SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2002, OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
________________
Commission File Number 1-13595
Mettler-Toledo International Inc.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3668641
- ------------------------------------ -------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
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(Address of principal executive offices)
(Zip Code)
41-1-944-22-11
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(Registrant's telephone number, including area code)
not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 for 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
---- ----
The Registrant had 44,355,475 shares of Common Stock outstanding at
September 30, 2002.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of September 30, 2002 3
and December 31, 2001
Interim Consolidated Statements of Operations for the nine 4
months ended September 30, 2002 and 2001
Interim Consolidated Statements of Operations for the three 5
months ended September 30, 2002 and 2001
Interim Consolidated Statements of Shareholders' Equity 6
for the nine months ended September 30, 2002 and 2001
Interim Consolidated Statements of Cash Flows for the nine 7
months ended September 30, 2002 and 2001
Notes to the Interim Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 16
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM 4. CONTROLS AND PROCEDURES 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
Signature 22
Certifications pursuant to Section 302 of the Sarbanes-Oxley 23
Act of 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 28,282 $ 27,721
Trade accounts receivable, net 221,437 227,295
Inventories, net 150,729 145,621
Other current assets and prepaid expenses 39,051 31,121
------------- -------------
Total current assets 439,499 431,758
Property, plant and equipment, net 208,036 192,272
Excess of cost over net assets acquired, net 414,182 384,947
Other intangible assets, net 130,287 126,524
Other assets 55,969 53,911
------------- -------------
Total assets $ 1,247,973 $ 1,189,412
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 54,370 $ 66,327
Accrued and other liabilities 144,151 111,284
Accrued compensation and related items 41,617 47,702
Taxes payable 47,919 72,035
Short-term borrowings and current maturities of long-term debt 50,627 50,239
------------- -------------
Total current liabilities 338,684 347,587
Long-term debt 280,571 309,479
Non-current deferred taxes 26,158 25,053
Other non-current liabilities 127,077 119,109
------------- -------------
Total liabilities 772,490 801,228
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 44,355,475 and 44,145,742 shares at September 30, 2002 and
December 31, 2001 443 441
Additional paid-in capital 458,806 455,684
Retained earnings 73,086 3,957
Accumulated other comprehensive loss (56,852) (71,898)
------------- -------------
Total shareholders' equity 475,483 388,184
Commitments and contingencies - -
------------ -------------
Total liabilities and shareholders' equity $ 1,247,973 $ 1,189,412
============= =============
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 876,401 $ 829,741
Cost of sales 467,259 453,558
------------- ------------
Gross profit 409,142 376,183
Research and development 51,930 46,480
Selling, general and administrative 243,442 220,097
Amortization 6,480 9,706
Interest expense 13,175 13,402
Other charges, net (see Note 4) 28,408 15,294
------------- ------------
Earnings before taxes 65,707 71,204
Provision (benefit) for taxes (see Note 5) (3,422) 29,640
------------- ------------
Net earnings $ 69,129 $ 41,564
============= ============
Basic earnings per common share:
Net earnings $1.56 $1.04
Weighted average number of common shares 44,245,866 39,995,729
Diluted earnings per common share:
Net earnings $1.52 $0.98
Weighted average number of common shares 45,387,431 42,491,493
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 306,990 $ 285,064
Cost of sales 164,067 154,040
------------- ------------
Gross profit 142,923 131,024
Research and development 17,469 16,170
Selling, general and administrative 85,263 75,973
Amortization 2,805 3,469
Interest expense 4,429 4,056
Other charges (income), net 139 (4)
------------- ------------
Earnings before taxes 32,818 31,360
Provision for taxes 9,841 10,976
------------- ------------
Net earnings $ 22,977 $ 20,384
============= ============
Basic earnings per common share:
Net earnings $0.52 $0.51
Weighted average number of common shares 44,355,475 40,157,813
Diluted earnings per common share:
Net earnings $0.51 $0.48
Weighted average number of common shares 45,235,544 42,463,944
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS / OTHER
------------------------ PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) LOSS TOTAL
------ ------ ------- -------- ---- -----
Balance at December 31, 2001 44,145,742 $ 441 $ 455,684 $ 3,957 $ (71,898) $ 388,184
Exercise of stock options 209,733 2 3,122 - - 3,124
Comprehensive income:
Net earnings - - - 69,129 - 69,129
Unrealized loss on cash-flow
hedging instruments - - - - (3,478) (3,478)
Change in currency
translation adjustment - - - - 18,524 18,524
-----------
Comprehensive income 84,175
------------- --------- ----------- ------------- ----------- -----------
Balance at September 30, 2002 44,355,475 $ 443 $ 458,806 $ 73,086 $ (56,852) $ 475,483
============= ========= =========== ============= =========== ===========
Balance at December 31, 2000 39,372,873 $ 393 $ 294,558 $ (68,307) $ (47,804) $ 178,840
Exercise of stock options 784,940 8 9,743 - - 9,751
Comprehensive income:
Net earnings - - - 41,564 - 41,564
Unrealized loss on cash-flow
hedging instruments - - - - (3,094) (3,094)
Change in currency
translation adjustment - - - - 5,081 5,081
-----------
Comprehensive income 43,551
------------- --------- ----------- ------------- ----------- -----------
Balance at September 30, 2001 40,157,813 $ 401 $ 304,301 $ (26,743) $ (45,817) $ 232,142
============= ========= =========== ============= =========== ===========
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS)
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Cash flow from operating activities:
Net earnings $ 69,129 $ 41,564
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 18,887 16,898
Amortization 6,480 9,706
Other (113) (575)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 16,154 (8,393)
Inventories 1,776 (3,876)
Other current assets (1,754) (4,762)
Trade accounts payable (15,974) (21,680)
Accruals and other liabilities, net(a) (15,368) 28,096
----------- -----------
Net cash provided by operating activities 79,217 56,978
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 418 2,856
Purchase of property, plant and equipment (25,270) (21,761)
Acquisitions (b) (20,974) (7,856)
----------- -----------
Net cash used in investing activities (45,826) (26,761)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 57,871 53,072
Repayments of borrowings (92,647) (89,173)
Proceeds from issuance of common stock 3,124 9,751
----------- -----------
Net cash used in financing activities (31,652) (26,350)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (1,178) (884)
----------- -----------
Net increase in cash and cash equivalents 561 2,983
Cash and cash equivalents:
Beginning of period $ 27,721 $ 21,725
----------- -----------
End of period $ 28,282 $ 24,708
=========== ===========
(a) Accruals and other liabilities include payments for restructuring and certain acquisition integration
activities of $7.0 million in 2002 and $8.4 million in 2001.
(b) The amounts paid for acquisitions including seller financing and assumed debt retained by sellers were
$21.0 million in 2002 and $15.4 million in 2001.
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. 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 accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("U.S. GAAP"). The interim consolidated financial
statements have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The interim
consolidated financial statements as of September 30, 2002 and for the nine
and three month periods ended September 30, 2002 and 2001 should be read in
conjunction with the December 31, 2001 and 2000 consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
The accompanying interim consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary for a fair statement of the results of
the interim periods presented. Operating results for the nine and three
months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2002.
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.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using the first in, first out (FIFO) method.
Inventories consisted of the following at September 30, 2002 and
December 31, 2001:
September 30, December 31,
2002 2001
--------------- --------------
Raw materials and parts $ 76,805 $ 70,392
Work in progress 32,465 28,433
Finished goods 41,459 46,796
--------------- --------------
$ 150,729 $ 145,621
=============== ==============
INTANGIBLE ASSETS
As of January 1, 2002 the Company has adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. This
Statement requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment upon initial adoption of SFAS 142 and on
an annual basis going forward. In addition, any goodwill arising from
acquisitions completed after June 30, 2001 is not amortized. Other
intangible assets will continue to be amortized over their useful lives.
Application of the non-amortization provisions of SFAS 142 will increase
our net earnings by $6.5 million and our diluted earnings per share by
$0.15 on an annual basis, or $0.14 adjusting for additional shares issued
in connection with our acquisition of Rainin Instrument LLC. The
reconciliations of reported net earnings to adjusted net earnings before
amortization of goodwill for the three and nine month periods ended
September 30 are as follows:
Three months ended Nine months ended
2002 2001 2002 2001
---- ---- ---- ----
Net earnings:
Reported..................... $22,977 $20,384 $69,129 $41,564
Goodwill amortization........ - 1,668 - 4,877
------- ------- ------- -------
Adjusted..................... $22,977 $22,052 $69,129 $46,441
======= ======= ======= =======
Diluted earnings per share:
Reported..................... $0.51 $0.48 $1.52 $0.98
Goodwill amortization........ - 0.04 - 0.11
----- ----- ----- -----
Adjusted..................... $0.51 $0.52 $1.52 $1.09
===== ===== ===== =====
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
SFAS 142 requires that goodwill be subject to annual impairment tests
using a two-step process. The first step is to determine if an impairment
exists, and if so the second step measures the amount of impairment. The
Company has completed its impairment review under SFAS 142 and has
determined that there is no impact on the Company's financial position and
results of operations.
The components of other intangible assets are as follows:
September 30, December 31,
2002 2001
--------------- --------------
Customer relationships $ 70,955 $ 67,383
Tradename 23,327 22,434
Intellectual property license 19,905 19,905
Proven technology and patents 19,138 17,352
--------------- --------------
133,325 127,074
Less accumulated amortization (3,038) (550)
--------------- --------------
Total other intangible assets, net $ 130,287 $ 126,524
=============== ==============
Other intangible assets substantially relate to the acquisition of
Rainin Instrument, LLC. The annual aggregate amortization expense based on
the current balance of other intangible assets for the next five years is
estimated at $3.4 million.
EARNINGS PER COMMON SHARE
As described in Note 10 in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001, in accordance with the treasury stock
method, the Company has included the following equivalent shares relating
to 4,135,471 outstanding options to purchase shares of common stock in the
calculation of diluted weighted average number of common shares for the
three and nine month periods ended September 30, 2002 and 2001,
respectively.
September 30, September 30,
2002 2001
-------------------- -------------------
Nine months ended 1,141,565 2,495,764
Three months ended 880,069 2,306,131
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE (CONTINUED)
Equivalent shares relating to 1,634,850 outstanding options in the
three month period and 1,051,600 outstanding options in the nine month
period ended September 30, 2002 have been excluded from the calculation of
diluted weighted average number of common shares on the grounds that based
on the average market price for the Company's common stock during these
respective periods, such shares would be anti-dilutive.
3. BUSINESS COMBINATIONS
During the nine months ended September 30, 2002, the Company spent
approximately $21.0 million on acquisitions, including the acquisition of
SofTechnics Inc. and additional consideration related to earn-out periods
associated with acquisitions consummated in prior years. SofTechnics is a
leading provider of in-store retail item management software solutions.
Goodwill recognized in connection with these acquisition payments totaled
$19.4 million, which is primarily included in the Company's Principal U.S.
Operations segment as depicted in Note 6 to these interim consolidated
financial statements and is expected to be fully deductible for tax
purposes. The Company may be required to make additional earn-out payments
based upon the achievement of certain financial performance levels relating
to certain of these acquisitions in the future. The fair value of any
earn-out payments will be recorded as additional consideration of the
acquired enterprise and recorded as goodwill and evaluated for impairment,
when such payments are deemed issuable to the sellers.
As discussed more fully in Note 3 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, the Company acquired Rainin
Instrument, LLC in November 2001 for approximately $294.2 million.
The following summarized unaudited pro forma information assumes the
acquisition of Rainin occurred on January 1, 2001. The pro forma data
reflects adjustments directly related to the acquisition, and does not
include adjustments that may arise as a consequence of the acquisition.
Accordingly, the unaudited pro forma information does not purport to be
indicative of what the Company's combined results of operations would
actually have been had the acquisition occurred on January 1, 2001 or to
project the Company's combined results of operations for any future
periods.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS (CONTINUED)
Nine months Three months
----------- ------------
Period ended September 30: 2002 2001 2002 2001
------ ------ ------ ------
Net sales:
As reported.............................. $876,401 $829,741 $306,990 $285,064
Pro forma................................ $876,401 $888,353 $306,990 $306,012
Net earnings:
As reported.............................. $69,129 $41,564 $22,977 $20,384
Pro forma................................ $69,129 $45,386 $22,977 $20,895
Basic earnings per common share:
As reported.............................. $1.56 $1.04 $0.52 $0.51
Pro forma................................ $1.56 $1.05 $0.52 $0.48
Diluted earnings per common share*:
As reported.............................. $1.52 $0.98 $0.51 $0.48
Pro forma................................ $1.52 $0.99 $0.51 $0.46
* Net earnings for the nine month period ended September 30, excluding restructuring charges in 2002
and 2001 and the one time tax credit in 2002, would have been $1.46 per share on a diluted basis
in 2002 compared to $1.32 per share on a diluted basis in 2001 and, on a pro forma basis, $1.31
per share on a diluted basis for 2001.
4. OTHER CHARGES, NET
Other charges, net consists primarily of foreign currency
transactions, interest income, and charges related to the Company's
cost-reduction programs.
In June 2002, the Company's management approved restructuring plans to
exit and consolidate manufacturing facilities and reduce the Company's
expense structure. As part of these efforts to reduce costs, the Company
recorded a charge of $28.7 million ($20.1 million after tax) during the
three months ended June 30, 2002. This charge was comprised of
restructuring liabilities of $24.3 million and related asset impairments of
$4.4 million. In total, the Company expects this restructuring plan to
result in cash outlays of approximately $20.2 million and non-cash items of
$8.5 million. The charge comprised involuntary employee separation
benefits, write-downs of impaired assets to be disposed and other exit
costs. The Company expects to involuntarily terminate approximately 300
employees in targeted manufacturing and administrative areas and to
substantially complete the manufacturing consolidation by the end of 2003.
The asset impairments of $4.4 million primarily relate to plant and
equipment disposals resulting from the exit of certain manufacturing
facilities. Fair value of these assets was determined on the basis of their
net realizable value on disposal. Substantially all of the impaired assets
will be physically disposed by the end of 2003.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
4. OTHER CHARGES, NET (CONTINUED)
As part of the current restructuring program, the Company revised its
U.S. defined benefit pension plan to freeze the benefits for current
participants and to discontinue the plan for all future employees,
resulting in an expense of $1.1 million. In addition, the Company's U.S.
retiree medical program was also discontinued for certain current and all
future active employees resulting in a curtailment gain of $1.3 million.
During the three months ended June 30, 2001 the Company recorded a
restructuring charge of $15.2 million ($14.6 million after tax) associated
with headcount reductions and manufacturing transfers. The activities
associated with this charge are substantially complete.
A roll-forward of the Company's accrual for restructuring activities
follows:
For the nine months ended Employee Lease
September 30, 2002 related termination Other Total
- ------------------ ------- ----------- ----- -----
(a) (b) (c)
Beginning of period................. $ 2,001 $ 279 $324 $ 2,604
Restructuring expenses.............. 21,967 2,051 283 24,301
Cash payments....................... (5,831) (321) (63) (6,215)
Increases in retirement benefit
obligation.......................... (3,850) - - (3,850)
Impact of foreign currency.......... 491 27 5 523
------- ------ ---- -------
Balance at September 30, 2002....... $14,778 $2,036 $549 $17,363
======= ====== ==== =======
(a) Employee related costs comprise mainly severance, medical and
other benefit costs in connection with headcount reductions announced
during 2002. As at September 30, 2002, 126 employees had been
terminated under this restructuring plan. The employee terminations
and related cash outflows will be substantially complete by the end of
2003.
(b) Lease termination costs primarily relate to the early termination of
leases on vacated property.
(c) Other costs include expenses associated with equipment dismantling and
disposal and other exit costs.
5. INCOME TAXES
During the three months ended June 30, 2002, the Company completed a
tax restructuring program and related tax audits, and recorded a tax
benefit of $23.1 million.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
6. SEGMENT REPORTING
The Company has five reportable segments: Principal U.S. Operations,
Principal Central European Operations, Swiss R&D and Manufacturing
Operations, Other Western European Operations and Other. The following
tables show the operations of the Company's operating segments:
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2002 to U.S. European and Mfg. European and
September 30, 2002 Operations Operations Operations Operations Other(a) Corporate(b) Total
-------------------------- -------------- ------------- ----------- ------------- ---------- -------------- -------
Net sales to external
customers.................... $323,013 $112,211 $ 16,220 $186,993 $237,964 $ - $876,401
Net sales to other
segments..................... 23,912 39,208 94,134 27,455 100,033 (284,742) -
-------- -------- ------- -------- -------- ---------- --------
Total net sales............. $346,925 $151,419 $110,354 $214,448 $337,997 $(284,742) $876,401
======== ======== ======== ======== ======== ========== ========
Adjusted operating income... $ 50,539 $ 10,319 $ 20,909 $ 8,352 $ 32,239 $ (8,588) $113,770
Goodwill, net............... $238,428 $ 15,203 $ 14,904 $ 58,488 $ 87,159 $ - $414,182
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2001 to U.S. European and Mfg. European and
September 30, 2001 Operations Operations Operations Operations Other(a) Corporate(b) Total
-------------------------- -------------- ------------- ----------- ------------- ---------- -------------- -------
Net sales to external
customers................... $266,446 $137,292 $ 19,126 $191,424 $215,453 $ - $829,741
Net sales to other segments. 23,008 42,487 106,837 32,501 108,994 (313,827) -
-------- -------- -------- -------- -------- ---------- --------
Total net sales............. $289,454 $179,779 $125,963 $223,925 $324,447 $(313,827) $829,741
======== ======== ======== ======== ======== ========== ========
Adjusted operating income... $ 17,490 $ 20,742 $ 26,763 $ 16,285 $ 31,312 $ (2,986) $109,606
(a) Other includes reporting units in Asia, Eastern Europe, Latin America and segments from other countries
that do not meet the quantitative threshold 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.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
6. SEGMENT REPORTING (CONTINUED)
A reconciliation of adjusted operating income to earnings before taxes
follows:
For the period For the period
January 1, 2002 January 1, 2001
to to
September 30, 2002 September 30, 2001
------------------ ------------------
Adjusted operating income......... $113,770 $109,606
Amortization...................... 6,480 9,706
Interest expense.................. 13,175 13,402
Other charges, net................ 28,408 (a) 15,294 (b)
-------- --------
Earnings before taxes............. $ 65,707 $ 71,204
======== ========
(a) Includes a charge of $28.7 million, which comprises severance, asset
write-downs and other costs, primarily related to headcount
reductions and manufacturing transfers.
(b) Includes a charge of $15.2 million, which comprises severance, asset
write-downs and other costs, primarily related to headcount
reductions and manufacturing transfers.
--------------------------------------------------------
ITEM 2. 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 the Unaudited
Interim Consolidated Financial Statements included herein.
GENERAL
Our interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States of America on a basis which reflects the interim consolidated
financial statements of Mettler-Toledo International Inc. Operating results
for the nine and three months ended September 30, 2002 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2002.
RESULTS OF OPERATIONS
Net sales were $876.4 million and $307.0 million for the nine and
three months ended September 30, 2002 compared to $829.7 million and $285.1
million for the corresponding periods in the prior year. This represents a
local currency increase of 4% in both periods. Net sales were positively
impacted by the weakening of the U.S. dollar against other currencies. Net
sales in U.S. dollars during the nine and three month periods increased 6%
and 8%, respectively. We experienced a sharp decline in sales of our
European retail products after the introduction of the euro currency.
Excluding the impact of European retail products in both 2001 and 2002,
consolidated local currency sales growth would be 9% and 10% for the nine
and three month periods ended September 30, 2002, respectively.
Net sales by geographic customer location were as follows: Net sales
in Europe decreased 10% and 14% in local currencies during the nine and
three month periods ended September 30, 2002 versus the corresponding
periods in the prior year, reflecting weak sales performance across several
product lines, particularly in Germany. Excluding the impact of European
retail products in both 2001 and 2002, European local currency sales
decreased 3% and 2% for the nine and three month periods ended September
30, 2002, respectively. The Company expects that sales of European retail
products will decline over 50% for the fourth quarter of 2002 versus 2001.
Net sales in local currencies during the nine and three month periods in
the Americas increased 18% and 19% respectively, as compared to the
corresponding period in 2001, principally due to the acquisition of Rainin
Instrument in 2001. Approximately 86% of Rainin's operations are based in
the Americas, with 7% each in Asia and Europe. Net sales in local
currencies during the nine and three month periods in Asia and other
markets increased 8% compared to the same periods in the prior year. The
results of our business in Asia and other markets during the nine month
period ending September 30, 2002 reflects particularly strong sales
performance in China.
We acquired Rainin Instrument in November 2001. Assuming we had
acquired Rainin at the beginning of 2001, the acquisition would have added
approximately $58.6 million and $20.9 million or 7% of sales to each of the
nine and three month periods ending September 30, 2001 respectively, and
added $17.6 million and $6.2 million of Adjusted Operating Income (gross
profit less research and development and selling, general and
administrative expenses before amortization and other charges, net) on a
pro forma basis.
Our sales decline in Europe was primarily due to a decrease in sales
of our European retail products after the introduction of the euro
currency, as well as a deterioration in economic conditions, particularly
in Germany and in those markets sensitive to manufacturing output. In the
Americas, there has been no sign to date of a significant economic recovery
benefiting the markets for most of our products, although we have begun to
experience modest improvement in sales of our retail products. To the
extent that economic conditions significantly deteriorate in these or other
parts of the world, our sales growth and profitability may be adversely
affected.
Gross profit as a percentage of net sales increased to 46.7% and 46.6%
for the nine and three month periods ended September 30, 2002, compared to
45.3% and 46.0% for the corresponding periods in the prior year. This
increase is primarily related to changes in our sales mix, as well as
benefits from implementing various cost savings initiatives.
Research and development expenses as a percentage of net sales
represented 5.9% and 5.7% for the nine and three months ended September 30,
2002, compared to 5.6% and 5.7% for the corresponding periods in the prior
year. We continue to make significant investments in research and
development, which increased 8% and 1% in local currencies for the nine and
three month periods ended September 30, 2002.
Selling, general and administrative expenses as a percentage of net
sales increased to 27.8% for the nine and three month periods ended
September 30, 2002, compared to 26.5% and 26.7% for the corresponding
periods in the prior year, primarily due to changes in our sales mix and
our reduced sales volume in Europe. After adjusting for acquisitions and
unfavorable foreign currency effects, selling, general and administrative
expenses increased 3% in the nine month period and were flat in the three
month period ended September 30, 2002.
Adjusted Operating Income increased 4% to $113.8 million, or 13.0% of
net sales, for the nine months ended September 30, 2002, compared to $109.6
million, or 13.2% of net sales, for the corresponding period in the prior
year. Adjusted Operating Income increased 3% to $40.2 million, or 13.1% of
net sales, for the three months ended September 30, 2002, compared to $38.9
million, or 13.6% of net sales, for the corresponding period in the prior
year. The reduced operating margin percentage is due to the combination of
the currency translation impact resulting in higher reported U.S. dollar
sales and an unfavorable impact on pre-tax earnings of $0.7 million, due
primarily to the strengthening of the Swiss franc. Adjusting for these
items on a constant currency basis would result in Adjusted Operating
Income of 13.8% of net sales for the three months ended September 30, 2002.
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 performance.
Other charges net, were $28.4 million and $0.1 million for the nine
and three month periods ended September 30, 2002 compared to $15.3 million
and $0.0 million for the same periods in 2001. The nine months ended
September 30, 2002 includes a pre-tax restructuring charge of $28.7
million. The charge primarily comprises severance payments related to work
force reductions and other costs associated with consolidating
manufacturing. The nine months ended September 30, 2001 includes a
restructuring charge of $15.2 million. Activities associated with our 2001
restructuring charge are substantially complete.
Interest expense was $13.2 million and $4.4 million for the nine and
three months ended September 30, 2002, compared to $13.4 million and $4.1
million for the corresponding periods in the prior year. The increase in
the three month period ended September 30, 2002 was principally due to
higher average borrowings during 2002 to fund the Rainin acquisition as
well as the effect of unfavorable foreign currency exchange rates,
partially offset by reduced borrowing rates.
The provision for taxes is based upon our projected annual effective
tax rate for the related period. Our effective tax rate before
non-recurring items for the nine and three month periods ended September
30, 2002 was approximately 30% compared with 35% in 2001. This reduction
reflects the effect of several recently implemented tax initiatives. In
addition, we recorded a one-time benefit of $23.1 million during the three
months ended June 30, 2002 related to the completion of our tax
restructuring program and related tax audits.
Net earnings were $69.1 million and $23.0 million for the nine and
three months ended September 30, 2002. This compares to net earnings of
$41.6 million and $20.4 million for the corresponding periods in the prior
year. Excluding the effect of the previously mentioned charge associated
with headcount reductions and manufacturing transfers and the one-time tax
benefit, net earnings were $66.1 million and $23.0 million for the nine and
three months ended September 30, 2002. This compares to net earnings of
$56.2 million and $20.4 million, for the corresponding periods in the prior
year before the prior year restructuring charge. Adjusting for the adoption
of SFAS 142, net earnings before restructuring charges and the one-time tax
benefit for the nine and three month periods ended September 30, 2002
increased 8% and 4%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $79.2 million for the
nine months ended September 30, 2002, compared to $57.0 million for the
same period in 2001. The increase in 2002 resulted principally from
increased Adjusted Operating Income and improved working capital
management. Cash provided by operating activities is net of payments for
restructuring, and certain acquisition integration activities. These
amounts totaled $7.0 million, and $8.4 million for the nine months ended
September 30, 2002 and 2001 respectively.
During the nine months ended September 30, 2002, we spent
approximately $21.0 million on acquisitions, including additional
consideration related to earn-out periods associated with acquisitions
consummated in prior years. These purchases were funded from cash generated
from operations and additional borrowings. We continue to explore potential
acquisitions to expand our product portfolio and improve our distribution
capabilities. In connection with any acquisition, we may incur additional
indebtedness. In addition, we may make additional earn-out payments
relating to certain of these and previous year acquisitions in the future.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment, information technology equipment and
the purchase and expansion of facilities. Our capital expenditures totaled
$25.3 million and $21.8 million during the first nine months of 2002 and
2001 respectively. The increase in 2002 is principally due to spending
associated with Rainin's new facility in California. We expect capital
expenditures to increase as our business grows, and to fluctuate as
currency exchange rates change.
At September 30, 2002, our consolidated debt, net of cash, was $302.9
million. We had borrowings of $309.9 million under our credit agreement and
$21.3 million under various other arrangements as of September 30, 2002. Of
our credit agreement borrowings, approximately $73.9 million was borrowed
as term loans scheduled to mature in 2004 and $236.0 million was borrowed
under a multi-currency revolving credit facility. At September 30, 2002, we
had $166.3 million of availability remaining under the revolving credit
facility.
At September 30, 2002, approximately $228.0 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 $103.2
million at September 30, 2002. 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 and other covenants.
We currently believe that cash flow from operating activities,
together with borrowings available under the credit agreement and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements as well
as debt service requirements for at least several years, but there can be
no assurance that this will be the case.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates.
Swiss franc-denominated expenses represent a much greater percentage of our
operating expenses than Swiss franc-denominated sales represent of our net
sales. In part, this is because most of our manufacturing costs in
Switzerland relate to products that are sold outside of Switzerland.
Moreover, a substantial percentage of our research and development expenses
and general and 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, historically 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
2002, we estimate that the unfavorable impact due primarily to the
strengthening of the Swiss franc was approximately $0.7 million and $3.6
million for the three and nine month periods ended September 30, 2002. We
estimate that a further one percent strengthening of the Swiss franc
against the euro would result in a decrease in our earnings before tax of
between $0.8 million and $1.2 million on an annual basis. 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.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q 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; future financial performance, including expected capital
expenditures; research and development expenditures; estimated proceeds
from and the timing of asset sales; potential acquisitions; future cash
sources and requirements; and potential cost savings from restructuring
programs.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond our control, which could cause
our actual results to differ materially from historical results or those
anticipated. Certain of these risks and uncertainties have been identified
in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 2001. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2002, there was no material change in the
information provided under Item 7A in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, we carried out an
evaluation of the effectiveness of our disclosure controls and procedures
under the supervision and with the participation of our disclosure
committee, the CFO and CEO. The CFO and CEO concluded that our disclosure
controls and procedures are effective in permitting us to comply with our
disclosure obligations.
Since the date of our evaluation, we have not made significant changes
to our internal controls or other factors that could significantly affect
these controls, nor have we taken any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Date Filed Item Reported
---------- -------------
August 27, 2002 Adoption of a Shareholder Rights Plan by
the Board of Directors of the Company on
August 26, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Mettler-Toledo International Inc.
Date: November 14, 2002 By: /s/ Dennis Braun
-----------------
Dennis Braun
Chief Financial Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert F. Spoerry, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Mettler-Toledo
International Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company and its consolidated
subsidiaries is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data, and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
(6) The Company's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002
/s/ Robert F. Spoerry
- ---------------------
Robert F. Spoerry
Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis W. Braun, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Mettler-Toledo
International Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company and its consolidated
subsidiaries is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data, and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
(6) The Company's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002
/s/ Dennis W. Braun
- --------------------
Dennis W. Braun
Chief Financial Officer