UNITED STATES
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 JUNE 30, 2004,
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
------------------------------------------------------
(Registrant's telephone number, including area code)
not applicable
------------------------------------------------------------------------
(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 44,439,952 shares of Common Stock outstanding at
June 30, 2004.
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 JUNE 30, 2004 AND 2003.......................... 3
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 2004 AND 2003.......................... 4
INTERIM CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004
AND DECEMBER 31, 2003........................................ 5
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) FOR THE SIX MONTHS
ENDED JUNE 30, 2004 AND 2003................................. 6
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 2004 AND 2003.......................... 7
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004............................................. 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 19
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 28
Item 4. CONTROLS AND PROCEDURES...................................... 28
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS............................................ 29
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................... 29
Item 3. DEFAULTS UPON SENIOR SECURITIES.............................. 29
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 30
Item 5. OTHER INFORMATION............................................ 30
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 30
SIGNATURE.............................................................. 32
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, JUNE 30,
2004 2003
---- ----
(UNAUDITED) (UNAUDITED)
Net sales
Products....................................... $266,448 $248,103
Service........................................ 78,044 73,260
-------- --------
Total net sales.................................... 344,492 321,363
Cost of sales
Products....................................... 126,784 117,530
Service........................................ 49,789 47,422
-------- --------
Gross profit....................................... 167,919 156,411
Research and development........................... 20,164 19,338
Selling, general and administrative................ 101,020 94,008
Amortization....................................... 2,896 2,840
Interest expense................................... 3,272 3,671
Other charges (income), net........................ (32) (276)
-------- --------
Earnings before taxes ......................... 40,599 36,830
Provision for taxes................................ 12,181 11,050
-------- --------
Net earnings................................... $ 28,418 $ 25,780
======== ========
Basic earnings per common share:
Net earnings................................... $ 0.64 $ 0.58
Weighted average number of common shares....... 44,469,648 44,434,612
Diluted earnings per common share:
Net earnings................................... $ 0.62 $ 0.57
Weighted average number of common shares....... 45,750,652 45,467,106
The accompanying notes are an integral part of these
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, JUNE 30,
2004 2003
---- ----
(UNAUDITED) (UNAUDITED)
Net sales
Products....................................... $509,684 $472,260
Service........................................ 153,517 140,911
-------- --------
Total net sales.................................... 663,201 613,171
Cost of sales
Products....................................... 245,064 231,286
Service........................................ 99,942 91,816
-------- --------
Gross profit....................................... 318,195 290,069
Research and development........................... 40,819 37,808
Selling, general and administrative................ 197,829 178,813
Amortization....................................... 5,704 5,667
Interest expense................................... 6,738 7,576
Other charges (income), net (see Note 7)......... (96) 4,899
-------- --------
Earnings before taxes ......................... 67,201 55,306
Provision for taxes................................ 20,161 16,591
-------- --------
Net earnings................................... $ 47,040 $ 38,715
======== ========
Basic earnings per common share:
Net earnings................................... $ 1.06 $ 0.87
Weighted average number of common shares....... 44,513,546 44,413,962
Diluted earnings per common share:
Net earnings................................... $ 1.03 $ 0.85
Weighted average number of common shares....... 45,793,793 45,377,964
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2004 2003
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 47,613 $ 45,116
Trade accounts receivable, less allowances of $10,250
at June 30, 2004 and $10,489 at December 31, 2003...... 247,423 249,353
Inventories, less allowances of $34,902 at June 30, 2004 and
$38,745 at December 31, 2003........................... 153,292 151,764
Current deferred tax assets, net............................. 27,476 27,644
Other current assets and prepaid expenses.................... 34,850 31,660
---------- ----------
Total current assets................................... 510,654 505,537
Property, plant and equipment, net............................... 223,723 231,512
Goodwill, net ................................................... 424,440 421,940
Other intangible assets, net..................................... 125,067 126,874
Non-current deferred tax assets, net............................. 39,949 40,683
Other non-current assets......................................... 61,604 60,730
---------- ----------
Total assets........................................... $1,385,437 $1,387,276
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable....................................... $ 66,214 $ 68,243
Accrued and other current liabilities........................ 101,019 97,966
Accrued compensation and related items....................... 53,972 56,575
Deferred service revenue and customer prepayments............ 36,821 20,759
Taxes payable................................................ 54,019 51,347
Current deferred tax liabilities............................. 14,642 14,742
Short-term borrowings and current maturities of
long-term debt......................................... 18,800 18,277
---------- ----------
Total current liabilities.............................. 345,487 327,909
Long-term debt................................................... 172,806 223,239
Non-current deferred taxes....................................... 46,179 46,519
Other non-current liabilities.................................... 133,849 135,613
---------- ----------
Total liabilities...................................... 698,321 733,280
Shareholders' equity:
Preferred stock, $0.01 par value per share; authorized
10,000,000 shares; issued 0 ........................... - -
Common stock, $0.01 par value per share; authorized
125,000,000 shares; issued 44,771,111 and 44,582,017
shares, outstanding 44,439,952 and 44,582,017 shares
at June 30, 2004 and December 31, 2003, respectively... 448 446
Additional paid-in capital................................... 475,610 471,628
Treasury stock at cost (331,159 and 0 shares at June 30, 2004
and December 31, 2003, respectively)................... (14,139) -
Retained earnings............................................ 244,745 200,216
Accumulated other comprehensive loss......................... (19,548) (18,294)
---------- ----------
Total shareholders' equity............................. 687,116 653,996
Commitments and contingencies.................................... - -
---------- ----------
Total liabilities and shareholders' equity............. $1,385,437 $1,387,276
========== ==========
The accompanying notes are an integral part of these
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK ACCUMULATED OTHER
------------ ADDITIONAL TREASURY RETAINED COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL STOCK EARNINGS INCOME (LOSS) TOTAL
------ ------ --------------- -------- -------- ---------------- -----
Balance at December 31, 2003 ........ 44,582,017 $ 446 $ 471,628 $ - $ 200,216 $ (18,294) $ 653,996
Exercise of stock options ........... 316,335 2 3,982 5,433 (2,511) - 6,906
Repurchases of common stock ......... (458,400) - - (19,572) - - (19,572)
Comprehensive income:
Net earnings ........................ - - - - 47,040 - 47,040
Change in currency translation
adjustment ..................... - - - - - (1,254) (1,254)
----------
Comprehensive income ................ 45,786
----------- --------- ----------- ----------- ---------- ---------- ----------
Balance at June 30, 2004 ............ 44,439,952 $ 448 $ 475,610 $ (14,139) $ 244,745 $ (19,548) $ 687,116
=========== ========= =========== =========== ========== ========== ==========
Balance at December 31, 2002 ........ 44,384,820 $ 444 $ 459,213 $ - 104,378 $ (61,649) $ 502,386
Exercise of stock options ........... 49,792 - 1,176 - - - 1,176
Comprehensive income:
Net earnings ........................ - - - - 38,715 - 38,715
Unrealized gain on cash-flow hedging
instruments - - - - - 2,185 2,185
Change in currency translation
adjustment ..................... - - - - - 9,152 9,152
----------
Comprehensive income ................ 50,052
----------- --------- ----------- ----------- ---------- ---------- ----------
Balance at June 30, 2003 ............ 44,434,612 $ 444 $ 460,389 $ - 143,093 $ (50,312) $ 553,614
=========== ========= =========== =========== ========== ========== ==========
The accompanying notes are an integral part of these
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS)
JUNE 30, JUNE 30,
2004 2003
---- ----
(UNAUDITED) (UNAUDITED)
Cash flow from operating activities:
Net earnings........................................... $ 47,040 $ 38,715
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation....................................... 12,911 12,689
Amortization....................................... 5,704 5,667
Other.............................................. 281 172
Increase (decrease) in cash resulting from
changes in:
Trade accounts receivable, net................... (2,766) 15,227
Inventories...................................... (2,019) (12,526)
Other current assets............................. (2,484) (8,397)
Trade accounts payable........................... (1,516) (10,089)
Taxes payable.................................... 2,448 (4,102)
Accruals and other current and non-current
liabilities................................... 15,324 2,035
--------- ---------
Net cash provided by operating activities..... 74,923 39,391
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment.... 1,376 604
Purchase of property, plant and equipment.............. (10,667) (10,602)
Acquisitions........................................... (991) (1,972)
--------- ---------
Net cash used in investing activities......... (10,282) (11,970)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings............................... 36,738 37,301
Repayments of borrowings............................... (86,500) (62,690)
Proceeds from exercise of stock options................ 6,906 1,176
Repurchases of common stock............................ (19,572) -
--------- ---------
Net cash used in financing activities......... (62,428) (24,213)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................ 284 515
--------- ---------
Net increase in cash and cash equivalents.................. 2,497 3,723
Cash and cash equivalents:
Beginning of period.................................... 45,116 31,427
--------- ---------
End of period.......................................... $ 47,613 $ 35,150
========= =========
The accompanying notes are an integral part of these
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED
(In thousands unless otherwise stated)
1. BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company")
is a global supplier of precision instruments and services. The Company
manufactures weighing instruments for use in laboratory, industrial,
packaging, logistics and food retailing applications. The Company also
manufactures several related analytical instruments, and provides automated
chemistry solutions used in drug and chemical compound discovery and
development. In addition, the Company manufactures metal detection and
other end-of-line inspection systems used in production and packaging, and
provides solutions for use in certain process analytics applications. 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 accounting principles generally accepted 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 June 30, 2004 and for the three and
six month periods ended June 30, 2004 and 2003 should be read in
conjunction with the December 31, 2003 and 2002 consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
The accompanying interim consolidated financial statements reflect all
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 and six months ended June 30, 2004 are not
necessarily indicative of the results to be expected for the full year
ending December 31, 2004.
The preparation of financial statements in conformity with generally
accepted accounting principles 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. A discussion of the Company's critical accounting policies is
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2003.
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
AT JUNE 30, 2004 - UNAUDITED (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, is generally
determined using the first in, first out (FIFO) method. The estimated
market value is based on assumptions for future demand and related pricing.
Reserves for excess and obsolete inventories are established based on
forecast usage, orders and technological obsolescence.
Inventories, net consisted of the following at June 30, 2004 and
December 31, 2003:
June 30, December 31
2004 2003
---------- ----------
Raw materials and parts......................... $ 71,134 $ 71,950
Work in progress................................ 32,117 32,432
Finished goods.................................. 50,041 47,382
--------- ---------
$ 153,292 $ 151,764
========= =========
Other Intangible Assets
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 in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
Other intangible assets consisted of the following at June 30, 2004
and December 31, 2003.
June 30, 2004 December 31, 2003
----------------------- -----------------------
Gross Accumulated Gross Accumulated
amount amortization amount amortization
------ ------------ ------ ------------
Customer relationships......... $ 70,955 $ (4,281) $ 70,955 $ (3,424)
Proven technology and patents.. 19,999 (4,737) 19,999 (3,809)
Tradename (finite life)........ 893 (101) 893 (79)
Tradename (indefinite life).... 22,434 - 22,434 -
Intellectual property license
(indefinite life)............ 19,905 - 19,905 -
-------- --------- --------- --------
$134,186 $ (9,119) $ 134,186 $ (7,312)
======== ========= ========= ========
Other intangible assets substantially relate to the acquisition of
Rainin. The annual aggregate amortization expense based on the current
balance of other intangible assets is estimated at $3.7 million for each of
the next five years.
The Company had amortization expense associated with the above
intangible assets of $1.8 million and $1.7 million for the six months ended
June 30, 2004 and 2003, respectively.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands except share data, unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
The Company applies the intrinsic valuation methodology under
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option 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," as amended by Statement
of Financial Accounting Standards No. 148, "Accounting for Stock Based
Compensation-Transition and Disclosure," the Company's net earnings and
basic and diluted net earnings per common share for the three and six month
periods ended June 30 would have been as follows:
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
Net earnings:
As reported.......................... $28,418 $25,780 $47,040 $38,715
Compensation expense................. (1,843) (1,502) (3,704) (2,997)
------- ------- ------- -------
Pro forma............................ $26,575 $24,278 $43,336 $35,718
======= ======= ======= =======
Basic earnings per common share:
As reported.......................... $ 0.64 $ 0.58 $ 1.06 $ 0.87
Compensation expense................. (0.04) (0.03) (0.09) (0.07)
------- ------- ------- -------
Pro forma............................ $ 0.60 $ 0.55 $ 0.97 $ 0.80
======= ======= ======= =======
Weighted average number of common
shares ..............................44,469,648 44,434,612 4,513,546 44,413,962
Diluted earnings per common share:
As reported.......................... $ 0.62 $ 0.57 $ 1.03 $ 0.85
Compensation expense................. (0.04) (0.04) (0.08) (0.06)
------- ------- ------- -------
Pro forma............................ $ 0.58 $ 0.53 $ 0.95 $ 0.79
======= ======= ======= =======
Weighted average number of common
shares ..............................45,548,618 45,387,465 45,582,791 45,326,888
Warranty
The Company generally offers one-year warranties on most of its
products. Product warranties are recorded at the time revenue is recognized
for certain product shipments. While the Company engages in extensive
product quality programs and processes, our warranty obligation is affected
by product failure rates, material usage and service costs incurred in
correcting a product failure.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Warranty (continued)
Changes to the Company's accrual for product warranties for the six
months ended June 30 are as follows:
2004 2003
--------- ---------
Balance at beginning of period........... $ 10,121 $ 8,850
Accruals for warranties.................. 5,481 5,829
Payments / utilizations.................. (5,686) (5,291)
-------- --------
Balance at end of period................. $ 9,916 $ 9,388
======== ========
Recent Accounting Pronouncements
In May 2004, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position FAS 106-2 ("FSP FAS 106-2"), "Accounting and Disclosure
Requirements Relating to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003". The Company is currently evaluating the impact
of FSP FAS 106-2, which is effective for interim financial periods
beginning after June 15, 2004.
3. BUSINESS COMBINATIONS
The terms of certain of the Company's acquisitions in 2003 and earlier
years provide for possible additional earn-out payments. During the six
months ended June 30, 2004 and June 30, 2003 the Company made additional
cash payments of approximately $1.0 million and $2.0 million respectively,
related to 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, primarily within the
Company's Principal U.S. Operations segment.
4. TREASURY STOCK
On February 5, 2004, the Company announced a share repurchase program,
commencing with an initial buyback of up to $100 million over the two-year
period ending December 31, 2005. This program was approved by the Company's
Board of Directors.
During the six months ended June 30, 2004 the Company spent $19.6
million on the repurchase of 458,400 shares at an average price of $42.67,
but had suspended the program upon commencement of the investigation. See
Part II Item 2 regarding details of the share repurchase program for the
three months ended June 30, 2004. As of June 30, 2004, 127,241 shares held
in treasury were reissued for the exercise of stock options.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands, except share data, unless otherwise stated)
5. EARNINGS PER COMMON SHARE
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 and six month periods ended
June 30, relating to outstanding stock options.
2004 2003
------------- -------------
Three months ended.......................... 1,281,004 1,032,494
Six months ended............................ 1,280,247 964,002
Outstanding options to purchase 598,850 and 1,544,650 shares of common
stock for the three month periods ended June 30, 2004 and 2003
respectively, and options to purchase 927,400 and 1,911,375 shares of
common stock for the six month periods ended June 30, 2004 and 2003
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.
6. NET PERIODIC BENEFIT COST
Net periodic cost for the Company's defined benefit pension plans and
U.S. post-retirement medical plan includes the following components for the
three months ended June 30:
Non-U.S. Pension Other U.S.
---------------- ----------
U.S Pension Benefits Benefits Post-retirement benefits
-------------------- -------- ------------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Service cost, net.................... $ 127 $ 134 $ 3,797 $ 3,783 $ 76 $ 6
Interest cost on projected
benefit obligations................ 1,515 1,638 4,124 4,722 404 469
Expected return on plan assets....... (1,597) (1,558) (5,182) (5,824) - -
Recognition of actuarial losses
(gains)............................ 570 531 (398) 375 (210) (22)
------ -------- ------- -------- ------- ------
Net periodic pension cost............ $ 615 $ 745 $ 2,341 $ 3,056 $ 270 $ 453
====== ======== ======= ======== ======= ======
Net periodic cost for the Company's defined benefit pension plans and
U.S. post-retirement medical plan includes the following components for the
six months ended June 30:
Non-U.S. Pension Other U.S.
---------------- ----------
U.S Pension Benefits Benefits Post-retirement benefits
-------------------- -------- ------------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Service cost, net.................... $ 254 $ 268 $ 7,346 $ 7,343 $ 153 $ 11
Interest cost on projected
benefit obligations................ 3,031 3,537 8,385 9,311 926 537
Expected return on plan assets....... (3,195) (3,116) (10,464) (11,289) - -
Recognition of actuarial losses
(gains)............................ 1,139 1,062 (807) 515 (424) (43)
Curtailment gain on plan freeze...... - - - - - (1,330)
------ ------- ------- -------- ------- ------
Net periodic pension cost............ $1,229 $ 1,751 $ 4,460 $ 5,880 $ 655 $ (825)
====== ======== ======= ======== ======= ======
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands, unless otherwise stated)
6. NET PERIODIC BENEFIT COST (CONTINUED)
As previously disclosed in the Company's annual report on Form 10-K
for the year ended December 31, 2003, the Company expects to make normal
employer pension contributions of approximately $11.4 million to its
non-U.S. defined benefit pension plans and $2.4 million to its U.S.
post-retirement medical plan during the year ended December 31, 2004. The
Company may make additional voluntary contributions to its pension plans
from time to time.
7. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of charges related to
the Company's restructuring programs, interest income, (gains) losses from
foreign currency transactions, (gains) losses from sales of assets and
other items.
As noted in previous filings, 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, the Company recorded a restructuring charge of $5.4 million
($3.8 million after tax). This charge comprised 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.
The Company's significant restructuring programs were substantially
completed at December 31, 2003.
8. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the three
and six month periods ended June 30 were as follows:
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
-------------------------- -------------------------
Net earnings.......................... $ 28,418 $ 25,780 $ 47,040 $ 38,715
Other comprehensive income:
Change in currency translation
adjustment......................... 4,026 9,578 (1,254) 9,152
Unrealized gain on cash flow
hedging arrangements............... - 1,306 - 2,185
-------- --------- --------- --------
$ 32,444 $ 36,664 $ 45,786 $ 50,052
======== ========= ========= ========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
9. SEGMENT REPORTING
The Company has six reportable segments: Principal U.S. Operations,
Other Western European Operations, Principal Central European Operations,
Swiss R&D and Manufacturing Operations, Asia and Other. In previous
reporting periods, results from Asia were included within the Other
operating segment. During the three months ended December 31, 2003, the
Company's reporting units in Asia exceeded the quantitative threshold for
disclosure as a separate operating segment. Segment disclosures for all
periods in 2003 have been reclassified accordingly. As the segments below
have different mixes of external customer and inter-segment sales, changes
in transfer pricing can impact the profitability of individual segments
from year to year. However, such changes have no impact on consolidated
profitability.
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 other charges).
The following tables show the operations of the Company's operating
segments:
Net sales Net sales
For the three months to external to other Total Segment Goodwill,
ended June 30, 2004 customers segments net sales profit net
- ------------------- ------------- ---------- --------- ------- ---------
Principal U.S.
Operations .......... $111,640 $ 7,854 $ 119,494 $ 18,047 $ 202,284
Other Western European
Operations .......... 80,119 6,205 86,324 5,782 85,273
Principal Central
European Operations. 47,623 15,654 63,277 5,701 26,322
Swiss R&D and Mfg
Operations .......... 11,933 51,126 63,059 10,893 23,010
Asia .................. 42,515 12,971 55,486 9,784 10,175
Other (a) ............. 50,662 11,672 62,334 5,602 77,376
Eliminations and
Corporate (b) ....... - (105,482) (105,482) (9,074) -
--------- --------- --------- --------- ---------
Total ................. $ 344,492 $ - $ 344,492 $ 46,735 $ 424,440
========= ========= ========= ========= =========
Net sales Net sales
For the six months to external to other Total Segment
ended June 30, 2004 customers segments net sales profit
- ------------------- ------------- ---------- --------- -------
Principal U.S.
Operations........... $ 212,645 $ 16,239 $ 228,884 $ 31,622
Other Western European
Operations........... 159,269 11,422 170,691 8,181
Principal Central
European Operations.. 95,245 30,531 125,776 10,918
Swiss R&D and Mfg.
Operations........... 24,252 96,898 121,150 20,553
Asia................... 81,244 25,410 106,654 18,771
Other (a).............. 90,546 21,994 112,540 6,460
Eliminations and
Corporate (b)........ - (202,494) (202,494) (16,958)
--------- --------- --------- ---------
Total................. $ 663,201 $ - $ 663,201 $ 79,547
========= ========= ========= =========
Footnotes on following page.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
9. SEGMENT REPORTING (CONTINUED)
Net sales Net sales
For the three months to external to other Total Segment Goodwill,
ended June 30, 2003 customers segments net sales profit net
- ------------------- ------------- ---------- --------- ------- ---------
Principal U.S.
Operations.......... $ 107,827 $ 9,909 $ 117,736 $ 19,126 $ 202,781
Other Western European
Operations.......... 77,972 5,713 83,685 7,331 77,161
Principal Central
European Operations. 44,757 15,699 60,456 5,553 25,153
Swiss R&D and Mfg.
Operations.......... 12,553 43,027 55,580 8,857 21,869
Asia.................. 32,990 9,979 42,969 7,013 8,832
Other (a)............. 45,264 8,659 53,923 1,881 78,182
Eliminations and
Corporate (b)....... - (92,986) (92,986) (6,696) -
--------- --------- --------- -------- ---------
Total................. $ 321,363 $ - $ 321,363 $ 43,065 $ 413,978
========= ========= ========= ========= =========
Net sales Net sales
For the six months to external to other Total Segment
ended June 30, 2003 customers segments net sales profit(c)
- ------------------- ------------- ---------- --------- ---------
Principal U.S.
Operations........... $ 208,312 $ 18,756 $ 227,068 $ 33,572
Other Western European
Operations.......... 147,179 10,811 157,990 4,041
Principal Central
European Operations. 85,901 28,872 114,773 10,235
Swiss R&D and Mfg.
Operations.......... 24,770 82,925 107,695 16,634
Asia.................. 63,485 17,176 80,661 12,208
Other (a)............. 83,524 17,343 100,867 1,755
Eliminations and
Corporate (b)....... - (175,883) (175,883) (10,441)
--------- --------- --------- ---------
Total................. $ 613,171 $ - $ 613,171 $ 68,004
========= ========= ========= =========
(a) Other includes reporting units in Eastern Europe, Latin America and
units from other countries that do not meet the quantitative
thresholds, but meet the majority of the aggregation criteria of SFAS
131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions and certain corporate expenses, which are not included in
the Company's operating segments.
(c) The results for the six months ended June 30, 2003 include a
restructuring charge of $5.4 million recorded in the Other Western
European Operations segment.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
9. SEGMENT REPORTING (CONTINUED)
Non-GAAP Financial Measures
The Company supplements U.S. GAAP results with non-GAAP financial
measures. The principal non-GAAP financial measure used is Adjusted
Operating Income. Adjusted Operating Income is defined as gross profit less
research and development, selling, general and administrative expenses and
restructuring charges, before amortization, interest, other charges and
taxes. The most directly comparable U.S. GAAP financial measure is net
earnings.
The Company believes that Adjusted Operating Income is important
supplemental information for investors. Adjusted Operating Income, or
Segment Profit, is used internally as the principal profit measurement by
our segments in their reporting to management. The Company uses this
measure because it excludes amortization, interest, other charges and
taxes, which are not allocated to the segments.
On a consolidated basis, the Company also believes Adjusted Operating
Income is an important supplemental method of measuring profitability. It
is used internally by senior management for measuring profitability and
setting performance targets for managers and has historically been used as
one of the means of publicly providing guidance on possible future results.
The Company also believes that Adjusted Operating Income is an important
performance measure because it provides a measure of comparability to other
companies with different capital or legal structures, which accordingly may
be subject to disparate interest rates and effective tax rates, and to
companies which may incur different amortization expenses or impairment
charges related to intangible assets.
Adjusted Operating Income is used in addition to and in conjunction
with results presented in accordance with U.S. GAAP. 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 the Company's performance because of the following limitations.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
9. SEGMENT REPORTING (CONTINUED)
Limitations of the non-GAAP measure, Adjusted Operating Income
The non-GAAP measure, Adjusted Operating Income, has certain material
limitations as follows:
o It does not include interest expense. Because the Company has
borrowed money to finance some of its operations, interest is a
necessary and ongoing part of the Company's costs and has
assisted the Company in generating revenue. Therefore any measure
that excludes interest expense has material limitations;
o It does not include taxes. Because payment of taxes is a
necessary and ongoing part of the Company's operations, any
measure that excludes taxes has material limitations;
o It excludes amortization expense and other charges. Because these
items are recurring, any measure that excludes them has material
limitations.
Adjusted Operating Income should not be relied upon to the exclusion
of U.S. GAAP financial measures, but reflects an additional measure of
comparability and means of viewing aspects of the Company's operations
that, when viewed together with U.S. GAAP results and the accompanying
reconciliation to net earnings, provides a more complete understanding of
factors and trends affecting the business.
Because Adjusted Operating Income is not standardized, it may not be
possible to compare with other companies' non-GAAP financial measures
having the same or a similar name. The Company strongly encourages
investors to review these financial statements and publicly-filed reports
in their entirety and not to rely on any single financial measure.
A reconciliation of Adjusted Operating Income, or Segment Profit, to
net earnings for the three and six month periods ended June 30 follows:
Three months ended Six months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Adjusted operating income after
restructuring charge (a)................ $ 46,735 $ 43,065 $ 79,547 $ 68,004
Amortization.............................. 2,896 2,840 5,704 5,667
Interest expense.......................... 3,272 3,671 6,738 7,576
Other charges, net (excluding
restructuring charge).................... (32) (276) (96) (545)
Provision for taxes....................... 12,181 11,050 20,161 16,591
--------- --------- --------- ---------
Net earnings.............................. $ 28,418 $ 25,780 $ 47,040 $ 38,715
========= ========= ========= ==========
- ------------------
(a) Adjusted Operating Income for the six months ended June 30, 2003
includes a restructuring charge of $5,444 primarily related to
headcount reductions and manufacturing transfers. See Note 7 to the
interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004 - UNAUDITED (CONTINUED)
(In thousands unless otherwise stated)
10. RELATED PARTY TRANSACTIONS
As part of the Rainin acquisition, the Company entered into an
agreement to lease certain property from the former owner and current
General Manager of Rainin. During the three and six months ended June 30,
2004 and 2003, the Company made lease payments in respect of this agreement
of $0.5 million and $0.5 million respectively, and $1.1 million and $1.0
million respectively. In addition, Rainin continued to purchase certain
products from its former owner. During the three and six months ended June
30, 2004 and 2003, the volume of these purchases was $0.3 million and $0.4
million respectively, and $0.6 million and $0.7 million respectively. The
agreement to purchase these products will be terminated during the third
quarter of 2004. This termination is not expected to have a material impact
on the Company's consolidated financial statements. All of the Company's
transactions with the former owner of Rainin are in the normal course of
business.
11. CONTINGENCIES
The Company is party to various legal proceedings, including certain
environmental matters, incidental to the normal course of business.
Management does not expect that any of such proceedings will have a
material adverse effect on the Company's financial condition or results of
operations.
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 accounting principles generally accepted 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 and six months ended June 30, 2004 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2004.
RESULTS OF OPERATIONS - CONSOLIDATED
The following tables set forth certain items from our interim
consolidated statements of operations for the three and six month periods
ended June 30, 2004 and 2003 (amounts in thousands).
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
(UNAUDITED) % (UNAUDITED) % (UNAUDITED) % (UNAUDITED) %
Net sales
Products................ $ 266,448 100.0 $ 248,103 100.0 $ 509,684 100.0 $ 472,260 100.0
Service................. 78,044 100.0 73,260 100.0 153,517 100.0 140,911 100.0
--------- ----- --------- ----- ---------- ----- --------- -----
Total net sales............ 344,492 100.0 321,363 100.0 663,201 100.0 613,171 100.0
Gross profit
Products................ 139,664 52.4 130,573 52.6 264,620 51.9 240,974 51.0
Service................. 28,255 36.2 25,838 35.3 53,575 34.9 49,095 34.8
--------- ----- --------- ----- ---------- ----- --------- -----
Total gross profit......... 167,919 48.7 156,411 48.7 318,195 48.0 290,069 47.3
Research and development... 20,164 5.8 19,338 6.0 40,819 6.2 37,808 6.2
Selling, general and
administrative........... 101,020 29.3 94,008 29.3 197,829 29.8 178,813 29.1
Restructuring charge....... - - - - - - 5,444 0.9
Adjusted operating --------- ----- --------- ----- ---------- ----- --------- -----
income ............... 46,735 13.6 43,065 13.4 79,547 12.0 68,004 11.1
Amortization............... 2,896 0.8 2,840 0.9 5,704 0.9 5,667 0.9
Interest expense........... 3,272 1.0 3,671 1.1 6,738 1.0 7,576 1.3
Other charges (income), net (32) (0.0) (276) (0.1) (96) (0.0) (545) (0.1)
--------- ----- --------- ----- ---------- ----- --------- -----
Earnings before taxes... 40,599 11.8 36,830 11.5 67,201 10.1 55,306 9.0
Provision for taxes........ 12,181 3.6 11,050 3.5 20,161 3.0 16,591 2.7
--------- ----- --------- ----- ---------- ----- --------- -----
Net earnings............ $ 28,418 8.2 $ 25,780 8.0 $ 47,040 7.1 $ 38,715 6.3
========= ===== ========= ===== ========== ===== ========= =====
Net sales
Net sales in U.S. dollars increased 7% and 8% respectively, during the
three and six months ended June 30, 2004, compared to the corresponding
periods in 2003, of which 3% and 5% respectively, was due to currency
exchange rate fluctuations.
Market conditions remain generally consistent with our assessment at
the end of 2003. Although conditions in Europe appear to have stabilized,
they remain generally quite weak and we continue to believe it will take
some time before the European economy gains strength, especially for our
industrial applications. However, we are starting to see improved momentum
in the Americas, and Asia remains strong.
In total, sales of products increased 7% and 8% respectively, during
the three and six months ended June 30, 2004, of which 3% and 5%
respectively, was due to currency exchange rate fluctuations. Service
revenues (including spare parts) increased 7% and 9% respectively, during
the three and six months ended June 30, 2004, of which 4% and 6%
respectively, was due to currency exchange rate fluctuations.
We experienced increased local currency sales in our core laboratory
markets during the three and six months ended June 30, 2004, compared to
the corresponding periods in 2003, principally driven by continued market
acceptance of our new analytical and precision balances, and improved market
conditions. In addition, following the softness we encountered throughout
2003 and the early part of 2004, sales of drug discovery products were very
strong in the three months ended June 30, 2004, compared to the
corresponding period in 2003.
In our industrial and packaging markets, local currency sales in the
three and six months ended June 30, 2004, were generally consistent with
the corresponding periods in 2003. We continue to see an improvement in our
core industrial business, although sales of transportation and logistics
products were down relative to strong project activity in 2003. While
long-term fundamentals of the market for our transportation and logistics
products are strong, the timing of projects can impact the year-over-year
comparison significantly.
In our retail markets, local currency sales increased during the three
and six months ended June 30, 2004, compared to the corresponding periods
in 2003, as customer spending patterns continue to improve relative to weak
activity last year. This is driven by the roll out of new products, based
on our global platform for retail scales and price/labeling equipment.
Growth in service revenues in both the three and six months ended June
30, 2004 was generated by our consultative based value-added services
approach, including provision of instrument qualification and asset
management services and training, rather than by increased sales of spare
parts.
Gross margin
The increase in gross margin for products for the six months ended
June 30, 2004 reflects continuing benefits from our cost rationalization
and product transfer initiatives of the last two years, as well as the
impact of improving sales volume leveraging our fixed production costs. For
the three month period, these trends were offset by an unfavorable sales
mix, higher raw material costs and a negative currency impact relative to
the second quarter in 2003.
The increase in gross margin for services (including spare parts) in
the three month period reflects the expansion of higher margin regulatory
compliance service sales and improved productivity. In the six month
period, this effect is offset by the impact of voluntary investments in our
field service organization, particularly during the first quarter.
Research and development and selling, general and administrative
expenses
Research and development expenses increased 4% and 8% respectively,
during the three and six months ended June 30, 2004, of which 3% and 5%
respectively, was due to currency exchange rate fluctuations. The increased
spending reflects investment across most of our major product lines.
Selling, general and administrative expenses increased 7% and 11%
respectively, during the three and six months ended June 30, 2004, of which
3% and 6% respectively, was due to currency exchange rate fluctuations. The
remaining cost increases include costs of $1.2 million incurred in the
second quarter, related to an internal investigation into allegations made
by an employee with respect to the Company and various company processes,
together with other operational increases.
Interest expense, other charges (income) net, taxes and net earnings
Interest expense decreased 11% in both the three and six months ended
June 30, 2004, compared to the corresponding periods in 2003, principally
due to lower average borrowings during 2004.
During the three months ended March 31, 2003, we incurred a
restructuring charge of $5.4 million ($3.8 million after tax) related to
the final union settlement on the closure of our French manufacturing
facility. In the consolidated statements of operations, this restructuring
charge is included within Other charges (income), net.
The provision for taxes is based upon our projected 30% annual
effective tax rate for the related periods.
Net earnings increased 10% and 22%, respectively in the three and six
months ended June 30, 2004, compared to the corresponding periods in 2003.
The increase reflects improving sales volume in 2004 and the benefits from
our cost rationalization initiatives, as well as the impact of the related
restructuring charge of $3.8 million (after tax) recorded in 2003.
NON-GAAP FINANCIAL MEASURES
We supplement our U.S. GAAP results with non-GAAP financial measures.
The principal non-GAAP financial measure we use is Adjusted Operating
Income. We define Adjusted Operating Income as gross profit less research
and development, selling, general and administrative expenses and
restructuring charges, before amortization, interest, other charges and
taxes. The most directly comparable U.S. GAAP financial measure is net
earnings.
We believe that Adjusted Operating Income is important supplemental
information for investors. Adjusted Operating Income, or segment profit, is
used internally as the principal profit measurement by our segments in
their reporting to management. We use this measure because it excludes
amortization, interest, other charges and taxes, which are not allocated to
the segments.
On a consolidated basis, we also believe Adjusted Operating Income is
an important supplemental method of measuring profitability. It is used
internally by senior management for measuring profitability, setting
performance targets for managers and has historically been used as one of
the means of publicly providing guidance on possible future results. We
also believe that Adjusted Operating Income is an important performance
measure because it provides a measure of comparability to other companies
with different capital or legal structures, which accordingly may be
subject to disparate interest rates and effective tax rates, and to
companies which may incur different amortization expenses or impairment
charges related to intangible assets.
Adjusted Operating Income is used in addition to and in conjunction
with results presented in accordance with U.S. GAAP. 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 because of the following limitations.
Limitations of our non-GAAP measure, Adjusted Operating Income
Our non-GAAP measure, Adjusted Operating Income, has certain material
limitations as follows:
o It does not include interest expense. Because we have borrowed
money to finance some of our operations, interest is a necessary
and ongoing part of our costs and has assisted us in generating
revenue. Therefore any measure that excludes interest expense has
material limitations;
o It does not include taxes. Because payment of taxes is a
necessary and ongoing part of our operations, any measure that
excludes taxes has material limitations;
o It excludes amortization expense and other charges. Because these
items are recurring, any measure that excludes them has material
limitations.
Adjusted Operating Income should not be relied upon to the exclusion
of U.S. GAAP financial measures, but reflects an additional measure of
comparability and means of viewing aspects of our operations that, when
viewed together with our U.S. GAAP results and the accompanying
reconciliation to net earnings, provides a more complete understanding of
factors and trends affecting our business.
Because Adjusted Operating Income is not standardized, it may not be
possible to compare with other companies' non-GAAP financial measures
having the same or a similar name. We strongly encourage investors to
review our financial statements and publicly filed reports in their
entirety and not to rely on any single financial measure.
Our Adjusted Operating Income increased 9% and 17% during the three
and six months ended June 30, 2004 compared to the corresponding periods in
2003. The increases reflect improving sales volume in 2004 and the benefits
from our cost rationalization initiatives, as well as the impact of the
related restructuring charge of $5.4 million recorded in 2003. This
performance was achieved while we continued to invest in product
development and in our distribution and field service processes.
RESULTS OF OPERATIONS - BY OPERATING SEGMENT
Principal U.S. Operations
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $111,640 $107,827 4% $212,645 $208,312 2%
Segment profit.. $ 18,047 $19,126 -6% $ 31,622 $ 33,572 -6%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in sales to external customers in both the three and six
month periods reflects solid results for our core laboratory, packaging and
retail products. These trends were partially offset by reduced sales in our
U.S. industrial business, which was down relative to strong 2003 project
activity, particularly for transportation and logistics products.
The decrease in segment profit in both the three and six month periods
reflects additional costs, particularly in the first quarter, related to
product launches and a North American sales meeting, which we hold every
five years, as well as the impact of our product transfer initiatives on
this particular segment. These trends are partially offset by the impact of
increased sales volume.
Other Western European Operations (including France, U.K., Italy and
Spain)
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $ 80,119 $ 77,972 3% $ 159,269 $ 147,179 8%
Segment profit.. $ 5,782 $ 7,331 -21% $ 8 ,181 $ 4,041 102%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in U.S. dollar sales to external customers in the three
and six month periods includes increases of 7% and 11% respectively, due to
currency exchange rate fluctuations. These results reflect lower sales of
industrial and packaging products, which were down relative to strong 2003
project activity, particularly for transportation and logistics. These
trends were partially offset by solid results for core laboratory and
retail products, where customer spending patterns continue to improve
relative to weak activity last year.
The decrease in segment profit for the three month period is
principally due to the reduced sales volume. For the six month period, the
impact of lower sales is offset by the restructuring charge of $5.4
million, recorded in the first quarter of 2003.
Principal Central European Operations (including Germany)
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $ 47,623 $ 44,757 6% $ 95,245 $ 85,901 11%
Segment profit.. $ 5,701 $ 5,553 3% $ 10,918 $ 10,235 7%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in U.S. dollar sales to external customers in the three
and six month periods includes increases of 5% and 10% respectively, due to
currency exchange rate fluctuations. These results reflect solid results
for core laboratory and retail products, where customer spending patterns
continue to improve relative to weak activity last year. These trends were
partially offset by lower sales of industrial and packaging products.
The increase in segment profit is principally a result of the sales
trends identified above.
Swiss R&D and Manufacturing Operations
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $ 11,933 $ 12,553 -5% $ 24,252 $ 24,770 -2%
Segment profit.. $ 10,893 $ 8,857 23% $ 20,553 $ 16,634 24%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The decrease in U.S. dollar sales to external customers in the three
and six month periods includes increases of 4% and 6% respectively, due to
currency exchange rate fluctuations. These results reflect a reduction in
sales of electronic components. These trends were partially offset by
increased sales of our core laboratory products.
The increase in segment profit in both periods is principally a result
of the impact of increased sales to other segments of core laboratory
products, in particular laboratory balances.
Asia
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $42,515 $32,990 29% $81,244 $63,485 28%
Segment profit.. $ 9,784 $ 7,013 40% $18,771 $12,208 54%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in U.S. dollar sales to external customers in the three
and six month periods includes increases of 3% and 4% respectively, due to
currency exchange rate fluctuations. These results reflect strong sales
performance throughout the region for most of our product lines, but in
particular for industrial and laboratory products. China was particularly
strong, while Japan remains relatively weak.
The increase in segment profit reflects the leverage of our fixed cost
structure in conjunction with strong sales performance.
Other
Three months ended June 30 Six months ended June 30
2004 2003 % 1) 2004 2003 % 1)
---- ---- ---- ---- ---- ----
Net sales....... $50,662 $45,264 12% $90,546 $83,524 8%
Segment profit.. $ 5,602 $ 1,881 198% $ 6,460 $ 1,755 268%
1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in U.S. dollar sales to external customers in the three
and six month periods includes increases of 2% and 3% respectively due to
currency exchange rate fluctuations. These results reflect strong sales of
our drug discovery products, following a weak first quarter. In addition,
the three and six month periods both reflect modest sales growth in our
Russian and Eastern European markets.
The increase in segment profit reflects the sales growth trends in
regions highlighted above, as well as the benefits of our cost
restructuring initiatives, including those related to drug discovery.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow statistics
Six Months ended Six Months ended Increase
June 30, 2004 June 30, 2003 (decrease)%
---------------- ----------------- -----------
Net cash provided by operating
activities......................... $ 74,923 $ 39,391 90%
Cash flows from investing activities
Acquisitions....................... (991) (1,972) (50)%
Capital expenditures............... $(10,667) $ (10,602) 1%
The increase in net cash provided by operating activities in the six
months ended June 30, 2004 compared to the corresponding period in 2003, is
principally attributable to improved management of operating assets and
liabilities, including working capital, and lower restructuring payments of
$2.7 million in 2004 compared to $8.5 million in 2003.
We continue to explore potential acquisitions. In connection with any
acquisition we may incur additional indebtedness. In addition to the
acquisition costs already incurred, the terms of certain of our
acquisitions in 2003 and earlier years provide for possible additional
earn-out payments. Such earn-out payments, if any, will not be material to
our financial position.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment and the purchase and expansion of
facilities. The increase in capital expenditures during the three months
ended June 30, 2004, as compared to the corresponding period in 2003, is
primarily attributable to investment in our manufacturing facilities in the
U.K. and China. We expect capital expenditures to increase as our business
grows, and to fluctuate as currency exchange rates change.
Net debt
June 30, 2004
Other
principal
trading
U.S. dollar currencies Total
----------- ---------- -----
$150m Senior notes (net of unamortized
discount)................................ $ 149,259 $ - $ 149,259
Credit facility............................ - 23,547 23,547
---------- --------- ---------
Total long-term debt................. 149,259 23,547 172,806
Other local arrangements................... 8,148 10,652 18,800
---------- --------- ---------
Total debt........................... $ 157,407 $ 34,199 191,606
Less: Cash and cash equivalents............ (47,613)
---------
Total net debt....................... $ 143,993
=========
As of June 30, 2004, we had $268.4 million of availability remaining
under our credit facility. Changes in exchange rates between the currencies
in which we generate cash flows 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.
We currently believe that cash flow from operating activities,
together with liquidity available under our credit facility and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements for at
least several years, but there can be no assurance that this will be the
case.
Share repurchase program
On February 5, 2004, we announced a share repurchase program,
commencing with an initial buyback of up to $100 million over the two-year
period ending December 31, 2005.
During the six months ended June 30, 2004 we spent $19.6 million on
the repurchase of 458,400 shares at an average price of $42.67, but had
suspended the program upon commencement of the investigation. Now that the
financial aspects of the investigation are complete, we will re-launch the
program.
INVESTIGATION UPDATE
On August 9, 2004, we announced the completion of the financial
aspects of our previously disclosed investigation. Our Audit Committee and
Board of Directors have concluded that there will be no change to our
financial statements.
The Audit Committee's investigation covered a number of issues,
including the adequacy of our information systems in North America for
tracking operating performance and reporting financial results; the manner
in which certain inventory write-downs were identified and recorded in 2002
and 2003; the manner in which certain reserves were evaluated and recorded;
and the operation of internal controls. Issues that are continuing to be
reviewed do not involve financial statements or financial reporting and
will not have a material impact on the Company's financial statements.
The Audit Committee retained independent outside counsel and forensic
accountants to conduct the investigation. Based on the investigation, the
Audit Committee and the Board have determined that it would be in the best
interests of the Company to make changes in the leadership for the
oversight and control of its financial operations to correct the "tone at
the top" and ensure it is consistent with the Board's commitment to
maintaining strong corporate governance. The Company will enhance the
accounting organization, both by adding personnel to that function and by
increasing training for all members of the organization. Finally, William
P. Donnelly, who was Chief Financial Officer (CFO) from 1997 to mid-2002,
has agreed to return as CFO effective immediately.
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. Accordingly, the Swiss franc exchange rate
to the euro is an important cross-rate monitored by the Company. We
estimate that a 1% 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 can fluctuate due to
changes in exchange rates, particularly between the U.S. dollar and the
Swiss franc. Based on our outstanding debt at June 30, 2004, we estimate
that a 10% weakening of the U.S. dollar against the currencies in which our
debt is denominated, would result in an increase of approximately $3.8
million in the reported U.S. dollar value of the debt.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the interim consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Some of the statements in this quarterly report constitute
"forward-looking statements" within the meaning of Section 27A of the U.S.
Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act
of 1934. These statements relate to future events or our future financial
performance, including, but not limited to, strategic plans, potential
growth opportunities in both developed markets and emerging markets,
planned research and development efforts, product introductions and
innovation, manufacturing capacity, expected customer demand, meeting
customer expectations, planned operational changes and productivity
improvements, research and development expenditures, competitors' product
development, expected capital expenditures, future cash sources and
requirements, liquidity, impact of taxes, expected compliance with laws,
impact of environmental costs, expected cost savings and benefits of
completed or future acquisitions, which involve known and unknown risks,
uncertainties and other factors that may cause our or our businesses'
actual results, levels of activity, performance or achievements to be
materially different from those expressed or implied by any forward-looking
statements.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "could," "would," "should," "expect,"
"plan," "anticipate," "intend," "believe," "estimate," "predict,"
"potential" or "continue" or the negative of those terms or other
comparable terminology. These statements are only predictions. Actual
events or results may differ materially because of market conditions in our
industries or other factors. Moreover, we do not, nor does any other
person, assume responsibility for the accuracy and completeness of those
statements. Unless otherwise required by applicable laws, we disclaim any
intention or obligation to publicly update or revise any of the
forward-looking statements after the date of this quarterly report to
conform them to actual results, whether as a result of new information,
future events, or otherwise. All of the forward-looking statements are
qualified in their entirety by reference to the factors discussed under the
caption "Factors affecting our future operating results" in Exhibit 99.1 to
our Annual Report on Form 10-K for the year ended December 31, 2003, which
describes risks and factors that could cause results to differ materially
from those projected in those forward-looking statements.
We caution the reader that the above list of risks and factors that
may affect results addressed in the forward-looking statements may not be
exhaustive. Other sections of this quarterly report and other documents
incorporated by reference may describe additional risks or factors that
could adversely impact our business and financial performance. We operate
in a continually changing business environment, and new risk factors emerge
from time to time. Management cannot predict these new risk factors, nor
can it assess the impact, if any, of these new risk factors on our
businesses or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those projected in any
forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2004, 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, 2003.
Item 4. CONTROLS AND PROCEDURES
(a) Our management carried out an evaluation of the effectiveness of
our disclosure controls and procedures as of the end of the period covered
by this quarterly report under the supervision and with the participation
of our disclosure committee, our CFO and CEO. Based upon that evaluation,
our CFO and CEO concluded that our disclosure controls and procedures are
effective in permitting us to comply with our disclosure obligations and
ensure that the material information required to be disclosed is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC.
There were no changes in our internal controls over financial
reporting during the quarter ended June 30, 2004 that have materially
affected, or are reasonably likely to materially affect, our controls over
financial reporting.
(b) As of December 31, 2004, Section 404 of the Sarbanes-Oxley Act of
2002 ("the Act") will require the Company to include an internal control
report of management in its Annual Report on Form 10-K. The internal
control report must contain (1) a statement of management's responsibility
for establishing and maintaining adequate internal control over financial
reporting, (2) a statement identifying the framework used by management to
conduct the required evaluation of the effectiveness of internal control
over financial reporting, (3) management's assessment of the effectiveness
of internal control over financial reporting as of the end of its most
recent fiscal year, including a statement as to whether or not internal
control over financial reporting is effective, and (4) a statement that the
Company's independent auditors have issued an attestation report on
management's assessment of internal control over financial reporting.
Management acknowledges its responsibility for internal controls over
financial reporting and seeks to continually improve those controls. In
addition, in order to achieve compliance with Section 404 of the Act within
the prescribed period, the Company has, since 2003, been engaged in a
process to document and evaluate its internal controls over financial
reporting. In this regard, management has dedicated internal resources,
engaged outside consultants and adopted a detailed work plan to (i) assess
and document the adequacy of internal control over financial reporting,
(ii) take steps to improve control processes where appropriate, (iii)
validate through testing that controls are functioning as documented and
(iv) implement a continuous reporting and improvement process for internal
control over financial reporting. The Company believes its process for
documenting, evaluating and monitoring its internal control over financial
reporting is consistent with the objectives of Section 404 of the Act.
During the second quarter of 2004, the Company commenced testing its
internal controls. The Company's documentation and testing to date have
identified certain gaps in the design and effectiveness of internal
controls over financial reporting that the Company is in the process of
remediating. In addition, the company's recent changes in its finance
organization may have short-term consequences to its internal controls as
individuals assume new responsibilities. The Section 404 certification
process requires the Company to complete a number of processes and
procedures before the end of the current year, and there can be no
assurance that it will be able to complete all these required processes and
procedures in the required timeframe. The Company has also brought in
additional resources to aid it in accomplishing these objectives, which
will increase its costs. Given the risks inherent in the design and
operation of internal controls over financial reporting, the Company can
provide no assurance as to its, or its independent auditors, conclusions at
December 31, 2004 with respect to the design and effectiveness of its
internal controls over financial reporting. It should be noted that any
system of controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the system
are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
----------------------------------------------------------------------------------
(a) (b) (c) (d)
Total Number Maximum Number
of Shares (or
Purchased as Approximate Dollar
Part of Value) of
Total Average Publicly Shares that
Number of Price Paid Announced May Yet Be Purchased
Shares per Plans Under the Plans
Period Purchased Share or Programs or Programs
-----------------------------------------------------------------------------------
April 1, to
April 30, 2004 - - - $ 83,409
May 1 to
May 31, 2004 67,100 $ 44.40 67,100 $ 80,428
June 1 to
June 30, 2004 - - - $ 80,428
Total 67,100 $ 44.40 67,100 $ 80,428
The Company has only one share repurchase program. Under this program,
announced on February 5, 2004, the Company is authorized to buy back up to
$100 million of equity shares over the two-year period ending December 31,
2005.
During the six months ended June 30, 2004 the Company spent $19.6
million on the repurchase of 458,400 shares at an average price of $42.67,
but had suspended the program upon commencement of the investigation. Now
that the financial aspects of the investigation are complete, the Company
will re-launch the program.
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Mettler-Toledo International Inc. annual meeting of stockholders
was held on May 6, 2004. At the meeting, the following matters were
submitted to a vote of stockholders: the election of directors, the
ratification of the appointment of the company's independent auditors, and
the approval of the 2004 Equity Incentive Plan.
As of March 8, 2004, the record date for the annual meeting, there
were 44,497,811 shares of common stock entitled to vote at the meeting. The
holders of 40,857,737 shares were represented in person or in proxy at the
meeting, constituting a quorum. The vote with respect to the matters
submitted to stockholders was as follows:
Withheld
Matter For or Against Abstained
- ------ --- ---------- ---------
Election of Directors
Robert F. Spoerry 39,887,647 970,090
Philip Caldwell 40,194,296 663,441
John T. Dickson 39,705,425 1,152,312
Philip H. Geier 39,710,617 1,147,120
John D. Macomber 40,122,759 734,978
Hans Ulrich Maerki 40,614,944 242,793
George M. Milne 40,622,609 235,128
Thomas P. Salice 38,437,282 2,420,455
Appointment of Independent Auditors 39,168,325 1,554,128 135,284
Approval of 2004 Equity Incentive Plan 30,087,734 6,484,933 165,295
Item 5. OTHER INFORMATION. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31.1 Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes - Oxley Act
of 2002
31.2 Certification of the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes - Oxley Act
of 2002
32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).
(b) Reports on Form 8-K
Date Furnished or Filed Item Reported
----------------------- -------------
July 22, 2004 Press release announcing second
quarter 2004 sales and net debt
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: August 9, 2004 By: /s/ William P. Donnelly
--------------------
William P. Donnelly
Chief Financial Officer