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 MARCH 31, 2003, 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
-----------------------------------------------------------
(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 44,393,312 shares of Common Stock outstanding at March
31, 2003.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Exchange Act). Yes X No
--- ---
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2003 AND 2002................ 3
INTERIM CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2003
AND DECEMBER 31, 2002..................................... 4
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002........ 5
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 2003 AND 2002................ 6
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS.... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................... 20
Item 4. CONTROLS AND PROCEDURES................................... 20
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS......................................... 20
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................. 20
Item 3. DEFAULTS UPON SENIOR SECURITIES........................... 20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 20
Item 5. OTHER INFORMATION......................................... 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 20
SIGNATURE.......................................................... 21
CERTIFICATIONS..................................................... 22
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, MARCH 31,
2003 2002
----------- ----------
(UNAUDITED) (UNAUDITED)
Net sales $291,808 $272,957
Cost of sales 158,150 147,820
--------- ---------
Gross profit 133,658 125,137
Research and development 18,470 16,757
Selling, general and administrative 84,805 75,824
Amortization 2,827 1,774
Interest expense 3,905 4,391
Other charges (income), net (see Note 5) 5,175 (286)
--------- ---------
Earnings before taxes 18,476 26,677
Provision for taxes 5,541 8,003
--------- ---------
Net earnings $ 12,935 $ 18,674
========= =========
Basic earnings per common share:
Net earnings $0.29 $0.42
Weighted average number of common shares 44,393,312 44,173,850
Diluted earnings per common share:
Net earnings $0.29 $0.41
Weighted average number of common shares 45,288,823 45,517,058
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2003 2002
----------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 32,021 $ 31,427
Trade accounts receivable, net 221,181 231,673
Inventories, net 156,713 150,441
Current deferred tax assets, net 33,763 33,583
Other current assets and prepaid expenses 36,343 28,603
----------- -----------
Total current assets 480,021 475,727
Property, plant and equipment, net 216,198 217,754
Goodwill, net 406,440 408,351
Other intangible assets, net 128,592 129,441
Other non-current assets 73,176 72,120
----------- -----------
Total assets $1,304,427 $1,303,393
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 62,735 $ 73,072
Accrued and other liabilities 149,315 130,490
Accrued compensation and related items 38,391 47,013
Taxes payable 56,852 66,511
Short-term borrowings and current maturities of
long-term debt 50,422 50,578
----------- -----------
Total current liabilities 357,715 367,664
Long-term debt 259,477 262,093
Non-current deferred taxes 37,674 37,650
Other non-current liabilities 133,628 133,600
----------- -----------
Total liabilities 788,494 801,007
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
44,393,312 and 44,384,820 shares at March
31, 2003 and December 31, 2002 444 444
Additional paid-in capital 459,372 459,213
Retained earnings 117,313 104,378
Accumulated other comprehensive loss (61,196) (61,649)
----------- -----------
Total shareholders' equity 515,933 502,386
Commitments and contingencies - -
----------- -----------
Total liabilities and shareholders' equity $1,304,427 $1,303,393
=========== ===========
The accompanying notes are an integral part of these
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK
------------ ACCUMULATED OTHER
ADDITIONAL RETAINED COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL EARNINGS INCOME (LOSS) TOTAL
------ ------ --------------- -------- ------------- -----
Balance at December 31, 2002 44,384,820 $444 $459,213 $104,378 $(61,649) $502,386
Exercise of stock options 8,492 - 159 - - 159
Comprehensive income:
Net earnings - - - 12,935 - 12,935
Unrealized gain on cash-flow
hedging instruments - - - - 879 879
Change in currency
translation adjustment - - - - (426) (426)
---------
Comprehensive income 13,388
------------ ------- --------- ---------- --------- ---------
Balance at March 31, 2003 44,393,312 $444 $459,372 $117,313 $(61,196) $515,933
============ ======= ========= ========== ========= =========
Balance at December 31, 2001 44,145,742 $441 $455,684 $ 3,957 $(71,898) $388,184
Exercise of stock options 28,108 - 873 - - 873
Comprehensive income:
Net earnings - - - 18,674 - 18,674
Unrealized gain on cash-flow
hedging instruments - - - - 353 353
Change in currency
translation adjustment - - - - (861) (861)
---------
Comprehensive income 18,166
------------ ------- --------- ---------- --------- ---------
Balance at March 31, 2002 44,173,850 $441 $456,557 $22,631 $(72,406) $407,223
============ ======= ========= ========== ========= =========
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS)
MARCH 31, MARCH 31,
2003 2002
----------- ----------
(UNAUDITED) (UNAUDITED)
Cash flow from operating activities:
Net earnings $ 12,935 $ 18,674
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 6,302 5,967
Amortization 2,827 1,774
Other 196 (59)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 12,333 3,960
Inventories (5,641) 4,134
Other current assets (8,105) (2,631)
Trade accounts payable (10,521) (13,117)
Taxes payable (9,937) 3,619
Accruals and other liabilities, net(a) 8,282 (10,707)
--------- ---------
Net cash provided by operating activities 8,671 11,614
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 95 38
Purchase of property, plant and equipment (4,737) (9,333)
Acquisitions (197) (16,483)
--------- ---------
Net cash used in investing activities (4,839) (25,778)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 21,024 31,274
Repayments of borrowings (24,426) (21,595)
Proceeds from issuance of common stock 159 873
--------- ---------
Net cash provided by financing activities (3,243) 10,552
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 5 (648)
--------- ---------
Net increase (decrease) in cash and cash equivalents 594 (4,260)
Cash and cash equivalents:
Beginning of period 31,427 27,721
--------- ---------
End of period $ 32,021 $ 23,461
========= =========
(a) Accruals and other liabilities include payments for restructuring and
certain acquisition integration activities of $2.3 million in 2003 and
$2.0 million in 2002.
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 leading global supplier of precision instruments and services. The
Company is the world's largest manufacturer of weighing instruments for use
in laboratory, process analytics, industrial, packaging and food retailing
applications. The Company also holds top-three market positions in several
related analytical instruments, and is a leading provider of automated
chemistry solutions used in drug and chemical compound discovery and
development. In addition, the Company is the world's largest manufacturer
and marketer of metal detection and other end-of-line inspection systems
used in production and packaging. The Company's primary manufacturing
facilities are located in Switzerland, the United States, Germany, the
United Kingdom and China. The Company's principal executive offices are
located in Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("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 March 31, 2003 and for the three
month periods ended March 31, 2003 and 2002 should be read in conjunction
with the December 31, 2002 and 2001 consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
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 three months ended
March 31, 2003 are not necessarily indicative of the results to be expected
for the full year ending December 31, 2003.
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.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES, NET
Inventories are valued at the lower of cost or net realizable value.
Cost, which includes direct materials, labor and overhead plus indirect
overhead, is determined using the first in, first out (FIFO) method.
Reserves for excess and obsolete inventories are established based on
forecast usage, orders and technological obsolescence.
Inventories, net consisted of the following at March 31, 2003 and
December 31, 2002:
March 31, December 31,
2003 2002
---------- ------------
Raw materials and parts..................... $ 67,856 $ 66,367
Work in progress............................ 35,767 33,683
Finished goods.............................. 53,090 50,391
--------- ---------
$ 156,713 $ 150,441
========= =========
GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 142
("SFAS 142"), goodwill and indefinite lived assets are reviewed for
impairment on an annual basis in the fourth quarter. The Company completed
its impairment review under SFAS 142 as of December 31, 2002 and determined
that there was no impairment.
Other intangible assets include indefinite lived assets and assets
subject to amortization. Where applicable, amortization is charged on a
straight-line basis over the expected period to be benefited. The Company
assesses the recoverability of other intangible assets subject to
amortization by determining whether the sum of the undiscounted future
operating cash flows exceed the unamortized balance.
The components of other intangible assets are as follows:
March 31, 2003 December 31, 2002
--------------------------- -------------------------
Gross Accumulated Gross Accumulated
Amount amortization amount amortization
------ ------------ -------- ------------
Customer relationships.............. $ 70,955 $ (2,236) $ 70,955 $ (1,839)
Tradename........................... 23,327 (48) 23,327 (37)
Perpetual intellectual property
license........................... 19,905 - 19,905 -
Proven technology and patents....... 19,138 (2,449) 19,138 (2,008)
----------- ---------- --------- ----------
$ 133,325 $ (4,733) $ 133,325 $ (3,884)
=========== ========== ========= ==========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
Other intangible assets substantially relate to the acquisition of
Rainin Instrument. The annual aggregate amortization expense based on the
current balance of other intangible assets for each of the next five years
is estimated at $3.4 million.
STOCK BASED COMPENSATION
The Company applies the intrinsic valuation methodology under
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plan.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of SFAS 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The
restructuring charge recorded by the Company in the three months ended
March 31, 2003 and described more fully in Note 5 below, relates to exit
activities initiated prior to this date.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. The
Company does not currently use the fair value based method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results
(see Note 4 below). The provisions of SFAS 148 are effective for annual
financial statements for fiscal years ending after December 15, 2002, and
for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
3. BUSINESS COMBINATIONS
During the three months ended March 31, 2003, the Company spent
approximately $0.2 million on additional consideration related to earn-out
periods associated with acquisitions consummated in prior years. The
Company accounted for the additional consideration using the purchase
method of accounting and classified the payments as additional goodwill.
During the three months ended March 31, 2002, the Company spent
approximately $16.5 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
$15.1 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. The Company accounted for the acquisition payments
using the purchase method of accounting.
The terms of certain of our acquisitions in 2002 and earlier years
provide for possible additional earn-out payments. Although we do not
currently believe we will make any material payments relating to such
earn-outs, the maximum amount potentially payable in cash is approximately
$25 million. Any additional earn-out payments incurred will be treated as
additional purchase price, accounted for using the purchase method of
accounting and classified as additional goodwill.
4. EARNINGS PER COMMON SHARE
As described in Note 2 in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, in accordance with the treasury stock
method, the Company has included the following equivalent shares in the
calculation of diluted weighted average number of common shares for the
three month periods ended March 31, 2003 and 2002, respectively, relating
to outstanding stock options.
March 31, March 31,
2003 2002
----------- ------------
Three months ended.................. 895,511 1,343,208
Outstanding options of 2,278,100 and 0 for the three month periods ended
March 31, 2003 and 2002 respectively, have been excluded from the
calculation of diluted weighted average number of common shares on the
grounds that such options would be anti-dilutive.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
4. EARNINGS PER COMMON SHARE (CONTINUED)
The Company applies the intrinsic valuation methodology under
Accounting Principles 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 three months ended March 31 would have been as follows:
March 31, March 31,
2003 2002
---- ----
Net earnings:
As reported........................ $12,935 $18,674
Compensation expense............... (1,496) (1,424)
------- -------
Pro forma.......................... $11,439 $17,250
======= =======
Basic earnings per common share:
As reported........................ $ 0.29 $ 0.42
Compensation expense............... (0.03) (0.03)
------- -------
Pro forma.......................... $ 0.26 $ 0.39
======= =======
Diluted earnings per common share:
As reported........................ $ 0.29 $ 0.41
Compensation expense............... (0.04) (0.03)
------- -------
Pro forma.......................... $ 0.25 $ 0.38
======= =======
5. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of charges related to
the Company's cost-reduction programs, interest income, (gains) losses from
foreign currency transactions, (gains) losses from sales of assets and
other items.
As previously noted, in accordance with U.S. GAAP, the charge taken in
the second quarter of 2002 related to the exit of our French manufacturing
facility was limited to the minimum contractual payment required by French
law. During the three months ended March 31, 2003, the Company recorded a
restructuring charge of $5.4 million ($3.8 million after tax), related to
the final union settlement on the closure of this facility. This charge
comprises the additional employee-related costs resulting from final
settlement of the social plan negotiated with the French workers' council
during the first quarter of 2003 and reflects cash payments that are
expected to be made prior to the end of the year.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
5. OTHER CHARGES (INCOME), NET (CONTINUED)
A roll-forward of the Company's accrual for restructuring activities
follows:
For the three months ended Employee Lease
March 31, 2003 related termination Other Total
-------------- ------- ----------- ----- -----
(a) (b) (c)
Balance at December 31, 2002.. $11,803 $2,032 $420 $14,255
Restructuring expense......... 5,444 - - 5,444
Cash payments................. (2,112) (202) - (2,314)
Impact of foreign currency.... 213 17 6 236
------- ------ ---- -------
Balance at March 31, 2003..... $15,348 $1,847 $426 $17,621
======= ====== ==== =======
(a) Employee related costs include severance, medical and early retirement
costs for approximately net 300 employees, of which 230 employees had
been terminated as of March 31, 2003. These employees include
positions primarily in manufacturing, as well as administrative and
other personnel, primarily at the Company's Principal U.S. and Other
Western European Operations. The remaining employee terminations and
related cash outflows are expected to be completed by the end of 2003.
(b) Lease termination costs primarily relate to the early termination of
leases on vacated property, primarily at the Company's Principal U.S.
and Other Western European Operations.
(c) Other costs include expenses associated with equipment dismantling and
disposal, and other exit costs.
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 Company
evaluates segment performance based on Segment Profit (gross profit less
research and development, selling, general and administrative expenses, and
restructuring charges, before amortization, interest expense and
non-recurring costs). The following tables show the operations of the
Company's operating segments:
Principal
For the period Central Swiss R&D Other Western
January 1, 2003 to Principal U.S. European and Mfg. European Eliminations
March 31, 2003 Operations Operations Operations Operations Other (a) and Corporate (b) Total
------------------------------- --------------- ------------ ------------- ------------- ----------- ----------------- -----
Net sales to external customers. $100,485 $ 41,144 $ 12,218 $ 69,207 $ 68,754 $ - $291,808
Net sales to other segments..... 9,039 14,438 40,494 7,056 18,733 (89,760) -
-------- -------- -------- -------- -------- -------- --------
Total net sales................. $109,524 $ 55,582 $ 52,712 $ 76,263 $ 87,487 $(89,760) $291,808
======== ======== ======== ======== ======== ========= ========
Segment Profit ................. $ 14,446 $ 4,682 $ 7,777 $ (3,290) $ 5,068 $ (3,744) $ 24,939
Goodwill, net................... $201,663 $ 23,960 $ 21,557 $ 73,515 $ 85,745 $ - $406,440
Principal
For the period Central Swiss R&D Other Western
January 1, 2002 to Principal U.S. European and Mfg. European Eliminations
March 31, 2002 Operations Operations Operations Operations Other (a) and Corporate (b) Total
------------------------------- --------------- ------------ ------------- ------------- ----------- ----------------- -----
Net sales to external customers. $101,397 $ 36,505 $ 10,860 $ 60,769 $ 63,426 $ - $272,957
Net sales to other segments..... 8,326 12,538 37,651 10,166 14,959 (83,640) -
-------- -------- -------- -------- -------- -------- --------
Total net sales................. $109,723 $ 49,043 $ 48,511 $ 70,935 $ 78,385 $(83,640) $272,957
======== ======== ======== ======== ======== ======== ========
Segment Profit.................. $ 15,615 $ 3,437 $ 8,923 $ 3,260 $ 3,925 $ (2,604) $ 32,556
Goodwill, net................... $201,700 $ 20,594 $ 19,238 $ 78,387 $ 81,976 $ - $401,895
(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 and intercompany
investments, 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)
We believe that Segment Profit, or Adjusted Operating Income (gross
profit less research and development, selling, general and administrative
expenses, and restructuring charges, before amortization, interest expense
and non-recurring costs), provides important financial information in
measuring and comparing our operating performance on an ongoing basis, and
as such is used as an important performance measurement by management.
Adjusted Operating Income is not intended to represent operating income
under U.S. GAAP and should not be considered as an alternative to earnings
before taxes as an indicator of our performance.
A reconciliation of Segment Profit, or Adjusted Operating Income, to
earnings before taxes follows:
For the period For the period
January 1, 2003 to January 1, 2002 to
March 31, 2003 March 31, 2002
-------------------- --------------------
Adjusted operating income after
restructuring charge.............. $24,939 $32,556
Amortization....................... 2,827 1,774
Interest expense................... 3,905 4,391
Other (income), net excluding
restructuring charge.............. (269) (286)
------- -------
Earnings before taxes.............. $18,476 $26,677
======= =======
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 three months ended March 31, 2003 are not necessarily indicative of
the results to be expected for the full year ending December 31, 2003.
RESULTS OF OPERATIONS
Net sales were $291.8 million for the three months ended March 31,
2003 compared to $273.0 million for the corresponding period in the prior
year, an increase of 7%. Results were positively impacted by the weakening
of the U.S. dollar against other currencies. In local currencies, net sales
decreased 2%. We experienced a further decline in sales of our European
retail products in the first quarter of 2003 as a result of the product
conversions required due to the introduction of the euro currency at the
beginning of 2002. Excluding the impact of European retail products in both
2003 and 2002, consolidated local currency sales increased 1% for the three
months ended March 31, 2003.
Net sales by geographic customer location were as follows: Net sales
in Europe decreased 6% in local currencies during the three months ended
March 31, 2003 versus the corresponding period in the prior year reflecting
the decline in our European retail products. Excluding the impact of
European retail products in both 2003 and 2002, European local currency
sales increased 1% for the three month period ended March 31, 2003. Net
sales in local currencies during the three month period in the Americas
decreased 2% as compared to the corresponding period in 2002, primarily
attributable to declines in laboratory and food retailing, partially offset
by solid results in industrial. Net sales in local currencies during the
three month period in Asia and other markets increased 12% compared to the
same period in the prior year. The results of our business in Asia and
other markets during the three months ending March 31, 2003 reflect strong
sales performance in China.
Gross profit as a percentage of net sales was 45.8% for both the three
month periods ended March 31, 2003, and 2002. Benefits from our cost
restructuring programs were substantially offset by the impact of adverse
currency movements.
Research and development expenses as a percentage of net sales
increased to 6.3% for the three months ended March 31, 2003, compared to
6.1% for the corresponding period in the prior year. We continue to make
significant investments in research and development, which decreased 1% in
local currencies for the three months ended March 31, 2003.
Selling, general and administrative expenses as a percentage of net
sales increased to 29.1% for the three months ended March 31, 2003,
compared to 27.8% for the corresponding period in the prior year, primarily
due to changes in our sales mix and our reduced sales volume in Europe.
After adjusting for unfavorable foreign currency effects, selling, general
and administrative expenses increased 2% in the three month period ended
March 31, 2003.
Adjusted Operating Income (gross profit less research and development,
selling, general and administrative expenses, and restructuring charges,
before amortization, interest expense, and non-recurring items) decreased
to $24.9 million, or 8.5% of net sales, for the three months ended March
31, 2003, compared to $32.6 million, or 11.9% of net sales, for the
corresponding period in the prior year. Adjusted Operating Income in 2003
includes a charge of $5.4 million in respect of restructuring activities
described more fully below. We believe that Adjusted Operating Income
provides important financial information in measuring and comparing our
operating performance on an ongoing basis, and as such is used as an
important performance measurement by management. Adjusted Operating Income
is not intended to represent operating income under U.S. GAAP and should
not be considered as an alternative to earnings before taxes as an
indicator of our performance.
During the three months ended March 31, 2003, Adjusted Operating
Income decreased $1.2 million in our Principal U.S. Operations compared to
the same period in 2002, due primarily to lower sales volume. Adjusted
Operating Income decreased $6.5 million in Europe as a result of the
restructuring charge and the volume impact on European retail compared to
the same period in 2002. In Asia and other markets, Adjusted Operating
Income increased $1.1 million due to continued growth in China, partially
offset by declines in other regions.
Other charges, net were $5.2 million for the three month period ended
March 31, 2003 compared to an income of $0.3 million for the same period in
2002. As previously noted, in accordance with U.S. GAAP, the restructuring
charge taken in the second quarter of 2002 related to the exit of our
French manufacturing facility was limited to the minimum contractual
payment required by French law. During the three months ended March 31,
2003, we recorded a charge of $5.4 million ($3.8 million after tax) related
to the final union settlement on the closure of this facility. This charge
comprises the additional employee-related costs resulting from final
settlement of the social plan negotiated with the French workers' council
during the first quarter of 2003 and reflects cash payments that are
expected to be made prior to the end of the year.
Interest expense decreased to $3.9 million for the three months ended
March 31, 2003, compared to $4.4 million for the corresponding period in
the prior year. The decrease was principally due to reduced borrowing rates
and lower average borrowings during 2003.
The provision for taxes is based upon our projected annual effective
tax rate for the related period. Our effective tax rate for the three
months ended March 31, 2003 and 2002 was 30%.
Net earnings decreased 31% to $12.9 million for the three months ended
March 31, 2003, compared to $18.7 million, for the corresponding period in
the prior year. Net earnings in 2003 include the restructuring charge of
$3.8 million after tax.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $8.7 million for the
three months ended March 31, 2003, compared to $11.6 million for the same
period in 2002. The decrease in 2003 resulted principally from reduced
Adjusted Operating Income partially offset by improved working capital.
Cash provided by operating activities includes payments for restructuring
and certain acquisition integration activities. These amounts totaled $2.3
million and $2.0 million for the three months ended March 31, 2003 and 2002
respectively.
During the three months ended March 31, 2003, we spent approximately
$0.2 million on additional consideration related to earn-out periods
associated with acquisitions consummated in prior years. We continue to
explore potential acquisitions to expand our product portfolio and improve
our distribution capabilities. In addition, the terms of certain of our
acquisitions in 2002 and earlier years provide for possible additional
earn-out payments. Although we do not currently believe we will make any
material payments relating to such earn-outs, the maximum amount
potentially payable in cash is $25 million.
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 $4.7 million and $9.3 million
during the first three months of 2003 and 2002 respectively. This decrease
is primarily attributable to the investment in Rainin's new manufacturing
facility during the first quarter of 2002. We expect capital expenditures
to increase as our business grows, and to fluctuate as currency exchange
rates change.
At March 31, 2003, our consolidated debt, net of cash, was $277.9
million. We had borrowings of $290.6 million under our credit agreement and
$19.3 million under various other arrangements as of March 31, 2003. Of our
credit agreement borrowings, approximately $57.8 million was borrowed as
term loans scheduled to mature in May 2004 and $232.8 million was borrowed
under a multi-currency revolving credit facility. At March 31, 2003, we had
$177.6 million of availability remaining under the revolving credit
facility.
At March 31, 2003, 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, primarily the Swiss franc and
British pound, amounting to approximately $81.9 million at March 31, 2003.
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 plan to implement a new credit agreement on or before the
expiration of the current facility in May 2004. Accordingly, from the
second quarter of 2003 all of our debt will be classified as short term.
We currently believe that cash flow from operating activities,
together with liquidity available under the existing credit agreement or a
renegotiated 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 our major trading
currencies (e.g., the U.S. dollar, the euro, the British pound 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. We estimate that a one percent strengthening of the
Swiss franc against the euro would result in a decrease in our earnings
before tax of $0.8 million to $1.2 million on an annual basis. In addition
to the effects of exchange rate movements on operating profits, our debt
levels fluctuate due to changes in exchange rates, particularly between the
U.S. dollar and the Swiss franc. Based on our outstanding debt as at March
31, 2003, we estimate that a ten percent weakening of the U.S. dollar
against the currencies in which our debt is denominated, would result in an
increase of approximately $9.1 million in the reported U.S. dollar value of
that debt.
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 research
and development efforts, product introductions and innovation; meeting
customer expectations; planned operational changes, including productivity
improvements; 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, 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, 2002. An additional risk factor that should be considered is
the potential effects of the Severe Acute Respiratory Syndrome ("SARS") on
the Company. The Company has significant operations in Asia, particularly
China. While SARS has not currently affected the Company's operations, if
SARS becomes more widespread, it could adversely affect the economy in
China and as a result adversely affect the Company's sales growth and
profitability.
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 March 31, 2003, 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, 2002.
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
31 Certification Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002
(b) Reports on Form 8-K
Date Furnished or Filed Item Reported
----------------------- -------------
April 24, 2003 Press release announcing first
quarter 2003 results
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: May 14, 2003 By: /s/ Dennis W. Braun
---------------------
Dennis W. Braun
Group Vice President and
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.;
(2) Based on my knowledge, this quarterly 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 quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant'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 registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant and its consolidated
subsidiaries is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of the registrant's Board of Directors (or persons with
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have identified
for the registrant'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 registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly 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: May 14, 2003
/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.;
(2) Based on my knowledge, this quarterly 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 quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant'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 registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant and its consolidated
subsidiaries is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of the registrant's Board of Directors (or persons with the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have identified
for the registrant'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 registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly 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: May 14, 2003
/s/ Dennis W. Braun
- -------------------
Dennis W. Braun
Chief Financial Officer