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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-22493
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METTLER-TOLEDO INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3668641
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
IM LANGACHER
P.O. BOX MT-100
CH 8606 GREIFENSEE, SWITZERLAND
(Address of principal executive (Zip Code)
offices)
011-41-1-944-22-11
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par New York Stock
value Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
As of March 5, 1998 there were 38,336,015 shares of the
Registrant's Common Stock, $0.01 par value per share, outstanding. The
aggregate market value of the shares of common stock held by
non-affiliates of the Registrant (based on the closing price for the
Common Stock on the New York Stock Exchange on March 5, 1998) was
approximately $738,502,073. For purposes of this computation, shares
held by affiliates and by directors of the Registrant have been
excluded. Such exclusion of shares held by directors is not intended,
nor shall it be deemed, to be an admission that such persons are
affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
PROXY STATEMENT FOR 1998 INTO WHICH INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS PART III
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METTLER-TOLEDO INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
PAGE
PART I
ITEM 1.
BUSINESS....................................................1
ITEM 2.
PROPERTIES.................................................13
ITEM 3. LEGAL
PROCEEDINGS................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS....................................................14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................................15
ITEM 6. SELECTED FINANCIAL
DATA.......................................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............19
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.......................................................29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ........30
ITEM 11. EXECUTIVE COMPENSATION.....................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K...................................................33
SIGNATURES..........................................................34
The "Company" or "Mettler-Toledo" as used herein means
Mettler-Toledo International Inc. and its subsidiaries.
This Annual Report on Form 10-K contains forward-looking
statements. These statements are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Exhibit 99.1 hereto. Mettler-Toledo(R),
Mettler(R), Ingold(R), Garvens(R), Ohaus(R), DigiTol(R) and
Safeline(R) are registered trademarks of the Company and
Brickstone(TM), Spider(TM), Mentor SC(TM), MultiRange(TM),
TRUCKMATE(TM), Signature(TM) and Powerphase(TM) are trademarks of the
Company.
PART I
ITEM 1. BUSINESS
GENERAL
Mettler-Toledo is a leading global supplier of precision
instruments. The Company is the world's largest manufacturer and
marketer of weighing instruments for use in laboratory, industrial and
food retailing applications. In addition, the Company holds one of the
top three market positions in several related analytical instruments
such as titrators, thermal analysis systems, pH meters, automatic lab
reactors and electrodes. Through its recent acquisition (the "Safeline
Acquisition") of Safeline Limited ("Safeline"), the Company is also
the world's largest manufacturer and marketer of metal detection
systems for companies that produce and package goods in the food
processing, pharmaceutical, cosmetics, chemicals and other industries.
The Company focuses on high value-added segments of its markets by
providing innovative instruments, by integrating these instruments
into application-specific solutions for customers, and by facilitating
the processing of data gathered by its instruments and the transfer of
this data to customers' management information systems. Mettler-Toledo
services a worldwide customer base through its own sales and service
organization and has a global manufacturing presence in Europe, the
United States and Asia. The Company generated 1997 net sales of $878.4
million which were derived 45% in Europe, 42% in North and South
America and 13% in Asia and other markets. For additional financial
information by geographic segment, see Note 16 to the Consolidated
Financial Statements included elsewhere in this Form 10-K (the
"Consolidated Financial Statements").
The Company believes that in 1997 the global market for the
Company's products and services was approximately $6.0 billion. In the
weighing instruments market, Mettler-Toledo is the only company to
offer products for laboratory, industrial and food retailing
applications throughout the world and believes that it holds a market
share more than two times greater than that of its nearest competitor.
The Company believes that in 1997 it had an approximate 40% market
share of the global market for laboratory balances, including the
largest market share in each of Europe, the United States and Asia
(excluding Japan), and the number two position in Japan. In the
industrial and food retailing market, the Company believes it has the
largest market share in Europe and in the United States. In Asia, the
Company has a substantial, rapidly growing industrial and food
retailing business supported by its established manufacturing presence
in China. The Company also holds one of the top three global market
positions in several analytical instruments such as titrators, thermal
analysis systems, electrodes, pH meters and automatic lab reactors.
The Company recently enhanced its leading positions in precision
instruments through the addition of Safeline's market leading metal
detection products, which can be used in conjunction with the
Company's checkweighing instruments for important quality and safety
checks in the food processing, pharmaceutical, cosmetics, chemicals
and other industries. The Company attributes its worldwide market
leadership position to its brand recognition, its leadership in
technological innovation, its comprehensive product range, its global
sales and service organization, its large installed base of weighing
instruments and the diversity of its revenue base.
HISTORY
The Company traces its roots to the invention of the
single-pan analytical balance by Dr. Erhard Mettler and the formation
of Mettler Instruments AG ("Mettler") in 1945. During the 1970s and
1980s, Mettler expanded from laboratory balances into industrial and
food retailing products, and it introduced the first fully electronic
precision balance in 1973. The Toledo Scale Company ("Toledo Scale")
was founded in 1901 and developed a leading market position in the
industrial weighing market in the United States. During the 1970s,
Toledo Scale expanded into the food retailing market. Following the
1989 acquisition of Toledo Scale by Mettler, the name of the Company
was changed to Mettler-Toledo to reflect the combined strengths of the
two companies and to capitalize on their historic reputations for
quality and innovation. During the past 15 years, the Company has
grown through other acquisitions that complemented the Company's
existing geographic markets and products. In 1986, Mettler acquired
the Ingold Group of companies, manufacturers of electrodes, and
Garvens Kontrollwaagen AG, a maker of dynamic checkweighers. Toledo
Scale acquired Hi-Speed Checkweigher Co., Inc. in 1981. In 1990, the
Company acquired Ohaus Corporation, a manufacturer of laboratory
balances.
The Company was incorporated in December 1991, and was
recapitalized in connection with the October 15, 1996 acquisition of
the Mettler-Toledo Group from Ciba-Geigy AG ("Ciba") in a transaction
(the "Acquisition") sponsored by management and AEA Investors Inc.
("AEA Investors"). See Note 1 to the Consolidated Financial Statements
included herein for further information with respect to the
Acquisition. On May 30, 1997, the Company purchased Safeline, the
world's leading supplier of metal detection systems for companies that
produce and package goods in the food processing, pharmaceutical,
cosmetics, chemicals and other industries.
In November 1997, the Company completed its initial public
offering of shares of its Common Stock (the "Offering") at a price per
share equal to $14.00. The Offering, in which 7,666,667 shares
(including the underwriters' over-allotment option) were sold, raised
net proceeds, after underwriters' commission and expenses, of
approximately $97.3 million. The net proceeds from the Offering,
together with additional borrowings under the Company's Credit
Agreement, were used to repurchase the Company's Senior Subordinated
Notes and to pay related premiums and fees and expenses.
PRODUCTS
Laboratory
The Company manufactures and markets a complete range of
laboratory balances, as well as other selected laboratory measurement
instruments, such as titrators, thermal analysis systems, electrodes,
pH meters and automatic lab reactors, for laboratory applications in
research and development, quality assurance, production and education.
Laboratory products accounted for approximately 38% of the Company's
net sales in 1997 (including revenues from related after-sale
service). The Company believes that it has an approximate 40% share of
the global market for laboratory balances and is among the top three
producers worldwide of titrators, thermal analysis systems,
electrodes, pH meters and automatic lab reactors. The Company believes
it has the leading market share for laboratory balances in each of
Europe, the United States and Asia (excluding Japan) and the number
two position in Japan.
Balances. The balance is the most common piece of equipment
in the laboratory. The Company believes that it sells the highest
performance laboratory balances available on the market, with weighing
ranges up to 32 kilograms and down to one ten-millionth of a gram. The
Mettler-Toledo name is identified worldwide with accuracy, reliability
and innovation. The Company's brand name is so well recognized that
laboratory balances are often generically referred to as "Mettlers."
This reputation, in management's judgment, constitutes one of the
Company's principal competitive strengths.
In order to cover a wide range of customer needs and price
points, Mettler-Toledo markets precision balances, semimicrobalances,
microbalances and ultramicrobalances in three principal product tiers
offering different levels of functionality. High-end balances provide
maximum automation of calibration, application support and additional
functions. Mid-level balances provide a more limited but still
extensive set of automated features and software applications, while
basic level balances provide simple operations and a limited feature
set. The Company also manufactures mass comparators, which are used by
weights and measures regulators as well as laboratories to ensure the
accuracy of reference weights. Due to the wide range of functions and
features offered by the Company's products, prices vary significantly.
A typical mid-range precision balance is priced at approximately
$2,500 and a typical microbalance is priced at approximately $14,000.
The Company regularly introduces new features and updated
models in its lines of balances. For example, the Company's DeltaRange
models permit weighing of light and heavy samples on the same balance
without the need for difficult adjustments, a function particularly
useful in dispensing and formula weighing. High-end balances are
equipped with fully automatic calibration technology. These balances
are carefully calibrated many times in controlled environments, with
the results of the calibrations incorporated into built-in software,
so that adjustments to ambient temperature and humidity can
automatically be made at any time. The Company also offers universal
interfaces that offer simultaneous connection of up to five peripheral
devices. The customer can then interface one balance with, for
example, a computer for further processing of weighing data, a printer
for automatically printing results and a bar-code reader for sample
identification.
In addition to Mettler-Toledo branded products, the Company
also manufactures and sells balances under the brand name "Ohaus."
Ohaus branded products include mechanical balances and electronic
balances for the educational market and other markets in which
customers are interested in lower cost, a more limited set of features
and less comprehensive support and service.
Titrators. Titrators measure the chemical composition of
samples. The Company's high-end titrators are multi-tasking models,
which can perform two determinations simultaneously. They permit high
sample throughputs and have extensive expansion capability and
flexibility in calculations, functions and parameters. Lower-range
models permit common determinations to be stored in a database for
frequent use. Titrators are used heavily in the food and beverage
industry. A typical titrator is priced at approximately $12,000.
Thermal Analysis Systems. Thermal analysis systems measure
different properties, such as weight, dimension and energy flow, at
varying temperatures. The Company's thermal analysis products include
full computer integration and a significant amount of proprietary
software. Thermal analysis systems are used primarily in the plastics
and polymer industries. A typical thermal analysis system is priced at
approximately $50,000.
pH Meters. A pH meter measures acidity in a laboratory
sample and is the second most widely used measurement instrument in
the laboratory, after the balance. The Company manufactures desktop
models and portable models. Desktop models are microprocessor-based
instruments, offering a wide range of features and self-diagnostic
functions. Portable models are waterproof, ultrasonically welded and
ergonomically designed, and permit later downloading of data to a
computer or printer using an interface kit and custom software. pH
meters are used in a wide range of industries. A typical pH meter is
priced at approximately $1,200.
Automatic Lab Reactors and Reaction Calorimeters. Automatic
lab reactors and reaction calorimeters are used to simulate an entire
chemical manufacturing process in the laboratory before proceeding to
production, in order to ensure the safety and feasibility of the
process. The Company's products are fully computer-integrated, with a
significant software component, and offer wide flexibility in the
structuring of experimental processes. Automatic lab reactors and
reaction calorimeters are typically used in the chemical and
pharmaceutical industries. A typical lab reactor is priced at
approximately $140,000.
Electrodes. The Company manufactures electrodes for use in a
variety of laboratory instruments and in-line process applications.
Laboratory electrodes are consumable goods used in pH meters and
titrators, which may be replaced many times during the life of the
instrument. In-line process electrodes are used to monitor production
processes, for example, in the beverage industry. A typical in-line
process electrode is priced at approximately $160.
Other Instruments. The Company sells density and
refractometry instruments, which measure chemical concentrations in
solutions. These instruments are sourced through a marketing joint
venture with a third-party manufacturer, but are sold under the
Mettler-Toledo brand name. In addition, the Company manufactures and
sells moisture analyzers, which precisely determine the moisture
content of a sample by utilizing an infrared dryer to evaporate
moisture.
Industrial and Food Retailing
Weighing instruments are among the most broadly used
measurement devices in industry and food retailing. The Company's
industrial and food retailing weighing and related products include
bench and floor scales for standard industrial applications, truck and
railcar scales for heavy industrial applications, checkweighers (which
determine the weight of goods in motion), metal detectors,
dimensioning equipment and scales for use in food retailing
establishments and specialized software systems for industrial and
perishable goods management processes. Increasingly, many of the
Company's industrial and food retailing products can integrate
weighing data into process controls and information systems. The
Company's industrial and food retailing products are also sold to
original equipment manufacturers ("OEMs"), which incorporate the
Company's products into larger process solutions and comprehensive
food retailing checkout systems. At the same time, the Company's
products themselves include significant software content and
additional functions including networking, printing and labeling
capabilities and the incorporation of other measuring technologies
such as dimensioning. The Company works with customer segments to
create specific solutions to their weighing needs. The Company has
also recently worked closely with the leading manufacturer of postal
meters to develop a new generation of postal metering systems.
Industrial and food retailing products accounted for
approximately 62% of the Company's net sales in 1997 (including
revenues from related after-sale service). The Company believes that
it has the largest market share in the industrial and food retailing
market in each of Europe and in the United States. In Asia, the
Company has a substantial, rapidly growing industrial and food
retailing business supported by an established manufacturing presence
in China. The Company believes that it is the only company with a true
global presence across industrial and food retailing weighing
applications.
Standard Industrial Products. The Company offers a complete
line of standard industrial scales, such as bench scales and floor
scales, for weighing loads from a few grams to loads of several
thousand kilograms in applications ranging from measuring materials in
chemical production to weighing mail and packages. Product lines
include the "Spider" range of scales, often used in receiving and
shipping departments in counting applications; "TrimWeigh" scales,
which determine whether an item falls within a specified weight range,
and are used primarily in the food industry; "Mentor SC" scales, for
counting parts; and precision scales for formulating and mixing
ingredients. The Company's "MultiRange" products include standardized
software which uses the weight data obtained to calculate other
parameters, such as price or number of pieces. The modular design of
these products facilitates the integration of the Company's weighing
equipment into a computer system performing other functions, like
inventory control or batch management. Prices vary significantly with
the size and functions of the scale, generally ranging from $1,000 to
$20,000.
Heavy Industrial Products. The Company's primary heavy
industrial products are scales for weighing trucks or railcars (i.e.,
weighing bulk goods as they enter a factory or at a toll station). The
Company's truck scales, such as the "DigiTol TRUCKMATE," generally
have digital load cells, which offer significant advantages in
serviceability over analog load cells. Heavy industrial scales are
capable of measuring weights up to 500 tons and permit accurate
weighing under extreme environmental conditions. The Company also
offers advanced computer software that can be used with its heavy
industrial scales to permit a broad range of applications. Truck scale
prices generally range from $20,000 to $50,000.
Dynamic Checkweighing. The Company offers solutions to
checkweighing requirements in the food processing, pharmaceutical,
chemicals and cosmetic industries, where accurate filling of packages
is required, and in the transportation and package delivery
industries, where tariffs are levied based on weight. Customizable
software applications utilize the information generated by
checkweighing hardware to find production flaws, packaging and
labeling errors and nonuniform products, as well as to sort rejects
and record the results. Mettler-Toledo checkweighing equipment can
accurately determine weight in dynamic applications at speeds of up to
several hundred units per minute. Checkweighers generally range in
price from $8,000 to $40,000.
Metal Detection Systems. Metal detection systems control the
removal of product that is identified as contaminated by metal during
the manufacturing process in the food processing, pharmaceutical,
cosmetics, chemicals and other industries. Metal detectors therefore
provide manufacturers with vital protection against metal
contamination arising from their own production processes or from use
of contaminated raw materials. Metal detectors are most commonly
utilized in conjunction with checkweighers as components of integrated
packaging lines in the food processing, pharmaceutical and other
industries. Prices for metal detection systems generally range from
$5,000 to $20,000.
Dimensioning Equipment. The Company recently introduced
automated dimensioning equipment that is utilized in the shipping
industry to measure package volumes. These products employ a patented
Parallel Infrared Laser Array ("PILAR") technology and are integrated
with industrial scales to combine volume-based and weight-based tariff
calculations. Prices for integrated dimensioning/weighing systems
range from $5,000 to $20,000.
Food Retailing Products. Supermarkets, hypermarkets and
other food retail establishments make use of multiple weighing
applications for the handling of perishable goods from backroom to
checkout counter. For example, perishable goods are weighed on arrival
to determine payment to suppliers and some of these goods are
repackaged, priced and labeled for sale to customers. Other goods are
kept loose and selected by customers and either weighed at the produce
or delicatessen counter or at the checkout counter.
The Company offers stand-alone scales for basic counter
weighing and pricing, price finding, and printing. In addition, the
Company offers network scales and software, which can integrate
backroom, counter, self-service and checkout functions, and can
incorporate weighing data into a supermarket's overall perishable
goods management system. Backroom products include dynamic weighing
products, labeling and wrapping machines, perishable goods management
and data processing systems. In some countries in Europe, the Company
also sells slicing and mincing equipment. Prices for food retailing
scales generally range from $800 to $5,000, but are often sold as part
of comprehensive weighing solutions.
Systems. The Company's systems business consists of software
applications for drum filling in the food and chemical industries and
batching systems in the glass industry. The software systems control
or modify the manufacturing process.
CUSTOMERS AND DISTRIBUTION
The Company's business is geographically diversified, with
1997 net sales derived 45% in Europe, 42% in North and South America
and 13% in Asia and other markets. The Company's customer base is also
diversified by industry and by individual customer. The Company's
largest single customer accounted for no more than 2.6% of 1997 net
sales.
Laboratory
Principal customers for laboratory products include
chemical, pharmaceutical and cosmetics manufacturers; food and
beverage makers; the metals, electronics, plastics, transportation,
packaging, logistics and rubber industries; the jewelry and
precious
metals trade; educational institutions; and government standards labs.
Balances and pH meters are the most widely used laboratory measurement
instruments and are found in virtually every laboratory across a wide
range of industries. Other products have more specialized uses.
The Company's laboratory products are sold in more than 100
countries through a worldwide distribution network. The Company's
extensive direct distribution network and its dealer support
activities enable the Company to maintain a significant degree of
control over the distribution of its products. In markets where there
are strong laboratory distributors, such as the United States, the
Company uses them as the primary marketing channel for lower- and
mid-price point products. This strategy allows the Company to leverage
the strength of both the Mettler-Toledo brand and the laboratory
distributors' market position into sales of other laboratory
measurement instruments. The Company provides its distributors with a
significant amount of technical and sales support. High-end products
are handled by the Company's own sales force. There has been recent
consolidation among distributors in the United States market. While
this consolidation could adversely affect the Company's U.S.
distribution, the Company believes its leadership position in the
market gives it a competitive advantage when dealing with its U.S.
distributors. Asian distribution is primarily through distributors,
while European distribution is primarily through direct sales.
European and Asian distributors are generally fragmented on a
country-by-country basis. The Company negotiated a transfer of the
laboratory business in Japan from its former agent to a subsidiary of
the Company effective January 1, 1997. In addition, the Company began
to distribute laboratory products directly in certain other Asian
countries.
Ohaus branded products are generally positioned in
alternative distribution channels to those of Mettler-Toledo branded
products. In this way, the Company is able to fill a greater number of
distribution channels and increase penetration of its existing
markets. Since the acquisition of Ohaus in 1990, the Company has
expanded the Ohaus brand beyond its historical U.S. focus. Ohaus
branded products are sold exclusively through distributors.
Industrial and Food Retailing
Customers for Mettler-Toledo industrial products include
chemical companies (e.g., formulating, filling and bagging
applications), food companies (e.g., packaging and filling
applications), electronics and metal processing companies (e.g., piece
counting and logistical applications), pharmaceutical companies (e.g.,
formulating and filling applications), transportation companies (e.g.,
sorting, dimensioning and vehicle weighing applications) and auto body
paint shops, which mix paint colors based on weight. The Company's
products for these industries share weighing technology, and often
minor modifications of existing products can make them useful for
applications in a variety of industrial processes. The Company also
sells to OEMs which integrate the Company's modules into larger
process control applications, or comprehensive packaging lines. OEM
applications often include software content and technical support, as
the Company's modules must communicate with a wide variety of other
process modules and data management functions. The Company's products
are also purchased by engineering firms, systems integrators and
vertical application software companies.
Customers for metal detection systems are typically food
processing, pharmaceutical, cosmetics and chemicals manufacturers who
must ensure that their products are free from contamination by metal
particles. Selling product that is contaminated by metal can have
severe consequences for these companies, resulting in potential
litigation and product recalls. Metal detection systems are most
commonly utilized in conjunction with checkweighers as components of
integrated packaging lines as important safety checks before food and
other products are delivered to customers. Other applications of metal
detection systems include pipeline detectors for dairy and other
liquids, gravity fall systems for grains and sugar and throat
detection systems for raw material monitoring.
Customers for food retailing products include supermarkets,
hypermarkets and smaller food retailing establishments. The North
American and European markets include many large supermarket chains.
In most of the Company's markets, food retailing continues to shift to
supermarkets and hypermarkets from "mom and pop" grocery stores. While
supermarkets and hypermarkets generally buy less equipment per
customer, they tend to buy more advanced products that require more
electronic and software content. In emerging markets, however, the
highest growth is in basic scales. As with industrial products, the
Company also sells food retailing products to OEMs for inclusion in
more comprehensive checkout systems. For example, the Company's
checkout scales are incorporated into scanner-scales, which can both
weigh perishable goods and also read bar codes on other items.
Scanner-scales are in turn integrated with cash registers to form a
comprehensive checkout system.
The Company's industrial products are sold in more than 100
countries and its food retailing products in 20 countries. In the
industrial and food retailing market, the Company distributes directly
to customers (including OEMs) and through distributors. In the United
States, direct sales slightly exceed distribution sales. Distributors
are highly fragmented in the U.S. In Europe, direct sales predominate,
with distributors used in certain cases. As in its laboratory
distribution, the Company provides significant support to its
distributors.
SALES AND SERVICE
Market Organizations
The Company has over 30 geographically-focused market
organizations ("MOs") around the world that are responsible for all
aspects of the Company's sales and service. The MOs are local
marketing and service organizations designed to maintain close
relationships with the Company's customer base. Each MO has the
flexibility to adapt its marketing and service efforts to account for
different cultural and economic conditions. MOs also work closely with
the Company's producing organizations (described below) by providing
feedback on manufacturing and product development initiatives and
relaying innovative product and application ideas.
The Company has the only global sales and service
organization among weighing instruments manufacturers. At December 31,
1997, this organization consisted of approximately 3,100 employees in
sales, marketing and customer service (including related
administration) and after-sales technical service. This field
organization has the capability to provide service and support to the
Company's customers and distributors in virtually all major markets
across the globe. Sales managers and representatives interact across
product lines and markets in order to serve customers that have a wide
range of weighing needs, such as pharmaceutical companies that
purchase both laboratory and industrial products. The Company
classifies customers according to their potential for sales and the
appropriate distribution channel is selected to service the customer
as efficiently as possible. Larger accounts tend to have dedicated
sales representatives. Other representatives are specialized by
product line. Sales representatives call directly on end-users either
alone or, in regions where sales are made through distributors,
jointly with distributors. The Company utilizes a variety of
advertising media, including trade journals, catalogs, exhibitions and
trade shows. The Company also sponsors seminars, product
demonstrations and customer training programs. An extensive database
on markets helps the Company to gauge growth opportunities, target its
message to appropriate customer groups and monitor competitive
developments.
After-Sales Service
The Company employs service technicians who provide contract
and repair services in all countries in which the Company's products
are sold. Service (representing service contracts, repairs and
replacement parts) accounted for approximately 16% of the Company's
total net sales in 1997 (service revenue is included in the laboratory
and industrial and food retailing sales percentages given above).
Management believes that service is a key part of its product offering
and helps significantly in generating repeat sales. Moreover, the
Company believes that it has the largest installed base of weighing
instruments in the world. The close relationships and frequent contact
with its large customer base provide the Company with sales
opportunities and innovative product and application ideas. A global
service network also is an important factor in the ability to expand
in emerging markets. Widespread adoption of quality laboratory and
manufacturing standards and the privatization of weights and measures
certification represent favorable trends for the Company's service
business, as they tend to increase demand for on-site calibration
services.
The Company's service contracts provide for repair services
within various guaranteed response times, depending on the level of
service selected. Many contracts also include periodic calibration and
testing. Contracts are generally one year in length, but may be
longer. The Company's own employees directly provide all service on
the Company's products. If the service contract also includes products
of other manufacturers, the Company will generally perform
calibration, testing and basic repairs directly, and contract out more
significant repair work. As application software becomes more complex,
the Company's service efforts increasingly include installation and
customer training programs as well as product service.
Warranties on Mettler-Toledo products are generally one
year. Based on past experience, the Company believes its reserves for
warranty claims are adequate.
RESEARCH AND DEVELOPMENT; MANUFACTURING
Producing Organizations
The Company is organized into a number of producing
organizations ("POs"), which are specialized centers responsible for
product development, research and manufacturing. At December 31, 1997,
POs included approximately 4,000 employees worldwide, and consisted of
product development teams whose members are from marketing,
development, research, manufacturing, engineering and purchasing. POs
also often seek customer input to ensure that the products developed
are tailored to market needs. The Company has organized POs in order
to reduce product development time, improve its customer focus, reduce
costs and maintain technological leadership. The POs work together to
share ideas and best practices. Some employees are in both MOs and
POs. The Company is currently implementing a number of projects that
it believes will result in increased productivity and lower costs. For
example, the Company is restructuring the order and product delivery
process in Europe to enable the Company to deliver many of its
products to its customers directly from the manufacturing facility
within several days, which minimizes the need to store products in
decentralized warehouses. In addition, the Company is centralizing its
European spare parts inventory management system.
Research and Product Development
The Company closely integrates research and development with
marketing, manufacturing and product engineering. The Company has
nearly 600 professionals in research and development and product
engineering. The Company's principal product development activities
involve applications improvements to provide enhanced customer
solutions, systems integration and product cost reduction. However,
the Company also actively conducts research in basic weighing
technologies. As part of its research and development activities, the
Company has frequent contact with university experts, industry
professionals and the governmental agencies responsible for weights
and measures, analytical instruments and metal detectors. In addition,
the Company's in-house development is complemented by technology and
product development alliances with customers and OEMs.
The Company has been spending an increasing proportion of
its research and development budget on software development. Software
development for weighing applications includes application-specific
software, as well as software utilized in sensor mechanisms, displays,
and other common components, which can be leveraged across the
Company's broad product lines.
The Company spent $47.6 million on research and development
in 1997, $50.0 million in 1996 and $54.5 million in 1995 (excluding
research and development purchased in connection with the Acquisition
and the Safeline Acquisition). Including costs associated with
customer-specific engineering projects, which are included in cost of
sales for financial reporting purposes, the Company spent
approximately 5.7% of net sales on research and development in 1997.
Manufacturing
The Company's manufacturing strategy is to produce directly
those components that require its specific technical competence, or
for which dependable, high-quality suppliers cannot be found. The
Company contracts out the manufacture of its other component
requirements. Consequently, much of the Company's manufacturing
capability consists of assembly of components sourced from others. The
Company utilizes a wide range of suppliers and it believes its supply
arrangements to be adequate. From time to time the Company relies on
one supplier for all of its requirements of a particular component,
but in such cases the Company believes adequate alternative sources
would be available if necessary. Supply arrangements for electronics
are generally made globally. For mechanical components, the Company
generally uses local sources to optimize materials flow.
The Company's manufacturing operations emphasize product
quality. Most of its products require very strict tolerances and exact
specifications. The Company utilizes an extensive quality control
system that is integrated into each step of the manufacturing process.
This integration permits field service technicians to trace important
information about the manufacture of a particular unit, which
facilitates repair efforts and permits fine-tuning of the
manufacturing process. Many of the Company's measuring instruments are
subjected to an extensive calibration process that allows the software
in the unit to automatically adjust for the impact of temperature and
humidity.
The Company has seven manufacturing plants in the U.S., four
in Switzerland, two in Germany, one in the U.K. and two in China, of
which one is a joint venture in which the Company owns a 60% interest
and the other, the Shanghai facility, was completed and commenced
production of laboratory products at the end of 1996. Laboratory
products are produced mainly in Switzerland and to a lesser extent in
the United States and China, while industrial and food retailing
products are produced in all five countries. The Company's metal
detectors are produced in the U.K. The Company has manufacturing
expertise in sensor technology, precision machining and electronics,
as well as strength in software development. Furthermore, most of the
Company's manufacturing facilities have achieved ISO 9001
certification. The Company believes its manufacturing capacity is
sufficient to meet its present and currently anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently
short so as to permit the Company to manufacture to fill orders for
most of its products, which helps to limit inventory costs. Backlog is
therefore generally a function of requested customer delivery dates
and is typically no longer than one to two months.
EMPLOYEES
As of December 31, 1997, the Company had approximately 6,700
employees throughout the world, including more than 3,400 in Europe
and more than 2,500 in North and South America, and more than 800 in
Asia and other countries. Management believes that its relations with
employees are good. The Company has not suffered any material employee
work stoppage or strike in its worldwide operations during the last
five years. Labor unions do not represent a meaningful number of the
Company's employees
INTELLECTUAL PROPERTY
The Company holds more than 1,100 patents and trademarks,
primarily in the United States, Switzerland, Germany and Japan and, to
a lesser extent, in China. The Company's products generally
incorporate a wide variety of technological innovations, many of which
are protected by patents and many of which are not. Moreover, products
are generally not protected as a whole by individual patents.
Accordingly, no one patent or group of related patents is material to
the Company's business. The Company also has numerous trademarks and
considers the Mettler-Toledo name and logo to be material to its
business. The Company regularly protects against infringement of its
intellectual property.
REGULATION
The Company's products are subject to regulatory standards
and approvals by weights and measures regulatory authorities in the
countries in which it sells its products. Weights and measures
regulation has been harmonized across the European Union. The
Company's food processing and food retailing products are subject to
regulation and approvals by relevant governmental agencies, such as
the United States Food and Drug Administration. Products used in
hazardous environments may also be subject to special requirements.
All of the Company's electrical components are subject to electrical
safety standards. The Company believes that it is in compliance in all
material respects with applicable regulations.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and
regulations in the jurisdictions in which it operates, including those
relating to air emissions, wastewater discharges, the handling and
disposal of solid and hazardous wastes and the remediation of
contamination associated with the use and disposal of hazardous
substances. The Company wholly or partly owns, leases or holds a
direct or indirect equity interest in a number of properties and
manufacturing facilities around the world, including the United
States, Europe, Canada, Mexico, Brazil, Australia and China. The
Company, like many of its competitors, has incurred, and will continue
to incur, capital and operating expenditures and other costs in
complying with such laws and regulations in both the United States and
abroad.
The Company is currently involved in, or has potential
liability with respect to, the remediation of past contamination in
certain of its presently and formerly owned and leased facilities in
both the United States and abroad. In addition, certain of the
Company's present and former facilities have or had been in operation
for many decades and, over such time, some of these facilities may
have used substances or generated and disposed of wastes which are or
may be considered hazardous. It is possible that such sites, as well
as disposal sites owned by third parties to which the Company has sent
wastes, may in the future be identified and become the subject of
remediation. Accordingly, although the Company believes that it is in
substantial compliance with applicable environmental requirements and
the Company to date has not incurred material expenditures in
connection with environmental matters, it is possible that the Company
could become subject to additional environmental liabilities in the
future that could result in a material adverse effect on the Company's
financial condition or results of operations.
The Company is involved in litigation concerning remediation
of hazardous substances at its operating facility in Landing, New
Jersey. On or about July 1988, an affiliate of Ciba ("AGP") purchased
100% of the outstanding stock of Metramatic Corporation
("Metramatic"), a manufacturer of checkweighing equipment located in
Landing, from GEI International Corporation ("GEI"). GEI agreed to
indemnify and hold harmless AGP for certain pre-closing environmental
conditions, including those resulting in cleanup responsibilities
required by the New Jersey Department of Environmental Protection
("NJDEP") pursuant to the New Jersey Environmental Cleanup
Responsibility Act ("ECRA"). ECRA is now the Industrial Site Recovery
Act. Pursuant to a 1988 NJDEP administrative consent order naming GEI
and Metramatic as respondents, GEI has spent approximately $2 million
in the performance of certain investigatory and remedial work
addressing groundwater contamination at the site. However,
implementation of a final remedy has not yet been completed, and,
therefore, future remedial costs are currently unknown. In 1992, GEI
filed a suit against various parties including Hi-Speed Checkweigher
Co., Inc., a wholly owned subsidiary of the Company that currently
owns the facility, to recover certain costs incurred by GEI in
connection with the site. Based on currently available information and
the Company's rights of indemnification from GEI, the Company believes
that its ultimate allocation of costs associated with the past and
future investigation and remediation of this site will not have a
material adverse effect on the Company's financial condition or
results of operations.
In addition, the Company is aware that Toledo Scale, the
former owner of Toledo Scale or the Company has been named a
potentially responsible party under CERCLA or analogous state statutes
at the following third-party owned sites with respect to the alleged
disposal at the sites by Toledo Scale during the period it was owned
by such former owner: Granville Solvents Site, Granville, Ohio;
Aqua-Tech Environmental, Inc. Site, Greer, South Carolina; Seaboard
Chemical Company Site, Jamestown, North Carolina; and the Stickney and
Tyler Landfills in Toledo, Ohio. The former owner has also been named
in a lawsuit seeking contribution pursuant to CERCLA with respect to
the Caldwell Trucking Site, New Jersey based on the alleged disposal
at the site by Toledo Scale during the former owner's period of
ownership. Pursuant to the terms of the stock purchase agreement
between Mettler and the former owner of Toledo Scale, the former owner
is obligated to indemnify Mettler for various environmental
liabilities. To date, with respect to each of the foregoing sites, the
former owner has undertaken or taken steps to undertake the defense
and indemnification of Toledo Scale. Based on currently available
information and the Company's contractual rights of indemnification,
the Company believes that the costs associated with the investigation
and remediation of these sites will not have a material adverse effect
on the Company's financial condition or results of operations.
COMPETITION
The markets in which the Company operates are highly
competitive. Because of the fragmented nature of certain of the
Company's weighing instruments markets, particularly the industrial
and food retailing weighing instruments market, both geographically
and by application, the Company competes with numerous regional or
specialized competitors, many of which are well-established in their
markets. Some competitors are less leveraged than the Company and/or
are divisions of larger companies with potentially greater financial
and other resources than the Company. Although the Company believes
that it has certain competitive advantages over its competitors,
realizing and maintaining these advantages will require continued
investment by the Company in research and development, sales and
marketing and customer service and support. The Company has, from time
to time, experienced price pressures from competitors in certain
product lines and geographic markets.
In the United States, the Company believes that the
principal competitive factors in its markets on which purchasing
decisions are made are accuracy and durability, while in Europe
accuracy and service are the most important factors. In emerging
markets, where there is greater demand for less sophisticated
products, price is a more important factor than in developed markets.
Competition in the United States laboratory market is also influenced
by the presence of large distributors through which the Company and
its competitors sell many of their products.
YEAR 2000 COMPLIANCE
Where necessary, the Company is in the process of modifying,
upgrading, or replacing its computer software applications and
internal information systems to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000
and later years. The Company does not expect that the cost of its year
2000 compliance program will be material to its business, financial
condition or results of operations. The Company believes that it will
be able to achieve compliance by the end of 1999, and does not
currently anticipate any material disruption in its operations as the
result of any failure by the Company to be in compliance. If any of
the Company's significant suppliers or customers do not successfully
and timely achieve year 2000 compliance, the Company's business or
operations could be adversely affected.
ITEM 2. PROPERTIES
The following table lists the Company's principal operating
facilities, indicating the location, primary use and whether the
facility is owned or leased.
LOCATION PRINCIPAL USE(FN1) OWNED/LEASED
- - - -------- ------------------ ------------
Europe:
Greifensee/Nanikon, Production, Corporate Owned
Switzerland................. Headquarters
Uznach, Switzerland......... Production Owned
Urdorf, Switzerland......... Production Owned
Schwerzenbach, Switzerland.. Production Leased
Albstadt, Germany........... Production Owned
Giesen, Germany............. Production Owned
Giessen, Germany............ Sales and Service Owned
Steinbach, Germany.......... Sales and Service Owned
Viroflay, France............ Sales and Service Owned
Beersel, Belgium............ Sales and Service Owned
Tiel, Netherlands........... Sales and Service Owned
Leicester, England.......... Sales and Service Leased
Manchester, England......... Production, Sales Leased
and Service
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 Leased
Service
Hightstown, New Jersey...... Sales and Service Owned
Burlington, Canada.......... Sales and Service Owned
Mexico City, Mexico......... Sales and Service Leased
Other:
Shanghai, China............. Production Building Owned;
Land Leased
Changzhou, China(FN2)....... Production Building Owned;
Land Leased
Melbourne, Australia..... Sales and Service Leased
- - - -------------------
[FN]
(1) The Company also conducts research and development
activities at certain of the listed facilities in
Switzerland, Germany, the United States and, to a lesser
extent, China.
(2) Held by a joint venture in which the Company owns a 60%
interest.
The Company believes its facilities are adequate for its
current and reasonably anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to routine litigation incidental to
its business. The Company is currently not involved in any legal
proceeding that it believes could have a material adverse effect upon
its financial condition or results of operations. See "Environmental
Matters" under Part I, Item 1 for information concerning legal
proceedings relating to certain environmental claims.
The Company has received a Notice of Proposed Adjustment
from the Internal Revenue Service disallowing $20.4 million of
intercompany interest deductions taken by the Company in its 1994 and
1995 tax returns when the Company was a subsidiary of Ciba. The
Company is indemnified under the acquisition agreement with Ciba
against any loss that may arise from the proposed adjustment. However,
the Company believes that such deductions were properly made and
intends to assist Ciba in contesting the proposed adjustment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 15, 1997, the Company solicited written consents
from the holders of its Class B common stock to amend its Restated
Certificate of Incorporation (i) to change the corporate name of the
Company from MT Investors Inc. to Mettler-Toledo International Inc.
and (ii) to increase the authorized capital stock of the Company by an
additional 168,977 shares of Class A common stock. The Company
received written consents in favor of the amendment to its Restated
Certificate of Incorporation from holders of 100% of the Class B
common stock.
On October 15, 1997, the Company solicited written consents
from the holders of its Class B common stock to increase the number of
shares of common stock reserved for the Company's Stock Option Plan
and to approve an amended and restated stock option plan (the "1997
Amended and Restated Stock Option Plan") to provide certain key
employees and/or directors of the company additional incentive to join
and/or remain in the service of the Company as well as to maintain and
enhance the long-term performance and profitability of the Company.
The Company received written consents in favor of the amendment of the
Stock Option Plan and the 1997 Amended and Restated Stock Option Plan
from holders of 100% of the Class B common stock.
On November 13, 1997, the Company solicited written consents
from the holders of its Class B common stock to approve a merger
agreement providing for (i) the merger of the Company's wholly owned
subsidiary, Mettler-Toledo Holding Inc., with and into the Company
with the Company surviving, (ii) the conversion of each share of the
Company's existing Class A, Class B and Class C common stock into
12.58392 shares of the Company's Common Stock and (iii) the adoption
of the Company's Amended and Restated Certificate of Incorporation and
Amended By-laws (the "Reorganization"). The Company received written
consents in favor of the merger from holders of 100% of the Class B
common stock.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The Company's Common Stock, par value $.01 per share (the
"Common Stock"), is listed on the New York Stock Exchange under the
symbol "MTD." The following table sets forth the high and low sale
prices for the Common Stock as reported by the New York Stock Exchange
from November 19, 1997, the first day the Common Stock began trading
on the New York Stock Exchange through December 31, 1997.
High Low
---- ---
November 19, 1997 to December 31, 1997 $18-3/4 $14-3/4
HOLDERS
At March 5, 1998 there were 867 holders of record of Common
Stock and 38,336,015 shares of Common Stock outstanding.
DIVIDEND POLICY
The Company has never paid any dividends on its common stock
and does not anticipate paying any cash dividends on the Common Stock
in the foreseeable future. The current policy of the Company's Board
of Directors is to retain earnings to finance the operations and
expansion of the Company's business. In addition, the Company's Credit
Agreement restricts the Registrant's ability to pay dividends to its
shareholders. Any future determination to pay dividends will depend on
the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed
relevant by the Board of Directors.
RECENT SALES OF SECURITIES
1. On November 13, 1997, the Company's Registration
Statement on Form S-1 (the "Registration Statement") was declared
effective by the Securities and Exchange Commission (the
"Commission"). The Registration Statement (Commission File Number
333-35597) covered 38,336,801 shares of the Company's Common Stock,
with a proposed maximum aggregate offering amount of $613,388,816. On
November 13, 1997, a public offering (the "Public Offering") of the
Company's Common Stock was commenced, and in connection therewith,
7,666,667 shares of Common Stock (including the underwriters'
over-allotment option) were sold to the public for an aggregate
offering price of $107,333,338. The balance of the shares covered by
the Registration Statement were issued to holders of the Company's
Class A, Class B and Class C common stock upon conversion of such
shares of Class A, Class B and Class C common stock into shares of
Common Stock pursuant to a merger agreement between the Company and
Mettler-Toledo Holding Inc.
In connection with the Public Offering, the Company incurred
the following expenses:
Underwriting discounts and commissions $7,283,334
Other expenses (estimated) $2,776,518
----------
Total expenses $10,059,852
No portion of the above expenses was paid to (i)
directors or officers of the Company or to their associates; (ii)
persons owning 10% of more of any class of equity securities of the
issuer; or (iii) affiliates of the issuer. After deducting the
foregoing expenses, the net proceeds to the Company from the Public
Offering amounted to approximately $97,273,486. Such net proceeds were
used, together with additional borrowings under the Company's bank
credit agreement, to repay substantially all of the Company's then
outstanding indebtedness. The managing underwriters of the Public
Offering were Merrill Lynch & Co., BT Alex. Brown, Credit Suisse First
Boston and Goldman, Sachs & Co., and their international affiliates.
2. In April 1997, the Company issued 3,857 shares of common
stock for an aggregate consideration of approximately $300,000. The
shares were offered and sold to an executive officer of the Company in
reliance on Rule 506 of Regulation D under the Securities Act. In
connection with the Merger, these shares converted into shares of
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
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 the
Company's financial statements, which were audited by KPMG Fides Peat,
independent auditors. The financial information for all periods prior
to October 15, 1996, the date of the Acquisition, is combined
financial information of the Mettler-Toledo Group (the "Predecessor
Business"). The combined historical data of the Predecessor Business
and the consolidated historical data of the Company are not comparable
in many respects due to the Acquisition and the Safeline Acquisition.
See Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below and the
consolidated financial statements and accompanying notes included
herein. The financial information presented below was prepared in
accordance with U.S. GAAP.
METTLER-TOLEDO
PREDECESSOR BUSINESS INTERNATIONAL INC.
------------------------------------------------- ---------------------------
JANUARY 1 OCTOBER 15
YEAR ENDED DECEMBER 31, to to Year Ended
---------------------------------- OCTOBER 14, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1996 1997
---- ---- ---- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net sales ..................... $ 728,958 $ 769,136 $ 850,415 $ 662,221 $ 186,912 $ 878,415
Cost of sales ................. 443,534 461,629 508,089 395,239 136,820(FNb) 493,480(FNd)
---------- ---------- ---------- ---------- ---------- ----------
Gross profit .................. 285,424 307,507 342,326 266,982 50,092 384,935
Research and development ...... 46,438 47,994 54,542 40,244 9,805 47,551
Selling, general and
administrative .............. 209,692 224,978 248,327 186,898 59,353 260,397
Amortization .................. 2,917 6,437 2,765 2,151 1,065 6,222
Purchased research and
development ................. -- -- -- -- 114,070(FNc) 29,959(FNe)
Interest expense .............. 15,239 13,307 18,219 13,868 8,738 35,924
Other charges (income),
net(FNf) .................... 14,110 (7,716) (9,331) (1,332) 17,137 10,834
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
taxes, minority interest
and extraordinary items .... (2,972) 22,507 27,804 25,153 (160,076) (5,952)
Provision for taxes ........... 3,041 8,676 8,782 10,055 (938) 17,489
Minority interest ............. 1,140 347 768 637 (92) 468
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
extraordinary items ......... (7,153) 13,484 18,254 14,461 (159,046) (23,909)
Extraordinary items
- - - -- debt extinguishments ....... -- -- -- -- -- (41,197)(FNg)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) ........... $ (7,153) $ 13,484 $ 18,254 $ 14,461 $ (159,046) $ (65,106)
========== ========== ========== ========== ========== ==========
Basic and diluted loss
per common share(FNh):
Loss per common
share before
extraordinary items ...... $ (5.18) $ (0.76)
Extraordinary items ........ -- (1.30)
---------- ----------
Loss per common share ...... $ (5.18) $ (2.06)
========== ==========
Weighted average number
of common shares ......... 30,686,065 31,617,071
BALANCE SHEET DATA (AT
END OF PERIOD)(FNa)
Cash and cash equivalents ..... $ 63,802 $ 41,402 $ 60,696 $ 23,566
Working capital ............... 132,586 136,911 103,697 79,163
Total assets .................. 683,198 724,094 771,888 749,313
Long-term third party debt .... 862 3,621 373,758 340,334
Net borrowing from
Ciba and affiliates(FNi) ..... 177,651 203,157 -- --
Other long-term
liabilities(FNj) ............. 83,964 84,303 96,810 91,011
Shareholders' equity(FNk) ..... 228,194 193,254 12,426 25,399
- - - -------------
(a) Balance sheet information at December 31, 1993 is not available.
(b) In connection with the Acquisition, the Company allocated $32,194
of the purchase price to revalue certain inventories (principally
work-in-progress and finished goods) to fair value (net
realizable value). Substantially all such inventories were sold
during the period October 15, 1996 to December 31, 1996.
(c) In connection with the Acquisition, the Company allocated, based
upon independent valuations, $114,070 of the purchase price to
purchased research and development in process. This amount was
recorded as an expense immediately following the Acquisition.
(d) In connection with the Safeline Acquisition, the Company
allocated, $2,054 of the purchase price to revalue certain
inventories (principally work-in-progress and finished goods) to
fair value (net realizable value). Substantially all such
inventories were sold during the second quarter of 1997.
(e) In connection with the Safeline Acquisition, the Company
allocated, based upon independent valuations, $29,959 of the
purchase price to purchased research and development in process.
This amount was recorded as an expense immediately following the
Safeline Acquisition.
(f) Other charges (income), net generally includes interest income,
foreign currency transactions (gains) losses, (gains) losses from
sales of assets and other charges (income). In 1993, the amount
shown includes costs associated with the closure of a
manufacturing facility in Cologne, Germany, the restructuring of
certain manufacturing operations and an early retirement program
in the United States. For the period January 1, 1996 to October
14, 1996, the amount shown includes employee severance and other
exit costs associated with the closing of the Company's
Westerville, Ohio facility. For the period October 15, 1996 to
December 31, 1996, the amount shown includes employee severance
benefits associated with the Company's general headcount
reduction programs, in Europe and North America and the
realignment of the analytical and precision balance business in
Switzerland. For the period ended December 31, 1997, the amount
shown includes a restructuring charge of $6,300 to close three
facilities in North America. See Note 14 to the Consolidated
Financial Statements included herein.
(g) Represents charges for the write-off of capitalized debt issuance
fess and related expenses associated with the Company's previous
credit facilities as well as the prepayment premium on the Senior
Subordinated Notes and the write-off of the related capitalized
debt issuance fees.
(h) Effective December 31, 1997, the Company adopted the Statement of
Financial Accounting Standards Note 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 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.
(i) Includes notes payable and long-term debt payable to Ciba and
affiliates less amounts due from Ciba and affiliates.
(j) Consists primarily of obligations under various pension plans and
plans that provide post-retirement medical benefits. See Note 12
to the Consolidated Financial Statements included herein.
(k) Shareholders' equity for the Predecessor Business consists of the
combined net assets of the Mettler-Toledo Group.
ITEM 7. 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 Consolidated Financial Statements included
herein.
GENERAL
The financial statements for periods ended prior to October
15, 1996 reflect the combined operations of the Mettler-Toledo Group,
while the financial statements for periods after October 15, 1996
reflect the consolidated operations of the Company after accounting
for the Acquisition using the purchase method of accounting. See Note
1 to the Consolidated Financial Statements included herein. Operating
results subsequent to the Acquisition and the Safeline Acquisition are
not comparable in many respects to the operating results prior to the
Acquisition and the Safeline Acquisition. Financial information is
presented in accordance with generally accepted accounting principles
in the United States of America.
The Company operates a global business, with net sales that
are diversified by geographic region, product range and customer. The
Company believes that it has achieved its market leadership positions
through its continued investment in product development, the
maintenance and, in some instances, expansion, of its existing
position in established markets and its pursuit of new markets. Net
sales in local currency (adjusted for the exit in 1996 and 1995 from
certain systems businesses) have increased in both the laboratory and
industrial and food retailing product lines, increasing by 11% in 1997
and by 3% and 6% in 1996 and 1995, respectively. Net sales in U.S.
dollars increased by 3% in 1997, as the strengthening of the U.S.
dollar versus the Company's major trading currencies reduced U.S.
dollar reported sales. Net sales in U.S. dollars were unchanged in
1996 and increased by 11% in 1995. The Company's growth in 1997 has
benefited from recent investments to establish distribution and
manufacturing infrastructure in certain emerging markets, particularly
in Asia. Net sales in Asia and other emerging markets in local
currency increased by 30% in 1997 over the prior year, despite
weakening economic conditions in the region. The Company believes that
its growth over the next several years will come primarily from (i)
the needs of customers in developed markets to continue to automate
their research and development and manufacturing processes, (ii) the
needs of customers in emerging markets to continue modernizing these
same processes through the use of increasingly sophisticated
instruments, and (iii) the pursuit of the Company's acquisition
strategy.
During the periods presented, the Company increased its
gross profit margins 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
as a percentage of net sales from 4.6% in 1995 to 9.3% for 1997. These
increases were achieved despite the Company's continued investments in
product development and in its distribution and manufacturing
infrastructure. The Company believes that a significant portion of
these increases can be attributed to its strategy to reduce costs and
reengineer its operations. This strategy has a number of key elements,
such as ongoing efforts to direct more of its research and development
activities to the reduction of product costs, to reengineer
manufacturing, distribution, sales and administrative processes, and
to consolidate operations and re-deploy resources to lower cost
facilities. Examples of recent efforts to implement the different
elements of this strategy include the introduction of several products
in 1997 with significantly reduced manufacturing costs compared to
their predecessors, the closure of the Westerville, Ohio manufacturing
facility in 1996, completion of a targeted workforce reduction of
approximately 170 personnel, planned closure of three North American
facilities as described below and the opening of a new laboratory
manufacturing facility in Shanghai, China in 1997 with significant
production and research and development capabilities. The Company is
currently implementing several additional reengineering and cost
reduction projects, including the consolidation of worldwide precision
balance manufacturing, the restructuring of its ordering process,
product delivery and parts inventory management in Europe, the
realignment of industrial product manufacturing in Europe and the
consolidation of the Company's North American laboratory, industrial
and food retailing businesses into a single marketing organization.
On May 30, 1997, the Company acquired Safeline for
(pound)61.0 million (approximately $100.0 million at May 30, 1997),
plus up to an additional (pound)6.0 million (approximately $10.0
million at May 30, 1997) for a contingent earn-out payment. In October
1997, the Company made an additional payment, representing a
post-closing adjustment, of (pound)1.9 million (approximately $3.1
million at October 3, 1997). Such amount has been accounted for as
additional purchase price. Safeline, based in Manchester, U.K., is the
world's largest manufacturer and marketer of metal detection systems
for companies that produce and package goods in the food processing,
pharmaceutical, cosmetics, chemicals and other industries. Safeline's
metal detectors can also be used in conjunction with the Company's
checkweighing products for important quality and safety checks in
these industries. From 1992 to 1996, Safeline's sales increased at a
compounded annual growth rate of approximately 30%, in part due to the
introduction of new products such as the first digital electronic and
Zero Metal-Free Zone metal detectors. Safeline had net sales and
Adjusted Operating Income of $40.4 million and $9.9 million,
respectively, for the year ended December 31, 1996. The Safeline
Acquisition was financed by (pound)47.3 million (approximately $77.4
million at May 30, 1997) loaned under a credit agreement together with
the issuance of (pound)13.7 million (approximately $22.4 million at
May 30, 1997) of seller loan notes which mature May 30, 1999.
In the third and fourth quarters of 1997, the Company
recorded restructuring charges totaling approximately $6.3 million.
These 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. The Company expects these actions will be
substantially completed in 1998 and that the two owned facilities will
be sold after that period. In connection with the closure of these
facilities, the Company expects to involuntarily terminate
approximately 70 employees. The Company is undertaking these actions
as part of its efforts to reduce costs through reengineering. When
complete, these actions will enable the Company to close certain
operations and realize cost savings estimated at approximately $2.5
million on an annual basis. The Company also estimates that it will
receive, after 1998, upon the sale of the two facilities which the
Company owns proceeds in excess of $5.0 million. The Company believes
that the fair market value of these facilities approximates their
respective book values.
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 option, (the "Offering") at a per
share price equal to $14.00. The Offering raised net proceeds, after
underwriters' commission and expenses, of approximately $97.3 million.
In connection with the Offering, the Company effected a merger by and
between it and its direct wholly owned subsidiary, Mettler-Toledo
Holding Inc., whereby Mettler-Toledo Holding Inc. was merged with and
into the Company (the "Merger"). In connection with the Merger, all
classes of the Company's previous outstanding common stock were
converted into 30,669,348 shares of a single class of Common Stock.
Concurrently with the Offering, the Company entered into a bank credit
agreement (the "Credit Agreement") borrowings from which, along with
the proceeds from the Offering, were used to repay substantially all
of the Company's then existing debt (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 incurred a
non-recurring termination fee of $2.5 million in connection with the
termination of its management consulting agreement with AEA Investors
Inc. (the "Termination Fee").
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 and actual for the year ended December 31, 1997. The pro
forma 1996 information gives effect to the Acquisition, the Safeline
Acquisition, the Offering 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.
PREDECESSOR BUSINESS METTLER-TOLEDO INTERNATIONAL INC.
----------------------- ------------------------------------
FOR THE
FOR THE PERIOD
PERIOD OCT. 15, PRO FORMA
JAN. 1, 1996 1996 YEAR ENDED
YEAR 1996 TO DEC. (FNa)(FNb) DEC. 31,
ENDED DEC. TO OCT.14, 31, 1996 (FNc)(FNd) 1997
31, 1995 1996 (FNb)(FNc) (FNe) (FNb)(FNc)
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Net sales ............... $ 850,415 $ 662,221 $ 186,912 $ 889,567 $ 878,415
Cost of sales ........... 508,089 395,239 136,820 523,783 493,480
---------- ---------- ---------- ---------- ----------
Gross profit ............ 342,326 266,982 50,092 365,784 384,935
Research and development. 54,542 40,244 9,805 50,608 47,551
Selling, general and
administrative ......... 248,327 186,898 59,353 252,085 260,397
Amortization ............ 2,765 2,151 1,065 6,526 6,222
Purchased research and
development ............ -- -- 114,070 -- 29,959
Interest expense ........ 18,219 13,868 8,738 30,007 35,924
Other charges (income),
net(FNf) ............... (9,331) (1,332) 17,137 14,036 10,834
---------- ---------- ---------- ---------- ----------
Earnings (loss) before
taxes, minority
interest and
extraordinary items .... $ 27,804 $ 25,153 $ (160,076) $ 12,522 $ (5,952)
========== ========== ========== ========== ==========
Adjusted Operating
Income(FNg) ............. $ 39,457 $ 39,840 $ 17,912 $ 63,091 $ 81,541
========== ========== ========== ========== ==========
- - - ------------------
(a) In giving effect to the Acquisition, the Safeline Acquisition,
the Offering and the Refinancing, the Pro Forma 1996 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 Offering
proceeds and a lower effective interest rate following the
Refinancing including the repayment of the Company's 9 3/4%
Senior Subordinated Notes, (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 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.
(b) In connection with the Acquisition and the Safeline Acquisition,
the Company allocated $32,194 and $2,054, respectively, of the
purchase prices to revalue certain inventories (principally
work-in-progress and finished goods) to fair value (net
realizable value). Substantially all such inventories revalued in
connection with the Acquisition were sold during the period
October 15, 1996 to December 31, 1996, and substantially all such
inventories revalued in connection with the Safeline Acquisition
were sold in the second quarter of 1997. The expense related to
inventory revalued in connection with the Acquisition has been
excluded from the 1996 pro forma information.
(c) In conjunction with the Acquisition and the Safeline Acquisition,
the Company allocated, based upon independent valuations,
$114,070 and $29,959, respectively, of the purchase prices to
purchased research and development in process. These amounts were
expensed immediately following the Acquisition and the Safeline
Acquisition, respectively. The amounts related to the Acquisition
and have been excluded from the 1996 pro forma information.
(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) Selling, general and administrative expense has been adjusted to
eliminate the AEA Investors annual management fee of $1,000,
payment of which was discontinued upon consummation of the
Offering.
(f) Other charges (income), net generally includes interest income,
foreign currency transactions (gains) losses, (gains) losses from
sales of assets and other charges (income). For the period
January 1, 1996 to October 14, 1996 the amount shown includes
employee severance and other exit costs associated with the
closing of its Westerville, Ohio facility. For the period October
15, 1996 to December 31, 1996 the amount shown includes employee
severance benefits associated with the Company's general
headcount reduction programs in Europe and North America, and the
realignment of the analytical and precision balance business in
Switzerland. For the year ended December 31, 1997 the amount
shown includes a restructuring charge of $6,300 to close three
facilities in North America. See Note 14 to the Consolidated
Financial Statements included herein.
(g) Adjusted Operating Income is 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 those costs
associated with selling inventories revalued to fair value in
connection with the Acquisition and the Safeline Acquisition,
fees associated with the termination of the Company's management
consulting agreement with AEA Investors at the time of the
Offering of $2,500 in 1997 and advisory fees associated with the
reorganization of the Company's structure of approximately $4,800
in 1996.
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) has slowed, and the Company
anticipates that overall net sales growth in Asia will slow in 1998
and margins will be reduced. The Company believes Asia and other
emerging markets will continue to 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.
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 $63.1 million, or 7.1% of net sales in pro
forma 1996, an increase of 29.2% (40.0% 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 for the Termination Fee.
As previously noted, in connection with the Safeline
Acquisition, $30.0 million of the purchase price was attributed to
purchased research and development in process. Such amount was
expensed immediately following the Safeline Acquisition. The
technological feasibility of the products being developed had not been
established as of the date of the Safeline Acquisition. The Company
expects that the projects underlying these research and development
efforts will be substantially complete over the next two years.
Interest expense 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 Offering 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, 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. See
"Liquidity and Capital Resources" under Part II, Item 7.
For the Period from January 1, 1996 to October 14, 1996, the
Period From October 15, 1996 to December 31, 1996 and Pro
Forma 1996 Compared to Year Ended December 31, 1995
Net sales for the period from January 1, 1996 to October 14,
1996 and for the period from October 15, 1996 to December 31, 1996
were $662.2 million and $186.9 million, respectively. Pro forma 1996
net sales were $889.6 million, or $849.1 million excluding Safeline
results, compared to actual net sales of $850.4 million in 1995. Net
sales (pro forma excluding Safeline) in local currency increased 3%,
excluding the impact of reductions of the systems business, but were
offset by a strengthening of the U.S. dollar, the Company's reporting
currency, relative to the local currencies of the Company's
operations. The flat sales (pro forma excluding Safeline) in 1996
compared to actual 1995 resulted from slightly lower sales from
products in the industrial and food retailing markets, offset by
strong performance by the product lines in the laboratory market. The
growth in the laboratory market was across substantially all product
lines and geographical regions as sales in local currency (excluding
Safeline) increased 7% compared to the previous year. In particular,
new product introductions in titration, thermal and reaction
calorimetry as well as new Ohaus products for the education,
laboratory and light industrial market helped to increase laboratory
market sales. The slight decline in industrial and food retailing
sales resulted from overall weakness in the European market where the
Company has been able to retain its market share. This market weakness
has persisted in early 1997.
Net sales (pro forma excluding Safeline) in Europe in local
currency decreased 2% in 1996 compared to actual 1995 due to a weaker
second half of the year in 1996 in all major markets, and especially
in key countries such as Germany, France and the United Kingdom. Net
sales (pro forma excluding Safeline) in the Americas in local currency
increased by 5% over actual 1995 due to growth in the United States
and Latin America and double digit expansion in laboratory measurement
instruments other than balances and in related service. Net sales (pro
forma excluding Safeline) in Asia and other markets in local currency
increased by 8% over actual 1995, primarily as a result of
significantly increased sales in the Shanghai operation and strong
sales in Japan and Australia.
Gross profit for the period from January 1, 1996 to October
14, 1996 and for the period from October 15, 1996 to December 31, 1996
was $267.0 million and $50.1 million, respectively. Pro forma 1996
gross profit was $365.8 million or $349.3 million (excluding Safeline
results). This compares to $342.3 million in actual 1995. Pro forma
gross profit as a percentage of sales increased to 41.1% in 1996 from
40.3% in actual 1995. The increased gross profit margin resulted
principally from operational improvements and the depreciation of the
Swiss franc against the Company's other principal trading currencies.
See "Effect of Currency on Results of Operations" below.
Selling, general and administrative expenses and research
and development expenses for the period from January 1, 1996 to
October 14, 1996 and for the period from October 15, 1996 to December
31, 1996 were $227.1 million and $69.2 million, respectively. Pro
forma 1996 selling, general and administrative and research and
development expenses totaled $302.7 million or $296.1 million
excluding Safeline. This compares to $302.9 million in actual 1995.
Pro forma selling, general and administrative expenses and research
and development expenses as a percentage of net sales decreased to an
aggregate of 34.0% in 1996 from 35.6% in actual 1995. The cost
decreases resulted primarily from the currency effect of the
depreciation of the Swiss franc against the Company's other major
trading currencies and the Company's cost control efforts. These cost
decreases were partially offset by non-recurring legal and advisory
fees of $4.8 million.
In connection with the Acquisition, the Company allocated,
based upon independent valuations, $114.1 million of the purchase
price to purchased research and development in process. Such amount
was expensed immediately following the Acquisition.
Interest expense for the period from January 1, 1996 to
October 14, 1996 and for the period from October 15, 1996 to December
31, 1996 was $13.9 million and $8.7 million, respectively. Pro forma
interest expense increased to $30.0 million in 1996 from $18.2 million
in actual 1995, principally due to a higher debt level as a result of
the Acquisition and the Safeline Acquisition. Interest expense since
the Acquisition and the Safeline Acquisition is materially different.
See "Liquidity and Capital Resources" below.
Other income, net for the period January 1, 1996 to October
14, 1996 of $1.3 million includes interest income of $3.4 million and
severance and other exit costs of $1.9 million associated with the
closing of its Westerville, Ohio facility. Other charges, net for the
period October 15, 1996 to December 31, 1996 of $17.1 million
principally represent (i) losses on foreign currency transactions of
$8.3 million of which $5.7 million were incurred in connection with
the Acquisition, (ii) employee severance benefits associated with the
Company's general headcount reduction programs in Europe and North
America of $4.6 million which were announced during such period, and
(iii) the realignment of the analytical and precision balance business
in Switzerland of $6.2 million which was internally announced in
December 1996. In connection with such programs the Company reduced
its workforce by approximately 170 employees in 1996 and intends to
further reduce its workforce by approximately 70 employees in 1997.
The Company anticipates that as a result of the foregoing it will
achieve cost savings in the range of $8.3 million. Such cost savings
consist primarily of lower employee salary and benefit costs and fixed
manufacturing costs. In addition, at the time of the Acquisition, the
Company estimated it would incur additional selling, general and
administrative expenses of $1.3 million annually as a result of the
Acquisition.
Earnings before taxes and minority interest for the period
from January 1, 1996 to October 14, 1996 were $25.2 million. Loss
before taxes and minority interest for the period from October 15,
1996 to December 31, 1996 was $160.1 million. This loss includes
non-recurring costs of $114.1 million for the allocation of purchase
price to in-process research and development projects, $32.2 million
for the revaluation of inventories to fair value, $9.9 million of
other charges (an additional $1.9 million of other charges was
incurred by the Predecessor Business in 1996) and $4.8 million for
non-recurring legal and advisory fees. Pro forma earnings before taxes
and minority interest would have been $12.5 million in 1996. Pro Forma
Adjusted Operating Income would have been $67.9 million in 1996, or
$58.0 million (excluding Safeline), compared to $39.5 million in
actual 1995.
Net earnings for the period from January 1, 1996 to October
14, 1996 were $14.5 million. The net loss for the period from October
15, 1996 to December 31, 1996 was $159.0 million. Pro forma net
earnings of $5.0 million in 1996 compared to net earnings of $18.3
million in actual 1995.
LIQUIDITY AND CAPITAL RESOURCES
In November 1997, the Company refinanced its previous credit
agreement and purchased all of its 9 3/4% Senior Subordinated Notes
due 2006 (the "Notes") pursuant to a tender offer with proceeds from
the Offering and additional borrowings under the Credit Agreement. The
Notes were originally issued in October 1996 at the time of the
Acquisition.
The Credit Agreement provides for term loan borrowings in
aggregate principal amounts of $101.6 million, SFr 85.5 million
(approximately $59.0 million at December 31, 1997) and (pound)21.7
million (approximately $36.2 million at December 31, 1997) that are
scheduled to mature in 2004, a Canadian revolver with availability of
CDN $26.3 million (approximately CDN $19.0 million of which was drawn
as of December 31, 1997) which is scheduled to mature in 2004, and a
multi-currency revolving credit facility with availability of $400.0
million (approximately $220.0 million was available at December 31,
1997) which is also scheduled to mature in 2004. The Company had
borrowings of $357.6 million under the Credit Agreement and $39.2
million under various other arrangements as of December 31, 1997.
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 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. The Credit Agreement imposes certain
restrictions on the Company's ability to pay dividends to its
shareholders.
In connection with the Refinancing, the Company recorded an
extraordinary charge amounting to $31.6 million, principally for
prepayment premiums on its Notes and the write-off of capitalized debt
issuance fees. In addition, with the May 29, 1997 refinancing of its
previous credit facility, the Company recorded an extraordinary charge
of $9.6 million, representing a charge for the write-off of
capitalized debt issuance fees and related expenses associated with
the previous credit facility.
At December 31, 1997, approximately $102.0 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 also denominated in
certain of the Company's other principal trading currencies amounting
to approximately $295.0 million at December 31, 1997. Changes in
exchange rates between the currencies in which the Company generates
cash flow and the currencies in which its borrowings are denominated
will affect the Company's liquidity. In addition, because the Company
borrows in a variety of currencies, its debt balances will fluctuate
due to changes in exchange rates. See "Effect of Currency on Results
of Operations" below.
The Acquisition 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 the Notes. The
Safeline Acquisition was financed by (pound)47.3 million ($77.4
million at May 30, 1997) loaned under the Company's previous credit
agreement together with the issuance of (pound)13.7 million ($22.4
million at May 30, 1997) of seller loan notes which mature May 30,
1999.
Prior to the Acquisition, the Company's cash and other
liquidity was used principally to fund capital expenditures, working
capital requirements, debt service and dividends to Ciba. Following
the Acquisition and the Safeline Acquisition, the annual interest
expense associated with increased borrowings, as well as scheduled
principal payments of term loans under the Credit Agreement, have
significantly increased the Company's liquidity requirements.
The Company's capital expenditures totaled $25.9 million in
1995, $29.4 million in pro forma 1996 and $22.3 million in actual
1997. Capital expenditures are primarily for machinery, equipment and
the purchase and expansion of facilities, including the purchase of
land for, and construction of, the Company's Shanghai manufacturing
facility. Capital expenditures for 1998 are expected to increase over
1997 levels, but should remain consistent with earlier periods. In
connection with the transfer of the Japanese laboratory business from
a former agent to a subsidiary of the Company, the Company agreed to
make total payments of approximately SFr 8.0 million of which only
approximately SFr 1.0 million remains to be paid.
The Company's cash provided by operating activities was
$55.6 million in 1997 as compared to $62.5 million for the period
January 1, 1996 to October 14, 1996 and $9.6 million for the period
October 15, 1996 to December 31, 1996. The 1997 results include higher
interest costs resulting from the Acquisition and the Safeline
Acquisition.
At December 31, 1997, consolidated debt, net of cash, was
$373.2 million.
The Company continues to explore potential acquisitions to
expand its product portfolio and improve its distribution
capabilities. In connection with any acquisition, the Company may
incur additional indebtedness.
The Company currently believes that cash flow from operating
activities, together with borrowings available under the Credit
Agreement and local working capital facilities, will be sufficient to
fund currently anticipated working capital needs and capital spending
requirements as well as debt service requirements for at least several
years, but there can be no assurance that this will be the case.
Effect of Currency on Results of Operations
The Company's operations are conducted by subsidiaries in
many countries, and the results of operations and the financial
position of each of those subsidiaries are reported in the relevant
foreign currency and then translated into U.S. dollars at the
applicable foreign exchange rate for inclusion in the Company's
consolidated financial statements. Accordingly, the results of
operations of such subsidiaries as reported in U.S. dollars can vary
as a result of changes in currency exchange rates. Specifically, a
strengthening of the U.S. dollar versus other currencies reduces net
sales and earnings as translated into U.S. dollars, whereas a
weakening of the U.S. dollar has the opposite effect.
Swiss franc-denominated costs represent a much greater
percentage of the Company's total expenses than Swiss
franc-denominated sales represent of total sales. In general, an
appreciation of the Swiss franc versus the Company's other major
trading currencies, especially the principal European currencies, has
a negative impact on the Company's results of operations and a
depreciation of the Swiss franc versus the Company's other major
trading currencies, especially the principal European currencies has a
positive impact on the Company's results of operations. The effect of
these changes generally offsets in part the translation effect on
earnings before interest and taxes of changes in exchange rates
between the U.S. dollar and other currencies described in the
preceding paragraph.
Taxes
The Company is subject to taxation in many jurisdictions
throughout the world. The Company's effective tax rate and tax
liability will be affected by a number of factors, such as the amount
of taxable income in particular jurisdictions, the tax rates in such
jurisdictions, tax treaties between jurisdictions, the extent to which
the Company transfers funds between jurisdictions and income is
repatriated, and future changes in law. Generally, the tax liability
for each legal entity is determined either (i) on a
non-consolidated/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 in the jurisdictions in which it operates. The Company,
like many of its competitors, has incurred, and will continue to
incur, capital and operating expenditures and other costs in complying
with such laws and regulations in both the United States and abroad.
The Company does not currently anticipate any material capital
expenditures for environmental control technology. Some risk of
environmental liability is inherent in the Company's business, and
there can be no assurance that material environmental costs will not
arise in the future. However, the Company does not anticipate any
material adverse effect on its results of operations or financial
condition as a result of future costs of environmental compliance.
Inflation
Inflation can affect the costs of goods and services used by
the Company. The competitive environment in which the Company operates
limits somewhat the Company's ability to recover higher costs through
increased selling prices. Moreover, there may be differences in
inflation rates between countries in which the Company incurs the
major portion of its costs and other countries in which the Company
sells its products, which may limit the Company's ability to recover
increased costs, if not offset by future increase of selling prices.
The Company's growth strategy includes expansion in China, Latin
America and Eastern Europe, which have experienced inflationary
conditions. To date, inflationary conditions have not had a material
effect on the Company's operating results. However, as the Company's
presence in China, Latin America and Eastern Europe increases, these
inflationary conditions could have a greater impact on the Company's
operating results.
Seasonality
The Company's business has historically experienced a slight
amount of seasonal variation, with sales in the first fiscal quarter
slightly lower than, and sales in the fourth fiscal quarter slightly
higher than, sales in the second and third fiscal quarters. This trend
has a somewhat greater effect on income from operations than on net
sales due to the effect of fixed costs.
Financial Instruments with Off-Balance Sheet Risks
Prior to 1997, the Company entered into currency forward and
option contracts primarily as a hedge against anticipated foreign
currency exposures and not for speculative purposes. Such contracts,
which are types of financial derivatives, limit the Company's exposure
to both favorable and unfavorable currency fluctuations. These
contracts are adjusted to reflect market values as of each balance
sheet date, with the resulting unrealized gains and losses being
recognized in financial income or expense, as appropriate. At December
31, 1997, all remaining derivative instruments met the requirements of
hedge accounting.
During 1997, the Company has entered into certain interest
rate swap and cap agreements. See Note 5 to the Consolidated Financial
Statements included herein.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income." SFAS 130 becomes effective
for fiscal years beginning after December 15, 1997 and requires
reclassification of earlier financial statements for comparison
purposes. SFAS 130 requires that changes in the amounts of certain
items, including foreign currency translation adjustments and gains
and losses on certain securities, be shown in the financial
statements. SFAS 130 does not require a specific format for the
financial statement in which comprehensive income is reported, but
does require that an amount representing total comprehensive income be
reported in that statement. Management has not yet determined the
effect of the adoption of SFAS 130.
Also in June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131 ("SFAS
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. Management has not
determined the effect of the adoption of SFAS 131.
Forward-Looking Statements and Associated Risks
This Annual Report on Form 10-K includes forward-looking
statements that reflect the Company's current views with respect to
future events and financial performance, including capital
expenditures, planned product introductions, research and development
expenditures, potential future growth, including potential penetration
of developed markets and potential growth opportunities in emerging
markets, potential future acquisitions, potential cost savings from
planned employee reductions and restructuring programs, estimated
proceeds from and timing of asset sales, planned operational changes
and research and development efforts, strategic plans and future cash
sources and requirements. The words "believe," "expect," "anticipate"
and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. The Company undertakes
no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. These forward-looking statements are subject to a number of
risks and uncertainties, including the risk of substantial
indebtedness on operations and liquidity, risks associated with
currency fluctuations, risks associated with international operations,
highly competitive markets and technological developments, risks
relating to downturns or consolidation affecting the Company's
customers, risks relating to future acquisitions, risks associated
with reliance on key management, uncertainties associated with
environmental matters, risks relating to restrictions on payment of
dividends and risks relating to certain anti-takeover provisions,
which could cause actual results to differ materially from historical
results or those anticipated. For a discussion of these risks and
uncertainties, see Exhibit 99.1, Factors Affecting Future Operating
Results, included as part of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth
on pages F-1 through F-29 and the related financial schedule is set
forth on page S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Registrant 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.
NAME AGE POSITION
- - - ---- --- --------
Philip Caldwell................ 78 Chairman of the Board of Directors
Robert F. Spoerry.............. 42 President, Chief Executive Officer
and Director
William P. Donnelly............ 36 Vice President, Chief Financial
Officer, and Assistant Secretary
Karl M. Lang................... 50 Head, Laboratory Division
Lukas Braunschweiler........... 41 Head, Industrial and Retail (Europe)
John D. Robechek............... 49 Head, Industrial and Retail (Americas)
Peter Burker................... 52 Head, Human Resources
Thomas Rubbe................... 43 Head, Logistics and Information Systems
Reginald H. Jones.............. 80 Director
John D. Macomber............... 70 Director
John M. Manser................. 50 Director
Laurence Z.Y. Moh.............. 71 Director
Thomas P. Salice............... 37 Director
Alan W. Wilkinson.............. 42 Director
Philip Caldwell has been Chairman of the Board of Directors
since October 1996. Effective May 18, 1998, Mr. Caldwell will no
longer serve as Chairman. Mr. Caldwell has been Senior Managing
Director of Lehman Brothers Inc. and its predecessor, Shearson Lehman
Brothers Holdings Inc., since 1985. During a 32 year career at Ford
Motor Company, Mr. Caldwell was Chairman of the Board of Directors and
Chief Executive Officer from 1980 to 1985 and a Director from 1973 to
1990. Mr. Caldwell is also a Director of Zurich Holding Company of
America, Inc., American Guarantee & Liability Insurance Company, The
Mexico Fund, Waters Corporation and Russell Reynolds Associates, Inc.
He has served as a Director of the Chase Manhattan Corporation, the
Chase Manhattan Bank, N.A., Digital Equipment Corporation, Federated
Department Stores Inc., the Kellogg Company, Shearson Lehman Brothers
Holdings Inc., CasTech Aluminum Group, Inc., Specialty Coatings
International Inc., and Zurich Reinsurance Centre Holdings, Inc.
Robert F. Spoerry has been President and Chief Executive
Officer of the Company since 1993. He served as Head, Industrial and
Retail (Europe) of the Company from 1987 to 1993. Mr. Spoerry has been
a Director since October 1996. Effective May 18, 1998, Mr. Spoerry
will assume the additional office of Chairman of the Board of
Directors.
William P. Donnelly has been Vice President, Chief Financial
Officer and Assistant Secretary of the Company since April 1, 1997.
From 1993 until joining the Company, he held various senior financial
and management positions, including most recently Group Vice President
and Chief Financial Officer, with Elsag Bailey Process Automation, a
global manufacturer of instrumentation and analytical products, and
developer of distributed control systems. Prior to 1993, Mr. Donnelly
was associated with the international accounting firm of Price
Waterhouse.
Karl M. Lang has been Head, Laboratory Division of the
Company since 1994. From 1991 to 1994 he was based in Japan as a
representative of senior management with responsibility for expansion
of the Asian operations.
Lukas Braunschweiler has been Head, Industrial and Retail
(Europe) of the Company since 1995. From 1992 until 1995 he held
various senior management positions with the Landis & Gyr Group, a
manufacturer of electrical meters. Prior to August 1992 he was a Vice
President in the Technology Group of Saurer Group, a manufacturer of
textile machinery.
John D. Robechek has been Head, Industrial and Retail
(Americas) of the Company and President of Mettler-Toledo, Inc., a
U.S.-based subsidiary of the Company, since 1995. From 1990 through
1994 he served as Senior Vice President and managed all of the
Company's U.S. subsidiaries.
Peter Burker has been Head, Human Resources of the Company
since 1994. From 1992 to 1994 he was Mettler-Toledo's General Manager
in Spain, and from 1989 to 1991 he headed the Company's operations in
Italy.
Thomas Rubbe has been Head, Logistics and Information
Systems of the Company since 1995. From 1990 to 1995 he was head of
Controlling, Finance and Administration with the Company's German
marketing organization.
Reginald H. Jones has been a Director since October 1996.
Mr. Jones retired as Chairman of the Board of Directors of General
Electric Company ("General Electric") in April 1981. At General
Electric, he served as Chairman of the Board of Directors and Chief
Executive Officer from December 1972 through April 1981, President
from June 1972 to December 1972 and a Director from August 1971 to
April 1981. Mr. Jones is also a Director of ASA Limited and Birmingham
Steel Corporation.
John D. Macomber has been a Director since October 1996. He
has been a principal of JDM Investment Group since 1992. He was
Chairman and President of the Export-Import Bank of the United States
(an agency of the U.S. Government) from 1989 to 1992. From 1973 to
1986 Mr. Macomber was Chairman and Chief Executive Officer of Celanese
Corporation. Prior to that, Mr. Macomber was a Senior Partner of
McKinsey & Company. Mr. Macomber is also a Director of Textron Inc.,
Bristol-Myers Squibb Company, Xerox Corporation, Lehman Brothers
Holdings Inc., Pilkington plc and Brown Group, Inc.
John M. Manser has been a Director since August 1997. He is
the Treasurer of the Worldwide Life Science Group of Novartis, which
has its headquarters in Switzerland. He has been with Novartis (and
its predecessor Ciba-Geigy) since 1981.
Laurence Z.Y. Moh has been a Director since October 1996. 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.
Alan W. Wilkinson has been a Director since October 1996.
Mr. Wilkinson has been a Managing Director of AEA Investors since
September 1989. Prior to his association with AEA Investors, Mr.
Wilkinson was a Vice President in the Merchant Banking and Mergers and
Acquisitions divisions of Lehman Brothers Inc.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the sections captioned
"Directors' Compensation," "Executive Compensation" and "Compensation
Committee Interlocks and Insider Participation" in the Registrant's
Proxy Statement for the 1998 Annual Meeting of Stockholders (the "1998
Proxy Statement") is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing in the section "Principal
Shareholders" in the 1998 Proxy Statement is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section captioned "Certain
Transactions" in the 1998 Proxy Statement is incorporated by reference
herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents Filed as Part of this Report:
1. Financial Statements. See Index to Consolidated
Financial Statements included on page F-1.
2. Financial Statement Schedule and related Audit
Report. See Schedule I - included on pages S-1 and S-2.
3. List of Exhibits. See Index of Exhibits included
on page E-1.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Mettler-Toledo International Inc.
(Registrant)
Date: March 13, 1998
By: /s/ ROBERT F. SPOERRY
-----------------------
Robert F. Spoerry
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President and Chief March 11, 1998
/s/ ROBERT F. SPOERRY Executive Officer
- - - ------------------------- and Director
Robert F. Spoerry
/s/ WILLIAM P. DONNELLY Vice President, Chief March 11, 1998
- - - ------------------------- Financial Officer and
William P. Donnelly Assistant Secretary
(Principal financial
and accounting
officer)
/s/ PHILIP CALDWELL Chairman of the Board March 11, 1998
- - - -------------------------
Philip Caldwell
/s/ REGINALD H. JONES Director March 11, 1998
- - - -------------------------
Reginald H. Jones
/s/ JOHN D. MACOMBER Director March 11, 1998
- - - -------------------------
John D. Macomber
/s/ JOHN M. MANSER Director March 11, 1998
- - - -------------------------
John M. Manser
/s/ LAURENCE Z.Y. MOH Director March 11, 1998
- - - -------------------------
Laurence Z.Y. Moh
/s/ THOMAS P. SALICE Director March 11, 1998
- - - -------------------------
Thomas P. Salice
/s/ ALAN W. WILKINSON Director March 11, 1998
- - - -------------------------
Alan W. Wilkinson
PAGE NUMBER OR
EXHIBIT NO. DESCRIPTION INCORPORATION BY REFERENCE
- - - ----------- ----------- --------------------------
2.1 Stock Purchase Agreement Filed as Exhibit 2.1 to the
between AEA-MT Inc., AG Registration Statement, as amended,
fur Prazisionsinstrumente on Form S-1, of the Company
and Ciba-Geigy AG, as (Reg. No. 33-09621) and
amended incorporated herein by
reference
2.2 Share Sale and Purchase Filed as Exhibit 2 to the
Agreement relating to the Current Report on Form 8-K
acquisition of the entire of Mettler-Toledo Holding
issued share capital Inc. dated June 3, 1997
of Safeline Limited and incorporated herein
by reference
3.1* Amended and Restated Page 70
Certificate of
Incorporation of the
Company
3.2* Amended By-laws of the Page 76
Company
4.1 Specimen Form of the Filed as Exhibit 4.3 to the
Company's Stock Certificate Statement, as amended, on
Form S-1 of the Company
(Reg. No. 333-35597) and
incorporated herein by
reference
10.1 Employment Agreement between Filed as Exhibit 10.4 to the
Robert F. Spoerry and Annual Report on Form 10-K
Mettler-Toledo AG, dated of Mettler-Toledo Holding Inc.
as of October 30, 1996 dated March 31,1997 and
incorporated herein by
reference
10.2* Employment Agreement between Page 91
Lukas Braunschweiler and
Mettler-Toledo GmbH dated as
of November 10, 1997
10.3* Employment Agreement between Page 97
William P. Donnelly and
Mettler-Toledo GmbH dated as
of November 10, 1997
10.4* Employment Agreement between Page 103
Karl M. Lang and Mettler-
Toledo GmbH dated as of
November 10, 1997
10.5* Employment Agreement between Page 109
John D. Robachek and Mettler-
Toledo, Inc. dated as of
November 10, 1997
10.6 Loan Agreement between Filed as Exhibit 10.5 to the
Robert F. Spoerry and Annual Report on Form 10-K of
Mettler-Toledo AG, dated Mettler-Toledo Holding Inc.
as of October 7, 1996 dated March 31, 1997 and
incorporated herein by
reference
10.7 Mettler Toledo Performance - Filed as Exhibit 10.7 to the
Oriented Bonus System Annual Report on Form 10-K of
(POBS), effective as of Mettler-Toledo Holding Inc. dated
1993 March 31, 1997 and
incorporated herein by reference
10.8 Mettler Toledo POBS Plus - Filed as Exhibit 10.8 to the
Incentive Scheme for Senior Annual Report on Form 10-K of
Management of Mettler of Mettler-Toledo Holding Inc.
Toledo, dated as of dated March 31, 1997 and
November 4, 1996 incorporated herein by reference
10.9* Credit Agreement, dated Page 115
as of November 19,
1997, between Mettler-
Toledo International Inc.,
as Guarantor, Mettler-
Toledo, Inc., Mettler-Toledo
AG, as Borrowers, Safeline
Holding Company as UK
Borrower, Mettler-Toledo,
Inc., as Canadian Borrower
and Merrill Lynch & Co. as
Arranger and Documentation
Agent, and the Lenders
thereto
10.10* Agreement of Merger, dated Page 322
November 13, 1997, between
MT Investors Inc. and
Mettler-Toledo Holding Inc.
10.11 1997 Amended and Restated Filed as Exhibit 10.10 to the
Stock Option Plan Registration Statement on Form
S-1 of the Company (Reg. No.
333-35597) and incorporated
herein by reference
10.12 Form of Participants' Filed as Exhibit 10.11 to the
Subscription Agreement Registration Statement, as
amended, on Form S-1 of the
Company (Reg. No. 333-35597)
and incorporated herein by
reference
10.13 Form of GMC Subscription Filed as Exhibit 10.12 to the
Agreement Registration Statement, as
amended, on Form S-1 of the
Company (Reg. No. 333-35597)
and incorporated herein by
reference
11* Statements regarding Page 334
computation of per share
earnings
21 Subsidiaries of the Filed as Exhibit 21 to the
Company Registration Statement, as
amended, on Form S-1 of the
Company (Reg. No. 333-35597)
and incorporated herein by
reference
27.1* Financial Data Schedule Page 335
99.1* Factors Affecting Future Page 336
Operating Results
- - - ------------
* Filed herewith
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
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
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
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR SUCCESSOR
--------- ---------
DECEMBER DECEMBER
31, 31,
1996 1997
--------- ---------
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 38,336,015 (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
======== ========
See the accompanying notes to the consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR SUCCESSOR
----------------- -----------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR JANUARY OCTOBER
ENDED 1, 1996 15, 1996 YEAR
DECEMBER TO TO ENDED
31, OCTOBER DECEMBER DECEMBER
1995 14, 1996 31, 1996 31, 1997
----------- ------------ ----------- --------
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
See the accompanying notes to the consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS / SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR
------------------------------------------
YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD JANUARY 1, 1996 TO OCTOBER 14, 1996
------------------------------------------
CURRENCY
CAPITAL TRANSLATION
EMPLOYED ADJUSTMENT TOTAL
-------- ----------- --------
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
========= ======== =========
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
---------- ---------- ------------- ------------ ------------- -------
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........ 28,232,100 282 (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... 38,336,015 $ 383 $284,630 $(224,152) $(35,462) $ 25,399
========== ======= ======== ========= ========= ========
See the accompanying notes to the consolidated financial statements
METTLER-TOLEDO INTERNATIONAL INC.
(FORMERLY "MT INVESTORS INC.")
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
------------------- ------------------------
FOR THE
PERIOD FOR THE
YEAR JANUARY PERIOD
ENDED 1, 1996 OCTOBER 15,
DECEMBER TO TO YEAR ENDED
31, OCTOBER DECEMBER DECEMBER 31,
1995 14, 1996 31, 1996 1997
-------- --------- ------------ ------------
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
See the accompanying notes to the consolidated financial
statements
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") 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.
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:
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
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
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.
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
chemical industries. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from
its customers.
Revenue Recognition
Revenue is recognized when title to a product has transferred or
services have been rendered. Revenues from service contracts are recognized
over the contract period.
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 (pound)61,000
(approximately $100,000), plus up to an additional (pound)6,000
(approximately $10,000) for a contingent earn-out payment. In October 1997,
the Company made an additional payment, representing a post-closing
adjustment, of (pound)1,900 (approximately $3,100). Such amount has been
accounted for as additional purchase price. Under the terms of the
agreement the Company paid approximately (pound)47,300 (approximately
$77,400) of the purchase price in cash, provided by amounts loaned under
its Credit Agreement, with the remaining balance of approximately
(pound)13,700 (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.
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.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
---------------------------------------------
PREDECESSOR SUCCESSOR
-------------- --------------------------
FOR THE FOR THE
PERIOD PERIOD
JANUARY 1, OCTOBER 15,
1996 TO 1996 TO YEAR ENDED
OCTOBER DECEMBER DECEMBER
14, 1996 31, 1996 31, 1997
---------- ------------- -------------
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 $ (0.07) $ (1.00)
common share...................... ======== ========
4. INVENTORIES
Inventories consisted of the following:
Successor
--------------------------
December 31, December 31,
1996 1997
----------- ------------
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
========== =========
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.
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the
following:
Successor
--------------------------
December 31, December 31,
1996 1997
----------- -------------
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
---------- ---------
Less accumulated depreciation 262,429 266,657
and amortization...................... (7,137) (31,395)
---------- ---------
$ 255,292 $ 235,262
========== =========
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. 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:
Successor
--------------------------
December 31, December 31,
1996 1997
----------- -------------
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
========== =========
9. LONG-TERM DEBT
Long-term debt consisted of the following:
Successor
--------------------------
December 31, December 31,
1996 1997
----------- ------------
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
========= =========
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 (pound)26,700, 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 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 principle amount of $101,573,
SFr. 85,467 ($58,991 at December 31, 1997) and (pound)21,661 ($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 principle 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.
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
therefore, 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.
Stock option activity is shown below:
Weighted-Average
Number of Shares Exercise Price
------------------ ----------------
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
========= ========
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:
Successor
----------------------------------------
For the period
October 15, 1996 Year ended
to December 31, 1996 December 31, 1997
-------------------- ----------------
Risk-free interest rate.............. 4.0% 5.4%
Expected life, in years.............. 7 4
Expected volatility.................. -- 26%
Expected dividend yield.............. -- --
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:
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)
==========
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.
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:
Successor
-----------------------------------------------------
December 31, December 31,
1996 1997
------------------------------ ---------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
benefits assets benefits assets
----------- ----------- ---------- -----------
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
======== ========= ======== =========
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:
1996 1997
------------ ------------
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%
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.
Net periodic pension cost for all of the plans above includes the
following components:
Predecessor Successor
-------------------- ----------------------
For the
period For the
Year January period Year
ended 1, 1996 October 15, ended
December to 1996 to December
31, October December 31,
1995 14, 1996 31, 1996 1997
------- ---------- ------------ ---------
Service cost
(benefits earned
during
the period)............. $ 3,668 $ 3,850 $ 1,013 $ 5,655
Interest cost on
projected benefit 7,561 6,540 1,721 8,020
obligations.............
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
======= ========== =========== ==========
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:
Successor
--------------------
December December
31, 1996 31, 1997
-------- -----------
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
======== ========
Net periodic postretirement benefit cost for the above plans includes
the following components:
Predecessor Successor
-------------------- ----------------------
For the
period For the
January period
Year 1, 1996 October 15, Year
ended to 1996 to ended
December October December December
31, 1995 14, 1996 31, 1996 31, 1997
-------- --------- ----------- --------
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
====== ======= ======= ========
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.
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:
Predecessor
-------------------------------
Year ended For the Period
December January 1, 1996 to
31, 1995 October 14, 1996
-------- ---------------------
Switzerland.......................... $ 11,431 $ 21,241
Non-Switzerland...................... 16,373 3,912
-------- ----------
Earnings before taxes, minority
interest and extraordinary items... $ 27,804 $ 25,153
======== ==========
Successor
---------------------------------
For the Period Year ended
October 15, 1996 to December
December 31, 1996 31, 1997
-------------------- ----------
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)
========== ==========
The provision (benefit) for taxes consists of:
Adjustments
to
Current Deferred Goodwill Total
------- --------- ----------- -----
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
======= ======== ====== ========
Adjustments
to
Current Deferred Goodwill Total
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)
======= ======== ======= ========
Adjustments
to
Current Deferred Goodwill Total
------- --------- ----------- -----
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
======= ======== ======= =======
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.
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:
Predecessor
-----------------------------------
Year ended For the Period
December January 1, 1996 to
31, 1995 October 14, 1996
---------- -----------------------
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
======= ==========
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:
Successor
----------------------------
For the Period
October 15,
1996 to Year ended
December December 31,
31, 1996 1997
-------- ---------------
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
======== ========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
Successor
----------------------------
December 31, December 31,
1996 1997
------------ ------------
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
======= =======
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:
Successor
-----------------------------
December 31, December 31,
1996 1997
------------ ------------
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
======= =======
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.
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 existing 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 reengineering.
A rollforward of the components of the Company's accrual for
restructuring activities is as follows:
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
=======
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.
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:
1998................... $12,006
1999................... 8,565
2000................... 5,771
2001................... 4,023
2002................... 3,296
Thereafter............. 1,856
-------
Total................ $35,517
=======
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.
Twelve Total
months Net Transfers net Earnings
ended Net sales sales between sales (loss)
December 31, by by geographic by before
1995 destination origin areas origin taxes
- - - ------------ ------------ -------- ----------- --------- --------
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
======== ======== ======== ======== ========
For
the period Total
January 1, Net Net Transfers net Earnings
1996 to sales sales between sales (loss)
October by by geographic by before
14, 1996 destination origin areas origin taxes
- - - ---------- ------------ -------- ----------- -------- --------
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
======== ======== ========= ======== ========
For the
period Total
October Net Net Transfers net Earnings
15, 1996 to sales sales between sales (loss)
December by by geographic by before Total
31, 1996 destination origin areas origin taxes(2) Assets
- - - ----------- ------------ -------- ----------- -------- ---------- ---------
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
======== ======== ========= ======== ========= =========
Twelve Total
months Net Net Transfers net Earnings
ended sales sales between sales (loss)
December by by geographic by before Total
31, 1997 destination origin areas origin taxes Assets
- - - --------------- ----------- --------- ----------- --------- -------- ---------
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
========= ========= ========= ========= ======== =========
[FN]
(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:
Europe....................$108,100
Americas.................. 36,000
Asia/Rest of World........ 2,200
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1996 and 1997 are as
follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER(2)
--------- --------- --------- ---------
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
Net loss ............................... -- (0.31) -- (0.88)
--------- --------- --------- ---------
$ (0.04) $ (1.15) $ (0.01) $ (0.79)
========= ========= ========= =========
Market price per
share: (3)
High................................... -- -- -- 18 3/4
Low.................................... -- -- -- 14 1/16
[FN]
(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.
SCHEDULE I
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
Mettler-Toledo International Inc.:
Under date of February 6, 1998, we reported on the 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, included herein. In connection with
our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial
statement schedule included under Item 14 of the Form 10-K. This
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion
on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG FIDES PEAT
Zurich, Switzerland
February 6, 1998
SCHEDULE I- VALUATION AND QUALIFYING ACCOUNTS
- - - ----------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - - ----------------------------------------------------------------------------
Additions
-----------------------
(1) (2)
Balance at Charged Charged to Balance
the to costs other at
beginning and accounts -Deductions- end of
Description of period expenses describe describe period
- - - ---------------------------------------------------------------------------
Note (A)
Accounts
Receivable-
allowance for
doubtful
accounts:
Year ended
December 31,
1997 8,388 1,516 - 2,235 7,669
For the period
October 15,
1996 to
December 31,
1996 9,429 97 - 1,138 8,388
For the period
January 1,
1996 to
October 14,
1996 9,292 370 - 233 9,429
Year ended
December 31,
1995 7,411 3,287 1,406 9,292
- - - ---------------------------------------------------------------------------
Note A
Represents excess of uncollectable balances written off over
recoveries of accounts previously written off. Additionally,
amounts are net of foreign currency translation effect of
$(409), $(375), $(159) and $(552) for the year ended 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.