Exhibit 99.1
Factors Affecting Future Operating Results
Certain statements contained in our public filings, press releases and
other documents and materials as well as certain statements in written or oral
statements made by us or on our behalf are forward-looking statements based on
our current expectations and projections about future events, including:
o strategic plans
o potential growth, including penetration of developed markets and
opportunities in emerging markets
o planned product introductions
o planned operational changes and research and development efforts
o Year 2000 issues
o Euro conversion issues
o future financial performance, including expected capital expenditures
o research and development expenditures
o estimated proceeds from and the timing of asset sales
o potential acquisitions
o future cash sources and requirements
o potential cost savings from planned employee reductions and
restructuring programs
These forward-looking statements are subject to a number of risks and
uncertainties, including those discussed below, which could cause our actual
results to differ materially from historical results or those anticipated and
certain of which are beyond our control. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this report may
describe additional factors that could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impact
of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Investors should also be aware that while we do, from time to time,
communicate with securities analysts, it is against our policy to disclose to
them any material non-public information or other confidential commercial
information. Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, we have a policy against issuing or confirming
1
Exhibit 99.1
financial forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
The following factors could cause actual results to differ materially
from historical results or anticipated results:
Effect of Substantial Indebtedness on Operations and Liquidity
We have a significant amount of indebtedness. At December 31, 1998, our
consolidated indebtedness (excluding unused commitments) was $365.5 million, and
we had additional borrowing capacity of approximately $233.6 million. Term loans
under our credit agreement comprise $184.6 million of our consolidated
indebtedness. We are required to make scheduled quarterly principal payments on
these term loans. Our ability to comply with the terms of our credit agreement
and our other debt obligations, to make cash payments with respect to our debt
obligations and to refinance any of our debt obligations will depend on our
future performance. Our future performance is subject to prevailing economic and
competitive conditions and certain financial, business and other factors beyond
our control.
Having a high degree of leverage has significant consequences for us.
For instance, high leverage might impair our ability to obtain additional
financing for acquisitions, capital expenditures, working capital or general
corporate purposes. In addition, we use a substantial portion of our cash flow
from operations to pay principal and interest on our borrowings. This use of
cash flows reduces the funds available to us for our operations and other
purposes, including investments in research and development and capital
spending. Some of our borrowings are and will continue to be at variable rates
of interest, which exposes us to the risk of increased interest rates. Finally,
we may be substantially more leveraged than some of our competitors. This may
place us at a relative competitive disadvantage and may make us more vulnerable
to a downturn in general economic conditions, a slowdown in our business or
changing market conditions and regulations.
Covenants in our debt obligations restrict our ability to incur
additional indebtedness, dispose of certain assets and make capital
expenditures. The covenants also restrict our other corporate activities. Our
ability to comply with these covenants may be affected by events beyond our
control, including economic, financial and industry conditions. A failure to
comply with the covenants and restrictions contained in our debt obligations or
any other agreements with respect to any additional financing could result in an
acceleration of the amount we owe under our debt agreements.
Risks Associated with Currency Fluctuations
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates. Swiss
franc-denominated expenses represent a much greater percentage of our operating
expenses than Swiss franc-denominated sales represent of our net sales. In part,
this is because most of our manufacturing costs in Switzerland relate to
products that are sold outside of Switzerland. Moreover, a substantial
percentage of our research and development expenses and general and
administrative expenses are incurred in Switzerland. Therefore, if the Swiss
franc strengthens against all or most of our major trading currencies (e.g., the
U.S. dollar, the Euro, other major European currencies and the Japanese Yen) our
2
Exhibit 99.1
operating profit is reduced. We also have significantly more sales in European
currencies (other than the Swiss franc) than we have expenses in those
currencies. Therefore, when European currencies weaken against the U.S. dollar
and the Swiss franc, it also decreases our operating profits. In recent years,
the Swiss franc and other European currencies have generally moved in a
consistent manner versus the U.S. dollar. Therefore, because the two effects
previously described have offset each other, our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these currencies
will continue to move in a consistent manner in the future. In addition to the
effects of exchange rate movements on operating profits, our debt levels can
fluctuate due to changes in exchange rates, particularly between the U.S. dollar
and the Swiss franc.
Risks Associated with International Operations; Deteriorating Conditions in
Emerging Markets
We do business in many countries, including emerging markets in Asia,
Latin America and Eastern Europe. In addition to the currency risks discussed
above, international operations pose substantial other risks and problems for
us. For instance, various local jurisdictions in which we operate may revise or
alter their respective legal and regulatory requirements. In addition, we may
encounter one or more of the following obstacles or risks:
o tariffs and trade barriers
o difficulties in staffing and managing local operations
o credit risks arising from financial difficulties facing local
customers and distributors
o difficulties in protecting intellectual property
o nationalization of private enterprises
o restrictions on investments and/or limitations regarding foreign
ownership
o adverse tax consequences, including imposition or increase of
withholding and other taxes on remittances and other payments
by subsidiaries
o uncertain local economic, political and social conditions, including
hyper-inflationary conditions
We must also comply with a variety of regulations regarding the
conversion and repatriation of funds earned in local currencies. For example,
converting earnings from our operations in China into other currencies and
repatriating such funds require governmental approvals. If we cannot comply with
these or other applicable regulations, we may face increased difficulties in
utilizing cash flow generated by these operations outside of China.
Recently, economic conditions in emerging markets have deteriorated
significantly and some emerging markets are experiencing recessionary trends,
severe currency devaluations and inflationary prices. Moreover, economic
problems in individual markets are increasingly spreading to other economies,
adding to the adverse conditions facing nearly all emerging markets. We remain
committed to emerging markets, particularly those in Asia, Latin America and
Eastern Europe. However, we expect current economic conditions will affect our
financial results in these markets for the foreseeable future.
3
Exhibit 99.1
Highly Competitive Markets; Difficult to Maintain Technological Advantage
Our markets are highly competitive. Weighing instruments markets are
also fragmented both geographically and by application, particularly the
industrial and food retailing market. As a result, we face numerous regional or
specialized competitors, many of which are well established in their markets. In
addition, some of our competitors are divisions of larger companies with
potentially greater financial and other resources than our own. Taken together,
the competitive forces present in our markets can impair our operating margins
in certain product lines and geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with competitive
prices. Although we believe that we have certain technological and other
advantages over our competitors, we may not be able to realize and maintain
these advantages. In any event, to remain competitive we must continue to invest
in research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to continue to
make these investments or that we will be successful in identifying, developing
and maintaining any competitive advantages.
Significant Sales to Pharmaceutical and Chemicals Industries
Our products are used extensively in the pharmaceutical, chemicals and
food and beverage industries. Consolidation in the pharmaceutical and chemicals
industries hurt our sales in prior years. A prolonged downturn or additional
consolidation in any of these industries could adversely affect our operating
results.
Risks Relating to Future Acquisitions
We plan to pursue acquisitions of complementary product lines,
technologies or businesses. Acquisitions involve numerous risks, including:
o difficulties in the assimilation of the acquired operations,
technologies and products
o diversion of management's attention from other business concerns
o potential departures of key employees of the acquired company
If we successfully identify acquisitions in the future, completing
such acquisitions may result in:
o new issuances of our stock that may be dilutive to current owners
o increases in our debt and contingent liabilities
o additional amortization expenses related to goodwill and other
intangible assets
Any of these risks could materially adversely affect our profitability.
We continue to explore potential acquisitions. We may not be able to identify,
4
Exhibit 99.1
successfully complete or integrate potential acquisitions in the future.
However, even if we can, we cannot be sure that such acquisitions will have a
positive impact on our business or operating results.
Reliance on Key Employees
We have employment contracts with each of our key employees. In
addition, our key employees own shares of our common stock and have options to
purchase additional shares. Nonetheless, such individuals could leave the
Company. If any key employees stopped working for us, our operations could be
harmed. We have no key man life insurance policies with respect to any of our
senior executives.
Environmental Matters and Liabilities
We are subject to various environmental laws and regulations, including
those relating to:
o air emissions
o wastewater discharges
o the handling and disposal of solid and hazardous wastes
o the remediation of contamination associated with the use and disposal
of hazardous substances
We incur capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. We are
currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the United States and
abroad. In addition, some of these facilities have or had been in operation for
many decades and may have used substances or generated and disposed of wastes
that are hazardous or may be considered hazardous in the future. Such sites and
disposal sites owned by others to which we sent waste may in the future be
identified as contaminated and require remediation. Accordingly, it is possible
that we could become subject to additional environmental liabilities in the
future that may harm our results of operations or financial condition.
Restrictions on Payment of Dividends; Absence of Dividends
Our credit agreement restricts our ability to pay dividends. In any
event, we do not intend to pay cash dividends on our common stock in the
foreseeable future.
Risks Relating to Certain Anti-Takeover Provisions
Our certificate of incorporation and by-laws contain provisions that
could make it more difficult for a third party to acquire Mettler-Toledo. Our
certificate of incorporation authorizes the Board of Directors to issue
preferred stock without shareholder approval and upon such terms as it may
determine. The rights of the holders of our common stock are subject to, and may
be adversely affected by, the rights of future holders of preferred stock. In
addition, our by-laws require shareholders to provide advance notice to nominate
candidates for election as directors and to submit proposals for consideration
at shareholder meetings. Section 203 of the Delaware General Corporation Law
makes it more difficult for an "interested stockholder" (generally a 15%
5
Exhibit 99.1
stockholder) to effect various business combinations with a corporation for a
three-year period after he becomes an "interested stockholder." In general,
these provisions may discourage a third party from attempting to acquire
Mettler-Toledo and therefore may inhibit a change of control of our company
under circumstances that could give shareholders an opportunity to realize a
premium over then-prevailing market prices.
Year 2000 Issue
The Year 2000 issue is the result of computer logic that was written
using two digits rather than four to define the applicable year. Any computer
logic or microprocessor that uses only two digits to recognize dates may
recognize a date specifying "00" as the year 1900 rather than the year 2000
which could result in miscalculations or system or equipment failures.
We rely on information technology systems and non-information
technology systems (e.g., equipment with embedded microprocessors) in connection
with manufacturing, sales and financial and human resources. Certain of our
products also involve computer or non-information technology systems that could
be affected by the Year 2000 issue. In addition, we rely on the proper
functioning of the computer and non-information technology systems of our major
suppliers.
We believe that we are taking reasonable steps to identify and address
those matters that could cause serious interruptions in our business and
operations due to Year 2000 issues. Our efforts include detailed programs to
address our internal Year 2000 readiness as well as the readiness of our key
suppliers. In addition, we have reviewed our current products, as well as
products sold in recent years, to determine if they are Year 2000 compliant.
However, any of the following could have a material adverse effect on our
business, financial condition and results from operations:
o a failure to fully identify all Year 2000 dependencies in our systems
o a failure to fully identify all Year 2000 dependencies in the systems
of our suppliers of components, customers and financial institutions
o a failure of our suppliers of components, customers and financial
institutions to adequately address their Year 2000 issues
o the failure of any contingency plans developed to protect our business
and operations from Year 2000-related interruptions
o any material increase in warranty claims or other claims of product
liability arising out of Year 2000 non-compliance
o delays in the implementation of new systems resulting from Year 2000
problems
Risks from Introduction of the European Monetary Union
The European Economic and Monetary Union (the "EMU") introduced a new
currency, the Euro, within Europe on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services. Switzerland is not part of the EMU.
6
Exhibit 99.1
On January 1, 1999, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and for noncash (banking) transactions. The existing local currencies,
or legacy currencies, will remain legal tender through January 1, 2002.
Beginning on January 1, 2002, Euro-denominated bills and coins will be issued
for cash transactions. For a period of six months from this date, both legacy
currencies and the Euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currency and use exclusively
the Euro.
We have committed resources to conduct risk assessments and take
corrective actions, where required, to ensure that we are prepared for the
introduction of the Euro. We are reviewing Euro implementation and our pricing
strategy in both participating and non-participating countries where we operate.
In addition, we are reviewing existing legacy accounting and business systems
and other business assets for Euro compliance and assessing the risks posed by
non-compliance by third parties. Despite these efforts, it is possible that we
or third parties on whom we depend will not have in place in a timely manner the
systems necessary to process Euro-denominated transactions. Such a failure could
adversely affect our business (e.g., by causing delays in order processing and
shipment). Moreover, increased price transparency or disruption of activity in
the markets in which we operate resulting from the conversion to the Euro could
hurt our business in those markets, resulting in lost revenues.
7