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, 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 44,208,274 shares of Common Stock outstanding at June
30, 2002.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Interim Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of June 30, 2002 3
and December 31, 2001
Interim Consolidated Statements of Operations for the six 4
months ended June 30, 2002 and 2001
Interim Consolidated Statements of Operations for the three 5
months ended June 30, 2002 and 2001
Interim Consolidated Statements of Shareholders' Equity 6
for the six months ended June 30, 2002 and 2001
Interim Consolidated Statements of Cash Flows for the six 7
months ended June 30, 2002 and 2001
Notes to the Interim Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 16
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 21
MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITY 21
ITEM 3. DEFAULT UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
Signature 23
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 23,875 $ 27,721
Trade accounts receivable, net 230,071 227,295
Inventories, net 153,844 145,621
Other current assets and prepaid expenses 42,151 31,121
------------ -------------
Total current assets 449,941 431,758
Property, plant and equipment, net 211,491 192,272
Excess of cost over net assets acquired, net 411,779 384,947
Other intangible assets 131,134 126,524
Other assets 54,014 53,911
------------ -------------
Total assets $ 1,258,359 $ 1,189,412
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 58,313 $ 66,327
Accrued and other liabilities 150,846 111,284
Accrued compensation and related items 38,058 47,702
Taxes payable 52,754 72,035
Short-term borrowings and current maturities of long-term debt 50,439 50,239
------------ -------------
Total current liabilities 350,410 347,587
Long-term debt 304,444 309,479
Non-current deferred taxes 26,403 25,053
Other non-current liabilities 125,944 119,109
------------ -------------
Total liabilities 807,201 801,228
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 44,208,274 and 44,145,742 shares at June 30, 2002 and
December 31, 2001 442 441
Additional paid-in capital 456,947 455,684
Retained earnings 50,109 3,957
Accumulated other comprehensive loss (56,340) (71,898)
------------ -------------
Total shareholders' equity 451,158 388,184
Commitments and contingencies - -
------------ -------------
Total liabilities and shareholders' equity $ 1,258,359 $ 1,189,412
============ =============
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, JUNE 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 569,411 $ 544,677
Cost of sales 303,192 299,518
----------- -------------
Gross profit 266,219 245,159
Research and development 34,461 30,310
Selling, general and administrative 158,179 144,124
Amortization 3,675 6,237
Interest expense 8,746 9,346
Other charges, net (see Note 4) 28,269 15,297
----------- -------------
Earnings before taxes 32,889 39,845
Provision (benefit) for taxes (see Note 5) (13,263) 18,665
----------- -------------
Net earnings $ 46,152 $ 21,180
=========== =============
Basic earnings per common share:
Net earnings $1.04 $0.53
Weighted average number of common shares 44,191,062 39,914,687
Diluted earnings per common share:
Net earnings $1.02 $0.50
Weighted average number of common shares 45,463,374 42,505,268
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 JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, JUNE 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Net sales $296,454 $279,033
Cost of sales 155,372 152,184
----------- -----------
Gross profit 141,082 126,849
Research and development 17,704 15,503
Selling, general and administrative 82,355 70,928
Amortization 1,901 3,025
Interest expense 4,355 4,563
Other charges, net (see Note 4) 28,555 15,290
----------- -----------
Earnings before taxes 6,212 17,540
Provision (benefit) for taxes (see Note 5) (21,266) 10,858
----------- -----------
Net earnings $ 27,478 $ 6,682
=========== ===========
Basic earnings per common share:
Net earnings $0.62 $0.17
Weighted average number of common shares 44,208,274 40,112,438
Diluted earnings per common share:
Net earnings $0.61 $0.16
Weighted average number of common shares 45,409,690 42,472,310
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS / OTHER
--------------------------- PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) LOSS TOTAL
------ ------ ------- -------- ---- -----
Balance at December 31, 2001 44,145,742 $441 $ 455,684 $ 3,957 $ (71,898) $388,184
Exercise of stock options 62,532 1 1,263 - - 1,264
Comprehensive income:
Net earnings - - - 46,152 - 46,152
Unrealized loss on cash-flow
hedging instruments - - - - (2,097) (2,097)
Change in currency
translation adjustment - - - - 17,655 17,655
---------
Comprehensive income 61,710
------------ --------- ----------- ------------- ----------- ---------
Balance at June 30, 2002 44,208,274 $442 $ 456,947 $ 50,109 $ (56,340) $451,158
============ ========= =========== ============= =========== =========
Balance at December 31, 2000 39,372,873 $393 $ 294,558 $(68,307) $ (47,804) $178,840
Exercise of stock options 739,565 7 8,936 - - 8,943
Comprehensive income:
Net earnings - - - 21,180 - 21,180
Unrealized loss on cash-flow
hedging instruments - - - - (1,689) (1,689)
Change in currency
translation adjustment - - - - (5,657) (5,657)
---------
Comprehensive income 13,834
------------ --------- ----------- ------------- ----------- ---------
Balance at June 30, 2001 40,112,438 $400 $ 303,494 $ (47,127) $ (55,150) $201,617
============ ========= =========== ============= =========== =========
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, 2002 AND 2001
(IN THOUSANDS)
JUNE 30, JUNE 30,
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
Cash flow from operating activities:
Net earnings $46,152 $21,180
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 12,188 11,367
Amortization 3,675 6,237
Other 67 (704)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 8,279 (672)
Inventories 304 (4,469)
Other current assets (4,436) (4,762)
Trade accounts payable (11,984) (17,841)
Accruals and other liabilities, net(a) (9,766) 19,336
---------- ----------
Net cash provided by operating activities 44,479 29,672
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 225 1,917
Purchase of property, plant and equipment (17,778) (15,166)
Acquisitions (19,272) (934)
---------- ----------
Net cash used in investing activities (36,825) (14,183)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 37,882 43,555
Repayments of borrowings (49,482) (65,905)
Proceeds from issuance of common stock 1,264 8,943
---------- ----------
Net cash used in financing activities (10,336) (13,407)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (1,164) (595)
---------- ----------
Net increase (decrease) in cash and cash equivalents (3,846) 1,487
Cash and cash equivalents:
Beginning of period $ 27,721 $21,725
---------- ----------
End of period $ 23,875 $23,212
========== ==========
<FN>
(a) Accruals and other liabilities include payments for restructuring and
certain acquisition integration activities of $4.1 million in 2002 and
$5.9 million in 2001.
</FN>
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 June 30, 2002 and for the six and
three month periods ended June 30, 2002 and 2001 should be read in
conjunction with the December 31, 2001 and 2000 consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
The accompanying interim consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary for a fair statement of the results of
the interim periods presented. Operating results for the six and three
months ended June 30, 2002 are not necessarily indicative of the results to
be expected for the full year ending December 31, 2002.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results may differ from
those estimates.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using the first in, first out (FIFO) method.
Inventories consisted of the following at June 30, 2002 and December
31, 2001:
June 30, December 31,
2002 2001
--------------- ---------------
Raw materials and parts $77,168 $70,392
Work in progress 31,850 28,433
Finished goods 44,826 46,796
--------------- ---------------
$153,844 $145,621
=============== ===============
INTANGIBLE ASSETS
As of January 1, 2002 the Company has adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. This
Statement requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment upon initial adoption of SFAS 142 and on
an annual basis going forward. In addition, any goodwill arising from
acquisitions completed after June 30, 2001 is not amortized. Other
intangible assets will continue to be amortized over their useful lives.
Application of the non-amortization provisions of SFAS 142 will increase
our net earnings by $6.5 million and our diluted earnings per share by
$0.15 on an annual basis, or $0.14 adjusting for additional shares issued
in connection with our acquisition of Rainin Instrument LLC. The
reconciliations of reported net earnings to adjusted net earnings before
amortization of goodwill for the periods ended June 30 are as follows:
Three months ended Six months ended
2002 2001 2002 2001
---- ---- ---- ----
Net earnings:
Reported......................... $27,478 $ 6,682 $ 46,152 $ 21,180
Goodwill amortization............ - 1,602 - 3,209
------- ------- -------- --------
Adjusted......................... $27,478 $ 8,284 $ 46,152 $ 24,389
======= ======= ======== ========
Diluted earnings per share:
Reported......................... $0.61 $0.16 $1.02 $0.50
Goodwill amortization............ - 0.04 - 0.07
------- ------- -------- --------
Adjusted......................... $0.61 $0.20 $1.02 $0.57
======= ======= ======== ========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
SFAS 142 requires that goodwill be subject to annual impairment tests
using a two-step process. The first step is to 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.
The components of other intangible assets are as follows:
June 30, December 31,
2002 2001
--------------- ---------------
Customer relationships $ 70,955 $ 67,383
Tradename 23,327 22,434
Intellectual property license 19,905 19,905
Proven technology and patents 19,138 17,352
--------------- ---------------
133,325 127,074
Less accumulated amortization (2,191) (550)
--------------- ---------------
Total other intangible assets, net $131,134 $126,524
=============== ===============
Other intangible assets substantially relate to the acquisition of
Rainin Instrument, LLC. The annual aggregate amortization expense based on
the current balance of other intangible assets for the next five years is
estimated at $3.4 million.
EARNINGS PER COMMON SHARE
As described in Note 10 in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001, in accordance with the treasury stock
method, the Company has included the following equivalent shares relating
to 4,389,835 outstanding options to purchase shares of common stock in the
calculation of diluted weighted average number of common shares for the six
and three month periods ended June 30, 2002 and 2001, respectively.
June 30, June 30,
2002 2001
---------------- ----------------
Six months ended 1,272,312 2,590,581
Three months ended 1,201,416 2,359,872
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS
During the six months ended June 30, 2002, the Company spent
approximately $19.3 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
$17.7 million, which is primarily included in the Company's Principal U.S.
Operations segment as depicted in Note 6 to these interim consolidated
financial statements and is expected to be fully deductible for tax
purposes. The Company may be required to make additional earn-out payments
based upon the achievement of certain financial performance levels relating
to certain of these acquisitions in the future. The fair value of any
earn-out payments will be recorded as additional consideration of the
acquired enterprise and recorded as goodwill and evaluated for impairment,
when such payments are deemed issuable to the sellers.
As discussed more fully in Note 3 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, the Company acquired Rainin
Instrument, LLC in November 2001 for approximately $294.2 million.
The following summarized unaudited pro forma information assumes the
acquisition of Rainin occurred on January 1, 2001. The pro forma data
reflects adjustments directly related to the acquisition, and does not
include adjustments that may arise as a consequence of the acquisition.
Accordingly, the unaudited pro forma information does not purport to be
indicative of what the Company's combined results of operations would
actually have been had the acquisition occurred on January 1, 2001 or to
project the Company's combined results of operations for any future
periods.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS (CONTINUED)
Six months ended June 30:
2002 2001
---- ----
Net sales:
As reported............................ $569,411 $544,677
Pro forma.............................. 569,411 582,341
Net earnings*:
As reported............................ $46,152 $21,180
Pro forma.............................. 46,152 24,491
Basic earnings per common share:
As reported............................ $1.04 $0.53
Pro forma.............................. 1.04 0.57
Diluted earnings per common share*:
As reported............................ $1.02 $0.50
Pro forma.............................. 1.02 0.53
* Net earnings excluding restructuring charges in 2002 and 2001 and the
one time tax credit in 2002, would have been $43,080 or $0.95 per
share on a diluted basis in 2002 compared to $35,776 or $0.84 per
share on a diluted basis in 2001 and on a pro forma basis $39,087 or
$0.85 per share on a diluted basis for 2001.
4. OTHER CHARGES, NET
Other charges, net consists primarily of foreign currency
transactions, interest income, and charges related to the Company's
cost-reduction programs.
In June 2002, the Company's management approved restructuring plans to
exit and consolidate manufacturing facilities and reduce the Company's
expense structure. As part of these efforts to reduce costs, the Company
recorded a charge of $28.7 million ($20.1 million after tax) during the
three months ended June 30, 2002. This charge was comprised of
restructuring liabilities of $24.3 million and related asset impairments of
$4.4 million. In total, the Company expects this restructuring plan to
result in cash outlays of approximately $22.1 million and non-cash items of
$6.6 million. The charge comprised involuntary employee separation
benefits, write-downs of impaired assets to be disposed and other exit
costs. The Company expects to involuntarily terminate approximately 300
employees in targeted manufacturing and administrative areas and to
substantially complete the manufacturing consolidation by the end of 2003.
The asset impairments of $4.4 million primarily relate to plant and
equipment disposals resulting from the exit of certain manufacturing
facilities. Fair value of these assets was determined on the basis of their
net realizable value on disposal. Substantially all of the impaired assets
will be physically disposed by the end of 2003.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
4. OTHER CHARGES, NET (CONTINUED)
As part of the current restructuring program, the Company revised its
U.S. defined benefit pension plan to freeze the benefits for current
participants and to discontinue the plan for all future employees,
resulting in an expense of $1.1 million. In addition, the Company's U.S.
retiree medical program was also discontinued for certain current and all
future active employees resulting in a curtailment gain of $1.3 million.
During the three months ended June 30, 2001 the Company recorded a
restructuring charge of $15.2 million associated with headcount reductions
and manufacturing transfers. The activities associated with this charge are
substantially complete.
A roll-forward of the Company's accrual for restructuring activities
follows:
For the six months ended Employee Lease
June 30, 2002 related termination Other Total
- ------------- ------- ----------- ----- -----
(a) (b) (c)
Beginning of period........................ $ 2,001 $ 279 $324 $ 2,604
Restructuring expenses..................... 21,967 2,051 283 24,301
Cash payments.............................. (3,138) (105) (202) (3,445)
Increases in retirement benefit
obligation................................. (1,965) - - (1,965)
Impact of foreign currency................. 341 45 16 402
------- ------ ---- -------
Balance at June 30, 2002................... $19,206 $2,270 $421 $21,897
======= ====== ==== =======
<FN>
(a) Employee related costs comprise mainly severance, medical and other
benefit costs in connection with headcount reductions announced during
2002. These employee terminations and related cash outflows will be
substantially complete by the end of 2003.
(b) Lease termination costs primarily relate to the early termination of
leases on vacated property.
(c) Other costs include expenses associated with equipment dismantling and
disposal and other exit costs.
</FN>
5. INCOME TAXES
During the second quarter of 2002, we completed a tax restructuring
program and related tax audits, and recorded a tax benefit of $23.1
million.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
6. SEGMENT REPORTING
The Company has five reportable segments: Principal U.S. Operations,
Principal Central European Operations, Swiss R&D and Manufacturing
Operations, Other Western European Operations and Other. The following
tables show the operations of the Company's operating segments:
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2002 to U.S. European and Mfg. European and
June 30, 2002 Operations Operations Operations Operations Other (a) Corporate (b) Total
------------------------- --------------- ------------- ------------ ------------ ------------ ---------------- ----------
Net sales to external
customers................... $207,131 $ 75,248 $ 10,292 $ 124,185 $ 152,555 $ - $ 569,411
Net sales to other segments. 15,855 24,921 62,099 19,213 65,127 (187,215) -
-------- -------- -------- --------- --------- ----------- ---------
Total net sales............. $222,986 $100,169 $ 72,391 $ 143,398 $ 217,682 $ (187,215) $ 569,411
======== ======== ======== ========= ========= =========== =========
Adjusted operating income... $ 29,401 $ 7,674 $ 14,090 $ 6,645 $ 20,049 $ (4,280) $ 73,579
Goodwill, net............... $238,424 $ 15,272 $ 14,933 $ 57,527 $ 85,623 $ - $ 411,779
Principal Other
For the period Principal Central Swiss R&D Western Eliminations
January 1, 2001 to U.S. European and Mfg. European and
June 30, 2001 Operations Operations Operations Operations Other (a) Corporate (b) Total
------------------------- --------------- ------------- ------------ ------------ ------------ ---------------- ----------
Net sales to external
customers................... $174,050 $ 89,633 $ 13,362 $ 129,633 $ 137,999 $ - $ 544,677
Net sales to other segments. 14,012 28,384 70,791 20,951 70,822 (204,960) -
-------- -------- -------- --------- --------- ----------- ---------
Total net sales............. $188,062 $118,017 $ 84,153 $ 150,584 $ 208,821 $ (204,960) $ 544,677
======== ======== ======== ========= ========= =========== =========
Adjusted operating income... $ 9,369 $ 13,712 $ 18,434 $ 11,388 $ 17,488 $ 334 $ 70,725
<FN>
(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.
</FN>
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
6. SEGMENT REPORTING (CONTINUED)
A reconciliation of adjusted operating income to earnings before taxes
follows:
For the period For the period
January 1, 2002 January 1, 2001
to to
June 30, 2002 June 30, 2001
------------------ ---------------------
Adjusted operating income............. $ 73,579 $70,725
Amortization.......................... 3,675 6,237
Interest expense...................... 8,746 9,346
Other charges, net.................... 28,269(a) 15,297(b)
-------- -------
Earnings before taxes................. $ 32,889 $39,845
======== =======
(a) Includes a charge of $28.7 million, which comprises severance, asset
write-downs and other costs, primarily related to headcount reductions
and manufacturing transfers.
(b) Includes a charge of $15.2 million, which comprises severance, asset
write-downs and other costs, primarily related to headcount reductions
and manufacturing transfers.
----------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Unaudited
Interim Consolidated Financial Statements included herein.
GENERAL
Our interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States of America on a basis which reflects the interim consolidated
financial statements of Mettler-Toledo International Inc. Operating results
for the six and three months ended June 30, 2002 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2002.
RESULTS OF OPERATIONS
Net sales were $569.4 million and $296.5 million for the six and three
months ended June 30, 2002 compared to $544.7 million and $279.0 million
for the corresponding periods in the prior year. This represents an
increase of 5% and 4% in local currencies, respectively. Results for the
three month period were positively impacted by the weakening of the U.S.
dollar against other currencies. Net sales in U.S. dollars during the six
and three month periods increased 5% and 6%, respectively.
Net sales by geographic customer location were as follows: Net sales
in Europe decreased 8% and 10% in local currencies during the six and three
month periods ended June 30, 2002 versus the corresponding periods in the
prior year reflecting weak sales performance across most product lines,
particularly in Germany. In particular, we experienced a decrease of 26%
and 40% respectively for the six and three month periods ended June 30,
2002 in sales of our European retail products after the introduction of the
euro currency. The Company expects that sales of European retail products
will continue to decline at over 40% for the remainder of 2002 versus 2001.
Net sales in local currencies during the six and three month periods in the
Americas increased 17% 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 six and three month periods in Asia and
other markets increased 8% and 6% compared to the same periods in the prior
year. The results of our business in Asia and other markets during the six
and three month periods ending June 30, 2002 reflect particularly strong
sales performance in China.
We acquired Rainin Instrument in November 2001. Assuming we had
acquired Rainin at the beginning of 2001, the acquisition would have added
approximately $37.7 million and $19.7 million or 7% of sales to each of the
six and three month periods ending June 30, 2001 respectively, and added
$11.4 million and $6.6 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.
Gross profit as a percentage of net sales increased to 46.8% and 47.6%
for the six and three month periods ended June 30, 2002, compared to 45.0%
and 45.5% for the corresponding periods in the prior year. This increase is
primarily related to changes in our sales mix, as well as benefits from
implementing various cost savings initiatives.
Research and development expenses as a percentage of net sales
increased to 6.1% and 6.0% for the six and three months ended June 30,
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 12% and 10% in local currencies for the six and three month
periods ended June 30, 2002.
Selling, general and administrative expenses as a percentage of net
sales increased to 27.8% for the six and three month periods ended June 30,
2002, compared to 26.4% and 25.4% for the corresponding periods in the
prior year primarily due to changes in our sales mix and our reduced sales
volume in Europe. Additionally, our selling, general and administrative
expenses increased significantly over the prior year for the six and three
month periods ended June 30, 2002 primarily due to acquisitions and to a
lesser degree unfavorable foreign currency.
Adjusted Operating Income increased 4% to $73.6 million, or 12.9% of
net sales, for the six months ended June 30, 2002, compared to $70.7
million, or 13.0% of net sales, for the corresponding period in the prior
year. Adjusted Operating Income increased 1% to $41.0 million, or 13.8% of
net sales, for the three months ended June 30, 2002, compared to $40.4
million, or 14.5% of net sales, for the corresponding period in the prior
year. The reduced operating margin primarily reflects the effects of
reduced sales volume in Europe as well as unfavorable foreign currency
exchange rates, offset in part by the previously described benefits of the
Rainin acquisition. We believe that Adjusted Operating Income provides
important financial information in measuring and comparing our operating
performance. Adjusted Operating Income is not intended to represent
operating income under U.S. GAAP and should not be considered as an
alternative to net earnings as an indicator of our performance.
Other charges net were $28.3 million and $28.6 million for the six and
three month periods ended June 30, 2002 compared to $15.3 million for the
same periods in 2001. The quarter ended June 30, 2002 includes a pre-tax
restructuring charge of $28.7 million. The charge primarily comprises
severance payments related to work force reductions and other costs
associated with consolidating manufacturing. The quarter ended June 30,
2001 includes a restructuring charge of $15.2 million. Activities
associated with our 2001 restructuring charge are substantially complete.
Interest expense decreased to $8.7 million and $4.4 million for the
six and three months ended June 30, 2002, compared to $9.3 million and $4.6
million for the corresponding periods in the prior year. The decrease was
principally due to reduced borrowing rates partially offset by higher
average borrowings during 2002 to fund the Rainin acquisition.
The provision for taxes is based upon our projected annual effective
tax rate for the related period. Our effective tax rate before
non-recurring items for the six and three month periods ended June 30, 2002
was approximately 30% compared with 35% in 2001. This reduction reflects
the effect of several recently implemented tax initiatives. In addition, we
recorded a one-time benefit of $23.1 million during the three months ended
June 30, 2002 related to the completion of our tax restructuring program
and related tax audits.
Net earnings were $43.1 million and $24.4 million for the six and
three months ended June 30, 2002, before the previously mentioned charge
associated with headcount reductions and manufacturing transfers and the
one-time tax benefit. This compares to net earnings of $35.8 million and
$21.3 million, for the corresponding periods in the prior year before the
prior year restructuring charge. Adjusting for the adoption of SFAS 142,
net earnings before restructuring charges and the one-time tax benefit for
the six and three month periods ended June 30, 2002 increased 11% and 7%,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $44.5 million for the
six months ended June 30, 2002, compared to $29.7 million for the same
period in 2001. The increase in 2002 resulted principally from increased
Adjusted Operating Income and improved working capital management. Cash
provided by operating activities includes payments for restructuring, and
certain acquisition integration activities. These amounts totaled $4.1
million, and $5.9 million for the six months ended June 30, 2002 and 2001
respectively.
During the six months ended June 30, 2002, we spent approximately
$19.3 million on acquisitions, including additional consideration related
to earn-out periods associated with acquisitions consummated in prior
years. These purchases were funded from cash generated from operations and
additional borrowings. We continue to explore potential acquisitions to
expand our product portfolio and improve our distribution capabilities. In
connection with any acquisition, we may incur additional indebtedness. In
addition, we may make additional earn-out payments relating to certain of
these and previous year acquisitions in the future.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment, information technology equipment and
the purchase and expansion of facilities. Our capital expenditures totaled
$17.8 million and $15.2 million during the first six months of 2002 and
2001 respectively. The increase in 2002 is principally due to spending
associated with Rainin's new facility in California. We expect capital
expenditures to increase as our business grows, and to fluctuate as
currency exchange rates change.
At June 30, 2002, our consolidated debt, net of cash, was $331.0
million. We had borrowings of $335.4 million under our credit agreement and
$19.5 million under various other arrangements as of June 30, 2002. Of our
credit agreement borrowings, approximately $81.9 million was borrowed as
term loans scheduled to mature in 2004 and $253.5 million was borrowed
under a multi-currency revolving credit facility. At June 30, 2002, we had
$148.8 million of availability remaining under the revolving credit
facility.
At June 30, 2002, approximately $265.6 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 $89.3 million
at June 30, 2002. Changes in exchange rates between the currencies in which
we generate cash flow and the currencies in which our borrowings are
denominated affect our liquidity. In addition, because we borrow in a
variety of currencies, our debt balances fluctuate due to changes in
exchange rates.
Under the credit agreement, amounts outstanding under the term loans
are payable in quarterly installments. In addition, the credit agreement
obligates us to make mandatory prepayments in certain circumstances with
the proceeds of asset sales or issuance of capital stock or indebtedness
and with certain excess cash flow. The credit agreement imposes certain
restrictions on us and our subsidiaries, including restrictions and
limitations on the ability to pay dividends to our shareholders, incur
indebtedness, make investments, grant liens, sell financial assets and
engage in certain other activities. We must also comply with several
financial and other covenants.
We currently believe that cash flow from operating activities,
together with borrowings available under the credit agreement and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements as well
as debt service requirements for at least several years, but there can be
no assurance that this will be the case.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates.
Swiss franc-denominated expenses represent a much greater percentage of our
operating expenses than Swiss franc-denominated sales represent of our net
sales. In part, this is because most of our manufacturing costs in
Switzerland relate to products that are sold outside of Switzerland.
Moreover, a substantial percentage of our research and development expenses
and general and administrative expenses are incurred in Switzerland.
Therefore, if the Swiss franc strengthens against all or most of our major
trading currencies (e.g., the U.S. dollar, the euro, other major European
currencies and the Japanese yen), our operating profit is reduced. We also
have significantly more sales in European currencies (other than the Swiss
franc) than we have expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also
decreases our operating profits. In recent years, the Swiss franc and other
European currencies have generally moved in a consistent manner versus the
U.S. dollar. Therefore, because the two effects previously described have
offset each other, historically our operating profits have not been
materially affected by movements in the U.S. dollar exchange rate versus
European currencies. However, there can be no assurance that these
currencies will continue to move in a consistent manner in the future. In
2002, we estimate that the unfavorable impact due primarily to the
strengthening of the Swiss franc was approximately $1.2 million and $2.8
million for the three and six month periods ended June 30, 2002. We
estimate that a further one percent strengthening of the Swiss franc
against the euro would result in a decrease in our earnings before tax of
between $0.8 million and $1.2 million on an annual basis. In addition to
the effects of exchange rate movements on operating profits, our debt
levels can fluctuate due to changes in exchange rates, particularly between
the U.S. dollar and the Swiss franc.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q includes forward-looking statements
based on our current expectations and projections about future events,
including: strategic plans; potential growth, including penetration of
developed markets and opportunities in emerging markets; planned product
introductions; planned operational changes and research and development
efforts; future financial performance, including expected capital
expenditures; research and development expenditures; estimated proceeds
from and the timing of asset sales; potential acquisitions; future cash
sources and requirements; and potential cost savings from restructuring
programs.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond our control, which could cause
our actual results to differ materially from historical results or those
anticipated. Certain of these risks and uncertainties have been identified
in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 2001. The words "believe," "expect," "anticipate" and similar
expressions identify forward-looking statements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. New risk factors
emerge from time to time and it is not possible for us to predict all such
risk factors, nor can we assess the impact of all such risk factors on our
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a
prediction of actual results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2002, there was no material change in the information
provided under Item 7A in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. NONE
ITEM 2. CHANGES IN SECURITY. NONE
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 17, 2002. At the meeting, the following matters were
submitted to a vote of stockholders: the election of directors of the
Company as previously reported to the Commission, and the ratification of
the appointment of the Company's independent auditors.
As of March 18, 2002, the record date for the annual meeting, there
were 44,173,450 shares of Mettler-Toledo International Inc. common stock
entitled to vote at the meeting. The holders of 35,571,646 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 35,449,407 122,239
Philip Caldwell 35,402,372 169,274
John T. Dickson 35,447,924 123,722
Philip H. Geier 35,447,250 124,396
Reginald H. Jones 35,444,750 126,896
John D. Macomber 35,404,126 167,520
George M. Milne 35,448,861 122,785
Thomas P. Salice 35,406,763 164,883
Appointment of Independent Auditors 34,519,403 1,047,292 4,931
ITEM 5. OTHER INFORMATION. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Amended By-laws of the Company, effective July 25, 2002.
10. Employment agreement between Mettler-Toledo International Inc.
and Dennis W. Braun dated June 12, 2002.
99. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - None
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 14, 2002 By: /s/ Dennis Braun
-----------------
Dennis Braun
Chief Financial Officer