SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2001, OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
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Commission File Number 1-13595
Mettler-Toledo International Inc.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3668641
------------------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
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(Address of principal executive offices) (Zip Code)
41-1-944-22-11
-----------------------------
(Registrant's telephone number, including area code)
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 40,157,813 shares of Common Stock outstanding at
September 30, 2001.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of September 30, 2001 3
and December 31, 2000
Interim Consolidated Statements of Operations for the nine 4
months ended September 30, 2001 and 2000
Interim Consolidated Statements of Operations for the three 5
months ended September 30, 2001 and 2000
Interim Consolidated Statements of Shareholders' Equity 6
for the nine months ended September 30, 2001 and 2000
Interim Consolidated Statements of Cash Flows for the nine 7
months ended September 30, 2001 and 2000
Notes to the Interim Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Security 20
Item 3. Default 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
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2001 and December 31, 2000
(In thousands, except per share data)
September 30, December 31,
2001 2000
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $24,708 $21,725
Trade accounts receivable, net 218,550 212,570
Inventories, net 144,799 141,677
Other current assets and prepaid expenses 43,753 47,367
---------- ----------
Total current assets 431,810 423,339
Property, plant and equipment, net 193,270 199,388
Excess of cost over net assets acquired, net 235,255 228,035
Other assets 43,575 36,820
---------- ----------
Total assets $903,910 $887,582
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $59,142 $80,513
Accrued and other liabilities 112,021 97,575
Accrued compensation and related items 46,744 51,968
Taxes payable 77,569 68,537
Short-term borrowings and current
maturities of long-term debt 49,974 50,560
---------- ----------
Total current liabilities 345,450 349,153
Long-term debt 201,094 237,807
Non-current deferred taxes 24,750 25,939
Other non-current liabilities 100,474 95,843
---------- ----------
Total liabilities 671,768 708,742
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 40,157,813 shares at
September 30, 2001 and 39,372,873 shares
at December 31, 2000 401 393
Additional paid-in capital 304,301 294,558
Accumulated deficit (26,743) (68,307)
Accumulated other comprehensive loss (45,817) (47,804)
---------- ----------
Total shareholders' equity 232,142 178,840
Commitments and contingencies ---------- ----------
Total liabilities and shareholders' equity $903,910 $887,582
========== ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended September 30, 2001 and 2000
(In thousands, except per share data)
September 30 September 30
2001 2000
---- ----
(unaudited) (unaudited)
Net sales $829,741 $797,677
Cost of sales 453,558 443,166
---------- -----------
Gross profit 376,183 354,511
Research and development 46,480 41,375
Selling, general and administrative 220,097 216,698
Amortization 9,706 8,403
Interest expense 13,402 15,212
Other charges, net 15,294 847
---------- -----------
Earnings before taxes and minority interest 71,204 71,976
Provision for taxes 29,640 25,195
Minority interest - (38)
---------- -----------
Net earnings $41,564 $46,819
========== ===========
Basic earnings per common share:
Net earnings $1.04 $1.21
Weighted average number of common shares 39,995,729 38,739,547
Diluted earnings per common share:
Net earnings $0.98 $1.11
Weighted average number of common shares 42,491,493 42,032,434
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 2001 and 2000
(In thousands, except per share data)
September 30 September 30
2001 2000
---- ----
(unaudited) (unaudited)
Net sales $285,064 $270,003
Cost of sales 154,040 149,319
---------- ----------
Gross profit 131,024 120,684
Research and development 16,170 14,093
Selling, general and administrative 75,973 72,460
Amortization 3,469 2,785
Interest expense 4,056 4,813
Other charges (income), net (4) 220
---------- ----------
Earnings before taxes and minority interest 31,360 26,313
Provision for taxes 10,976 9,216
Minority interest - (37)
---------- ----------
Net earnings $20,384 $17,134
========== ==========
Basic earnings per common share:
Net earnings $0.51 $0.44
Weighted average number of common shares 40,157,813 38,753,185
Diluted earnings per common share:
Net earnings $0.48 $0.41
Weighted average number of common shares 42,463,944 42,198,943
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 2001 and 2000
(In thousands, except per share data)
(unaudited)
Accumulated
Common Stock Additional Other
All Classes Paid-in Accumulated Comprehensive
--------------------------------
Shares Amount Capital Deficit Loss Total
------ ------ ------- ------- ---- -----
Balance at December 31, 2000 39,372,873 $393 $294,558 $(68,307) $(47,804) $178,840
Exercise of stock options 784,940 8 9,743 9,751
Comprehensive income:
Net earnings 41,564 41,564
Fair value of cash-flow
hedging instruments (3,094) (3,094)
Change in currency
translation adjustment 5,081 5,081
----------
Comprehensive income 43,551
------------ ---------- ----------- ----------- ------------ ----------
Balance at September 30, 2001 40,157,813 $401 $304,301 $(26,743) $(45,817) $232,142
============ ========== =========== =========== ============ ==========
Balance at December 31, 1999 38,674,768 $386 $288,092 $(138,426) $(38,037) $112,015
Exercise of stock options 78,417 1 853 - - 854
Comprehensive income:
Net earnings - - - 46,819 - 46,819
Change in currency
translation adjustment - - - - (14,102) (14,102)
----------
Comprehensive income 32,717
------------ ---------- ----------- ----------- ------------ ----------
Balance at September 30, 2000 38,753,185 $387 $288,945 $(91,607) $(52,139) $145,586
============ ========== =========== =========== ============ ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2001 and 2000
(In thousands)
September 30, September 30,
2001 2000
------------- -------------
(unaudited) (unaudited)
Cash flow from operating activities:
Net earnings $41,564 $46,819
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 16,898 16,011
Amortization 9,706 8,403
Other (575) (197)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net (8,393) (10,060)
Inventories (3,876) (13,193)
Other current assets (4,762) (4,417)
Trade accounts payable (21,680) (19,152)
Accruals and other liabilities, net (a) 28,096 13,623
---------- ----------
Net cash provided by operating activities 56,978 37,837
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 2,856 635
Purchase of property, plant and equipment (21,761) (18,317)
Acquisitions, net of seller financing (b) (7,856) (18,170)
---------- ----------
Net cash used in investing activities (26,761) (35,852)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 53,072 46,203
Repayments of borrowings (89,173) (50,111)
Proceeds from issuance of common stock 9,751 854
---------- ----------
Net cash used in financing activities (26,350) (3,054)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (884) (427)
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,983 (1,496)
Cash and cash equivalents:
Beginning of period $21,725 $17,179
---------- ----------
End of period $24,708 $15,683
========== ==========
(a) Accruals and other liabilities include payments for restructuring
and certain acquisition integration activities of $8.4 million in
2001 and $4.5 million in 2000.
(b) Amounts paid for acquisitions including seller financing and
assumed debt retained by sellers were $15.4 million in 2001.
The accompanying notes are an integral part of these interim
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands unless otherwise stated)
1. BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler Toledo" or the
"Company") is a global manufacturer and marketer of precision instruments,
including weighing and certain analytical and measurement technologies, for
use in laboratory, industrial and food retailing applications. The Company
is also a leading provider of automated chemistry solutions used in drug
and chemical compound discovery and development. The Company's primary
manufacturing facilities are located in Switzerland, the United States,
Germany, the United Kingdom, France and China. The Company's principal
executive offices are located in Greifensee, Switzerland.
The accompanying interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
in the United States of America ("U.S. GAAP"). The interim consolidated
financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The interim consolidated financial statements as of September
30, 2001 and for the nine and three month periods ended September 30, 2001
and 2000 should be read in conjunction with the December 31, 2000 and 1999
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The accompanying interim consolidated financial statements reflect
all adjustments (consisting of only normal recurring adjustments) which, in
the opinion of management, are necessary for a fair statement of the
results of the interim periods presented. Operating results for the nine
and three month periods ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2001.
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, as well as disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results may
differ from those estimates.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using either the first in, first out (FIFO) or weighted average
cost methods and to a lesser extent the last in, first out (LIFO) method.
Inventories consisted of the following at September 30, 2001 and
December 31, 2000:
September 30, December 31,
2001 2000
------------- -------------
Raw materials and parts $70,650 $67,379
Work in progress 31,067 37,289
Finished goods 44,300 38,148
------------- -------------
146,017 142,816
LIFO reserve (1,219) (1,139)
------------- -------------
$144,798 $141,677
============= =============
EARNINGS PER COMMON SHARE
As described in Note 10 in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, in accordance with the treasury
stock method, the Company has included the following equivalent shares
relating to 4,329,372 outstanding options to purchase shares of common
stock in the calculation of diluted weighted average number of common
shares for the nine and three month periods ended September 30, 2001 and
2000, respectively.
September 30, September 30,
2001 2000
---------------- ----------------
Nine months ended 2,495,764 3,292,887
Three months ended 2,306,131 3,445,758
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(In thousands unless otherwise stated)
3. FINANCIAL INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities", as
amended, on January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognizes all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value.
As discussed more fully in Note 5 of the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, the Company reduces its
exposure to changes in interest rates through the use of interest rate swap
and cap agreements. The fair value of outstanding interest rate swap and
cap agreements that are effective cash flow hedges at September 30, 2001 is
included in the Company's Consolidated Statement of Shareholders' Equity.
The cumulative effect of adopting SFAS 133 as of January 1, 2001 was not
material to the Company's consolidated financial statements.
4. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of foreign currency
transactions, interest income, and charges related to the Company's
cost-reduction programs.
As part of its efforts to reduce costs, the Company recorded a
charge of $15.2 million ($14.6 million after tax) during the nine months
ended September 30, 2001, associated primarily with headcount reductions
and manufacturing transfers. The charge comprised severance, write-downs of
impaired assets to be disposed and other exit costs. The Company expects to
involuntarily terminate approximately 350 employees and to substantially
complete the manufacturing transfers by the end of 2001.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(In thousands unless otherwise stated)
4. OTHER CHARGES (INCOME), NET (Continued)
A roll-forward of the Company's accrual for restructuring
activities follows:
For the nine months ended Employee Asset Lease
September 30, 2001 related write-downs termination Other Total
- ------------------ ------- ----------- ----------- ----- -----
(a) (b) (c) (d)
Beginning of period $ 2,141 $ - $ 779 $ 60 $ 2,980
Restructuring expense 8,848 4,721 464 1,163 15,196
Cash payments (5,468) - (132) (548) (6,148)
Increase in retirement benefit obligation (2,114) - - - (2,114)
Non-cash write-downs of impaired assets - (4,721) - - (4,721)
Impact of foreign currency (16) - - - (16)
---------- ---------- -------- ------ --------
End of period $ 3,391 $ - $ 1,111 $ 675 $ 5,177
========== ========== ======== ====== ========
(a) Employee related costs include severance and early retirement costs
for 350 employees, of which 201 had been terminated as of September
30, 2001. These employees include positions primarily in
manufacturing, as well as administrative and other personnel,
primarily at the Company's Principal U.S. Operations. The remaining
employee terminations and related cash outflows are expected to be
substantially complete by the end of 2001.
The increase in the Company's retirement benefit obligation represents
enhanced early retirement benefits provided to terminated employees.
(b) The asset impairments primarily relate to plant and equipment, and
production component disposals resulting from the exit of certain
manufacturing facilities. Fair value of these assets was determined on
the basis of their net realizable value on disposal. Substantially all
of the impaired assets were physically disposed as of September 30,
2001.
(c) Lease termination costs primarily relate to the early termination of
leases on vacated property.
(d) 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)
5. SEGMENT REPORTING
The Company has five reportable segments: Principal U.S.
Operations, Principal Central European Operations, Swiss R&D and
Manufacturing Operations, Other Western European Operations and Other. The
following tables show the operations of the Company's operating segments
for the nine month period ended September 30:
Principal Central Swiss R&D Other Western Eliminations
Principal U.S. European and Mfg. European and
September 30, 2001 Operations Operations Operations Operations Other (a) Corporate(b) Total
------------------ ---------- ---------- ---------- ---------- --------- ------------ -----
Net sales to external customers... $266,446 $137,292 $ 19,126 $191,424 $215,454 $ - $829,742
Net sales to other segments....... 23,008 42,487 106,837 32,501 108,994 (313,827) -
-------- -------- -------- -------- -------- -------- --------
Total net sales................... $289,454 $179,779 $125,963 $223,925 $324,448 $(313,827) $829,742
======== ======== ======== ======== ======== ======== ========
Adjusted operating income......... $ 17,490 $ 20,742 $ 26,763 $ 16,285 $ 31,311 $ (2,986) $109,605
Principal Central Swiss R&D Other Western Eliminations
Principal U.S. European and Mfg. European and
September 30, 2000 Operations Operations Operations Operations Other (a) Corporate(b) Total
------------------ ---------- ---------- ---------- ---------- --------- ------------ -----
Net sales to external customers... $271,219 $131,256 $ 20,787 $185,506 $188,909 $ - $797,677
Net sales to other segments....... 30,638 37,840 104,460 30,722 86,719 (290,379) -
-------- -------- -------- -------- -------- ---------- --------
Total net sales................... $301,857 $169,096 $125,247 $216,228 $275,628 $(290,379) $797,677
======== ======== ======== ======== ======== ========== ========
Adjusted operating income......... $ 31,412 $ 14,816 $ 25,636 $ 12,184 $ 18,695 $ (6,305) $ 96,438
(a) Other includes reporting units in Asia, Eastern Europe, Latin
America and segments from other countries that do not meet the
aggregation criteria of SFAS 131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions as well as certain corporate expenses, intercompany
investments and certain goodwill, which are not included in the
Company's operating segments.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(In thousands unless otherwise stated)
5. SEGMENT REPORTING (Continued)
A reconciliation of adjusted operating income to earnings before
taxes and minority interest for the nine month period ended September 30
follows:
September 30, September 30,
2001 2000
------------ ------------
Adjusted operating income.................... $109,606 $96,438
Amortization................................. 9,706 8,403
Interest expense............................. 13,402 15,212
Other charges, net........................... 15,294 (a) 847
--------- --------
Earnings before taxes and minority interest.. $ 71,204 $71,976
========= ========
(a) Includes a charge of $15.2 million, which comprises severance, asset
write-downs and other costs, primarily related to headcount reductions
and manufacturing transfers.
6. SUBSEQUENT EVENTS
In October 2001, the Company announced that it had entered into a
definitive agreement with Rainin Instrument Company Inc., a Massachusetts
corporation, and Mr Kenneth Rainin, to acquire all of the issued and
outstanding membership units of Rainin Instrument, LLC, a Delaware limited
liability company for a cash purchase price of $147,892,038 plus 3,388,132
shares of the Company's common stock, plus an additional contingent
payment, if any, of up to $60,000,000. Up to half of any additional
contingent payment may be paid in shares of the Company's common stock and
the remainder will be paid in cash. The acquisition is subject to certain
customary closing conditions including receipt of antitrust and other
regulatory approvals.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with the Unaudited
Interim Consolidated Financial Statements included herein.
GENERAL
Our interim consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States of America on a basis which reflects the interim consolidated
financial statements of Mettler-Toledo International Inc. Operating results
for the nine and three months ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2001.
RESULTS OF OPERATIONS
Net sales were $829.7 million and $285.1 million for the nine and
three month periods ended September 30, 2001 compared to $797.7 million and
$270.0 million for the corresponding periods in the prior year. This
represents increases of 7% in local currencies for both the nine and three
month periods. Results were negatively impacted by the strengthening of the
U.S. dollar against other currencies. Net sales in U.S. dollars during the
nine and three month periods increased 4% and 6%, respectively.
Net sales by geographic customer location were as follows: Net
sales in Europe increased 10% in local currencies during both the nine and
three month periods ended September 30, 2001 versus the corresponding
periods in the prior year, principally due to strong results in our retail
product lines related to the upcoming introduction of the euro currency.
Net sales in local currencies during the nine and three month periods in
the Americas increased 2% and 1% respectively as compared to the
corresponding periods in 2000. Net sales in local currencies during the
nine-month period in Asia and other markets increased 17%, while net sales
in local currencies in the three-month period increased 22%, compared to
the same periods in the prior year. The results of our business in Asia and
other markets during the three-month period ending September 30, 2001
reflect strong performance in China and Japan, offset primarily by results
in other markets.
Net sales growth in the Americas was lower than Europe and Asia
and other markets primarily due to a deterioration in economic conditions.
To the extent that economic conditions significantly deteriorate in the
Americas or other parts of the world, our sales growth and profitability
may be adversely affected.
Net sales in 2001 benefited from acquisitions. The operating
results of acquisitions would have had the effect of increasing our net
sales by an additional $9.6 million and $3.4 million for the nine and three
month periods respectively, in 2000 representing approximately 1% of 2001
sales for each period.
Gross profit as a percentage of net sales was 45.3% and 46.0% for
the nine and three month periods ended September 30, 2001, compared to
44.4% and 44.7% for the comparable periods in the prior year. This increase
is primarily related to changes in our sales mix, as well as benefits from
various cost saving initiatives.
Research and development expenses as a percentage of net sales
were 5.6% and 5.7% respectively for the nine and three month periods ended
September 30, 2001, compared to 5.2% for the corresponding periods in the
prior year.
Selling, general and administrative expenses as a percentage of
net sales decreased to 26.5% and 26.7% for the nine and three months ended
September 30, 2001, compared to 27.2% and 26.8% for the corresponding
periods in the prior year in part due to the lower distribution costs
associated with the changes in our sales mix.
Adjusted Operating Income (gross profit less research and
development and selling, general and administrative expenses before
amortization, other charges, net and non-recurring costs) increased 14% to
$109.6 million, or 13.2% of net sales, for the nine months ended September
30, 2001, compared to $96.4 million, or 12.1% of net sales, for the
corresponding period in the prior year. Adjusted Operating Income was $38.9
million, or 13.6% of net sales, for the three months ended September 30,
2001, compared to $34.1 million, or 12.6% of net sales, for the
corresponding period in the prior year. The increased operating margin
reflects the benefits of higher sales levels and our continuous efforts to
improve productivity. We believe that Adjusted Operating Income provides
important financial information in measuring and comparing our operating
performance. Adjusted Operating Income is not intended to represent
operating income under U.S. GAAP and should not be considered as an
alternative to net earnings as an indicator of our performance.
Interest expense decreased to $13.4 million and $4.1 million for
the nine and three month periods ended September 30, 2001, compared to
$15.2 million and $4.8 million for the corresponding periods in the prior
year. The decrease was principally due to reduced debt levels.
Other charges, net of $15.3 million and $0.0 million for the nine
and three months ended September 30, 2001 compared to other charges, net of
$0.8 million and $0.2 million for the corresponding periods in the prior
year. The 2001 nine month amount includes a charge of $15.2 million ($14.6
million after tax) primarily associated with headcount reductions and
manufacturing transfers.
The provision for taxes is based upon our projected annual
effective tax rate for the related period. Our effective tax rate for the
nine and three month periods ended September 30, 2001 was approximately
35%.
Net earnings were $56.2 million and $20.4 million for the nine and
three month periods ended September 30, 2001, before the previously
mentioned charge associated with headcount reductions and manufacturing
transfers, compared to net earnings of $46.8 million and $17.1 million
during the comparable periods in 2000.
ACQUISITIONS
In October 2001, we announced that we had entered into a
definitive agreement with Rainin Instrument Company Inc., a Massachusetts
corporation, and Mr Kenneth Rainin, to acquire all of the issued and
outstanding membership units of Rainin Instrument, LLC, a Delaware limited
liability company for a cash purchase price of $147,892,038 plus 3,388,132
shares of the Company's common stock, plus an additional contingent
payment, if any, of up to $60,000,000. Up to half of any additional
contingent payment may be paid in shares of the Company's common stock and
the remainder will be paid in cash. The acquisition is subject to certain
customary closing conditions including receipt of antitrust and other
regulatory approvals.
Since the time of its buy-out in 1996, the Company has recorded
charges in 1996, 1997 and 1998 for purchased research and development for
products that were being developed that had not established technological
feasibility as of the date of the acquisition and, if unsuccessful, had no
alternative future use in research and development activities or otherwise.
These research and development projects related to several projects at the
Company at the time of its buy-out, Safeline metal detection projects and
Bohdan Automation. These purchased research and development projects have
been completed, and there have been no material differences between actual
and projected results. Assumptions taken at the time of these acquisitions
continue to appear reasonable based upon actual results, and in no cases
have there been significant shortfalls to the Company's original
projections.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, our consolidated debt, net of cash, was
$226.4 million. We had borrowings of $226.7 million under our credit
agreement and $24.3 million under various other arrangements as of
September 30, 2001. Of our credit agreement borrowings, approximately
$103.8 million was borrowed as term loans scheduled to mature in 2004 and
$122.9 million was borrowed under our multi-currency revolving credit
facility. At September 30, 2001, we had $277.9 million of availability
remaining under our revolving credit facility.
At September 30, 2001, approximately $163.0 million of the
borrowings under the credit agreement and local working capital facilities
were denominated in U.S. dollars. The balance of the borrowings under the
credit agreement and local working capital facilities were denominated in
certain of our other principal trading currencies amounting to
approximately $88.0 million at September 30, 2001. 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 certain financial covenants.
Cash provided by operating activities totaled $57.0 million for
the nine months ended September 30, 2001. In the nine months ended
September 30, 2000, cash provided by operating activities totaled $37.8
million.
We currently believe that cash flow from operating activities,
together with borrowings available under the credit agreement and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements as well
as debt service requirements for at least the next several years, but there
can be no assurance that this will be the case.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
Because we conduct operations in many countries, our operating
income can be significantly affected by fluctuations in currency exchange
rates. Swiss franc-denominated expenses represent a much greater percentage
of our operating expenses than Swiss franc-denominated sales represent of
our net sales. In part, this is because most of our manufacturing costs in
Switzerland relate to products that are sold outside of Switzerland.
Moreover, a substantial percentage of our research and development expenses
and general and administrative expenses are incurred in Switzerland.
Therefore, if the Swiss franc strengthens against all or most of our major
trading currencies (e.g., the U.S. dollar, the euro, other major European
currencies and the Japanese yen), our operating profit is reduced. We also
have significantly more sales in European currencies (other than the Swiss
franc) than we have expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also
decreases our operating profits. In recent years, the Swiss franc and other
European currencies have generally moved in a consistent manner versus the
U.S. dollar. Therefore, because the two effects previously described have
offset each other, our operating profits have not been materially affected
by movements in the U.S. dollar exchange rate versus European currencies.
However, there can be no assurance that these currencies will continue to
move in a consistent manner in the future. We estimate that a one per cent
strengthening of the Swiss franc against the euro from the exchange rate as
at September 30, 2001 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.
EUROPEAN ECONOMIC AND MONETARY UNION
We have recognized the introduction of the euro as a significant
event with potential implications for existing operations. Currently, we
operate in all of the participating countries in the European Monetary
Union (the "EMU"). We expect nonparticipating European Union countries,
where we also have operations, may eventually join the EMU.
We have committed resources to ensure we are prepared for the
introduction of the euro. We were euro compliant within our accounting and
business systems by the end of 1999 and expect to be compliant within our
other business assets prior to the introduction of the euro bills and
coins. Compliance in participating and nonparticipating countries will be
achieved primarily through upgraded systems, which were previously planned
to be upgraded. We do not currently expect to experience any significant
operational disruptions or to incur any significant costs, including any
currency risk, which could materially affect our liquidity or capital
resources.
We are reviewing our pricing strategy throughout Europe due to the
increased price transparency created by the euro. We do not believe that
the effect of these adjustments will be material.
The statements set forth herein concerning the introduction of the
euro which are not historical facts are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. In particular, the
costs associated with our euro programs and the timeframe in which we plan
to complete euro modifications are based upon management's best estimates.
These estimates were derived from internal assessments and assumptions of
future events. There can be no guarantee that any estimates or other
forward-looking statements will be achieved, and actual results could
differ significantly from those contemplated.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets." SFAS 141 prospectively prohibits the pooling of
interest method of accounting for business combinations initiated after
June 30, 2001 and also provides new criteria for recognizing acquired
intangible assets separately from goodwill. SFAS 142, effective for fiscal
years beginning after December 15, 2001, requires that goodwill no longer
be amortized to earnings, but instead be reviewed for impairment under SFAS
142 upon initial adoption of the Statement and on an annual basis going
forward. In addition, any goodwill resulting from acquisitions completed
after June 30, 2001 will not be amortized. We have not yet fully assessed
the impact of adopting these Statements on our consolidated financial
statements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q includes forward-looking
statements based on our current expectations and projections about future
events, including: strategic plans; potential growth, including penetration
of developed markets and opportunities in emerging markets; planned product
introductions; planned operational changes and research and development
efforts; euro-conversion issues; future financial performance, including
expected capital expenditures; research and development expenditures;
estimated proceeds from and the timing of asset sales; potential
acquisitions; future cash sources and requirements; and potential cost
savings from restructuring programs.
These forward-looking statements are subject to a number of risks
and uncertainties, certain of which are beyond our control, which could
cause our actual results to differ materially from historical results or
those anticipated. Certain of these risks and uncertainties have been
identified in Exhibit 99.1 to our Annual Report on Form 10-K for the year
ended December 31, 2000. The words "believe," "expect," "anticipate" and
similar expressions identify forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. New
risk factors emerge from time to time and it is not possible for us to
predict all such risk factors, nor can we assess the impact of all such
risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2001, 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, 2000.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable
Item 2. Changes in Security. Not applicable
Item 3. Defaults Upon Senior Securities. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable
Item 5. Other information. Not applicable
Item 6. Exhibits and Reports on Form 8-K. Not applicable
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Mettler-Toledo International Inc.
Date: November 14, 2001 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President and
Chief Financial Officer