervisor. As a rule, they result from the budget, in proportion to
the task.
Possible Target Parameters
General Managers MOs Sales, operational,
cash flow (OCF), return on
assets (ROA), country
contribution, costs, ratios of
assets
General Managers POs OCF, OPBIT, ROA, contribution
Business Unit Managers Sales, OCF, OPBIT, cost,
contribution, assets and
Managers Administration
Division and SBU Managers Consolidated OPBIT etc.
C Personal Targets
The personal targets are established in an intensive dialogue between
the employee and his / her superior manager within the set framework
and must be authorized by their responsible supervisor.
They can be quantitative and / or qualitative, job-oriented
objectives which must be agreed individually in the target dialogue.
An intermediate assessment should be recorded in brief by the
participant every quarter.
Possible Yardsticks
Progress of project and action programs; leadership behavior, trainee
promotion, orientation to our Corporate Mission Statement, TQM
progress, broadening of competence.
3
<PAGE>
Exhibit 10.7
5. Payment
During the salary year, 90 % of the target salary (minimum annual salary)
will be paid, normally divided in 12 equal monthly installments. The
distribution of this basic amount, however, can vary in certain countries.
The Company represented by the Group Management Committee can elect to
make a payment on account toward the expected effective annual salary in
December of the relevant business year which is calculated on a
provisional basis using projected results. The amount of such payment on
account can not exceed 50 % of the presumable total incentive payment.
The annual salary effectively attained is calculated as soon as the
results of the business year and the assessment of the target achievement
are known. The difference to the payments already made is usually paid (or
deducted) until April following the end of the business year.
6. Termination of Employ during the Calendar Year
In case of termination in the first half-year of the calendar year, the
target salary is paid (100 %) pro rata. In case of termination of employ
in the second half-year, target achievement is measured at the end of the
year (usual procedure) and the remaining balance will be paid pro rata.
7. Effective Date
These regulations are valid as of 1993 and replace all previous
regulations.
For the Group Management Committee:
Peter Burker
Head Human Resources
Enclosure Example of Settlement
4
<PAGE>
Exhibit 10.7
Example of POBS Settlement
The calculation is performed for both POBS categories (category 1 = 90 / 120 %;
category 2 = 95 / 110 %.
1. Fundamentals
Target with weighting specified (see under point 3).
POBS Category Category 1 Category 2
(90 / 120 %) (95 / 110 %)
------------- ------------
Annual target salary (local currency) 110'000.00 or 110'000.00
Maximum income / year 132'000.00 or 121'000.00
Minimum income / year 99'000.00 or 104'500.00
2. Assessment of the Target Achievement and Calculations
Group Target Specified Assessment Result
Weighting Target Achievement Points
(Agreement) on completion
(a) (b) (a) x (b)
----------- ------------------ ---------
A Group Targets
A1 Target 1 10 % 120 % 12.00
A2 Target 2 20 % 105 % 21.00
B Operative Unit
B1 Target 1 30 % 116 % 34.80
B2 Target 2 15 % 95 % 14.25
B3 Target 3 15 % 111.35 % 16.70
C Personal
C1 Target 1 5 % 90 % 4.50
C2 Target 2 5 % 120 % 6.00
Total assessment 100 % 109.25
3. Settlement
Category 1 Category 2
(90 / 120 %) (95 / 110 %)
------------- ------------
Annual target salary 110'000 110'000
Annual salary attained with 109.25
points in % of annual target salary 109.25 % 104.63 %
In local currency (LC) 120'175 115'093
Already paid during year (minimum) (99'000) (104'500)
------- --------
Balance of payment in April of following year 21'175 10'593
5
Exhibit 10.8
POBS Plus -
Incentive System for Senior Management of METTLER TOLEDO
Regulations, valid as of Nov. 5, 1998
1. Objectives and Participants
With this incentive plan our aim is to pursue two main objectives:
. To orient the remuneration of senior managers directly to the
achievement of annual operating plan targets and to give a special
reward for reaching and exceeding the plan.
. To emphasize the responsibility of each participant for the
top-ranking interest of the Group and to promote the attainment of
the overall corporate goals and success of the corporation.
Participation in the POBS Plus incentive scheme is determined by the
Group Management Committee and must be agreed in writing.
Criteria for participation are:
. Key management function which by virtue of its tasks and the
performance of its jobholder can significantly influence and
contribute to the overall success of the entire Group.
. Managers with leadership skills and high professional competence.
2. General Principles
2.1 In addition to the yearly base salary, participants are eligible
for a bonus which is based and calculated on thegrade of target
achievement. This bonus is a percentage multiple of the base salary
ranging from 0 - 150 %.
2.2 Bonus Scale
. The bonus starts after 90 % target achievement and can go up to a
maximum of 130 % target achievement.
. Within this span, for each point of target achievement, 3.75 %
of the base salary are calculated as bonus.
2.3 Targets
All targets in POBS Plus are closely related to the yearly budgets and
business plans.
As a general rule, POBS Plus includes the following target categories
and weighting:
1
<PAGE>
Exhibit 10.8
A Group targets 50 %
B Operative unit targets 40 %
C Personal targets 10 %
Target parameters and respective weighting within a category for
typical functions in POBS Plus are established for each business year
in the respective POBS Plus Scheme.
Typical parameters within A and B category and their relative weighting
are:
OPBIT 70 %
OCF 1 30 %
With B category, also sales, inventory turnover, tax savings, interest
payments (for finance / control functions) can be defined.
Each individual target is given a weighting of minimum 5 %. The total
number of targets defined should not exceed 10 And the sum of the
weightings must equal 100 %.
Based on the approved budget of the Group and Operative Units, the POBS
Plus Rules which quantify the actual values and levels of target
achievement per category and parameter are established.
Both, POBS Plus Scheme and Rules are proposed per business year by the
Group Management Committee and they have to be approved by the
Compensation Committee.
3. Target Setting
3.1 The requirements for complete and proper target achievement (100 %)
should be challenging and ambitious, on the other hand they have to be
realistic and attainable. For each participant they should be set in
such a way that they can be fulfilled clearly and to the full extent.
3.2 Personal targets (category C) are agreed at the beginning of each
business year for each participant with his / her supervisor. They need
to be clearly measurable.
3.3 For each participant, a POBS Plus Target Achievement Sheet lists per
business year all targets set incl. their weighting and the
corresponding values / levels in line with the corresponding POBS Plus
Rules.
4. Target Assessment
4.1 At the end of the business year, target achievement is assessed by the
superior manager for each participant.
2
<PAGE>
Exhibit 10.8
The degree of achievement of each individual target (range 90 % to max.
130 %) is multiplied by the weighting of the individual target to give
a points award for each individual target. The total score for all
targets lies between 90 and 130 points which number also corresponds to
the overall percentage of target achievement.
4.2 Personal targets (C category) are evaluated as follows:
Target Achievement
90 % Target not reached - result unsatisfactory
100 % Target reached, corresponding to the requirements - good result
110 % Clearly more than target achieved, requirements clearly
exceeded, in terms of value, time limits, quality,
additional related success - very good result
120 % Target achievement outstanding, additional major benefits /
success for the company reached, excellent result
130 % Target achievement exceptional, extraordinary additional
value to the company - unique result.
5. Bonus Calculation
The bonus is calculated in a percentage of the yearly base salary and
can vary from 0 to 150 % of this base salary depending on the total sum
of points reached in the target assessment.
Each full point above 90 and up to a maximum of 130 corresponds to a
bonus amount of 3.75 % of the base salary.
"Bonus Formula":
(Target Points - 90 Points) x 3.75 = Bonus in % of base salary
Example
- Base Salary: 120'000
- Target Achievement 109.55 % or Points
(109.55 - 90) x 3.75 = 73.3125 % of base salary
- Bonus: 87'975
6. Payment
During the salary year (Jan. 1 - Dec. 31 of the calendar year or April
1 - March 31 of the following year), the annual base salary will be
paid, normally divided in 12 equal monthly installments. The
distribution of this basic amount, however, can vary in certain
countries.
3
<PAGE>
Exhibit 10.8
The Company represented by the Group Management Committee can elect to
make a payment on account of the expected bonus in December of the
relevant business year which is calculated on a provisional basis using
projected results. The amount of such payment on account cannot exceed
50 % of the presumable bonus.
The final bonus is calculated as soon as the results of the business
year and the assessment of the target achievement are known. Payment
(or deduction) adjusted by any payment on account is usually made until
April following the end of the business year.
7. Termination of Employment during the Business Year
In case of termination in the first half-year of the business year, the
bonus is paid pro rata on a set 95 % target achievement. In case of
termination of employment in the second half-year, target achievement
is measured at the end of the year (usual procedure) and the bonus
calculated accordingly will be paid pro rata.
8. Accounting Rules for Bonus Payments
Bonus payments are accounted for in the business year to which the
bonus belongs. Appropriate accruals have to be made for this purpose in
the year end closing. Carry over into accounts of the payout year are
not allowed.
For the Group Management Committee:
Peter Burker
Head Human Resources
4
<PAGE>
Exhibit 10.8
Greifensee, November 5, 1998
POBS Plus -
Incentive System for Senior Management of METTLER TOLEDO
ANNEX A to
Regulations, valid as of Nov. 5, 1998
Point 5 - Bonus Calculation
5.1 Chief Executive Officer
The bonus is calculated in a percentage of the yearly base salary and can
vary from 0 to 175 % of this base salary depending on the total sum of
points reached in the target assessment.
Each full point from 90 to 110 corresponds to a bonus amount of 5.0 % of
the base salary.
And each full point from 111 up to a maximum of 130 corresponds to a
bonus amount of 3.75 % of the base salary.
5.2 Chief Financial Officer and Heads of Division
The bonus is calculated in a percentage of the yearly base salary and can
vary from 0 - 165 % of this base salary depending on the total sum of
points reached in the target assessment.
Each full point from 90 to 110 corresponds to a bonus amount of 4.5 % of
the base salary.
And each full point from 111 up to a maximum of 130 corresponds to a
bonus amount of 3.75 % of the base salary.
For the Group Management Committee:
Peter Burker
Head Human Resources
5
<TABLE>
<CAPTION>
Exhibit 11
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Year ended Year ended
December 31, December 31,
1997 (a) 1998
--------------- -------------
<S> <C> <C>
Net earnings (loss) before extraordinary items...... $(23,909) $37,625
Extraordinary items................................. (41,197) -
---------- -------
Net earnings (loss)................................. $(65,106) $37,625
========= =======
Basic earnings (loss) per common share:
Net earnings (loss) before extraordinary items. $(0.76) $0.98
Extraordinary items............................ (1.30) -
---------- -------
Net earnings (loss)............................ $(2.06) $0.98
======== =======
Weighted average number of common shares....... 31,617,071 38,357,079
For the year ended December 31:
Weighted average shares for Q1............. 30,686,065 38,336,014
Weighted average shares for Q2............. 30,702,367 38,336,014
Weighted average shares for Q3............. 30,670,134 38,355,926
Weighted average shares for Q4............. 34,409,718 38,400,363
Weighted average shares for the year....... 31,617,071 38,357,079
Diluted earnings (loss) per common share:
Net earnings (loss) before extraordinary items. $(0.76) $0.92
Extraordinary items............................ (1.30) -
---------- -------
Net earnings (loss)............................ $(2.06) $0.92
========= =======
Weighted average number of common shares....... 31,617,071 40,682,211
For the year ended December 31:
Weighted average shares for Q1............. 30,686,065 40,600,109
Weighted average shares for Q2............. 30,702,367 40,640,516
Weighted average shares for Q3............. 30,670,134 40,616,526
Weighted average shares for Q4............. 36,158,976 40,922,276
Weighted average shares for the year....... 31,617,071 40,682,211
<FN>
(a) The calculations of the weighted average number of common shares for the
1997 period assume that the previously existing Class A, B and C common shares
have been converted into the Company's common stock in connection with the
reorganization of the Company as described in Note 10 to the audited
consolidated financial statements.
</FN>
</TABLE>
1
Exhibit 21
Subsidiaries of the Company
Australia
Mettler-Toledo Limited
Austria
Mettler-Toledo Ges.m.b.H.
Belgium
N.V. Mettler-Toledo B.V.
Bermuda
Mettler-Toledo Finance Ltd.
Brazil
Mettler-Toledo Industria e Commercio Ltda
Safeline do Brasil Limitada
Canada
Mettler-Toledo Inc.
China
Changzhou Electronic Scale Limited
Mettler-Toledo Instruments (Shanghai) Ltd.
Mettler-Toledo International Trading (Shanghai) Corp.
Ohaus International Trading (Shanghai) Ltd.
Panzhihua Toledo Electronic Scale Ltd.
Xinjiang Toledo Electronic Scale Ltd.
Croatia
Mettler-Toledo d.o.o.
Czech Republic
Mettler-Toledo spol. s.r.o.
Denmark
Mettler-Toledo A/S
France
Mettler-Toledo Analyse Industrielle S.a.r.l.
Mettler-Toledo Holding (France) SAS
Mettler-Toledo S.A.
NS Mettler-Toledo I SAS
NS Mettler-Toledo II SAS
NS Mettler-Toledo III SAS
Ohaus S.a.r.l.
Safeline SA
Germany
Garvens Automation GmbH
Getmore Ges. fur Marketing & Media Service m.b.H.
1
<PAGE>
Exhibit 21
Mettler-Toledo (Albstadt) GmbH
Mettler-Toledo GmbH
Mettler-Toledo Holding Deutschland GmbH
Mettler-Toledo Management Holding Deutschland GmbH
Ohaus Waagen Vertriebsgesellschaft m.b.H.
Safeline GmbH
Hong Kong
Mettler-Toledo (HK) Ltd.
Hungary
Mettler-Toledo Kereskedelmi Kft.
India
Mettler-Toledo India Private Limited
Italy
Mettler-Toledo S.p.A.
Japan
Mettler-Toledo K.K.
Korea
Mettler-Toledo (Korea) Ltd.
Malaysia
Mettler-Toledo (M) Sdn. Bhd.
Mexico
Mettler-Toledo S.A. de C.V.
Ohaus de Mexico S.A. de C.V.
Netherlands
Gelan Engineering B.V.
Gelan Holding B.V.
Gelan International B.V.
Gelan Metaaldetectiesystemen B.V.
Mettler-Toledo B.V.
Mettler-Toledo Holding B.V.
Norway
Cargoscan A/S
Mettler-Toledo A/S
Poland
Mettler-Toledo sp.z.o.o.
Russian Federation
Mettler-Toledo AO
2
<PAGE>
Exhibit 21
Singapore
Mettler-Toledo (S) Pte. Ltd.
Slovak Republic
Mettler-Toledo Spol s.r.o.
Slovenia
Mettler-Toledo d.o.o.
Spain
Mettler-Toledo S.A.E.
Sweden
Mettler-Toledo AB
Switzerland
Mettler-Toledo GmbH
Mettler-Toledo Holding AG
Mettler-Toledo Logistik AG
Mettler-Toledo Pac Rim AG
Mettler-Toledo (Schweiz) AG
Microwa Prazisionswaagen AG
Pivott Instrumente AG
Thailand
Mettler-Toledo (Thailand) Ltd.
United Kingdom
Bohdan Europe Limited
Mettler-Toledo Ltd.
Mettler-Toledo Myriad Limited
Ohaus UK Ltd.
Safeline Limited
Safeline Holding Company
United States of America
ASI Applied Systems Inc. [Delaware]
Bohdan Automation Inc. [Illinois]
Hi-Speed Checkweigher Co., Inc. [New York]
Mettler-Toledo Chemistry Systems Holding Inc. [Delaware]
Mettler-Toledo Inc. [Delaware]
Mettler-Toledo Process Analytical Inc. [Massachusetts]
Ohaus Corporation [New Jersey]
Safeline Inc. [Delaware]
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
FINANCIAL DATA SCHEDULE
Mettler-Toledo International Inc.
------------------------------------------
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 21,191
<SECURITIES> 0
<RECEIVABLES> 187,968
<ALLOWANCES> (9,443)
<INVENTORY> 112,059
<CURRENT-ASSETS> 358,230
<PP&E> 285,527
<DEPRECIATION> (55,263)
<TOTAL-ASSETS> 820,441
<CURRENT-LIABILITIES> 293,429
<BONDS> 0
0
0
<COMMON> 384
<OTHER-SE> 53,451
<TOTAL-LIABILITY-AND-EQUITY> 820,441
<SALES> 935,658
<TOTAL-REVENUES> 935,658
<CGS> 520,190
<TOTAL-COSTS> 520,190
<OTHER-EXPENSES> 331,287
<LOSS-PROVISION> 2,008
<INTEREST-EXPENSE> 22,638
<INCOME-PRETAX> 59,535
<INCOME-TAX> 20,999
<INCOME-CONTINUING> 37,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,625
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.92
</TABLE>
Exhibit 99.1
Factors Affecting Future Operating Results
Certain statements contained in our public filings, press releases and
other documents and materials as well as certain statements in written or oral
statements made by us or on our behalf are forward-looking statements based on
our current expectations and projections about future events, including:
o strategic plans
o potential growth, including penetration of developed markets and
opportunities in emerging markets
o planned product introductions
o planned operational changes and research and development efforts
o Year 2000 issues
o Euro conversion issues
o future financial performance, including expected capital expenditures
o research and development expenditures
o estimated proceeds from and the timing of asset sales
o potential acquisitions
o future cash sources and requirements
o potential cost savings from planned employee reductions and
restructuring programs
These forward-looking statements are subject to a number of risks and
uncertainties, including those discussed below, which could cause our actual
results to differ materially from historical results or those anticipated and
certain of which are beyond our control. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this report may
describe additional factors that could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impact
of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Investors should also be aware that while we do, from time to time,
communicate with securities analysts, it is against our policy to disclose to
them any material non-public information or other confidential commercial
information. Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, we have a policy against issuing or confirming
1
<PAGE>
Exhibit 99.1
financial forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
The following factors could cause actual results to differ materially
from historical results or anticipated results:
Effect of Substantial Indebtedness on Operations and Liquidity
We have a significant amount of indebtedness. At December 31, 1998, our
consolidated indebtedness (excluding unused commitments) was $365.5 million, and
we had additional borrowing capacity of approximately $233.6 million. Term loans
under our credit agreement comprise $184.6 million of our consolidated
indebtedness. We are required to make scheduled quarterly principal payments on
these term loans. Our ability to comply with the terms of our credit agreement
and our other debt obligations, to make cash payments with respect to our debt
obligations and to refinance any of our debt obligations will depend on our
future performance. Our future performance is subject to prevailing economic and
competitive conditions and certain financial, business and other factors beyond
our control.
Having a high degree of leverage has significant consequences for us.
For instance, high leverage might impair our ability to obtain additional
financing for acquisitions, capital expenditures, working capital or general
corporate purposes. In addition, we use a substantial portion of our cash flow
from operations to pay principal and interest on our borrowings. This use of
cash flows reduces the funds available to us for our operations and other
purposes, including investments in research and development and capital
spending. Some of our borrowings are and will continue to be at variable rates
of interest, which exposes us to the risk of increased interest rates. Finally,
we may be substantially more leveraged than some of our competitors. This may
place us at a relative competitive disadvantage and may make us more vulnerable
to a downturn in general economic conditions, a slowdown in our business or
changing market conditions and regulations.
Covenants in our debt obligations restrict our ability to incur
additional indebtedness, dispose of certain assets and make capital
expenditures. The covenants also restrict our other corporate activities. Our
ability to comply with these covenants may be affected by events beyond our
control, including economic, financial and industry conditions. A failure to
comply with the covenants and restrictions contained in our debt obligations or
any other agreements with respect to any additional financing could result in an
acceleration of the amount we owe under our debt agreements.
Risks Associated with Currency Fluctuations
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates. Swiss
franc-denominated expenses represent a much greater percentage of our operating
expenses than Swiss franc-denominated sales represent of our net sales. In part,
this is because most of our manufacturing costs in Switzerland relate to
products that are sold outside of Switzerland. Moreover, a substantial
percentage of our research and development expenses and general and
administrative expenses are incurred in Switzerland. Therefore, if the Swiss
franc strengthens against all or most of our major trading currencies (e.g., the
U.S. dollar, the Euro, other major European currencies and the Japanese Yen) our
2
<PAGE>
Exhibit 99.1
operating profit is reduced. We also have significantly more sales in European
currencies (other than the Swiss franc) than we have expenses in those
currencies. Therefore, when European currencies weaken against the U.S. dollar
and the Swiss franc, it also decreases our operating profits. In recent years,
the Swiss franc and other European currencies have generally moved in a
consistent manner versus the U.S. dollar. Therefore, because the two effects
previously described have offset each other, our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these currencies
will continue to move in a consistent manner in the future. In addition to the
effects of exchange rate movements on operating profits, our debt levels can
fluctuate due to changes in exchange rates, particularly between the U.S. dollar
and the Swiss franc.
Risks Associated with International Operations; Deteriorating Conditions in
Emerging Markets
We do business in many countries, including emerging markets in Asia,
Latin America and Eastern Europe. In addition to the currency risks discussed
above, international operations pose substantial other risks and problems for
us. For instance, various local jurisdictions in which we operate may revise or
alter their respective legal and regulatory requirements. In addition, we may
encounter one or more of the following obstacles or risks:
o tariffs and trade barriers
o difficulties in staffing and managing local operations
o credit risks arising from financial difficulties facing local
customers and distributors
o difficulties in protecting intellectual property
o nationalization of private enterprises
o restrictions on investments and/or limitations regarding foreign
ownership
o adverse tax consequences, including imposition or increase of
withholding and other taxes on remittances and other payments
by subsidiaries
o uncertain local economic, political and social conditions, including
hyper-inflationary conditions
We must also comply with a variety of regulations regarding the
conversion and repatriation of funds earned in local currencies. For example,
converting earnings from our operations in China into other currencies and
repatriating such funds require governmental approvals. If we cannot comply with
these or other applicable regulations, we may face increased difficulties in
utilizing cash flow generated by these operations outside of China.
Recently, economic conditions in emerging markets have deteriorated
significantly and some emerging markets are experiencing recessionary trends,
severe currency devaluations and inflationary prices. Moreover, economic
problems in individual markets are increasingly spreading to other economies,
adding to the adverse conditions facing nearly all emerging markets. We remain
committed to emerging markets, particularly those in Asia, Latin America and
Eastern Europe. However, we expect current economic conditions will affect our
financial results in these markets for the foreseeable future.
3
<PAGE>
Exhibit 99.1
Highly Competitive Markets; Difficult to Maintain Technological Advantage
Our markets are highly competitive. Weighing instruments markets are
also fragmented both geographically and by application, particularly the
industrial and food retailing market. As a result, we face numerous regional or
specialized competitors, many of which are well established in their markets. In
addition, some of our competitors are divisions of larger companies with
potentially greater financial and other resources than our own. Taken together,
the competitive forces present in our markets can impair our operating margins
in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive we must continue to invest
in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
Significant Sales to Pharmaceutical and Chemicals Industries
Our products are used extensively in the pharmaceutical, chemicals and
food and beverage industries. Consolidation in the pharmaceutical and chemicals
industries hurt our sales in prior years. A prolonged downturn or additional
consolidation in any of these industries could adversely affect our operating
results.
Risks Relating to Future Acquisitions
We plan to pursue acquisitions of complementary product lines,
technologies or businesses. Acquisitions involve numerous risks, including:
o difficulties in the assimilation of the acquired operations,
technologies and products
o diversion of management's attention from other business concerns
o potential departures of key employees of the acquired company
If we successfully identify acquisitions in the future, completing
such acquisitions may result in:
o new issuances of our stock that may be dilutive to current owners
o increases in our debt and contingent liabilities
o additional amortization expenses related to goodwill and other
intangible assets
Any of these risks could materially adversely affect our profitability.
We continue to explore potential acquisitions. We may not be able to identify,
4
<PAGE>
Exhibit 99.1
successfully complete or integrate potential acquisitions in the future.
However, even if we can, we cannot be sure that such acquisitions will have a
positive impact on our business or operating results.
Reliance on Key Employees
We have employment contracts with each of our key employees. In
addition, our key employees own shares of our common stock and have options to
purchase additional shares. Nonetheless, such individuals could leave the
Company. If any key employees stopped working for us, our operations could be
harmed. We have no key man life insurance policies with respect to any of our
senior executives.
Environmental Matters and Liabilities
We are subject to various environmental laws and regulations, including
those relating to:
o air emissions
o wastewater discharges
o the handling and disposal of solid and hazardous wastes
o the remediation of contamination associated with the use and disposal
of hazardous substances
We incur capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. We are
currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the United States and
abroad. In addition, some of these facilities have or had been in operation for
many decades and may have used substances or generated and disposed of wastes
that are hazardous or may be considered hazardous in the future. Such sites and
disposal sites owned by others to which we sent waste may in the future be
identified as contaminated and require remediation. Accordingly, it is possible
that we could become subject to additional environmental liabilities in the
future that may harm our results of operations or financial condition.
Restrictions on Payment of Dividends; Absence of Dividends
Our credit agreement restricts our ability to pay dividends. In any
event, we do not intend to pay cash dividends on our common stock in the
foreseeable future.
Risks Relating to Certain Anti-Takeover Provisions
Our certificate of incorporation and by-laws contain provisions that
could make it more difficult for a third party to acquire Mettler-Toledo. Our
certificate of incorporation authorizes the Board of Directors to issue
preferred stock without shareholder approval and upon such terms as it may
determine. The rights of the holders of our common stock are subject to, and may
be adversely affected by, the rights of future holders of preferred stock. In
addition, our by-laws require shareholders to provide advance notice to nominate
candidates for election as directors and to submit proposals for consideration
at shareholder meetings. Section 203 of the Delaware General Corporation Law
makes it more difficult for an "interested stockholder" (generally a 15%
5
<PAGE>
Exhibit 99.1
stockholder) to effect various business combinations with a corporation for a
three-year period after he becomes an "interested stockholder." In general,
these provisions may discourage a third party from attempting to acquire
Mettler-Toledo and therefore may inhibit a change of control of our company
under circumstances that could give shareholders an opportunity to realize a
premium over then-prevailing market prices.
Year 2000 Issue
The Year 2000 issue is the result of computer logic that was written
using two digits rather than four to define the applicable year. Any computer
logic or microprocessor that uses only two digits to recognize dates may
recognize a date specifying "00" as the year 1900 rather than the year 2000
which could result in miscalculations or system or equipment failures.
We rely on information technology systems and non-information
technology systems (e.g., equipment with embedded microprocessors) in connection
with manufacturing, sales and financial and human resources. Certain of our
products also involve computer or non-information technology systems that could
be affected by the Year 2000 issue. In addition, we rely on the proper
functioning of the computer and non-information technology systems of our major
suppliers.
We believe that we are taking reasonable steps to identify and address
those matters that could cause serious interruptions in our business and
operations due to Year 2000 issues. Our efforts include detailed programs to
address our internal Year 2000 readiness as well as the readiness of our key
suppliers. In addition, we have reviewed our current products, as well as
products sold in recent years, to determine if they are Year 2000 compliant.
However, any of the following could have a material adverse effect on our
business, financial condition and results from operations:
o a failure to fully identify all Year 2000 dependencies in our systems
o a failure to fully identify all Year 2000 dependencies in the systems
of our suppliers of components, customers and financial institutions
o a failure of our suppliers of components, customers and financial
institutions to adequately address their Year 2000 issues
o the failure of any contingency plans developed to protect our business
and operations from Year 2000-related interruptions
o any material increase in warranty claims or other claims of product
liability arising out of Year 2000 non-compliance
o delays in the implementation of new systems resulting from Year 2000
problems
Risks from Introduction of the European Monetary Union
The European Economic and Monetary Union (the "EMU") introduced a new
currency, the Euro, within Europe on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services. Switzerland is not part of the EMU.
6
<PAGE>
Exhibit 99.1
On January 1, 1999, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and for noncash (banking) transactions. The existing local currencies,
or legacy currencies, will remain legal tender through January 1, 2002.
Beginning on January 1, 2002, Euro-denominated bills and coins will be issued
for cash transactions. For a period of six months from this date, both legacy
currencies and the Euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currency and use exclusively
the Euro.
We have committed resources to conduct risk assessments and take
corrective actions, where required, to ensure that we are prepared for the
introduction of the Euro. We are reviewing Euro implementation and our pricing
strategy in both participating and non-participating countries where we operate.
In addition, we are reviewing existing legacy accounting and business systems
and other business assets for Euro compliance and assessing the risks posed by
non-compliance by third parties. Despite these efforts, it is possible that we
or third parties on whom we depend will not have in place in a timely manner the
systems necessary to process Euro-denominated transactions. Such a failure could
adversely affect our business (e.g., by causing delays in order processing and
shipment). Moreover, increased price transparency or disruption of activity in
the markets in which we operate resulting from the conversion to the Euro could
hurt our business in those markets, resulting in lost revenues.
7
