<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration no. 333-68123
PROSPECTUS
5,587,000 SHARES
METTLER-TOLEDO INTERNATIONAL INC.
COMMON STOCK
METTLER.LOGO
-----------------------
The selling shareholders of Mettler-Toledo International Inc. are
offering and selling 5,587,000 shares of common stock. None of our directors,
executive officers or employees is selling shares in this offering, and neither
we nor they will receive any proceeds from the sale of the shares. The
underwriters have agreed to pay certain of our expenses in connection with the
offerings estimated at $350,000.
The U.S. underwriters are offering 4,469,600 shares in the United States
and Canada and the international managers are offering 1,117,400 shares outside
the United States and Canada.
The common stock trades on the New York Stock Exchange under the symbol
"MTD." On January 28, 1999, the last sale price of the common stock as reported
on the New York Stock Exchange was $26 3/8 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
-----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $26.375 $147,357,125
Underwriting Discount...................................... $1.25 $6,983,750
Proceeds to Selling Shareholders........................... $25.125 $140,373,375
</TABLE>
The U.S. underwriters may also purchase up to an additional 670,440
shares from the selling shareholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
aggregate of an additional 167,610 shares from the selling shareholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New
York on or about February 3, 1999.
-----------------------
MERRILL LYNCH & CO.
BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
-----------------------
The date of this prospectus is January 28, 1999.
<PAGE> 2
[The middle front cover contains pictures and the following captions]
METTLER TOLEDO
No. 1 in weighing instruments and a leader in related measurement technologies
Laboratory
METTLER TOLEDO
A determining factor in every lab
[Photograph of a pH meter]
pH Meters are used to measure acidity of solutions.
[Photograph of pipettes]
Liquid handling devices such as pipettes are the most widely used instruments in
the rapidly growing life science market.
[Photograph of a balance in use]
Analytical/Precision Balances are vital to research & development and quality
control in almost any industry.
[Photograph of a moisture analyzer in use]
Moisture Analyzers monitor reliability of production in the food and other
industries.
[Photograph of a titrator]
Titrators provide accurate measures of concentration in various industries.
[Photograph of a thermal analysis system in use]
Thermal Analysis Systems facilitate consistency of material characteristics in
the plastics and other industries.
[Photograph of a Bohdan automator in use]
Products for automated sample preparation increase productivity in the
laboratory.
[Photograph of a Myriad synthesizer]
Automated Synthesizers facilitate the synthesis of large numbers of chemical
compounds in parallel.
[Photograph of an automatic lab reactor]
Automatic Lab Reactors assist chemical engineers in optimizing new production
processes.
Industrial/Retail
Leading solutions for industrial and retail measurement applications
[Photograph of a truck scale in use]
Truck Scale Systems are utilized in highway enforcement and also check incoming
goods.
[Photograph of integrated dimensioning and weighing products in use]
Integrated Dimensioning and weighing products allow complete and accurate
freight tariff calculation for the cargo industry.
[Photograph of an industrial weighing terminal]
Industrial Weighing Terminals are based on open system architecture that enables
interaction with customers' enterprise software packages.
[Photograph of a metal detector in use]
Metal Detectors provide important product safety and quality checks in the food
and pharmaceutical industries.
[Photograph of a checkweigher]
Checkweighers automatically weigh goods and control the packaging process in the
pharmaceutical, food and other industries.
[Photograph of a retail scale system in use]
Retail Scale Systems are networked with scanners, cash registers and backroom
equipment and provide perishable goods information to in-store computers.
[Photograph of a prepacking system in use]
Prepacking Systems weigh and label products and can be networked with weighing
technology at the counter, check-out and the backoffice.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary..................................................... 5
Risk Factors................................................ 13
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Price Range of Common Stock................................. 19
Capitalization.............................................. 20
Selected Historical Financial Information................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Industry.................................................... 39
Business.................................................... 42
Management.................................................. 59
Certain Relationships and Related Transactions.............. 64
Principal and Selling Shareholders.......................... 65
Description of Credit Agreement............................. 67
Description of Capital Stock................................ 69
Shares Eligible for Future Sale............................. 72
Certain United States Federal Tax Considerations for
Non-United States Holders................................. 73
Underwriting................................................ 76
Legal Matters............................................... 78
Independent Auditors........................................ 78
Where You Can Find More Information......................... 79
Incorporation of Certain Documents by Reference............. 79
Index to Consolidated Financial Statements.................. F-1
</TABLE>
-------------------------
FORWARD-LOOKING STATEMENTS
This prospectus 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 "Risk
Factors -- Forward-Looking Statements and Associated Risks" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
-------------------------
Mettler-Toledo(R), Mettler(R), Ingold(R), Garvens(R), Ohaus(R),
DeltaRange(R), DigiTol(R), Mentor SC(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.
3
<PAGE> 4
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 prospectus, "$"
refers to U.S. dollars, "SFr" refers to Swiss francs, "L" refers to British
pounds sterling and "CDN $" refers to Canadian dollars.
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
4
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SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. 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.
THE COMPANY
GENERAL
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, pH meters, automatic lab
reactors 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.
Weighing instruments are among the most broadly used measuring devices, and
their results are often used as the basis of commercial transactions. Analytical
instruments are critical to the research and development and quality control
efforts of end-users, while metal detection systems provide important quality
and safety checks in production and packaging. Our customers include
pharmaceutical, biotechnology, chemicals, cosmetics, food and beverage, metals,
electronics, logistics, transportation and food retailing businesses, as well as
schools, universities and government standards laboratories.
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, and we participate in these
markets on a worldwide basis. In
1997, our sales were $878.4 million.
In the first nine months of 1998,
our sales were $669.7 million. Of
this total, 45% came from Europe,
44% from North and South America and
11% from Asia and other countries.
SALES BY GEOGRAPHY
LOGO
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. We attribute our worldwide market leadership positions to the
following competitive strengths:
- Global Brand and Reputation. The Mettler-Toledo brand name is identified
worldwide with accuracy, reliability and innovation. Customers value
these characteristics because precision instruments, particularly
weighing and analytical instruments, significantly impact customers'
product quality, productivity, costs and regulatory compliance. A recent
independent 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."
- 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.
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- Comprehensive, High Quality Product Range. We manufacture a more
comprehensive range of weighing instruments than any of our competitors.
Our broad range of high quality products allows us to leverage our global
infrastructure.
- Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and we believe
that this capability is a major competitive advantage. At September 30,
1998, this organization consisted of approximately 3,200 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.
- 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. 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.
- Geographical, Product and Customer Diversification. Our revenue base is
diversified by geographic region, product range and customer. 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
In 1996 our managers and employees, along with AEA Investors Inc.,
participated in the acquisition of the Mettler-Toledo group of companies from
Ciba-Geigy AG. At that time, we implemented a new strategic plan to improve our
financial performance and undertook to involve all of our personnel in its
implementation. We launched specific, targeted initiatives at all levels of the
Company and we worked to ensure that our culture embraced the strategic plan and
its underlying initiatives.
The commitment of our employees has been instrumental in our success, and
we believe two factors have ensured this commitment. First, we reorganized how
we managed our business. This reorganization, which reflected a basic
philosophical change, permitted us to break down our centralized decision-making
functions and to spread responsibility and accountability more broadly
throughout the organization. Second, employees took active ownership in the
Company. Following the completion of our initial public offering, management,
employees and Company sponsored pension funds held approximately 18% of our
shares on a fully diluted basis. We believe these two factors have continued to
enhance what was already a proud corporate culture with a results-oriented
mindset.
The successful implementation of our strategic plan to date 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
$81.5 million (9.3% of net sales) for 1997. Adjusted Operating Income increased
from $52.6 million (8.3% of net sales) for the nine months ended September 30,
1997 to $68.8 million (10.3% of net sales) for the nine months ended September
30, 1998, an increase of 30.6%.
Past success does not ensure future success. We constantly review the
results of our strategies and the ever-changing demands of the market and
evaluate whether the direction of our strategies is appropriate. We believe that
our strategies, which are described below, are appropriate and will allow us to
grow our business and achieve our performance objectives.
EXPANDING OUR TECHNOLOGY LEADERSHIP
As a company, we have always placed great emphasis on research and
development. In the last three years, we have invested approximately $150
million in research and development. Our research and development efforts fall
into two categories:
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- 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
- cost reductions, which reduce the manufacturing cost of our products
through better overall design
We believe a direct relationship exists between our ability to introduce
new products and our ability to increase sales and earnings.
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, including:
- 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
- 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
- global service capabilities. 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
CAPITALIZING ON OPPORTUNITIES IN EMERGING MARKETS
While emerging markets were not a source of growth overall in 1998 due to
weak economic conditions, we believe that these markets will provide growth
opportunities for us in the long term. We base this belief on the following long
term trends that we believe are likely to occur:
- companies in emerging markets that want to export will have to move
toward global quality standards and therefore need sophisticated
measurement instruments
- a significant number of mechanical scales now in use in emerging markets
will need to be upgraded to electronics over time
- our multinational customers will continue to build production facilities
which use our instruments in emerging market countries
We believe that to succeed in emerging markets, there are several
advantages we must offer to our customer base:
- 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
- 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 increased research and development
and the manufacturing capabilities at our two Chinese production
facilities
- 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
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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:
- COMPLEMENTARY PRODUCTS that will benefit from our brand name and global
distribution channels. An example is Bohdan Automation Inc., 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.
- 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.
- CONSOLIDATION OPPORTUNITIES in fragmented markets. An example is our
recent acquisition of a number of independent industrial and retail
weighing distributors in the United States.
- 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:
- moving the production of certain product lines to lower cost locations
and consolidating the production of others
- increasing sales force productivity through telemarketing, increased
training and other focused initiatives
- reducing distribution costs by using existing infrastructure more
efficiently and centralizing processes where economies of scale can be
obtained
- reducing product cost through research and development, improved
manufacturing processes and reducing the purchased cost of components
- continually reviewing operations to identify additional opportunities to
reduce costs
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
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.
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On December 7, 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.
BACKGROUND
In 1996 our managers and employees, along with AEA Investors Inc.,
participated in the acquisition (the "Acquisition") of the Mettler-Toledo group
of companies from Ciba-Geigy AG.
On May 30, 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.
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. Our initial public offering (the "IPO")
raised net proceeds of approximately $97.3 million. Concurrently with the IPO,
we refinanced (the "Refinancing") 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 the 9 3/4% senior subordinated notes due 2006 of our wholly owned
subsidiary, Mettler-Toledo, Inc.
In July of 1998, certain selling shareholders completed a secondary
offering 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.
The mailing address of our principal executive offices is Im Langacher,
P.O. Box MT-100, CH-8606, Greifensee, Switzerland. Our telephone number is
011-41-1-944-22-11.
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THE OFFERINGS
Common Stock Offered by the Selling Shareholders(1):
U.S. Offering.................... 4,469,600 shares
International Offering........... 1,117,400 shares
Total....................... 5,587,000 shares
Shares Outstanding Before and
After the Offerings(2)........... 38,400,363 shares
Use of Proceeds.................. All of the common stock offered hereby is
being sold by the selling shareholders. We
will not receive any proceeds from the sale
of the shares.
Risk Factors..................... See "Risk Factors" and other information
included in this prospectus for a
discussion of factors you should carefully
consider before deciding to invest in
shares of the common stock.
NYSE Symbol...................... "MTD"
- ---------------
(1) Excludes 838,050 shares that are subject to the over-allotment options
granted by the selling shareholders to the underwriters in connection with
the offerings.
(2) Excludes 4,871,842 shares that may be issued upon the exercise of
outstanding options granted pursuant to our stock option plan.
SUMMARY FINANCIAL INFORMATION
The summary historical financial information set forth below for the years
ended December 31, 1993, 1994 and 1995, for the period from January 1, 1996 to
October 14, 1996, for the period from October 15, 1996 to December 31, 1996 and
for the year ended December 31, 1997 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 the
Company was acquired from Ciba-Geigy A.G. (the "Acquisition"), is combined
financial information of the Mettler-Toledo group of companies (the "Predecessor
Business"). The summary historical financial information at September 30, 1998
and for the nine months ended September 30, 1997 and 1998 is derived from our
unaudited interim consolidated financial statements, which, in our opinion,
include all adjustments necessary for a fair presentation of the results for the
unaudited periods. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. The combined historical data of the Predecessor
Business and our consolidated historical data are not comparable in many
respects due to the Acquisition and the Safeline acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and accompanying notes included elsewhere
in this prospectus. The financial information presented below was prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
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<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
--------------------------------------------
JANUARY 1
YEAR ENDED DECEMBER 31, TO
------------------------------ OCTOBER 14,
1993 1994 1995 1996
-------- -------- -------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $728,958 $769,136 $850,415 $662,221
Cost of sales...................... 443,534 461,629 508,089 395,239
-------- -------- -------- --------
Gross profit....................... 285,424 307,507 342,326 266,982
Research and development........... 46,438 47,994 54,542 40,244
Selling, general and
administrative.................... 209,692 224,978 248,327 186,898
Amortization....................... 2,917 6,437 2,765 2,151
Purchased research and
development....................... -- -- -- --
Interest expense................... 15,239 13,307 18,219 13,868
Other charges (income), net(g)..... 14,110 (7,716) (9,331) (1,332)
-------- -------- -------- --------
Earnings (loss) before taxes,
minority interest and
extraordinary items............... (2,972) 22,507 27,804 25,153
Provision for taxes................ 3,041 8,676 8,782 10,055
Minority interest.................. 1,140 347 768 637
-------- -------- -------- --------
Earnings (loss) before
extraordinary items............... (7,153) 13,484 18,254 14,461
Extraordinary items-debt
extinguishments................... -- -- -- --
-------- -------- -------- --------
Net earnings (loss)................ $(7,153) $13,484 $18,254 $14,461
======== ======== ======== ========
Diluted earnings (loss) per common
share(i):
Earnings (loss) per common share
before extraordinary items......
Extraordinary items...............
Earnings (loss) per common
share...........................
Weighted average number of common
shares..........................
OTHER DATA:
Local currency net sales
growth(j)......................... 7% 6%
Gross profit before non-recurring
costs as a percentage of net
sales(k).......................... 39.2% 40.0% 40.3% 40.3%
Adjusted Operating Income(l)....... $29,294 $34,535 $39,457 $39,840
Adjusted Operating Income as a
percentage of net sales(l)........ 4.0% 4.5% 4.6% 6.0%
Depreciation and amortization
expense........................... $29,591 $34,118 $33,363 $21,663
Capital expenditures............... 25,122 24,916 25,858 16,649
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
----------------------------------------------------------------------
OCTOBER 15 1996 NINE MONTHS ENDED
TO PRO FORMA YEAR ENDED SEPTEMBER 30,
DECEMBER 31, (A)(B)(C) DECEMBER 31, --------------------------
1996 (D)(E) 1997 1997 1998
------------ --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $186,912 $889,567 $878,415 $633,743 $669,747
Cost of sales...................... 136,820(b) 523,783 493,480(d) 359,080(d) 374,594
---------- -------- ----------- ---------- ----------
Gross profit....................... 50,092 365,784 384,935 274,663 295,153
Research and development........... 9,805 50,608 47,551 34,494 33,551
Selling, general and
administrative.................... 59,353 252,085 260,397 189,594 192,844
Amortization....................... 1,065 6,526 6,222 4,449 5,473
Purchased research and
development....................... 114,070(c) -- 29,959(e) 29,959(e) 9,976(f)
Interest expense................... 8,738 30,007 35,924 28,199 17,153
Other charges (income), net(g)..... 17,137 14,036 10,834 7,316 1,606
---------- -------- ----------- ---------- ----------
Earnings (loss) before taxes,
minority interest and
extraordinary items............... (160,076) 12,522 (5,952) (19,348) 34,550
Provision for taxes................ (938) 6,956 17,489 7,296 13,552
Minority interest.................. (92) 593 468 375 233
---------- -------- ----------- ---------- ----------
Earnings (loss) before
extraordinary items............... (159,046) 4,973 (23,909) (27,019) 20,765
Extraordinary items-debt
extinguishments................... -- -- (41,197)(h) (9,552)(h) --
---------- -------- ----------- ---------- ----------
Net earnings (loss)................ $(159,046) $4,973 $(65,106) $(36,571) $20,765
========== ======== =========== ========== ==========
Diluted earnings (loss) per common
share(i):
Earnings (loss) per common share
before extraordinary items...... $(5.18) $(0.76) $(0.88) $0.51
Extraordinary items............... -- (1.30) (0.31) --
---------- ----------- ---------- ----------
Earnings (loss) per common
share........................... $(5.18) $(2.06) $(1.19) $0.51
========== =========== ========== ==========
Weighted average number of common
shares.......................... 30,686,065 31,617,071 30,686,189 40,619,050
OTHER DATA:
Local currency net sales
growth(j)......................... 3% 11% 8% 8%
Gross profit before non-recurring
costs as a percentage of net
sales(k).......................... 44.0% 41.1% 44.1% 43.7% 44.1%
Adjusted Operating Income(l)....... $17,912 $67,875 $81,541 $52,629 $68,758
Adjusted Operating Income as a
percentage of net sales(l)........ 9.6% 7.6% 9.3% 8.3% 10.3%
Depreciation and amortization
expense........................... $8,990 $34,393 $31,835 $22,233 $23,495
Capital expenditures............... 11,928 29,417 22,251 13,299 17,348
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $94,496
Total assets................................................ 764,221
Long-term debt.............................................. 320,193
Other non-current liabilities (m)........................... 101,984
Shareholders' equity........................................ 42,904
</TABLE>
- ---------------
(a) Represents our 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,
and (iii) 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,
(Footnotes continued on following page)
11
<PAGE> 12
(Footnotes continued from previous page)
1996. Certain other one-time charges incurred during 1996 have not been
excluded from our unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996.
(b) 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. The charges associated with this revaluation have been excluded from
the 1996 pro forma financial information.
(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. This expense has been excluded from the 1996 pro
forma financial information.
(d) 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. The charges
associated with this revaluation have been excluded from the 1996 pro forma
financial information.
(e) 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. This expense has been
excluded from the 1996 pro forma financial information.
(f) 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.
(g) Other charges (income), net generally includes interest income, foreign
currency transactions, gains and losses from sales of assets and other
items. In 1993, the amount shown includes costs associated with the closure
of a manufacturing facility in Cologne, Germany, the restructuring of
certain manufacturing operations and an early retirement program in the
United States. For the period January 1, 1996 to October 14, 1996, the
amount shown includes employee severance and other exit costs associated
with the closing of 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 nine months ended September
30, 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 which are
included as part of this prospectus.
(h) 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
our senior subordinated notes which were repurchased and the write-off of
the related capitalized debt issuance fees.
(i) Effective December 31, 1997, we adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). Accordingly, basic and
diluted loss per common share data for each period presented are determined
in accordance with the provisions of SFAS 128.
(j) Local currency net sales growth is adjusted for the exit from certain
systems businesses. Pro forma 1996 local currency net sales growth assumes
that the Safeline acquisition occurred on January 1, 1995. For 1997, local
currency net sales increased 7% absent the Safeline acquisition. For the
nine months ended September 30, 1997 and 1998, local currency net sales
increased 6% and 5% absent the Safeline acquisition, respectively.
(k) Non-recurring costs represent costs associated with selling inventories
revalued to fair value in connection with the Acquisition and the Safeline
acquisition. See Notes (b) and (d) above.
(l) Adjusted Operating Income is defined as operating income (gross profit less
research and development and selling, general and administrative expenses)
before amortization and non-recurring costs. Non-recurring costs that have
been excluded are the costs set forth in Note (k) above and for the period
from October 15, 1996 to December 31, 1996, and in pro forma 1996, advisory
fees associated with the reorganization of our structure of approximately
$4,800. Non-recurring costs in 1997 include a charge of $2,500 in connection
with the termination of our management services agreement with AEA Investors
Inc. We believe that Adjusted Operating Income provides important financial
information in measuring and comparing the operating performance of our
company. 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.
(m) Consists primarily of obligations under various pension plans and plans that
provide post-retirement medical benefits. See Note 12 to the audited
consolidated financial statements which are included as part of this
prospectus.
12
<PAGE> 13
RISK FACTORS
You should carefully consider the risks described below before deciding to
invest in our common stock. The risks and uncertainties we describe below are
not the only ones that we face. Additional risks and uncertainties that we do
not presently know about or that we currently believe are immaterial may also
impair our business operations. If any of the possible events described below
actually occurred, our business, financial condition or results of operations
could be materially adversely affected. If that happened, the trading price of
our common stock could decline, and you could lose all or part of your
investment.
EFFECT OF SUBSTANTIAL INDEBTEDNESS ON OPERATIONS AND LIQUIDITY
We have a significant amount of indebtedness. At September 30, 1998, our
consolidated indebtedness (excluding unused commitments) was $378.4 million, and
we had additional borrowing capacity of approximately $239.2 million. Term loans
under our credit agreement comprise $188.8 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 (beginning in January 1999), 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
13
<PAGE> 14
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:
- tariffs and trade barriers
- difficulties in staffing and managing local operations
- credit risks arising from financial difficulties facing local customers
and distributors
- difficulties in protecting intellectual property
- nationalization of private enterprises
- restrictions on investments and/or limitations regarding foreign
ownership
- adverse tax consequences, including imposition or increase of withholding
and other taxes on remittances and other payments by subsidiaries
- 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.
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.
14
<PAGE> 15
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:
- difficulties in the assimilation of the acquired operations, technologies
and products
- diversion of management's attention from other business concerns
- potential departures of key employees of the acquired company
If we successfully identify acquisitions in the future, completing such
acquisitions may result in:
- new issuances of our stock that may be dilutive to current owners
- increases in our debt and contingent liabilities
- 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, but currently have no agreements
with respect to any material acquisition. However, we are currently in
negotiations with respect to certain acquisitions, including the acquisition of
a company in France. We may not be able to identify, 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:
- air emissions
- wastewater discharges
- the handling and disposal of solid and hazardous wastes
- 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. See
"Business -- Environmental Matters."
15
<PAGE> 16
POTENTIAL ADVERSE EFFECT ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
The price of our common stock could be harmed by sales of a large number of
shares of our common stock or the perception that such sales are possible. As of
December 31, 1998, we had 38,400,363 shares of common stock outstanding. All
shares of common stock are freely tradeable without restriction under the
Securities Act of 1933, except to the extent such shares are subject to the
agreement with the underwriters described below or are held by our "affiliates."
In connection with the offerings, the Company, our executive officers and
directors and the selling shareholders, who will collectively hold, after the
offerings, 4,811,001 shares of common stock (assuming no exercise of the
underwriters' over-allotment options) will agree, subject to certain exceptions,
not to dispose of any shares of common stock for a period of 90 days from the
date of this prospectus without the consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated on behalf of the underwriters. Certain other shareholders,
who collectively hold a total of 3,330,863 shares, have similarly agreed not to
dispose of or transfer shares without our consent until March 1, 1999. Upon
expiration of these lockup periods, all shares will be eligible for sale in the
public market, except shares held by our "affiliates" may only be sold by
complying with the volume limitations and other restrictions of Rules 144 and
145 under the Securities Act of 1933. As of December 31, 1998, there were
outstanding options to purchase a total of 4,871,842 shares of common stock held
by our employees. The sale of such shares could have an adverse effect on our
ability to raise equity capital in the public markets.
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%
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
16
<PAGE> 17
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:
- a failure to fully identify all Year 2000 dependencies in our systems
- a failure to fully identify all Year 2000 dependencies in the systems of
our suppliers of components, customers and financial institutions
- a failure of our suppliers of components, customers and financial
institutions to adequately address their Year 2000 issues
- the failure of any contingency plans developed to protect our business
and operations from Year 2000-related interruptions
- any material increase in warranty claims or other claims of product
liability arising out of Year 2000 non-compliance
- 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.
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.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus 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
17
<PAGE> 18
- 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
- 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 "Risk Factors," 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
prospectus 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.
18
<PAGE> 19
USE OF PROCEEDS
All of the common stock offered hereby is being sold by the selling
shareholders. We will not receive any proceeds from the sale of the common
stock.
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.
PRICE RANGE OF 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.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE
------------------
HIGH LOW
---- ---
<S> <C> <C>
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
1999
First Quarter (through January 28, 1999).................. 27 15/16 24 1/8
</TABLE>
For a recent reported last sale price for the common stock, see the cover
page of this prospectus.
As of January 4, 1999, there were 584 holders of record of our common
stock. This number excludes beneficial owners of common stock held in "street
name."
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<PAGE> 20
CAPITALIZATION
The following table sets forth our short-term debt and capitalization at
September 30, 1998. The information presented below should be read in
conjunction with our consolidated financial statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C>
Short-term debt, including current maturities of long-term
debt(a):
Short-term portion of term loans under credit
agreements............................................. $ 18,761
Revolving credit facility under credit agreements(b)...... 25,034
Other short-term borrowings............................... 14,406
--------
Total short-term debt.................................. $ 58,201
========
Long-term debt(a):
Term loans under credit agreements........................ $170,084
Revolving credit facility under credit agreements(b)...... 137,609
Other long-term debt...................................... 12,500
--------
Total long-term debt................................... 320,193
Shareholders' equity:
Common stock, par value $0.01, authorized 125,000,000
shares; issued 38,355,926 shares (excluding 64,467
shares held in treasury)(c)............................ 384
Additional paid-in capital................................ 284,787
Accumulated deficit....................................... (203,387)
Accumulated other comprehensive loss...................... (38,880)
--------
Total shareholders' equity................................ 42,904
--------
Total capitalization................................... $363,097
========
</TABLE>
- ---------------
(a) At September 30, 1998, we had total availability of $239.2 million under the
revolving credit facility of our credit agreement and local working capital
facilities.
(b) Because we have the ability to refinance our short-term borrowings under the
revolving facility for an uninterrupted period extending beyond one year,
$137.6 million of our short-term borrowings at September 30, 1998 have been
reclassified to long-term.
(c) Excludes 4,282,718 shares of common stock at September 30, 1998 that may be
issued upon exercise of options granted pursuant to our stock option plan.
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information set forth below at December
31, 1994, 1995, 1996 and 1997, for the years ended December 31, 1993, 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 year ended December 31,
1997 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 selected historical financial information at September 30, 1997
and 1998 and for the nine months then ended is derived from our unaudited
interim consolidated financial statements, which, in our opinion, include all
adjustments necessary for a fair presentation of the results for the unaudited
periods. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. The combined historical data of the Predecessor Business and
our consolidated historical data are not comparable in many respects due to the
Acquisition and the Safeline acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and accompanying notes included elsewhere in this
prospectus. The financial information presented below was prepared in accordance
with U.S. GAAP.
20
<PAGE> 21
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
--------------------------------------------
JANUARY 1
YEAR ENDED DECEMBER 31, TO
------------------------------ OCTOBER 14,
1993 1994 1995 1996
-------- -------- -------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $728,958 $769,136 $850,415 $662,221
Cost of sales.......................... 443,534 461,629 508,089 395,239
-------- -------- -------- --------
Gross profit........................... 285,424 307,507 342,326 266,982
Research and development............... 46,438 47,994 54,542 40,244
Selling, general and administrative.... 209,692 224,978 248,327 186,898
Amortization........................... 2,917 6,437 2,765 2,151
Purchased research and development..... -- -- -- --
Interest expense....................... 15,239 13,307 18,219 13,868
Other charges (income), net(f)......... 14,110 (7,716) (9,331) (1,332)
-------- -------- -------- --------
Earnings (loss) before taxes, minority
interest and extraordinary items...... (2,972) 22,507 27,804 25,153
Provision for taxes.................... 3,041 8,676 8,782 10,055
Minority interest...................... 1,140 347 768 637
-------- -------- -------- --------
Earnings (loss) before extraordinary
items................................. (7,153) 13,484 18,254 14,461
Extraordinary items-debt
extinguishments....................... -- -- -- --
-------- -------- -------- --------
Net earnings (loss).................... $(7,153) $13,484 $18,254 $14,461
======== ======== ======== ========
Basic earnings (loss) per common
share(h):
Earnings(loss) per common share before
extraordinary items.................
Extraordinary items...................
Earnings (loss) per common share......
Weighted average number of common
shares..............................
Diluted earnings (loss) per common
share(h):
Earnings (loss) per common share
before extraordinary items..........
Extraordinary items...................
Earnings (loss) per common share......
Weighted average number of common
shares..............................
BALANCE SHEET DATA (AT END OF
PERIOD)(I):
Cash and cash equivalents.............. $63,802 $41,402
Working capital........................ 132,586 136,911
Total assets........................... 683,198 724,094
Long-term debt......................... 862 3,621
Net borrowing from Ciba and
affiliates(j)......................... 177,651 203,157
Other non-current liabilities(k)....... 83,964 84,303
Shareholders' equity (deficit) (l)..... 228,194 193,254
<CAPTION>
METTLER-TOLEDO INTERNATIONAL INC.
--------------------------------------------------------
OCTOBER 15 NINE MONTHS ENDED
TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $186,912 $878,415 $633,743 $669,747
Cost of sales.......................... 136,820(a) 493,480(b) 359,080(b) 374,594
---------- ---------- ---------- ----------
Gross profit........................... 50,092 384,935 274,663 295,153
Research and development............... 9,805 47,551 34,494 33,551
Selling, general and administrative.... 59,353 260,397 189,594 192,844
Amortization........................... 1,065 6,222 4,449 5,473
Purchased research and development..... 114,070(c) 29,959(d) 29,959(d) 9,976(e)
Interest expense....................... 8,738 35,924 28,199 17,153
Other charges (income), net(f)......... 17,137 10,834 7,316 1,606
---------- ---------- ---------- ----------
Earnings (loss) before taxes, minority
interest and extraordinary items...... (160,076) (5,952) (19,348) 34,550
Provision for taxes.................... (938) 17,489 7,296 13,552
Minority interest...................... (92) 468 375 233
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary
items................................. (159,046) (23,909) (27,019) 20,765
Extraordinary items-debt
extinguishments....................... -- (41,197)(g) (9,552)(g) --
---------- ---------- ---------- ----------
Net earnings (loss).................... $(159,046) $(65,106) $(36,571) $20,765
========== ========== ========== ==========
Basic earnings (loss) per common
share(h):
Earnings(loss) per common share before
extraordinary items................. $(5.18) $(0.76) $(0.88) $0.54
Extraordinary items................... -- (1.30) (0.31) --
---------- ---------- ---------- ----------
Earnings (loss) per common share...... $(5.18) $(2.06) $(1.19) $0.54
========== ========== ========== ==========
Weighted average number of common
shares.............................. 30,686,065 31,617,071 30,686,189 38,342,651
Diluted earnings (loss) per common
share(h):
Earnings (loss) per common share
before extraordinary items.......... $(5.18) $(0.76) $(0.88) $0.51
Extraordinary items................... -- (1.30) (0.31) --
---------- ---------- ---------- ----------
Earnings (loss) per common share...... $(5.18) $(2.06) $(1.19) $0.51
========== ========== ========== ==========
Weighted average number of common
shares.............................. 30,686,065 31,617,071 30,686,189 40,619,050
BALANCE SHEET DATA (AT END OF
PERIOD)(I):
Cash and cash equivalents.............. $60,696 $23,566 $33,158 $15,604
Working capital........................ 103,697 79,163 89,003 94,496
Total assets........................... 771,888 749,313 768,177 764,221
Long-term debt......................... 373,758 340,334 429,033 320,193
Net borrowing from Ciba and
affiliates(j)......................... -- -- -- --
Other non-current liabilities(k)....... 96,810 91,011 90,307 101,984
Shareholders' equity (deficit) (l)..... 12,426 25,399 (36,261) 42,904
</TABLE>
- ---------------
(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.
(Footnotes continued on following page)
21
<PAGE> 22
(Footnotes continued from previous page)
(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. In 1993, the amount shown includes costs associated with the closure
of a manufacturing facility in Cologne, Germany, the restructuring of
certain manufacturing operations and an early retirement program in the
United States. For the period January 1, 1996 to October 14, 1996, the
amount shown includes employee severance and other exit costs associated
with the closing of 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 head count 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 nine months ended September
30, 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 which are
included as part of this prospectus.
(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
our senior subordinated notes which were repurchased and the write-off of
the related capitalized debt issuance fees.
(h) Effective December 31, 1997, we adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). Accordingly, basic and
diluted loss per common share data for each period presented are determined
in accordance with the provisions of SFAS 128.
(i) Balance sheet information at December 31, 1993 is not available.
(j) Includes notes payable and long-term debt payable to Ciba and affiliates
less amounts due from Ciba and affiliates.
(k) Consists primarily of obligations under various pension plans and plans that
provide post-retirement medical benefits. See Note 12 to the audited
consolidated financial statements which are included as part of this
prospectus.
(l) Shareholders' equity for the Predecessor Business consists of the combined
net assets of the Mettler-Toledo group of companies.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the audited
consolidated financial statements and the unaudited interim consolidated
financial statements included as part of this prospectus.
OVERVIEW
Mettler-Toledo operates a global business, with net sales that are
diversified by geographic region, product range and customer. The Company holds
leading positions in many of its markets and attributes this leadership to
several factors, including the strength of its brand name, the quality of its
global sales and service network, its continued investment in product
development, its pursuit of technology leadership and its focus on capitalizing
on opportunities in developed and emerging markets.
The Company's financial information is presented in accordance with U.S.
GAAP. Financial results following the acquisition of the Company 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. Financial results for the nine month
period ended September 30, 1998 are not necessarily indicative of the results to
be expected for the full year.
Net sales in local currency increased 11% in 1997, 3% in 1996 and 6% in
1995 (adjusted for the Company's exit in 1996 and 1995 from certain systems
businesses). More recently, during the nine months ended September 30, 1998, net
sales in local currency increased by 8% compared to the corresponding period in
1997. The strengthening of the U.S. dollar versus the Company's major trading
currencies reduced U.S. dollar reported sales growth in 1998 and 1997. U.S.
dollar sales growth was 6% for the first nine months of 1998 compared to the
first nine months of 1997. For the full year in 1997, net sales in U.S. dollars
increased by 3% over 1996. Net sales in U.S. dollars were unchanged in 1996 and
increased by 11% in 1995.
During the first nine months of 1998, the Company had solid local currency
sales growth in Europe of 12% and the Americas of 10%. 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 nine month local currency sales decline in Asia and other
markets of 8% compared to the first nine months of 1997. The Company remains
committed to emerging markets, particularly those in Asia, Latin America and
Eastern Europe. The Company believes 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 the Company's multinational
client base. However, the Company expects current economic conditions will
affect its financial results in these markets for the foreseeable future.
The Company believes that its sales growth over the next several years will
come primarily from (i) the needs of its lab and industrial customers in
developed markets to continue to automate their research and development and
manufacturing processes, (ii) the needs of its retail customers in Europe to
upgrade their scales for the implementation of the Euro, (iii) the needs of its
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.
The Company increased its gross profit margin before non-recurring
acquisition costs from 40.3% in 1995 to 44.1% in 1997 and increased its Adjusted
Operating Income (gross profit less research and development and selling,
general and administrative expenses before amortization and non-recurring costs)
23
<PAGE> 24
as a percentage of net sales from 4.6% in 1995 to 9.3% in 1997. During the first
nine months of 1998, the Company increased its gross profit margin to 44.1%
compared to 43.3% for the first nine months of 1997. In addition, the Company
has continued to significantly improve its Adjusted Operating Income. As a
percentage of net sales, Adjusted Operating Income increased to 10.3% for the
first nine months of 1998 compared to 8.3% during the first nine months of 1997.
This improved performance was achieved despite the Company's continued
investments in product development and in its distribution and manufacturing
infrastructure. The Company believes that a significant portion of the increases
in its Adjusted Operating Income resulted from its strategy to reduce costs,
re-engineer its operations and focus on the highest value-added segments of the
markets in which the Company competes.
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
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.
On December 7, 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.
On May 30, 1997, the Company 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 the Company's checkweighing products for important quality and
safety checks in these industries. The financing of the Safeline acquisition is
discussed in "-- Liquidity and Capital Resources" below.
SECONDARY OFFERING AND IPO
In July 1998, certain selling shareholders completed a secondary offering
of a total of 11,464,400 shares of the Company's common stock, including the
underwriters' over-allotment options. No directors, executive officers or other
employees sold shares and the Company did not sell shares or receive proceeds in
the offering. The Company incurred a charge of $0.7 million in connection with
the offering during the second quarter of 1998.
During the fourth quarter of 1997, the Company completed its 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
24
<PAGE> 25
(the "IPO"). The IPO raised net proceeds, after underwriters' commission and
expenses, of approximately $97.3 million. Concurrently with the IPO, the Company
refinanced its 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 the Company's then-existing debt, including all of its
9 3/4% senior subordinated notes due 2006 (collectively, the "Refinancing"). In
connection with the Refinancing, the Company 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. The Company
also paid a one-time termination fee of $2.5 million in connection with the
termination of its management consulting agreement with AEA Investors Inc.
COST REDUCTION PROGRAMS
In 1997, the Company 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 the Company's 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. The Company continuously implements cost reduction programs.
25
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth certain items from the consolidated
statements of operations for the year ended December 31, 1995, for the period
from January 1, 1996 to October 14, 1996, for the period from October 15, 1996
to December 31, 1996, pro forma for the year 1996, actual for the year ended
December 31, 1997 and actual for the nine months ended September 30, 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 the Company's
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 include 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.
-------------------------- --------------------------------------------------------------------
JANUARY 1, OCTOBER 15, NINE MONTHS ENDED
YEAR ENDED 1996 TO 1996 TO 1996 YEAR ENDED SEPTEMBER 30,
DECEMBER 31, OCTOBER 14, DECEMBER 31, PRO FORMA DECEMBER 31, -----------------------
1995 1996 1996(A)(B) (A)(B)(C)(D) 1997(A)(B) 1997(A)(B) 1998(E)
------------ ----------- ------------ ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $850,415 $662,221 $ 186,912 $889,567 $878,415 $633,743 $669,747
Cost of sales................ 508,089 395,239 136,820 523,783 493,480 359,080 374,594
-------- -------- --------- -------- -------- -------- --------
Gross profit................. 342,326 266,982 50,092 365,784 384,935 274,663 295,153
Research and development..... 54,542 40,244 9,805 50,608 47,551 34,494 33,551
Selling, general and
administrative............. 248,327 186,898 59,353 252,085 260,397 189,594 192,844
Amortization................. 2,765 2,151 1,065 6,526 6,222 4,449 5,473
Purchased research and
development................ -- -- 114,070 -- 29,959 29,959 9,976
Interest expense............. 18,219 13,868 8,738 30,007 35,924 28,199 17,153
Other charges (income),
net(f)..................... (9,331) (1,332) 17,137 14,036 10,834 7,316 1,606
-------- -------- --------- -------- -------- -------- --------
Earnings (loss) before taxes,
minority interest and
extraordinary items........ $ 27,804 $ 25,153 $(160,076) $ 12,522 $ (5,952) $(19,348) $ 34,550
======== ======== ========= ======== ======== ======== ========
Adjusted Operating
Income(g).................. $ 39,457 $ 39,840 $ 17,912 $ 67,875 $ 81,541 $ 52,629 $ 68,758
======== ======== ========= ======== ======== ======== ========
</TABLE>
- ---------------
(a) In connection with the Acquisition and the Safeline acquisition, the Company
allocated $32,194 and $2,054, respectively, of the purchase prices to
revalue certain inventories (principally work-in-progress and finished
goods) to fair value (net realizable value). Substantially all such
inventories revalued in connection with the Acquisition were sold during the
period October 15, 1996 to December 31, 1996, and substantially all such
inventories revalued in connection with the Safeline acquisition were sold
in the second quarter of 1997. The 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, the Company
allocated, based upon independent valuations, $114,070 and $29,959,
respectively, of the purchase prices to purchased research and development
in process. These amounts were 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. 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 the Company's estimated effective income tax rate at a
stated level of pro forma earnings before tax for the year ended December
31, 1996. 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.
(Footnotes continued on following page)
26
<PAGE> 27
(Footnotes continued from previous page)
(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 the Company's structure of approximately $4,800 and (ii) restructuring
charges of approximately $12,600.
(e) In connection with the Bohdan acquisition, the Company 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 its Westerville, Ohio facility. For the period October 15, 1996 to
December 31, 1996, the amount shown includes employee severance benefits
associated with the Company's general headcount reduction programs in Europe
and North America and the realignment of the analytical and precision
balance business in Switzerland. For the 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 nine months ended September
30, 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 which are
included as part of this prospectus.
(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 the Company's 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 the
Company's management services agreement with AEA Investors. The Company
believes that Adjusted Operating Income provides important financial
information in measuring and comparing its 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 the Company's operating performance.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net sales were $669.7 million for the nine month period ended September 30,
1998 compared to $633.7 million for the corresponding period in the prior year.
This reflected an increase of 8% in local currency (5% absent the Safeline
acquisition) for the nine month period. Results during the nine month period
were negatively impacted by the strengthening of the U.S. dollar against other
currencies. Net sales in U.S. dollars during the nine month period increased 6%.
Net sales in Europe increased 12% in local currencies during the nine month
period ended September 30, 1998, versus the corresponding period in the prior
year. The Company has 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 the nine month period in
the Americas increased 10% due to improved market conditions across most product
lines, offset in part by weakness in Latin America particularly in the third
quarter. Net sales in local currencies in the nine month period ended September
30, 1998 in Asia and other markets decreased 8%. The sales decline in Asia
during that period results in part from a decline in net sales throughout the
period in Southeast Asia and Korea. In addition, during the most recent three
months the Company has also experienced a decline in net sales in Japan. The
Company's sales and operating results in Asia and other emerging markets have
deteriorated due to poor economic conditions. These results in U.S. dollar terms
have also been affected by severe currency devaluations. The Company anticipates
that market conditions in Asia and other emerging markets will continue to
adversely affect sales and that margins in that region will be reduced. The
Company believes that its sales growth on a U.S. dollar basis was reduced by 1
to 2 percentage points for the nine months ended September 30, 1998 as a result
of these poor economic conditions and devaluations.
The operating results for Safeline (which were included in the Company's
results from May 31, 1997) would have had the effect of increasing the Company's
net sales by an additional $19.0 million for the nine month period ended
September 30, 1997, if included from January 1, 1997. Additionally, Safeline's
operating results during the same period would have increased the Company's
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.
27
<PAGE> 28
Gross profit as a percentage of net sales increased to 44.1% for the nine
months ended September 30, 1998, compared to 43.3% for the nine months ended
September 30, 1997. The 1997 nine month period includes 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
5.0% for the nine months ended September 30, 1998, compared to 5.4% for the
corresponding period in the prior year. However, the local currency spending
level remained relatively constant for the nine month period.
In July 1998, the Company acquired Bohdan Automation Inc., a leading
supplier of laboratory automation and automated synthesis products. 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 the acquisition which, if unsuccessful, have no alternative
future use. The Company expects that the projects underlying these research and
development efforts will be substantially complete over the next two years.
Selling, general and administrative expenses as a percentage of net sales
decreased to 28.8% for the nine months ended September 30, 1998, compared to
29.9% for the corresponding period in the prior year. This decrease primarily
reflects the benefits of ongoing cost efficiency programs.
Adjusted Operating Income was $68.8 million, or 10.3% of sales, for the
nine months ended September 30, 1998 compared to $52.6 million, or 8.3% of
sales, for the corresponding period in the prior year, an increase of 30.6%. The
1997 nine month period excludes the previously noted charge of $2.1 million for
the revaluation of inventories to fair value in connection with the Safeline
acquisition.
Interest expense decreased to $17.2 million for the nine month period ended
September 30, 1998, compared to $28.2 million for the corresponding period in
the prior year. The decrease was principally due to benefits received from the
IPO, the Refinancing and cash flow provided by operations.
Other charges, net were $1.6 million for the nine month period ended
September 30, 1998 compared to other charges, net of $7.3 million for the
corresponding period in the prior year. The 1998 nine month amount includes a
one-time charge of $0.7 million relating to the secondary offering during that
period. The 1998 nine month amount also includes gains on asset sales offset by
other charges. The 1997 period includes restructuring related charges of $3.3
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 provision for taxes is based upon the Company's estimated annual
effective tax rate for the related period. The Company recently lowered its
estimated annual effective tax rate to approximately 30% for the full year 1998,
before purchased research and development costs that are non-deductible. The
estimated annual effective tax rate for 1998 includes a benefit of approximately
5 percentage points based upon a change in Swiss tax law which will benefit only
the 1998 period.
The extraordinary loss of $9.6 million in the nine month period ended
September 30, 1997 represents charges for the write-off of capitalized debt
issuance fees and related expenses associated with a previous credit facility.
Net earnings excluding the expenses for purchased research and development
and the secondary offering were $31.4 million for the nine month period ended
September 30, 1998, compared to net earnings before non-recurring items of $10.5
million for the corresponding period in the prior year. Such non-recurring items
in 1997 include the previously mentioned charges for purchased research and
development, the revaluation of inventories to fair value, restructuring, losses
relating to derivative financial instruments and unhedged bank debt denominated
in foreign currencies, and the extraordinary item - debt
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extinguishment. Including these items, the net earnings for the nine month
period ended September 30, 1998 were $20.8 million, compared with net losses in
the comparable 1997 period of $36.6 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 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,
the Company's business in Asia and other markets has remained solid. However,
growth in net sales in Southeast Asia and Korea (which collectively represent
approximately 3% of the Company's total net sales for 1997) slowed.
The operating results for Safeline (which as previously noted were included
in the Company's results from May 31, 1997) had the effect of increasing the
Company's net sales by $28.5 million for 1997. Additionally, Safeline's
operating results had the effect of increasing the Company's Adjusted Operating
Income by $7.1 million for the same period. The Company recorded non-cash
purchase accounting adjustments for purchased research and development ($30.0
million) and the sale of inventories revalued to fair value ($2.1 million)
during such period.
Gross profit before non-recurring 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 the
Company's research and development efforts, ongoing productivity improvements
and the depreciation of the Swiss franc against the Company's other principal
trading currencies.
Research and development expenses as a percentage of net sales decreased to
5.4% for 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
is 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.
The Company expects that the projects underlying these research and development
efforts will be substantially complete over the next two years.
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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 the Company's 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
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 the Company's 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 the senior subordinated notes and the write-off of
capitalized debt issuance fees associated with the senior subordinated notes and
previous credit facilities.
FOR THE PERIOD FROM JANUARY 1, 1996 TO OCTOBER 14, 1996, THE PERIOD FROM OCTOBER
15, 1996 TO DECEMBER 31, 1996 AND PRO FORMA 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
Net sales for the period from January 1, 1996 to October 14, 1996 and for
the period from October 15, 1996 to December 31, 1996 were $662.2 million and
$186.9 million, respectively. Pro forma 1996 net sales were $889.6 million, or
$849.1 million excluding Safeline results, compared to actual net sales of
$850.4 million in 1995. Net sales (pro forma excluding Safeline) in local
currency increased 3%, excluding the impact of reductions of the systems
business, but were offset by a strengthening of the U.S. dollar, the Company's
reporting currency, relative to the local currencies of the Company's
operations. The flat sales (pro forma excluding Safeline) in 1996 compared to
actual 1995 resulted from slightly lower sales from products in the industrial
and food retailing markets, offset by strong performance by the product lines in
the laboratory market. The growth in the laboratory market was across
substantially all product lines and geographical regions as sales in local
currency (excluding Safeline) increased 7% compared to the previous year. In
particular, new product introductions in titration, thermal and reaction
calorimetry as well as new Ohaus products for the education, laboratory and
light industrial market helped to increase laboratory market sales. The slight
decline in industrial and food retailing sales resulted from overall weakness in
the European market where the Company has been able to retain its market share.
This market weakness has persisted in early 1997.
Net sales (pro forma excluding Safeline) in Europe in local currency
decreased 2% in 1996 compared to actual 1995 due to a weaker second half of the
year in 1996 in all major markets, and especially in key countries such as
Germany, France and the United Kingdom. Net sales (pro forma excluding Safeline)
in the Americas in local currency increased by 5% over actual 1995 due to growth
in the United States and Latin America and double digit expansion in laboratory
measurement instruments other than balances and in related service. Net sales
(pro forma excluding Safeline) in Asia and other markets in local currency
increased by 8% over actual 1995, primarily as a result of significantly
increased sales in the Shanghai operation and strong sales in Japan and
Australia.
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Gross profit for the period from January 1, 1996 to October 14, 1996 and
for the period from October 15, 1996 to December 31, 1996 was $267.0 million and
$50.1 million, respectively. Pro forma 1996 gross profit was $365.8 million or
$349.3 million (excluding Safeline results). This compares to $342.3 million in
actual 1995. Pro forma gross profit as a percentage of sales increased to 41.1%
in 1996 from 40.3% in actual 1995. The increased gross profit margin resulted
principally from operational improvements and the depreciation of the Swiss
franc against the Company's other principal trading currencies. See "-- Effect
of Currency on Results of Operations."
Selling, general and administrative expenses and research and development
expenses for the period from January 1, 1996 to October 14, 1996 and for the
period from October 15, 1996 to December 31, 1996 were $227.1 million and $69.2
million, respectively. Pro forma 1996 selling, general and administrative and
research and development expenses totaled $302.7 million or $296.1 million
excluding Safeline. This compares to $302.9 million in actual 1995. Pro forma
selling, general and administrative expenses and research and development
expenses as a percentage of net sales decreased to an aggregate of 34.0% in 1996
from 35.6% in actual 1995. The cost decreases resulted primarily from the
currency effect of the depreciation of the Swiss franc against the Company's
other major trading currencies and the Company's cost control efforts. These
cost decreases were partially offset by non-recurring legal and advisory fees of
$4.8 million.
In connection with the Acquisition, the Company allocated, based upon
independent valuations, $114.1 million of the purchase price to purchased
research and development in process. Such amount was expensed immediately
following the Acquisition.
Interest expense for the period from January 1, 1996 to October 14, 1996
and for the period from October 15, 1996 to December 31, 1996 was $13.9 million
and $8.7 million, respectively. Pro forma interest expense increased to $30.0
million in 1996 from $18.2 million in actual 1995, principally due to a higher
debt level as a result of the Acquisition and the Safeline acquisition. Interest
expense since the Acquisition and the Safeline acquisition is materially
different.
Other income, net for the period January 1, 1996 to October 14, 1996 of
$1.3 million includes interest income of $3.4 million and severance and other
exit costs of $1.9 million associated with the closing of its Westerville, Ohio
facility. Other charges, net for the period October 15, 1996 to December 31,
1996 of $17.1 million principally represent (i) losses on foreign currency
transactions of $8.3 million of which $5.7 million were incurred in connection
with the Acquisition, (ii) employee severance benefits associated with the
Company's general headcount reduction programs in Europe and North America of
$4.6 million which were announced during such period, and (iii) the realignment
of the analytical and precision balance business in Switzerland of $6.2 million
which was internally announced in December 1996. In connection with such
programs the Company reduced its workforce by approximately 170 employees in
1996 and intends to further reduce its workforce by approximately 70 employees
in 1997. The Company anticipates that as a result of the foregoing it will
achieve cost savings consisting primarily of lower employee salary and benefit
costs and fixed manufacturing costs. In addition, at the time of the
Acquisition, the Company estimated it would incur additional selling, general
and administrative expenses of $1.3 million annually as a result of the
Acquisition.
Earnings before taxes and minority interest for the period from January 1,
1996 to October 14, 1996 was $25.2 million. Loss before taxes and minority
interest for the period from October 15, 1996 to December 31, 1996 was $160.1
million. This loss includes non-recurring costs of $114.1 million for the
allocation of purchase price to in-process research and development projects,
$32.2 million for the revaluation of inventories to fair value, $9.9 million of
other charges (an additional $1.9 million of other charges was incurred by the
Predecessor Business in 1996) and $4.8 million for non-recurring legal and
advisory fees. Pro forma earnings before taxes and minority interest would have
been $12.5 million in 1996. Pro Forma Adjusted Operating Income would have been
$67.9 million in 1996, or $58.0 million (excluding Safeline), compared to $39.5
million in actual 1995.
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Net earnings for the period from January 1, 1996 to October 14, 1996 were
$14.5 million. The net loss for the period from October 15, 1996 to December 31,
1996 was $159.0 million. Pro forma net earnings of $5.0 million in 1996 compared
to net earnings of $18.3 million in actual 1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition of the Company from Ciba-Geigy, the Company's cash
was used primarily for working capital requirements and to fund capital
expenditures, service debt and pay dividends to Ciba-Geigy. The Company's
liquidity was affected by its own acquisition from Ciba-Geigy as well as by
subsequent acquisitions completed by the Company. The acquisition from
Ciba-Geigy was financed principally through capital contributions of $190.0
million before related expenses from the Company, borrowings under a previous
credit agreement of $307.0 million and $135.0 million from the issuance of its
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 L63.7 million (approximately
$104.4 million at May 30, 1997), including a post-closing adjustment of L1.9
million which was paid in October 1997 and an earn-out of L0.8 million which was
paid in June 1998.
The Company continues to explore potential acquisitions. In connection with
any acquisition, the Company may incur additional indebtedness.
The Company's liquidity was improved as a result of its initial public
offering in November 1997 and the refinancing undertaken at that time. In the
refinancing, the Company entered into a new credit agreement and repurchased all
of the Notes using proceeds from the IPO and borrowings under the credit
agreement.
At September 30, 1998, the Company's consolidated debt, net of cash, was
$362.8 million. The Company had borrowings of $351.5 million under its credit
agreement and $26.9 million under various other arrangements as of September 30,
1998. Of its credit agreement borrowings, approximately $188.8 million was
borrowed as term loans scheduled to mature in 2004, and $162.7 million was
borrowed under a multi-currency revolving credit facility. At September 30,
1998, the Company had $239.2 million of availability remaining under the
revolving credit facility.
At September 30, 1998, approximately $111.6 million of the borrowings under
the credit agreement were denominated in U.S. dollars. The balance of the
borrowings under the credit agreement and under local working capital facilities
were denominated in certain of the Company's other principal trading currencies
amounting to approximately $266.8 million at September 30, 1998. Changes in
exchange rates between the currencies in which the Company generates cash flow
and the currencies in which its borrowings are denominated affect the Company's
liquidity. In addition, because the Company borrows in a variety of currencies,
its 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
the Company to make mandatory prepayments in certain circumstances with the
proceeds of asset sales or issuance of capital stock or indebtedness and with
certain excess cash flow. The credit agreement imposes certain restrictions on
the Company and its subsidiaries, including restrictions on the ability to pay
dividends to its shareholders, incur indebtedness, make investments, grant
liens, sell financial assets and engage in certain other activities. The Company
must also comply with certain financial covenants. The credit agreement is
secured by certain assets of the Company.
Cash provided by operating activities continues to significantly exceed the
Company's capital expenditure requirements. The Company's cash provided by
operating activities increased to $38.5 million in the nine months ended
September 30, 1998 from $30.3 million in the nine months ended September 30,
1997. The increase resulted principally from improved Adjusted Operating Income
and lower interest costs resulting from the IPO and related refinancing and
reduced debt levels. For the year ended December 31, 1997, cash provided by
operating activities was $55.6 million as compared to $62.5 million for the
period
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January 1, 1996 to October 14, 1996 and $9.6 million for the period October 15,
1996 to December 31, 1996. The 1997 results reflect higher interest costs
resulting from the Acquisition and the Safeline acquisition.
During the nine months ended September 30, 1998, the Company spent
approximately $15.0 million in cash on acquisitions. These purchases were funded
from cash generated from operations and additional borrowings. The Company 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 by the Company, and are
made primarily for machinery, equipment and the purchase and expansion of
facilities, including the purchase of land for, and construction of, the
Company's Shanghai manufacturing facility. The Company's capital expenditures
totaled $25.9 million in 1995, $29.4 million in pro forma 1996 and $22.3 million
in actual 1997. During the nine months ended September 30, 1998, the Company
spent $17.3 million on capital expenditures compared to $13.3 million for the
first nine months of 1997. Capital expenditures for 1999 are expected to
increase over 1998 levels, but should remain consistent with earlier periods.
The Company currently believes 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 the Company conducts operations in many countries, its operating
income can be significantly affected by fluctuations in currency exchange rates.
Swiss franc-denominated expenses represent a much greater percentage of the
Company's operating expenses than Swiss franc-denominated sales represent of its
net sales. In part, this is because most of the Company's manufacturing costs in
Switzerland relate to products that are sold outside of Switzerland. Moreover, a
substantial percentage of the Company's research and development expenses and
general and administrative expenses are incurred in Switzerland. Therefore, if
the Swiss franc strengthens against all or most of the Company's major trading
currencies (e.g., the U.S. dollar, the Euro, other major European currencies and
the Japanese Yen) the Company's operating profit is reduced. The Company also
has significantly more sales in European currencies (other than the Swiss franc)
than the Company has expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also decreases
the Company's 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, the Company's 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, the Company's debt levels can fluctuate due to
changes in exchange rates, particularly between the U.S. dollar and the Swiss
franc.
YEAR 2000 ISSUE
The Company has 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 the Company's 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 its information technology
systems, the Company has completed the entire assessment
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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 its
non-information technology systems, the Company has 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 the Company's remediation
programs. The testing is expected to be completed by September 1999. The Company
plans to have all internal mission-critical information technology and
non-information technology systems Year 2000 compliant by September 1999.
The Company has also reviewed its products, including products sold in
recent years, to determine if they are Year 2000 compliant. In its current
product line the Company believes that most of its products are Year 2000
compliant. For products currently in use, the Company is reviewing the risks by
product item with many customers and in many instances has suggested that the
customer replace the older product.
The Company is also communicating with its major suppliers to assess the
potential impact on the Company's operations if those parties fail to become
Year 2000 compliant in a timely manner. While this process is not yet complete,
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 the Company's significant suppliers are expected to be
completed by September 1999.
The costs incurred to date related to its Year 2000 activities have not
been material to the Company, and, based upon current estimates, the Company
does not believe that the total cost of its Year 2000 readiness programs will
have a material adverse impact on the Company's results of operations or
financial condition. The total costs are not easy to quantify since many of the
steps the Company is taking relate to ongoing systems updating, a small
component of which relates to Year 2000 compliance. In certain instances, the
Company has accelerated such updates. As a result of our ongoing systems
updating, the Company does not expect to realize a significant reduction in
related expenditures once the work on Year 2000 compliance is completed.
The Company's readiness programs also include the development of
contingency plans to protect its business and operations from Year 2000-related
interruptions. These plans should be complete 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 the
Company's current assessment of its non-information technology systems, the
Company does not believe it necessary to develop an extensive contingency plan
for those systems. There can be no assurances, however, that any of the
Company's contingency plans will be sufficient to handle all problems or issues
which may arise.
The Company believes that it is taking reasonable steps to identify and
address those matters that could cause serious interruptions in its 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 the Company's
systems and in the systems of its 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 the Company's business,
financial condition and results of operations. For example, the Company would
experience a material adverse impact on its 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 the
Company to lose production capabilities or limit other operations, if a
significant portion of the Company's 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 the
Company's Year 2000 programs and the time-frame in which the Company plans to
complete Year 2000 modifications are based upon management's best estimates.
These estimates were derived from internal
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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.
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.
The Company has recognized the introduction of the Euro as a significant
event with potential implications for existing operations. Currently, the
Company operates in all of the participating countries in the EMU. The Company
expects nonparticipating European Union countries, such as Great Britain, where
the Company also has operations, to eventually join the EMU.
The Company has committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure the Company is prepared for the
introduction of the Euro. The Company has undertaken a review of the Euro
implementation and has concentrated on areas such as operations, finance,
treasury, legal, information management, procurement and others, both in
participating and nonparticipating European Union countries where the Company
operates. 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, the Company has developed its plans to address its accounting
and business systems first and its business assets second. The Company expects
to be Euro compliant within its accounting and business systems by the end of
1999 and compliant within its 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. The Company does not currently expect to experience any significant
operational disruptions or to incur any significant costs, including any
currency risk, which could materially affect the Company's liquidity or capital
resources. The Company is preparing plans to address issues within the
transitional period when both legacy and Euro currencies may be used.
The Company is reviewing its pricing strategy throughout Europe due to the
increased price transparency created by the Euro and is attempting to adjust
prices in some of its markets. The Company is also encouraging its suppliers,
even in Switzerland, to commence transacting in Euro. The Company does not
believe that the effect of these adjustments will be material.
The Company has a disproportionate amount of its 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, the
Company's 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
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materially from those in the forward-looking statements. In particular, the
costs associated with the Company's Euro programs and the time-frame in which
the Company plans to complete Euro modifications are based upon management's
best estimates. These estimates were 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
The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability will be affected by a
number of factors, such as the amount of taxable income in particular
jurisdictions, the tax rates in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and repatriates 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, the Company may pay income taxes to certain
jurisdictions even though the Company on an overall basis incurs a net loss for
the period.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations,
including those relating to:
- air emissions
- wastewater discharges
- the handling and disposal of solid and hazardous wastes
- the remediation of contamination associated with the use and disposal of
hazardous substances
The Company incurs capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. The
Company is currently involved in, or has 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 the Company sent waste may in
the future be identified as contaminated and require remediation. Accordingly,
it is possible that the Company could become subject to additional environmental
liabilities in the future that may harm its results of operations or financial
condition. However, the Company does not anticipate any material adverse effect
on its results of operations or financial condition as a result of future costs
of environmental compliance.
INFLATION
Inflation can affect the costs of goods and services used by the Company.
The competitive environment in which the Company operates limits somewhat the
Company's ability to recover higher costs through increased selling prices.
Moreover, there may be differences in inflation rates between countries in which
the Company incurs the major portion of its costs and other countries in which
the Company sells its products, which may limit the Company's ability to recover
increased costs. The Company remains 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 the Company's
operating results. However, if the Company's presence in China, Latin America
and Eastern Europe increases, these inflationary conditions could have a greater
impact on the Company's operating results.
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SEASONALITY
The Company's 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. This trend has a somewhat greater effect on income from operations
than on net sales because fixed costs are spread evenly across all quarters.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
Before 1997, the Company entered into currency forward and option contracts
primarily as a hedge against anticipated foreign currency exposures and not for
speculative purposes. Such contracts, which are types of financial derivatives,
limit the Company's exposure to both favorable and unfavorable currency
fluctuations. These contracts are adjusted to reflect market values as of each
balance sheet date, with the resulting unrealized gains and losses being
recognized in financial income or expense, as appropriate. At September 30,
1998, all remaining derivative instruments met the requirements of hedge
accounting.
During 1997 and 1998, the Company entered into certain interest rate swap
and cap agreements. See Note 5 to the audited consolidated financial statements
included in this prospectus.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement will change the way public
companies report information about segments of their business in annual
financial statements and requires them to report selected financial information
in their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997. The respective disclosure required by this statement will be
incorporated in the Company's 1998 consolidated financial statements.
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 its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative 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
On September 28, 1998, the SEC Chairman 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. The SEC
Chief Accountant has also written a letter to the AICPA SEC Regulations
Committee to express concerns regarding purchased in-process research and
development.
Among other items, the Chief Accountant's letter has provided guidance upon
a stage completion approach to allocate value associated with the research and
development projects between the completed portion at the date of acquisition,
and the portion to be completed by the acquirer. Purchased in-process
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research and development represents the value assigned in a purchase business
combination to research and development projects of the acquired business that
were commenced but not yet completed at the date of acquisition and which, if
unsuccessful, have no alternative future use in research and development
activities or otherwise. In accordance with Statement of Financial Accounting
Standards No. 2, "Accounting for Research and Development Costs," as interpreted
by FASB Interpretation No. 4, amounts assigned to purchased in-process research
and development meeting the above criteria must be charged to expense at the
date of consummation of the purchase business combination.
The Company recorded a charge for purchased in-process research and
development in the third quarter of 1998 relating to the acquisition of Bohdan
Automation Inc. The Company believes 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 the Company's application of the recent SEC guidance, the
Company could be required to restate its earnings. Moreover, any adjustment
could result in earnings in the future being reduced by additional goodwill
amortization. The Company recorded similar charges in its 1996 and 1997
consolidated financial statements relating to prior acquisitions. These
consolidated financial statements were audited by its independent accountants.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus includes forward-looking statements based on the Company's
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
- 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 "Risk Factors," which could cause
the Company's actual results to differ materially from historical results or
those anticipated and certain of which are beyond the Company's control. The
words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. New risk factors emerge from time to
time and it is not possible for the Company to predict all such risk factors,
nor can the Company assess the impact of all such risk factors on its 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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INDUSTRY
OVERVIEW
Weighing instruments are among the most broadly used measuring devices, and
their results are often used as the basis of commercial transactions. Analytical
instruments are critical to the research and development and quality control
efforts of end-users, while metal detection systems provide important quality
and safety checks in production and packaging. We estimate that total 1997 sales
for products and services in the global markets for weighing instruments and
other measurement instruments were approximately $6.0 billion. Furthermore, the
overall market is diverse, with our products finding applications in a number of
different settings. Some typical uses for our products in our principal markets
and an overview of the variety of customers to whom we sell are as follows:
Uses
LABORATORY products, including balances, analytical instruments and process
control devices, are sold to a demanding customer base of researchers and
quality control departments who require products of exceptional performance and
reliability.
INDUSTRIAL products, including a variety of weighing technologies as well
as metal detection equipment, are very often sold to the same customer base as
laboratory products but are used in different areas of our customers'
businesses. For example, industrial products are used in raw material handling,
production, packaging and transportation. These products are often an integral
part of our customers' manufacturing systems, very often directly integrated
into their process control and/or data processing systems.
FOOD RETAILING products, including retail scales, price labeling devices
and wrapping equipment, are principally sold to large super and hypermarkets in
solutions that combine weighing technologies with networked software to help our
customers manage their perishable goods such as meat, fruit, vegetables and
cheeses.
Customers
PRIVATE SECTOR: pharmaceutical, biotechnology, chemicals, food and
beverage, food retailing, cosmetics, metals, electronics, transportation
PUBLIC SECTOR: schools, universities, government standards laboratories
The market for weighing and other instruments, particularly those used in
industrial and food retailing applications, has traditionally been fragmented
both geographically and by type of application. Many manufacturers have a strong
market position in their home countries but a much smaller presence in other
markets. Similarly, manufacturers have tended to be focused on a particular
application or group of applications.
Customers often spend a relatively small component of their aggregate
expenditures on weighing instruments. However, weighing instruments perform
important functions in quality control, process control and research and can
improve productivity. As a result, we believe weighing instrument customers
insist on accuracy, product reliability, technical innovation, service quality
and past experience with a manufacturer's products; cost seems to be a secondary
consideration. Weighing instrument manufacturers also provide their customers
with a significant amount of service and support, including repair, calibration,
certification and preventive maintenance. This service and support generates
recurring revenues for manufacturers. In addition, customers tend to be loyal
once they have selected a supplier. We believe this is because customers would
face additional costs for training, spare parts, service and systems integration
if they switched to or added other brands of weighing equipment. This factor
benefits suppliers with a large installed base.
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DEMAND TRENDS
In developed markets (Europe, North America and Japan), laboratory demand
for instruments has been influenced by sales trends in end-user industries and
demand for new products that can be integrated into an automated laboratory
environment. Demand for weighing instruments in the industrial and food
retailing market has been driven by the increasing use of weighing applications
in the control and regulation of manufacturing and logistics processes,
customers' needs to upgrade to network-ready weighing equipment and general
growth in end-user industries. Demand in emerging markets, such as Asia, has
been fueled by companies requiring additional and more sophisticated weighing
instruments and systems.
Analytical Instruments Markets. We believe that customers for laboratory
analytical instruments are reluctant to switch suppliers and are more likely to
buy replacement products from the manufacturer of the initial system for the
following reasons. Users of laboratory analytical instruments require high
levels of performance and reliability due to the use of these instruments in
critical steps of research and development and quality control. However, in most
cases analytical instruments constitute a small percentage of customers'
aggregate expenditures. In many cases, once a manufacturer's equipment is
adopted in the laboratory and test methods are established using a particular
instrument, the costs and/or risks of switching to a different manufacturer of
instruments can be high. We believe that there are growth opportunities in our
analytical instruments markets, including: growth in end-use markets such as
pharmaceuticals, food and beverage, consumer products, environmental testing and
chemicals; increased research and development spending in major customer
segments such as the pharmaceutical and biotech industries; and increased
customer emphasis on productivity and automation.
Metal Detection Equipment Markets. Users of metal detection equipment are
typically companies in the food processing, pharmaceutical, cosmetics, chemicals
and other industries that must ensure that their products are free from
contamination by metal particles. Selling products that are contaminated by
metal can have severe consequences for these companies, resulting in potential
litigation and product recalls. Consequently, purchasers of metal detectors
value accuracy and stability of their detectors. We believe that customers are
reluctant to switch brands since they would need to retrain line operators in
the use of new equipment and alter quality assurance and calibration routines.
Manufacturers therefore enjoy recurring and follow-on revenues from existing
customers. We believe that in developed markets, increased demand for metal
detectors results from an increasing consumer and regulatory focus on product
safety. Moreover, we expect that exports of food products to industrialized
nations from lesser developed countries will contribute to demand for metal
detectors in emerging markets.
GROWTH DRIVERS
Integration with Customer Management Information Systems. The markets for
our precision instruments have experienced increasing customer demand for
products with sophisticated data handling and storage capabilities that can be
integrated into management information systems. In the laboratory market,
weighing and analytical instruments are now capable of storing a large number of
results, performing statistical analyses and transmitting results to computers
and laboratory information management systems. Laboratory customers have also
demanded instruments that improve research productivity by adding automation.
For example, titrators have been increasingly paired with auto-samplers, which
allow a technician to set up dozens of samples for testing automatically.
The industrial and food retailing market has experienced a similar trend,
as small groceries are replaced by supermarkets and hypermarkets. Retail
counter-top scales (for the weighing of perishable goods) now include database
and network functions. This enables the scale to download price information from
the store's master price database and provide information on sales by article,
which can be integrated into the store's inventory control system. The store's
master ordering system is then able to calculate shrinkage and store inventory
levels based on the weight of goods processed and automatically reorder
perishable goods electronically when inventory levels reach a pre-set reorder
point.
In manufacturing, weighing instruments also have become integrated into
manufacturing plants' information systems as the primary means for the tracking
and control of inventory. As they have become
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more integrated into the manufacturing process, weighing instruments also have
been combined with dimensioning equipment as well as with multiple input/output
devices: bar-code readers, printers and data-storage devices. Similarly, metal
detection systems can be integrated with checkweighers to provide important
safety and quality checks of consumer products and are linked to customers'
management information systems to provide key process control data.
Regional and Global Harmonization of Weighing and Measurement
Standards. Weights and measures were historically regulated at the national
level. As a result, products had to meet numerous different national regulatory
requirements. More recently, certain European national requirements have been
harmonized by the European Union, and many other national requirements have been
harmonized by the Organisation Internationale de Metrologie Legale, which sets
international weights and measures standards. Harmonization has facilitated the
ability of multinational weighing instrument producers to manufacture products
that meet all relevant regulatory requirements and the development of
broader-based markets for their product lines. In recent years, some governments
have begun to privatize the inspection of weighing instruments used in
commercial transactions. ISO-certified manufacturers of weighing instruments,
such as Mettler-Toledo, whose after-sales service technicians already perform
similar services for customers, are well situated to take over the inspection
process from governments wishing to privatize this function.
Standardization of Laboratory and Marketing Processes. As laboratory and
manufacturing requirements and standards become more widely adopted, customers
increasingly need the ability to certify laboratory results or the conformity of
manufacturer processes to specification. Consequently, the accuracy of weighing
instruments, analytical instruments and metal detection systems become
increasingly important to purchasers. For example, ISO 9001 standards and Good
Laboratory Practices and Good Manufacturing Practices, which are voluntarily
adopted by participating companies, require the development of compliance
procedures that must be adhered to throughout the relevant laboratory or
production process. These procedures include periodic calibration and
certification of measurement instruments. Certified instruments must be utilized
throughout the process, and each step in the process must be accurately recorded
in accordance with specified procedures so that results can be accurately traced
and reproduced. An example of this trend is the increasing adoption of ISO 9001
quality guidelines by food processors, which require all production processes to
be properly monitored for contamination by metal and other foreign substances.
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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, pH meters, automatic lab
reactors 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 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 1997, our sales were $878.4
million. In the first nine months of 1998, our sales were $669.7 million. Of
this total 45% came from Europe, 44% from North and South America and 11% from
Asia and other countries. 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.
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 AG. In
the Acquisition, we paid cash consideration of approximately SFr 505.0 million
(approximately $402.0 million at October 15, 1996), including dividends of
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approximately SFr 109.4 million (approximately $87.1 million at October 15,
1996), paid approximately $185.0 million to settle amounts due to Ciba-Geigy and
its affiliates and incurred expenses in connection with the Acquisition and
related financing of approximately $29.0 million. We financed the Acquisition
primarily with (i) borrowings under a credit agreement in the amount of $307.0
million, (ii) the issuance of $135.0 million of senior subordinated notes and
(iii) an equity contribution of $190.0 million primarily from AEA Investors, its
shareholder-investors and our executive officers and other employees. Following
the completion of our IPO, management, employees and Company sponsored pension
funds held approximately 18% of the Company on a fully diluted basis.
On May 30, 1997, we acquired Safeline Limited for L63.7 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'
commission 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.
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.
On December 7, 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.
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,
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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 1997 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:
- - 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 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.
- - 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.
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- - 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.
- - Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and we believe that
this capability is a major competitive advantage. At September 30, 1998,
this organization consisted of approximately 3,200 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.
- - 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 1997,
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.
- - 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 in over 100 countries, and no one customer accounted for more than
2.6% of net sales in 1997. 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 $81.5 million (9.3% of net sales) for 1997. Adjusted
Operating Income increased from $52.6 million (8.3% of net sales) for the nine
months ended September 30, 1997 to $68.8 million (10.3% of net sales) for the
nine months ended September 30, 1998, an increase of 30.6%. We are committed to
improving our performance and are pursuing the following strategies:
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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 million in research and
development. Our research and development efforts fall into two categories:
- 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
- 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 or upcoming product
introductions include:
- industrial and retail products that apply open-system architecture
- MonoBloc, a high accuracy, low-cost weighing sensor technology which is
being incorporated throughout our product lines
- a higher performance titrator
- an improved performance modular thermal analysis system
- a new density and refractometry measurement technology
- a fully integrated metal detector and checkweigher
- 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.
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:
- integrating information from our measurement instruments into our
customers' data management software systems
- automating and/or improving process control, in part by developing
integrated solutions which combine measurement instruments and related
technologies directly into manufacturing processes
- harmonization of national weighing standards across countries
- increasing standardization of manufacturing and laboratory practices
programs like ISO 9001, Good Laboratory Practices and Good Manufacturing
Practices
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- 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:
- 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
- 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
- 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:
- COMPLEMENTARY PRODUCTS that will benefit from our brand name and global
distribution channels. An example is Bohdan Automation Inc., a leading
supplier of laboratory automation and automated synthesis products, which
we acquired earlier this year 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.
- 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.
- CONSOLIDATION OPPORTUNITIES in fragmented markets. An example is our
recent acquisitions of a number of independent industrial and retail
weighing distributors in the United States.
- 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.
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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:
- 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
- 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
- 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
- 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
- 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 1997 (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
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laboratories to ensure the accuracy of reference weights. Due to the wide range
of functions and features offered by our products, prices vary significantly. A
typical mid-range precision balance is priced at approximately $2,500 and a
typical microbalance is priced at approximately $14,000.
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.
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 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
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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.
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:
- bench and floor scales for standard industrial applications
- truck and railcar scales for heavy industrial applications
- scales for use in food retailing establishments
- checkweighers (which determine the weight of goods in motion)
- metal detectors
- dimensioning equipment
- 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 ("OEMs"), 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 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 1997 (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
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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
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 $800 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 the first nine
months of 1998 derived 45% from Europe, 44% 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 1997 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
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rubber industry, the jewelry and precious metals trade, educational institutions
and government standards laboratories. Balances and pH meters are the most
widely used laboratory measurement instruments and are found in virtually every
laboratory across a wide range of industries. Other products have more
specialized uses.
Our laboratory products are sold in more than 100 countries 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. In markets where there are strong
laboratory distributors, such as the United States, we use them as the primary
marketing channel for lower- and 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. High-end products 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 primarily
through distributors, and in Europe primarily through direct sales. We also sell
laboratory products directly in Japan and in certain other Asian countries.
European and Asian distributors are generally fragmented on a country-by-country
basis.
Ohaus branded products 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 OEMs which integrate our
modules into larger process control applications or comprehensive packaging
lines. Our products are also purchased by engineering firms, systems integrators
and vertical application software companies.
Customers for metal detection systems are typically food processing,
pharmaceutical, cosmetics and chemicals manufacturers that must ensure that
their products are free from contamination by metal particles. Undetected metal
contamination can have severe consequences for these companies, including
potential litigation and product recalls. Metal detection systems are most
commonly utilized in conjunction with checkweighers as components of integrated
packaging lines. Metal detectors provide important safety checks before food and
other products are delivered to customers. Metal detection systems are also used
in pipeline detectors for dairy and other liquids, gravity fall systems for
grains and sugar and throat detection systems for raw material monitoring.
Our food retailing products customers include supermarkets, hypermarkets
and smaller food retailing establishments. The North American and European
markets already include many large supermarket chains, and there is an on-going
shift in most of our food retailing markets from "mom and pop" grocery stores to
supermarkets and hypermarkets. While supermarkets and hypermarkets generally buy
less equipment per customer, they tend to buy more advanced products that
require more electronic and software content. In emerging markets, however, the
highest growth is in basic scales. As with industrial products, we also sell
food retailing products to OEMs for inclusion in more comprehensive checkout
systems. For example, our OEMs often incorporate our checkout scales into
scanner-scales, which can
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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.
Our industrial products are sold in more than 100 countries and our food
retailing products in 20 countries. In the industrial and food retailing market,
we distribute 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. 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 September 30, 1998, our sales and services group
consisted of approximately 3,200 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. 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 1997,
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). 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
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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 September 30, 1998, POs
included approximately 3,800 employees worldwide. POs are product development
teams comprised of personnel from our marketing, development, research,
manufacturing, engineering and purchasing departments. POs often seek customer
input to ensure that the products developed are tailored to market needs. We
have organized our POs to reduce product development time, improve customer
focus, reduce costs and maintain technological leadership. The POs work together
to share ideas and best practices, and some employees are in both MOs and POs.
We recently implemented a number of projects that we believe will further
increase productivity and lower costs. For example, we restructured the order
and product delivery process in Europe to enable us to deliver many of our
products to our customers directly from the manufacturing facility within
several days, which minimizes the need to store products in decentralized
warehouses. In addition, we have centralized our European spare parts inventory
management system allowing all spare parts for Europe to be delivered from a
single, highly automated location.
RESEARCH AND PRODUCT DEVELOPMENT
We closely integrate research and development with marketing, manufacturing
and product engineering. We have nearly 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 1997, we spent
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approximately 5.7% 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.
We are a worldwide manufacturer, with eight manufacturing plants in the
United States, four in Switzerland, two in Germany, one 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 September 30, 1998, we had approximately 7,000 employees throughout
the world, including more than 3,600 in Europe, more than 2,600 in North and
South America, and approximately 800 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,
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<PAGE> 56
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.
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 our operating facility in Landing, New Jersey. On or about July
1988, an affiliate of Ciba ("AGP") purchased 100% of the outstanding stock of
Metramatic Corporation ("Metramatic"), a manufacturer of checkweighing equipment
located in Landing, from GEI International Corporation ("GEI"). GEI agreed to
indemnify and hold harmless AGP for certain pre-closing environmental
conditions, including those resulting in cleanup responsibilities required by
the New Jersey Department of Environmental Protection 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.
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<PAGE> 57
We, or in some cases the former owner of Toledo Scale, have been named a
potentially responsible party under CERCLA or analogous state statutes at the
following third-party owned sites with respect to the alleged disposal at the
sites by Toledo Scale during the period before we owned it: Granville Solvents
Site, Granville, Ohio; Aqua-Tech Environmental, Inc. Site, Greer, South
Carolina; 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.
PROPERTIES
The following table lists our principal operating facilities, indicating
the location, primary use and whether the facility is owned or leased.
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE(1) OWNED/LEASED
- -------- ---------------- ------------
<S> <C> <C>
Europe:
Greifensee/Nanikon, Switzerland.......... Production, Corporate Headquarters Owned
Uznach, Switzerland...................... Production Owned
Urdorf, Switzerland...................... Production Owned
Schwerzenbach, Switzerland............... Production Leased
Albstadt, Germany........................ Production Owned
Giesen, Germany.......................... Production Owned
Giessen, Germany......................... Sales and Service Owned
Steinbach, Germany....................... Sales and Service Owned
Viroflay, France......................... Sales and Service Owned
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE(1) OWNED/LEASED
- -------- ---------------- ------------
<S> <C> <C>
Beersel, Belgium......................... Sales and Service Owned
Tiel, Netherlands........................ Sales and Service Owned
Leicester, England....................... Sales and Service Leased
Manchester, England...................... Production, Sales and Service Leased
Americas:
Worthington, Ohio........................ Production Owned
Spartanburg, South Carolina.............. Production Owned
Franksville, Wisconsin................... Production Owned
Ithaca, New York......................... Production Owned
Wilmington, Massachusetts................ Production Leased
Florham Park, New Jersey................. Production Leased
Tampa, Florida........................... Production, Sales and Service Leased
Vernon Hills, Illinois................... Production, Sales and Service Leased
Burlington, Canada....................... Sales and Service Leased
Mexico City, Mexico...................... Sales and Service Leased
Other:
Shanghai, China.......................... Production Building Owned;
Land Leased
Changzhou, China(2)...................... Production Building Owned;
Land Leased
Melbourne, Australia..................... Sales and Service Leased
Mumbai, India............................ Production, Sales and Service Leased
Sao Paolo, Brazil........................ Production and Sales Leased
</TABLE>
- ---------------
(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.
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" for information concerning legal proceedings
relating to certain environmental claims.
We have received a Notice of Proposed Adjustment from the Internal Revenue
Service disallowing $20.4 million of intercompany interest deductions that we
took in our 1994 and 1995 tax returns when we were a subsidiary of Ciba. We are
indemnified under the acquisition agreement with Ciba against any loss that may
arise from the proposed adjustment. Regardless, we believe that such deductions
were properly made and we intend to assist Ciba in contesting the proposed
adjustment.
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.
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<PAGE> 59
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth below.
All directors hold office until the annual meeting of shareholders following
their election or until their successors are duly elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion
thereof.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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.............................. 51 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........................ 72 Director
Thomas P. Salice.......................... 39 Director
</TABLE>
Robert F. Spoerry has been President and Chief Executive Officer of the
Company since 1993. He served as Head, Industrial and Retail (Europe) of the
Company from 1987 to 1993. Mr. Spoerry has been a Director since October 1996.
Mr. Spoerry has been Chairman of the Board of Directors since May 18, 1998.
William P. Donnelly has been Chief Financial Officer of the Company since
April 1, 1997. From 1993 until joining the Company, he held various senior
financial and management positions, including most recently Group Vice President
and Chief Financial Officer, with Elsag Bailey Process Automation, a global
manufacturer of instrumentation and analytical products, and developer of
distributed control systems. Prior to 1993, Mr. Donnelly was associated with the
international accounting firm of Price Waterhouse.
Karl M. Lang has been Head, Laboratory Division of the Company since 1994.
From 1991 to 1994 he was based in Japan as a representative of senior management
with responsibility for expansion of the Asian operations.
Lukas Braunschweiler has been Head, Industrial and Retail (Europe) of the
Company since 1995. From 1992 until 1995 he held various senior management
positions with the Landis & Gyr Group, a manufacturer of electrical meters.
Prior to August 1992 he was a Vice President in the Technology Group of Saurer
Group, a manufacturer of textile machinery.
John D. Robechek has been Head, Industrial and Retail (Americas) of the
Company and President of Mettler-Toledo, Inc., a U.S.-based subsidiary of the
Company, since 1995. From 1990 through 1994 he served as Senior Vice President
and managed all of the Company's U.S. subsidiaries.
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.
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<PAGE> 60
Philip Caldwell has been a Director since October 1996. Prior to May 18,
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 Waters Corporation,
Zurich Holding Company of America, Inc., American Guarantee & Liability
Insurance Company, The Mexico Fund and Russell Reynolds Associates, Inc. He has
served as a Director of the Chase Manhattan Corporation, the Chase Manhattan
Bank, N.A., Digital Equipment Corporation, Federated Department Stores Inc., the
Kellogg Company, Shearson Lehman Brothers Holdings Inc., CasTech Aluminum Group
Inc., Specialty Coatings International Inc. and Zurich Reinsurance Centre
Holdings, Inc.
Reginald H. Jones has been a Director since October 1996. Mr. Jones retired
as Chairman of the Board of Directors of General Electric Company ("General
Electric") in April 1981. At General Electric, he served as Chairman of the
Board of Directors and Chief Executive Officer from December 1972 through April
1981, President from June 1972 to December 1972 and a Director from August 1971
to April 1981.
John D. Macomber has been a Director since October 1996. He has been a
principal of JDM Investment Group since 1992. He was Chairman and President of
the Export-Import Bank of the United States (an agency of the U.S. Government)
from 1989 to 1992. From 1973 to 1986 Mr. Macomber was Chairman and Chief
Executive Officer of Celanese Corporation. Prior to that, Mr. Macomber was a
Senior Partner of McKinsey & Company. Mr. Macomber is also a Director of Textron
Inc., Bristol-Myers Squibb Company, Xerox Corporation, Lehman Brothers Holdings
Inc., Pilkington plc and Brown Group, Inc.
Laurence Z. Y. Moh has been a Director since October 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 October 1996. Mr. Salice is a
Managing Director of AEA Investors and has been associated with AEA Investors
since June 1989. Mr. Salice is also a Director of Waters Corporation.
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EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 1997, 1996
and 1995 the compensation paid to or accrued for services performed by the Chief
Executive Officer, each of the four other most highly compensated executive
officers of the Company who were serving as executive officers at December 31,
1997 and one other highly compensated employee who is no longer an executive
officer (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION OPTIONS(#) COMPENSATION
- --------------------------- ---- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Spoerry............................ 1997 $386,074 $427,113 $36,212(3) 125,839 $112,816(5)
President and 1996 435,135 276,521 8,857(3) 1,047,976 124,431(5)
Chief Executive Officer 1995 289,343 85,871 -- 300(4) 54,346(5)
William P. Donnelly(6)....................... 1997 124,095 208,464 18,614(7) 195,050 36,768(5)
Chief Financial Officer 1996 -- -- -- -- --
1995 -- -- -- -- --
Karl M. Lang................................. 1997 170,424 134,209 -- 37,751 55,319(5)
Head, Laboratory 1996 212,997 88,375 -- 209,597 61,901(5)
1995 228,427 38,071 -- -- 60,321(5)
Lukas Braunschweiler......................... 1997 168,218 201,676 -- 37,751 49,145(5)
Head, Industrial and Retail 1996 210,893 66,162 -- 209,597 62,482(5)
(Europe) 1995 228,427 25,381 -- -- 50,460(5)
John D. Robechek............................. 1997 220,000 193,886 -- 37,751 7,754(8)
Head, Industrial and Retail 1996 233,754 88,137 -- 209,597 6,215(8)
(Americas) 1995 225,000 40,563 -- -- 6,168(8)
Fred Ort..................................... 1997 164,633 177,061 -- -- 55,452(5)
Corporate Controller 1996 207,221 99,325 -- 78,599 52,745(5)
1995 227,284 69,701 -- -- 70,804(5)
</TABLE>
- ---------------
(1) Amounts paid in Swiss francs (all amounts except those paid to Mr. Robechek)
converted to U.S. dollars at a rate of SFr 1.182 to $1.00 for 1995, SFr
1.2355 to $1.00 for 1996 and SFr 1.4505 to $1.00 for 1997, in each case the
average exchange rate during such year.
(2) Does not include Ciba bonuses to Messrs. Spoerry, Braunschweiler, Lang,
Robechek and Ort for services rendered to Ciba in connection with its
efforts to sell the Company.
(3) Represents additional compensation paid to fully offset, after payment of
all taxes and social security contributions, interest charged to Mr. Spoerry
on a loan to Mr. Spoerry from Mettler-Toledo GmbH, a subsidiary of the
Company. See "Certain Relationships and Related Transactions."
(4) Option to purchase the specified number of shares of Ciba common stock at an
exercise price of SFr 750 ($665 at the date of grant) per share. The fair
market value at the date of grant was SFr 764 ($678) per share.
(5) Represents Company contributions to the Mettler-Toledo Fonds (a Swiss
pension plan similar to a defined contribution plan under U.S. law). Fifty
percent of the amount shown is a required employee contribution under the
plan which the Company has contributed on behalf of the Named Executive
Officers, and the other 50% is a required matching employer contribution.
(6) Mr. Donnelly's employment commenced on April 1, 1997.
(7) Represents allowances associated with Mr. Donnelly's status as an expatriate
in Switzerland.
(8) Includes: (i) the value of group life insurance over $50,000 of $1,024 for
1995, $1,071 for 1996 and $1,036 in 1997; (ii) the Company's contribution to
Mr. Robechek's 401(k) plan account of $4,500 in 1995 and 1996 and $4,750 in
1997; and (iii) Mr. Robechek's profit sharing payout under the Company's
Performance Dividend Plan of $644 in 1995 and 1996 and $1,968 in 1997.
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STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options under the Company's stock option plan to the individuals named in the
Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS OPTION/SAR
UNDERLYING GRANTED TO EXERCISE/BASE TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------ ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Spoerry.................. 125,839 12.23 15.89 2007 1,257,526 3,186,818
William P. Donnelly................ 37,751 3.67 15.89 2007 377,251 956,028
157,299 15.29 7.95 2007 786,450 1,993,018
Karl M. Lang....................... 37,751 3.67 15.89 2007 377,251 956,028
Lukas Braunschweiler............... 37,751 3.67 15.89 2007 377,251 956,028
John D. Robechek................... 37,751 3.67 15.89 2007 377,251 956,028
Fred Ort........................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The assumed annual rates of appreciation over the term of the option are set
forth in accordance with rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
price appreciation.
OPTION EXERCISE TABLE
No options to purchase common stock were exercised by the Named Executive
Officers in 1997. The following table sets forth information with respect to the
aggregate number of unexercised options to purchase common stock granted to the
Named Executive Officers and held by them as of December 31, 1997, and the value
of unexercised in-the-money options (i.e., options that had a positive spread
between the exercise price and the fair market value of the common stock) as of
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE YEAR-END(#) AT FISCAL YEAR-END($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Spoerry................... 0 0 209,595 964,220 $1,949,234 $7,968,084
William P. Donnelly................. 0 0 0 195,050 0 1,514,222
Karl M. Lang........................ 0 0 41,919 205,429 389,847 1,610,747
Lukas Braunschweiler................ 0 0 41,919 205,429 389,847 1,610,747
John D. Robechek.................... 0 0 41,919 205,429 389,847 1,610,747
Fred Ort............................ 0 0 15,719 62,880 146,187 584,784
</TABLE>
- ---------------
(1) Sets forth values for "in the money" options that represent the positive
spread between the respective exercise/base prices of outstanding stock
options and the closing price of $17.25 per share at December 31, 1997, as
reported on the New York Stock Exchange.
EMPLOYMENT AGREEMENTS
Mettler-Toledo GmbH, a subsidiary of the Company, entered into an
employment agreement with Robert F. Spoerry dated as of October 30, 1996. The
agreement provides for annual base salary of SFr 560,000 (approximately $386,074
at December 31, 1997), which may be increased from time to time in accordance
with the Company's normal business practices, and for participation in the
Company's bonus
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plan. In addition, the agreement provides for payment of the amount necessary,
after payment of all taxes and social security contributions, to fully offset
the interest charged to Mr. Spoerry on a certain loan to the Executive. See
"Certain Relationships and Related Transactions" for a description of the loan.
The agreement prohibits Mr. Spoerry from competing with the Company for a period
of 24 months after termination of employment. The agreement may be terminated
without cause, on 36 months' notice during which period Mr. Spoerry is entitled
to full compensation under the agreement.
Mettler-Toledo GmbH also has entered into employment agreements with Lukas
Braunschweiler, William P. Donnelly and Karl Lang, and Mettler-Toledo, Inc., a
subsidiary of the Company, has entered into an employment agreement with John D.
Robechek. The employment agreements provide for a base salary subject to
adjustment and participation in the Company's bonus plan and participation in
the Company's other employee benefit plans. Each agreement prohibits the
executive from competing with the Company for a period of twelve months after
termination of employment. Each agreement may be terminated without cause, on
twelve months' notice during which period the executive is entitled to full
compensation under the agreement.
DIRECTORS' COMPENSATION
Members of the Board of Directors of the Company who are officers of the
Company or employees of AEA Investors have not received additional compensation
for being on the Board or its committees. The non-executive directors were given
a one-time opportunity to purchase stock in the Company upon their election to
the Board. Mr. Caldwell purchased 35,940 shares of common stock and each of
Messrs. Jones, Macomber and Moh purchased 23,972 shares of common stock. Members
of the Board of Directors of the Company have received reimbursement for
traveling costs and other out-of-pocket expenses incurred in attending board and
committee meetings. Effective May 18, 1998, members of the Board of Directors
who are not employees of the Company will receive an annual fee of $17,500
(payable quarterly in advance), $1,000 for each Board meeting attended and $500
for each meeting of a committee of the Board attended, plus reimbursement for
traveling costs and other out-of-pocket expenses incurred in attending such
meetings. In addition, each member of the Board of Directors who is not an
employee of the Company will receive a stock option grant of 1,000 shares of the
Company's common stock per year.
RETIREMENT PLANS
Mr. Robechek is covered under two pension plans, the Mettler-Toledo
Retirement Plan and the Mettler-Toledo Supplemental Retirement Income Plan.
Benefits under these plans are determined by career average compensation rather
than final compensation. The annual accrual for each year under both plans is
the difference of 2% of annual compensation in a plan year and 0.6% of the
lesser of annual compensation or covered compensation (defined under the plans
as the average of the Social Security Taxable Wage Bases in effect for each
calendar year during the 35-year period ending on the last day of a given plan
year). The Mettler-Toledo Retirement Plan includes all compensation up to the
qualified plan limitations under the Internal Revenue Code of 1986, as amended
($160,000 per year in 1997), and the Mettler-Toledo Supplemental Retirement
Income Plan pays for benefits in excess of these limits. The accrued annual
benefit payable to Mr. Robechek under the Mettler-Toledo Retirement Plan is
$48,717 and the accrued annual benefit under the Mettler-Toledo Supplemental
Plan is $14,292, for a total annual retirement benefit of $63,009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Company's Compensation Committee
during the fiscal year ended December 31, 1997: Reginald H. Jones, Laurence Z.
Y. Moh and Thomas P. Salice. Mr. Salice also served as an officer of the Company
and certain of its subsidiaries during such fiscal year. Mr. Salice is an
officer of AEA Investors, a shareholder of the Company. AEA Investors provided
certain management, consulting and financial services to the Company for
professional service fees and was reimbursed for out-of-pocket expenses. In the
fiscal year ended December 31, 1997, payments for such management fee and
reimbursement for expenses totaled approximately $1 million. Such services
included,
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<PAGE> 64
but were not necessarily limited to, advice and assistance concerning the
strategy, planning and financing of the Company, as needed from time to time.
Such arrangement with AEA Investors was terminated in November 1997 and AEA
Investors was paid a termination fee of $2.5 million in connection therewith.
The Company receives the benefit of volume discounts for certain office services
and supplies made available to various companies associated with AEA Investors
pursuant to arrangements managed by a subsidiary of AEA Investors. Mr. Salice
currently is a director of Mettler-Toledo and a Managing Director of AEA
Investors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the time of the Acquisition, AEA Investors and the Company entered into
a management agreement pursuant to which AEA Investors provided management,
consulting and financial services to the Company. Such services included such
areas as the preparation and evaluation of strategic, operating, financial and
capital plans and the development and implementation of compensation and other
incentive programs. The services were provided by the executive staff of AEA
Investors. In consideration of such services, AEA Investors received an annual
fee of $1.0 million, plus reimbursement for certain expenses and indemnification
against certain liabilities. The Company believes that the terms of these
management arrangements were as favorable as could be obtained from an
unaffiliated third party. The management agreement was terminated upon
consummation of the IPO. In consideration of services by AEA Investors in
arranging, structuring and negotiating the terms of the Acquisition, the Company
paid AEA Investors a transaction fee of $5.5 million and reimbursed AEA
Investors for certain related expenses. In connection with the termination of
the management agreement, the Company paid AEA Investors $2.5 million and
reimbursed AEA Investors for certain related expenses.
Management and other employees of the Company have contributed
approximately $20 million of the equity of the Company. For information
regarding the number of shares owned each Named Executive Officer, see
"Principal and Selling Shareholders."
On October 7, 1996, in order to fund a portion of the purchase price for
the shares purchased by Mr. Spoerry, Mettler-Toledo GmbH entered into a loan
agreement with Mr. Spoerry, in the amount of SFr 1.0 million (approximately
$689,417 at December 31, 1997). The loan bears interest at a rate of 5% and is
payable upon demand, which may not be made until seven years after the date of
the loan.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock immediately prior to the offerings and
as adjusted to reflect the sale of the shares of common stock pursuant to the
offerings, by (a) each person who is known to the Company to be the beneficial
owner of more than five percent of the Company's common stock, (b) each director
of the Company, (c) each of the Named Executive Officers, (d) all directors and
executive officers of the Company as a group and (e) each other selling
shareholder participating in the offerings. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to all shares of common stock owned by them, except to the extent such
power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERINGS NUMBER OF THE OFFERINGS(1)
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED(1) NUMBER PERCENT(2)
- ------------------------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS:
Robert F. Spoerry(3)............. 939,480 2.42% -- 939,480 2.42%
Philip Caldwell(4)............... 98,901 * -- 98,901 *
Reginald H. Jones................ 46,596 * -- 46,596 *
John D. Macomber................. 53,740 * -- 53,740 *
Laurence Z. Y. Moh............... 356,778 * -- 356,778 *
Thomas P. Salice(4).............. 612,259 1.59% -- 612,259 1.59%
NAMED EXECUTIVE OFFICERS:
William P. Donnelly(4)(5)........ 100,545 * -- 100,545 *
Karl M. Lang(6).................. 170,848 * -- 170,848 *
Lukas Braunschweiler(7).......... 167,848 * -- 167,848 *
John D. Robechek(4)(8)........... 156,999 * -- 156,999 *
All directors and executive
officers as a group (13
persons)(9)................... 3,048,309 7.76% -- 3,048,309 7.76%
SELLING SHAREHOLDERS:
National Union Fire Insurance
Company of Pittsburgh, PA..... 1,401,261 3.65% 869,565 531,696 1.38%
Finlayson Fund Investments PTE
LTD........................... 926,562 2.41% 805,706 120,856 *
Nassau Capital Funds L.P......... 506,638 1.32% 431,743 74,895 *
Novartis AG...................... 490,935 1.28% 426,900 64,035 *
66 other selling shareholders,
each of whom is selling less
than 150,000 shares in the
offerings or beneficially owns
less than 1% of the
outstanding common stock prior
to the offerings.............. 4,810,959 12.53% 3,053,086 1,757,873 4.58%
</TABLE>
- ------------------
* The percentage of shares of common stock beneficially owned does not exceed
one percent of the outstanding shares of common stock.
(1) Assumes no exercise of the underwriters' over-allotment options.
(2) Calculations of percentage of beneficial ownership are based on 38,400,363
shares of common stock outstanding on December 31, 1998. Calculations assume
the exercise by only the named shareholder of all options for the purchase
of common stock held by such shareholder which are exercisable within 60
days of the date hereof.
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(3) Mr. Spoerry is also a Named Executive Officer. Includes 444,358 shares of
common stock issuable upon exercise of options that are exercisable within
60 days from the date hereof.
(4) Includes shares held by, or in trust for, members of such individual's
family for which Messrs. Caldwell, Donnelly, Salice and Robechek disclaim
beneficial ownership. Does not include shares held by AEA Investors, of
which Mr. Salice is an officer.
(5) Includes 39,010 shares of common stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(6) Includes 91,389 shares of common stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(7) Includes 91,389 shares of common stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(8) Includes 91,389 shares of common stock issuable upon exercise of options
that are exercisable within 60 days from the date hereof.
(9) Includes Fred Ort, who ceased to be an executive officer on April 1, 1997.
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DESCRIPTION OF CREDIT AGREEMENT
We have summarized some of the important provisions of our credit agreement
below. Because this is a summary, it does not contain all the information that
may be important to you. You should refer to the complete credit agreement that
we filed as an exhibit to our Form 10-K for the year ended December 31, 1997 as
well as an amendment to the credit agreement which we filed as an exhibit to our
Form 10-Q for the quarter ended September 30, 1998.
BORROWERS AND AMOUNT BORROWED
The following subsidiaries are the principal borrowers under the credit
agreement:
- Mettler-Toledo, Inc.
- Mettler-Toledo Holding AG
- Safeline Holding Company
Several other subsidiaries may borrow under the credit agreement for
limited working capital purposes. The borrowers pay interest based on an
interest rate which adjusts as LIBOR changes and the interest rate they pay may
also change each quarter based on our financial performance.
As of September 30, 1998, the total amount of borrowings by us and our
subsidiaries under the credit agreement was $351.5 million. Of this amount,
$188.8 million was borrowed as term loans and $162.7 million was borrowed under
revolving credit facilities. As of September 30, 1998, up to an additional
$239.2 could be borrowed under the revolving credit facility.
As of September 30, 1998, our subsidiaries had borrowings of $26.9 million
under various other credit arrangements.
TERM AND REPAYMENT OF LOANS
Borrowings under the credit agreement mature in May 2004. Starting in 1998,
the term loan is being repaid quarterly. The annual repayment amounts range from
$15 million in 1998 to $40 million in 2003 (based on current exchange rates).
We must also prepay the term loans by the following amounts (each, as set
forth in more detail in the credit agreement):
- the net proceeds from certain asset sales and debt issuances
- a specified percentage (75% or 50%) of our annual excess cash flow
- 50% of the net proceeds from equity issuances
GUARANTEES AND SECURITY FOR LOANS
We have guaranteed all borrowings under the credit agreement, except where
a guarantee would have adverse tax consequences or is prohibited by law, and
have secured this guarantee by pledging all the stock of Mettler-Toledo, Inc.
Most of our subsidiaries have guaranteed or are direct borrowers of
obligations under the credit agreement. In addition, these subsidiaries have
pledged certain of their subsidiary stock holdings and intercompany loan
receivables and granted security interests in other assets to secure their
obligations under the credit agreement. In certain instances, such guarantees
and security are limited by legal or tax considerations.
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RESTRICTIONS ON THE COMPANY
The credit agreement limits the ability of the company and its subsidiaries
to:
- incur liens
- merge, consolidate or dispose of assets
- make loans or investments
- incur indebtedness
- engage in transactions with affiliates
- incur contingent obligations
- pay dividends and make other distributions
- make capital expenditures
We are also required to maintain a minimum net worth and fixed charge
coverage ratio and to keep the ratio of total debt to EBITDA below a specified
level. The credit agreement contains certain other provisions that limit the
activities of the Company and its subsidiaries.
EVENTS OF DEFAULT
If events of default under the credit agreement occur, the lenders may
accelerate all amounts due and terminate all commitments. Depending on the type
of default, the acceleration or termination may happen automatically. Events of
default include (each, as set forth in more detail in the credit agreement):
- non-payment of principal, interest or fees
- breaches of representations or warranties by the borrowers
- failure to observe covenants
- defaults under other indebtedness
- insolvency and bankruptcy related events
- material judgments being entered against us or our subsidiaries
- the loan documents, guarantees or security interests becoming invalid
- the occurrence of a change of control
- the occurrence of certain ERISA or environmental matters
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DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock which are contained in the Amended and
Restated Certificate of Incorporation and Amended By-laws, copies of which are
incorporated by reference as exhibits to the Registration Statement of which
this prospectus is a part. The following description does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of the Amended and Restated Certificate of Incorporation and Amended
By-laws.
The authorized capital stock of the Company consists of 125,000,000 shares
of common stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of December 31,
1998, there were 38,400,363 shares of common stock outstanding, 4,871,842 shares
of common stock issuable upon exercise of outstanding options and no shares of
Preferred Stock outstanding. As of January 4, 1999, there were 584 holders of
record of the Company's common stock. This number excludes beneficial holders of
common stock held in "street name."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders (including
the election of directors) and have no preemptive, subscription or redemption
rights. Holders of common stock do not have cumulative voting rights, and
therefore holders of a majority of the shares voting for the election of
directors can elect all of the directors. In such event, the holders of the
remaining shares will not be able to elect any directors.
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors of the Company out of funds legally available therefor. All
outstanding shares of common stock are fully paid and nonassessable. In the
event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of common stock will be entitled to share ratably in the assets
of the Company remaining after payment or provision for payment of all of the
Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock.
PREFERRED STOCK
The Board of Directors, without further shareholder authorization, is
authorized to issue shares of Preferred Stock in one or more series and to
determine and fix the rights, preferences and privileges of each series,
including dividend rights and preferences over dividends on the common stock and
one or more series of the Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the common stock and one or more series of the
Preferred Stock. Although the Company has no present plans to issue any shares
of Preferred Stock, the issuance of shares of Preferred Stock, or the issuance
of rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of the Company or an unsolicited acquisition
proposal.
CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, AMENDED BY-LAWS AND DELAWARE LAW
The Amended and Restated Certificate of Incorporation, Amended By-laws and
Delaware law contain provisions that could make more difficult the acquisition
of the Company by means of a tender offer, a proxy contest or otherwise. Such
provisions could have the effect of discouraging open market purchases of the
common stock because they may be considered disadvantageous by a shareholder who
desires to participate in a business combination or elect a new director.
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 ("Section 203") of the Delaware General Corporation Law
(the "DGCL"). In general, Section 203 prevents an "interested stockholder"
(defined as a person who, together with affiliates and associates,
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beneficially owns, or if an affiliate or associate of the corporation did
beneficially own within the last three years, 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the time such person
became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the "interested stockholder." A "business
combination" generally includes mergers, stock or asset sales involving 10% or
more of the market value of the corporation's assets or stock, certain stock
transactions and certain other transactions resulting in a financial benefit to
the interested stockholder or an increase in their proportionate share of any
class or series of a corporation. The existence of Section 203 of the DGCL could
have the effect of discouraging an acquisition of the Company or stock
purchasers in furtherance of an acquisition.
Limitation on Directors' Liabilities and Indemnification. The Amended and
Restated Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL as it currently exists, a director of the Company shall
not be liable to the Company or its shareholders for monetary damages for breach
of fiduciary duty as a director. Under the current DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's Amended
and Restated Certificate of Incorporation is to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as director (including breaches resulting from negligent
or grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. The provision does not exonerate the directors from
liability under federal securities laws or limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Amended By-laws provide that the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by the DGCL.
Advance Notice for Shareholder Nomination of Directors and Shareholder
Proposals. The Amended By-laws establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors (the
"Nomination Procedure") and with regard to other matters to be brought by
shareholders before an annual meeting of shareholders of the Company (the
"Business Procedure").
The Nomination Procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Amended By-laws. If the Chairman of the Board of
Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director. Under the Business Procedure, a shareholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Amended By-laws. If the Chairman
of the Board of Directors determines that the other business was not
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properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting.
Although the Amended By-laws do not give the Board of Directors any power
to approve or disapprove shareholder nominations for the election of directors
or of any business desired by shareholders to be conducted at an annual meeting,
the Amended By-laws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed or (ii) may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its shareholders.
REGISTRATION RIGHTS
Holders of the Company's common stock that purchased shares prior to the
IPO have rights to require the Company to register such shares of common stock
for resale pursuant to subscription agreements pursuant to which they acquired
their shares. Upon the request of persons owning at least 25% of the sum of all
outstanding shares of common stock which are then "restricted securities" (as
defined in the Company's registration rights agreements) and which have a value
of at least $5,000,000, the Company is required to register the sale of such
securities, subject to certain limitations and requirements. The Company is not
required to file any registration statement within six months of the effective
date of any earlier registration statement and is not required to file more than
three registration statements pursuant to such requests. In addition, under
certain circumstances, should the Company file a registration statement with the
Securities and Exchange Commission registering shares of the common stock of the
Company, the owners of restricted securities would be entitled to include their
restricted securities in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 1998, the Company had 38,400,363 shares of common stock
outstanding. Except to the extent such shares are subject to the agreement with
the underwriters described below, shares of common stock are freely tradable
without restriction or further registration under the Securities Act of 1933,
unless held by an "affiliate," of the Company as that term is defined in the
Securities Act, which shares will be subject to the resale limitations of Rules
144 and 145 under the Securities Act of 1933.
In general, under Rules 144 and 145 as currently in effect, a shareholder
(or shareholders whose shares are aggregated) who is an "affiliate" of the
Company is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the outstanding common stock
or the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed pursuant
to Rule 144. The holder may only sell such shares through unsolicited brokers'
transactions. Sales under Rules 144 and 145 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A shareholder (or
shareholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a proposed transaction is entitled to sell such
shares under Rule 144 without regard to the limitations described above.
Notwithstanding the foregoing, in connection with the offerings, the
Company, the Company's executive officers and directors and the selling
shareholders, who will collectively hold, after the offerings, 4,811,001 shares
of common stock (assuming no exercise of the underwriters' over-allotment
options) will agree, subject to certain exceptions, not to directly or
indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of
common stock or any securities convertible into or exchangeable or exercisable
for common stock, or file any registration statement under the Securities Act of
1933 with respect to any of the foregoing or (ii) enter into any swap or other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the common stock whether
any such swap or transaction is to be settled by delivery of common stock or
other securities, in cash or otherwise, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the underwriters
for a period of 90 days after the date of this prospectus, other than (i) the
sale to the underwriters of the shares of common stock in connection with the
offerings, (ii) upon the exercise of outstanding stock options, (iii) the
issuance of options pursuant to our stock option plan, or (iv) the filing of a
registration statement on Form S-8 under the Securities Act of 1933 relating to
common stock of the Company issued pursuant to our stock option plan. Certain
other shareholders, who collectively hold a total of 3,330,863 shares, have
similarly agreed not to dispose of or transfer shares without the Company's
consent until March 1, 1999.
The Company has filed a registration statement on Form S-8 (Reg. No.
333-52661) under the Securities Act of 1933 to register 6,368,445 shares of
common stock which are reserved for issuance under its stock option plan. The
Form S-8 includes, in some cases, shares for which an exemption under Rule 144
or Rule 701 under the Securities Act of 1933 would also be available, thus
permitting the resale of shares issued under the Company's stock option plan by
non-affiliates in the public market, without restriction under the Securities
Act of 1933. Such registration statement became effective immediately upon
filing whereupon shares registered thereunder became eligible for sale in the
public market, subject to vesting and, in certain cases, subject to the lock-up
agreements described above. At the date of this prospectus, options to purchase
4,871,842 shares of common stock are outstanding under our stock option plan.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock
applicable to Non-U.S. Holders of such common stock. A "Non-U.S. Holder" is a
person other than:
- any individual who is a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any state
(other than any partnership treated as foreign under U.S. Treasury
regulations),
- an estate whose income is includable in gross income for United States
federal income tax purposes regardless of source, or
- a trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to tax as if they were U.S. citizens.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of common stock may be affected
by certain determinations made at the partner level) and does not consider U.S.
state and local or non-U.S. tax consequences. This discussion also does not
consider the tax consequences for any person who is a shareholder, partner or
beneficiary of a holder of the common stock. Further, it does not consider
Non-U.S. Holders subject to special tax treatment under the federal tax laws
(including but not limited to banks and insurance companies, dealers in
securities, traders in securities that elect mark-to-market accounting treatment
and holders of securities held as part of a "straddle," "hedge," or "conversion
transaction"). The following discussion is based on provisions of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
regulations promulgated and proposed thereunder, and administrative and judicial
interpretations as of the date hereof, all of which are subject to change either
retroactively or prospectively. The following summary is included herein for
general information. ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO
CONSULT A TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES OF
HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR OTHER U.S. OR NON-U.S. TAXING
JURISDICTION.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of common stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. Non-U.S. Holders
should consult their tax advisors regarding their entitlement to benefits under
a relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or, in the case of an individual, a
"fixed base," in the United States ("U.S. trade or business income") are
generally subject to U.S. federal income tax on a net income basis at regular
graduated rates, but are not generally subject to the 30% withholding tax if the
Non-U.S. Holder files the appropriate U.S. Internal Revenue
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Service ("IRS") form with the payor (which form, under U.S. Treasury regulations
generally effective for payments made after December 31, 1999 (the "Final
Regulations"), in certain circumstances may require the Non-U.S. Holder to
provide a U.S. taxpayer identification number). Any U.S. trade or business
income received by a Non-U.S. Holder that is a corporation may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under the Final Regulations, however, a Non-U.S. Holder of
common stock who wishes to claim the benefit of an applicable treaty rate
generally will be required to satisfy applicable certification and other
requirements. In addition, under the Final Regulations, in the case of common
stock held by a foreign partnership, (x) the certification requirement will
generally be applied to the partners of the partnership and (y) the partnership
will be required to provide certain information, including a United States
taxpayer identification number. The Final Regulations also provide look-through
rules for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is U.S. trade or business income (in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder),
- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Code, is present
in the United States for 183 or more days in the taxable year of the
disposition and meets certain other requirements,
- the Non-U.S. Holder is subject to tax pursuant to the provision of the
U.S. tax law applicable to certain United States expatriates, or
- the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition and such period that
the common stock was held.
The tax with respect to stock in a "U.S. real property holding corporation"
does not apply to a Non-U.S. Holder whose holdings, direct and indirect, at all
times during the applicable period, constitute 5% or less of the common stock,
provided that the common stock is regularly traded on an established securities
market. Generally, a corporation is a "U.S. real property holding corporation"
if the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. The Company
is not, and does not anticipate becoming, a "U.S. real property holding
corporation" for U.S. federal income tax purposes.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise. Such individual's estate may be subject to U.S. federal
estate tax on the property includable in the gross estate for U.S. federal
estate tax purposes.
74
<PAGE> 75
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under U.S. Treasury Regulations, the Company may be required to report
annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to
such holder and any tax withheld with respect to such dividends. The information
reporting requirements apply regardless of whether withholding is required.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the Non
U.S.-Holder is a resident under the provisions of an applicable income tax
treaty or agreement.
Under certain circumstances, the IRS requires "information reporting" and
"backup withholding" at a rate of 31% with respect to certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from IRS reporting requirements and U.S. backup
withholding with respect to dividends payable on common stock. Under the Final
Regulations, however, a Non-U.S Holder of common stock that fails to certify its
Non-U.S. Holder status in accordance with the requirements of the Final
Regulations may be subject to U.S. backup withholding at a rate of 31% on
payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup withholding
at a rate of 31% unless the holder either certifies its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a Non-U.S. Holder of common stock
to or through a non-U.S. office of a non-U.S. broker will not be subject to
backup withholding or information reporting unless the non-U.S. broker has
certain U.S. relationships. In the case of the payment of proceeds from the
disposition of common stock effected by a foreign office of a broker that is a
U.S. person or a "U.S. related person," existing regulations require information
reporting (but currently not backup withholding) on the payment unless the
broker receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
- a "controlled foreign corporation" for U.S. federal income tax purposes,
or
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment (or for such part of the period that the broker has been in
existence) is derived from activities that are effectively connected with
the conduct of a U.S. trade or business.
Under the Final Regulations, the payment of the proceeds of the disposition
by a Non-U.S. Holder of common stock to or through a broker having certain
enumerated connections with the United States may be subject to information
reporting and backup withholding at a rate of 31% unless certain IRS
certification requirements are satisfied or an exemption is otherwise
established. Prospective Non-U.S. Holders should consult with their own tax
advisors regarding the application of the Final Regulations to their particular
circumstances.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's U.S. federal
income tax liability, if any) provided that the required information is
furnished to the IRS.
75
<PAGE> 76
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), BT
Alex. Brown Incorporated, Credit Suisse First Boston Corporation, Goldman, Sachs
& Co. and J.P. Morgan Securities Inc. are acting as underwriters (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S. purchase
agreement (the "U.S. Purchase Agreement") among the Company, the selling
shareholders and the U.S. Underwriters, and concurrently with the sale of
1,117,400 shares of common stock to the International Managers (as defined
below), the selling shareholders have agreed to sell to the U.S. Underwriters,
and each of the U.S. Underwriters severally and not jointly has agreed to
purchase from the selling shareholders the number of shares of common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
U.S. UNDERWRITER ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 893,920
BT Alex. Brown Incorporated................................. 893,920
Credit Suisse First Boston Corporation...................... 893,920
Goldman, Sachs & Co......................................... 893,920
J.P. Morgan Securities Inc.................................. 893,920
---------
Total.......................................... 4,469,600
=========
</TABLE>
The Company and the selling shareholders have also entered into an
international purchase agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom
Merrill Lynch International, BT Alex. Brown International, a division of Bankers
Trust International PLC, Credit Suisse First Boston (Europe) Limited, Goldman
Sachs International and J.P. Morgan Securities Ltd. are acting as lead managers
(the "Lead Managers"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 4,469,600
shares of common stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the selling shareholders have agreed to sell to the International
Managers, and the International Managers severally have agreed to purchase from
the selling shareholders, an aggregate of 1,117,400 shares of common stock. The
initial public offering price per share and the total underwriting discount per
share of common stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. Under certain circumstances, under the U.S.
Purchase Agreement and the International Purchase Agreement, the commitments of
non-defaulting Underwriters may be increased. The closings with respect to the
sale of shares of common stock to be purchased by the U.S. Underwriters and the
International Managers are conditioned upon one another.
The U.S. Underwriters have advised the Company and the selling shareholders
that the U.S. Underwriters propose initially to offer the shares of common stock
to the public at the initial public offering price set forth on the cover page
of this prospectus, and to certain dealers at such price less a concession not
in excess of $.70 per share of common stock. The U.S. Underwriters may allow,
and such dealers may reallow, a discount not in excess of $.10 per share of
common stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The selling shareholders have granted options to the U.S. Underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 670,440 additional shares of common stock at the initial public
offering price set forth on the cover page of this prospectus, less the
underwriting discount. The U.S. Underwriters may exercise these options solely
to cover over-allotments, if any, made on the sale of the common stock offered
hereby. To the extent that the U.S. Underwriters exercise these
76
<PAGE> 77
options, each U.S. Underwriter will be obligated, subject to certain conditions,
to purchase a number of additional shares of common stock proportionate to such
U.S. Underwriter's initial amount reflected in the foregoing table. The selling
shareholders also have granted options to the International Managers,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 167,610 additional shares of common stock to cover over-allotments,
if any, on terms similar to those granted to the U.S. Underwriters.
The following table shows the per share and total underwriting discounts
and commissions to be paid by the selling shareholders to the Underwriters. This
information is presented assuming either no exercise or full exercise by the
Underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- ------------
<S> <C> <C> <C>
Public Offering Price............................. $26.375 $147,357,125 $169,460,693
Underwriting Discount............................. $1.25 $6,983,750 $8,031,312
Proceeds to Selling Shareholders.................. $25.125 $140,373,375 $161,429,381
</TABLE>
The Underwriters have agreed to pay certain expenses of the Company
incurred in connection with the offerings estimated at $350,000.
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
The Company, the Company's executive officers and directors and the selling
shareholders, who will collectively hold, after the offerings, 4,811,001 shares
of common stock (assuming no exercise of the Underwriters' over-allotment
options) have agreed, subject to certain exceptions, not to directly or
indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any shares
of common stock or securities convertible into or exchangeable or exercisable
for common stock or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership of the
common stock whether any such swap or transaction is to be settled by delivery
of common stock or other securities, in cash or otherwise, without the prior
written consent of Merrill Lynch on behalf of the Underwriters for a period of
90 days after the date of this prospectus. Certain other shareholders, who
collectively hold a total of 3,330,863 shares, have similarly agreed not to
dispose of or transfer shares without the Company's consent until March 1, 1999.
See "Shares Eligible for Future Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
common stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of common stock will not offer to sell or sell shares of common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of common
stock will not offer to sell or sell shares of common stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.
The Company and the selling shareholders have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the U.S. Underwriters and the International Managers may be required to
make in respect thereof.
77
<PAGE> 78
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the common stock. As an exception to these rules, the U.S.
Underwriters are permitted to engage in certain transactions that stabilize the
price of the common stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the common stock.
If the Underwriters create a short position in the common stock in
connection with the offerings, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the U.S. Underwriters
may reduce that short position by purchasing common stock in the open market.
The U.S. Underwriters may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
None of the Company, the selling shareholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the common
stock. In addition, none of the Company, the selling shareholders nor any of the
Underwriters makes any representation that the U.S. Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Underwriters have from time to time provided investment banking
financial advisory services to the Company and AEA Investors and its affiliates,
for which they have received customary compensation, and may continue to do so
in the future. Merrill Lynch served as lead manager and Credit Suisse First
Boston Corporation served as co-manager of the offering of senior subordinated
notes of the Company in October 1996, Merrill Lynch served as the Arranger and
Documentation Agent and an affiliate of Credit Suisse First Boston Corporation
served as co-agent in connection with the Company's previous credit facility and
the credit agreement for which they received customary compensation. An
affiliate of Credit Suisse First Boston Corporation and Merrill Lynch and its
affiliates were lenders under the Company's previous credit facility and are
lenders under the credit agreement. Merrill Lynch, BT Alex. Brown Incorporated,
Credit Suisse First Boston Corporation and Goldman, Sachs & Co. and certain of
their affiliates acted as underwriters in connection with the Company's IPO and
June 1998 secondary offering.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for the Company by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), London,
England. Certain legal matters relating to the offerings will be passed upon for
the Underwriters by Debevoise & Plimpton, New York, New York. Certain partners
of Fried, Frank, Harris, Shriver & Jacobson own common stock of the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of Mettler-Toledo International Inc.
and subsidiaries (as defined in Note 1 to the audited consolidated financial
statements included as part of this prospectus) as of December 31, 1996 and 1997
and for the year ended December 31, 1995, for the period January 1, 1996 to
October 14, 1996, for the period October 15, 1996 to December 31, 1996 and for
the year ended December 31, 1997, included herein and incorporated in this
prospectus by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, have been audited by KPMG Fides Peat, independent
auditors, as set forth in their reports appearing elsewhere and have been so
included and incorporated in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
78
<PAGE> 79
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 with respect to the common
stock offered hereby under the Securities Act. This prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
omitted as permitted by the rules and regulations of the Commission. For further
information pertaining to Mettler-Toledo and the common stock offered hereby,
please see the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this prospectus regarding the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, we
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information, as well as the Registration
Statement and the exhibits and schedules thereto, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such materials can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005 or on the Commission's site on the Internet at
http://www.sec.gov. You can call the SEC at 1-800-SEC-0330 for further
information on its public reference facilities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (File No. 0-22493) are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended by Amendment No. 1 to the Company's Annual
Report on Form 10-K, filed December 23, 1998;
(2) The Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1998, June 30, 1998 and September 30, 1998; and
(3) The description of the common stock contained in the Company's
Registration Statement on Form 8-A, as amended, filed with the Commission
on December 16, 1997, which incorporates by reference the description of
the Company's common stock contained in its Registration Statement, as
amended, on Form S-1 (Reg. No. 333-35597) filed with the Commission on
November 10, 1997.
All other documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this prospectus and prior to the termination of these offerings shall be deemed
to be incorporated by reference herein and to be a part hereof from the
respective dates of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
79
<PAGE> 80
Upon request, we will provide without charge to any person to whom this
prospectus is delivered, a copy of any and all information incorporated by
reference in this prospectus, other than exhibits to such information (unless
such exhibits are specifically incorporated by reference in such documents). If
you wish to request information that has been incorporated by reference, please
direct your request to William P. Donnelly, Mettler-Toledo International Inc.,
Im Langacher, P.O. Box MT-100, CH-8606 Greifensee, Switzerland (telephone
011-41-1-944-22-11).
80
<PAGE> 81
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the year ended
December 31, 1995 and for the period January 1, 1996 to
October 14, 1996 and for the period October 15, 1996 to
December 31, 1996 and for the year ended December 31,
1997...................................................... F-4
Consolidated Statements of Changes in Net
Assets/Shareholders' Equity for the year ended December
31, 1995 and for the period January 1, 1996 to October 14,
1996 and for the period October 15, 1996 to December 31,
1996 and
for the year ended December 31, 1997...................... F-5
Consolidated Statements of Cash Flows for the year ended
December 31, 1995 and
for the period January 1, 1996 to October 14, 1996 and for
the period October 15, 1996
to December 31, 1996 and for the year ended December 31,
1997...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Interim Consolidated Balance Sheets as of December 31, 1997
and September 30, 1998.................................... F-30
Interim Consolidated Statements of Operations for the nine
months ended September 30, 1997 and 1998.................. F-31
Interim Consolidated Statements of Shareholders' Equity for
the nine months ended September 30, 1997 and 1998......... F-32
Interim Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1998.................. F-33
Notes to the Interim Consolidated Financial Statements...... F-34
</TABLE>
F-1
<PAGE> 82
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. (formerly "MT Investors Inc.") and subsidiaries (as defined
in Note 1 to the consolidated financial statements) as of December 31, 1996 and
1997, and the related consolidated statements of operations, net
assets/shareholders' equity and cash flows for the year ended December 31, 1995
and for the period January 1, 1996 to October 14, 1996, the Predecessor periods,
and for the period October 15, 1996 to December 31, 1996, and for the year ended
December 31, 1997, 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, 1996 and
1997, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1995 and for the period January 1, 1996 to October
14, 1996, the Predecessor periods, and for the period October 15, 1996 to
December 31, 1996, and for the year ended December 31, 1997, 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 6, 1998
F-2
<PAGE> 83
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 60,696 $ 23,566
Trade accounts receivable, less allowances of $8,388 in
1996 and $7,669 in 1997................................ 151,161 153,619
Inventories............................................... 102,526 101,047
Deferred taxes............................................ 7,565 7,584
Other current assets and prepaid expenses................. 17,268 24,066
-------- --------
Total current assets................................... 339,216 309,882
Property, plant and equipment, net.......................... 255,292 235,262
Excess of cost over net assets acquired, net of accumulated
amortization of $982 in 1996 and $6,427 in 1997........... 135,490 183,318
Non-current deferred taxes.................................. 3,916 5,045
Other assets................................................ 37,974 15,806
-------- --------
Total assets........................................... $771,888 $749,313
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 32,797 $ 39,342
Accrued and other liabilities............................. 79,857 80,844
Accrued compensation and related items.................... 35,457 43,214
Taxes payable............................................. 17,580 33,267
Deferred taxes............................................ 9,132 10,486
Short-term borrowings and current maturities of long-term
debt................................................... 80,446 56,430
-------- --------
Total current liabilities.............................. 255,269 263,583
Long-term debt.............................................. 373,758 340,334
Non-current deferred taxes.................................. 30,467 25,437
Other non-current liabilities............................... 96,810 91,011
-------- --------
Total liabilities...................................... 756,304 720,365
Minority interest........................................... 3,158 3,549
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 (excluding 64,467
shares held in treasury) at December 31, 1997.......... -- 383
Class A, B and C common stock, $0.01 par value per share;
authorized 2,775,976 shares; issued 2,438,514 at
December 31, 1996...................................... 25 --
Additional paid-in capital................................ 188,084 284,630
Accumulated deficit....................................... (159,046) (224,152)
Currency translation adjustment........................... (16,637) (35,462)
-------- --------
Total shareholders' equity............................. 12,426 25,399
Commitments and contingencies...............................
-------- --------
Total liabilities and shareholders' equity............. $771,888 $749,313
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements
F-3
<PAGE> 84
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ----------------------------------
YEAR ENDED FOR THE PERIOD FOR THE PERIOD YEAR ENDED
DECEMBER 31, JANUARY 1, 1996 TO OCTOBER 15, 1996 TO DECEMBER 31,
1995 OCTOBER 14, 1996 DECEMBER 31, 1996 1997
------------ ------------------- ------------------- ------------
<S> <C> <C> <C> <C>
Net sales............................. $850,415 $662,221 $ 186,912 $878,415
Cost of sales......................... 508,089 395,239 136,820 493,480
-------- -------- ---------- ----------
Gross profit........................ 342,326 266,982 50,092 384,935
Research and development.............. 54,542 40,244 9,805 47,551
Selling, general and administrative... 248,327 186,898 59,353 260,397
Amortization.......................... 2,765 2,151 1,065 6,222
Purchased research and development.... -- -- 114,070 29,959
Interest expense...................... 18,219 13,868 8,738 35,924
Other charges (income), net........... (9,331) (1,332) 17,137 10,834
-------- -------- ---------- ----------
Earnings (loss) before taxes,
minority interest and
extraordinary items.............. 27,804 25,153 (160,076) (5,952)
Provision for taxes................... 8,782 10,055 (938) 17,489
Minority interest..................... 768 637 (92) 468
-------- -------- ---------- ----------
Net earnings (loss) before
extraordinary items.............. 18,254 14,461 (159,046) (23,909)
Extraordinary items-debt
extinguishments, net of tax......... -- -- -- (41,197)
-------- -------- ---------- ----------
Net earnings (loss)................. $ 18,254 $ 14,461 $(159,046) $(65,106)
======== ======== ========== ==========
Basic and diluted loss per common
share:
Loss before extraordinary items..... $ (5.18) $ (0.76)
Extraordinary items................. -- (1.30)
---------- ----------
Net loss............................ $ (5.18) $ (2.06)
========== ==========
Weighted average number of common
shares........................... 30,686,065 31,617,071
</TABLE>
See the accompanying notes to the consolidated financial statements
F-4
<PAGE> 85
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS/
SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------
YEAR ENDED DECEMBER 31, 1995
AND FOR THE PERIOD
JANUARY 1, 1996 TO OCTOBER 14, 1996
-------------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
Net assets at December 31, 1994............................. $218,129 $10,065 $228,194
Capital transactions with Ciba and affiliates............... (73,779) -- (73,779)
Net earnings................................................ 18,254 -- 18,254
Change in currency translation adjustment................... -- 20,585 20,585
-------- ------- --------
Net assets at December 31, 1995............................. 162,604 30,650 193,254
Capital transactions with Ciba and affiliates............... (88,404) -- (88,404)
Net earnings................................................ 14,461 -- 14,461
Change in currency translation adjustment................... -- (6,538) (6,538)
-------- ------- --------
Net assets at October 14, 1996.............................. $ 88,661 $24,112 $112,773
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------
FOR THE PERIOD FROM OCTOBER 15, 1996 TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
COMMON STOCK
ALL CLASSES ADDITIONAL CURRENCY
------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT 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
Net loss........................................... -- -- -- (159,046) -- (159,046)
Change in currency translation adjustment.......... -- -- -- -- (16,637) (16,637)
---------- ---- -------- --------- -------- ---------
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
Net loss........................................... -- -- -- (65,106) -- (65,106)
Change in currency translation adjustment.......... -- -- -- -- (18,825) (18,825)
---------- ---- -------- --------- -------- ---------
Balance at December 31, 1997....................... 38,336,014 $383 $284,630 $(224,152) $(35,462) $ 25,399
========== ==== ======== ========= ======== =========
</TABLE>
See the accompanying notes to the consolidated financial statements
F-5
<PAGE> 86
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------- -----------------------------------
YEAR ENDED FOR THE PERIOD FOR THE PERIOD YEAR ENDED
DECEMBER 31, JANUARY 1, 1996 TO OCTOBER 15, 1996 TO DECEMBER 31,
1995 OCTOBER 14, 1996 DECEMBER 31, 1996 1997
------------ ------------------ -------------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................... $ 18,254 $ 14,461 $(159,046) $(65,106)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation........................................ 30,598 19,512 7,925 25,613
Amortization........................................ 2,765 2,151 1,065 6,222
Write-off of purchased research and development and
cost of sales associated with revaluation of
inventories....................................... -- -- 146,264 32,013
Extraordinary items................................. -- -- -- 41,197
Net loss (gain) on disposal of long-term assets..... (1,053) (768) -- 33
Deferred taxes and adjustments to goodwill.......... (551) (1,934) (4,563) (4,244)
Minority interest................................... 768 637 (92) 468
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net...................... (9,979) 9,569 (10,159) (8,113)
Inventories......................................... (607) 1,276 3,350 (2,740)
Other current assets................................ (3,058) 14,748 (10,605) (7,177)
Trade accounts payable.............................. 1,437 (3,065) 3,415 4,936
Accruals and other liabilities, net................. 13,095 5,948 32,030 32,547
-------- -------- --------- --------
Net cash provided by operating activities......... 51,669 62,535 9,584 55,649
-------- -------- --------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment... 4,000 1,606 736 15,913
Purchase of property, plant and equipment............. (25,858) (16,649) (11,928) (22,251)
Acquisition of Mettler-Toledo from Ciba............... -- -- (314,962) --
Acquisition, net of seller financing.................. -- -- -- (80,469)
Other investing activities............................ (7,484) (1,632) 4,857 (9,184)
-------- -------- --------- --------
Net cash used in investing activities............. (29,342) (16,675) (321,297) (95,991)
-------- -------- --------- --------
Cash flows from financing activities:
Proceeds from borrowings.............................. 3,983 -- 414,170 614,245
Repayments of borrowings.............................. -- (13,464) -- (703,201)
Proceeds from issuance of common stock................ -- -- 188,108 97,573
Purchase of treasury stock............................ -- -- -- (669)
Ciba and affiliates borrowings (repayments)........... (15,693) (26,589) (184,666) --
Capital transactions with Ciba and affiliates......... (37,361) (7,716) (80,687) --
-------- -------- --------- --------
Net cash provided by (used in) financing
activities...................................... (49,071) (47,769) 336,925 7,948
-------- -------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents........................................... 4,344 (3,394) (615) (4,736)
-------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents.... (22,400) (5,303) 24,597 (37,130)
Cash and cash equivalents:
Beginning of period................................... 63,802 41,402 36,099 60,696
-------- -------- --------- --------
End of period......................................... $ 41,402 $ 36,099 $ 60,696 $ 23,566
======== ======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................ $ 18,927 $ 6,524 $ 17,874 $ 38,345
Taxes............................................... 9,970 9,385 2,470 6,140
Non-cash financing and investing activities:
Due to Ciba for capital transactions.................. 36,418 -- -- --
Seller financing on acquisition....................... -- -- -- 22,514
</TABLE>
See the accompanying notes to the consolidated financial statements
F-6
<PAGE> 87
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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"), formerly MT Investors Inc., is a global supplier of precision
instruments and is a manufacturer and marketer of weighing instruments for use
in laboratory, industrial and food retailing applications. The Company also
manufactures and sells certain related analytical and measurement technologies.
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 Company was incorporated by AEA Investors Inc. ("AEA Investors") and
recapitalized to effect the acquisition (the "Acquisition") of the
Mettler-Toledo Group ("Predecessor") from Ciba-Geigy AG ("Ciba") and its wholly
owned subsidiary, AG fur Prazisionsinstrumente ("AGP") on October 15, 1996. The
Company acquired the Mettler-Toledo Group for cash consideration of SFr. 504,996
(approximately $402,000) including dividends of SFr. 109,406 (approximately
$87,100) which were paid to Ciba by the Company in conjunction with the
Acquisition. In addition, the Company incurred expenses in connection with the
Acquisition and related financing of approximately $29,000, including
approximately $5,500 paid to AEA Investors, and paid approximately $185,000 to
settle amounts due to Ciba and affiliates. The Company has accounted for the
Acquisition using the purchase method of accounting. Accordingly, the costs of
the Acquisition were allocated to the assets acquired and liabilities assumed
based upon their respective fair values.
In connection with the Acquisition, the Company allocated, based upon
independent valuations, $114,070 of the purchase price to purchased research and
development in process. Such amount was recorded as an expense in the period
from October 15, 1996 to December 31, 1996. Additionally, the Company allocated
approximately $32,200 of the purchase price to revalue certain inventories
(principally work-in-process and finished goods) to fair value (net realizable
value). Substantially all of such inventories were sold during the period from
October 15, 1996 to December 31, 1996. The excess of the cost of the Acquisition
over the fair value of the net assets acquired of approximately $137,500 is
being amortized over 32 years. Because of this purchase price allocation, the
accompanying financial statements of the Successor are not directly comparable
to those of the Predecessor.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America and
include all entities in which the Company has control, including its majority
owned subsidiaries. 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. Certain
amounts in the prior period financial statements have been reclassified to
conform with current year presentation.
The combined financial statements of the Predecessor 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 period. Actual results may differ from those
estimates.
F-7
<PAGE> 88
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is charged on a straight line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements......................... 15 to 50 years
Machinery and equipment............................ 3 to 12 years
Computer software.................................. 3 to 5 years
Leasehold improvements............................. Shorter of useful life or lease term
</TABLE>
Beginning January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. Adoption of SFAS 121 had no material
effect on the consolidated financial statements.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over the expected period to be benefited. The
Company assesses the recoverability of such amount by determining whether the
amortization of the balance over its remaining life can be recovered from the
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of the excess of cost over net
assets acquired will be impacted if estimated future operating cash flows are
not achieved.
DEFERRED FINANCING COSTS
Debt financing costs are deferred and amortized over the life of the
underlying indebtedness using the interest method.
TAXATION
The Company files tax returns in each jurisdiction in which it operates.
Prior to the Acquisition discussed in Note 1, in certain jurisdictions the
Company filed its tax returns jointly with other Ciba
F-8
<PAGE> 89
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
subsidiaries. The Company had a tax sharing arrangement with Ciba in these
countries to share the tax burden or benefits. Such arrangement resulted in each
company's tax burden or benefit equating to that which it would have incurred or
received if it had been filing a separate tax return.
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 United States 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.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs, including customer engineering (which represents research and
development charged to customers and, accordingly, is included in cost of
sales), amounted to approximately $62,400, $45,100, $11,100 and $50,200 for the
year ended December 31, 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 year
ended December 31, 1997, respectively.
CURRENCY TRANSLATION AND TRANSACTIONS
The reporting currency for the consolidated financial statements of the
Company is the United States dollar (USD). The functional currency for the
Company's operations is generally the applicable local currency. Accordingly,
the assets and liabilities of companies whose functional currency is other than
the USD are included in the consolidation by translating the assets and
liabilities into the reporting currency at the exchange rates applicable at the
end of the reporting year. The statements of operations and cash flows of such
non-USD functional currency operations are translated at the monthly average
exchange rates during the year. Translation gains or losses are accumulated as a
separate component of net assets/shareholders' equity.
The Company has designated certain of its Swiss franc debt as a hedge of
its net investments. Any gains and losses due to changes on the debt are
recorded to currency translation adjustment and offset the net investments which
they hedge.
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
unrealized gains and losses being recognized in other charges (income), net.
F-9
<PAGE> 90
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company 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 over the life of the
agreements. Realized and unrealized gains on interest rate cap agreements are
recognized as adjustments to interest expense as incurred.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock option plan.
LOSS PER COMMON SHARE
Effective December 31, 1997, the Company adopted the Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Accordingly,
basic and diluted loss per common share data for each period presented have been
determined in accordance with the provisions of SFAS 128. Outstanding options to
purchase shares of common stock, as described in Note 11, were not included in
the computation of diluted loss per common share for the periods ended December
31, 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.
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.
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.
3. BUSINESS COMBINATIONS
On May 30, 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 L61,000 (approximately
$100,000), plus up to an additional L6,000 (approximately $10,000) for a
contingent earn-out payment. In October 1997, the Company made an additional
payment, representing a post-closing adjustment, of L1,900 (approximately
$3,100). Such amount has been accounted for as additional purchase price. Under
the terms of the agreement the Company paid approximately L47,300 (approximately
$77,400) of the purchase price in cash, provided by amounts loaned under its
credit agreement, with the remaining balance of approximately L13,700
(approximately $22,400) paid in the form of seller loan notes which mature May
30, 1999. In connection with the acquisition the Company incurred expenses of
approximately $2,200 which have been accounted for as part of the purchase
price.
F-10
<PAGE> 91
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS -- (CONTINUED)
The Company has accounted for the acquisition using the purchase method of
accounting. Accordingly, the costs of the acquisition were allocated to the
assets acquired and liabilities assumed based upon their respective fair values.
Approximately $30,000 of the purchase price was attributed to purchased research
and development in process. Such amount was expensed immediately in the second
quarter of 1997. The technological feasibility of the products being developed
had not been established as of the date of the acquisition. The Company expects
that the projects underlying these research and development efforts will be
substantially complete over the next two years. In addition, the Company
allocated approximately $2,100 of the purchase price to revalue certain finished
goods inventories to fair value. Substantially all of such inventories were sold
in the second quarter of 1997. The excess of the cost of the acquisition over
the fair value of the net assets acquired of approximately $65,000 is being
amortized over 30 years. The results of operations and cash flows of Safeline
have been consolidated with those of the Company from the date of the
acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the Acquisition (see Note 1) and Safeline
acquisition had been completed as of the beginning of each of the periods
presented, after giving effect to certain adjustments, including Safeline's
historical results of operations prior to the acquisition date, depreciation and
amortization of the assets acquired based upon their fair values, increased
interest expense from the financing of the acquisitions and income tax effects.
The Company allocated a portion of the purchase prices to (i) in-process
research and development projects, that have economic value and (ii) the
revaluation of inventories. These adjustments have not been reflected in the
following pro forma summary due to their unusual and non-recurring nature. This
pro forma summary does not necessarily reflect the results of operations as they
would have been if the acquisitions had been completed as of the beginning of
such periods and is not necessarily indicative of the results which may be
obtained in the future.
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------------------
PREDECESSOR SUCCESSOR
------------------ ----------------------------------
FOR THE PERIOD FOR THE PERIOD YEAR ENDED
JANUARY 1, 1996 TO OCTOBER 15, 1996 TO DECEMBER 31,
OCTOBER 14, 1996 DECEMBER 31, 1996 1997
------------------ ------------------- ------------
<S> <C> <C> <C>
Net sales......................................... $694,231 $195,336 $897,448
Earnings (loss) before extraordinary items........ 826 (2,128) 9,565
Net earnings (loss)............................... $ 826 $ (2,128) $(31,632)
======== ======== ========
Basic and diluted loss per common share........... $ (0.07) $ (1.00)
======== ========
</TABLE>
F-11
<PAGE> 92
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Raw materials and parts..................................... $ 41,015 $ 42,435
Work-in-progress............................................ 31,534 29,746
Finished goods.............................................. 29,982 28,968
-------- --------
102,531 101,149
LIFO reserve................................................ (5) (102)
-------- --------
$102,526 $101,047
======== ========
</TABLE>
At December 31, 1996 and 1997, 13.2% and 12.7%, respectively, of the
Company's inventories (certain U.S. companies only) were valued using the LIFO
method of accounting. There were no material liquidations of LIFO inventories
during the periods presented.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
At December 31, 1996, the Company had forward contracts maturing during
1997 to sell the equivalent of approximately $135,000 in various currencies in
exchange for Swiss francs. These contracts were used to limit its exposure to
currency fluctuations on anticipated future cash flows.
In July 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 $100,000
of U.S. dollar based debt from variable to fixed. The fixed rate associated with
the swap is 6.09% plus the Company's normal interest margin. The swap is
effective at three month LIBOR rates up to 7.00%.
In August 1997, the Company entered into certain three year interest rate
swap agreements that fix the interest obligation associated with SFr. 112,500 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
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, 1996 and 1997, the fair value of such financial instruments
was approximately $(5,100) and $(1,064), 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-12
<PAGE> 93
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Land........................................................ $ 63,514 $ 58,226
Buildings and leasehold improvements........................ 120,173 111,065
Machinery and equipment..................................... 75,675 93,418
Computer software........................................... 3,067 3,948
-------- --------
262,429 266,657
Less accumulated depreciation and amortization.............. (7,137) (31,395)
-------- --------
$255,292 $235,262
======== ========
</TABLE>
7. OTHER ASSETS
Other assets include deferred financing fees of $22,015 and $4,101, net of
accumulated amortization of $820 and $76 at December 31, 1996 and 1997,
respectively. During 1997, the Company wrote off deferred financing costs
associated with its previous credit facilities and its Senior Subordinated Notes
as further discussed in Note 9. Also included in other assets are restricted
bank deposits of $5,960 and $1,756 at December 31, 1996 and 1997, respectively.
Other assets at December 31, 1996 and 1997 also included a loan due from the
Company's Chief Executive Officer of approximately $740 and $690, respectively.
Such 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:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Current maturities of long-term debt........................ $ 8,968 $ 14,915
Borrowings under revolving credit facility.................. 51,928 33,320
Other short-term borrowings................................. 19,550 8,195
-------- --------
$ 80,446 $ 56,430
======== ========
</TABLE>
F-13
<PAGE> 94
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
9.75% Senior Subordinated Notes due October 1, 2006......... $135,000 $ --
Credit Agreement:
Term A USD Loans, interest at LIBOR plus 1.125% (7.03% at
December 31, 1997) payable in quarterly installments
beginning March 31, 1998 due May 19, 2004.............. -- 101,573
Term A SFr. Loans, interest at LIBOR plus 1.125% (2.57% at
December 31, 1997) payable in quarterly installments
beginning March 31, 1998 due May 19, 2004.............. -- 58,991
Term A GBP Loans, interest at LIBOR plus 1.125% (8.71% at
December 31, 1997) payable in quarterly installments
beginning March 31, 1998 due May 19, 2004.............. -- 36,198
Seller Notes, interest at LIBOR plus 0.26% (7.84% at
December 31, 1997) due in full May 30, 1999............ -- 22,946
Term A SFr. Loans, interest at LIBOR plus 2.5% (4.38% at
December 31, 1996) payable in quarterly installments
beginning March 31, 1997 due December 31, 2002......... 92,730 --
Term B USD Loans, interest at LIBOR plus 3.00% (8.53% at
December 31, 1996) payable in quarterly installments
beginning March 31, 1997 due December 31, 2003......... 75,000 --
Term C USD Loans, interest at LIBOR plus 3.25% (8.78% at
December 31, 1996) payable in quarterly installments
beginning March 31, 1997 due December 31, 2004......... 72,000 --
Revolving credit facilities............................... 51,928 160,862
Other....................................................... 27,546 16,194
-------- --------
454,204 396,764
Less current maturities..................................... 80,446 56,430
-------- --------
$373,758 $340,334
======== ========
</TABLE>
To provide a portion of the financing required for the Acquisition and for
working capital and for general corporate purposes thereafter, in October 1996
Mettler-Toledo Holding Inc., a wholly owned subsidiary of the Company, entered
into a credit agreement with various banks.
At December 31, 1996, loans under the credit agreement consisted of: (i)
Term A Loans in an aggregate principal amount of SFr. 125,000 ($92,730 at
December 31, 1996), (ii) Term B Loans in an aggregate principal amount of
$75,000, (iii) Term C loans in an aggregate principal amount of $72,000 and (iv)
a multi-currency revolving credit facility in an aggregate principal amount of
$140,000, which included letter of credit and swingline subfacilities available
to certain subsidiaries.
On May 29, 1997, the Company refinanced its previous credit facility and
entered into a new credit facility. This credit facility provided for term loan
borrowings in an aggregate principal amount of approximately $133,800, SFr.
171,500 and L26,700, that were scheduled to mature between 2002 and 2004, a
Canadian revolving credit facility with availability of CDN $26,300 and a
multi-currency revolving credit facility with availability of $151,000. The
revolving credit facilities were scheduled to mature in 2002. The
F-14
<PAGE> 95
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
9. LONG-TERM DEBT -- (CONTINUED)
Company recorded an extraordinary loss of approximately $9,600 representing a
charge for the write-off of capitalized debt issuance fees and related expenses
associated with the Company's previous credit facility.
On November 19, 1997, in connection with the initial public offering, the
Company refinanced its existing credit facility by entering into a new credit
facility (the "Credit Agreement") with certain financial institutions.
At December 31, 1997, loans under the Credit Agreement consisted of: (i)
Term A Loans in aggregate principal amount of $101,573, SFr. 85,467 ($58,991 at
December 31, 1997) and L21,661 ($36,198 at December 31, 1997); (ii) a Canadian
revolving credit facility with availability of CDN $26,300 and (iii) a
multi-currency revolving credit facility in an aggregate principal amount of
$400,000 including a $100,000 acquisition facility.
Concurrent with the initial public offering and refinancing, the Company
consummated a tender offer to repurchase the Senior Subordinated Notes. The
aggregate purchase price in connection with the tender offer was approximately
$152,500. In connection with the refinancing and the note repurchase, the
Company recorded an extraordinary loss of $31,600 representing primarily the
premium paid in connection with the early extinguishment of the notes of $17,900
and the write-off of capitalized debt issuance fees associated with the Senior
Subordinated Notes and the Company's previous credit facility.
The Company's weighted average interest rate at December 31, 1997 was
approximately 6.3%.
Loans under the Credit Agreement may be repaid and reborrowed and are due
in full on May 19, 2004. The Company is required to pay a facility fee based
upon certain financial ratios per annum on the amount of the revolving facility
and letter of credit fees on the aggregate face amount of letters of credit
under the revolving facility. The facility fee at December 31, 1997 was equal to
0.3%. At December 31, 1997, the Company had available approximately $220,000 of
additional borrowing capacity under its Credit Agreement. The Company has the
ability to refinance its short-term borrowings through its revolving facility
for an uninterrupted period extending beyond one year. Accordingly,
approximately $128,000 of the Company's short-term borrowings at December 31,
1997 have been reclassified to long-term. At December 31, 1997, borrowings under
the Company's revolving facility carried an interest rate of LIBOR plus 0.825%.
The Credit Agreement contains covenants that, among other things, limit the
Company's ability to incur liens; merge, consolidate or dispose of assets; make
loans and investments; incur indebtedness; engage in certain transactions with
affiliates; incur certain contingent obligations; pay dividends and other
distributions; or make certain capital expenditures. The Credit Agreement also
requires the Company to maintain a minimum net worth and a minimum fixed charge
coverage ratio, and to maintain a ratio of total debt to EBITDA below a
specified maximum.
The aggregate maturities of long-term obligations during each of the years
1999 through 2002 are approximately $42,748, $32,691, $34,531 and $34,531,
respectively.
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.
F-15
<PAGE> 96
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
10. SHAREHOLDERS' EQUITY
COMMON STOCK
At December 31, 1996, the authorized capital stock of the Company consisted
of 2,775,976 shares of common stock, $.01 par value of which 2,233,117 shares
were designated as Class A common stock, 1,000 shares were designated as Class B
common stock and 541,859 shares were designated as Class C common stock. All
general voting power was vested in the holders of the Class B common stock. At
December 31, 1996, the Company had outstanding 1,899,779 shares of Class A
common stock, 1,000 shares of Class B common stock and 537,735 shares of Class C
common stock.
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 converted into 12.58392 shares of common stock and
increased the number of authorized shares to 125,000,000 shares with a par value
of $0.01 per share. Concurrent 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 offerings of approximately $97,300 were
used to repay a portion of the Company's 9.75% 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 plans at the public offering
price. Holders of the Company's common stock are entitled to one vote per share.
At December 31, 1997, 6,368,445 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 therefor, and rights upon
liquidation, dissolution or winding up, including preferences over the common
stock and one or more 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.
11. STOCK OPTION PLAN
Effective October 15, 1996, the Company adopted a stock option plan to
provide certain key employees and/or directors of the Company additional
incentive to join and/or remain in the service of the Company as well as to
maintain and enhance the long-term performance and profitability of the Company.
Under the terms of the plan, options granted shall be nonqualified and the
exercise price shall not be less than 100% of 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.
F-16
<PAGE> 97
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
11. STOCK OPTION PLAN -- (CONTINUED)
Stock option activity is shown below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Granted during the period October 15, 1996 to
December 31, 1996......................................... 3,510,747 $ 7.95
Exercised................................................... -- --
Forfeited................................................... -- --
--------- ------
Outstanding at December 31, 1996............................ 3,510,747 7.95
Granted..................................................... 1,028,992 14.68
Exercised................................................... -- --
Forfeited................................................... (130,999) (7.95)
--------- ------
Outstanding at December 31, 1997............................ 4,408,740 $ 9.75
========= ======
Shares exercisable at December 31, 1997..................... 675,950 $ 7.95
========= ======
</TABLE>
At December 31, 1997, there were 3,537,047 and 871,693 options outstanding
to purchase shares of common stock with exercise prices of $7.95 and $15.89,
respectively. The weighted-average remaining contractual life of such options
was 8.7 and 9.7 years, respectively.
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 year ended December 31, 1997 was approximately $1.99 and $3.37 per
share, respectively. Such weighted-average grant-date fair value was determined
using an option pricing model which incorporated the following assumptions:
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------
FOR THE PERIOD
OCTOBER 15, 1996 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
Risk-free interest rate..................................... 4.0% 5.4%
Expected life, in years..................................... 7 4
Expected volatility......................................... -- 26%
Expected dividend yield..................................... -- --
</TABLE>
F-17
<PAGE> 98
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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 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" ("SFAS
123"), the Company's net loss and basic and diluted net loss per common share
for the twelve months ended December 31, 1997 would have been as follows:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(65,106)
Pro forma................................................. (66,417)
========
Basic and diluted loss per common share:
As reported............................................... $ (2.06)
Pro forma................................................. (2.10)
========
</TABLE>
The Company's net loss for the period October 15, 1996 to December 31, 1996
would not have been materially different had compensation cost been determined
consistent with SFAS 123.
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. Contributions
under these plans amounted to $9,413, $9,484, $2,496 and $8,925 in 1995, for the
period January 1, 1996 to October 14, 1996, for the period October 15, 1996 to
December 31, 1996 and for the year ended December 31, 1997, respectively.
F-18
<PAGE> 99
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. BENEFIT PLANS -- (CONTINUED)
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 following table sets
forth the funded status and amounts recognized in the consolidated financial
statements for the Company's principal defined benefit plans at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
SUCCESSOR
-------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------- -----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefits.............................. $10,211 $97,639 $11,712 $98,974
Non-vested benefits.......................... 16 2,280 20 3,574
------- ------- ------- -------
10,227 99,919 11,732 102,548
------- ------- ------- -------
Projected benefit obligations.................. 12,458 108,504 13,350 111,608
Plan assets at fair value...................... 13,336 50,609 14,899 58,176
------- ------- ------- -------
Projected benefit obligations in excess of
(less than) plan assets...................... (878) 57,895 (1,549) 53,432
Unrecognized net (losses) gains................ 22 1,479 544 561
------- ------- ------- -------
(Prepaid) accrued pension costs................ $ (856) $59,374 $(1,005) $53,993
======= ======= ======= =======
</TABLE>
The (prepaid) accrued pension costs are recognized in the accompanying
consolidated financial statements as other long-term assets and other long term
liabilities, respectively.
The assumed discount rates and rates of increase in future compensation
level used in calculating the projected benefit obligations vary according to
the economic conditions of the country in which the retirement plans are
situated. The range of rates used for the purposes of the above calculations are
as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Discount rate............................................... 6.0% to 8.5% 6.0% to 8.5%
Compensation increase rate.................................. 2.0% to 6.5% 2.0% to 6.5%
</TABLE>
The expected long term rates of return on plan assets ranged between 9.5%
and 10.0% for 1995, 7.0% and 10.0% for 1996, and 6.0% and 9.5% in 1997. The
assumptions used above have a significant effect on the reported amounts of
projected benefit obligations and net periodic pension cost. For example,
increasing the assumed discount rate would have the effect of decreasing the
projected benefit obligation and increasing unrecognized net gains. Increasing
the assumed compensation increase rate would increase the projected benefit
obligation and decrease unrecognized net gains. Increasing the expected
long-term rate of return on investments would decrease unrecognized net gains.
Plan assets relate principally to the Company's U.S. companies and consist
of equity investments, obligations of the U.S. Treasury or other governmental
agencies, and other interest-bearing investments.
F-19
<PAGE> 100
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. BENEFIT PLANS -- (CONTINUED)
Net periodic pension cost for all of the plans above includes the following
components:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------- --------------------------------
YEAR ENDED FOR THE PERIOD FOR THE PERIOD YEAR ENDED
DECEMBER 31, JANUARY 1, 1996 TO OCTOBER 15 TO DECEMBER 31,
1995 OCTOBER 14, 1996 DECEMBER 31, 1996 1997
------------ ------------------ ----------------- ------------
<S> <C> <C> <C> <C>
Service cost (benefits earned during
the period).......................... $3,668 $3,850 $1,013 $5,655
Interest cost on projected benefit
obligations.......................... 7,561 6,540 1,721 8,020
Actual gain on plan assets............. (8,653) (6,079) (1,600) (8,543)
Net amortization and deferral.......... 5,137 2,485 -- 2,516
------- ------- ------- -------
Net periodic pension expense........... $7,713 $6,796 $1,134 $7,648
======= ======= ======= =======
</TABLE>
The Company's U.S. operations provide postretirement medical benefits to
their employees. Employee contributions for medical benefits are related to
employee years of service.
The following table sets forth the status of the U.S. postretirement plans
and amounts:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retired................................................... $25,894 $26,702
Fully eligible............................................ 3,033 4,154
Other..................................................... 3,098 5,256
------- -------
32,025 36,112
Unrecognized net loss....................................... (540) (4,465)
------- -------
Accrued postretirement benefit cost......................... $31,485 $31,647
======= =======
</TABLE>
Net periodic postretirement benefit cost for the above plans includes the
following components:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------- ----------------------------------
YEAR ENDED FOR THE PERIOD FOR THE PERIOD YEAR ENDED
DECEMBER 31, JANUARY 1, 1996 TO OCTOBER 15, 1996 TO DECEMBER 31,
1995 OCTOBER 14, 1996 DECEMBER 31, 1996 1997
------------ ------------------ ------------------- ------------
<S> <C> <C> <C> <C>
Service cost (benefits earned during
the period).......................... $ 285 $ 431 $114 $ 440
Interest cost on projected benefit
obligations.......................... 2,371 1,795 472 2,296
Net amortization and deferral.......... 99 343 -- 33
------ ------ ---- ------
Net periodic postretirement benefit
cost................................. $2,755 $2,569 $586 $2,769
====== ====== ==== ======
</TABLE>
The accumulated postretirement benefit obligation and net periodic
postretirement benefit cost were principally determined using discount rates of
7.3% in 1995, 7.6% in 1996 and 7.0% in 1997 and health care cost trend rates
ranging from 9.5% to 12.25% in 1995, 1996 and 1997 decreasing to 5.0% in 2006.
F-20
<PAGE> 101
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. BENEFIT PLANS -- (CONTINUED)
The health care cost trend rate assumption has a significant effect on the
accumulated postretirement benefit obligation and net periodic postretirement
benefit cost. For example, in 1997 the effect of a one-percentage-point increase
in the assumed health care cost trend rate would be an increase of $3,611 on the
accumulated postretirement benefit obligations and an increase of $464 on the
aggregate of the service and interest cost components of the net periodic
benefit cost.
13. TAXES
The sources of the Company's earnings (loss) before taxes, minority
interest and extraordinary items were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
YEAR ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 1, 1996 TO
1995 OCTOBER 14, 1996
------------ ------------------
<S> <C> <C>
Switzerland................................................. $11,431 $21,241
Non-Switzerland............................................. 16,373 3,912
------- -------
Earnings before taxes, minority interest and extraordinary
items..................................................... $27,804 $25,153
======= =======
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------
FOR THE PERIOD YEAR ENDED
OCTOBER 15, 1996 TO DECEMBER 31,
DECEMBER 31, 1996 1997
------------------- ------------
<S> <C> <C>
United States............................................... $ (37,293) $(14,178)
Non-United States........................................... (122,783) 8,226
--------- --------
Loss before taxes, minority interest and extraordinary
items..................................................... $(160,076) $ (5,952)
========= ========
</TABLE>
F-21
<PAGE> 102
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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>
ADJUSTMENTS
CURRENT DEFERRED TO GOODWILL TOTAL
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Predecessor:
Year ended December 31, 1995:
Switzerland Federal................................ $ 513 $ (92) $ -- $ 421
Switzerland Canton (State) and Local............... 481 (505) -- (24)
Non-Switzerland.................................... 8,339 46 -- 8,385
------- ------- ------ -------
$ 9,333 $ (551) $ -- $ 8,782
======= ======= ====== =======
For the period January 1, 1996 to October 14, 1996:
Switzerland Federal................................ $ 2,152 $ (172) $ -- $ 1,980
Switzerland Canton (State) and Local............... 4,305 (344) -- 3,961
Non-Switzerland.................................... 5,532 (1,418) -- 4,114
------- ------- ------ -------
$11,989 $(1,934) $ -- $10,055
======= ======= ====== =======
Successor:
For the period October 15, 1996 to December 31, 1996:
United States Federal.............................. $ 475 $(1,556) $ -- $(1,081)
United States State and Local...................... 696 (183) -- 513
Non-United States.................................. 2,454 (2,824) -- (370)
------- ------- ------ -------
$ 3,625 $(4,563) $ -- $ (938)
======= ======= ====== =======
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
======= ======= ====== =======
</TABLE>
The adjustments to goodwill during the year ending December 31, 1997 relate
to tax benefits received on amounts which were included in the purchase price
allocation pertaining to the Acquisition of the Company described in Note 1.
F-22
<PAGE> 103
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. TAXES -- (CONTINUED)
The provision for tax expense for the year ended December 31, 1995 and for
the period January 1, 1996 to October 14, 1996 where the Company operated as a
group of businesses owned by Ciba differed from the amounts computed by applying
the Switzerland federal income tax rate of 9.8% to earnings before taxes and
minority interest as a result of the following:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
YEAR ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 1, 1996 TO
1995 OCTOBER 14, 1996
------------ ------------------
<S> <C> <C>
Expected tax................................................ $2,725 $ 2,465
Switzerland Canton (state) and local income taxes, net of
federal income tax benefit................................ (21) 3,573
Non-deductible intangible amortization...................... 248 205
Change in valuation allowance............................... 1,603 1,235
Non-Switzerland income taxes in excess of 9.8%.............. 4,968 2,291
Other, net.................................................. (741) 286
------ -------
Total provision for taxes................................... $8,782 $10,055
====== =======
</TABLE>
The provision for tax expense (benefit) for the period October 15, 1996 to
December 31, 1996 and for the year ended December 31, 1997, subsequent to the
Acquisition described in Note 1, differed from the amounts computed by applying
the United States Federal income tax rate of 35% to the loss before taxes,
minority interest and extraordinary items as a result of the following:
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------
FOR THE PERIOD YEAR ENDED
OCTOBER 15, 1996 TO DECEMBER 31,
DECEMBER 31, 1996 1997
------------------- ------------
<S> <C> <C>
Expected tax................................................ $(56,027) $(2,083)
United States state and local income taxes, net of federal
income tax benefit........................................ 333 276
Non-deductible purchased research and development........... 39,925 10,486
Non-deductible intangible amortization...................... 336 2,073
Change in valuation allowance............................... 4,662 263
Non-United States income taxes at other than a 35% rate..... 10,037 5,545
Other, net.................................................. (204) 929
-------- -------
Total provision for taxes................................... $ (938) $17,489
======== =======
</TABLE>
F-23
<PAGE> 104
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory................................................. $ 7,974 $ 7,552
Accrued and other liabilities............................. 7,046 9,278
Deferred loss on sale of subsidiaries..................... 7,907 7,907
Accrued postretirement benefit and pension costs.......... 19,043 19,161
Net operating loss carryforwards.......................... 15,817 27,345
Other..................................................... 408 678
------- -------
Total deferred tax assets................................... 58,195 71,921
Less valuation allowance.................................... (46,714) (59,292)
------- -------
Total deferred tax assets less valuation allowance.......... 11,481 12,629
------- -------
Deferred tax liabilities:
Inventory................................................. 5,618 6,177
Property, plant and equipment............................. 31,123 24,081
Other..................................................... 2,858 5,665
------- -------
Total deferred tax liabilities.............................. 39,599 35,923
------- -------
Net deferred tax liability.................................. $28,118 $23,294
======= =======
</TABLE>
The Company has established valuation allowances primarily for net
operating losses, deferred losses on the sale of subsidiaries as well as
postretirement and pension costs as follows:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Summary of valuation allowances:
Cumulative net operating losses........................... $15,817 $27,345
Deferred loss on sale of subsidiaries..................... 7,907 7,907
Accrued postretirement and pension benefit costs.......... 18,122 17,104
Other..................................................... 4,868 6,936
------- -------
Total valuation allowance................................... $46,714 $59,292
======= =======
</TABLE>
The total valuation allowances relating to acquired businesses amount to
$38,785 and $35,524 at December 31, 1996 and 1997, respectively. Future
reductions of these valuation allowances will be credited to goodwill.
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of (i) $45,939 related to U.S. Federal net operating losses
of which $4,376 expires in 2011 and $41,563 expires in 2012, (ii) $51,832
related to U.S. State net operating losses which expire in varying amounts
through 2012, (iii) $15,595 related to foreign net operating losses with no
expiration date and (iv) $14,205 related to foreign net operating losses which
expire in varying amounts through 2003.
F-24
<PAGE> 105
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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 and charges related to the Company's restructuring
programs. Foreign currency transactions, net for the year ended December 31,
1995, for the period January 1, 1996 to October 14, 1996, for the period October
15, 1996 to December 31, 1996 and for the year ended December 31, 1997 were
$(3,242), $(220), $8,324 and $4,235, respectively. Interest income for the year
ended December 31, 1995, for the period January 1, 1996 to October 14, 1996, for
the period October 15, 1996 to December 31, 1996 and for the year ended December
31, 1997 was $(5,388), $(3,424), $(1,079) and $(1,832), respectively.
Severance and other exit costs for the period January 1, 1996 to October
14, 1996 of $1,872 represent employee severance of $1,545 and other exit costs
of $327 associated with the closing of its Westerville, Ohio facility. Severance
costs for the period October 15, 1996 to December 31, 1996 principally represent
employee severance benefits associated with (i) the Company's general headcount
reduction programs in Europe and North America of $4,557 which were announced
during such period, and (ii) the realignment of the analytical and precision
balance business in Switzerland of $6,205 which was announced in December 1996.
In connection with such programs the Company reduced its workforce by 168
employees in 1996.
The Company recorded further restructuring charges of $6,300 during 1997.
Such charges are in connection with the closure of three facilities in North
America and are comprised primarily of severance and other related benefits and
costs of exiting facilities, including lease termination costs and write-down of
existing assets to their expected net realizable value. In connection with the
closure of these facilities, the Company expects to involuntarily terminate
approximately 70 employees. The Company is undertaking these actions as part of
its efforts to reduce costs through re-engineering.
A rollforward of the components of the Company's accrual for restructuring
activities is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1996................................ $10,762
1997 Activities:
Restructuring accrual for North American operations.... 6,300
Reductions in workforce and other cash outflows........ (7,182)
Non-cash write-downs of property, plant and
equipment............................................. (540)
Impact of foreign currency............................. (582)
-------
Balance at December 31, 1997................................ $ 8,758
=======
</TABLE>
The Company's accrual for restructuring activities of $8,758 at December
31, 1997 primarily consisted of $6,544 for severance and other related benefits
with the remaining balance for lease termination and other costs of exiting
facilities. Such programs are expected to be substantially complete in 1998.
F-25
<PAGE> 106
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS 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, 1997:
<TABLE>
<S> <C>
1998........................................................ $12,006
1999........................................................ 8,565
2000........................................................ 5,771
2001........................................................ 4,023
2002........................................................ 3,296
Thereafter.................................................. 1,856
-------
Total..................................................... $35,517
=======
</TABLE>
Rent expense for operating leases amounted to $13,034, $3,430 and $16,420
for the period January 1, 1996 to October 14, 1996, for the period October 15,
1996 to December 31, 1996 and for the year ended December 31, 1997,
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. GEOGRAPHIC SEGMENT INFORMATION
The tables below show the Company's operations by geographic region.
Transfers between geographic regions are priced to reflect consideration of
market conditions and the regulations of the countries in which the transferring
entities are located.
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL NET EARNINGS
NET SALES BY NET SALES GEOGRAPHIC SALES BY (LOSS)
TWELVE MONTHS ENDED DECEMBER 31, 1995 DESTINATION BY ORIGIN AREAS ORIGIN BEFORE TAXES
- ------------------------------------- ------------ --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Switzerland(1)............................ $ 41,820 $102,712 $159,453 $262,165 $11,431
Germany................................... 151,974 158,393 47,379 205,772 9,626
Other Europe.............................. 247,802 228,939 799 229,738 1,780
-------- -------- -------- -------- -------
Total Europe.............................. 441,596 490,044 207,631 697,675 22,837
United States............................. 263,945 298,053 29,578 327,631 (1,353)
Other Americas............................ 52,966 32,732 131 32,863 905
-------- -------- -------- -------- -------
Total Americas............................ 316,911 330,785 29,709 360,494 (448)
Asia and other............................ 91,908 29,586 97 29,683 1,861
Eliminations.............................. -- -- (237,437) (237,437) 3,554
-------- -------- -------- -------- -------
Totals.................................... $850,415 $850,415 $ -- $850,415 $27,804
======== ======== ======== ======== =======
</TABLE>
F-26
<PAGE> 107
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. GEOGRAPHIC SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL NET EARNINGS
FOR THE PERIOD JANUARY 1, NET SALES BY NET SALES GEOGRAPHIC SALES BY (LOSS)
1996 TO OCTOBER 14, 1996 DESTINATION BY ORIGIN AREAS ORIGIN BEFORE TAXES
- ------------------------- ------------ --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Switzerland(1)............................ $ 32,282 $ 74,303 $ 126,423 $200,726 $21,241
Germany................................... 104,961 114,015 35,583 149,598 8,292
Other Europe.............................. 186,823 171,061 840 171,901 591
-------- -------- --------- -------- -------
Total Europe.............................. 324,066 359,379 162,846 522,225 30,124
United States............................. 217,636 246,180 22,753 268,933 (1,577)
Other Americas............................ 47,473 25,925 3 25,928 1,078
-------- -------- --------- -------- -------
Total Americas............................ 265,109 272,105 22,756 294,861 (499)
Asia and other............................ 73,046 30,737 265 31,002 686
Eliminations.............................. -- -- (185,867) (185,867) (5,158)
-------- -------- --------- -------- -------
Totals.................................... $662,221 $662,221 $ -- $662,221 $25,153
======== ======== ========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL NET EARNINGS
FOR THE PERIOD OCTOBER 15, NET SALES BY NET SALES GEOGRAPHIC SALES BY (LOSS) TOTAL
1996 TO DECEMBER 31, 1996 DESTINATION BY ORIGIN AREAS ORIGIN BEFORE TAXES(2) ASSETS
- -------------------------- ------------ --------- ---------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Switzerland(1)............................ $ 8,415 $ 15,892 $39,570 $ 55,462 $(108,865) $432,387
Germany................................... 29,688 29,117 10,965 40,082 (6,041) 170,845
Other Europe.............................. 58,598 59,688 485 60,173 (5,809) 126,063
-------- -------- ------- -------- --------- --------
Total Europe.............................. 96,701 104,697 51,020 155,717 (120,715) 729,295
United States............................. 56,405 64,109 6,731 70,840 (37,293) 477,762
Other Americas............................ 13,436 7,371 3 7,374 (446) 17,730
-------- -------- ------- -------- --------- --------
Total Americas............................ 69,841 71,480 6,734 78,214 (37,739) 495,492
Asia and other............................ 20,370 10,735 28 10,763 (2,267) 48,245
Eliminations.............................. -- -- (57,782) (57,782) 645 (501,144)
-------- -------- ------- -------- --------- --------
Totals.................................... $186,912 $186,912 $ -- $186,912 $(160,076) $771,888
======== ======== ======= ======== ========= ========
</TABLE>
F-27
<PAGE> 108
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. GEOGRAPHIC SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
TRANSFERS
BETWEEN TOTAL NET EARNINGS
NET SALES BY NET SALES GEOGRAPHIC SALES BY (LOSS) TOTAL
TWELVE MONTHS ENDED DECEMBER 1, 1997 DESTINATION BY ORIGIN AREAS ORIGIN BEFORE TAXES(2) ASSETS
- ------------------------------------ ------------- --------- ---------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Switzerland(1)................... $ 34,555 $ 69,700 $ 186,292 $255,992 $31,621 $430,436
Germany.......................... 115,665 123,382 51,502 174,884 5,519 144,660
Other Europe..................... 245,945 232,105 10,857 242,962 (16,441) 337,720
-------- -------- --------- --------- -------- ---------
Total Europe..................... 396,165 425,187 248,651 673,838 20,699 912,816
United States.................... 297,688 335,630 32,009 367,639 (14,176) 589,775
Other Americas................... 71,403 37,330 165 37,495 (3,245) 32,941
-------- -------- --------- --------- -------- ---------
Total Americas................... 369,091 372,960 32,174 405,134 (17,421) 622,716
Asia and other................... 113,159 80,268 1,834 82,102 1,413 63,453
Eliminations..................... -- -- (282,659) (282,659) (10,643) (849,672)
-------- -------- --------- --------- -------- ---------
Totals........................... $878,415 $878,415 $ -- $878,415 $(5,952) $749,313
======== ======== ========= ========= ======== =========
</TABLE>
- ---------------
(1) Includes Corporate.
(2) The effect of non-recurring Acquisition charges arising from in-process
research and development projects ($114,100) and the revaluation of
inventories to fair value ($32,200) by region are as follows:
<TABLE>
<S> <C>
Europe...................................................... $108,100
Americas.................................................... 36,000
Asia/Rest of World.......................................... 2,200
</TABLE>
F-28
<PAGE> 109
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER(2)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
1996
Net sales......................................... $201,373 $222,429 $200,391 $224,940
Gross profit...................................... 80,394 91,204 79,013 66,463
Net income (loss)................................. 929 9,078 3,129 (157,721)
======== ======== ======== ========
1997
Net sales......................................... $197,402 $220,412 $215,929 $244,672
Gross profit...................................... 83,282 97,016 94,365 110,272
Net income (loss) before extraordinary items...... (1,122) (25,613) (284) 3,110
Extraordinary items............................... -- (9,552) -- (31,645)
-------- -------- -------- --------
Net income (loss)................................. $ (1,122) $(35,165) $ (284) $(28,535)
======== ======== ======== ========
Basic earnings (loss) 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(3):
High............................................ -- -- -- $ 18 3/4
Low............................................. -- -- -- $ 14 1/16
</TABLE>
- ---------------
(1) 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 $2,054 and in-process research
and development of $29,959. The second quarter also includes extraordinary
charges for the write-off of capitalized debt issuance fees of $9,552 as
discussed in Note 9.
(2) The financial data for the fourth quarter of 1996 represents the Company's
combined results of operations for the period from October 1, 1996 to
October 14, 1996 and for the period from October 15, 1996 to December 31,
1996. The period from October 15, 1996 to December 31, 1996 includes charges
in connection with the Acquisition, as discussed in Note 1, for the sale of
inventories revalued to fair value of $32,194 and in-process research and
development of $114,070. The fourth quarter 1997 data includes charges for
the early extinguishment of debt and the write-off of capitalized debt
issuance fees totaling $31,645 as further discussed in Note 9.
(3) The Company's shares began trading on the New York Stock Exchange on
November 14, 1997.
F-29
<PAGE> 110
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,566 $ 15,604
Trade accounts receivable, net............................ 153,619 164,923
Inventories............................................... 101,047 109,970
Deferred taxes............................................ 7,584 8,930
Other current assets and prepaid expenses................. 24,066 21,788
-------- --------
Total current assets................................... 309,882 321,215
Property, plant and equipment, net.......................... 235,262 228,796
Excess of cost over net assets acquired, net................ 183,318 190,997
Non-current deferred taxes.................................. 5,045 5,232
Other assets................................................ 15,806 17,981
-------- --------
Total assets........................................... $749,313 $764,221
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 39,342 $ 37,187
Accrued and other liabilities............................. 80,844 85,681
Accrued compensation and related items.................... 43,214 43,836
Taxes payable............................................. 33,267 33,895
Deferred taxes............................................ 10,486 10,516
Short-term borrowings and current maturities of long-term
debt................................................... 56,430 58,201
-------- --------
Total current liabilities.............................. 263,583 269,316
Long-term debt.............................................. 340,334 320,193
Non-current deferred taxes.................................. 25,437 26,332
Other non-current liabilities............................... 91,011 101,984
-------- --------
Total liabilities...................................... 720,365 717,825
Minority interest........................................... 3,549 3,492
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 38,355,926 shares (excluding
64,467 shares held in treasury) at September 30, 1998;
and issued 38,336,014 shares (excluding 64,467 shares
held in treasury) at December 31, 1997................. 383 384
Additional paid-in capital................................ 284,630 284,787
Accumulated deficit....................................... (224,152) (203,387)
Accumulated other comprehensive loss...................... (35,462) (38,880)
-------- --------
Total shareholders' equity............................. 25,399 42,904
Commitments and contingencies...............................
-------- --------
Total liabilities and shareholders' equity............. $749,313 $764,221
======== ========
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-30
<PAGE> 111
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales................................................... $633,743 $669,747
Cost of sales............................................... 359,080 374,594
----------- -----------
Gross profit.............................................. 274,663 295,153
Research and development.................................... 34,494 33,551
Selling, general and administrative......................... 189,594 192,844
Amortization................................................ 4,449 5,473
Purchased research and development.......................... 29,959 9,976
Interest expense............................................ 28,199 17,153
Other charges, net.......................................... 7,316 1,606
----------- -----------
Earnings (loss) before taxes, minority interest and
extraordinary item..................................... (19,348) 34,550
Provision for taxes......................................... 7,296 13,552
Minority interest........................................... 375 233
----------- -----------
Earnings (loss) before extraordinary item................. (27,019) 20,765
Extraordinary item -- debt extinguishment................... (9,552) --
----------- -----------
Net earnings (loss)....................................... $(36,571) $ 20,765
=========== ===========
Basic earnings (loss) per common share:
Net earnings (loss) before extraordinary item............. $ (0.88) $ 0.54
Extraordinary item........................................ (0.31) --
----------- -----------
Net earnings (loss)....................................... $ (1.19) $ 0.54
=========== ===========
Weighted average number of common shares.................. 30,686,189 38,342,651
Diluted earnings (loss) per common share:
Net earnings (loss) before extraordinary item............. $ (0.88) $ 0.51
Extraordinary item........................................ (0.31) --
----------- -----------
Net earnings (loss)....................................... $ (1.19) $ 0.51
=========== ===========
Weighted average number of common shares.................. 30,686,189 40,619,050
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-31
<PAGE> 112
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
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 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) -- (398) -- -- (398)
Comprehensive loss:
Net loss...................... -- -- -- (36,571) -- (36,571)
Change in currency translation
adjustment................. -- -- -- -- (12,018) (12,018)
--------
Comprehensive loss.............. (48,589)
---------- ---- -------- --------- -------- --------
Balance at September 30, 1997... 2,437,248 $ 25 $187,986 $(195,617) $(28,655) $(36,261)
========== ==== ======== ========= ======== ========
Balance at December 31, 1997.... 38,336,014 $383 $284,630 $(224,152) $(35,462) $ 25,399
Exercise of stock options....... 19,912 1 157 -- -- 158
Comprehensive income:
Net earnings.................. -- -- -- 20,765 -- 20,765
Change in currency translation
adjustment................. -- -- -- -- (3,418) (3,418)
--------
Comprehensive income............ 17,347
---------- ---- -------- --------- -------- --------
Balance at September 30, 1998... 38,355,926 $384 $284,787 $(203,387) $(38,880) $ 42,904
========== ==== ======== ========= ======== ========
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-32
<PAGE> 113
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $(36,571) $20,765
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation........................................... 17,784 18,022
Amortization........................................... 4,449 5,473
Charges for purchased research and development and cost
of sales associated with revaluation of inventories... 32,013 9,976
Extraordinary item-debt extinguishment................. 9,552 --
Net gain on disposal of long-term assets............... (126) (2,495)
Deferred taxes......................................... (6,804) (883)
Minority interest...................................... 375 233
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net......................... (920) (5,681)
Inventories............................................ (4,715) (4,170)
Other current assets................................... (3,404) 3,040
Trade accounts payable................................. (7,344) (3,468)
Accruals and other liabilities, net.................... 25,987 (2,272)
-------- -------
Net cash provided by operating activities............ 30,276 38,540
-------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment....... 15,913 15,938
Purchase of property, plant and equipment................. (13,299) (17,348)
Acquisitions.............................................. (74,908) (14,945)
Other investing activities................................ (6,679) (885)
-------- -------
Net cash used in investing activities................ (78,973) (17,240)
-------- -------
Cash flows from financing activities:
Proceeds from borrowings.................................. 314,657 20,035
Repayments of borrowings.................................. (289,392) (49,513)
New issuance of shares.................................... 300 158
Purchase of treasury stock................................ (398) --
-------- -------
Net cash provided by (used in) financing
activities.......................................... 25,167 (29,320)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (4,008) 58
-------- -------
Net decrease in cash and cash equivalents................... (27,538) (7,962)
Cash and cash equivalents:
Beginning of period....................................... 60,696 23,566
-------- -------
End of period............................................. $ 33,158 $15,604
======== =======
</TABLE>
See the accompanying notes to the interim consolidated financial statements
F-33
<PAGE> 114
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler Toledo" or the "Company"), is a
global supplier of precision instruments and is a manufacturer and marketer of
weighing instruments for use in laboratory, industrial and food retailing
applications. The Company also manufactures and sells certain related analytical
and measurement technologies. 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 accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America on a basis which reflects the interim consolidated
financial statements of the Company. The interim consolidated financial
statements have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The interim consolidated
financial statements as of September 30, 1998 and for the nine month periods
ended September 30, 1997 and 1998 should be read in conjunction with the
December 31, 1996 and 1997 consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The accompanying interim consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary for a fair statement of the results of the
interim periods presented. Operating results for the nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1998.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost, which includes
direct materials, labor and overhead plus indirect overhead, is determined using
either the first in, first out (FIFO) or weighted average cost methods and to a
lesser extent the last in, first out (LIFO) method.
Inventories consisted of the following at December 31, 1997 and September
30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Raw materials and parts..................................... $ 42,435 $ 42,726
Work in progress............................................ 29,746 34,940
Finished goods.............................................. 28,968 32,357
-------- --------
101,149 110,023
LIFO reserve................................................ (102) (53)
-------- --------
$101,047 $109,970
======== ========
</TABLE>
F-34
<PAGE> 115
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Effective December 31, 1997, the Company adopted the 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 2,276,399
and 2,260,600 equivalent shares related to 4,282,718 outstanding options to
purchase shares of common stock, as described in Note 11 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, in the calculation of
diluted weighted average number of common shares for the nine month period ended
September 30, 1998. Such common stock equivalents were not included in the
computation of diluted loss per common share for the period ended September 30,
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 1997 period 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 and its components in the Interim
Consolidated Statements of 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.
3. BUSINESS COMBINATION
In July 1998, the Company acquired Bohdan Automation Inc., a leading
supplier of laboratory automation and automated synthesis products. 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 independent
valuation of the purchased research and development costs has been based upon a
"stage completion" approach to allocate value associated with the research and
development projects between the completed portion and the portion to be
completed by the Company. This "stage completion" approach is consistent with
recent guidance provided in a letter from the SEC Chief Accountant to the AICPA
SEC Regulations Committee. The Company believes the independent valuation for
purchased research and development costs was calculated in accordance with
Statement of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs," as interpreted by FASB Interpretation No. 4 and recent SEC
guidance. The Company expects that the projects underlying these research and
development efforts will be substantially complete over the next two years.
4. FINANCIAL INSTRUMENTS
The Company has continued to designate certain of its Swiss franc debt as a
hedge of its net investments. In this respect, during 1998 the Company has also
entered into certain forward contracts maturing in October 1998 to sell SFr 61.4
million (approximately $44.6 million at September 30, 1998). Any changes in the
fair value of the forward contracts and the debt are recorded in comprehensive
income and offset changes in the translated value of the net investments which
they hedge.
F-35
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[The inside back cover contains a picture and captions as described below]
Sustained technology leadership
[Photograph of a MonoBloc(TM) weighing sensor]
METTLER TOLEDO'S new MonoBloc(TM) weighing sensor reduces manufacturing costs as
well as the time and expense of design changes.
[Mettler-Toledo logotype]
<PAGE> 120
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5,587,000 SHARES
METTLER-TOLEDO INTERNATIONAL INC.
COMMON STOCK
------------------------
PROSPECTUS
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MERRILL LYNCH & CO.
BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
JANUARY 28, 1999
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