SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002,
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
________________
Commission File Number 1-13595
Mettler-Toledo International Inc.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3668641
----------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
- ------------------------------------------ ----------------------
(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 44,173,850 shares of Common Stock outstanding at March
31, 2002.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of March 31, 2002 3
and December 31, 2001
Interim Consolidated Statements of Operations for the three 4
months ended March 31, 2002 and 2001
Interim Consolidated Statements of Shareholders' Equity 5
for the three months ended March 31, 2002 and 2001
Interim Consolidated Statements of Cash Flows for the three 6
months ended March 31, 2002 and 2001
Notes to the Interim Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 14
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITY 18
ITEM 3. DEFAULT UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
Signature 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2002 2001
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 23,461 $ 27,721
Trade accounts receivable, net 221,090 227,295
Inventories, net 141,246 145,621
Other current assets and prepaid expenses 38,016 31,121
------------ -------------
Total current assets 423,813 431,758
Property, plant and equipment, net 190,352 192,272
Excess of cost over net assets acquired, net 401,895 384,947
Other intangible assets 131,980 126,524
Other assets 55,607 53,911
------------ -------------
Total assets $1,203,647 $1,189,412
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 54,384 $ 66,327
Accrued and other liabilities 122,442 111,284
Accrued compensation and related items 33,487 47,702
Taxes payable 75,581 72,035
Short-term borrowings and current maturities of long-term debt 50,256 50,239
------------ -------------
Total current liabilities 336,150 347,587
Long-term debt 318,353 309,479
Non-current deferred taxes 23,937 25,053
Other non-current liabilities 117,984 119,109
------------ -------------
Total liabilities 796,424 801,228
Shareholders' equity:
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares - -
Common stock, $0.01 par value per share; authorized 125,000,000 shares;
issued 44,173,850 and 44,145,742 shares at March 31, 2002 and
December 31, 2001 441 441
Additional paid-in capital 456,557 455,684
Retained earnings 22,631 3,957
Accumulated other comprehensive loss (72,406) (71,898)
------------ -------------
Total shareholders' equity 407,223 388,184
Commitments and contingencies - -
------------ -------------
Total liabilities and shareholders' equity $1,203,647 $1,189,412
============ =============
The accompanying notes are an integral part of these interim consolidated financial statements.
-3-
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31 MARCH 31
2002 2001
----------- -----------
(UNAUDITED) (UNAUDITED)
Net sales $ 272,957 $ 265,644
Cost of sales 147,820 147,334
----------- -----------
Gross profit 125,137 118,310
Research and development 16,757 14,807
Selling, general and administrative 75,824 73,196
Amortization 1,774 3,212
Interest expense 4,391 4,783
Other (income) charges, net (286) 7
----------- -----------
Earnings before taxes 26,677 22,305
Provision for taxes 8,003 7,807
----------- -----------
Net earnings $ 18,674 $ 14,498
=========== ===========
Basic earnings per common share:
Net earnings $0.42 $0.37
Weighted average number of common shares 44,173,850 39,716,936
Diluted earnings per common share:
Net earnings $0.41 $0.34
Weighted average number of common shares 45,517,058 42,539,345
The accompanying notes are an integral part of these interim consolidated financial statements.
-4-
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS/ OTHER
------------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT LOSS TOTAL
------ ------ ------- ------- ---- -----
Balance at December 31, 2001 44,145,742 $441 $455,684 $ 3,957 $(71,898) $388,184
Exercise of stock options 28,108 - 873 - - 873
Comprehensive income:
Net earnings - - - 18,674 - 18,674
Unrealized gain on cash-flow
hedging instruments - - - - 353 353
Change in currency
translation adjustment - - - - (861) (861)
---------
Comprehensive income 18,166
------------ --------- ----------- ------------- ----------- ---------
Balance at March 31, 2002 44,173,850 $441 $456,557 $ 22,631 $(72,406) $407,223
============ ========= =========== ============= =========== =========
Balance at December 31, 2000 39,372,873 $393 $294,558 $(68,307) $(47,804) $178,840
Exercise of stock options 344,063 3 4,904 - - 4,907
Comprehensive income:
Net earnings - - - 14,498 - 14,498
Unrealized loss on cash-flow
hedging instruments - - - - (2,268) (2,268)
Change in currency
translation adjustment - - - - (3,105) (3,105)
---------
Comprehensive income 9,125
------------ --------- ----------- ------------- ----------- ---------
Balance at March 31, 2001 39,716,936 $396 $299,462 $(53,809) $(53,177) $192,872
============ ========= =========== ============= =========== =========
The accompanying notes are an integral part of these interim consolidated financial statements.
-5-
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS)
MARCH 31, MARCH 31,
2002 2001
---------- ----------
(UNAUDITED) (UNAUDITED)
Cash flow from operating activities:
Net earnings $ 18,674 $ 14,498
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 5,967 5,646
Amortization 1,774 3,212
Other (59) (826)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 3,960 343
Inventories 4,134 (6,557)
Other current assets (2,631) (3,978)
Trade accounts payable (13,117) (12,351)
Accruals and other liabilities, net(a) (7,088) 2,197
---------- ----------
Net cash provided by operating activities 11,614 2,184
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 38 1,711
Purchase of property, plant and equipment (9,333) (6,086)
Acquisitions (16,483) (934)
---------- ----------
Net cash used in investing activities (25,778) (5,309)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 31,274 29,618
Repayments of borrowings (21,595) (29,500)
Proceeds from issuance of common stock 873 4,907
---------- ----------
Net cash provided by financing activities 10,552 5,025
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (648) (640)
---------- ----------
Net increase (decrease) in cash and cash equivalents (4,260) 1,260
Cash and cash equivalents:
Beginning of period $ 27,721 $ 21,725
---------- ----------
End of period $ 23,461 $ 22,985
========== ==========
(a) Accruals and other liabilities include payments for restructuring and certain acquisition integration
activities of $2.0 million in 2002 and $2.9 million in 2001.
The accompanying notes are an integral part of these interim consolidated financial statements.
-6-
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 March 31, 2002 and for the three
month periods ended March 31, 2002 and 2001 should be read in conjunction
with the December 31, 2001 and 2000 consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
The accompanying interim consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary for a fair statement of the results of
the interim periods presented. Operating results for the three months ended
March 31, 2002 are not necessarily indicative of the results to be expected
for the full year ending December 31, 2002.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results may differ from
those estimates.
-7-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using the first in, first out (FIFO) method.
Inventories consisted of the following at March 31, 2002 and December
31, 2001:
March 31, December 31,
2002 2001
--------------- ---------------
Raw materials and parts $ 72,416 $ 70,392
Work in progress 30,220 28,433
Finished goods 38,610 46,796
--------------- ---------------
$ 141,246 $ 145,621
=============== ===============
OTHER INTANGIBLE ASSETS
The components of other intangible assets are as follows:
March 31, December 31,
2002 2001
--------------- ---------------
Customer relationships $ 70,955 $ 67,383
Tradename 23,327 22,434
Intellectual property license 19,905 19,905
Proven technology and patents 19,138 17,352
--------------- ---------------
$ 133,325 $ 127,074
Less accumulated amortization (1,345) (550)
--------------- ---------------
Total other intangible assets, net $ 131,980 $ 126,524
=============== ===============
Other intangible assets substantially relate to the acquisition of
Rainin Instrument, LLC. The annual aggregate amortization expense based on
the current balance of other intangible assets for the next five years is
estimated at $3.4 million.
-8-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
As described in Note 10 in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001, in accordance with the treasury stock
method, the Company has included the following equivalent shares relating
to 4,442,425 outstanding options to purchase shares of common stock in the
calculation of diluted weighted average number of common shares for the
three month periods ended March 31, 2002 and 2001, respectively.
March 31, March 31,
2002 2001
---------------- ----------------
Three months ended 1,343,208 2,822,409
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations" which eliminates the pooling of interests method of
accounting for all business combinations initiated after June 30, 2001, and
also provides new criteria for recognizing acquired intangible assets
separately from goodwill. The Company has adopted this Standard for
business combinations initiated after June 30, 2001.
As of January 1, 2002 the Company has adopted Statements of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. This
Statement requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment upon initial adoption of the Statement
and on an annual basis going forward. In addition, any goodwill arising
from acquisitions completed after June 30, 2001 is not amortized. Other
intangible assets will continue to be amortized over their useful lives.
Application of the non-amortization provisions of the Statement will
increase our net earnings by $6.5 million and our diluted earnings per
share by $0.15 on an annual basis, or $0.14 adjusting for additional shares
issued in connection with our acquisition of Rainin Instrument LLC. A
reconciliation of reported net earnings to adjusted net earnings before
amortization of goodwill is as follows:
-9-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Three months ended March 31: 2002 2001
---- ----
Net earnings:
Reported......................... $ 18,674 $ 14,498
Goodwill amortization............ - 1,607
-------- --------
Adjusted......................... $ 18,674 $ 16,105
======== ========
Diluted earnings per share:
Reported......................... $0.41 $0.34
Goodwill amortization............ - 0.03
----- -----
Adjusted......................... $0.41 $0.37
===== =====
SFAS 142 requires that goodwill be subject to annual impairment tests
using a two-step process. The first step is to identify a potential
impairment, and the second step measures the amount of impairment if any.
The Company has completed its impairment review under SFAS 142 and has
determined that there is no impact on the Company's financial position and
results of operations.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 ("SFAS 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets", which
addresses financial accounting and reporting for the impairment or disposal
of long-lived assets and supersedes Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a disposal of a segment of a business. SFAS 144
is effective for fiscal years beginning after December 15, 2001. The
Company adopted SFAS 144 as of January 1, 2002. Such adoption had no impact
on the Company's financial position or results of operations.
-10-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
3. BUSINESS COMBINATIONS
During the three months ended March 31, 2002, the Company spent
approximately $16.5 million on acquisitions, including the acquisition of
SofTechnics Inc. and additional consideration related to earn-out periods
associated with acquisitions consummated in prior years. SofTechnics is a
leading provider of in-store retail item management software solutions.
Goodwill recognized in connection with these acquisition payments totaled
$15.1 million, which is primarily included in the Company's Principle U.S.
Operations segment as depicted in Note 5 to these interim consolidated
financial statements and is expected to be fully deductible for tax
purposes. The Company may be required to make additional earn-out payments
based upon the achievement of certain financial performance levels relating
to certain of these acquisitions in the future. The fair value of any
earn-out payments will be recorded as additional consideration of the
acquired enterprise and recorded as goodwill and evaluated for impairment,
when such payments are deemed issuable to the sellers.
As discussed more fully in Note 3 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, the Company acquired Rainin
Instrument, LLC in November 2001 for approximately $294.2 million.
The following summarized unaudited pro forma information assumes the
acquisition of Rainin occurred on January 1, 2001. The pro forma data
reflects adjustments directly related to the acquisition, and does not
include adjustments that may arise as a consequence of the acquisition.
Accordingly, the unaudited pro forma information does not purport to be
indicative of what the Company's combined results of operations would
actually have been had the acquisition occurred on January 1, 2001 or to
project the Company's combined results of operations for any future
periods.
Three months ended March 31: 2002 2001
---- ----
Net sales:
As reported.......................... $272,957 $265,644
Pro forma............................ 272,957 283,647
======== ========
Net earnings:
As reported.......................... $ 18,674 $14,498
Pro forma............................ 18,674 15,196
======== ========
Basic earnings per common share:
As reported.......................... $0.42 $0.37
Pro forma............................ 0.42 0.35
===== =====
Diluted earnings per common share:
As reported.......................... $0.41 $0.34
Pro forma............................ 0.41 0.33
===== =====
-11-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
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.
A roll-forward of the Company's accrual for restructuring activities
follows:
For the three months ended Employee Lease
March 31, 2002 related termination Other Total
- -------------- ------- ----------- ----- -----
(a) (b) (c)
Balance at December 31, 2001............... $ 2,001 $279 $324 $2,604
Cash payments.............................. (1,340) - (188) (1,528)
------- ---- ----- -------
Balance at March 31, 2002.................. $ 661 $279 $136 $1,076
======= ==== ==== ======
<FN>
(a) Employee related costs comprise mainly severance costs in connection
with headcount reductions announced during 2001. These employee
terminations and related cash outflows were substantially complete by
March 31, 2002.
(b) Lease termination costs primarily relate to the early termination of
leases on vacated property.
(c) Other costs include expenses associated with equipment dismantling and
disposal and other exit costs.
</FN>
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:
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2002 to U.S. European and Mfg. European and
March 31, 2002 Operations Operations Operations Operations Other(a) Corporate(b) Total
-------------------------- -------------- ------------- ------------ ----------- ---------- -------------- -----
Net sales to external
customers................... $ 97,037 $36,505 $ 5,358 $60,769 $ 73,288 $ - $272,957
Net sales to other segments. 8,326 12,538 28,914 10,166 30,041 (89,985) -
-------- ------- ------- ------- -------- --------- --------
Total net sales............. $105,363 $49,043 $34,272 $70,935 $103,329 $(89,985) $272,957
======== ======= ======= ======= ======== ========= ========
Adjusted operating income... $ 12,134 $ 3,437 $ 6,237 $ 3,260 $ 10,092 $ (2,604) $ 32,556
Goodwill, net $237,322 $13,660 $13,401 $53,557 $ 83,955 $ - $401,895
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2001 to U.S. European and Mfg. European and
March 31, 2001 Operations Operations Operations Operations Other(a) Corporate(b) Total
-------------------------- -------------- ------------- ------------ ----------- ---------- -------------- -----
Net sales to external
customers................... $83,730 $46,138 $ 6,890 $65,408 $63,478 $ - $265,644
Net sales to other segments. 6,609 13,738 35,062 10,061 35,797 (101,267) -
------- ------- ------- ------- ------- --------- -------
Total net sales............. $90,339 $59,876 $41,952 $75,469 $99,275 $(101,267) 265,644
======= ======= ======= ======= ======= ========= ========
Adjusted operating income... $ 2,663 $ 6,617 $ 9,156 $ 4,651 $ 7,614 $ (394) $ 30,307
-12-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(In thousands unless otherwise stated)
5. SEGMENT REPORTING (CONTINUED)
(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.
A reconciliation of adjusted operating income to earnings before taxes
follows:
For the period For the period
January 1, 2002 to January 1, 2001 to
March 31, 2002 March 31, 2001
------------------ ------------------
Adjusted operating income......... $32,556 $30,307
Amortization...................... 1,774 3,212
Interest expense.................. 4,391 4,783
Other (income) charges, net....... (286) 7
------- -------
Earnings before taxes............. $26,677 $22,305
======= =======
--------------------------------------
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Unaudited
Interim Consolidated Financial Statements included herein.
GENERAL
Our interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States of America on a basis which reflects the interim consolidated
financial statements of Mettler-Toledo International Inc. Operating results
for the three months ended March 31, 2002 are not necessarily indicative of
the results to be expected for the full year ending December 31, 2002.
RESULTS OF OPERATIONS
Net sales were $273.0 million for the three months ended March 31,
2002 compared to $265.6 million for the corresponding period in the prior
year. This represents an increase of 5% in local currencies. Results were
negatively impacted by the strengthening of the U.S. dollar against other
currencies. Net sales in U.S. dollars increased 3%.
Net sales by geographic customer location were as follows: Net sales
in Europe decreased 7% in local currencies during the three months ended
March 31, 2002 versus the corresponding period in the prior year reflecting
weak sales performance across most product lines, particularly in Germany.
In particular, we are experiencing a decrease in sales of our European
retail products after the introduction of the euro currency. The Company
expects that sales of European retail products will decrease significantly
for the remainder of 2002 versus 2001. Net sales in local currencies during
the three month period in the Americas increased 16% as compared to the
corresponding period in 2001, principally due to the acquisition of Rainin
Instrument in 2001. Net sales in local currencies during the three month
period in Asia and other markets increased 11% compared to the same period
in the prior year. The results of our business in Asia and other markets
during the three months ending March 31, 2002 primarily reflect strong
sales performance throughout the region, particularly China.
We acquired Rainin Instrument in November 2001. Assuming we had
acquired Rainin at the beginning of 2001, the acquisition would have added
approximately $18.0 million or 7% of sales to 2001 and $4.7 million of
Adjusted Operating Income (gross profit less research and development and
selling, general and administrative expenses before amortization and other
charges, net) on a pro forma basis.
Our sales decline in Europe was primarily due to a deterioration in
economic conditions, as well as a decrease in sales of our European retail
products after the introduction of the euro currency. In the Americas,
there has been no sign to date of an economic recovery benefiting the
markets for our products, in particular those markets sensitive to
manufacturing output. To the extent that economic conditions significantly
deteriorate in these or other parts of the world, our sales growth and
profitability may be adversely affected.
-14-
Gross profit as a percentage of net sales increased to 45.8% for the
three months ended March 31, 2002, compared to 44.5% for the corresponding
period in the prior year. This increase is primarily related to changes in
our sales mix, as well as benefits from various cost savings initiatives.
Research and development expenses as a percentage of net sales
increased to 6.1% for the three months ended March 31, 2002, compared to
5.6% for the corresponding period in the prior year. We continue to make
significant investments in research and development, which increased 15% in
local currencies for the three months ended March 31, 2002.
Selling, general and administrative expenses as a percentage of net
sales increased to 27.8% for the three months ended March 31, 2002,
compared to 27.6% for the corresponding period in the prior year primarily
due to changes in our sales mix and our reduced sales volume in Europe.
Adjusted Operating Income increased 7% to $32.6 million, or 11.9% of
net sales, for the three months ended March 31, 2002, compared to $30.3
million, or 11.4% of net sales, for the corresponding period in the prior
year. The increased operating margin reflects the previously described
benefits of the Rainin acquisition as well as 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.
We expect to record a pre-tax restructuring charge of between $22
million and $24 million during the quarter ended June 30, 2002, of which
approximately two-thirds will reflect cash payments. The charge will
primarily comprise severance payments related to work force reductions and
other costs associated with consolidating manufacturing.
Interest expense decreased to $4.4 million for the three months ended
March 31, 2002, compared to $4.8 million for the corresponding period in
the prior year. The decrease was principally due to reduced borrowing
rates.
The provision for taxes is based upon our projected annual effective
tax rate for the related period. Our effective tax rate for the three
months ended March 31, 2002 was approximately 30% compared with 35% in
2001. This reduction reflects the effect of several recently implemented
tax initiatives. In addition, we expect to record a one-time gain estimated
at approximately $20 million during the three months ended June 30, 2002.
Net earnings increased 29% to $18.7 million for the three months ended
March 31, 2002, compared to net earnings of $14.5 million, for the
corresponding period in the prior years. Adjusting for the adoption of SFAS
142, net earnings increased 16% over 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $11.6 million for the
three months ended March 31, 2002, compared to $2.2 million for the same
period in 2001. The increase in 2002 resulted principally from increased
Adjusted Operating Income and improved working capital
-15-
management. Cash provided by operating activities includes payments for
restructuring, and certain acquisition integration activities. These
amounts totaled $2.0 million, and $2.9 million for the three months ended
March 31, 2002 and 2001 respectively.
During the three months ended March 31, 2002, we spent approximately
$16.5 million on acquisitions, including additional consideration related
to earn-out periods associated with acquisitions consummated in prior
years. These purchases were funded from cash generated from operations and
additional borrowings. We continue to explore potential acquisitions to
expand our product portfolio and improve our distribution capabilities. In
connection with any acquisition, we may incur additional indebtedness. In
addition, we may make additional earn-out payments relating to certain of
these and previous year acquisitions in the future.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment and the purchase and expansion of
facilities. Our capital expenditures totaled $9.3 million and $6.1 million
during the first three months of 2002 and 2001 respectively. The increase
in 2002 is principally due to spending associated with Rainin's new
facility in California, USA. We expect capital expenditures to increase as
our business grows, and to fluctuate as currency exchange rates change.
At March 31, 2002, our consolidated debt, net of cash, was $345.1
million. We had borrowings of $349.0 million under our credit agreement and
$19.6 million under various other arrangements as of March 31, 2002. Of our
credit agreement borrowings, approximately $86.3 million was borrowed as
term loans scheduled to mature in 2004 and $262.7 million was borrowed
under a multi-currency revolving credit facility. At March 31, 2002, we had
$137.9 million of availability remaining under the revolving credit
facility.
At March 31, 2002, approximately $293.3 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 $75.3
million at March 31, 2002. Changes in exchange rates between the currencies
in which we generate cash flow and the currencies in which our borrowings
are denominated affect our liquidity. In addition, because we borrow in a
variety of currencies, our debt balances fluctuate due to changes in
exchange rates.
Under the credit agreement, amounts outstanding under the term loans
are payable in quarterly installments. In addition, the credit agreement
obligates us to make mandatory prepayments in certain circumstances with
the proceeds of asset sales or issuance of capital stock or indebtedness
and with certain excess cash flow. The credit agreement imposes certain
restrictions on us and our subsidiaries, including restrictions and
limitations on the ability to pay dividends to our shareholders, incur
indebtedness, make investments, grant liens, sell financial assets and
engage in certain other activities. We must also comply with several
financial and other covenants.
We currently believe that cash flow from operating activities,
together with borrowings available under the credit agreement and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements as well
as debt service requirements for at least several years, but there can be
no assurance that this will be the case.
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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 percent
strengthening of the Swiss franc against the euro would result in a
decrease in our earnings before tax of $0.8 million to $1.2 million on an
annual basis. In addition to the effects of exchange rate movements on
operating profits, our debt levels can fluctuate due to changes in exchange
rates, particularly between the U.S. dollar and the Swiss franc.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q includes forward-looking statements
based on our current expectations and projections about future events,
including: strategic plans; potential growth, including penetration of
developed markets and opportunities in emerging markets; planned product
introductions; planned operational changes and research and development
efforts; future financial performance, including expected capital
expenditures; research and development expenditures; estimated proceeds
from and the timing of asset sales; potential acquisitions; future cash
sources and requirements; and potential cost savings from restructuring
programs.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond our control, which could cause
our actual results to differ materially from historical results or those
anticipated. Certain of these risks and uncertainties have been identified
in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 2001. The words "believe," "expect," "anticipate" and similar
expressions identify forward-looking statements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. New risk factors
emerge from time to time and it is not possible for us to predict all such
risk factors, nor can we assess the impact of all such risk factors on our
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a
prediction of actual results.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2002, there was no material change in the information
provided under Item 7A in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
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
(a) Exhibits - None
(b) Reports on Form 8-K - None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Mettler-Toledo International Inc.
Date: May 14, 2002 By: /s/ William P. Donnelly
------------------------
William P. Donnelly
Vice President and
Chief Financial Officer