SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001, OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- ------------------- 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 40,157,813 shares of Common Stock outstanding at September 30, 2001.
METTLER-TOLEDO INTERNATIONAL INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q Page No. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Interim Consolidated Financial Statements: Interim Consolidated Balance Sheets as of September 30, 2001 3 and December 31, 2000 Interim Consolidated Statements of Operations for the nine 4 months ended September 30, 2001 and 2000 Interim Consolidated Statements of Operations for the three 5 months ended September 30, 2001 and 2000 Interim Consolidated Statements of Shareholders' Equity 6 for the nine months ended September 30, 2001 and 2000 Interim Consolidated Statements of Cash Flows for the nine 7 months ended September 30, 2001 and 2000 Notes to the Interim Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 14 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Part II. OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 2. Changes in Security 20 Item 3. Default upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21
Part I. FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED BALANCE SHEETS As of September 30, 2001 and December 31, 2000 (In thousands, except per share data) <CAPTION> September 30, December 31, 2001 2000 ---- ---- (unaudited) ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $24,708 $21,725 Trade accounts receivable, net 218,550 212,570 Inventories, net 144,799 141,677 Other current assets and prepaid expenses 43,753 47,367 ---------- ---------- Total current assets 431,810 423,339 Property, plant and equipment, net 193,270 199,388 Excess of cost over net assets acquired, net 235,255 228,035 Other assets 43,575 36,820 ---------- ---------- Total assets $903,910 $887,582 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $59,142 $80,513 Accrued and other liabilities 112,021 97,575 Accrued compensation and related items 46,744 51,968 Taxes payable 77,569 68,537 Short-term borrowings and current maturities of long-term debt 49,974 50,560 ---------- ---------- Total current liabilities 345,450 349,153 Long-term debt 201,094 237,807 Non-current deferred taxes 24,750 25,939 Other non-current liabilities 100,474 95,843 ---------- ---------- Total liabilities 671,768 708,742 Shareholders' equity: Preferred stock, $0.01 par value per share; authorized 10,000,000 shares - - Common stock, $0.01 par value per share; authorized 125,000,000 shares; issued 40,157,813 shares at September 30, 2001 and 39,372,873 shares at December 31, 2000 401 393 Additional paid-in capital 304,301 294,558 Accumulated deficit (26,743) (68,307) Accumulated other comprehensive loss (45,817) (47,804) ---------- ---------- Total shareholders' equity 232,142 178,840 Commitments and contingencies ---------- ---------- Total liabilities and shareholders' equity $903,910 $887,582 ========== ========== </TABLE> The accompanying notes are an integral part of these interim consolidated financial statements.
<TABLE> METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS Nine months ended September 30, 2001 and 2000 (In thousands, except per share data) <CAPTION> September 30 September 30 2001 2000 ---- ---- (unaudited) (unaudited) <S> <C> <C> Net sales $829,741 $797,677 Cost of sales 453,558 443,166 ---------- ----------- Gross profit 376,183 354,511 Research and development 46,480 41,375 Selling, general and administrative 220,097 216,698 Amortization 9,706 8,403 Interest expense 13,402 15,212 Other charges, net 15,294 847 ---------- ----------- Earnings before taxes and minority interest 71,204 71,976 Provision for taxes 29,640 25,195 Minority interest - (38) ---------- ----------- Net earnings $41,564 $46,819 ========== =========== Basic earnings per common share: Net earnings $1.04 $1.21 Weighted average number of common shares 39,995,729 38,739,547 Diluted earnings per common share: Net earnings $0.98 $1.11 Weighted average number of common shares 42,491,493 42,032,434 </TABLE> The accompanying notes are an integral part of these interim consolidated financial statements.
<TABLE> METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended September 30, 2001 and 2000 (In thousands, except per share data) <CAPTION> September 30 September 30 2001 2000 ---- ---- (unaudited) (unaudited) <S> <C> <C> Net sales $285,064 $270,003 Cost of sales 154,040 149,319 ---------- ---------- Gross profit 131,024 120,684 Research and development 16,170 14,093 Selling, general and administrative 75,973 72,460 Amortization 3,469 2,785 Interest expense 4,056 4,813 Other charges (income), net (4) 220 ---------- ---------- Earnings before taxes and minority interest 31,360 26,313 Provision for taxes 10,976 9,216 Minority interest - (37) ---------- ---------- Net earnings $20,384 $17,134 ========== ========== Basic earnings per common share: Net earnings $0.51 $0.44 Weighted average number of common shares 40,157,813 38,753,185 Diluted earnings per common share: Net earnings $0.48 $0.41 Weighted average number of common shares 42,463,944 42,198,943 </TABLE> The accompanying notes are an integral part of these interim consolidated financial statements.
<TABLE> METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Nine months ended September 30, 2001 and 2000 (In thousands, except per share data) (unaudited) <CAPTION> Accumulated Common Stock Additional Other All Classes Paid-in Accumulated Comprehensive -------------------------------- Shares Amount Capital Deficit Loss Total ------ ------ ------- ------- ---- ----- <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000 39,372,873 $393 $294,558 $(68,307) $(47,804) $178,840 Exercise of stock options 784,940 8 9,743 9,751 Comprehensive income: Net earnings 41,564 41,564 Fair value of cash-flow hedging instruments (3,094) (3,094) Change in currency translation adjustment 5,081 5,081 ---------- Comprehensive income 43,551 ------------ ---------- ----------- ----------- ------------ ---------- Balance at September 30, 2001 40,157,813 $401 $304,301 $(26,743) $(45,817) $232,142 ============ ========== =========== =========== ============ ========== Balance at December 31, 1999 38,674,768 $386 $288,092 $(138,426) $(38,037) $112,015 Exercise of stock options 78,417 1 853 - - 854 Comprehensive income: Net earnings - - - 46,819 - 46,819 Change in currency translation adjustment - - - - (14,102) (14,102) ---------- Comprehensive income 32,717 ------------ ---------- ----------- ----------- ------------ ---------- Balance at September 30, 2000 38,753,185 $387 $288,945 $(91,607) $(52,139) $145,586 ============ ========== =========== =========== ============ ========== </TABLE> The accompanying notes are an integral part of these interim consolidated financial statements.
<TABLE> METTLER-TOLEDO INTERNATIONAL INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 2001 and 2000 (In thousands) <CAPTION> September 30, September 30, 2001 2000 ------------- ------------- (unaudited) (unaudited) <S> <C> <C> Cash flow from operating activities: Net earnings $41,564 $46,819 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 16,898 16,011 Amortization 9,706 8,403 Other (575) (197) Increase (decrease) in cash resulting from changes in: Trade accounts receivable, net (8,393) (10,060) Inventories (3,876) (13,193) Other current assets (4,762) (4,417) Trade accounts payable (21,680) (19,152) Accruals and other liabilities, net (a) 28,096 13,623 ---------- ---------- Net cash provided by operating activities 56,978 37,837 ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 2,856 635 Purchase of property, plant and equipment (21,761) (18,317) Acquisitions, net of seller financing (b) (7,856) (18,170) ---------- ---------- Net cash used in investing activities (26,761) (35,852) ---------- ---------- Cash flows from financing activities: Proceeds from borrowings 53,072 46,203 Repayments of borrowings (89,173) (50,111) Proceeds from issuance of common stock 9,751 854 ---------- ---------- Net cash used in financing activities (26,350) (3,054) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (884) (427) ---------- ---------- Net increase (decrease) in cash and cash equivalents 2,983 (1,496) Cash and cash equivalents: Beginning of period $21,725 $17,179 ---------- ---------- End of period $24,708 $15,683 ========== ========== </TABLE> (a) Accruals and other liabilities include payments for restructuring and certain acquisition integration activities of $8.4 million in 2001 and $4.5 million in 2000. (b) Amounts paid for acquisitions including seller financing and assumed debt retained by sellers were $15.4 million in 2001. The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (In thousands unless otherwise stated) 1. BASIS OF PRESENTATION Mettler-Toledo International Inc. ("Mettler Toledo" or the "Company") is a global manufacturer and marketer of precision instruments, including weighing and certain analytical and measurement technologies, for use in laboratory, industrial and food retailing applications. The Company is also a leading provider of automated chemistry solutions used in drug and chemical compound discovery and development. The Company's primary manufacturing facilities are located in Switzerland, the United States, Germany, the United Kingdom, France and China. The Company's principal executive offices are located in Greifensee, Switzerland. The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements as of September 30, 2001 and for the nine and three month periods ended September 30, 2001 and 2000 should be read in conjunction with the December 31, 2000 and 1999 consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The accompanying interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the nine and three month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year ending December 31, 2001. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES Inventories are valued at the lower of cost or market. Cost, which includes direct materials, labor and overhead plus indirect overhead, is determined using either the first in, first out (FIFO) or weighted average cost methods and to a lesser extent the last in, first out (LIFO) method. Inventories consisted of the following at September 30, 2001 and December 31, 2000: September 30, December 31, 2001 2000 ------------- ------------- Raw materials and parts $70,650 $67,379 Work in progress 31,067 37,289 Finished goods 44,300 38,148 ------------- ------------- 146,017 142,816 LIFO reserve (1,219) (1,139) ------------- ------------- $144,798 $141,677 ============= ============= EARNINGS PER COMMON SHARE As described in Note 10 in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, in accordance with the treasury stock method, the Company has included the following equivalent shares relating to 4,329,372 outstanding options to purchase shares of common stock in the calculation of diluted weighted average number of common shares for the nine and three month periods ended September 30, 2001 and 2000, respectively. September 30, September 30, 2001 2000 ---------------- ---------------- Nine months ended 2,495,764 3,292,887 Three months ended 2,306,131 3,445,758
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 3. FINANCIAL INSTRUMENTS The Company adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended, on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. As discussed more fully in Note 5 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000, the Company reduces its exposure to changes in interest rates through the use of interest rate swap and cap agreements. The fair value of outstanding interest rate swap and cap agreements that are effective cash flow hedges at September 30, 2001 is included in the Company's Consolidated Statement of Shareholders' Equity. The cumulative effect of adopting SFAS 133 as of January 1, 2001 was not material to the Company's consolidated financial statements. 4. OTHER CHARGES (INCOME), NET Other charges (income), net consists primarily of foreign currency transactions, interest income, and charges related to the Company's cost-reduction programs. As part of its efforts to reduce costs, the Company recorded a charge of $15.2 million ($14.6 million after tax) during the nine months ended September 30, 2001, associated primarily with headcount reductions and manufacturing transfers. The charge comprised severance, write-downs of impaired assets to be disposed and other exit costs. The Company expects to involuntarily terminate approximately 350 employees and to substantially complete the manufacturing transfers by the end of 2001.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 4. OTHER CHARGES (INCOME), NET (Continued) A roll-forward of the Company's accrual for restructuring activities follows: <TABLE> <CAPTION> For the nine months ended Employee Asset Lease September 30, 2001 related write-downs termination Other Total - ------------------ ------- ----------- ----------- ----- ----- (a) (b) (c) (d) <S> <C> <C> <C> <C> <C> Beginning of period $ 2,141 $ - $ 779 $ 60 $ 2,980 Restructuring expense 8,848 4,721 464 1,163 15,196 Cash payments (5,468) - (132) (548) (6,148) Increase in retirement benefit obligation (2,114) - - - (2,114) Non-cash write-downs of impaired assets - (4,721) - - (4,721) Impact of foreign currency (16) - - - (16) ---------- ---------- -------- ------ -------- End of period $ 3,391 $ - $ 1,111 $ 675 $ 5,177 ========== ========== ======== ====== ======== </TABLE> (a) Employee related costs include severance and early retirement costs for 350 employees, of which 201 had been terminated as of September 30, 2001. These employees include positions primarily in manufacturing, as well as administrative and other personnel, primarily at the Company's Principal U.S. Operations. The remaining employee terminations and related cash outflows are expected to be substantially complete by the end of 2001. The increase in the Company's retirement benefit obligation represents enhanced early retirement benefits provided to terminated employees. (b) The asset impairments primarily relate to plant and equipment, and production component disposals resulting from the exit of certain manufacturing facilities. Fair value of these assets was determined on the basis of their net realizable value on disposal. Substantially all of the impaired assets were physically disposed as of September 30, 2001. (c) Lease termination costs primarily relate to the early termination of leases on vacated property. (d) Other costs include expenses associated with equipment dismantling and disposal and other exit costs.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 5. SEGMENT REPORTING The Company has five reportable segments: Principal U.S. Operations, Principal Central European Operations, Swiss R&D and Manufacturing Operations, Other Western European Operations and Other. The following tables show the operations of the Company's operating segments for the nine month period ended September 30: <TABLE> <CAPTION> Principal Central Swiss R&D Other Western Eliminations Principal U.S. European and Mfg. European and September 30, 2001 Operations Operations Operations Operations Other (a) Corporate(b) Total ------------------ ---------- ---------- ---------- ---------- --------- ------------ ----- <S> <C> <C> <C> <C> <C> <C> <C> Net sales to external customers... $266,446 $137,292 $ 19,126 $191,424 $215,454 $ - $829,742 Net sales to other segments....... 23,008 42,487 106,837 32,501 108,994 (313,827) - -------- -------- -------- -------- -------- -------- -------- Total net sales................... $289,454 $179,779 $125,963 $223,925 $324,448 $(313,827) $829,742 ======== ======== ======== ======== ======== ======== ======== Adjusted operating income......... $ 17,490 $ 20,742 $ 26,763 $ 16,285 $ 31,311 $ (2,986) $109,605 </TABLE> <TABLE> <CAPTION> Principal Central Swiss R&D Other Western Eliminations Principal U.S. European and Mfg. European and September 30, 2000 Operations Operations Operations Operations Other (a) Corporate(b) Total ------------------ ---------- ---------- ---------- ---------- --------- ------------ ----- <S> <C> <C> <C> <C> <C> <C> <C> Net sales to external customers... $271,219 $131,256 $ 20,787 $185,506 $188,909 $ - $797,677 Net sales to other segments....... 30,638 37,840 104,460 30,722 86,719 (290,379) - -------- -------- -------- -------- -------- ---------- -------- Total net sales................... $301,857 $169,096 $125,247 $216,228 $275,628 $(290,379) $797,677 ======== ======== ======== ======== ======== ========== ======== Adjusted operating income......... $ 31,412 $ 14,816 $ 25,636 $ 12,184 $ 18,695 $ (6,305) $ 96,438 </TABLE> (a) Other includes reporting units in Asia, Eastern Europe, Latin America and segments from other countries that do not meet the aggregation criteria of SFAS 131. (b) Eliminations and Corporate includes the elimination of intersegment transactions as well as certain corporate expenses, intercompany investments and certain goodwill, which are not included in the Company's operating segments.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands unless otherwise stated) 5. SEGMENT REPORTING (Continued) A reconciliation of adjusted operating income to earnings before taxes and minority interest for the nine month period ended September 30 follows: September 30, September 30, 2001 2000 ------------ ------------ Adjusted operating income.................... $109,606 $96,438 Amortization................................. 9,706 8,403 Interest expense............................. 13,402 15,212 Other charges, net........................... 15,294 (a) 847 --------- -------- Earnings before taxes and minority interest.. $ 71,204 $71,976 ========= ======== (a) Includes a charge of $15.2 million, which comprises severance, asset write-downs and other costs, primarily related to headcount reductions and manufacturing transfers. 6. SUBSEQUENT EVENTS In October 2001, the Company announced that it had entered into a definitive agreement with Rainin Instrument Company Inc., a Massachusetts corporation, and Mr Kenneth Rainin, to acquire all of the issued and outstanding membership units of Rainin Instrument, LLC, a Delaware limited liability company for a cash purchase price of $147,892,038 plus 3,388,132 shares of the Company's common stock, plus an additional contingent payment, if any, of up to $60,000,000. Up to half of any additional contingent payment may be paid in shares of the Company's common stock and the remainder will be paid in cash. The acquisition is subject to certain customary closing conditions including receipt of antitrust and other regulatory approvals.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein. GENERAL Our interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America on a basis which reflects the interim consolidated financial statements of Mettler-Toledo International Inc. Operating results for the nine and three months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year ending December 31, 2001. RESULTS OF OPERATIONS Net sales were $829.7 million and $285.1 million for the nine and three month periods ended September 30, 2001 compared to $797.7 million and $270.0 million for the corresponding periods in the prior year. This represents increases of 7% in local currencies for both the nine and three month periods. Results were negatively impacted by the strengthening of the U.S. dollar against other currencies. Net sales in U.S. dollars during the nine and three month periods increased 4% and 6%, respectively. Net sales by geographic customer location were as follows: Net sales in Europe increased 10% in local currencies during both the nine and three month periods ended September 30, 2001 versus the corresponding periods in the prior year, principally due to strong results in our retail product lines related to the upcoming introduction of the euro currency. Net sales in local currencies during the nine and three month periods in the Americas increased 2% and 1% respectively as compared to the corresponding periods in 2000. Net sales in local currencies during the nine-month period in Asia and other markets increased 17%, while net sales in local currencies in the three-month period increased 22%, compared to the same periods in the prior year. The results of our business in Asia and other markets during the three-month period ending September 30, 2001 reflect strong performance in China and Japan, offset primarily by results in other markets. Net sales growth in the Americas was lower than Europe and Asia and other markets primarily due to a deterioration in economic conditions. To the extent that economic conditions significantly deteriorate in the Americas or other parts of the world, our sales growth and profitability may be adversely affected. Net sales in 2001 benefited from acquisitions. The operating results of acquisitions would have had the effect of increasing our net sales by an additional $9.6 million and $3.4 million for the nine and three month periods respectively, in 2000 representing approximately 1% of 2001 sales for each period. Gross profit as a percentage of net sales was 45.3% and 46.0% for the nine and three month periods ended September 30, 2001, compared to 44.4% and 44.7% for the comparable periods in the prior year. This increase is primarily related to changes in our sales mix, as well as benefits from various cost saving initiatives. Research and development expenses as a percentage of net sales were 5.6% and 5.7% respectively for the nine and three month periods ended September 30, 2001, compared to 5.2% for the corresponding periods in the prior year. Selling, general and administrative expenses as a percentage of net sales decreased to 26.5% and 26.7% for the nine and three months ended September 30, 2001, compared to 27.2% and 26.8% for the corresponding periods in the prior year in part due to the lower distribution costs associated with the changes in our sales mix. Adjusted Operating Income (gross profit less research and development and selling, general and administrative expenses before amortization, other charges, net and non-recurring costs) increased 14% to $109.6 million, or 13.2% of net sales, for the nine months ended September 30, 2001, compared to $96.4 million, or 12.1% of net sales, for the corresponding period in the prior year. Adjusted Operating Income was $38.9 million, or 13.6% of net sales, for the three months ended September 30, 2001, compared to $34.1 million, or 12.6% of net sales, for the corresponding period in the prior year. The increased operating margin reflects the benefits of higher sales levels and our continuous efforts to improve productivity. We believe that Adjusted Operating Income provides important financial information in measuring and comparing our operating performance. Adjusted Operating Income is not intended to represent operating income under U.S. GAAP and should not be considered as an alternative to net earnings as an indicator of our performance. Interest expense decreased to $13.4 million and $4.1 million for the nine and three month periods ended September 30, 2001, compared to $15.2 million and $4.8 million for the corresponding periods in the prior year. The decrease was principally due to reduced debt levels. Other charges, net of $15.3 million and $0.0 million for the nine and three months ended September 30, 2001 compared to other charges, net of $0.8 million and $0.2 million for the corresponding periods in the prior year. The 2001 nine month amount includes a charge of $15.2 million ($14.6 million after tax) primarily associated with headcount reductions and manufacturing transfers. The provision for taxes is based upon our projected annual effective tax rate for the related period. Our effective tax rate for the nine and three month periods ended September 30, 2001 was approximately 35%. Net earnings were $56.2 million and $20.4 million for the nine and three month periods ended September 30, 2001, before the previously mentioned charge associated with headcount reductions and manufacturing transfers, compared to net earnings of $46.8 million and $17.1 million during the comparable periods in 2000. ACQUISITIONS In October 2001, we announced that we had entered into a definitive agreement with Rainin Instrument Company Inc., a Massachusetts corporation, and Mr Kenneth Rainin, to acquire all of the issued and outstanding membership units of Rainin Instrument, LLC, a Delaware limited liability company for a cash purchase price of $147,892,038 plus 3,388,132 shares of the Company's common stock, plus an additional contingent payment, if any, of up to $60,000,000. Up to half of any additional contingent payment may be paid in shares of the Company's common stock and the remainder will be paid in cash. The acquisition is subject to certain customary closing conditions including receipt of antitrust and other regulatory approvals. Since the time of its buy-out in 1996, the Company has recorded charges in 1996, 1997 and 1998 for purchased research and development for products that were being developed that had not established technological feasibility as of the date of the acquisition and, if unsuccessful, had no alternative future use in research and development activities or otherwise. These research and development projects related to several projects at the Company at the time of its buy-out, Safeline metal detection projects and Bohdan Automation. These purchased research and development projects have been completed, and there have been no material differences between actual and projected results. Assumptions taken at the time of these acquisitions continue to appear reasonable based upon actual results, and in no cases have there been significant shortfalls to the Company's original projections. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, our consolidated debt, net of cash, was $226.4 million. We had borrowings of $226.7 million under our credit agreement and $24.3 million under various other arrangements as of September 30, 2001. Of our credit agreement borrowings, approximately $103.8 million was borrowed as term loans scheduled to mature in 2004 and $122.9 million was borrowed under our multi-currency revolving credit facility. At September 30, 2001, we had $277.9 million of availability remaining under our revolving credit facility. At September 30, 2001, approximately $163.0 million of the borrowings under the credit agreement and local working capital facilities were denominated in U.S. dollars. The balance of the borrowings under the credit agreement and local working capital facilities were denominated in certain of our other principal trading currencies amounting to approximately $88.0 million at September 30, 2001. Changes in exchange rates between the currencies in which we generate cash flow and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates. Under the credit agreement, amounts outstanding under the term loans are payable in quarterly installments. In addition, the credit agreement obligates us to make mandatory prepayments in certain circumstances with the proceeds of asset sales or issuance of capital stock or indebtedness and with certain excess cash flow. The credit agreement imposes certain restrictions on us and our subsidiaries, including restrictions and limitations on the ability to pay dividends to our shareholders, incur indebtedness, make investments, grant liens, sell financial assets and engage in certain other activities. We must also comply with certain financial covenants. Cash provided by operating activities totaled $57.0 million for the nine months ended September 30, 2001. In the nine months ended September 30, 2000, cash provided by operating activities totaled $37.8 million. We currently believe that cash flow from operating activities, together with borrowings available under the credit agreement and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements as well as debt service requirements for at least the next several years, but there can be no assurance that this will be the case. EFFECT OF CURRENCY ON RESULTS OF OPERATIONS Because we conduct operations in many countries, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our operating expenses than Swiss franc-denominated sales represent of our net sales. In part, this is because most of our manufacturing costs in Switzerland relate to products that are sold outside of Switzerland. Moreover, a substantial percentage of our research and development expenses and general and administrative expenses are incurred in Switzerland. Therefore, if the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the euro, other major European currencies and the Japanese yen), our operating profit is reduced. We also have significantly more sales in European currencies (other than the Swiss franc) than we have expenses in those currencies. Therefore, when European currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating profits. In recent years, the Swiss franc and other European currencies have generally moved in a consistent manner versus the U.S. dollar. Therefore, because the two effects previously described have offset each other, our operating profits have not been materially affected by movements in the U.S. dollar exchange rate versus European currencies. However, there can be no assurance that these currencies will continue to move in a consistent manner in the future. We estimate that a one per cent strengthening of the Swiss franc against the euro from the exchange rate as at September 30, 2001 would result in a decrease in our earnings before tax of $0.8 million to $1.2 million on an annual basis. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. EUROPEAN ECONOMIC AND MONETARY UNION We have recognized the introduction of the euro as a significant event with potential implications for existing operations. Currently, we operate in all of the participating countries in the European Monetary Union (the "EMU"). We expect nonparticipating European Union countries, where we also have operations, may eventually join the EMU. We have committed resources to ensure we are prepared for the introduction of the euro. We were euro compliant within our accounting and business systems by the end of 1999 and expect to be compliant within our other business assets prior to the introduction of the euro bills and coins. Compliance in participating and nonparticipating countries will be achieved primarily through upgraded systems, which were previously planned to be upgraded. We do not currently expect to experience any significant operational disruptions or to incur any significant costs, including any currency risk, which could materially affect our liquidity or capital resources. We are reviewing our pricing strategy throughout Europe due to the increased price transparency created by the euro. We do not believe that the effect of these adjustments will be material. The statements set forth herein concerning the introduction of the euro which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. In particular, the costs associated with our euro programs and the timeframe in which we plan to complete euro modifications are based upon management's best estimates. These estimates were derived from internal assessments and assumptions of future events. There can be no guarantee that any estimates or other forward-looking statements will be achieved, and actual results could differ significantly from those contemplated. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001 and also provides new criteria for recognizing acquired intangible assets separately from goodwill. SFAS 142, effective for fiscal years beginning after December 15, 2001, requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment under SFAS 142 upon initial adoption of the Statement and on an annual basis going forward. In addition, any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. We have not yet fully assessed the impact of adopting these Statements on our consolidated financial statements. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS This Quarterly Report on Form 10-Q includes forward-looking statements based on our current expectations and projections about future events, including: strategic plans; potential growth, including penetration of developed markets and opportunities in emerging markets; planned product introductions; planned operational changes and research and development efforts; euro-conversion issues; future financial performance, including expected capital expenditures; research and development expenditures; estimated proceeds from and the timing of asset sales; potential acquisitions; future cash sources and requirements; and potential cost savings from restructuring programs. These forward-looking statements are subject to a number of risks and uncertainties, certain of which are beyond our control, which could cause our actual results to differ materially from historical results or those anticipated. Certain of these risks and uncertainties have been identified in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 2000. The words "believe," "expect," "anticipate" and similar expressions identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2001, there was no material change in the information provided under Item 7A in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Part II. OTHER INFORMATION Item 1. Legal Proceedings. Not applicable Item 2. Changes in Security. Not applicable Item 3. Defaults Upon Senior Securities. Not applicable Item 4. Submission of Matters to a Vote of Security Holders. Not applicable Item 5. Other information. Not applicable Item 6. Exhibits and Reports on Form 8-K. Not applicable
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Mettler-Toledo International Inc. Date: November 14, 2001 By: /s/ William P. Donnelly ------------------------ William P. Donnelly Vice President and Chief Financial Officer