Mettler-Toledo International Inc. 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008, OR |
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o |
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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)
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Delaware
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13-3668641 |
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(State or other jurisdiction of
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(I.R.S Employer Identification No.) |
incorporation or organization) |
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Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
and
1900 Polaris Parkway
Columbus, Ohio 43240
(Address of principal executive offices)
(Zip Code)
+41-44-944-22-11 and 1-614-438-4511
(Registrants telephone number, including area code)
not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The Registrant had 34,733,815 shares of Common Stock outstanding at March 31, 2008.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 2008 and 2007
(In thousands, except share data)
(unaudited)
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March 31, |
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March 31, |
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2008 |
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2007 |
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Net sales |
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Products |
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$ |
335,937 |
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$ |
294,393 |
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Service |
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103,018 |
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93,371 |
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Total net sales |
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438,955 |
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387,764 |
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Cost of sales |
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Products |
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151,168 |
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134,806 |
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Service |
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66,635 |
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61,479 |
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Gross profit |
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221,152 |
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191,479 |
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Research and development |
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24,254 |
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21,336 |
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Selling, general and administrative |
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138,602 |
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121,436 |
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Amortization |
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2,405 |
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2,925 |
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Interest expense |
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5,849 |
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4,460 |
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Other charges (income), net |
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1,675 |
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(362 |
) |
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Earnings before taxes |
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48,367 |
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41,684 |
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Provision for taxes |
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10,088 |
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11,254 |
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Net earnings |
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$ |
38,279 |
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$ |
30,430 |
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Basic earnings per common share: |
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Net earnings |
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$ |
1.09 |
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$ |
0.80 |
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Weighted average number of common shares |
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35,119,322 |
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38,065,483 |
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Diluted earnings per common share: |
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Net earnings |
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$ |
1.06 |
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$ |
0.78 |
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Weighted average number of common and common
equivalent shares |
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35,993,750 |
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38,931,681 |
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The accompanying notes are an integral part of these interim consolidated financial statements.
-3-
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of March 31, 2008 and December 31, 2007
(In thousands, except share data)
(unaudited)
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March 31, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
80,684 |
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$ |
81,222 |
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Trade accounts receivable, less allowances of $9,670 at
March 31, 2008 and $8,804 at December 31, 2007 |
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342,867 |
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354,596 |
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Inventory |
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199,872 |
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173,725 |
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Current deferred tax assets, net |
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37,910 |
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37,643 |
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Other current assets and prepaid expenses |
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48,638 |
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36,023 |
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Total current assets |
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709,971 |
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683,209 |
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Property, plant and equipment, net |
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256,259 |
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249,605 |
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Goodwill |
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447,931 |
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440,767 |
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Other intangible assets, net |
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99,802 |
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100,020 |
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Non-current deferred tax assets, net |
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67,160 |
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65,129 |
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Other non-current assets |
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157,245 |
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139,484 |
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Total assets |
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$ |
1,738,368 |
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$ |
1,678,214 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
106,175 |
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$ |
127,109 |
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Accrued and other liabilities |
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73,684 |
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73,661 |
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Accrued compensation and related items |
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92,236 |
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130,140 |
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Deferred revenue and customer prepayments |
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78,758 |
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52,703 |
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Taxes payable |
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49,295 |
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42,438 |
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Current deferred tax liabilities |
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7,786 |
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10,152 |
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Short-term borrowings |
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19,694 |
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11,570 |
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Total current liabilities |
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427,628 |
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447,773 |
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Long-term debt |
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471,855 |
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385,072 |
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Non-current deferred tax liabilities |
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107,372 |
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101,500 |
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Other non-current liabilities |
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172,505 |
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162,583 |
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Total liabilities |
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1,179,360 |
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1,096,928 |
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Commitments and contingencies (Note 10) |
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Shareholders equity: |
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Preferred stock, $0.01 par value per share;
authorized 10,000,000 shares; issued 0 |
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Common stock, $0.01 par value per share; authorized
125,000,000
shares; issued 44,786,011 and 44,786,011 shares;
outstanding 34,733,815 and 35,638,483 shares at
March 31, 2008 and December 31, 2007, respectively |
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448 |
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448 |
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Additional paid-in capital |
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551,106 |
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548,378 |
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Treasury stock at cost (10,052,196 shares at March 31,
2008 and
9,147,528 shares at December 31, 2007) |
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(754,598 |
) |
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(662,393 |
) |
Retained earnings |
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689,841 |
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652,236 |
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Accumulated other comprehensive income (loss) |
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72,211 |
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42,617 |
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Total shareholders equity |
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559,008 |
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581,286 |
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Total liabilities and shareholders equity |
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$ |
1,738,368 |
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$ |
1,678,214 |
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The accompanying notes are an integral part of these interim consolidated financial statements.
-4-
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, 2008 and twelve months ended December 31, 2007
(In thousands, except share data)
(unaudited)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Treasury |
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Retained |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Stock |
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Earnings |
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Income (Loss) |
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Total |
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Balance at December 31, 2006 |
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38,430,124 |
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|
$ |
448 |
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$ |
528,863 |
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$ |
(374,819 |
) |
|
$ |
493,691 |
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$ |
(17,321 |
) |
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$ |
630,862 |
|
Exercise of stock options and
restricted stock units |
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593,090 |
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37,025 |
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(15,851 |
) |
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21,174 |
|
Repurchases of common stock |
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(3,384,731 |
) |
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(324,599 |
) |
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|
|
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|
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|
(324,599 |
) |
Tax benefit resulting from
exercise of certain employee
stock options |
|
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|
|
|
|
|
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|
11,373 |
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|
|
|
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|
11,373 |
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Share-based compensation |
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|
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|
|
|
|
8,142 |
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|
8,142 |
|
Adoption of FIN 48 |
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|
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(4,111 |
) |
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|
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(4,111 |
) |
Comprehensive income: |
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Net earnings |
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|
178,507 |
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|
|
|
|
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|
178,507 |
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Change in currency translation
adjustment |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,941 |
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|
27,941 |
|
Pension adjustment, net of tax |
|
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|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
31,997 |
|
|
|
31,997 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
238,445 |
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|
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|
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|
|
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|
|
|
|
|
|
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|
Balance at December 31, 2007 |
|
|
35,638,483 |
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|
$ |
448 |
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|
$ |
548,378 |
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|
$ |
(662,393 |
) |
|
$ |
652,236 |
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|
$ |
42,617 |
|
|
$ |
581,286 |
|
|
|
|
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|
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|
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|
Balance at December 31, 2007 |
|
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35,638,483 |
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|
$ |
448 |
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|
$ |
548,378 |
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|
$ |
(662,393 |
) |
|
$ |
652,236 |
|
|
$ |
42,617 |
|
|
$ |
581,286 |
|
Exercise of stock options and
restricted stock units |
|
|
32,760 |
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|
|
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|
|
|
|
|
|
2,245 |
|
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|
(1,026 |
) |
|
|
|
|
|
|
1,219 |
|
Other treasury stock issuances |
|
|
16,760 |
|
|
|
|
|
|
|
|
|
|
|
1,149 |
|
|
|
352 |
|
|
|
|
|
|
|
1,501 |
|
Repurchases of common stock |
|
|
(954,188 |
) |
|
|
|
|
|
|
|
|
|
|
(95,599 |
) |
|
|
|
|
|
|
|
|
|
|
(95,599 |
) |
Tax benefit resulting from
exercise of certain employee
stock options |
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202 |
|
Share-based compensation |
|
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|
|
|
|
|
|
|
|
2,526 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
2,526 |
|
Comprehensive income: |
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|
|
|
|
|
|
|
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|
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|
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|
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Net earnings |
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|
|
|
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|
|
|
|
|
|
|
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|
38,279 |
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|
|
|
|
|
|
38,279 |
|
Change in currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,512 |
|
|
|
29,512 |
|
Pension adjustment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
82 |
|
|
|
82 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
34,733,815 |
|
|
$ |
448 |
|
|
$ |
551,106 |
|
|
$ |
(754,598 |
) |
|
$ |
689,841 |
|
|
$ |
72,211 |
|
|
$ |
559,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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, 2008 and 2007
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
38,279 |
|
|
$ |
30,430 |
|
Adjustments to reconcile net earnings to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
7,304 |
|
|
|
6,454 |
|
Amortization |
|
|
2,405 |
|
|
|
2,925 |
|
Deferred taxes |
|
|
(451 |
) |
|
|
(2,375 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
(219 |
) |
|
|
(2,455 |
) |
Share-based compensation |
|
|
2,526 |
|
|
|
2,081 |
|
(Gain) loss from sale of property, plant and equipment |
|
|
(2,699 |
) |
|
|
5 |
|
Other |
|
|
(377 |
) |
|
|
|
|
Increase (decrease) in cash resulting from changes in: |
|
|
|
|
|
|
|
|
Trade accounts receivable, net |
|
|
27,602 |
|
|
|
18,199 |
|
Inventory |
|
|
(14,270 |
) |
|
|
(10,857 |
) |
Other current assets |
|
|
(10,090 |
) |
|
|
(7,464 |
) |
Trade accounts payable |
|
|
(26,087 |
) |
|
|
(6,007 |
) |
Taxes payable |
|
|
2,462 |
|
|
|
14,249 |
|
Accruals and other |
|
|
(18,154 |
) |
|
|
(12,882 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,231 |
|
|
|
32,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment |
|
|
12,476 |
|
|
|
206 |
|
Purchase of property, plant and equipment |
|
|
(7,379 |
) |
|
|
(7,857 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
5,097 |
|
|
|
(7,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
124,032 |
|
|
|
3,792 |
|
Repayments of borrowings |
|
|
(44,722 |
) |
|
|
(17,306 |
) |
Proceeds from stock option exercises |
|
|
1,219 |
|
|
|
6,023 |
|
Repurchases of common stock |
|
|
(98,611 |
) |
|
|
(76,939 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
219 |
|
|
|
2,455 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(17,863 |
) |
|
|
(81,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
3,997 |
|
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(538 |
) |
|
|
(55,739 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
81,222 |
|
|
|
151,269 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
80,684 |
|
|
$ |
95,530 |
|
|
|
|
|
|
|
|
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
AT MARCH 31, 2008 Unaudited
(In thousands, except share data, unless otherwise stated)
1. BASIS OF PRESENTATION
Mettler-Toledo International Inc. (Mettler-Toledo or the Company) is a leading global
supplier of precision instruments and services. The Company manufactures weighing instruments for
use in laboratory, industrial, packaging, logistics and food retailing applications. The Company
also manufactures several related analytical instruments and provides automated chemistry solutions
used in drug and chemical compound discovery and development. In addition, the Company manufactures
metal detection and other end-of-line inspection systems used in production and packaging and
provides solutions for use in certain process analytics applications. The Companys primary
manufacturing facilities are located in China, Germany, Switzerland, the United Kingdom and the
United States. The Companys principal executive offices are located in Greifensee, Switzerland and
Columbus, Ohio.
The accompanying interim consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP) and
include all entities in which the Company has control, which are its majority owned subsidiaries.
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 U.S. GAAP have
been condensed or omitted pursuant to such rules and regulations. The interim consolidated
financial statements should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December
31, 2007.
The accompanying interim consolidated financial statements reflect all adjustments which, in
the opinion of management, are necessary for a fair statement of the results of the interim periods
presented. Operating results for the three months ended March 31, 2008 are not necessarily
indicative of the results to be expected for the full year ending December 31, 2008.
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, as well
as disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods. Actual results may differ
from those estimates. A discussion of the Companys critical accounting policies is included in
Managements Discussion and Analysis of Financial Condition and Results of Operations included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2007.
All intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior year amounts to conform to the current year
presentation.
-7-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts represents the Companys best estimate of probable credit losses in
its existing trade accounts receivable. The Company determines the allowance based upon a review of
both specific accounts for collection and the age of the accounts receivable portfolio.
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost, which includes direct
materials, labor and overhead, is generally determined using the first in, first out (FIFO) method.
The estimated net realizable value is based on assumptions for future demand and related pricing.
Adjustments to the cost basis of our inventory are made for excess and obsolete items based on
forecasted usage, orders and technological obsolescence. If actual market conditions are less
favorable than those projected by management, reductions in the value of inventory may be required.
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Raw materials and parts |
|
$ |
93,698 |
|
|
$ |
90,778 |
|
Work-in-progress |
|
|
27,722 |
|
|
|
21,067 |
|
Finished goods |
|
|
78,452 |
|
|
|
61,880 |
|
|
|
|
|
|
|
|
|
|
$ |
199,872 |
|
|
$ |
173,725 |
|
|
|
|
|
|
|
|
Other Intangible Assets
Other intangible assets include indefinite lived assets and definite lived assets which are
subject to amortization. Where applicable, amortization is charged on a straight-line basis over
the expected period to be benefited. The straight-line method of amortization reflects an
appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount
of economic benefits obtained by the Company in each reporting period. The Company assesses the
initial acquisition of intangible assets and the continued accounting for previously recognized
intangible assets and goodwill in accordance with SFAS No. 142 Goodwill and Other Intangible
Assets and SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.
-8-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
Other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
74,020 |
|
|
$ |
(12,005 |
) |
|
$ |
73,946 |
|
|
$ |
(11,363 |
) |
Proven technology and patents |
|
|
33,150 |
|
|
|
(18,920 |
) |
|
|
32,079 |
|
|
|
(18,077 |
) |
Tradename (finite life) |
|
|
1,803 |
|
|
|
(680 |
) |
|
|
1,655 |
|
|
|
(654 |
) |
Tradename (indefinite life) |
|
|
22,434 |
|
|
|
|
|
|
|
22,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
131,407 |
|
|
$ |
(31,605 |
) |
|
$ |
130,114 |
|
|
$ |
(30,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The annual aggregate amortization expense based on the current balance of other intangible
assets is estimated at $4.6 million for 2008, $4.7 million for 2009 and 2010, $4.5 million for 2011
and $4.1 million for 2012. The Company had amortization expense associated with the above
intangible assets of $1.2 million and $1.1 million for the three months ended March 31, 2008 and
2007, respectively.
In addition to the above amortization, the Company had amortization expense associated with
capitalized software of $1.2 million and $1.8 million for the three months ended March 31, 2008 and
2007, respectively.
Warranty
The Company generally offers one-year warranties on most of its products. Product warranties
are recorded at the time revenue is recognized for certain product shipments. While the Company
engages in extensive product quality programs and processes, its warranty obligation is affected by
product failure rates, material usage and service costs incurred in correcting a product failure.
The Companys accrual for product warranties is included in accrued and other liabilities in
the consolidated balance sheets. Changes to the Companys accrual for product warranties are as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
12,949 |
|
|
$ |
10,977 |
|
Accruals for warranties |
|
|
4,161 |
|
|
|
3,187 |
|
Foreign currency translation |
|
|
364 |
|
|
|
221 |
|
Payments / utilizations |
|
|
(3,769 |
) |
|
|
(3,323 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
13,705 |
|
|
$ |
11,062 |
|
|
|
|
|
|
|
|
-9-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
Share-Based Compensation
The Company applies the modified prospective method under SFAS 123R and Staff Accounting
Bulletin (SAB) 107, Share-Based Payments. The Company recognizes compensation expense in
selling, general and administrative expense in the consolidated statement of operations with a
corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company
had $2.5 million and $2.1 million of share-based compensation expense for the three months ended
March 31, 2008 and 2007, respectively.
During the three months ended March 31, 2008, the Company granted 213,850 performance-based
options with a grant-date fair value of $32.20. Compensation expense will be recognized over the
five year vesting provisions based upon the probability of the performance condition being met.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The
Company expenses these costs as incurred.
Fair Value Measurements
On January 1, 2008, the Company adopted the provisions of FASB Statement No. 157, Fair Value
Measurements, (SFAS 157) except as it relates to nonfinancial assets pursuant to FSP 157-b as
described below. SFAS 157 clarifies how companies are required to use a fair value measure for
recognition and disclosure by establishing a common definition of fair value, a framework for
measuring fair value, and expanding disclosures about fair value measurements. The adoption of
SFAS 157 did not have a material impact on the Companys consolidated results of operations or
financial position.
As of March 31, 2008, the Company has derivative assets totaling $1.6 million and derivative
liabilities totaling $0.1 million. These derivative assets and liabilities consist of foreign
currency forward exchange contracts and an interest rate swap agreement. The forward exchange
contracts economically hedge short-term intercompany balances with the Companys foreign
businesses. The interest rate swap agreement changes the Companys fixed interest obligation
associated with $30 million of Senior Notes into a floating rate, and is accounted for as a fair
value hedge. Changes in the fair values of these derivative assets and liabilities were
insignificant to the Companys consolidated results of operations and financial position for the
three month period ended March 31, 2008.
The fair values of these instruments are estimated based upon current valuation information
obtained from dealer quotes, and priced with observable market assumptions and appropriate
valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used
to develop the fair values by dealers in order to determine whether such valuations are
representative of an exit price in the Companys principal market. The Company has also considered
both its own credit risk and counterparty credit risk in determining fair value and determined
these adjustments were insignificant for the three month period ended March 31, 2008.
-10-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The Company has not yet applied the provisions of SFAS 157 to its nonfinancial assets such as
goodwill and other intangible assets, in accordance with FSP 157-b, Effective Date of FASB
Statement No. 157, which will be adopted on January 1, 2009. The Company does not believe that the
adoption of FSP 157-b will have a material impact on its consolidated results of operations or
financial position.
3. INCOME TAXES
The provision for taxes is based upon the Companys projected annual effective tax rate of 26%
for the three months ended March 31, 2008. During the first quarter of 2008, the Company recorded
a discrete tax benefit of $2.5 million related to a favorable withholding tax law change in China.
The net impact of this item decreased the effective tax rate to 21% for the three months ended
March 31, 2008.
4. DEBT
Our short-term borrowings and long-term debt consisted of the following at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Other principal |
|
|
|
|
|
|
|
|
|
|
trading |
|
|
|
|
|
|
U.S. dollar |
|
|
currencies |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$150m Senior notes (net of unamortized discount) |
|
$ |
151,201 |
|
|
$ |
|
|
|
$ |
151,201 |
|
Credit facility |
|
|
234,850 |
|
|
|
72,585 |
|
|
|
307,435 |
|
Other local arrangements (long-term) |
|
|
|
|
|
|
13,219 |
|
|
|
13,219 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
386,051 |
|
|
|
85,804 |
|
|
|
471,855 |
|
Other local arrangements (short-term) |
|
|
|
|
|
|
19,694 |
|
|
|
19,694 |
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
386,051 |
|
|
$ |
105,498 |
|
|
$ |
491,549 |
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, we had $133.2 million of availability remaining under our credit
facility.
-11-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
5. SHARE REPURCHASE PROGRAM AND TREASURY STOCK
The Company has a share repurchase program. Under the program, the Company has been authorized
to buy back up to $1.5 billion of equity shares. As of March 31, 2008, there were $545.5 million of
remaining equity shares authorized to be repurchased under the plan by December 31, 2010. The share
repurchases are expected to be funded from cash balances, borrowings and cash generated from
operating activities. Repurchases will be made through open market transactions, and the timing
will depend on the level of acquisition activity, business and market conditions, the stock price,
trading restrictions and other factors. The Company has purchased 13.9 million shares since the
inception of the program through March 31, 2008.
During the three months ended March 31, 2008 and 2007, the Company spent $95.6 million and
$71.5 million on the repurchase of 954,188 shares and 838,000 shares at an average price of $100.17
and $85.29, respectively. An additional $5.2 million and $5.4 million were cash settled during the
three month period ended March 31, 2008 and March 31, 2007, respectively, related to the settlement
of a liability for shares repurchased as of December 31, 2007 and December 31, 2006, respectively.
The Company reissued 32,760 shares and 180,751 shares held in treasury for the exercise of stock
options and restricted stock units for the three months ended March 31, 2008 and 2007,
respectively. The company also reissued 16,760 shares held in treasury pursuant to its 2007 Share
Plan which extends certain eligible employees the option to receive a percentage of their annual
bonus in shares of the Companys stock.
6. EARNINGS PER COMMON SHARE
In accordance with the treasury stock method, the Company has included the following common
equivalent shares in the calculation of diluted weighted average number of common shares
outstanding for the three month periods ended March 31, relating to outstanding stock options and
restricted stock units.
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Three months ended |
|
|
874,428 |
|
|
|
866,198 |
|
Outstanding options and restricted stock units to purchase 450,150 and 352,700 shares of
common stock for the three month periods ended March 31, 2008 and 2007, respectively, have been
excluded from the calculation of diluted weighted average number of common shares on the grounds
that such options and restricted stock units would be anti-dilutive.
-12-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
7. NET PERIODIC BENEFIT COST
Net periodic cost for the Companys defined benefit pension plans and U.S. post-retirement
medical plan includes the following components for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other U.S. |
|
|
|
U.S. Pension Benefits |
|
|
Non-U.S. Pension Benefits |
|
|
Post-retirement benefits |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost, net |
|
$ |
183 |
|
|
$ |
170 |
|
|
$ |
4,263 |
|
|
$ |
3,922 |
|
|
$ |
109 |
|
|
$ |
101 |
|
Interest cost on projected benefit
obligations |
|
|
1,634 |
|
|
|
1,590 |
|
|
|
6,024 |
|
|
|
4,610 |
|
|
|
323 |
|
|
|
331 |
|
Expected return on plan assets |
|
|
(2,233 |
) |
|
|
(2,072 |
) |
|
|
(8,151 |
) |
|
|
(6,639 |
) |
|
|
|
|
|
|
|
|
Net amortization and deferral |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239 |
) |
|
|
(239 |
) |
Recognition of actuarial losses |
|
|
198 |
|
|
|
515 |
|
|
|
81 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
(218 |
) |
|
$ |
203 |
|
|
$ |
2,217 |
|
|
$ |
2,103 |
|
|
$ |
193 |
|
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously disclosed in the Companys annual report on Form 10-K for the year ended
December 31, 2007, the Company expects to make normal employer contributions of approximately $15.6
million to its non-U.S. pension plans and $2.2 million to its U.S. post-retirement medical plan
during the year ended December 31, 2008.
8. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of interest income, (gains) losses from foreign
currency transactions and other items.
9. SEGMENT REPORTING
As disclosed in Note 15 to the Companys consolidated financial statements for the year ending
December 31, 2007, operating segments are the individual reporting units within the Company. These
units are managed separately and it is at this level where the determination of resource allocation
is made. The units have been aggregated based on operating segments in
geographic regions that have similar economic characteristics and meet the aggregation
criteria of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). The Company has determined there are five reportable segments: U.S. Operations,
Swiss Operations, Western European Operations, Chinese Operations and Other.
The Company evaluates segment performance based on Segment Profit (gross profit less research
and development, selling, general and administrative expenses and restructuring charges, before
amortization, interest expense and other charges (income), net and taxes).
-13-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The following tables show the operations of the Companys operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales to |
|
|
Net Sales to |
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
External |
|
|
Other |
|
|
Total Net |
|
|
Segment |
|
|
|
|
March 31, 2008 |
|
Customers |
|
|
Segments |
|
|
Sales |
|
|
Profit |
|
|
Goodwill |
|
U.S. Operations |
|
$ |
139,613 |
|
|
$ |
12,307 |
|
|
$ |
151,920 |
|
|
$ |
20,424 |
|
|
$ |
248,413 |
|
Swiss Operations |
|
|
31,221 |
|
|
|
77,573 |
|
|
|
108,794 |
|
|
|
23,271 |
|
|
|
552 |
|
Western European Operations |
|
|
157,457 |
|
|
|
20,390 |
|
|
|
177,847 |
|
|
|
9,700 |
|
|
|
123,173 |
|
Chinese Operations |
|
|
42,105 |
|
|
|
22,172 |
|
|
|
64,277 |
|
|
|
12,941 |
|
|
|
794 |
|
Other (a) |
|
|
68,559 |
|
|
|
825 |
|
|
|
69,384 |
|
|
|
4,509 |
|
|
|
9,302 |
|
Eliminations and Corporate (b) |
|
|
|
|
|
|
(133,267 |
) |
|
|
(133,267 |
) |
|
|
(12,549 |
) |
|
|
65,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
438,955 |
|
|
$ |
|
|
|
$ |
438,955 |
|
|
$ |
58,296 |
|
|
$ |
447,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales to |
|
|
Net Sales to |
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
External |
|
|
Other |
|
|
Total Net |
|
|
Segment |
|
|
|
|
March 31, 2007 |
|
Customers |
|
|
Segments |
|
|
Sales |
|
|
Profit |
|
|
Goodwill |
|
U.S. Operations |
|
$ |
140,681 |
|
|
$ |
10,990 |
|
|
$ |
151,671 |
|
|
$ |
17,029 |
|
|
$ |
273,024 |
|
Swiss Operations |
|
|
23,117 |
|
|
|
63,172 |
|
|
|
86,289 |
|
|
|
18,341 |
|
|
|
23,917 |
|
Western European Operations |
|
|
134,234 |
|
|
|
20,094 |
|
|
|
154,328 |
|
|
|
12,459 |
|
|
|
117,728 |
|
Chinese Operations |
|
|
31,122 |
|
|
|
19,882 |
|
|
|
51,004 |
|
|
|
10,529 |
|
|
|
1,871 |
|
Other (a) |
|
|
58,610 |
|
|
|
534 |
|
|
|
59,144 |
|
|
|
4,855 |
|
|
|
17,917 |
|
Eliminations and Corporate (b) |
|
|
|
|
|
|
(114,672 |
) |
|
|
(114,672 |
) |
|
|
(14,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
387,764 |
|
|
$ |
|
|
|
$ |
387,764 |
|
|
$ |
48,707 |
|
|
$ |
434,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other includes reporting units that do not meet the quantitative thresholds
of SFAS 131 and also do not meet the majority of the SFAS 131 aggregation
criteria to be included in the Companys reportable operating segments. |
|
(b) |
|
Eliminations and Corporate includes the elimination of inter-segment
transactions and certain corporate expenses, which are not included in the
Companys operating segments. |
|
|
|
A reconciliation of earnings before taxes to segment profit for the three months ended March 31 follows: |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Earnings before taxes |
|
$ |
48,367 |
|
|
$ |
41,684 |
|
Amortization |
|
|
2,405 |
|
|
|
2,925 |
|
Interest expense |
|
|
5,849 |
|
|
|
4,460 |
|
Other charges (income), net |
|
|
1,675 |
|
|
|
(362 |
) |
|
|
|
|
|
|
|
Segment profit |
|
$ |
58,296 |
|
|
$ |
48,707 |
|
|
|
|
|
|
|
|
-14-
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2008 Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
10. CONTINGENCIES
The Company is party to various legal proceedings, including certain environmental matters,
incidental to the normal course of business. Management does not expect that any of such
proceedings will have a material adverse effect on the Companys financial condition, results of
operations or cash flows.
-15-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included
herein.
General
Our interim consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America on a basis which reflects the interim
consolidated financial statements of Mettler-Toledo International Inc. Operating results for the
three months ended March 31, 2008 are not necessarily indicative of the results to be expected for
the full year ending December 31, 2008.
Results of Operations Consolidated
The following tables set forth certain items from our interim consolidated statements of operations
for the three month periods ended March 31, 2008 and 2007 (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2008 |
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
(unaudited) |
|
|
% |
|
|
(unaudited) |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
438,955 |
|
|
|
100.0 |
|
|
$ |
387,764 |
|
|
|
100.0 |
|
Cost of sales |
|
|
217,803 |
|
|
|
49.6 |
|
|
|
196,285 |
|
|
|
50.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
221,152 |
|
|
|
50.4 |
|
|
|
191,479 |
|
|
|
49.4 |
|
Research and development |
|
|
24,254 |
|
|
|
5.5 |
|
|
|
21,336 |
|
|
|
5.5 |
|
Selling, general and administrative |
|
|
138,602 |
|
|
|
31.6 |
|
|
|
121,436 |
|
|
|
31.3 |
|
Amortization |
|
|
2,405 |
|
|
|
0.6 |
|
|
|
2,925 |
|
|
|
0.8 |
|
Interest expense |
|
|
5,849 |
|
|
|
1.3 |
|
|
|
4,460 |
|
|
|
1.2 |
|
Other charges (income), net |
|
|
1,675 |
|
|
|
0.4 |
|
|
|
(362 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before taxes |
|
|
48,367 |
|
|
|
11.0 |
|
|
|
41,684 |
|
|
|
10.7 |
|
Provision for taxes (a) |
|
|
10,088 |
|
|
|
2.3 |
|
|
|
11,254 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
38,279 |
|
|
|
8.7 |
|
|
$ |
30,430 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
(a) |
|
Includes $2.5 million of a discrete tax benefit for the three months ended March 31,
2008. The discrete item relates to a favorable withholding tax law change in China. |
-16-
Net sales
Net sales were $439.0 million for the three months ended March 31, 2008, compared to $387.8
million for the corresponding period in 2007. This represents an increase in U.S. dollars of 13%
for the three months ended March 31, 2008. Excluding the effect of currency exchange rate
fluctuations, or in local currencies, net sales increased 5% for the three months ended March 31,
2008.
During the three months ended March 31, 2008, our net sales by geographic destination in local
currencies were flat in the Americas, and increased 4% in Europe and by 18% in Asia/Rest of World.
A discussion of sales by operating segment is included below. As further described in our
discussion regarding our U.S. operations segment, the flat sales performance in the Americas
included sales growth in laboratory-related, core industrial and product inspection products offset
by significant declines in retail and transportation and logistics sales. These declines primarily
result from less project activity for the three months ended March 31, 2008 as compared to the
prior year comparable period. Sales in the Americas were also reduced by 1% during 2008 due to
product line exits during the second half of 2007.
As described in Note 15 to our consolidated financial statements for the year ending December
31, 2007, our net sales comprise product sales of precision instruments and related services.
Service revenues are primarily derived from regulatory compliance qualification, calibration,
certification and repair services, much of which are provided under separately priced contracts, as
well as sales of spare parts.
Net sales of products increased by 14% in U.S. dollars during the three months ended March 31,
2008 compared to the corresponding period and by 6% in local currencies. Service revenue
(including spare parts) increased by 10% in U.S. dollars during the three months ended March 31,
2008 compared to the corresponding period in 2007 and by 2% in local currencies.
Net sales for our laboratory-related products increased 9% in local currencies during the
three months ended March 31, 2008, principally driven by strong growth across most product
categories, especially process analytics, analytical instruments and laboratory balances. Our
laboratory-related product sales were also reduced by 1% during 2008 due to product line exits.
Net sales of our industrial-related products increased 7% in local currencies for the three
months ended March 31, 2008. We experienced strong sales growth in our core industrial products
throughout most geographies, particularly China, as well as solid sales growth in our product
inspection products. These results were offset in part by reduced sales in transportation and
logistics products related to significant project activity in the prior year comparable period.
In our food retailing markets, net sales decreased 11% in local currencies during the three
months ended March 31, 2008 primarily due to decreased sales in the U.S., as well as a modest
decline in Europe. Decreased sales in the U.S. primarily relate to difficult comparisons resulting
from strong project activity and benefits associated with products announced for phase-out in the
prior year.
Gross profit
Gross profit as a percentage of net sales was 50.4% for the three months ended March 31, 2008,
compared to 49.4% for the corresponding period in 2007.
-17-
Gross profit as a percentage of net sales for products was 55.0% for the three months ended
March 31, 2008, compared to 54.2% for the corresponding period in 2007.
Gross profit as a percentage of net sales for services (including spare parts) was 35.3% for
the three months ended March 31, 2008, compared to 34.2% for the corresponding period in 2007.
The increase in gross profit reflects benefits from our sales volume leveraging our fixed
production costs and favorable product mix, partially offset by increased material costs, most
notably steel prices and a dilution in the gross profit margin from the weakening U.S. dollar.
However, it should be noted that the weakening U.S. dollar did not have a material impact on our
earnings before taxes.
Research and development and selling, general and administrative expenses
Research and development expenses as a percentage of net sales were 5.5% for the three months
ended March 31, 2008 and for the corresponding period in 2007. Research and development expenses
increased 4%, in local currencies, during the three months ended March 31, 2008, compared to the
corresponding period in 2007.
Selling, general and administrative expenses as a percentage of net sales were 31.6% for the
three months ended March 31, 2008, compared to 31.3% for the corresponding period in 2007.
Selling, general and administrative expenses increased 6%, in local currencies, during the three
months ended March 31, 2008, compared to the corresponding periods in 2007. This is primarily due
to continued sales and marketing investments, especially in China and other emerging market
countries, as well as costs associated with upcoming product launches and severance expense related
to our cost-reduction activities, partially offset by a gain associated with an asset sale.
Interest expense, other income, net, taxes
Interest expense was $5.8 million for the three months ended March 31, 2008 compared to $4.5
million for the corresponding period in 2007. The increase is due to increased borrowings versus
the comparable period in 2007 as well as higher average borrowing rates in 2008.
Other charges (income), net consists primarily of interest income, as well as (gains) losses
from foreign currency transactions, and other items. The decrease in other charges (income), net of
$2.0 million compared to the prior year is primarily due to reduced interest income associated with
lower cash balances as well as unfavorable foreign currency fluctuations.
The provision for taxes is based upon our projected annual effective tax rate of 26% and 27%
for the three months ended March 31, 2008 and 2007, respectively. The Company recorded a discrete
tax benefit of $2.5 million related to a favorable withholding tax law change in China during the
first quarter of 2008. The impact of this item decreased the effective tax rate to 21% for the
three months ended March 31, 2008.
Results of Operations by Operating Segment
The following is a discussion of the financial results of our operating segments. We
currently have five reportable segments: U.S. Operations, Swiss Operations, Western European
Operations, Chinese Operations and Other. A more detailed description of these segments is
outlined in Note 15 to our consolidated financial statements for the year ending December 31, 2007.
-18-
U.S. Operations (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
2008 |
|
2007 |
|
%1) |
Total net sales |
|
$ |
151,920 |
|
|
$ |
151,671 |
|
|
|
0 |
% |
Net sales to external customers |
|
$ |
139,613 |
|
|
$ |
140,681 |
|
|
|
-1 |
% |
Segment profit |
|
$ |
20,424 |
|
|
$ |
17,029 |
|
|
|
20 |
% |
|
|
|
1) |
|
Represents U.S. dollar growth (decline) for net sales and segment profit. |
Total net sales and net sales to external customers for the three months ended March 31, 2008
were consistent with the corresponding period in 2007 reflecting solid growth in our
laboratory-related, core industrial and product inspection products, offset by significantly
reduced sales in retail and transportation and logistics, which were both related to strong project
activity during the previous year. Our U.S. retail business also benefited during the prior year
period from sales of products announced for phase-out. Net sales to external customers were also
reduced during 2008 by 1% due to product line exits.
Segment profit increased $3.4 million for the three months ended March 31, 2008 compared to
the corresponding period in 2007. The increase in segment profit was primarily due to improved
variable contribution margins, in part due to favorable product mix.
Swiss Operations (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
2008 |
|
2007 |
|
%1) |
Total net sales |
|
$ |
108,794 |
|
|
$ |
86,289 |
|
|
|
26 |
% |
Net sales to external customers |
|
$ |
31,221 |
|
|
$ |
23,117 |
|
|
|
35 |
% |
Segment profit |
|
$ |
23,271 |
|
|
$ |
18,341 |
|
|
|
27 |
% |
|
|
|
1) |
|
Represents U.S. dollar growth (decline) for net sales and segment profit. |
Total net sales increased by 9% in local currency for the three month period ended March 31,
2008. Net sales in local currency to external customers increased 17% for the three month period
compared to the corresponding period in 2007. The increase in sales to external customers related
primarily to strong growth in our laboratory-related products. We also continued to experience
strong export sales growth to emerging markets.
Segment profit increased $4.9 million for the three months ended March 31, 2008 compared to
the corresponding period in 2007. The increase in segment profit in 2008 is primarily due to
increased sales volume leveraging our fixed production costs, partially offset by unfavorable
currency translation fluctuations, increased research and development activities and sales and
marketing investments, relating in part to upcoming product launches.
Western European Operations (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
2008 |
|
2007 |
|
%1) |
Total net sales |
|
$ |
177,847 |
|
|
$ |
154,328 |
|
|
|
15 |
% |
Net sales to external customers |
|
$ |
157,457 |
|
|
$ |
134,234 |
|
|
|
17 |
% |
Segment profit |
|
$ |
9,700 |
|
|
$ |
12,459 |
|
|
|
-22 |
% |
|
|
|
1) |
|
Represents U.S. dollar growth (decline) for net sales and segment profit. |
-19-
Total net sales increased 2% in local currency for the three months ended March 31, 2008. Net
sales in local currency to external customers increased 4% for the three month period compared to
the corresponding period in 2007. The increase is primarily due to sales growth in our
laboratory-related products, offset by a modest decline in retail sales.
Segment profit decreased $2.8 million for the three months ended March 31, 2008 compared to
the corresponding period in 2007. The decrease in segment profit is principally a result of
increased marketing and selling investments and severance charges of $2.4 million associated with
our cost reduction initiatives partially offset by favorable currency translation fluctuations.
Chinese Operations (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
2008 |
|
2007 |
|
%1) |
Total net sales |
|
$ |
64,277 |
|
|
$ |
51,004 |
|
|
|
26 |
% |
Net sales to external customers |
|
$ |
42,105 |
|
|
$ |
31,222 |
|
|
|
35 |
% |
Segment profit |
|
$ |
12,941 |
|
|
$ |
10,529 |
|
|
|
23 |
% |
|
|
|
1) |
|
Represents U.S. dollar growth (decline) for net sales and segment profit. |
Total net sales increased 16% in local currency for the three months ended March 31, 2008.
Net sales in local currency to external customers increased 25% for the three month period compared
to the corresponding period in 2007. These increases were due to continued sales growth for most
product lines, particularly industrial products.
Segment profit increased $2.4 million for the three months ended March 31, 2008 compared to
the corresponding period in 2007. The increase in segment profit is primarily due to increased
sales volume, partially offset by continued investments in both sales and marketing initiatives and
research and development activities.
Other (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
2008 |
|
2007 |
|
%1) |
Total net sales |
|
$ |
69,384 |
|
|
$ |
59,144 |
|
|
|
17 |
% |
Net sales to external customers |
|
$ |
68,559 |
|
|
$ |
58,610 |
|
|
|
17 |
% |
Segment profit |
|
$ |
4,509 |
|
|
$ |
4,855 |
|
|
|
-7 |
% |
|
|
|
1) |
|
Represents U.S. dollar growth (decline) for net sales and segment profit. |
Total net sales increased 7% in local currency for the three months ended March 31, 2008. Net
sales in local currency to external customers increased 6% for the three month period compared to
the corresponding period in 2007. This performance reflects increased sales in our Other North
American and Other Asian Pacific markets.
Segment profit decreased $0.3 million for the three months ended March 31, 2008 compared to
the corresponding period in 2007. Segment profit decreased during the three months ended March 31,
2008 primarily due to reduced profitability in our Canadian operations, partially offset by
increased profitability in Other Asian Pacific markets.
-20-
Liquidity and Capital Resources
Liquidity is our ability to generate sufficient cash flows from operating activities to meet
our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate
financing. Currently, our liquidity needs arise primarily from working capital requirements,
capital expenditures, share repurchases and acquisitions.
Cash provided by operating activities totaled $8.2 million in the three months ended March 31,
2008, compared to $32.3 million in the corresponding period in 2007. The decrease in 2008 resulted
principally from higher payments of approximately $11.5 million related to 2007 performance-related
compensation incentives (bonus payments), reduced accounts payable balances of $20.1 million and
the timing of tax disbursements of $8.1 million.
Cash flows from investing activities during the three months ended March 31, 2008 included
$12.5 million of proceeds from the sale of a Swiss property.
Capital expenditures are made primarily for investments in information systems and technology,
machinery, equipment and the purchase and expansion of facilities. Our capital expenditures totaled
$7.4 million for the three months ended March 31, 2008 compared to $7.9 million in the
corresponding period in 2007. We expect capital expenditures to increase as our business grows, and
to fluctuate as currency exchange rates change.
Senior Notes and Credit Facility Agreement
Our short-term borrowings and long-term debt consisted of the following at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Other principal |
|
|
|
|
|
|
U.S. dollar |
|
|
trading currencies |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$150m Senior notes (net of unamortized discount) |
|
$ |
151,201 |
|
|
$ |
|
|
|
$ |
151,201 |
|
Credit facility |
|
|
234,850 |
|
|
|
72,585 |
|
|
|
307,435 |
|
Other local arrangements (long-term) |
|
|
|
|
|
|
13,219 |
|
|
|
13,219 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
386,051 |
|
|
|
85,804 |
|
|
|
471,855 |
|
Other local arrangements (short-term) |
|
|
|
|
|
|
19,694 |
|
|
|
19,694 |
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
386,051 |
|
|
$ |
105,498 |
|
|
$ |
491,549 |
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, we had $133.2 million of availability remaining under our credit
facility. Changes in exchange rates between the currencies in which we generate cash flows and the
currencies in which our borrowings are denominated affect our liquidity. In addition, because we
borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates.
We currently believe that cash flow from operating activities, together with liquidity
available under our Amended Credit Agreement and local working capital facilities, will be
sufficient to fund currently anticipated working capital needs and capital spending requirements.
We continue to explore potential acquisitions. In connection with any acquisition, we may
incur additional indebtedness.
-21-
Share repurchase program
We have a share repurchase program. Under the program, we are authorized to buy back up to
$1.5 billion of equity shares. As of March 31, 2008, there were $545.5 million of remaining equity
shares authorized to be repurchased under the plan by December 31, 2010. The share repurchases are
expected to be funded from cash balances, borrowings and cash generated from operating activities.
Repurchases will be made through open market transactions, and the timing will depend on the level
of acquisition activity, business and market conditions, the stock price, trading restrictions and
other factors. We have purchased 13.9 million shares since the inception of the program through
March 31, 2008.
We spent $95.6 million and $71.5 million on the repurchase of 954,188 shares and 838,000
shares at an average price of $100.17 and $85.29 during the three months ended March 31, 2008 and
2007, respectively, as well as an additional $5.2 million and $5.4 million during the three month
periods ended March 31, 2008 and March 31, 2007, respectively, relating to the settlement of shares
repurchased as of December 31, 2007 and December 31, 2006, respectively. See Part II Item 2
regarding details of the share repurchase program for the three months ended March 31, 2008. The
Company reissued 32,760 shares and 180,751 shares held in treasury for the exercise of stock
options and restricted stock units for the three months ended March 31, 2008 and 2007,
respectively. The company also reissued 16,760 shares held in treasury pursuant to its 2007 share
plan which extends certain eligible employees the option to receive a percentage of their annual
bonus in shares of the Companys stock.
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 Switzerland. Moreover, a substantial percentage of our research and
development expenses and general and administrative expenses are incurred in Switzerland.
Therefore, if the Swiss franc strengthens against all or most of our major trading currencies
(e.g., the U.S. dollar, the Euro, other major European currencies and the Japanese yen), our
operating profit is reduced. We also have significantly more sales in European currencies (other
than the Swiss franc) than we have expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating
profits. Accordingly, the Swiss franc exchange rate to the Euro is an important cross-rate
monitored by the Company. We estimate that a 1% strengthening of the Swiss franc against the Euro
would result in a decrease in our earnings before tax of approximately $1.1 to $1.3 million on an
annual basis. In addition to the effects of exchange rate movements on operating profits, our debt
levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the
Swiss franc. Based on our outstanding debt at March 31, 2008, we estimate that a 10% weakening of
the U.S. dollar against the currencies in which our debt is denominated would result in an increase
of approximately $11.7 million in the reported U.S. dollar value of the debt.
New Accounting Pronouncements
See Fair Value Measurements under Note 2 to the interim consolidated financial statements.
-22-
Forward-Looking Statements and Associated Risks
Some of the statements in this quarterly report constitute forward-looking statements within
the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S.
Securities Exchange Act of 1934. These statements relate to future events or our future financial
performance, including, but not limited to, strategic plans, annual amortization expense, outcome
of litigation, effect of potential loss of licensed rights, potential growth opportunities in both
developed markets and emerging markets, planned research and development efforts, product
introductions and innovation, manufacturing capacity, expected customer demand, meeting customer
expectations, planned operational changes and productivity improvements, research and development
expenditures, competitors product development, expected capital expenditures, source of funding,
method and timing of share repurchases, timing and effect of potential exercises of options, future
cash sources and requirements, liquidity, impact of taxes, impact of changes in tax laws, expected
compliance with laws, impact of environmental costs and environmental proceedings, expected pension
contribution, expected cost savings and benefits of completed or future acquisitions, which involve
known and unknown risks, impact of currency fluctuations, uncertainties and other factors that may
cause our or our businesses actual results, levels of activity, performance or achievements to be
materially different from those expressed or implied by any forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as may,
will, could, would, should, expect, plan, anticipate, intend, believe,
estimate, predict, potential or continue or the negative of those terms or other comparable
terminology. These statements are only predictions. Actual events or results may differ materially
because of market conditions in our industries or other factors. Moreover, we do not, nor does any
other person, assume responsibility for the accuracy and completeness of those statements. Unless
otherwise required by applicable laws, we disclaim any intention or obligation to publicly update
or revise any of the forward-looking statements after the date of this quarterly report to conform
them to actual results, whether as a result of new information, future events, or otherwise. All of
the forward-looking statements are qualified in their entirety by reference to the factors
discussed under the caption, Factors affecting our future operating results in Part I, Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2007, which describes risks and
factors that could cause results to differ materially from those projected in those forward-looking
statements.
We caution the reader that the above list of risks and factors that may affect results
addressed in the forward-looking statements may not be exhaustive. Other sections of this quarterly
report and other documents incorporated by reference may describe additional risks or factors that
could adversely impact our business and financial performance. We operate in a continually changing
business environment, and new risk factors emerge from time to time. Management cannot predict
these new risk factors, nor can it assess the impact, if any, of these new risk factors on our
businesses or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those projected in any forward-looking statements. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual results.
-23-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2008, there was no material change in the information provided under Item 7A
in the Companys Annual Report on Form 10-K for the year ended December 31, 2007.
Item 4. Controls and Procedures
Our management carried out an evaluation of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this quarterly report under the supervision and
with the participation of our disclosure committee, our CFO and CEO. Based upon that evaluation,
our CFO and CEO concluded that our disclosure controls and procedures are effective in permitting
us to comply with our disclosure obligations and ensure that the material information required to
be disclosed is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC. There were no changes in our internal controls over financial
reporting during the three months ended March 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our controls over financial reporting.
-24-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 1A. Risk Factors.
For the three months ended March 31, 2008 there were no material changes from risk factors as
disclosed in Part I, Item 1A of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
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(a) |
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(b) |
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(c) |
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(d) |
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Total Number of |
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Maximum Number |
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Shares |
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(or Approximate Dollar |
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Purchased as |
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Value in Thousands) |
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Part of Publicly |
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of Shares that May |
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Total Number |
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Average |
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Announced |
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Yet Be Purchased |
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of Shares |
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Price Paid per |
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Plans or |
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Under the Plans |
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Purchased |
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Share |
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Programs |
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or Programs |
January 1 to January 31, 2008 |
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335,000 |
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$ |
103.87 |
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335,000 |
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$ |
606,281 |
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February 1 to February 28, 2008 |
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375,800 |
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$ |
101.20 |
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375,800 |
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$ |
568,242 |
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March 1 to March 31, 2008 |
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243,388 |
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$ |
93.48 |
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243,388 |
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$ |
545,486 |
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Total |
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954,188 |
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$ |
100.17 |
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954,188 |
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$ |
545,486 |
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The Company has a share repurchase program. Under the program the Company has been authorized
to buy back up to $1.5 million of equity shares. As of March 31, 2008, there were $545.5 million of
remaining equity shares authorized to be repurchased under the plan by December 31, 2010. The
Company has purchased 13.9 million shares since the inception of the program, announced February
2004, through March 31, 2008.
The Company spent $95.6 million and $71.5 million on the repurchase of 954,188 shares and
838,000 shares at an average price of $100.17 and $85.29 during the three months ended March 31,
2008 and 2007, respectively, as well as an additional $5.2 million and $5.4 million during the
three month periods ended March 31, 2008 and March 31, 2007, respectively, related to the
settlement of shares repurchased as of December 31, 2007 and December 31, 2006, respectively. The
Company reissued 32,760 shares and 180,751 shares held in treasury for the exercise of stock
options and restricted stock units for the three months ended March 31, 2008 and 2007,
respectively. The company also reissued 16,760 shares held in treasury pursuant to its 2007 share
plan which extends certain eligible employees the option to receive a percentage of their annual
bonus in shares of the Companys stock.
-25-
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other information. None
Item 6. Exhibits.
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31.1 |
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Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes Oxley Act of 2002 |
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31.2 |
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Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes Oxley Act of 2002 |
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32 |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
-26-
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 thereunto duly authorized.
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Mettler-Toledo International Inc.
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Date: April 25, 2008 |
By: |
/s/ William P. Donnelly
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William P. Donnelly |
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Group Vice President and
Chief Financial Officer |
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-27-