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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, 2000
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 No.)
incorporation or organization)
Im Langacher
P.O. Box MT-100
CH 8606 Greifensee, Switzerland
(Address of principal executive offices) (Zip Code)
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 value New York Stock 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 16, 2001 there were 39,681,536 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
16, 2001) was approximately $1.655 billion. 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 2001 Into which Incorporated
Annual Meeting of Stockholders Part III
METTLER-TOLEDO INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
PART I
ITEM 1. BUSINESS.........................................................1
ITEM 2. PROPERTIES......................................................23
ITEM 3. LEGAL PROCEEDINGS...............................................24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................25
ITEM 6. SELECTED FINANCIAL DATA.........................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............40
ITEM 11. EXECUTIVE COMPENSATION..........................................42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.....................................................42
SIGNATURES....................................................................43
i
Unless otherwise stated or where the context otherwise requires,
references herein to we, our, the "Company" or "Mettler-Toledo" refer to
Mettler-Toledo International Inc. and its direct and indirect subsidiaries.
This Annual Report on Form 10-K includes forward-looking statements
based on our current expectations and projections about future events. These
forward-looking statements are subject to a number of risks and uncertainties
which could cause our actual results to differ materially from historical
results or those anticipated and certain of which are beyond our control. The
words "believe", "expect", "anticipate" and similar expressions identify
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. New risk factors emerge from time to time and it is
not possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Exhibit 99.1 to
this Report.
We use the following registered and unregistered trademarks, which are
found in this Report: APPLIED SYSTEMS, ASI, AVS, AX, BERGER, BERGER INSTRUMENTS,
BOHDAN, CARGOSCAN, DELTARANGE, DIGITOL, FORMWEIGH, FREEWEIGH, FTIR, JAGUAR,
JAGXTREME, LABMAX, LUTRANA, MENTOR SC, METTLER, METTLER-TOLEDO, MT-SHOP,
MULTIMAX, MultiRange, MYRIAD, OHAUS, OPRA, SAFELINE, SPIDER, TESTUT,
TESTUT-LUTRANA, THORNTON, TRIMWEIGH , TRUCKMATE, VIPER, WINBRIDGE.
Unless otherwise indicated, industry data contained herein is derived
from publicly available industry trade journals, government reports and other
publicly available sources. We have not independently verified this data but we
believe the data is reliable. Where such sources are not available, industry
data is derived from our internal estimates, which we believe to be reasonable,
but which cannot be independently verified. As used in this Annual Report, "$"
refers to U.S. dollars, "CHF" or "SFr" refers to Swiss francs, "(pound)" refers
to British pounds sterling and "CDN $" refers to Canadian dollars.
PART I
ITEM 1. BUSINESS
Overview
Mettler-Toledo is a leading global supplier of precision instruments.
We are the world's largest manufacturer of weighing instruments for use in
laboratory, industrial and food retailing applications. We hold top-three market
positions in several related analytical instruments, and are a leading provider
of automated chemistry systems used in drug and chemical compound discovery and
development. In addition, we are the world's largest manufacturer and marketer
of metal detection and other end-of-line inspection systems used in production
and packaging.
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We focus on the high value-added segments of our markets by providing
innovative instruments that are often integrated into application-specific
solutions for customers. We design our instruments not only to capture valuable
data but also to facilitate the processing and transfer of this data into
customers' management information systems.
Competitive Strengths
We believe our franchise has a number of competitive strengths, which
allow us to compete successfully in high value-added segments:
o Worldwide Market Leadership Positions. We believe that we have a
leading position in each of our markets, and at least 80% of our
product sales are from products that are the global leaders in their
segment. In the weighing instruments market, we are the only company to
offer products for laboratory, industrial and food retailing
applications globally and we believe that we hold a market share more
than twice that of our nearest competitor. We believe that in 2000 we
had approximately 50% of the global market for laboratory balances,
including the largest market share in each of Europe, the United States
and Asia (excluding Japan), and the number two position in Japan. In
the industrial and food retailing markets, we believe we have the
largest market share in Europe and the United States. In Asia, we have
a substantial industrial and food retailing business which has gained
market share in recent years. This business is supported by our
established manufacturing presence in China. In addition to our
weighing franchise, most of our other sales come from product lines
where we hold a top-three global position.
o Global Brand and Reputation. The Mettler-Toledo brand name is
identified worldwide with accuracy, reliability and innovation.
Customers value these characteristics because most of our instruments
significantly impact customers' product quality, productivity, costs
and regulatory compliance. Furthermore, precision instruments generally
constitute a small percentage of customers' aggregate expenditures. As
a result, we believe customers focus on accuracy, product reliability,
technical innovation, service quality, reputation and past experience
when choosing precision instruments, rather than cost alone. We have
one of the strongest brand names in the laboratory. In fact laboratory
balances are often generically referred to as "Mettlers". The strength
of this brand name has allowed us to successfully extend our laboratory
balance line to include other analytical instruments.
o Technological Innovation. We have a long and successful track record of
innovation and remain at the forefront of technological development by
focusing on the high value-added segments of our markets. We believe
that we are the global leader in our industry in providing innovative
measurement solutions to enhance our customers' processes. Our
technological innovation efforts benefit from our knowledge of
customer processes and related requirements, our manufacturing
expertise in sensor technology, precision machining and electronics,
as well as our strength in software development.
o Comprehensive, High Quality Solution Offering. We offer a more
comprehensive range of instruments and solutions than any of our key
competitors. Our broad product line addresses a wide range of
applications across and within many industries and regions. We
manufacture our products in modern facilities, most of which are ISO
9001 certified. Our broad range of high quality products and the
ability to provide integrated solutions
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allows us to leverage our sales and service organization, product
development activities and manufacturing and distribution capabilities.
o Global Sales and Service. We have the only global sales and service
organization among weighing instruments manufacturers, and one of the
largest of any precision instrument company. We believe that this
capability is a major competitive advantage. At December 31, 2000, this
organization consisted of more than 4,000 employees organized into
locally based, customer-focused groups that provide prompt service and
support to our customers and distributors in virtually all major
markets around the world. The local focus of our sales and service
organization enables us to provide timely, responsive support to our
customers worldwide and provides feedback for manufacturing and product
development. When we survey our current and potential customers on
their needs, they often name service as the most important criteria for
choosing their instrument suppliers. In addition, we believe there is a
trend in may of our customer segments to outsource service activities,
which provides us a growth opportunity for the future.
o Largest Installed Base. We believe that we have the largest installed
base of weighing instruments in the world. From this installed base, we
obtain service contracts that provide a strong, stable source of
recurring service revenue. Service revenue represented approximately
18% of net sales in 2000, of which approximately half was derived
solely from service contracts and repairs with the remainder derived
from the sale of spare parts. We believe that our installed base of
instruments represents a competitive advantage with respect to repeat
purchases and purchases of other instruments we offer, because
customers tend to remain with their existing suppliers. In addition,
switching to a new instrument supplier entails additional costs to the
customer for training, spare parts, service and systems integration
requirements. Close relationships and frequent contact with our broad
customer base also provide us with sales leads and new product and
application ideas.
o Geographical, Product and Customer Diversification. Our revenue base is
diversified by geographic region, product range and customer. Many
different industries, including pharmaceuticals, food processing, food
retailing and chemicals, cosmetics and logistics utilize our broad
product range. We supply customers all over the world, and no one
customer accounted for more than 3% of net sales in 2000. Our diverse
revenue base reduces our exposure to regional or industry-specific
economic conditions, and our presence in many different geographic
markets, product markets and industries enhances our attractiveness as
a supplier to multinational customers. In 2000, our sales were $1.1
billion. Of this total 44% came from Europe, 44% from North and South
America and 12% from Asia and other countries. For additional
information regarding our segment disclosure, see Note 15 to our
audited consolidated financial statements.
3
Growth Strategies
We believe that our growth opportunities arise from our solutions
approach to the principal challenges facing our customer base. These include the
need for increased efficiency (for example, in accelerating time to market,
achieving better yields, improving work processes and outsourcing non-core
activities), the desire to integrate information captured by instruments into
management information systems, the drive for ever higher quality products and
services, including the need to adhere to stringent regulatory and industry
standards, and the move towards globalization in all major customer groups.
We continue to execute the business strategies that we outlined at the
time of our buy-out in 1996, which are described below. The successful
implementation of these strategies has allowed us to achieve a compound annual
sales growth rate in local currencies of 11% since 1996, and to improve our
Adjusted Operating Income (gross profit less research and development and
selling, general and administrative expenses before amortization and
non-recurring costs) from $57.8 million (6.8% of net sales) for 1996 to $142.8
million (13.0% of net sales) for 2000. Earnings per share increased from $0.14
in 1996 (pro forma for our buy-out) to $1.70 in 2000 before non-recurring items.
In addition, our ratio of net debt to EBITDA decreased from 4.6 in 1996 to 1.6
in 2000 and our interest coverage increased from 2.3 to 8.4 during the same
period.
Our key growth strategies are as follows:
Expanding Our Technology Leadership. We attribute a significant portion
of our recent margin improvement to our research and development efforts. We
intend to continue to invest in product innovation in order to provide
technologically advanced products to our customers for existing and new
applications. Over the last three years, we have invested approximately $160
million in research and development. Our research and development efforts fall
into two categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
Our research and development efforts have contributed to a pipeline of
innovative and new products, significant reductions in product costs and reduced
time to market for our new products. Examples of recent product introductions
include:
o our new AX line of analytical balances, which gives scientists a
wealth of new capabilities through its embedded software, Internet
connection for remote monitoring and downloadable applications,
and sensors that provide for single-handed operation,
o our Internet-enabled industrial terminal, JagXtreme, which gives
production managers the ability to perform monitoring and
diagnostics off-site, including predicting equipment problems
before they disrupt manufacturing processes and
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o MultiMax, our high-throughput lab reactor, which combines multiple
vessels with robotic and FTIR technologies that enable chemists to
reduce process development time by running real-time chemical
analysis.
Increasing our Market Share and Capitalizing on Opportunities in
Developed Markets. We recognize that to be a successful company, we must not
only develop excellent solutions, but we must market and distribute them
effectively--more effectively than our competitors. We view the key elements of
our sales and service strategy as follows:
o We utilize what we believe are the most sophisticated marketing
and sales techniques in our industry. These techniques include the
development and utilization of marketing databases. We develop
these databases to better understand the full potential of our
market by customer, location, industry, instrument and related
application. We then utilize this data to more efficiently direct
our field resources and complement our direct and distributor
sales forces with targeted mailing and telemarketing campaigns to
more fully exploit our market's potential. The transparency of the
marketplace created through these databases allows us to more
effectively identify penetration opportunities among customers and
non-customers.
o With our developing E-commerce project, we plan to create a
configurable Internet portal which will allow customers, channel
partners and suppliers to customize the information presented to
them and to interact with us in the way they choose. Over time, we
will develop a knowledge base which will allow us to gain deeper
insight into our customers' patterns of behavior and give us
better market transparency. From this, we will be able to refine
our marketing efforts, gain quicker market penetration with new
products and services, and also ultimately reduce our marketing
costs.
o Our service capabilities stretch across the globe and include
around-the-clock availability of well-trained technicians, which
is highly valued by our customers. We believe that no other
competitor has our capabilities and that our service capabilities
are a critical success factor for us. Customers are continuing to
outsource non-core activities, such as service. In almost all
cases, we can provide higher-quality service at lower costs than
the customer can. Therefore, it is important that our customers
have the right partner in these outsourcing efforts. Our
value-added services encompass maintenance, calibration,
traceability of weights, certification, asset management, software
upgrades, data integration and training.
o We also utilize a dual brand strategy for certain market segments
to improve our overall market penetration. For example, we sell
balances under the Ohaus brand name as an alternative to the
Mettler-Toledo brand name in certain distribution channels, such
as the education market.
Capitalizing on Opportunities in Emerging Markets. We believe that
emerging markets will continue to provide growth opportunities for us. These
growth opportunities are being driven primarily by economic development and
multinationals' use of additional and more sophisticated precision instruments
as they shift production to emerging markets. In addition, we believe that over
the long term, the trend toward international quality standards, the need to
upgrade mechanical scales to electronic versions and the establishment of local
production facilities by our multinational client base will add to the
opportunities in emerging markets.
5
To date our emerging market expansion has primarily focused on Asia. In
Asia (excluding Japan), we are the market leader in laboratory weighing
instruments and have a substantial industrial and food retailing business that
has gained market share in recent years. For instance, we have two profitable
operations in China: a facility that manufactures and sells industrial and food
retailing products and a facility that manufactures and distributes laboratory
products. We also have direct marketing organizations in Taiwan, Korea, Hong
Kong, Singapore, India, Thailand, Malaysia and Eastern Europe. Beyond Asia, we
are also expanding our sales and service presence in Latin America and other
emerging markets.
We want to continue leveraging our Chinese manufacturing and R&D as a
platform for low-end products, which are necessary to increase our penetration
of emerging markets. At the same time, we are supplying these products to
complementary channels in North America and Europe. We are also transferring
production of many of our low-end products from Europe and North America to
China - the most recent example being our Ohaus electronic laboratory balances
and our shipping scales.
China is itself a great market for us. China is striving to meet global
quality standards so it can be a significant exporter. An increasing number of
multinationals are investing in China. Also, the local market is continuing to
switch over from mechanical to electronic weighing. For these reasons, we are
working to win a larger share of the market. We developed and launched a host of
new products in China in the past two years and our objective is to continue to
gain momentum.
Pursuing Selected Acquisition Opportunities. Acquisitions are an
integral part of our growth strategy. We believe that we have a powerful
acquisition platform in the instrument industry. Our acquisitions leverage our
global sales and service network, respected brand, extensive distribution
channels and technological leadership. We are interested in pursuing
acquisitions which have strong strategic fit - for example, companies with
complementary products that will benefit from our brand name and global
distribution channels, and companies with solutions we can combine with our own
technologies to create overall better solutions for our customers. In addition,
our acquisitions should anchor more of our business in faster-growing markets.
We are particularly attracted to the following end markets:
o Drug Discovery. The impact of scientific developments, including
the human genome project, is fundamentally changing the
pharmaceutical industry and its need for automation. In recent
years, we have acquired a variety of companies in the field of
drug discovery, including ASI, Bohdan, Myriad and Berger. We offer
these companies the infrastructure to expand globally and take
advantage of the Mettler-Toledo brand name. We now offer one of
the industry's broadest range of automation solutions for drug
discovery and research.
o Process Analytics. Our pharmaceutical and biotech customers need
to comply with increasing quality standards. At the same time,
they are seeking in-line control instruments to improve their
yields. In December 2000 we announced the acquisition of Thornton.
Thornton is the leader in pure and ultra-pure industrial water
monitoring instrumentation used in semi-conductor,
micro-electronics, pharmaceutical and biotech applications. We
believe the acquisition of Thornton is an excellent strategic move
to expand our process analytics business, and gain access to new
markets. Their conductivity technology and know-how are
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complementary to our strength in pH and oxygen measurements. With
a broader technology offering, we will be better able to serve our
expanded customer base.
o Food and Drug Packaging. Increasing safety and consumer
protection requirements are driving the need for more and more
sophisticated end-of-line inspection systems. We are the world's
leading provider of metal detectors and checkweighers, which, when
combined with our application-specific software packages, provide
food and drug packaging lines an integrated solution to check the
quality and quantity of their packages. In 2000, we acquired AVS,
which allowed us to add x-ray-based vision technology to our
offering. X-ray-based vision inspection is effective in detecting
non-metallic contamination in packages and where metal packaging
prevents detection by conventional means.
o Transportation and Logistics. The effects of globalization, the
move to just-in-time processes, and e-commerce are all causing our
customers to invest in our weighing and dimensioning solutions.
Our customers are the major express carriers, freight forwarders,
third-party logistic entities and warehousing and distribution
companies. We are currently the leading supplier of automatic
identification and data capture solutions which incorporate
weighing and dimensioning technology to optimize the shipment and
tracking of packages worldwide. In 2000, we announced that we
would acquire full ownership of our Cargoscan joint venture, the
premier provider of dimensioning technology. This transaction
underscores our commitment to the transportation and logistics
sector and will allow us the flexibility and faster
decision-making necessary to exploit the substantial growth of
this market.
These are not the only opportunities and end markets we are focusing
on. We are also alert for opportunities to expand our solution scope,
particularly by adding more application-specific software, and to consolidate
fragmented markets or expand geographically.
Re-engineering and Cost Savings. We have improved our profitability in
recent years partly through a series of initiatives aimed at reducing our cost
structure. We plan to undertake similar initiatives in the future with the goal
of further improving our operating margins. These initiatives include:
o Continuing to leverage our Chinese manufacturing and R&D as a
platform for low-end products, which are necessary to increase our
penetration of emerging markets. We are also transferring
production of many of our low-end products from Europe and North
America to China - the most recent example being our Ohaus
electronic laboratory balances and our shipping scales. We now
have over 600 employees in China, including approximately 75 R&D
professionals.
o Our procurement initiative, launched in 1999, which is expected to
bring us substantial cost savings. Our global procurement
initiative aims to reduce our supplier base to a select group of
high-quality suppliers from all parts of the world. By doing so,
we believe we can ensure maximum cost effectiveness and improve
the quality of our product and processes. We expect to improve
operating margins through a more effective procurement effort over
the coming years.
o Opportunities in our service business. We have approximately 2,000
employees worldwide engaged in service, which generates
approximately 18% of our annual sales. We believe our customers
are looking far beyond repair to value-added
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services that give them competitive advantages in the marketplace.
Customers are also increasingly looking to outsource processes,
which provides us additional growth opportunities. By exploiting
available technology and best practices, we believe we can
increase the efficiency of our service business and expand our
margins.
o We are taking advantage of the globalization of our customer
base and the harmonization of regulatory standards worldwide to
standardize our product lines on a global basis and streamline our
organizational structure. As much as possible, we will harmonize
our product lines worldwide. With global standardized offerings,
our sales and service professionals will require less frequent
training and reduced parts inventory. R&D resources will be
re-deployed for new value-added products, allowing us to gain
incremental growth. In addition, consolidated operations will
produce significant savings and more efficient use of invested
capital.
We believe that these initiatives and others will place us in a
position to build on our recent improvement in profitability. Furthermore, we
believe that we can leverage our existing infrastructure, particularly our
recent investments in Asia, to obtain continued sales growth without significant
additions to our overall cost base.
Instruments and Solutions
Laboratory Instruments and Solutions
We manufacture and market a broad range of instruments for use in the
laboratory. Our largest product line is laboratory balances, where we are a
clear global market leader. We estimate that approximately 40% of our sales are
to customers using our instruments and services in laboratory environments. Our
drug discovery group provides customers with integrated solutions that enable
chemists to increase their productivity and accelerate the drug discovery
process. Drug discovery products include a variety of synthesizers, robotic
workstations, automatic lab reactors, purification systems and reaction
calorimeters. We also offer selected analytical instruments, such as titrators,
thermal analysis systems and other analytical instruments. Our process analytics
business provides instruments for the in-line measurement of liquid parameters
in the production process of pharmaceutical and biotech companies.
We estimate that we have approximately one half of the global market
for laboratory balances. Our drug discovery business is the global leader in
synthesis, supercritical fluid chromatography, and reaction engineering. In the
analytical instrument field, we are the global number two in titrators and
number three in thermal analysis, and we are among the top three suppliers
worldwide of other analytical instruments. Our process analytics business is the
global leader in measuring liquid parameters for the pharmaceutical and biotech
industries.
Laboratory Balances
The balance is the most common piece of equipment in the laboratory. We
believe that we sell the highest performance laboratory balances available on
the market, with weighing ranges from one ten-millionth of a gram up to 32
kilograms. Our brand name is so well recognized that laboratory balances are
often generically referred to as "Mettlers." The Mettler-Toledo name is
identified worldwide with accuracy, reliability and innovation. In our judgment,
this reputation constitutes one of our principal competitive strengths.
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In order to cover a wide range of customer needs and price points, we
market laboratory balances in three principal product tiers offering different
levels of functionality. High-end balances provide maximum automation of
calibration, application support and additional functions. Mid-level balances
provide a more limited but still extensive set of automated features and
software applications. Basic level balances provide simple operations and a
limited feature set. We also manufacture mass comparators, which are used by
weights and measures regulators as well as laboratories to ensure the accuracy
of reference weights. Due to the wide range of functions and features offered by
our products, prices vary significantly. A typical mid-range precision balance
is priced at approximately $2,500 and a typical microbalance is priced at
approximately $14,000.
In addition to Mettler-Toledo branded products, we also manufacture and
sell balances under the brand name "Ohaus." Ohaus branded products include
mechanical balances and electronic balances for the educational market and other
markets in which customers are interested in lower cost, a more limited set of
features and less comprehensive support and service.
Drug Discovery
Our pharmaceutical and biotechnology customers are all too aware of the
costs involved in drug research and development. To take a drug from "the bench
to the bottle" costs on average $500 million and takes in the region of ten to
twelve years. The mission of our drug discovery group is to provide our
customers with integrated solutions that enable chemists to increase their
productivity and accelerate the drug discovery process. The potential benefits
to our customers are enormous: each day that a pharmaceutical company is able to
accelerate the introduction of a blockbuster drug can translate into millions of
dollars of additional revenue.
The number of drug targets and potential lead compounds has increased
significantly as a result of combinatorial chemistry techniques, high-throughput
screening methods and the initial findings of the human genome project. The
increasing number of targets and compounds resulting from these developments
have created severe bottlenecks in the drug discovery process. We believe that
our portfolio of integrated technologies can bring significant efficiencies to
the drug discovery process, enabling our customers to create larger numbers of
higher quality candidate compounds.
The drug R&D process essentially comprises six distinct phases:
o Target identification
o Lead identification
o Lead optimization
o Preclinical development and product development
o Clinical development and process development
o Production
Our current drug discovery solution offering is focused on key aspects
of the lead identification, lead optimization, and process development phases of
the drug R&D process. Our overall value proposition is to speed up and integrate
these phases by offering systems which perform the many tasks which a chemist
has to perform, in parallel and fully automated.
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In the target identification phase, researchers seek to identify the
genes responsible for disease states and ultimately the proteins produced by
these genes which become the target for a therapeutic drug.
Lead identification is the process of producing large, diverse,
libraries of tens of thousands of potential drug candidates which are then
screened for possible biological activity against the target protein.
Lead optimization is the process used by chemists to evaluate the
hundreds of drug candidates that may emerge from the lead identification phase.
Chemists perform successive rounds of chemical synthesis to create numerous
variants of the drug candidates to find compounds likely to have appropriate
drug properties. Chemists then optimize the compounds for their biological
potency, thus creating lead compounds.
In pre-clinical development and product development, process research
chemists investigate practical ways to produce individual lead compounds in
larger quantities. Also, laboratory tests are performed to check the compound's
ability to pass into, and out of, the body without seriously toxic side-effects.
Clinical development and process development is the process in which
chemists test clinical candidates in animals and humans to demonstrate their
safety and as well as efficacy. The successful outcome of clinical trials may
result in regulatory approval to commercialize the new drug product. During this
time period, process chemists optimize the method of compound synthesis prior to
commencement of large scale manufacturing of the drug.
Production is the process of manufacturing bulk quantities of the final
drug. Both the production methodology and the analytical methods which check the
drug's composition are tightly regulated and monitored.
Within our drug discovery group, the Chemistry Systems team focuses on
lead identification and optimization, and the Reaction Engineering team focuses
on process research and development. The Chemistry Systems business offers the
following solutions to combinatorial and medicinal chemists working on lead
identification and optimization:
o the Mini-Block manual parallel synthesizer, which has become a
standard tool among medicinal chemists for chemistry development
and lead optimization
o the Discoverer automated synthesizer, capable of extremely
sophisticated chemistry
o the Myriad Core System, the top-of the range automated parallel
synthesizer, capable of producing hundreds of thousands of new
drug candidates per year
o automated workstations for reagent preparation, weighing,
labeling and dispensing to support the synthesis process
o the ALLEX automated liquid/liquid extraction system for cleaning
up synthesis products, and
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o Berger's supercritical fluid chromatographs, which are capable
of purifying synthesis products in a fraction of the time of
conventional HPLC instruments.
Our Reaction Engineering business offers products to help speed up
process research and development. Automatic lab reactors and reaction
calorimeters simulate an entire chemical manufacturing process in the
laboratory. Customers use the simulation test before proceeding to production,
in order to test the safety and feasibility of new processes. Our products are
fully computer-integrated, with a significant software component that we also
provide:
o the Process Development Workstation, which has 16 separate
reactors and is used for process screening (finding possible
pathways to make the drug candidate economically and safely)
o the new Multimax and Labmax automated laboratory reactors, with
four and one separately-controlled reactors respectively, which
are used in process optimization to find the precise reaction
parameters to make larger quantities of the drug candidate
o the RC-1, which combines a laboratory reactor with calorimetry and
is used to ensure the process remains economical as well as safe
as the manufactured quantities are scaled up
o the React-IR 4000 in-situ infrared analyzer, which can be used
with the laboratory reactors to monitor the chemistry in
real-time, and
o React-IR MP and Process-IR, which are hardened infrared
analyzers used in scale-up applications and production.
We continue to pursue opportunities that will enable us to extend our
drug discovery and development solutions by internal research and development
and by acquiring businesses that have technologies and capabilities
complementary to ours. In particular, we recognize the importance of software as
an integral part of any solution offering. Effective integration of automation
instruments with data recording and analysis software represents an attractive
solution to our customers. We believe that our drug discovery group is well
positioned to support and grow with the pharmaceutical and biotechnology
industries in their exciting challenge to discover and develop new drugs.
Analytical Instruments
The research and quality control labs of our customers, especially
those in the pharmaceutical, chemical, food and cosmetics industries, use our
analytical instruments to help them understand the properties of the liquid and
solid compounds used in their products. We offer a broad range of such
analytical instruments, taking advantage of our strong position in the balance
market. We also offer a host of value-added services to support our customers,
including calibration, validation and maintenance services.
Titrators. Titrators measure the chemical composition of samples. Our
high-end titrators are multi-tasking models, which can perform two
determinations simultaneously. They permit high sample throughputs and have
extensive expansion capability and flexibility in calculations, functions and
parameters. Most models, including those in the lower-range, permit
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common determinations to be stored in a database for frequent use. Titrators are
used heavily in the food and beverage industry. A typical titrator is priced at
approximately $12,000.
Thermal Analysis Systems. Thermal analysis systems measure different
properties, such as weight, dimension and energy flow, at varying temperatures.
Our thermal analysis products include full computer integration and a
significant amount of proprietary software. Thermal analysis systems are used
primarily in the plastics and polymer industries. A typical thermal analysis
system is priced at approximately $50,000.
Other Instruments. We have recently introduced single-channel and
multi-channel pipettes which are used for liquid handling in the laboratory.
These devices are the most widely used instruments in the rapidly growing life
science market. The pH meters we offer measure acidity in laboratory samples,
and are the second most widely used measurement instruments in the laboratory,
after the balance. Data collected from our pH meters can be downloaded to a
computer or printer using an interface kit and custom software. We sell density
and refractometry instruments, which measure chemical concentrations in
solutions. These instruments are sourced through a marketing joint venture with
a third-party manufacturer, but are sold under the Mettler-Toledo brand name. In
addition, we manufacture and sell moisture analyzers, which precisely determine
the moisture content of a sample by utilizing an infrared dryer to evaporate
moisture.
Process Analytics
Our process analytics business provides instruments for the in-line
measurement of liquid parameters in the production process of pharmaceutical and
biotech companies. In the ongoing quest to improve product quality and
production efficiency, manufacturers are adopting sensor technologies for
in-line process control. Our process analytics business is the leading supplier
of pH and oxygen measurement instruments used in bio-pharmaceutical
manufacturing, and is well positioned to accelerate its growth in this market.
With our acquisition of Thornton, we have expanded our technology offering in
process analytics to include Thornton's conductivity technology and know-how in
determining water purity.
More than half of our process analytics sales are to the pharmaceutical
and biotech markets. Our customers need fast and secure scale-up and production
that meets the validation processes required for GMP (Good Manufacturing
Processes) and other regulatory standards. Our in-line process analytics
solutions help these customers ensure reproducible and consistent product
quality, while ensuring compliance within relevant regulatory standards.
Industrial Instruments and Solutions
We offer industrial measurement solutions to customers in a variety of
industries, often in the same end markets where we sell our laboratory
instruments. Weighing instruments are among the most broadly used measurement
devices in industry. We estimate that approximately 40% of our sales are to
customers using our instruments and services in industrial environments. We
believe that we have the largest market share in the industrial market in each
of Europe and the United States. In Asia, we have a substantial industrial
business which has gained market share in recent years. This business is
supported by an established manufacturing presence in China. We believe that we
are the only company with a true global presence across industrial weighing and
related applications.
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In recent years, we have continued the globalization of our industrial
businesses. This anticipates the continued emergence of a global marketplace, as
our customers set up operations worldwide and as industry standards are
harmonized globally. We want to offer state-of-the-art solutions and consistent
quality and service levels around the globe. It is this powerful combination
that continues to attract major customers who have standardized on our
instruments at their facilities worldwide. The industrial instruments and
solutions that we offer are described in more detail below.
Industrial Weighing Solutions
Industrial Scales and Balances. We offer a complete line of industrial
scales and balances, such as bench scales and floor scales, for weighing loads
from a few grams to several thousand kilograms in applications ranging from
measuring materials in chemical production to weighing mail and packages. Our
product lines include the Viper and 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. Prices vary
significantly with the size and functions of the scale, generally ranging from
$1,000 to $20,000.
Industrial Terminals. Our latest industrial scale terminal is the
JagXtreme, which is our fastest, most powerful scale terminal ever. It harnesses
the power and flexibility of the internet to help integrate and control
information, equipment management, and automation in manufacturing processes.
The JagXtreme terminal is two and a half times faster than our industry-leading
Jaguar terminal - but it works like a Jaguar terminal so there is little
training time required. It allows users to download programs or access setup
data from across the plant - or across the globe. The JagXtreme terminal can
also maximize up time by dispatching emails when the unit needs service - and
minimize down time through predictive rather than reactive maintenance. The
JagXtreme terminal can serve up data across the web through an internet browser.
It also provides users with the tools to design their own user interface. Prices
for industrial weighing terminals vary significantly based on functionality of
the application, generally ranging from $500 to $10,000.
Vehicle Scale Systems. Our primary heavy industrial products are scales
for weighing trucks or railcars (i.e., weighing bulk goods as they enter a
factory or at a toll station). Our vehicle scales, such as the DigiTol
TRUCKMATE, generally have digital load cells, which offer significant advantages
in serviceability over analog load cells. Heavy industrial scales are capable of
measuring weights up to 500 tons and permit accurate weighing under extreme
environmental conditions. We also offer advanced computer software, such as
WinBridge, that can be used with our heavy industrial scales to permit a broad
range of applications. Our WinBridge software provides a complete system for
managing vehicle weighing transactions. Vehicle scale prices generally range
from $20,000 to $50,000.
Application Software for Weighing. Our software for industrial weighing
applications are based on an open-system architecture that enables interaction
with customers' enterprise software packages. For example, FreeWeigh is a
powerful standard software package that covers the entire range of prepackage
and filling process control. FreeWeigh is distinguished by its large number of
standard functions and by its high flexibility in meeting customers' specific
application needs. The modular structure of the software allows for gradual
expansion and great flexibility to meet often rapid changes in production
conditions. FormWeigh is our formulation/batching solution used in chemistry,
pharmaceutical and food
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production processes. Using FormWeigh, weighing is made simple and reliable,
including for a host of customized configurations. We also offer a variety of
solutions in the industrial filling process to meet our customers' statistical
process and quality control needs. Our "MultiRange" products also include
standardized software which uses the weight data obtained to calculate other
parameters, such as price or number of pieces. The modular design of these
products facilitates the integration of our weighing equipment into a computer
system performing other functions, like inventory control or batch management.
Packaging
Dynamic Checkweighers. We are the world's leading provider of metal
detectors, checkweighers and x-ray visioning, which, when combined with our
application-specific software packages, provide food and drug packaging lines an
integrated solution to check the quality and quantity of their packages. We
offer solutions to checkweighing requirements in the food processing,
pharmaceutical, chemicals and cosmetic industries, where customers are required
to accurately measure portions for packaging. We also offer checkweighing
solutions to the transportation and package delivery industries, where tariffs
are levied based on weight. Customizable software applications utilize the
information generated by checkweighing hardware to find production flaws,
packaging and labeling errors and nonuniform products, as well as to sort
rejects and record the results. Our checkweighing equipment can accurately
determine weight in dynamic applications at speeds of up to several hundred
units per minute. Checkweighers generally range in price from $8,000 to $40,000.
End-of-line Inspection Solutions. Increasing safety and consumer
protection requirements are driving the need for more and more sophisticated
end-of-line inspection systems. We are the leading global provider of integrated
end-of-line inspection solutions. These high throughput solutions incorporate
sensor technologies and software to assist customers in fulfilling validation
requirements and in improving their quality and yield. For example, metal
detection systems control the removal of products that are identified as
contaminated by metal during the manufacturing process in the food processing,
pharmaceutical, cosmetics, chemicals and other industries. Metal detectors
therefore provide manufacturers with vital protection against metal
contamination arising from their own production processes or from using
contaminated raw materials. Metal detectors are most commonly used with
checkweighers as components of integrated packaging lines in the food
processing, pharmaceutical and other industries. Prices for metal detection
systems generally range from $5,000 to $20,000. Through our recent acquisition
of AVS, we added x-ray-based vision inspection, which is ideal for identifying
non-metallic contamination. We feel that AVS is an excellent strategic
complement to our existing offering of metal detection, checkweighing and
related quality control software systems.
Transportation / Shipping and Logistics
Companies are increasingly conducting business across geographic
boundaries, and transportation/logistics suppliers are instrumental in
supporting those efforts. Speed is also critical, as evidenced by the growth in
e-commerce and just-in-time methods. Customers are seeking solutions to speed
throughput, lower costs, increase revenue and ensure first-rate service to their
own customers. We are addressing those needs as the leading global supplier of
automatic identification and data capture solutions, which integrate in-motion
weighing, dimensioning and identification technologies. With these solutions,
companies such as FedEx can measure the weigh and cubic volume of packages for
appropriate billing, logistics and quality control. Our solutions also integrate
into information systems that allow customers to
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track the progress of packages via the Internet. Prices for integrated
dimensioning/weighing systems range from $5,000 to $20,000.
We believe our solutions provide our customers with greater accuracy
and higher throughput than competitors' products. Based on a thorough
understanding of customer processes, we can match our solutions precisely to
customer needs. Our global presence gives us the ability to provide world-class
service in most major locations around the world. What's more, our technical
knowledge of local weights and measures regulations and our application know-how
result in effective installations and provides ongoing support for customers.
Food Retailing Instruments and Solutions
We offer food retailing measurement solutions to customers in a variety
of industries, often in the same end markets where we sell our industrial
solutions. Weighing instruments are among the most broadly used measurement
devices in industry and food retailing. We estimate that approximately 20% of
our sales are to customers in food retailing environments. We believe that we
have the largest market share in the food retailing market in each of Europe and
the United States. In Asia, we have a substantial food retailing business which
has gained market share in recent years. This business is supported by an
established manufacturing presence in China. We believe that we are the only
company with a true global presence across food retailing weighing applications.
Retail Weighing Solutions
Retail Scale Systems and Prepackaging Systems. Supermarkets,
hypermarkets and other food retail establishments make use of multiple weighing
applications for the full handling of perishable goods. For example, perishable
goods are weighed on arrival to determine payment to suppliers and some of these
goods are repackaged, priced and labeled for sale to customers. Other goods are
kept loose and selected by customers and either weighed at the produce or
delicatessen counter or at the checkout counter. We offer stand-alone scales for
basic counter weighing and pricing, price finding, and printing. In addition, we
offer network scales and software, which can integrate backroom, counter,
self-service and checkout functions, and can incorporate weighing data into a
supermarket's overall perishable goods management system.
Our OPRA retail scale, a key element of our perishable goods management
solution, is the first Internet-enabled weighing instrument in the industry.
OPRA enables customers to remotely manage pricing, run promotions, support
frequent-shopper programs, download software, manage inventory and more. Our
equipment can also accommodate required dual-currency displays and, thorugh its
Internet capabilities, can automatically adjust for conversion to the euro.
Backroom products include dynamic weighing products, labeling and wrapping
machines, perishable goods management and data processing systems. In some
countries in Europe, we also sell slicing and mincing equipment. Prices for food
retailing scales generally range from $500 to $5,000, but are often sold as part
of comprehensive weighing solutions.
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Customers and Distribution
Our business is geographically diversified, with sales in 2000 derived
44% from Europe, 44% from North and South America and 12% from Asia and other
countries. Our customer base is also diversified by industry and by individual
customer. Our largest single customer accounted for no more than 3% of 2000 net
sales.
Principal customers for our solutions include companies in the
following key end markets: the life science industry (pharmaceutical and biotech
companies, as well as independent research organizations), food processors,
packagers and retailers, specialty chemicals and cosmetics companies, the
transportation and logistics industry, the metals industry, the electronics
industry and the academic market.
Our laboratory products are sold through a worldwide distribution
network. Our extensive direct distribution network and our dealer support
activities enable us to maintain a significant degree of control over the
distribution of our products. Mid to high-end products in the United States are
handled by our own sales force. We sell laboratory products in Asia through our
own sales force and distributors, and in Europe primarily through direct sales.
European and Asian distributors are generally fragmented on a country-by-country
basis.
Ohaus branded laboratory balances are generally positioned in
alternative distribution channels to those of Mettler-Toledo branded products.
This means that we can fill a greater number of distribution channels and
increase penetration of our existing markets. Since acquiring Ohaus in 1990, we
have expanded this brand beyond its historical U.S. focus. Ohaus branded
products are sold exclusively through distributors.
In the industrial and food retailing market, we sell both directly to
customers (including OEMs) and through distributors. In the United States,
direct sales exceed distribution sales and in Europe, direct sales predominate,
with distributors used in certain cases. We sell products in Asia primarily
through distributors, except in China where we sell products through our own
sales force and distributors. Where we use distributors, we seek to provide them
with significant support.
We also offer customers the ability to shop online for basic
instruments with global appeal, such as balances, pipettes, pH meters,
electrodes, titrators and density meters. Launched in mid-1999, www.MT-Shop.com
presents customers with unique options, including the ability to customize a
product down to a specific color or design motif. Users also can access the site
in multiple languages. Our virtual shop is aimed principally at small start-up
companies and individual scientists - segments of the market that previously
were difficult to reach cost-effectively. The site is expected to increase brand
awareness and market penetration with these new target groups.
Sales and Service
Market Organizations
We have a host of geographically focused market organizations ("MOs")
around the world that are responsible for all aspects of our sales and service.
The MOs are local marketing and service organizations designed to maintain close
relationships with our customer base. Each MO has the flexibility to adapt its
marketing and service efforts to account for different cultural and economic
conditions. MOs also work closely with our producing organizations (described
16
below) by providing feedback on manufacturing and product development
initiatives and relaying innovative product and application ideas.
We have the only global sales and service organization among weighing
instruments manufacturers. At December 31, 2000, our sales and services group
consisted of more than 4,000 employees in sales, marketing and customer service
(including related administration) and after-sales technical service. This field
organization has the capability to provide service and support to our customers
and distributors in virtually all major markets across the globe.
Sales managers and representatives interact across product lines and
markets in order to serve customers that have a wide range of instrument needs,
such as pharmaceutical companies that purchase both laboratory and industrial
products. We classify customers according to their potential for sales and the
appropriate distribution channel is selected to service the customer as
efficiently as possible. Larger accounts tend to have dedicated sales
representatives. Other representatives specialize by product line. Sales
representatives call directly on end-users either alone or, in regions where
sales are made through distributors, jointly with distributors.
We utilize a variety of advertising media, including trade journals,
catalogs, exhibitions and trade shows. In addition, we also sponsor seminars,
product demonstrations and customer training programs. We utilize sophisticated
marketing techniques in our sales efforts. These techniques include the
development and utilization of marketing databases. We develop these databases
to better understand the full potential of our market by customer, location,
industry, instruments and related application. We then utilize this data to more
efficiently direct our field resources and complement our direct and distributor
sales forces with targeted mailing and telemarketing campaigns to more fully
exploit our market's potential.
We also utilize a dual brand strategy for certain market segments to
improve our overall market penetration. For example, we sell laboratory balances
under the Ohaus brand name as an alternative to the Mettler-Toledo brand name in
certain distribution channels.
We use the Mettler-Toledo Web site, www.mt.com, to provide current and
prospective customers and other audiences with the information they need in a
convenient manner. With several thousand pages of information, our Web site has
become a principal source of answers for customers' questions on many
laboratory, industrial and food retailing processes.
In addition, we use the information gained through visits to our site
to make our marketing messages even more relevant to customers. This includes
employing one-to-one marketing techniques.
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Service
We believe service capabilities are a critical success factor in our
business. Through our own dedicated service technicians, we provide contract and
repair services in all countries in which our products are sold. We estimate
that we have the largest installed base of weighing instruments in the world,
and our contract and repair services generate significant revenues. In 2000,
service (representing service contracts, repairs and replacement parts)
accounted for approximately 18% of our total net sales (service revenue is
included in the laboratory and industrial and food retailing sales percentages
given above). Approximately half of this amount is derived from spare parts with
the remaining portion derived from service contacts. Beyond revenue
opportunities, service is a key part of our product offering and helps
significantly in generating repeat sales. The close relationships and frequent
contact with our large customer base provides us with sales opportunities and
innovative product and application ideas. A global service network also is an
important factor in our ability to expand in emerging markets. Moreover, the
widespread adoption of quality laboratory and manufacturing standards and the
privatization of weights and measures certification represent favorable trends
for our service business, as they tend to increase demand for on-site
calibration services.
Our service contracts provide for repair services within various
guaranteed response times, depending on the level of service selected. Many
contracts also include periodic calibration and testing. Contracts are generally
one year in length, but may be longer. If the service contract also includes
products of other manufacturers, we will generally perform calibration, testing
and basic repairs directly, and contract out more significant repair work. As
application software becomes more complex, our service efforts increasingly
include installation and customer training programs as well as product service.
Research and Development; Manufacturing
Producing Organizations
Our product development, research and manufacturing efforts are
organized into a number of producing organizations ("POs"). POs are product
development teams comprised of personnel from our marketing, development,
research, manufacturing, engineering and purchasing departments. POs often seek
customer input to ensure that the products developed are tailored to market
needs. We have organized our POs to reduce product development time, improve
customer focus, reduce costs and maintain technological leadership. The POs work
together to share ideas and best practices, and some employees are in both MOs
and POs. We recently implemented a number of projects that we believe will
further increase productivity and lower costs. For example, we restructured the
order and product delivery process in Europe to enable us to deliver many of our
products to our customers directly from the manufacturing facility within
several days, which minimizes the need to store products in decentralized
warehouses. In addition, we have centralized our European spare parts inventory
management system allowing all spare parts for Europe to be delivered from a
single, highly automated location.
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Research and Development
We attribute a significant portion of our recent margin improvement to
our research and development efforts. We intend to continue to invest in product
innovation in order to provide technologically advanced products to our
customers for existing and new applications. Over the last three years, we have
invested more than $160 million in research and development. In 2000, we spent
approximately 5.1% of net sales on research and development (including costs
associated with customer-specific engineering projects, which are included in
cost of sales for financial reporting purposes). Our research and development
efforts fall into two categories:
o technology advancements, which increase the value of our products.
These may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means
o cost reductions, which reduce the manufacturing cost of our
products through better overall design
We have devoted an increasing proportion of our research and
development budget to software development. Software development for weighing
applications includes application-specific software, as well as software
utilized in sensor mechanisms, displays and other common components, which can
be leveraged across our broad product lines.
We closely integrate research and development with marketing,
manufacturing and product engineering. We have over 700 professionals in
research and development and product engineering. As part of our research and
development activities, we have frequent contact with university experts,
industry professionals and the governmental agencies responsible for weights and
measures, analytical instruments and metal detectors. In addition, our in-house
development is complemented by technology and product development alliances with
customers and original equipment manufacturers.
Manufacturing
We manufacture some of our own components, usually components that
contain proprietary technology. However, when outside manufacturing is more
efficient, we contract with others for certain components and in turn use these
components in our own manufacturing processes. We use a wide range of suppliers
and we believe our supply arrangements to be adequate. From time to time we rely
on a single supplier for all of our requirements of a particular component. Even
then, adequate alternative sources are generally available if necessary. Supply
arrangements for electronics are generally made globally. For mechanical
components, we generally use local sources to optimize materials flow.
We strive to emphasize product quality in our manufacturing operations,
and most of our products require very strict tolerances and exact
specifications. We use an extensive quality control system that is integrated
into each step of the manufacturing process. This integration permits field
service technicians to trace important information about the manufacture of a
particular unit, which facilitates repair efforts and permits fine-tuning of the
manufacturing process. Many of our measuring instruments are subjected to an
extensive calibration process that allows the software in the unit to
automatically adjust for the impact of temperature and humidity.
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We are a worldwide manufacturer, with manufacturing plants in the
United States, Switzerland, Germany, the United Kingdom, France and China.
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 worldwide. Most of our manufacturing facilities have achieved ISO 9001
certification. We believe that our manufacturing capacity is sufficient to meet
our present and currently anticipated needs.
Backlog
Manufacturing turnaround time is generally sufficiently short so as to
permit us to manufacture to fill orders for most of our products, which helps to
limit inventory costs. Backlog is therefore generally a function of requested
customer delivery dates and is typically no longer than one to two months.
Employees
As of December 31, 2000, we had approximately 8,250 employees
throughout the world, including approximately 4,500 in Europe, 2,750 in North
and South America, and 1,000 in Asia and other countries. We believe our
employee relations are good, and we have not suffered any material employee work
stoppage or strike during the last five years. Labor unions do not represent a
meaningful number of our employees.
In certain of our facilities, we have a flexible workforce environment,
in which hours vary depending on the workload. This flexible working environment
enhances employees' involvement, thus increasing productivity. It also improves
efficient payroll management by permitting us to adjust staffing to match
workload to a greater degree without changing the size of the overall workforce.
Intellectual Property
We hold more than 1,100 patents and trademarks, primarily in the United
States, Switzerland, Germany, the United Kingdom, France, Japan and China. Our
products generally incorporate a wide variety of technological innovations, some
of which are protected by patents and some of which are not. Products are
generally not protected as a whole by individual patents, and as a result, no
one patent or group of related patents is material to our business. We have
numerous trademarks, including the Mettler-Toledo name and logo, which are
material to our business. We regularly protect against infringement of our
intellectual property.
Regulation
Our products are subject to various regulatory standards and approvals
by weights and measures regulatory authorities. Although there are a large
number of regulatory agencies across our markets, there is an increasing trend
toward harmonization of standards, and weights and measures regulation is
harmonized across the European Union. Our food processing and food retailing
products are subject to regulation and approvals by relevant governmental
agencies, such as the United States Food and Drug Administration. Products used
in hazardous environments may also be subject to special requirements. All of
our electrical components are subject to electrical safety standards. We believe
that we are in compliance in all material respects with applicable regulations.
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Environmental Matters
We are subject to a variety of environmental laws and regulations in
the jurisdictions in which we operate, including provisions relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. We wholly or partly own, lease or hold a
direct or indirect equity interest in a number of properties and manufacturing
facilities around the world, including North and South America, Europe,
Australia and China. Like many of our competitors, we have incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations in both the United States and abroad.
We are currently involved in, or have potential liability with respect
to, the remediation of past contamination in certain of our facilities in both
the United States and abroad. In addition, certain of our present and former
facilities have or had been in operation for many decades and, over such time,
some of these facilities may have used substances or generated and disposed of
wastes which are or may be considered hazardous. It is possible that such sites,
as well as disposal sites owned by third parties to which we have sent wastes,
may in the future be identified and become the subject of remediation.
Accordingly, although we believe that we are in substantial compliance with
applicable environmental requirements and to date we have not incurred material
expenditures in connection with environmental matters, it is possible that we
could become subject to additional environmental liabilities in the future that
could result in a material adverse effect on our financial condition or results
of operations.
We, or in some cases the former owner of Toledo Scale, have been named
a potentially responsible party under CERCLA or analogous state statutes at the
following third-party owned sites with respect to the alleged disposal at the
sites by Toledo Scale during the period before we owned it: Granville Solvents
Site, Granville, Ohio; Aqua-Tech Environmental, Inc. Site, Greer, South
Carolina; and Seaboard Chemical Company Site, Jamestown, North Carolina.
Pursuant to the terms of the stock purchase agreement between us and the former
owner of Toledo Scale, the former owner is obligated to indemnify us for various
environmental liabilities. To date, with respect to each of the foregoing sites,
the former owner has undertaken the defense and indemnification of Toledo Scale.
Based on currently available information and given our contractual rights of
indemnification, we believe that the costs associated with the investigation and
remediation of these sites will not have a material adverse effect on our
financial condition or results of operations.
Competition
Our markets are highly competitive. Furthermore, weighing instruments
markets are fragmented both geographically and by application, particularly the
industrial and food retailing weighing instruments market. As a result, we face
numerous regional or specialized competitors, many of which are well established
in their markets. In addition, some of our competitors are divisions of larger
companies with potentially greater financial and other resources than our own.
Taken together, the competitive forces present in our markets can impair our
operating margins in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive, we must continue to
21
invest in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
We believe that the principal competitive factors in our U.S. markets
for purchasing decisions are accuracy and durability, while in Europe accuracy
and service are the most important factors. In emerging markets, where there is
greater demand for less sophisticated products, price is a more important factor
than in developed markets. Competition in the United States laboratory market is
also influenced by the presence of large distributors that sell not only our
products but those of our competitors as well.
History
Mettler-Toledo International Inc. was incorporated as a Delaware
Corporation in December 1991 and was recapitalized in connection with the
October 15, 1996 acquisition of the Mettler-Toledo group of companies from
Ciba-Geigy. In the acquisition, we paid cash consideration of approximately SFr
505.0 million (approximately $402.0 million at October 15, 1996), including
dividends of approximately SFr 109.4 million (approximately $87.1 million at
October 15, 1996), paid approximately $185.0 million to settle amounts due to
Ciba-Geigy and its affiliates and incurred expenses in connection with the
acquisition and related financing of approximately $29.0 million. We financed
the acquisition primarily with (i) borrowings under a credit agreement in the
amount of $307.0 million, (ii) the issuance of $135.0 million of senior
subordinated notes and (iii) an equity contribution of $190.0 million primarily
from AEA Investors Inc., its shareholder-investors and our executive officers
and other employees. Following the completion of our initial public offering in
November 1997, management, employees and Company sponsored benefit funds held
approximately 18% of the Company's shares on a fully diluted basis.
In May 1997, we acquired Safeline Limited for (pound)63.7 million
(approximately $104.4 million at May 30, 1997). Safeline is the world's largest
manufacturer and marketer of metal detection systems for companies that produce
and package goods in the food processing, pharmaceutical, cosmetics, chemicals
and other industries.
In November 1997, we completed our initial public offering of 7,666,667
shares of common stock at a per share price of $14.00. The offering raised net
proceeds of approximately $97.3 million. Concurrently with the offering, we
refinanced our prior credit facility and used proceeds from the refinancing and
the offering to repay the senior subordinated notes of our wholly owned
subsidiary, Mettler-Toledo, Inc.
In 1998 and 1999, certain selling shareholders completed secondary
offerings of 11,464,400 and 6,099,250 shares of our common stock, respectively.
Neither we nor any of our directors, executive officers or other employees sold
shares or received any proceeds from these offerings.
22
ITEM 2. PROPERTIES
The following table lists our principal manufacturing facilities,
indicating the location and whether the facility is owned or leased. Our
Greifensee, Switzerland facility also serves as our worldwide headquarters and
our Columbus, Ohio, facility serves as our North American headquarters. We
believe our facilities are adequate for our current and reasonably anticipated
future needs.
Location Owned/Leased
Europe:
Greifensee/Nanikon, Switzerland........ Owned
Uznach, Switzerland.................... Owned
Urdorf, Switzerland.................... Owned
Schwerzenbach, Switzerland............. Leased
Albstadt, Germany...................... Owned
Giesen, Germany........................ Owned
Bethune, France........................ Leased
Manchester, England.................... Leased
Royston, England....................... Leased
Americas:
Columbus, Ohio......................... Leased
Worthington, Ohio...................... Owned
Spartanburg, South Carolina............ Owned
Ithaca, New York....................... Owned
Woburn, Massachusetts.................. Leased
Millersville, Maryland................. Leased
Tampa, Florida......................... Leased
Vernon Hills, Illinois................. Leased
Other:
Shanghai, China............................ Building Owned; Land Leased
Changzhou, China........................... Building Owned; Land Leased
Mumbai, India.............................. Leased
23
ITEM 3. LEGAL PROCEEDINGS
Routine litigation is incidental to our business. Nevertheless, we are
not currently involved in any legal proceeding which we believe could have a
material adverse effect upon our financial condition or results of operations.
See "Environmental Matters" under Part I, Item 1 for information concerning
legal proceedings relating to certain environmental claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION FOR COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the
symbol "MTD". The following table sets forth on a per share basis the high and
low sales prices for consolidated trading in our common stock as reported on the
New York Stock Exchange Composite Tape for the quarters indicated.
Common Stock
Price Range
-----------
High Low
---- ---
2000
Fourth Quarter $56.00 $39.50
Third Quarter $48.81 $37.75
Second Quarter $45.75 $30.00
First Quarter $44.50 $31.81
1999
Fourth Quarter $39.50 $27.63
Third Quarter $30.44 $23.81
Second Quarter $29.00 $22.63
First Quarter $27.94 $19.63
HOLDERS
At March 16, 2001 there were 229 holders of record of common stock
and 39,681,536 shares of common stock outstanding. The number of holders of
record excludes beneficial owners of common stock held in street name.
DIVIDEND POLICY
We have never paid any dividends on our common stock and we do not
anticipate paying any cash dividends on the common stock in the foreseeable
future. The current policy of our Board of Directors is to retain earnings to
finance the operations and expansion of our business. Moreover, our credit
agreement restricts our ability to pay dividends. Any future determination to
pay dividends will depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
by our Board of Directors.
25
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31, 2000, 1999, 1998, 1997 and 1996, for the years ended December 31,
2000, 1999, 1998 and 1997, for the period from October 15, 1996 to December 31,
1996 and for the period from January 1, 1996 to October 14, 1996 is derived from
our consolidated financial statements. The financial information for the period
prior to October 15, 1996, the date of our acquisition from Ciba-Geigy (the
"Acquisition"), is combined financial information of the Mettler-Toledo group of
companies (the "Predecessor Business"). The combined historical data of the
Predecessor Business and the consolidated historical data of the Company are not
comparable in many respects due to the Acquisition and the Safeline acquisition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and accompanying notes.
The financial information presented below, in thousands except per share data,
was prepared in accordance with generally accepted accounting principles in the
United States of America ("U.S. GAAP").
Predecessor
Mettler-Toledo International Inc. Business
------------------------------------------------------------------------ -----------
October 15 January 1
Year ended Year ended Year ended Year ended to to
December 31, December 31, December 31, December 31, December 31, October 14,
2000 1999 1998 1997 1996 1996
------------ ------------ ------------ ------------ ----------- ------------
Statement of Operations Data:
Net sales............................... $1,095,547 $1,065,473 $935,658 $878,415 $ 186,912 $662,221
Cost of sales........................... 600,185 585,007 (a) 520,190 493,480 (c) 136,820 (f) 395,239
------- ------- ------- ------- -------- -------
Gross profit............................ 495,362 480,466 415,468 384,935 50,092 266,982
Research and development................ 56,334 57,393 48,977 47,551 9,805 40,244
Selling, general and administrative..... 296,187 300,389 265,511 260,397 59,353 186,898
Amortization............................ 11,564 10,359 7,634 6,222 1,065 2,151
Purchased research and development...... - - 9,976 (b) 29,959 (d) 114,070 (g) -
Interest expense........................ 20,034 21,980 22,638 35,924 8,738 13,868
Other charges (income), net (h)......... 2,638 10,468 1,197 10,834 17,137 (1,332)
------- ------- ------ ------ ------ -------
Earnings (loss) before taxes, minority
interest and extraordinary items....... 108,605 79,877 59,535 (5,952) (160,076) 25,153
Provision for taxes..................... 38,510 31,398 20,999 17,489 (938) 10,055
Minority interest....................... (24) 378 911 468 (92) 637
-------- ------- ------ ------ ------- -------
Earnings (loss) before
extraordinary items.................... 70,119 48,101 37,625 (23,909) (159,046) 14,461
Extraordinary items -
debt extinguishments................... - - - (41,197) (e) - -
---------- ---------- -------- --------- ---------- --------
Net earnings (loss)..................... $ 70,119 $ 48,101 $ 37,625 $(65,106) $(159,046) $ 14,461
========== ========== ======== ========= ========== ========
Basic earnings (loss) per common share:
Net earnings (loss) before
extraordinary items.................. $ 1.80 $ 1.25 $ 0.98 $ (0.76) $ (5.18)
Extraordinary items................... - - - (1.30) -
------- ------- -------- -------- --------
Net earnings (loss)................... $ 1.80 $ 1.25 $ 0.98 $ (2.06) $ (5.18)
======= ======= ======= ======== ========
Weighted average number
of common shares..................... 38,897,879 38,518,084 38,357,079 31,617,071 30,686,065
Diluted earnings (loss) per common share:
Net earnings (loss) before
extraordinary items.................. $ 1.66 $ 1.16 $ 0.92 $ (0.76) $ (5.18)
Extraordinary items................... - - - (1.30) -
-------- -------- -------- -------- --------
Net earnings (loss)................... $ 1.66 $ 1.16 $ 0.92 $ (2.06) $ (5.18)
======= ======= ======= ======== ========
Weighted average number
of common shares..................... 42,141,548 41,295,757 40,682,211 31,617,071 30,686,065
Balance Sheet Data (at end of period):
Cash and cash equivalents............... $ 21,725 $ 17,179 $ 21,191 $ 23,566 $ 60,696
Working capital......................... 103,021 81,470 90,042 79,163 103,697
Total assets............................ 887,582 820,973 820,441 749,313 771,888
Long-term debt.......................... 237,807 249,721 340,246 340,334 373,758
Other non-current liabilities (i)....... 95,843 100,334 103,201 91,011 96,810
Shareholders' equity..................... 178,840 112,015 53,835 25,399 12,426
(Footnotes on next page)
26
(Footnotes from previous page)
- ------------------------------
(a) In connection with acquisitions in 1999, including the acquisition of
the Testut-Lutrana group, we allocated $998 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 1999.
(b) In connection with the Bohdan acquisition, we allocated, based upon
independent valuations, $9,976 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Bohdan acquisition.
(c) In connection with the Safeline acquisition, we allocated $2,054 of the
purchase price to revalue certain inventories (principally work-in-progress
and finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the second quarter of 1997.
(d) In connection with the Safeline acquisition, we allocated, based upon
independent valuations, $29,959 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Safeline acquisition.
(e) Represents charges for the write-off of capitalized debt issuance fees and
related expenses associated with our previous credit facilities. The amount
also includes the prepayment premium on the senior subordinated notes which
were repurchased and the write-off of the related capitalized debt issuance
fees.
(f) In connection with the Acquisition, we allocated $32,194 of the purchase
price to revalue certain inventories (principally work-in-progress and
finished goods) to fair value (net realizable value). Substantially all
such inventories were sold during the period October 15, 1996 to December
31, 1996.
(g) In connection with the Acquisition, we allocated, based upon independent
valuations, $114,070 of the purchase price to purchased research and
development in process. This amount was recorded as an expense immediately
following the Acquisition.
(h) Other charges (income), net generally includes interest income, foreign
currency transactions, (gains) losses from sales of assets and other items.
The 2000 amount also includes a charge of $1,425 related to the close-down
and consolidation of operations. The 1999 amount includes a gain on an
asset sale of approximately $3,100, a charge of $8,007 to transfer
production lines from the Americas to China and Europe and the closure of
facilities and losses of approximately $4,100 in connection with the exit
from our glass batching business based in Belgium. For the years ended
December 31, 1999 and 1998, the amount shown also includes $825 and $650,
respectively, of expenses incurred on behalf of certain selling
shareholders in connection with the secondary offerings. For the year ended
December 31, 1997, the amount shown includes a restructuring charge of
$6,300 to consolidate three facilities in North America.
(i) Consists primarily of obligations under various pension plans and plans
that provide postretirement medical benefits. See Note 11 to the audited
consolidated financial statements included herein.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements.
Overview
We operate a global business, with net sales that are diversified by
geographic region, product range and customer. We hold leading positions
worldwide in many of our markets and attribute this leadership to several
factors, including the strength of our brand name and reputation, our
comprehensive solution offering, the quality of our global sales and service
network, our continued investment in product development, our pursuit of
technology leadership and our focus on capitalizing on opportunities in
developed and emerging markets. While all of our businesses have significant
strategic links in terms of technology or customer base, we have a
geographically diverse business which serves customers in relatively healthy and
stable end markets, including the pharmaceutical, biotech and food industries.
Our financial information is presented in accordance with generally
accepted accounting principles in the United States of America ("U.S. GAAP").
Net sales in local currency increased 9% in 2000, 16% in 1999 and 8% in
1998. The strengthening of the U.S. dollar versus our major trading currencies
reduced U.S. dollar-reported sales growth in each year. Net sales in U.S.
dollars increased 3% in 2000, 14% in 1999 and 7% in 1998. In 2000, we had local
currency sales growth of 11% in Europe, 6% in the Americas and 13% in Asia and
other markets.
We believe our sales growth over the next several years will come
primarily from our solutions approach to the principal challenges facing our
customer base. These include the need for increased efficiency (for example, in
accelerating time to market for new products, achieving better yields, improving
work processes and outsourcing non-core activities), the desire to integrate
information captured by instruments into management information systems, the
drive for ever higher quality of our customers' products and services, including
the need to adhere to stringent regulatory and industry standards, and the move
towards globalization in all major customer groups.
Acquisitions are also an integral part of our growth strategy. Our
acquisitions leverage our global sales and service network, respected brand,
extensive distribution channels and technological leadership. We are
particularly attracted to acquisitions which leverage these attributes or
increase our solutions capability (for example, software acquisitions). In
addition, we are most attracted to the following end markets: drug discovery,
process analytics, food and drug packaging and transportation and logistics.
We increased our Adjusted Operating Income (gross profit less research
and development and selling, general and administrative expenses before
amortization and non-recurring costs) as a percentage of net sales from 10.8% in
1998 to 13.0% in 2000. This improved performance was achieved while we continued
to invest in product development and in our distribution and manufacturing
infrastructure. We believe that a significant portion of the increase in our
Adjusted Operating Income resulted from our strategy to reduce costs,
re-engineer our operations and focus on the highest value-added segments of the
markets in which we compete.
28
Recent Acquisitions
In 2000, we acquired Berger Instruments, Thornton Inc. and AVS. We also
increased our shareholding in Cargoscan to 100%.
Berger Instruments, based in Delaware, USA, is the market leader in
Supercritical Fluid Chromatography (SFC), a high-performance technology used to
analyze and purify chemical compounds during drug discovery. Berger Instruments
is an excellent complement to our portfolio of automated drug discovery
solutions. We already have a leading position in sample preparation and
synthesis. Purification is the next process step after synthesis. Berger allows
us to further our strategy of providing solutions that automate and integrate
the drug discovery process and therefore help our customers improve the
efficiency, throughput and accuracy of their processes.
Thornton Inc., based in Massachusetts, USA, is the leader in pure and
ultra-pure industrial water monitoring instrumentation used in semi-conductor,
micro-electronics, pharmaceutical, and biotech applications. We believe the
acquisition of Thornton is an excellent strategic move to expand our process
analytics business and gain access to new markets. Their conductivity technology
and know-how are complementary to our strength in pH and oxygen measurements.
With a broader technology offering, we will be better able to serve our expanded
customer base.
AVS, UK-based, is a leader in x-ray visioning solutions used in the
inspection of packaged goods. We are the leading global provider of integrated
end-of-line inspection solutions. These high throughput solutions incorporate
sensor technologies and software to assist customers in fulfilling validation
requirements and in improving their quality and yield. Through AVS, we add
x-ray-based vision inspection, which is ideal for identifying non-metallic
contamination in packages and where metal packaging prevents detection by
conventional means. We feel that AVS is an excellent strategic complement to our
existing offering of metal detection, checkweighing and related quality control
software systems.
Cargoscan is the premier provider of dimensioning technology used by
major express carriers, freight forwarders, third-party logistic entities and
distribution companies. We believe we are uniquely positioned to serve this
industry given our global presence and our technical knowledge of local
regulatory requirements. This transaction underscores our commitment to the
transportation and logistics sector and will allow us the flexibility and faster
decision-making necessary to exploit the substantial growth of this market.
In 1999, we acquired the Testut-Lutrana group, a leading manufacturer
and marketer of industrial and retail weighing instruments in France with annual
sales of approximately $50 million. We believe this acquisition is an excellent
strategic fit given Testut-Lutrana's extensive sales and service network in
France and excellent brand recognition. By virtue of this acquisition, we
assumed the leading position in food retail weighing in Europe and are well
positioned to meet the rapidly changing demands of our European customer base.
In 1999, we also signed an agreement to convert our 60% joint venture
in Changzhou, China, into a legal structure that provides us with full control.
Through this change in ownership, we are able to fully leverage this low-cost
manufacturing base for international markets. This move underscores our
strategic commitment to Asia and our belief in the fundamental growth factors
for the region.
29
In 1998, we acquired three technologically advanced instrument
companies in the drug discovery sector: Applied Systems, Bohdan Automation Inc.
and Myriad.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples.
Bohdan is a leading supplier of laboratory automation and automated
synthesis products to the automated drug and chemical compound discovery market
used in research for life science applications. Myriad designs, assembles and
markets instruments that facilitate and automate the synthesis of large numbers
of chemical compounds in parallel, which is a key step in the chemical compound
discovery process. Its products can be used in all stages of synthesis in drug
discovery.
Cost Reduction Programs
As part of our efforts to reduce costs, we evaluate from time to time
the cost effectiveness of our global manufacturing strategy. In 2000, we
recorded a charge of $1.4 million related to the close-down and consolidation of
operations. Over the next few years, we also intend to continue to develop China
as a low-cost manufacturing resource and to seek other manufacturing cost-saving
opportunities. In this respect, we recorded a charge of $8.0 million in 1999
associated with the transfer of production lines from the Americas to China and
Europe and the closure of facilities. These charges relate primarily to
severance and other related benefits and costs of exiting facilities, including
lease termination costs and the write-down of impaired assets. We believe that
the future cash benefits of these programs will exceed the costs, although the
cash outflows will precede the cash flow benefits. Activities related to the
charge recorded in 1999 were significantly completed in 2000.
In 1999, we launched a worldwide procurement project. The project is
intended to eliminate price differences between units, leverage potential
opportunities to increase buying power, and establish worldwide sourcing
arrangements. We envision it will take at least two years to obtain anticipated
benefits from this project.
During 1999, we also exited our glass batching business based in
Belgium. In this respect, we incurred losses of $4.1 million during 1999
primarily for severance and other costs of exiting this business. We completed
our exit of the glass batching business by the end of 1999.
30
Results of Operations
The following table sets forth certain items from our consolidated
statements of operations for the years ended December 31, 2000, 1999 and 1998
(amounts in thousands).
2000 1999 (a) 1998(b)
---- -------- -------
Net sales.............................. $1,095,547 $1,065,473 $935,658
Cost of sales.......................... 600,185 585,007 520,190
------- ------- -------
Gross profit........................... 495,362 480,466 415,468
Research and development............... 56,334 57,393 48,977
Selling, general and administrative.... 296,187 300,389 265,511
Amortization........................... 11,564 10,359 7,634
Purchased research and development..... - - 9,976
Interest expense....................... 20,034 21,980 22,638
Other charges, net (c)................. 2,638 10,468 1,197
--------- -------- --------
Earnings before taxes and minority interest $ 108,605 $ 79,877 $ 59,535
========== ========== ========
Adjusted Operating Income (d).......... $ 142,841 $ 123,682 $100,980
========== ========== ========
(a) In connection with acquisitions in 1999, including the acquisition of the
Testut-Lutrana group, we allocated $998 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 1999.
(b) In connection with the Bohdan acquisition, we allocated, based upon
independent valuations, $9,976 of the purchase price to purchased research
and development in process. This amount was recorded as an expense
immediately following the Bohdan acquisition.
(c) Other charges, net generally includes interest income, foreign currency
transactions, (gains) losses from sales of assets and other items. The
2000 amount also includes a charge of $1,425 related to the close-down and
consolidation of operations. The 1999 amount includes a gain on an asset
sale of approximately $3,100, a charge of $8,007 to transfer production
lines from the Americas to China and Europe and the closure of facilities
and losses of approximately $4,100 in connection with the exit from our
glass batching business based in Belgium. For the years ended December 31,
1999 and 1998, the amount shown also includes $825 and $650, respectively,
of expenses incurred on behalf of certain selling shareholders in
connection with our secondary offerings in 1999 and 1998, respectively.
(d) Adjusted Operating Income is defined as operating income (gross profit
less research and development and selling, general and administrative
expenses) before amortization and non-recurring costs. Non-recurring costs
which have been excluded are the costs set forth in Note (a) above. We
believe that Adjusted Operating Income provides important financial
information in measuring and comparing our operating performance. Adjusted
Operating Income is not intended to represent operating income under U.S.
GAAP and should not be considered as an alternative to net earnings as an
indicator of our operating performance.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales were $1,095.5 million for the year ended December 31, 2000,
compared to $1,065.5 million in the prior year. This reflected an increase of 9%
in local currencies during 2000. Results for 2000 were negatively impacted by
the strengthening of the U.S. dollar against other currencies. Net sales in U.S.
dollars during 2000 increased 3%.
Net sales by geographic customer location were as follows: Net sales in
Europe increased 11% in local currencies during 2000, versus the prior year. The
increase reflected organic growth in our business and the effect of the
Testut-Lutrana acquisition. Net sales in local currencies during 2000 in the
Americas increased 6%. Net sales in Asia and other markets increased 13% in
local currencies during 2000. The results of our business in Asia and other
markets during 2000 reflect strong sales performance in China and Japan.
The operating results for Testut-Lutrana (which were included in our
results from May 1, 1999) would have had the effect of increasing our net sales
by an additional $16.3 million in 1999.
31
Gross profit as a percentage of net sales was 45.2% for 2000 and 1999,
before non-recurring acquisition costs in 1999. During 2000, we experienced an
increase in certain raw material costs, including electronics.
Research and development expenses as a percentage of net sales were
5.1% for 2000, compared to 5.4% for the prior year. This decrease is the result
of exchange rate movements.
Selling, general and administrative expenses as a percentage of net
sales decreased to 27.1% for 2000, compared to 28.2% for the prior year.
Adjusted Operating Income increased 15% to $142.8 million, or 13.0% of
net sales, for 2000, compared to $123.7 million, or 11.6% of net sales, for the
prior year. The 1999 period excludes the previously noted non-recurring
acquisition charge of $1.0 million for the revaluation of inventories to fair
value. The increased operating profit reflected the benefits of higher sales
levels and our continuous efforts to improve productivity.
Interest expense decreased to $20.0 million for 2000, compared to $22.0
million for the prior year. The decrease was principally due to reduced debt
levels.
Other charges, net were $2.6 million for 2000, compared to other
charges, net of $10.5 million for the prior year. The 2000 amount includes a
charge of $1.4 million related to the close-down and consolidation of
operations. The 1999 amount also included a gain on an asset sale of $3.1
million, charges of $8.0 million regarding the transfer of production lines from
the Americas to China and Europe and the closure of facilities, losses of $4.1
million to exit our glass batching business based in Belgium and a charge of
$0.8 million relating to the secondary offering completed in 1999.
Our effective tax rate of 35% before non-recurring items in 2000 was
consistent with the previous year.
Net earnings were $71.5 million in 2000, compared to $57.9 million in
1999, before the $1.4 million charge to close down and consolidate operations in
2000, and expenses for the secondary offering, acquisition charges and the $8.0
million charge to transfer production lines from the Americas to China and
Europe and the closure of facilities in 1999. This represents an increase of
23%.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales were $1,065.5 million for the year ended December 31, 1999,
compared to $935.7 million in the prior year. This reflected an increase of 16%
in local currencies during 1999. Results for 1999 were negatively impacted by
the strengthening of the U.S. dollar against other currencies. Net sales in U.S.
dollars during 1999 increased 14%.
Net sales by geographic customer location were as follows: Net sales in
Europe increased 19% in local currencies during 1999, versus the prior year. The
increase largely reflected the effect of Testut-Lutrana, as well as organic
growth in our business. Net sales in local currencies during 1999 in the
Americas increased 15% principally due to organic growth in our business, as
well as the effect of businesses acquired. Net sales in Asia and other markets
increased 11% in local currencies during 1999. The results of our business in
Asia
32
and other markets during 1999 primarily represented improved economic
conditions throughout the region, which began in the fourth quarter of 1998.
The operating results for Testut-Lutrana (which were included in our
results from May 1, 1999) would have had the effect of increasing our net sales
by an additional $38.8 million in 1998, if included from May 1, 1998.
Gross profit as a percentage of net sales increased to 45.2% for 1999,
compared to 44.4% for 1998, before non-recurring acquisition costs.
Research and development expenses as a percentage of net sales
increased to 5.4% for 1999, compared to 5.2% for the prior year. The increase
primarily reflected increased research and development activity related to
product introductions, as well as the effect of acquired businesses.
Selling, general and administrative expenses as a percentage of net
sales decreased to 28.2% for 1999, compared to 28.4% for the prior year.
Adjusted Operating Income increased 22.5% to $123.7 million, or 11.6%
of net sales, for 1999, compared to $101.0 million, or 10.8% of net sales, for
the prior year. The 1999 period excludes the previously noted non-recurring
acquisition charge of $1.0 million for the revaluation of inventories to fair
value. The increased operating margin reflected the benefits of higher sales
levels and our continuous efforts to improve productivity.
Interest expense decreased to $22.0 million for 1999, compared to $22.6
million for the prior year. The decrease was principally due to reduced debt
levels.
Other charges, net were $10.5 million for 1999, compared to other
charges, net of $1.2 million for the prior year. The 1999 and 1998 amounts
included charges of $0.8 million and $0.7 million relating to the secondary
offerings completed in 1999 and 1998, respectively. The 1999 amount also
included a gain on an asset sale of $3.1 million, charges of $8.0 million
regarding the transfer of production lines from the Americas to China and Europe
and the closure of facilities and losses of $4.1 million to exit our glass
batching business based in Belgium. The 1998 amount also included gains on asset
sales offset by other charges.
Our tax rate in 1999 before non-recurring items was consistent with the
prior year, excluding a benefit of approximately 5 percentage points or $3.6
million based upon a one-time change in Swiss tax law which benefited only the
1998 period. The 1998 period also included non-deductible purchased research and
development charges incurred in connection with the Bohdan acquisition.
Net earnings before expenses for the secondary offerings, acquisition
charges and the $8.0 million charge to transfer production lines from the
Americas to China and Europe and the closure of facilities were $57.9 million in
1999, compared to $48.3 million in 1998. This represents an increase of almost
30%, excluding the one-time tax benefit of $3.6 million received in 1998.
Liquidity and Capital Resources
At December 31, 2000, our consolidated debt, net of cash, was $266.6
million. We had borrowings of $237.7 million under our credit agreement and
$50.7 million under various other arrangements as of December 31, 2000. Of our
credit agreement borrowings, approximately
33
$127.8 million was borrowed as term loans scheduled to mature in 2004 and $109.9
million was borrowed under a multi-currency revolving credit facility. At
December 31, 2000, we had $293.5 million of availability remaining under the
revolving credit facility.
At December 31, 2000, approximately $110.2 million of the borrowings
under the credit agreement and local working capital facilities were denominated
in U.S. dollars. The balance of the borrowings under the credit agreement and
local working capital facilities were denominated in certain of our other
principal trading currencies amounting to approximately $178.2 million at
December 31, 2000. Changes in exchange rates between the currencies in which we
generate cash flow and the currencies in which our borrowings are denominated
affect our liquidity. In addition, because we borrow in a variety of currencies,
our debt balances fluctuate due to changes in exchange rates.
Under the credit agreement, amounts outstanding under the term loans
are payable in quarterly installments. In addition, the credit agreement
obligates us to make mandatory prepayments in certain circumstances with the
proceeds of asset sales or issuance of capital stock or indebtedness and with
certain excess cash flow. The credit agreement imposes certain restrictions on
us and our subsidiaries, including restrictions and limitations on the ability
to pay dividends to our shareholders, incur indebtedness, make investments,
grant liens, sell financial assets and engage in certain other activities. We
must also comply with several financial covenants. The credit agreement is
secured by most of our assets.
Cash provided by operating activities totaled $84.7 million in 2000,
compared to $91.3 million in 1999 and $72.0 million in 1998. The decrease in
2000 resulted principally from a one-time payment of $4.2 million associated
with an early retirement plan from previous years, as well as an increase in
inventory levels associated with product introductions, production transfers and
increased safety stocks of electronics. In 1999, we also increased our accounts
payable terms with many suppliers to improve our working capital efficiency.
This resulted in an increase in cash provided by operating activities of $16.2
million in 1999. We maintained these payment terms in 2000, and therefore,
accounts payables were not a source of cash in 2000.
During 2000, we spent approximately $55.5 million on acquisitions,
including approximately $10.2 million of additional consideration related to
earn-out periods associated with acquisitions consummated in December of 1998,
seller financing of $27.6 million and working capital retained by sellers. These
purchases were funded from cash generated from operations and additional
borrowings. We continue to explore potential acquisitions. In connection with
any acquisition, we may incur additional indebtedness. In addition, we expect to
make additional earn-out payments relating to certain of these acquisitions in
the future.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment and the purchase and expansion of facilities.
Our capital expenditures totaled $29.3 million in 2000, $29.2 million in 1999
and $28.6 million in 1998. We expect capital expenditures to increase as our
business grows, and fluctuate as currency exchange rates change.
We currently believe that cash flow from operating activities, together
with borrowings available under the credit agreement and local working capital
facilities, will be sufficient to fund currently anticipated working capital
needs and capital spending requirements as well as debt service requirements for
at least several years, but there can be no assurance that this will be the
case.
34
Effect of Currency on Results of Operations
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates. Swiss
franc-denominated expenses represent a much greater percentage of our operating
expenses than Swiss franc-denominated sales represent of our net sales. In part,
this is because most of our manufacturing costs in Switzerland relate to
products that are sold outside of Switzerland. Moreover, a substantial
percentage of our research and development expenses and general and
administrative expenses are incurred in Switzerland. Therefore, if the Swiss
franc strengthens against all or most of our major trading currencies (e.g., the
U.S. dollar, the euro, other major European currencies and the Japanese yen),
our operating profit is reduced. We also have significantly more sales in
European currencies (other than the Swiss franc) than we have expenses in those
currencies. Therefore, when European currencies weaken against the U.S. dollar
and the Swiss franc, it also decreases our operating profits. In recent years,
the Swiss franc and other European currencies have generally moved in a
consistent manner versus the U.S. dollar. Therefore, because the two effects
previously described have offset each other, our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these currencies
will continue to move in a consistent manner in the future. In addition to the
effects of exchange rate movements on operating profits, our debt levels can
fluctuate due to changes in exchange rates, particularly between the U.S. dollar
and the Swiss franc.
European Economic and Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the euro, on January 1, 1999. Switzerland is not part
of the EMU.
On January 1, 1999, the participating countries adopted the euro as
their local currency, initially available for currency trading on currency
exchanges and non-cash (banking) transactions. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the euro.
We have recognized the introduction of the euro as a significant event
with potential implications for existing operations. Currently, we operate in
all of the participating countries in the EMU. We expect nonparticipating
European Union countries, where we also have operations, may eventually join the
EMU.
We have committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure we are prepared for the
introduction of the euro. We have undertaken a review of the euro implementation
and have concentrated on areas such as operations, finance, treasury, legal,
information management, procurement and others, both in participating and
nonparticipating European Union countries where we operate. Also, existing
legacy accounting and business systems and other business assets have been
reviewed for euro compliance, including assessing any risks from third parties.
Progress regarding euro implementation is reported periodically to management.
35
Because of the staggered introduction of the euro regarding non-cash
and cash transactions, we have developed our plans to address our accounting and
business systems first and our business assets second. We were euro compliant
within our accounting and business systems by the end of 1999 and expect to be
compliant within our other business assets prior to the introduction of the euro
bills and coins. Compliance in participating and nonparticipating countries will
be achieved primarily through upgraded systems, which were previously planned to
be upgraded. Remaining systems will be modified to achieve compliance. We do not
currently expect to experience any significant operational disruptions or to
incur any significant costs, including any currency risk, which could materially
affect our liquidity or capital resources. We are preparing plans to address
issues within the transitional period when both legacy and euro currencies may
be used.
We continue to assess our pricing strategy throughout Europe due to the
increased price transparency created by the euro and are attempting to adjust
prices in some of our markets. We are also encouraging our suppliers, even in
Switzerland, to commence transacting in the euro. We do not believe that the
effect of these adjustments will be material.
We have a disproportionate amount of our costs in Swiss francs relative
to sales. Historically, the potential currency impact has been muted because
currency fluctuations between the Swiss franc and other major European
currencies have been minimal and there is greater balance between total European
(including Swiss) sales and costs. However, if the introduction of the euro
results in a significant weakening of the euro against the Swiss franc, our
financial performance could be harmed.
The statements set forth herein concerning the introduction of the euro
which are not historical facts are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. In particular, the costs associated
with our euro programs and the time-frame in which we plan to complete euro
modifications are based upon management's best estimates. These estimates were
derived from internal assessments and assumptions of future events. There can be
no guarantee that any estimates or other forward-looking statements will be
achieved, and actual results could differ significantly from those contemplated.
Taxes
We are subject to taxation in many jurisdictions throughout the world.
Our effective tax rate and tax liability will be affected by a number of
factors, such as the amount of taxable income in particular jurisdictions, the
tax rates in such jurisdictions, tax treaties between jurisdictions, the extent
to which we transfer funds between jurisdictions and repatriate income, and
changes in law. Generally, the tax liability for each taxpayer within the group
is determined either (i) on a non-consolidated/non-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/non-combined affiliated legal entities. As a result, we may pay
income taxes to certain jurisdictions even though on an overall basis we incur a
net loss for the period.
Environmental Matters
We are subject to various environmental laws and regulations, including
those relating to air emissions, wastewater discharges, the handling and
disposal of solid and hazardous wastes
36
and the remediation of contamination associated with the use and disposal of
hazardous substances.
We incur capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. We are
currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the United States and
abroad. In addition, some of these facilities have or had been in operation for
many decades and may have used substances or generated and disposed of wastes
that are hazardous or may be considered hazardous in the future. Such sites and
disposal sites owned by others to which we sent waste may in the future be
identified as contaminated and require remediation. Accordingly, it is possible
that we could become subject to additional environmental liabilities in the
future that may harm our results of operations or financial condition. However,
we do not anticipate any material adverse effect on our results of operations or
financial condition as a result of future costs of environmental compliance.
Inflation
Inflation can affect the costs of goods and services that we use. The
competitive environment in which we operate limits somewhat our ability to
recover higher costs through increased selling prices. Moreover, there may be
differences in inflation rates between countries in which we incur the major
portion of our costs and other countries in which we sell products, which may
limit our ability to recover increased costs. We remain committed to operations
in China, Latin America and Eastern Europe, which have experienced inflationary
conditions. To date, inflationary conditions have not had a material effect on
our operating results. However, if our presence in China, Latin America and
Eastern Europe increases, these inflationary conditions could have a greater
impact on our operating results.
Seasonality
Our business has historically experienced a slight amount of seasonal
variation, with sales in the first quarter slightly lower than, and sales in the
fourth quarter slightly higher than, sales in the second and third quarters.
This trend has a somewhat greater effect on income from operations than on net
sales because fixed costs are spread evenly across all quarters.
Quantitative and Qualitative Disclosures About Market Risk
We have only limited involvement with derivative financial instruments
and do not use them for trading purposes.
We have entered into foreign currency forward contracts to hedge
short-term intercompany balances with our foreign businesses. Such contracts
limit our exposure to both favorable and unfavorable currency fluctuations. A
sensitivity analysis to changes in the U.S. dollar and Swiss franc on these
foreign currency-denominated contracts indicates that if the U.S. dollar and
Swiss franc uniformly worsened by 10% against all of our currency exposures, the
fair value of these instruments would decrease by $1.2 million at December 31,
2000, as compared with $2.7 million at December 31, 1999. Any resulting changes
in fair value would be offset by changes in the underlying hedged balance sheet
position. The sensitivity analysis assumes a parallel shift in foreign currency
exchange rates. The assumption that exchange rates change in parallel fashion
may overstate the impact of changing exchange rates on assets and liabilities
denominated in a foreign currency. We also have other currency risks as
described under "Effect of Currency on Results of Operations."
37
We have entered into certain interest rate swap agreements in order to
limit our exposure to increases in interest rates. These contracts are more
fully described in Note 5 to our audited consolidated financial statements.
Based on our agreements outstanding at December 31, 2000, a 100 basis point
increase in interest rates would result in an increase in the net aggregate
market value of these instruments of $0.8 million, as compared with $9.4 million
at December 31, 1999. Conversely, a 100 basis point decrease in interest rates
would result in a $0.7 million net reduction in the net aggregate market value
of these instruments, as compared with $9.4 million at December 31, 1999. Any
change in fair value would not affect our Consolidated Statement of Operations
unless such agreements and the variable rate debt they hedge were prematurely
settled.
We have designated certain of our Swiss franc debt as a hedge of our
net investments. A sensitivity analysis to changes in the U.S. dollar on such
debt at December 31, 2000 indicates that if the U.S. dollar weakened by 10%
against the Swiss franc, the fair value of such debt would increase by $9.7
million, as compared with $5.1 million at December 31, 1999. Any changes in fair
value of the debt are recorded in comprehensive income and offset the impact on
comprehensive income of foreign exchange changes on the net investments which
they hedge.
New Accounting Standards
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not have a
material impact on our financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The adoption of this statement will not have a material effect on our financial
condition or results of operations.
Forward-Looking Statements and Associated Risks
This annual report includes forward-looking statements based on our
current expectations and projections about future events, including: strategic
plans; potential growth, including penetration of developed markets and
opportunities in emerging markets; planned product introductions; planned
operational changes and research and development efforts; euro conversion
issues; future financial performance, including expected capital expenditures;
research and development expenditures; potential acquisitions; impact of
completed acquisitions; future cash sources and requirements; liquidity; impact
of environmental costs; and potential cost savings.
These forward-looking statements are subject to a number of risks and
uncertainties, including those identified in Exhibit 99.1 to our Annual Report
on Form 10-K, which could cause our actual results to differ materially from
historical results or those anticipated and
38
certain of which are beyond our control. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
New risk factors emerge from time to time and it is not possible for us to
predict all such risk factors, nor can we assess the impact of all such risk
factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a prediction of
actual results.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Discussion of this item is on page 37 of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-27 and the related financial schedule is set forth on page S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 10, 1999, the Company dismissed KPMG Fides Peat as its
independent auditors. The reports of KPMG Fides Peat on the Company's financial
statements for the fiscal years ended December 31, 1998 and December 31, 1997
did not contain an adverse opinion or a disclaimer of opinion, or a
qualification or modification as to uncertainty, audit scope, or accounting
principles. In connection with its audits for fiscal years ended December 31,
1998 and 1997, and through March 10, 1999, there were no disagreements with KPMG
Fides Peat on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of KPMG Fides Peat, would have caused it to
make a reference to the subject matter of the disagreement(s) in connection with
its reports covering such periods. None of the reportable events listed in Item
304(a)(1)(v) of Regulation S-K occurred with respect to the Company and KPMG
Fides Peat.
On March 10, 1999, the Company engaged PricewaterhouseCoopers ("PwC")
as its independent auditors for the fiscal year ending December 31, 1999. During
the fiscal years ended December 31, 1998 and 1997, and through March 10, 1999,
the Company did not consult with PwC as to either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements
and the Company did not consult with PwC as to any matter that was either the
subject of a disagreement or reportable event.
The decision to dismiss KPMG Fides Peat as the Company's independent
auditors was approved by the Audit Committee of the Company's Board of
Directors.
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are set forth
below. All directors hold office until the annual meeting of shareholders
following their election or until their successors are duly elected and
qualified. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
Name Age Position
Robert F. Spoerry 45 President, Chief Executive
Officer and Chairman of the
Board of Directors
William P. Donnelly 39 Chief Financial Officer
Lukas Braunschweiler 44 Head of Industrial and Retail
Peter Burker 55 Head of Human Resources
Jean-Lucien Gloor 48 Head of Information Systems
and Logistics
Karl M. Lang 54 Head of Asia/Pacific
Daniel G. Schillinger 42 Head of Laboratory
Philip Caldwell 81 Director
John T. Dickson 55 Director
Reginald H. Jones 83 Director
John D. Macomber 73 Director
George M. Milne 57 Director
Laurence Z. Y. Moh 75 Director (to retire)
Thomas P. Salice 41 Director
Robert F. Spoerry has been President and Chief Executive Officer of the
Company since 1993. He served as Head of Industrial and Retail (Europe) of the
Company from 1987 to 1993. Mr. Spoerry has been a Director since October 1996.
Mr. Spoerry has been Chairman of the Board of Directors since May 1998.
William P. Donnelly has been Chief Financial Officer of the Company
since 1997. From 1993 until joining the Company, he held various senior
financial and management positions, including most recently Group Vice President
and Chief Financial Officer with Elsag Bailey Process Automation, a global
manufacturer of instrumentation and analytical products and developer of
distributed control systems.
Lukas Braunschweiler has been Head of Industrial and Retail of the
Company since 1999. From 1995 to 1999 he served as Head of Industrial and Retail
(Europe). From 1992 until 1995 he held various senior management positions with
the Landis & Gyr Group, a manufacturer of electrical meters. Prior to 1992, he
was a Vice President in the Technology Group of Saurer Group, a manufacturer of
textile machinery and IT solutions.
Peter Burker has been Head of Human Resources of the Company since
1994. From 1992 to 1994 he was the Company's General Manager in Spain, and from
1989 to 1991 he headed the Company's operations in Italy.
Jean-Lucien Gloor joined the Company as Head of Information Systems and
Logistics on March 1, 2001. From 1999 to 2000, he was the leader of Central
Server Platforms for Credit
40
Suisse Financial Services in Zurich. Prior to 1999, he served in a variety of
IT functions for Dow Chemical Corporation.
Karl M. Lang has been Head of Asia / Pacific of the Company since
January 2000. From 1994 to January 2000 he served as Head of Laboratory. From
1991 to 1994 he was based in Japan as a representative of senior management with
responsibility for expansion of the Asian operations.
Daniel G. Schillinger has been Head of Laboratory of the Company since
January 2000. From 1995 to 1999 he was with Grundfos, a Danish industrial
instrument manufacturer, as head of the mid- and east European sales companies
and as General Manager for Germany. Prior to 1995, he held various positions in
R&D and technology management with ABB, an engineering concern, and with Landis
& Gyr, a manufacturer of electrical meters and building control systems.
Philip Caldwell has been a Director since October 1996. Prior to May
1998, Mr. Caldwell served as Chairman of the Board of Directors. Mr. Caldwell
spent 32 years at Ford Motor Company, where he served as Chairman of the Board
of Directors and Chief Executive Officer from 1980 to 1985 and a Director from
1973 to 1990. He served as a Director and Senior Managing Director of Lehman
Bros. Inc. and its predecessor, Shearson Lehman Brothers Holdings, Inc., from
1985 to February 1998. Mr. Caldwell is also a Director of the Mexico Fund,
Russell Reynolds Associates, Inc. and Waters Corporation. He is a member of the
Zurich Financial Services Group US Advisory Board. He has served as a Director
of the Chase Manhattan Bank, N.A., the Chase Manhattan Corp., Digital Equipment
Corporation, Federated Department Stores Inc., Kellogg Company, CasTech Aluminum
Group Inc., Specialty Coatings International Inc., American Guarantee &
Liability Insurance Company, Zurich Holding Company of America, Inc., and Zurich
Reinsurance Centre Holdings, Inc.
John T. Dickson has been a Director since March 2000. Mr. Dickson is
Executive Vice President of Lucent Technologies and CEO designate and President
of Agere Systems Inc. (formerly the Microelectronics Group of Lucent
Technologies). Mr. Dickson joined Lucent Technologies in 1993. Mr. Dickson is
also a Director of the Semiconductor Industry Association and a member of the
Board of Trustees of Lehigh Valley Health Network.
Reginald H. Jones has been a Director since October 1996. Mr. Jones
retired as Chairman of the Board of Directors of General Electric Company
("General Electric") in April 1981. At General Electric, he served as Chairman
of the Board of Directors and Chief Executive Officer from December 1972 through
April 1981, President from June 1972 to December 1972 and a Director from August
1971 to April 1981.
John D. Macomber has been a Director since October 1996. He has been a
principal of JDM Investment Group since 1992. He was Chairman and President of
the Export-Import Bank of the United States (an agency of the U.S. Government)
from 1989 to 1992. From 1973 to 1986 Mr. Macomber was Chairman and Chief
Executive Officer of Celanese Corporation. Prior to that, Mr. Macomber was a
Senior Partner of McKinsey & Company. Mr. Macomber is also a Director of Lehman
Brothers Holdings and Textron Inc.
George M. Milne has been a Director since September 1999. Mr. Milne is
President of the Central Research Division and Senior Vice President of Pfizer
Inc., with responsibility for guiding the company's global pharmaceutical and
animal health drug discovery and development efforts, a position he assumed in
1993. Since joining Pfizer in 1970, Mr. Milne has held a variety of senior
management and research positions.
41
Laurence Z. Y. Moh has been a Director since October 1996. At present,
he is Chairman and Chief Executive Officer 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
President and Chief Executive Officer of AEA Investors Inc. and has been
associated with AEA Investors Inc. since June 1989. Mr. Salice is also a
Director of Waters Corporation and Sovereign Specialty Chemicals, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the sections captioned "Board of Directors
Information," "Executive Compensation" and "Compensation Committee Interlocks
and Insider Participation" in the Registrant's Proxy Statement for the 2001
Annual Meeting of Stockholders (the "2001 Proxy Statement") is incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the section "Share Ownership" in the 2001
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 2001 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 II, which is included on pages S-1
and S-2.
3. List of Exhibits.
See Index of Exhibits included on page E-1.
(b) Reports on Form 8-K:
None.
42
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 22, 2001 By: /s/ ROBERT F. SPOERRY
---------------------
Robert F. Spoerry
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board,
President and
/s/ ROBERT F. SPOERRY Chief Executive Officer March 22, 2001
- --------------------------
Robert F. Spoerry
Vice President and
Chief Financial Officer
(Principal financial and
/s/ WILLIAM P. DONNELLY accounting officer) March 22, 2001
- --------------------------
William P. Donnelly
/s/ PHILIP CALDWELL Director March 22, 2001
- --------------------------
Philip Caldwell
/s/ JOHN T. DICKSON Director March 22, 2001
- --------------------------
John T. Dickson
/s/ REGINALD H. JONES Director March 22, 2001
- --------------------------
Reginald H. Jones
/s/ JOHN D. MACOMBER Director March 22, 2001
- --------------------------
John D. Macomber
/s/ GEORGE M. MILNE Director March 22, 2001
- --------------------------
George M. Milne
/s/ LAURENCE Z.Y. MOH Director March 22, 2001
- --------------------------
Laurence Z.Y. Moh
/s/ THOMAS P. SALICE Director March 22, 2001
- --------------------------
Thomas P. Salice
43
Page Number or
Exhibit No. Description Incorporation by Reference
----------- ----------- --------------------------
3.1 Amended and Restated Certificate of Filed as Exhibit 3.1 to the Annual Report on Form
Incorporation of the Company 10-K of the Company dated March 13, 1998 and
incorporated herein by reference
3.2 Amended By-laws of the Company, effective Filed as Exhibit 3.2 to the Annual Report on Form
February 3, 2000 10-K of the Company dated March 24, 2000 and
incorporated herein by reference
4.1 Specimen Form of the Company's Stock Filed as Exhibit 4.3 to the Registration Statement,
Certificate as amended, on Form S-1 of the Company (Reg. No.
333-35597) and incorporated herein by reference
10.1 Employment Agreement between Robert F. Spoerry Filed as Exhibit 10.4 to the Annual Report on Form
and Mettler-Toledo AG, dated as of October 30, 10-K of Mettler-Toledo Holding Inc. dated March 31,
1996 1997 and incorporated herein by reference
10.2 Employment Agreement between Lukas Filed as Exhibit 10.2 to the Annual Report on Form
Braunschweiler and Mettler-Toledo GmbH dated 10-K of the Company dated March 13, 1998 and
as of November 10, 1997 incorporated herein by reference
10.3 Employment Agreement between William P. Filed as Exhibit 10.3 to the Annual Report on Form
Donnelly and Mettler-Toledo GmbH dated as of 10-K of the Company dated March 13, 1998 and
November 10, 1997 incorporated herein by reference
10.4 Employment Agreement between Karl M. Lang and Filed as Exhibit 10.4 to the Annual Report on Form
Mettler-Toledo GmbH dated as of November 10, 10-K of the Company dated March 13, 1998 and
1997 incorporated herein by reference
10.5 Loan Agreement between Robert F. Spoerry and Filed as Exhibit 10.5 to the Annual Report on Form
Mettler-Toledo AG, dated as of October 7, 1996 10-K of Mettler-Toledo Holding Inc. dated March 31,
1997 and incorporated herein by reference
10.6 Regulations of the Performance Oriented Bonus Filed as Exhibit 10.7 to the Annual Report on Form
System (POBS) - Incentive System for the 10-K of the Company dated March 18, 1999 and
Management of Mettler Toledo, effective as of incorporated herein by reference
November 5, 1998
10.7 Regulations of the POBS Plus - Incentive Filed as Exhibit 10.7 to the Annual Report on Form
Scheme for Senior Management of Mettler 10-K of the Company dated March 24, 2000 and
Toledo, effective as of March 14, 2000 incorporated herein by reference
10.8 Credit Agreement, dated as of November 19, Filed as Exhibit 10.9 to the Annual Report on Form
1997, between Mettler-Toledo International 10-K of the Company dated March 13, 1998 and
Inc., as Guarantor, Mettler-Toledo, Inc., incorporated herein by reference
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
10.9 Amendment No.1, dated as of September 30, Filed as Exhibit 10 to the Quarterly Report on Form
1998, to the Second Amended and Restated 10-Q of the Company, dated November 16, 1998 and
Credit Agreement, dated as of November 19, incorporated herein by reference
1997
E-1
Page Number or
Exhibit No. Description Incorporation by Reference
----------- ----------- --------------------------
10.10 1997 Amended and Restated Stock Option Plan Filed as Exhibit 10.10 to the Registration
Statement on Form S-1 of the Company (Reg. No.
333-35597) and incorporated herein by reference)
10.11 Amendment to the 1997 Amended and Restated Filed as Exhibit 10 to the Quarterly Report on Form
Stock Option Plan 10-Q of the Company dated August 15, 2000 and
incorporated herein by reference
10.12 Employment Agreement between Peter Burker and Filed as Exhibit 10.11 to the Annual Report on Form
Mettler-Toledo GmbH dated as of November 10, 10-K of the Company dated March 24, 2000 and
1997 incorporated herein by reference
10.13 Employment Agreement between Daniel G. Filed as Exhibit 10.12 to the Annual Report on Form
Schillinger and Mettler-Toledo GmbH dated as of 10-K of the Company dated March 24, 2000 and
January 1, 2000 incorporated herein by reference
10.14 Regulations of the POBS PLUS - Incentive Filed as Exhibit 10.13 to the Annual Report on Form
Scheme for Members of the Group Management of 10-K of the Company dated March 24, 2000 and
Mettler Toledo, effective as of March 7, 2000 incorporated herein by reference
10.15* Employment Agreement between Jean-Lucien Gloor Page 76
and Mettler-Toledo GmbH dated as of March 1,
2001
21* Subsidiaries of the Company Page 78
23.1* Consent of PricewaterhouseCoopers AG Page 82
99.1* Factors Affecting Our Future Operating Results Page 83
- ---------------
* Filed herewith
E-2
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Reports..................................... F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999...... F-4
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998.......... F-5
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998.......... F-6
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998.......... F-7
Notes to Consolidated Financial Statements........................ F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Mettler-Toledo International Inc.
In our opinion, the consolidated financial statements listed in the index under
Item 14(a)(1) on page 42 present fairly, in all material respects, the financial
position of Mettler-Toledo International Inc. and its subsidiaries at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
under Item 14 (a) (2) on page 42 presents fairly, in all material respects, the
information set forth therein for 2000 and 1999 when read in conjunction with
the related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers AG
Zurich, Switzerland
February 8, 2001
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mettler-Toledo International Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Mettler-Toledo International Inc. and
subsidiaries for the year ended December 31, 1998. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations of
Mettler-Toledo International Inc. and subsidiaries for the year ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States of America.
KPMG Fides Peat
Zurich, Switzerland
February 5, 1999
F-3
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(In thousands, except per share data)
2000 1999
------- -------
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 21,725 $ 17,179
Trade accounts receivable, less allowances of $9,097 in 2000
and $9,827 in 1999.................................................... 212,570 203,750
Inventories, net........................................................ 141,677 123,901
Other current assets and prepaid expenses............................... 47,367 43,115
------- -------
Total current assets.................................................. 423,339 387,945
Property, plant and equipment, net......................................... 199,388 199,723
Excess of cost over net assets acquired, net of accumulated amortization
of $29,664 in 2000 and $21,313 in 1999.................................. 228,035 204,395
Other non-current assets .................................................. 36,820 28,910
------- -------
Total assets.......................................................... $887,582 $820,973
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $ 80,513 $ 81,234
Accrued and other liabilities........................................... 97,575 105,783
Accrued compensation and related items.................................. 51,968 53,510
Taxes payable........................................................... 68,537 48,769
Short-term borrowings and current maturities of long-term debt......... 50,560 46,879
------- -------
Total current liabilities............................................. 349,153 336,175
Long-term debt............................................................. 237,807 249,721
Non-current deferred taxes................................................. 25,939 22,728
Other non-current liabilities.............................................. 95,843 100,334
------- -------
Total liabilities.................................................... 708,742 708,958
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 39,372,873 and 38,674,768 (excluding 64,467 shares held in
treasury) at December 31, 2000 and 1999............................... 393 386
Additional paid-in capital.............................................. 294,558 288,092
Accumulated deficit .................................................... (68,307) (138,426)
Accumulated other comprehensive loss.................................... (47,804) (38,037)
-------- --------
Total shareholders' equity ........................................... 178,840 112,015
Commitments and contingencies.............................................. -------- --------
Total liabilities and shareholders' equity ........................... $887,582 $820,973
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
F-4
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(In thousands, except per share data)
2000 1999 1998
------ ------ -------
Net sales...................................... $1,095,547 $1,065,473 $935,658
Cost of sales.................................. 600,185 585,007 520,190
------- ------- -------
Gross profit............................... 495,362 480,466 415,468
Research and development....................... 56,334 57,393 48,977
Selling, general and administrative............ 296,187 300,389 265,511
Amortization................................... 11,564 10,359 7,634
Purchased research and development............. - - 9,976
Interest expense............................... 20,034 21,980 22,638
Other charges, net............................. 2,638 10,468 1,197
------- ------ -----
Earnings before taxes and minority
interest................................ 108,605 79,877 59,535
Provision for taxes............................ 38,510 31,398 20,999
Minority interest.............................. (24) 378 911
---------- ---------- --------
Net earnings............................... $ 70,119 $ 48,101 $ 37,625
========== ========== ========
Basic earnings per common share:
Net earnings............................... $1.80 $1.25 $0.98
Weighted average number of common shares... 38,897,879 38,518,084 38,357,079
Diluted earnings per common share:
Net earnings............................... $1.66 $1.16 $0.92
Weighted average number of common shares... 42,141,548 41,295,757 40,682,211
The accompanying notes are an integral part of these consolidated financial statements.
F-5
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31
(In thousands, except for share data)
Common Stock Accumulated
All Classes Additional Other
----------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
---------- ------ -------- ---------- --------- -------
Balance at December 31, 1997.... 38,336,014 $383 $284,630 $(224,152) $(35,462) $25,399
Exercise of stock options....... 64,349 1 531 - - 532
Comprehensive income:
Net earnings................. - - - 37,625 - 37,625
Change in currency translation
adjustment................ - - - - (4,962) (4,962)
Minimum pension liability.... - - - - (4,759) (4,759)
-------
Comprehensive income............ 27,904
---------- ---- -------- ---------- --------- -------
Balance at December 31, 1998.... 38,400,363 $384 $285,161 $(186,527) $(45,183) $53,835
Exercise of stock options....... 274,405 2 2,931 - - 2,933
Comprehensive income:
Net earnings................. - - - 48,101 - 48,101
Change in currency translation
adjustment................ - - - - 2,387 2,387
Minimum pension liability.... - - - - 4,759 4,759
------
Comprehensive income............ 55,247
---------- ---- -------- ---------- --------- -------
Balance at December 31, 1999.... 38,674,768 $386 $288,092 $(138,426) $(38,037) $112,015
Exercise of stock options....... 698,105 7 6,466 - - 6,473
Comprehensive income:
Net earnings................. - - - 70,119 - 70,119
Change in currency translation
adjustment................ - - - - (9,767) (9,767)
-------
Comprehensive income............ 60,352
---------- ---- -------- --------- --------- -------
Balance at December 31, 2000.... 39,372,873 $393 $294,558 $(68,307) $(47,804) $178,840
========== ==== ======== ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
F-6
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(In thousands)
2000 1999 1998
------ ------ ------
Cash flows from operating activities:
Net earnings.............................................. $70,119 $48,101 $37,625
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation......................................... 21,690 24,940 24,592
Amortization......................................... 11,564 10,359 7,634
Write-off of purchased research and
development and cost of sales associated
with revaluation of inventories................... - 998 9,976
Net (gain) loss on disposal of long-term assets...... 427 (3,269) (2,868)
Deferred taxes and adjustments to goodwill........... 1,487 (1,636) (1,200)
Minority interest.................................... (24) 378 911
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net....................... (12,437) (19,437) (16,391)
Inventories.......................................... (17,274) (9,540) (5,953)
Other current assets................................. (1,778) 11,363 3,300
Trade accounts payable............................... (2,958) 16,239 17,523
Accruals and other liabilities....................... 13,898 (a) 12,844 (a) (3,107) (a)
------ ------ -------
Net cash provided by operating activities.......... 84,714 91,340 72,042
------ ------ ------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment..... 1,468 10,151 22,500
Purchase of property, plant and equipment............... (29,304) (29,188) (28,633)
Acquisitions, net of seller financings.................. (26,377) (b) (18,468) (b) (28,925) (b)
Other investing activities.............................. - - (885)
------ ------ ------
Net cash used in investing activities.............. (54,213) (37,505) (35,943)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings................................ 29,239 20,640 23,019
Repayments of borrowings................................ (61,617) (80,393) (62,376)
Proceeds from issuance of common stock.................. 6,473 2,592 532
-------- -------- --------
Net cash used in financing activities.............. (25,905) (57,161) (38,825)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (50) (686) 351
---- ----- ---
Net increase (decrease) in cash and cash equivalents....... 4,546 (4,012) (2,375)
----- ------- -------
Cash and cash equivalents:
Beginning of period..................................... 17,179 21,191 23,566
------- ------- -------
End of period........................................... $21,725 $17,179 $21,191
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $20,014 $21,642 $21,109
Taxes................................................. 16,523 25,952 20,285
Non-cash investing activities:
Seller financings on acquisitions....................... $27,638 - $11,960
(a) Accruals and other liabilities include payments for restructuring, certain
acquisition integration activities and a one-time payment in 2000
associated with an early retirement plan from previous years. These amounts
totalled $10.3 million, $5.9 million and $9.4 million in 2000, 1999 and
1998, respectively.
(b) Amounts paid for acquisitions including seller financing, assumed debt and
working capital retained by sellers were $55.5 million, $20.5 million and
$44.0 million in 2000, 1999 and 1998, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-7
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands unless otherwise stated)
1. Business Description and Basis of Presentation
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company")
is a global manufacturer and marketer of precision instruments, including
weighing and certain analytical and measurement technologies, for use in
laboratory, industrial and food retailing applications. The Company is also a
leading provider of automated chemistry solutions used in drug and chemical
compound discovery and development. The Company's primary manufacturing
facilities are located in Switzerland, the United States, Germany, the United
Kingdom, France and China. The Company's principal executive offices are located
in Greifensee, Switzerland.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
("U.S. GAAP") and include all entities in which the Company has control,
including its majority owned subsidiaries. Certain amounts in the prior period
financial statements have been reclassified to conform with current year
presentation.
All intercompany transactions and balances have been eliminated.
Investments in which the Company has voting rights between 20% to 50% are
accounted for using the equity method of accounting.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ from those
estimates.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with
original maturity dates of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using the first in, first out (FIFO) or weighted average cost methods
and to a lesser extent the last in, first out (LIFO) method.
F-8
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands unless otherwise stated)
2. Summary of Significant Accounting Policies - (Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is charged on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements 15 to 50 years
Machinery and equipment 3 to 12 years
Computer software 3 to 5 years
Leasehold improvements Shorter of useful life or lease term
The Company reviews its property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount.
Excess of Cost over Net Assets Acquired
The excess of purchase price over the fair value of net assets acquired
is amortized on a straight-line basis over the expected period to be benefited.
The Company assesses the recoverability of such amounts by determining whether
the amortization of the balance over its remaining life can be recovered from
the undiscounted future operating cash flows of the acquired operations.
Taxation
The Company files tax returns in each jurisdiction in which it
operates. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in the respective jurisdictions
in which the Company operates that are expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Generally, deferred taxes are not provided on the unremitted earnings
of subsidiaries outside of the U.S. because it is expected that these earnings
are permanently reinvested and such determination is not practicable. Such
earnings may become taxable upon the sale or liquidation of these subsidiaries
or upon the remittance of dividends. Deferred taxes are provided in situations
where the Company's subsidiaries plan to make future dividend distributions.
F-9
2. Summary of Significant Accounting Policies - (Continued)
Currency Translation and Transactions
The reporting currency for the consolidated financial statements of the
Company is the U.S. dollar. The functional currency for the Company's operations
is generally the applicable local currency. Accordingly, the assets and
liabilities of companies whose functional currency is other than the U.S. dollar
are included in the consolidated financial statements by translating the assets
and liabilities into the reporting currency at the exchange rates applicable at
the end of the reporting period. The statements of operations and cash flows of
such non-U.S. dollar functional currency operations are translated at the
monthly average exchange rates during the year. Translation gains or losses are
accumulated in other comprehensive income (loss) in the Consolidated Statements
of Shareholders' Equity.
Revenue Recognition
Revenue is recognized when title to a product has transferred or
services have been rendered and any customer obligations have been fulfilled.
Revenues from service contracts are recognized over the contract period.
Research and Development
Research and development costs are expensed as incurred.
Earnings per Common Share
As described in Note 10, in accordance with the treasury stock method,
the Company has included 3,243,669 and 2,777,673 equivalent shares relating to
5,173,777 outstanding options to purchase shares of common stock in the
calculation of diluted weighted average number of common shares for years ending
December 31, 2000 and 1999, respectively.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters into
foreign currency forward contracts to hedge short-term intercompany transactions
with its foreign businesses. Such contracts limit the Company's exposure to both
favorable and unfavorable currency fluctuations. These contracts are adjusted to
reflect market values as of each balance sheet date, with the resulting changes
in fair value being recognized in other charges, net.
The Company also enters into certain interest rate swap agreements in
order to reduce its exposure to changes in interest rates. The differential paid
or received on interest rate swap agreements is recognized as interest expense
over the life of the agreements as incurred.
The Company has entered into certain foreign currency forward contracts
in order to convert certain U.S. dollar-based debt into Swiss franc-based debt.
The Company has also designated certain of its Swiss franc debt as a hedge of
its net investments. Any changes in
F-10
2. Summary of Significant Accounting Policies - (Continued)
fair value of the forward contracts and the debt are recorded in comprehensive
income (loss) and offset the net investments which they hedge.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock option plan.
Concentration of Credit Risk
The Company's revenue base is widely diversified by geographic region
and by individual customer. The Company's products are utilized in many
different industries, although extensively in the pharmaceutical, food and
beverage, transportation and logistics and chemicals industries. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers.
3. Business Combinations
During 2000, the Company spent approximately $55.5 million on
acquisitions, including approximately $10.2 million of additional consideration
related to earn-out periods associated with acquisitions consummated in prior
years, seller financing of $27.6 million and working capital retained by sellers
which has been excluded from the purchase price allocation. The Company
accounted for the acquisition payments using the purchase method of accounting.
The Company may be required to make additional earn-out payments relating to
certain of these acquisitions in the future.
In 2000, the Company acquired Berger Instruments, Thornton Inc. and
AVS. The Company also increased its shareholding in Cargoscan to 100%. Berger
Instruments is the market leader in Supercritical Fluid Chromatography (SFC), a
high-performance technology used to analyze and purify chemical compounds during
drug discovery. Thornton is the market leader in pure and ultra-pure industrial
water monitoring instrumentation used in semi-conductor, micro-electronics,
pharmaceutical and biotech applications. AVS is a leader in x-ray visioning
solutions used in the inspection of packaged goods. Cargoscan is the leading
provider of dimensioning technology used by major express carriers, freight
forwarders, third-party logistic entities and distribution companies.
During 1999, the Company spent approximately $20.5 million on
acquisitions including the net assets of the Testut-Lutrana group, a leading
manufacturer and marketer of industrial and retail weighing instruments in
France. This amount includes approximately $2.0 million of working capital
retained by sellers which has been excluded from the purchase price allocation.
The Company accounted for the acquisitions using the purchase method of
accounting. Accordingly, the costs of the acquisitions were allocated to the
assets acquired and liabilities assumed based upon their respective fair values.
In this respect, the Company allocated $1.0 million of the purchase price to
revalue certain finished goods inventories to fair value. Substantially all of
such inventories were sold in 1999.
F-11
3. Business Combinations - (Continued)
During 1998, the Company spent approximately $44.9 million on
acquisitions and other investing activities including seller financing of $12.0
million and assumed debt of $3.1 million as well as contingent and other
payments associated with acquisitions consummated in 1997.
In 1998, the Company acquired Applied Systems, Bohdan Automation Inc.
and Myriad. The Company accounted for these acquisitions using the purchase
method of accounting. Accordingly, the costs of the acquisition were allocated
to the assets acquired and liabilities assumed based upon their respective fair
values. The Company incurred a charge of $10.0 million immediately following the
acquisition of Bohdan Automation based upon an independent valuation for
purchased research and development costs for products being developed that had
not established technological feasibility as of the date of acquisition and, if
unsuccessful, had no alternative future use in research and development
activities or otherwise.
Applied Systems designs, assembles and markets instruments for
in-process molecular analysis, which is primarily used for researching,
developing and monitoring chemical processes. Applied Systems' proprietary
sensors, together with its innovative Fourier transform infrared technology,
enable chemists to analyze chemical reactions as they occur, which is more
efficient than pulling samples. Bohdan Automation Inc. is a leading supplier of
laboratory automation and automated synthesis products to the automated drug and
chemical compound discovery market used in research for life science
applications. Myriad designs, assembles and markets instruments that facilitate
and automate the synthesis of large numbers of chemical compounds in parallel,
which is a key step in the chemical compound discovery process. Its products can
be used in all stages of synthesis in drug discovery.
4. Inventories, Net
Inventories, net consisted of the following at December 31:
2000 1999
------ -------
Raw materials and parts................ $ 67,379 $ 53,685
Work-in-progress....................... 37,289 33,073
Finished goods......................... 38,148 37,769
-------- --------
142,816 124,527
LIFO reserve........................... (1,139) (626)
--------- ---------
$141,677 $123,901
======== ========
F-12
5. Financial Instruments
At December 31, 2000, the Company had certain interest rate swap
agreements outstanding that fix the variable interest obligation associated with
CHF 110 million of Swiss franc-based debt and $50 million of USD-based debt.
Certain of these agreements have forward starting dates commencing in 2001. The
agreements have various maturities beginning in 2003 and continuing through
2004. The fixed rates associated with the swap of Swiss franc debt are
approximately 3.5%, while the rates associated with the USD debt are
approximately 6.0% plus the Company's normal interest margin. The swaps are
effective at either one-month or three-month LIBOR rates. At December 31, 2000
and 1999, the fair market value of such financial instruments was approximately
$(0.5) million and $2.4 million, respectively.
At December 31, 2000, the Company had outstanding foreign currency
forward contracts in the amount of $23.5 million. The purpose of these contracts
is to hedge short-term intercompany balances with its foreign businesses. The
fair value of these contracts was not materially different than the carrying
value at December 31, 2000 and 1999, respectively.
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.
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 or
receive 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 at
December 31:
2000 1999
-------- --------
Land............................................ $ 40,580 $ 41,230
Buildings and leasehold improvements............ 105,937 101,088
Machinery and equipment......................... 133,072 120,989
Computer software............................... 5,387 5,399
-------- --------
284,976 268,706
Less accumulated depreciation and amortization.. (85,588) (68,983)
--------- ---------
$199,388 $199,723
======== ========
F-13
7. Short-Term Borrowings and Current Maturities of Long-Term Debt
Short-term borrowings and current maturities of long-term debt
consisted of the following for the years ended December 31:
2000 1999
------ -------
Current maturities of long-term debt............. $31,900 $23,204
Other short-term borrowings...................... 18,660 23,675
------- -------
$50,560 $46,879
======= =======
8. Long-Term Debt
Long-term debt consisted of the following at December 31:
2000 1999
------ ------
Credit Agreement Borrowings:
Term A USD Loans, interest at LIBOR plus 0.625% (7.1% at December 31,
2000) payable in quarterly installments due May 19, 2004........ $ 69,420 $ 81,816
Term A CHF Loans, interest at LIBOR plus 0.625% (4.0% at December 31,
2000) payable in quarterly installments due May 19, 2004........ 36,245 43,102
Term A GBP Loans, interest at LIBOR plus 0.625% (6.5% at December 31,
2000) payable in quarterly installments due May 19, 2004........ 22,096 28,221
Revolving credit facilities....................................... 109,907 127,283
Other............................................................... 50,699 16,178
-------- --------
288,367 296,600
Less current maturities............................................. (50,560) (46,879)
--------- ---------
$237,807 $249,721
======== ========
The Company has a multi-currency $400.0 million revolving credit
facility and a CDN $26.3 million Canadian revolving credit facility under its
credit agreement. Loans under these revolving credit facilities may be repaid
and reborrowed and are due in full on May 19, 2004. At December 31, 2000, the
Company had $293.5 million of additional borrowing capacity under its credit
agreement. The Company has the ability to refinance its short-term borrowings
through its revolving facilities for an uninterrupted period extending beyond
one year. Accordingly, approximately $145 million of the Company's short-term
borrowings at December 31, 2000 have been reclassified to long-term.
The aggregate maturities of long-term obligations during each of the
years 2002 through 2004 are approximately $31.9 million, $36.5 million and $27.4
million, respectively.
The Company is required to pay a facility fee based upon certain
financial ratios per annum on the amount of its revolving facilities. The
facility fee at December 31, 2000 was equal to 0.2%. At December 31, 2000,
borrowings under the Company's revolving facilities carried an interest rate of
LIBOR plus 0.425%. The Company's weighted average interest rate for the year
ended December 31, 2000 was approximately 7.0%.
The Company's credit agreement contains covenants, including
limitations on the Company's ability to pay dividends to shareholders, incur
indebtedness, make investments, grant liens, sell financial assets and engage in
certain other activities. The credit agreement
F-14
8. Long-Term Debt - (Continued)
also requires the Company to maintain a minimum net worth, a minimum fixed
charge coverage ratio, and a ratio of total debt to EBITDA below a specified
maximum.
The carrying value of the Company's obligations under its credit
agreement approximates fair value due to the variable rate nature of the
obligations.
9. Shareholders' Equity
Common Stock
The number of authorized shares of the Company's common stock is
125,000,000 shares with a par value of $0.01 per share. Holders of the Company's
common stock are entitled to one vote per share. At December 31, 2000, 7,831,586
shares of the Company's common stock were reserved for grant pursuant to 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.
F-15
10. Stock Option Plan
The Company's stock option plan provides certain key employees and
directors of the Company additional incentive to join and/or remain in the
service of the Company as well as to maintain and enhance the long-term
performance and profitability of the Company.
Under the terms of the plan, options granted shall be nonqualified and
the exercise price shall not be less than the fair market value of the common
stock on the date of grant. Options vest equally over a five-year period from
the date of grant.
Weighted Average
Number of Options Exercise Price
Outstanding at December 31, 1997............ 4,408,740 $ 9.75
Granted..................................... 670,000 21.48
Exercised................................... (64,349) (8.26)
Forfeited................................... (142,549) (7.95)
--------- ------
Outstanding at December 31, 1998............ 4,871,842 $11.30
Granted..................................... 647,500 28.56
Exercised................................... (274,405) (8.87)
Forfeited................................... (209,290) (13.74)
--------- -------
Outstanding at December 31, 1999............ 5,035,647 $13.45
Granted..................................... 887,000 43.72
Exercised................................... (698,105) (10.68)
Forfeited................................... (50,765) (13.12)
-------- -------
Outstanding at December 31, 2000............ 5,173,777 $19.02
========= ======
Options exercisable at December 31, 2000.... 2,700,697 $11.14
========= ======
At December 31, 2000, 2,657,809 options were available for grant.
The following table details the weighted average remaining contractual
life of options outstanding at December 31, 2000 by range of exercise prices:
Number of Options Weighted Average Remaining Contractual Options
Outstanding Exercise Price Life of Options Exercisable
Outstanding
----------- -------------- --------------- -----------
2,456,751 $ 7.95 5.8 1,965,401
669,726 $15.91 6.8 400,916
1,162,300 $25.38 6.8 334,380
167,000 $32.75 6.7 -
718,000 $46.30 9.2 -
------- --- ---------
5,173,777 6.6 2,700,697
========= =========
F-16
10. Stock Option Plan - (Continued)
As of the date granted, the weighted average grant-date fair value of
the options granted during the years ended December 31, 2000, 1999 and 1998 was
approximately $18.31, $12.31 and $8.11 per share, respectively. Such weighted
average grant-date fair value was determined using an option pricing model which
incorporated the following assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate.............. 5.0% 6.3% 5.2%
Expected life in years............... 4 4 4
Expected volatility.................. 46% 45% 39%
Expected dividend yield.............. - - -
The Company applies Accounting Standards Board Opinion No. 25 and
related interpretations in accounting for its plan. Had compensation cost for
the Company's stock option plan been determined based upon the fair value of
such awards at the grant date, consistent with the methods of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation," the Company's net earnings and basic and diluted net earnings per
common share for the years ended December 31 would have been as follows:
2000 1999 1998
----- ---- ----
Net earnings:
As reported...................... $70,119 $48,101 $37,625
Pro forma........................ 66,425 45,847 35,475
====== ====== ======
Basic earnings per common share:
As reported...................... $1.80 $1.25 $0.98
Pro forma........................ 1.71 1.19 0.92
==== ==== ====
Diluted earnings per common share:
As reported...................... $1.66 $1.16 $0.92
Pro forma........................ 1.58 1.11 0.87
==== ==== ====
11. Benefit Plans
Mettler-Toledo maintains a number of retirement plans for the benefit
of its employees.
Certain companies sponsor defined contribution plans. Benefits are
determined and funded annually based upon the terms of the plans. Amounts
recognized as cost under these plans amounted to $2.6 million, $2.8 million and
$8.2 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Based on certain changes in 1999, the Company performed a reevaluation of its
Swiss pension plans and determined these plans to be defined benefit plans.
Accordingly, commencing in 1999, the Company has accounted for these plans as
such. The application of defined benefit accounting to the plans had no material
impact on the consolidated financial statements.
F-17
11. Benefit Plans - (Continued)
Certain companies sponsor defined benefit plans. Benefits are provided
to employees primarily based upon years of service and employees' compensation
for certain periods during the last years of employment. The Company's U.S.
operations also provide postretirement medical benefits to their employees.
Contributions for medical benefits are related to employee years of service.
The following table sets forth the change in benefit obligation, the
change in plan assets, the funded status and amounts recognized in the
consolidated financial statements for the Company's principal defined benefit
plans and postretirement plans at December 31, 2000 and 1999:
Pension Benefits Other Benefits
------------------------- ----------------------
2000 1999 2000 1999
--------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year...... $394,250 $149,930 $35,464 $37,095
Service cost, gross.......................... 19,250 20,972 461 624
Interest cost................................ 18,572 18,680 2,460 2,489
Actuarial gains.............................. (12,694) (2,918) (2,577) (2,482)
Plan amendments and other.................... 151 (239) - (105)
Benefits paid................................ (18,013) (17,429) (2,426) (2,161)
Impact of foreign currency................... (7,479) (46,316) (2) 4
Impact of businesses acquired................ - 1,867 - -
Impact of Swiss pension plans................ - 269,703 - -
------- ------- ------ ------
Benefit obligation at end of year............ 394,037 394,250 33,380 35,464
------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at beginning of
year......................................... 368,674 77,375 - -
Actual return on plan assets................. 18,244 39,760 - -
Employer contributions....................... 14,611 11,360 2,426 2,161
Plan participants' contributions............. 4,236 4,472 - -
Benefits paid................................ (18,013) (17,429) (2,426) (2,161)
Impact of foreign currency................... (3,667) (42,738) - -
Impact of Swiss pension plans................ - 295,874 - -
------- ------- ----- -----
Fair value of plan assets at end of year..... 384,085 368,674 - -
------- ------- ----- -----
Funded status................................ (9,952) (25,576) (33,380) (35,464)
Unrecognized actuarial (gain) loss........... (37,826) (28,712) 594 2,438
--------- --------- --------- ---------
Net amount recognized........................ $(47,778) $(54,288) $(32,786) $(33,026)
========= ========= ========= =========
Amounts recognized in the Consolidated Balance Sheets consist of:
Pension Benefits Other Benefits
-------------------------- ----------------------
2000 1999 2000 1999
---------- ---------- --------- --------
Other non-current assets..................... $ 6,881 $ 6,597 $ - $ -
Other non-current liabilities................ (54,659) (60,885) (32,786) (33,026)
--------- --------- --------- ---------
Net amount recognized........................ $(47,778) $(54,288) $(32,786) $(33,026)
========= ========= ========= =========
F-18
11. Benefit Plans - (Continued)
The assumed discount rates and rates of increase in future compensation
levels used in calculating the projected benefit obligations vary according to
the economic conditions of the country in which the retirement plans are
situated. The weighted average rates used for the purposes of the Company's U.S.
plans are as follows:
2000 1999 1998
---- ---- ----
Discount rate...................................... 7.8% 7.8% 7.2%
Compensation increase rate......................... 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets... 9.5% 9.5% 9.5%
Plan assets relate principally to the Company's U.S. and Swiss
companies and consist of equity investments, obligations of the U.S. Treasury or
other governmental agencies, and other interest-bearing investments.
At December 31, 2000, the fair value of plan assets and the total
projected benefit obligation for the Company's non-U.S. defined benefit plans
were $314.2 million and $319.4 million, respectively. Actuarial assumptions for
these plans ranged from 3.75% to 8.5% for the discount rate, 2.0% to 6.5% for
the compensation increase rate and 5.0% to 9.5% for the expected long-term rate
of return on plan assets for the years ended December 31, 2000, 1999 and 1998.
Net periodic pension cost for the defined benefit plans includes the
following components for the year ended December 31:
2000 1999 1998
------- -------- -------
Service cost, net..................... $15,438 $16,842 $5,929
Interest cost on projected benefit 18,572 18,680 8,624
obligations...........................
Expected return on plan assets........ (22,491) (22,420) (6,613)
Recognition of actuarial (gains) losses 19 394 (104)
------- ------- -------
Net periodic pension cost............. $11,538 $13,496 $7,836
======= ======= ======
Net periodic postretirement benefit cost for the U.S. postretirement
plans includes the following components for the year ended December 31:
2000 1999 1998
------- ------ ------
Service cost........................ $ 461 $ 624 $ 507
Interest cost on projected benefit
obligations....................... 2,460 2,489 2,360
Recognition of actuarial losses..... - 189 -
Net amortization and deferral....... - 21 26
----- ------ ------
Net periodic postretirement benefit
cost.............................. $ 2,921 $ 3,323 $2,893
======= ======= ======
The accumulated postretirement benefit obligation and net periodic
postretirement benefit cost were principally determined using discount rates of
7.8% in 2000, 7.2% in 1999 and 6.7% in 1998 and health care cost trend rates
ranging from 7.0% to 8.0% in 2000, 1999 and 1998, decreasing to 5% in 2005.
F-19
11. Benefit Plans - (Continued)
The health care cost trend rate assumption has a significant effect on
the accumulated postretirement benefit obligation and net periodic
postretirement benefit cost. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
One-Percentage- One-Percentage-
Point Increase Point Decrease
--------------- ---------------
Effect on total of service and
interest cost components.............. $ 376 $ (326)
Effect on postretirement
benefit obligation.................... $3,430 $(3,102)
12. Taxes
The sources of the Company's earnings before taxes and minority
interest were as follows for the year ended December 31:
2000 1999 1998
-------- -------- --------
United States............... $ 13,670 $(1,906) $(2,172)
Non-United States.......... 94,935 81,783 61,707
-------- ------- -------
Earnings before taxes
and minority interest...... $108,605 $79,877 $59,535
======== ======= =======
The provision for taxes consists of:
Adjustments
to
Current Deferred Goodwill Total
------- -------- -------- -----
Year ended December 31, 2000:
United States federal............................ $ 381 $ (601) $ - $ (220)
State and local.................................. 519 - - 519
Non-United States................................ 36,123 1,052 1,036 38,211
------- ------ ------ -------
$37,023 $ 451 $1,036 $38,510
======= ====== ====== =======
Adjustments
to
Current Deferred Goodwill Total
------- -------- -------- -----
Year ended December 31, 1999:
United States federal............................ $ (17) $ - $ - $ (17)
State and local.................................. 494 - - 494
Non-United States................................ 32,557 (10,260) 8,624 30,921
------ --------- ------ -------
$33,034 $(10,260) $8,624 $31,398
======= ========= ====== =======
Adjustments
to
Current Deferred Goodwill Total
------- -------- -------- -----
Year ended December 31, 1998:
United States federal............................ $ 517 $ (700) $ 591 $ 408
State and local.................................. 561 (102) 351 810
Non-United States................................ 21,121 (2,642) 1,302 19,781
------ --------- ------ -------
$22,199 $ (3,444) $2,244 $20,999
======= ========= ====== =======
F-20
12. Taxes - (Continued)
The adjustments to goodwill during the years ending December 31, 2000,
1999 and 1998 relate to tax benefits utilized which were not previously
recognized in the purchase price allocation pertaining to previous acquisitions.
The provision for tax expense for the years ended December 31, 2000,
1999 and 1998 differed from the amounts computed by applying the United States
federal income tax rate of 35% to the earnings before taxes and minority
interest as a result of the following:
2000 1999 1998
------- ------- -------
Expected tax..................................... $38,012 $27,957 $20,837
United States state and local income taxes,
net of federal income tax benefit............ 519 494 810
Non-deductible purchased research and development - - 3,492
Non-deductible intangible amortization........... 2,227 2,254 2,459
Change in valuation allowance.................... (3,065) (983) 4,964
Other non-United States income taxes
at other than a 35% rate..................... 455 1,165 (6,708)
Change in Swiss tax law.......................... - - (3,557)
Change in Swiss tax rates........................ - - (1,406)
Other, net....................................... 362 511 108
------- ------- -------
Total provision for taxes........................ $38,510 $31,398 $20,999
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below at December 31:
2000 1999
------ ------
Deferred tax assets:
Inventory............................................ $ 2,042 $ 1,363
Accrued and other liabilities........................ 20,466 15,099
Deferred losses...................................... 6,524 2,091
Accrued postretirement benefit and pension costs..... 19,451 21,984
Net operating loss carryforwards..................... 16,499 27,798
Other................................................ 1,942 4,075
------- -------
Total deferred tax assets................................ 66,924 72,410
Less valuation allowance................................. (49,027) (53,128)
-------- --------
Total deferred tax assets less valuation allowance....... 17,897 19,282
------- -------
Deferred tax liabilities:
Inventory............................................ 1,640 1,787
Property, plant and equipment........................ 16,259 15,531
Other................................................ 8,221 9,131
------- -------
Total deferred tax liabilities........................... 26,120 26,449
------- -------
Net deferred tax liability............................... $ 8,223 $ 7,167
======= =======
The Company has established valuation allowances primarily for net
operating losses, deferred losses as well as postretirement and pension costs as
follows as of December 31:
2000 1999
------ -------
Summary of valuation allowances:
Cumulative net operating losses....................... $13,923 $26,923
Deferred loss......................................... 6,524 2,091
Accrued postretirement and pension benefit costs...... 12,765 14,579
Other................................................. 15,815 9,535
------- -------
Total valuation allowance................................. $49,027 $53,128
======= =======
F-21
12. Taxes - (Continued)
The Company has recorded valuation allowances related to its deferred
income tax assets due to the uncertainty of the ultimate realization of future
benefits from such assets. The 2000 net change in the valuation allowance is
primarily attributable to the changes as enumerated above which are related to
improved realization potential and/or utilization of associated deferred tax
assets.
The potential decrease or increase of the valuation allowance in the
near term is dependent on the future realizability of the deferred tax assets
which are affected by the future profitability of operations in various
worldwide jurisdictions, but primarily in the United States. A valuation
allowance has been provided on the Company's net deferred tax assets related to
its United States operations because of the uncertainty regarding their
realizability due to the expectation that deductions from future employee stock
option exercises and related tax deductions will exceed future taxable income.
Deferred tax assets of $1.2 million at December 31, 2000 pertain to net
operating loss carryforwards resulting from the exercise of certain employee
stock options. When recognized, the tax benefit of these losses will be recorded
in shareholders' equity.
The total valuation allowances relating to acquired businesses amount
to $15.5 million and $16.7 million at December 31, 2000 and 1999, respectively.
The reduction for the current year is primarily attributable to the utilization
of net operating losses and the expiration of the useful life of various
deferred tax assets. Future reductions of these valuation allowances will
continue to be credited to goodwill when realized.
At December 31, 2000, for U.S. federal income tax purposes, the Company
had net operating loss carryforwards of $21.3 million which expire in various
amounts through 2012 and other tax credits of $0.6 million which have no
expiration. The Company has various U.S. state net operating losses and various
foreign operating losses that expire in varying amounts through 2012.
13. Other Charges, Net
Other charges, net consists primarily of foreign currency transactions,
interest income, charges related to the Company's cost-reduction programs and
gains on the sale of property, plant and equipment.
As part of its efforts to reduce costs, the Company evaluates from time
to time the cost effectiveness of its global manufacturing strategy. In this
respect, the Company recorded charges of approximately $1.4 million and $8.0
million in 2000 and 1999, respectively, associated with the close-down and
consolidation of operations in 2000, and the transfer of production lines from
the Americas to China and Europe and the closure of facilities in 1999. The
charges comprised primarily severance and other related benefits and costs of
exiting facilities, including lease termination costs and the write-down of
impaired assets. In connection with these activities, the Company has
involuntarily terminated approximately 180 employees, and expects to further
terminate 60 employees in 2001. Activities related to the charge recorded in
1999 were significantly completed in 2000.
F-22
13. Other Charges, Net (Continued)
The Company also incurred losses of $4.1 million during 1999 in
connection with the exit from its glass batching business based in Belgium. This
amount primarily comprised severance and other costs of exiting this business.
The Company completed its exit of this business by the end of 1999. These losses
were offset by a gain of $3.1 million recorded in connection with an asset sale.
A rollforward of the components of the Company's accrual for
restructuring activities is as follows:
2000 1999
------- -------
Beginning of the year............................... $5,462 $ 1,831
Restructuring expense............................... 1,972 12,881
Reductions in workforce and other cash outflows..... (4,337) (5,902)
Non-cash write-downs of impaired assets............. - (3,018)
Impact of foreign currency.......................... (117) (330)
------- --------
End of the year..................................... $2,980 $ 5,462
====== =======
The Company's accrual for restructuring activities at December 31, 2000
primarily consisted of severance, lease termination and other costs of exiting
facilities.
14. 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, 2000:
2001.................. $12,509
2002.................. 11,911
2003.................. 9,994
2004.................. 6,287
2005.................. 5,447
Thereafter............ 12,356
-------
Total............... $58,504
=======
Rent expense for operating leases amounted to $21.2 million, $18.5
million and $17.7 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Legal
The Company is party to various legal proceedings, including certain
environmental matters, incidental to the normal course of business. Management
does not expect that any of such proceedings will have a material adverse effect
on the Company's financial condition or results of operations.
F-23
15. Segment Reporting
Operating segments are the individual reporting units within the
Company. These units are managed separately, and it is at this level where the
determination of resource allocation is made. The units have been aggregated
based on operating segments in geographical regions that have similar economic
characteristics and meet the aggregation criteria of SFAS 131. The Company has
determined that there are five reportable segments: Principal U.S. Operations,
Principal Central European Operations, Swiss R&D and Manufacturing Operations,
Other Western European Operations and Other. Principal U.S. Operations represent
certain of the Company's marketing and producing organizations located in the
United States. Principal Central European Operations primarily include the
Company's German marketing and producing organizations that primarily serve the
German market and, to a lesser extent, Europe. Swiss R&D and Manufacturing
Operations consist of the organizations located in Switzerland that are
responsible for the development, production and marketing of precision
instruments, including weighing, analytical and measurement technologies for use
in a variety of industrial and laboratory applications. Other Western European
Operations include the Company's market organizations in Western Europe that are
not included in Principal Central European Operations. The Company's market
organizations are geographically focused and are responsible for all aspects of
the Company's sales and service. Operating segments that exist outside these
reportable segments are included in Other.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on adjusted operating income (gross profit less
research and development and selling, general and administrative expenses before
amortization and non-recurring costs). Intersegment sales and transfers are
priced to reflect consideration of market conditions and the regulations of the
countries in which the transferring entities are located. The following tables
show the operations of the Company's operating segments:
Principal Other
Principal Central Swiss R&D Western Eliminations
For the year ended U.S. European and Mfg. European and
December 31, 2000 Operations Operations Operations Operations Other (a) Corporate (b) Total
- ------------------------------- ---------- ---------- ---------- ---------- --------- ------------- --------
Net sales to external customers $367,738 $177,912 $ 26,974 $256,257 $266,666 $ - $1,095,547
Net sales to other segments.... 33,528 53,563 148,158 41,896 120,730 (397,875) -
-------- -------- -------- -------- -------- --------- ----------
Total net sales................ $401,266 $231,475 $175,132 $298,153 $387,396 $(397,875) $1,095,547
======== ======== ======== ======== ======== ========== ==========
Adjusted operating income...... $ 38,414 $22,881 $ 38,313 $ 21,979 $ 32,231 $ (10,977) $ 142,841
Depreciation................... 6,692 2,364 1,962 2,803 7,488 381 21,690
Total assets................... 242,878 138,957 199,067 152,816 661,740 (507,876) 887,582
Purchase of property, plant
and equipment.................. 6,289 3,123 3,068 4,226 10,798 1,800 29,304
F-24
15. Segment Reporting - (Continued)
Principal Other
Principal Central Swiss R&D Western Eliminations
For the year ended U.S. European and Mfg. European and
December 31, 1999 Operations Operations Operations Operations Other (a) Corporate (b) Total
- ------------------------------- ---------- ---------- ---------- ---------- --------- ------------- --------
Net sales to external customers $356,400 $184,021 $ 23,832 $267,426 $233,794 $ - $1,065,473
Net sales to other segments.... 46,310 58,094 154,931 20,229 111,284 (390,848) -
-------- -------- -------- -------- -------- --------- ----------
Total net sales................ $402,710 $242,115 $178,763 $287,655 $345,078 $(390,848) $1,065,473
======== ======== ======== ======== ======== ========== ==========
Adjusted operating income...... $ 37,255 $23,070 $ 32,992 $ 25,024 $ 30,138 $ (24,797) $ 123,682
Depreciation................... 7,807 2,912 2,748 3,176 7,903 394 24,940
Total assets................... 217,202 139,726 158,160 146,955 624,528 (465,598) 820,973
Purchase of property, plant
and equipment.................. 7,588 2,051 2,322 4,140 10,548 2,539 29,188
Principal Other
Principal Central Swiss R&D Western Eliminations
For the year ended U.S. European and Mfg. European and
December 31, 1998 Operations Operations Operations Operations Other (a) Corporate (b) Total
- ------------------------------- ---------- ---------- ---------- ---------- --------- ------------- --------
Net sales to external customers $324,455 $181,377 $23,554 $220,543 $185,729 $ - $ 935,658
Net sales to other segments.... 39,634 58,035 148,062 22,848 104,585 (373,164) -
-------- -------- -------- -------- -------- --------- ---------
Total net sales................ $364,089 $239,412 $171,616 $243,391 $290,314 $(373,164) $ 935,658
======== ======== ======== ======== ======== ========== =========
Adjusted operating income...... $ 26,283 $ 20,314 $ 30,155 $ 17,795 $ 23,576 $ (17,143) $ 100,980
Depreciation................... 8,132 3,081 2,506 2,748 7,770 355 24,592
Total assets................... 166,934 146,754 142,717 125,621 597,175 (358,760) 820,441
Purchase of property, plant
and equipment.................. 8,296 2,957 2,922 3,562 8,886 2,010 28,633
(a) Other includes reporting units in Asia, Eastern Europe, Latin America and
segments from other countries that do not meet the aggregation criteria
of SFAS 131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions as well as certain corporate expenses, intercompany
investments and certain goodwill, which are not included in the Company's
operating segments.
A reconciliation of adjusted operating income to earnings before taxes
and minority interest for the year ended December 31 follows:
2000 1999 1998
-------- -------- --------
Adjusted operating income............. $142,841 $123,682 $100,980
Amortization.......................... 11,564 10,359 7,634
Interest expense...................... 20,034 21,980 22,638
Other charges, net.................... 2,638 10,468 1,197
Revaluation of acquisition inventories - 998 -
Purchased research and development.... - - 9,976
-------- -------- ---------
Earnings before taxes and minority
interest............................ $108,605 $ 79,877 $ 59,535
======== ======== ========
F-25
15. Segment Reporting - (Continued)
The Company sells precision instruments, including weighing instruments
and certain analytical and measurement technologies, and related after-market
support to a variety of customers and industries. None of these customers
account for more than 3% of net sales. After-market support revenues are
primarily derived from parts and services such as calibration, certification and
repair, much of which is provided under contracts. A break-down of the Company's
sales by product category for the years ended December 31 follows:
2000 1999 1998
---------- ---------- --------
Weighing-related instruments..... $ 663,598 $ 659,785 $600,450
Non-weighing instruments......... 237,501 226,434 183,259
After-market..................... 194,448 179,254 151,949
---------- ---------- --------
Total net sales.................. $1,095,547 $1,065,473 $935,658
========== ========== ========
The breakdown of net sales by geographic customer destination and
property, plant and equipment, net for the year ended December 31 are as
follows:
Property, plant
Net sales equipment, net
------------------------------------- --------------------
2000 1999 1998 2000 1999
-------- -------- ------- ------- -------
United States....... $ 411,484 $ 386,452 $328,448 $ 41,050 $ 41,604
Other Americas...... 76,522 74,701 74,951 2,222 1,887
------- ------- ------- ------ ------
Total Americas...... 488,006 461,153 403,399 43,272 43,491
Germany............. 122,570 132,302 129,464 22,504 23,086
France.............. 97,345 94,557 58,081 5,863 5,438
United Kingdom...... 44,927 44,105 41,265 6,037 5,828
Switzerland......... 45,308 42,530 40,158 99,627 99,324
Other Europe........ 168,040 174,497 161,314 5,985 6,515
------- ------- ------- ------ ------
Total Europe........ 478,190 487,991 430,282 140,016 140,191
Rest of World....... 129,351 116,329 101,977 16,100 16,041
---------- ---------- -------- -------- --------
Totals.............. $1,095,547 $1,065,473 $935,658 $199,388 $199,723
========== ========== ======== ======== ========
F-26
16. Quarterly Financial Data (unaudited)
Quarterly financial data for the years ended December 31, 2000 and 1999
are as follows:
First Second Third Fourth
Quarter Quarter (a) Quarter Quarter (b)
--------- -------- -------- -------
2000
Net sales ........................ $259,116 $268,558 $270,003 $297,870
Gross profit...................... 114,241 119,586 120,684 140,851
Net earnings...................... $ 11,754 $ 17,931 $ 17,134 $ 23,300
Basic earnings per common share.... $0.30 $0.46 $0.44 $0.59
Diluted earnings per common share.. $0.28 $0.43 $0.41 $0.55
Market price per share:
High............................ $44.50 $45.75 $48.81 $56.00
Low............................. $31.81 $30.00 $37.75 $39.50
1999
Net sales ........................ $235,715 $257,465 $268,006 $304,287
Gross profit...................... 105,227 113,755 119,728 141,756
Net earnings...................... $ 8,065 $ 13,467 $ 13,658 $ 12,911
Basic earnings per common share.... $0.21 $0.35 $0.35 $0.33
Diluted earnings per common share.. $0.20 $0.33 $0.33 $0.31
Market price per share:
High............................ $27.94 $29.00 $30.44 $39.50
Low............................. $19.63 $22.63 $23.81 $27.63
(a) The financial data for the second quarter of 1999 includes acquisition
charges of $1.0 million regarding the revaluation of certain
inventories to fair value (Note 3).
(b) The financial data for the fourth quarter of 2000 includes a charge of
$1.4 million related to the close-down and consolidation of operations.
The financial data for the fourth quarter of 1999 includes a charge of
approximately $8.0 million associated with the transfer of production
lines from the Americas to China and Europe and the closure of
facilities (Note 13).
F-27
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors and Shareholders
Mettler-Toledo International Inc.:
Under date of February 5, 1999, we reported on the consolidated statements of
operations, shareholders' equity and cash flows of Mettler-Toledo International
Inc. and subsidiaries for the year ended December 31, 1998, included herein. In
connection with our audit 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
audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Fides Peat
Zurich, Switzerland
February 5, 1999
S-1
Schedule II- Valuation and Qualifying Accounts
- -------------------------------- ---------------- ---------------------------------- ---------------- -----------------
Column A Column B Column C Column D Column E
- -------------------------------- ---------------- ---------------------------------- ---------------- -----------------
Additions
----------------------------------
(1) (2)
Balance at Charged Charged to
the beginning to costs and other accounts -Deductions- Balance at
Description of period expenses describe describe end of period
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
Note (A)
Accounts Receivable-
allowance for doubtful
accounts:
Year ended
December 31, 2000 9,827 1,008 - 1,738 9,097
Year ended
December 31, 1999 9,443 1,867 - 1,483 9,827
Year ended
December 31, 1998 7,669 2,008 - 234 9,443
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
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 $(253), $(691) and $239 for the years ended
December 31, 2000, 1999 and 1998, respectively.
S-2