UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006, 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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3668641
----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
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(Address of principal executive offices)
(Zip Code)
+41-44-944-22-11
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(Registrant's telephone number, including area code)
not applicable
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(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 X No
--- ---
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exhange Act. (Check one):
Large accelerated filer X Accelerated filer Non-accelerated filer
--- --- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
The Registrant had 40,228,430 shares of Common Stock outstanding at June
30, 2006.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 2006 AND 2005............................. 3
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 2006 AND 2005............................. 4
INTERIM CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2006
AND DECEMBER 31, 2005........................................... 5
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) FOR THE SIX MONTHS ENDED
JUNE 30, 2006 AND 2005.......................................... 6
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 2006 AND 2005............................. 7
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2006 ............................................... 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 19
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 27
Item 4. CONTROLS AND PROCEDURES......................................... 27
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS............................................... 28
Item 1A. RISK FACTORS.................................................... 28
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS..... 28
Item 3. DEFAULTS UPON SENIOR SECURITIES................................. 28
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 29
Item 5. OTHER INFORMATION............................................... 29
Item 6. EXHIBITS........................................................ 30
SIGNATURE 31
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, JUNE 30,
2006 2005
---- ----
Net sales
Products $ 299,029 $ 284,619
Service 90,128 84,018
-------------- --------------
Total net sales 389,157 368,637
Cost of sales
Products 138,275 133,814
Service 58,447 54,398
-------------- --------------
Gross profit 192,435 180,425
Research and development 20,562 20,936
Selling, general and administrative 117,576 108,115
Amortization 2,850 2,991
Interest expense 4,350 3,764
Other charges (income), net (2,557) 21,581
-------------- --------------
Earnings before taxes 49,654 23,038
Provision for taxes 14,897 4,727
-------------- --------------
Net earnings $ 34,757 $ 18,311
============== ==============
Basic earnings per common share:
Net earnings $ 0.86 $ 0.43
Weighted average number of common shares 40,535,389 42,356,672
Diluted earnings per common share:
Net earnings $ 0.84 $ 0.42
Weighted average number of common and common
equivalent shares 41,237,812 43,438,961
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, JUNE 30,
2006 2005
---- ----
Net sales
Products $ 560,742 $ 539,979
Service 174,575 165,818
-------------- --------------
Total net sales 735,317 705,797
Cost of sales
Products 260,113 253,738
Service 112,429 108,839
-------------- --------------
Gross profit 362,775 343,220
Research and development 40,501 41,738
Selling, general and administrative 229,707 214,432
Amortization 5,705 5,799
Interest expense 8,426 7,280
Other charges (income), net (5,095) 21,245
-------------- --------------
Earnings before taxes 83,531 52,726
Provision for taxes 25,059 13,634
-------------- --------------
Net earnings $ 58,472 $ 39,092
============== ==============
Basic earnings per common share:
Net earnings $ 1.43 $ 0.91
Weighted average number of common shares 40,793,119 42,747,953
Diluted earnings per common share:
Net earnings $ 1.41 $ 0.89
Weighted average number of common and common
equivalent shares 41,505,940 43,913,966
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2006 AND DECEMBER 31, 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2006 2005
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 246,766 $ 324,578
Trade accounts receivable, less allowances of $7,691 at June 30,
2006 and $7,897 at December 31, 2005 265,586 271,915
Inventory 162,609 150,201
Current deferred tax assets, net 33,361 30,210
Other current assets and prepaid expenses 27,187 23,755
------------- --------------
Total current assets 735,509 800,659
Property, plant and equipment, net 219,566 218,519
Goodwill 428,751 423,048
Other intangible assets, net 104,513 105,161
Non-current deferred tax assets, net 75,231 73,042
Other non-current assets 53,108 49,344
------------- --------------
Total assets $ 1,616,678 $ 1,669,773
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 79,818 $ 88,553
Accrued and other liabilities 60,593 68,277
Accrued compensation and related items 81,577 91,409
Deferred revenue and customer prepayments 49,254 34,803
Taxes payable 64,835 59,015
Current deferred tax liabilities 5,097 5,054
Short-term borrowings 8,201 6,345
------------- --------------
Total current liabilities 349,375 353,456
Long-term debt 412,787 443,795
Non-current deferred tax liabilities 80,635 78,360
Other non-current liabilities 142,116 135,160
------------- --------------
Total liabilities 984,913 1,010,771
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $0.01 par value per share; authorized 10,000,000
shares; issued 0 - -
Common stock, $0.01 par value per share; authorized 125,000,000
shares; issued 44,786,011 and 44,786,011 shares; outstanding
40,228,430 and 41,404,071 shares at June 30, 2006 and December 31,
2005, respectively 448 448
Additional paid-in capital 448,847 457,129
Treasury stock at cost (4,557,581 shares at June 30, 2006 and
3,381,940 shares at December 31, 2005) (248,132) (170,325)
Retained earnings 475,547 417,075
Accumulated other comprehensive income (loss) (44,945) (45,325)
------------- --------------
Total shareholders' equity 631,765 659,002
------------- --------------
Total liabilities and shareholders' equity $ 1,616,678 $ 1,669,773
============= ==============
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------------------- PAID-IN TREASURY RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL STOCK EARNINGS INCOME (LOSS) TOTAL
------------ ------------ ------------- ----------- ---------- --------------- -------
Balance at December 31, 2005 41,404,071 $ 448 $ 457,129 $(170,325) $ 417,075 $ (45,325) $ 659,002
Exercise of stock options 766,259 - (21,884) 39,381 - - 17,497
Repurchases of common stock (1,941,900) - - (117,188) - - (117,188)
Tax benefit resulting from
exercise of certain employee
stock options - - 9,334 - - - 9,334
Share-based compensation - - 4,268 - - - 4,268
Comprehensive income:
Net earnings - - - - 58,472 - 58,472
Change in currency
translation adjustment - - - - - 380 380
-----------
Comprehensive income - - - - - - 58,852
------------ --------- ----------- ----------- ----------- ------------- -----------
Balance at June 30, 2006 40,228,430 $ 448 $ 448,847 $(248,132) $ 475,547 $ (44,945) $ 631,765
============ ========= =========== =========== =========== ============= ===========
Balance at December 31, 2004 43,366,139 $ 448 $ 476,704 $ (67,404) $ 308,173 $ 2,965 $ 720,886
Exercise of stock options 127,625 - (1,885) 5,810 - - 3,925
Repurchases of common stock (1,505,900) - - (73,259) - - (73,259)
Comprehensive income:
Net earnings - - - - 39,092 - 39,092
Change in currency
translation adjustment - - - - - (35,211) (35,211)
-----------
Comprehensive income - - - - - - 3,881
------------ --------- ----------- ----------- ----------- ------------- -----------
Balance at June 30, 2005 41,987,864 $ 448 $ 474,819 $(134,853) $ 347,265 $ (32,246) $ 655,433
============ ========= =========== =========== =========== ============= ===========
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, JUNE 30,
2006 2005
---- ----
Cash flows from operating activities:
Net earnings $ 58,472 $ 39,092
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 12,895 13,116
Amortization 5,705 5,799
Deferred taxes (5,045) (12,352)
Excess tax benefits from share-based payment arrangements (7,748) -
Share-based compensation 4,268 -
Other (1,320) 19,930
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net 14,617 955
Inventory (6,833) (2,436)
Other current assets (2,531) 1,071
Trade accounts payable (6,950) (10,081)
Taxes payable 12,854 9,326
Accruals and other (6,137) (7,140)
----------------- ----------------
Net cash provided by operating activities 72,247 57,280
----------------- ----------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 3,597 594
Purchase of property, plant and equipment (11,799) (11,923)
Acquisitions (790) (213)
----------------- ----------------
Net cash used in investing activities (8,992) (11,542)
----------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings 29,729 86,619
Repayments of borrowings (75,349) (23,436)
Proceeds from exercise of stock options 17,467 3,925
Repurchases of common stock (121,344) (74,650)
Excess tax benefits from share-based payment arrangements 7,748 -
----------------- ----------------
Net cash used in financing activities (141,749) (7,542)
----------------- ----------------
Effect of exchange rate changes on cash and cash equivalents 682 (1,508)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents (77,812) 36,688
Cash and cash equivalents:
Beginning of period 324,578 67,176
----------------- ----------------
End of period $ 246,766 $ 103,864
================= ================
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2006 - 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 Company's primary manufacturing facilities are located in
China, Germany, Switzerland, the United Kingdom and the United States. The
Company's 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 wholly 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 as of June 30, 2006 and for the three and
six month periods ended June 30, 2006 and 2005 should be read in
conjunction with the December 31, 2005 and 2004 consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2005.
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 and six months ended June 30, 2006 are not
necessarily indicative of the results to be expected for the full year
ending December 31, 2006.
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 Company's critical accounting policies is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2005.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
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
Company's best estimate of probable credit losses in its existing trade
accounts receivable. Historically the Company has had minimal bad debts due
to its customer base.
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 inventory are made for excess and
obsolete items based on forecast 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:
June 30, December 31,
2006 2005
-------------- ---------------
Raw materials and parts $ 84,260 $ 80,201
Work-in-progress 21,433 19,777
Finished goods 56,916 50,223
-------------- ---------------
$ 162,609 $ 150,201
============== ===============
Other Intangible Assets
Other intangible assets include indefinite lived assets and assets
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."
Other intangible assets consisted of the following:
June 30, 2006 December 31, 2005
------------------------------ --------------------------
Gross Accumulated Gross Accumulated
Amount Amortization Amount Amortization
------------- ---------------- ----------- --------------
Customer relationships $ 73,381 $ (8,128) $ 72,339 $ (7,104)
Proven technology and patents 30,329 (14,472) 29,918 (13,402)
Tradename (finite life) 1,467 (498) 1,427 (451)
Tradename (indefinite life) 22,434 - 22,434 -
------------- ---------------- ----------- --------------
$ 127,611 $ (23,098) $ 126,118 $ (20,957)
============= ================ =========== ==============
The annual aggregate amortization expense based on the current balance
of other intangible assets is estimated at $4.4 million for 2006 through
2010. The Company had amortization expense associated with the above
intangible assets of $2.3 million and $2.1 million for the six months ended
June 30, 2006 and 2005, respectively.
In addition to the above amortization, the Company recorded
amortization expense associated with capitalized software of $3.4 million
and $3.6 million for the six months ended June 30, 2006 and 2005,
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, our warranty obligation is affected
by product failure rates, material usage and service costs incurred in
correcting a product failure.
The Company's accrual for product warranties is included in accrued
and other liabilities in the consolidated balance sheets. Changes to the
Company's accrual for product warranties for the six months ended June 30
are as follows:
2006 2005
--------------- ---------------
Balance at beginning of period $ 10,732 $ 10,483
Accruals for warranties 5,940 5,833
Foreign currency translation 357 (669)
Payments / utilizations (6,306) (6,077)
--------------- ---------------
Balance at end of period $ 10,723 $ 9,570
=============== ===============
Research and Development
Research and development costs primarily consist of salaries,
consulting and other costs. The Company expenses these costs as incurred.
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123R, "Share-Based Payment" ("SFAS 123R"). SFAS
123R replaces FASB Statement No. 123, "Accounting for Stock-Based
Compensation", and supersedes Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." SFAS 123R requires
public companies to recognize the cost of employee services received in
exchange for an award (with limited exceptions) over the period during
which an employee is required to provide service. The Company adopted this
statement on January 1, 2006. See Note 3, Share-Based Compensation.
3. SHARE-BASED COMPENSATION
The Company's 2004 equity incentive plan provides for the grant of
options, restricted stock, restricted stock units and other equity-based
awards. The exercise price of options granted shall not be less than the
fair market value of the common stock on the date of grant. Options
generally vest equally over a five-year period from the date of grant and
have a maximum term of up to 10 years and six months. Restricted stock
units vest equally over a five-year period from the date of grant.
On January 1, 2006, the Company adopted SFAS 123R and Staff Accounting
Bulletin ("SAB") No. 107, "Share-Based Payments", applying the modified
prospective method. SFAS 123R requires all share-based compensation
arrangements granted to employees, including stock option grants, to be
recognized in the consolidated statement of operations based on the grant
date fair value of the award. Under the modified prospective method, the
Company is required to record share-based compensation expense for all
awards granted after the date of adoption and for the unvested portion of
previously granted awards outstanding as of the date of adoption.
Share-based compensation expense is recorded within selling, general
and administrative in the consolidated statement of operations with a
corresponding offset to additional paid-in capital in the consolidated
balance sheet. Prior year periods have not been restated. The effect on net
earnings and net earnings per share for the three and six months ended June
30, 2006 is as follows:
Three Months Ended Six Months Ended
June 30, 2006 June 30, 2006
-------------------- --------------------
Share-based compensation by award type:
Stock options $ 1,921 $ 3,892
Restricted stock units 188 376
-------------------- --------------------
Total share-based compensation 2,109 4,268
Tax effect on share-based compensation 722 1,461
-------------------- --------------------
Effect on net earnings $ 1,387 $ 2,807
==================== ====================
Effect on net earnings per share:
Basic $ 0.03 $ 0.07
Diluted $ 0.04 $ 0.07
The fair values of stock options granted were calculated using the
Black-Scholes pricing model. The following table summarizes all stock
option activity from December 31, 2005 through June 30, 2006:
Aggregate
Number of Weighted Average Intrinsic Value
Options Exercise Price (in millions)
----------------- ----------------- ----------------
Outstanding at December 31, 2005 3,924,372 $ 37.44
Granted 10,000 61.40
Exercised (766,259) 22.83
Forfeited (91,695) 44.27
----------------- ----------------- ----------------
Outstanding at June 30, 2006 3,076,418 $ 40.95 $ 60.3
----------------- ----------------- ----------------
Options exercisable at June 30, 2006 1,597,018 $ 37.49 $ 36.9
The following table details the weighted average remaining contractual
life of options outstanding at June 30, 2006 by range of exercise prices:
Number of Options Weighted Average Exercise Remaining Contractual Life
Outstanding Price of Options Outstanding Options Exercisable
------------------- ----------------------------- ------------------------------ --------------------------
214,468 $15.53 1.3 214,468
502,000 $31.99 6.2 279,400
770,350 $38.53 7.2 430,450
1,153,600 $46.86 6.4 672,700
436,000 $52.51 9.7 0
------------------- ------------------------------ --------------------------
3,076,418 6.7 1,597,018
=================== ==========================
As of the date granted, the weighted average grant-date fair value of
the options granted during the six months ended June 30, 2006 was
approximately $19.69. Such weighted average grant-date fair value was
determined using the Black-Scholes pricing model that incorporated the
following assumptions:
2006
---------------
Risk-free interest rate 4.9%
Expected life in years 5
Expected volatility 25%
Expected dividend yield --
The following table summarizes all restricted stock unit activity from
December 31, 2005 through June 30, 2006:
Number of Aggregate
Restricted Stock Intrinsic Value
Units (in millions)
---------------- ---------------
Outstanding at December 31, 2005 74,600
Granted -
Exercised -
Forfeited (300)
-------------- --------------
Outstanding at June 30, 2006 74,300 $ 4.5
-------------- --------------
Units exercisable at June 30, 2006 - -
As of June 30, 2006, the unrecorded deferred share-based compensation
balance related to both stock options and restricted stock units was $18.8
million and will be recognized using a straight-line method over an
estimated weighted average amortization period of 2.3 years.
Prior to January 1, 2006, the Company applied the intrinsic valuation
methodology under Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its share-based compensation plan.
Had compensation cost for the Company's share-based plan been
determined based upon the fair value of such awards at the grant date,
consistent with the methods of SFAS 123, "Accounting for Stock Based
Compensation," the Company's net earnings and basic and diluted net
earnings per common share for the three and six month periods ended June
30, 2005 would have been as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2005
---------------- --------------
Net earnings:
As reported $ 18,311 $ 39,092
Compensation expense (1,704) (3,415)
---------------- --------------
Pro forma $ 16,607 $ 35,677
================ ==============
Basic earnings per common share:
As reported $ 0.43 $ 0.91
Compensation expense (0.04) (0.08)
---------------- --------------
Pro forma $ 0.39 $ 0.83
================ ==============
Weighted average number of common shares 42,356,672 42,747,953
Diluted earnings per common share:
As reported $ 0.42 $ 0.89
Compensation expense (0.04) (0.08)
---------------- --------------
Pro forma $ 0.38 $ 0.81
================ ==============
Weighted average number of common and 43,305,348 43,744,474
common equivalent shares
4. TREASURY STOCK
The Company has a share repurchase program. Under the program, the
Company has been authorized to buy back up to $500 million of equity
shares. As of June 30, 2006, there were $114.4 million of remaining equity
shares authorized to be repurchased under the plan by December 31, 2007.
During July 2006, the Company has been authorized to buy back an additional
$400 million of shares through December 2008. 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 7.4 million
shares since the inception of the program through June 30, 2006.
The Company spent $117.2 million and $73.3 million on the repurchase
of 1,941,900 shares and 1,505,900 shares at an average price of $60.32 and
$48.62 during the six months ended June 30, 2006 and 2005, respectively, as
well as an additional $4.2 million and $1.4 million during the six month
periods ended June 30, 2006 and 2005, respectively, relating to the
settlement of the liability for shares repurchased as of December 31, 2005
and 2004. The Company reissued 766,259 shares and 121,825 shares held in
treasury for the exercise of stock options for the six months ended June
30, 2006 and 2005, respectively.
5. 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 and six
month periods ended June 30, relating to outstanding stock options and
restricted stock units.
2006 2005
------------ -------------
Three months ended 702,423 1,082,289
Six months ended 712,821 1,166,013
Outstanding options to purchase 451,000 and 508,500 shares of common
stock for the three month periods ended June 30, 2006 and 2005,
respectively, and options to purchase 451,000 and 254,250 shares of common
stock for the six month periods ended June 30, 2006 and 2005, respectively,
have been excluded from the calculation of diluted weighted average number
of common and common equivalent shares on the grounds that such options and
restricted stock units would be anti-dilutive.
6. NET PERIODIC BENEFIT COST
Net periodic pension cost for the Company's defined benefit pension
plans and U.S. post-retirement medical plan includes the following
components for the three months ended June 30:
Other U.S.
U.S. Pension Benefits Non-U.S. Pension Benefits Post-retirement benefits
------------------------- --------------------------- ------------------------
2006 2005 2006 2005 2006 2005
------------ ------------ ----------- --------------- ------------ -----------
Service cost, net $ 165 $ 159 $ 3,507 $ 3,428 $ 64 $ 53
Interest cost on projected
benefit obligations 1,557 1,508 4,157 4,302 330 358
Expected return on plan assets (2,012) (1,903) (5,961) (5,520) - -
Net amortization and deferral - - - - (240) (240)
Recognition of actuarial
losses (gains) 646 602 278 (409) - -
------------ ------------ ----------- --------------- ------------ -----------
Net periodic pension cost $ 356 $ 366 $ 1,981 $ 1,801 $ 154 $ 171
------------ ------------ ----------- --------------- ------------ -----------
Net periodic pension cost for the Company's defined benefit pension
plans and U.S. post-retirement medical plan includes the following
components for the six months ended June 30:
Other U.S.
U.S. Pension Benefits Non-U.S. Pension Benefits Post-retirement benefits
------------------------- --------------------------- ------------------------
2006 2005 2006 2005 2006 2005
------------ ------------ ----------- --------------- ------------ -----------
Service cost, net $ 330 $ 318 $ 6,887 $ 7,142 $ 127 $ 106
Interest cost on projected
benefit obligations 3,114 3,016 8,091 8,837 661 716
Expected return on plan assets (4,024) (3,806) (11,680) (11,238) - -
Net amortization and deferral - - - - (480) (480)
Recognition of actuarial
losses (gains) 1,292 1,204 348 (524) - -
------------ ------------ ----------- --------------- ------------ -----------
Net periodic pension cost $ 712 $ 732 $ 3,646 $ 4,217 $ 308 $ 342
------------ ------------ ----------- --------------- ------------ -----------
As previously disclosed in the Company's annual report on Form 10-K
for the year ended December 31, 2005, the Company expects to make normal
employer contributions of approximately $11 million to its non-U.S. pension
plans and $2 million to its U.S. post-retirement medical plan during the
year ended December 31, 2006.
7. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of interest income,
(gains) losses from foreign currency transactions, (gains) losses from
sales of assets and other items.
For the three and six months ended June 30, 2005, other charges
(income), net also included a $21.8 million charge related to pipette
litigation. The Company wrote off a non-cash $19.9 million ($12 million
after-tax) intangible asset relating to an intellectual property license
that was subject to litigation with the grantor in June 2005 which is
included as a component of Other in the interim consolidated statements of
cash flows. This license enabled a wholly owned subsidiary of the Company
exclusive rights to distribute certain third-party manufactured pipettes in
the United States. A judgment entered on June 6, 2005 terminated the
license agreement and awarded damages to the other party. The Company also
incurred $1.9 million of related legal costs during the three months ended
June 30, 2005, which included damages of $0.6 million.
8. SEGMENT REPORTING
As disclosed in Note 16 to the Company's consolidated financial
statements for the year ending December 31, 2005, 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
(earnings before taxes before share-based compensation expense,
amortization, interest expense and other charges).
The following tables show the operations of the Company's operating
segments:
Net Sales to Net Sales to
For the three months ended External Other Total Net Segment
June 30, 2006 Customers Segments Sales Profit Goodwill
-------------------------------------- ------------- --------------- -------------- -------------- ---------------
U.S. Operations $ 148,351 $ 13,536 $ 161,887 $ 25,785 $ 272,788
Swiss Operations 23,654 57,846 81,500 15,208 23,523
Western European Operations 129,791 18,190 147,981 10,939 112,679
Chinese Operations 31,216 18,554 49,770 11,494 1,843
Other (a) 56,145 (158) 55,987 4,347 17,918
Eliminations and Corporate (b) - (107,968) (107,968) (11,367) -
------------- --------------- -------------- -------------- ---------------
Total $ 389,157 $ - $ 389,157 $ 56,406 $ 428,751
============= =============== ============== ============== ===============
Net Sales to Net Sales to
For the six months ended External Other Total Net Segment
June 30, 2006 Customers Segments Sales Profit
-------------------------------------- ------------- --------------- -------------- --------------
U.S. Operations $ 276,969 $ 23,766 $ 300,735 $ 40,323
Swiss Operations 44,224 113,863 158,087 30,355
Western European Operations 249,507 34,977 284,484 19,897
Chinese Operations 55,881 35,146 91,027 21,033
Other (a) 108,736 (67) 108,669 8,063
Eliminations and Corporate (b) - (207,685) (207,685) (22,836)
------------- --------------- -------------- --------------
Total $ 735,317 $ - $ 735,317 $ 96,835
============= =============== ============== ==============
Net Sales to Net Sales to
For the three months ended External Other Total Net Segment
June 30, 2005 Customers Segments Sales Profit Goodwill
-------------------------------------- ------------- --------------- -------------- -------------- ---------------
U.S. Operations $ 139,728 $ 11,187 $ 150,915 $ 19,234 $ 272,734
Swiss Operations 22,900 59,548 82,448 16,221 23,074
Western European Operations 127,039 18,121 145,160 10,912 110,678
Chinese Operations 28,535 14,534 43,069 9,508 1,792
Other (a) 50,435 183 50,618 2,341 17,138
Eliminations and Corporate (b) - (103,573) (103,573) (6,842) -
------------- --------------- -------------- -------------- ---------------
Total $ 368,637 $ - $ 368,637 $ 51,374 $ 425,416
============= =============== ============== ============== ===============
Net Sales to Net Sales to
For the six months ended External Other Total Net Segment
June 30, 2005 Customers Segments Sales Profit
-------------------------------------- ------------- --------------- -------------- --------------
U.S. Operations $ 265,943 $ 21,635 $ 287,578 $ 31,686
Swiss Operations 43,537 114,880 158,417 31,805
Western European Operations 249,115 31,997 281,112 18,129
Chinese Operations 50,499 28,657 79,156 16,849
Other (a) 96,703 182 96,885 5,811
Eliminations and Corporate (b) - (197,351) (197,351) (17,230)
------------- --------------- -------------- --------------
Total $ 705,797 $ - $ 705,797 $ 87,050
============= =============== ============== ==============
(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 Company's
reportable operating segments.
(b) Eliminations and Corporate includes the elimination of
inter-segment transactions and certain corporate expenses, which
are not included in the Company's operating segments.
A reconciliation of Earnings before taxes to Segment profit for the
three and six month periods ended June 30 follows:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------- -------------- -------------- --------------
Earnings before taxes $ 49,654 $ 23,038 $ 83,531 $ 52,726
Share-based compensation 2,109 - 4,268 -
Amortization 2,850 2,991 5,705 5,799
Interest expense 4,350 3,764 8,426 7,280
Other charges (income), net (2,557) 21,581 (5,095) 21,245
--------------- -------------- -------------- --------------
Segment profit $ 56,406 $ 51,374 $ 96,835 $ 87,050
=============== ============== ============== ==============
9. RELATED PARTY TRANSACTIONS
As part of the Rainin acquisition in 2001, the Company entered into an
agreement to lease certain property from the former owner and current
General Manager of Rainin. During the three and six months ended June 30,
2006 and 2005, the Company made lease payments in respect of this agreement
of $0.7 million and $0.6 million, respectively and $1.3 and $1.4 million,
respectively. All of the Company's transactions with the former owner of
Rainin were in the normal course of business.
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 Company's financial condition, results of
operations or cash flows.
11. SUBSEQUENT EVENT
Subsequent to June 30, 2006, the Company completed a legal entity
reorganization of certain international subsidiaries which will impact the
recorded amounts of certain deferred tax assets and deferred tax
liabilities. As a result, the Company will record two discrete items in its
tax provision during the third quarter. A valuation allowance will be
established pertaining to its ability to realize deferred tax assets
associated with its foreign tax credit carryforwards in the range of $8 to
$11 million. In addition, the Company will reverse an $11 million deferred
tax liability associated with the tax effect on unremitted earnings of
foreign subsidiaries. The Company is currently evaluating the impact of
this reorganization and the discrete items on its annual and third quarter
effective tax rate.
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 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 and six months ended June 30, 2006 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2006.
RESULTS OF OPERATIONS - CONSOLIDATED
The following tables set forth certain items from our interim
consolidated statements of operations for the three and six month periods
ended June 30, 2006 and 2005 (amounts in thousands).
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- --------------------------------------------
2006 2005 2006 2005
--------------------- --------------------- --------------------- ---------------------
(UNAUDITED) % (UNAUDITED) % (UNAUDITED) % (UNAUDITED) %
Net sales $ 389,157 100.0 $ 368,637 100.0 $ 735,317 100.0 $ 705,797 100.0
Cost of sales 196,722 50.6 188,212 51.1 372,542 50.7 362,577 51.4
-------------- ------ -------------- ------ ------------- ------- ------------- -------
Gross profit 192,435 49.4 180,425 48.9 362,775 49.3 343,220 48.6
Research and development 20,562 5.3 20,936 5.7 40,501 5.5 41,738 5.9
Selling, general and
administrative (a) 117,576 30.2 108,115 29.3 229,707 31.2 214,432 30.4
Amortization 2,850 0.7 2,991 0.8 5,705 0.8 5,799 0.8
Interest expense 4,350 1.1 3,764 1.0 8,426 1.1 7,280 1.0
Other charges (income), net (b) (2,557) (0.7) 21,581 5.9 (5,095) (0.7) 21,245 3.0
-------------- ------ -------------- ------ ------------- ------- ------------- -------
Earnings before taxes 49,654 12.8 23,038 6.2 83,531 11.4 52,726 7.5
Provision for taxes 14,897 3.9 4,727 1.2 25,059 3.4 13,634 2.0
-------------- ------ -------------- ------ ------------- ------- ------------- -------
Net earnings $ 34,757 8.9 $ 18,311 5.0 $ 58,472 8.0 $ 39,092 5.5
============== ====== ============== ====== ============= ======= ============= =======
Notes:
(a) Includes share-based compensation of $2.1 million ($1.4 million
after-tax) and $4.3 million ($2.8 million after-tax) for the three and
six months ended June 30, 2006 as discussed in Note 3.
(b) Includes a $21.8 million ($13.1 million after-tax) one-time pipette
litigation charge related to a $19.9 million ($12 million after-tax)
non-cash write-off of an intellectual property license and $1.9
million ($1.1 million after-tax) of related legal costs for the three
and six months ended June 30, 2005 as disclosed in Note 7.
Net sales
Net sales were $389.2 million and $735.3 million for the three and six
months ended June 30, 2006, compared to $368.6 million and $705.8 million
for the corresponding periods in 2005. This represents an increase in U.S.
dollars of 6% and 4% for the three and six months ended June 30, 2006.
Excluding the effect of currency exchange rate fluctuations, or in local
currencies, net sales increased 5% and 6% for the three and six months
ended June 30, 2006.
During the three and six months ended June 30, 2006, our net sales by
geographic destination in local currencies increased by 7% and 4% in the
Americas, by 4% and 7% in Europe and by 4% and 8% in Asia/Rest of World. A
discussion of sales by operating segment is included below.
As described in Note 16 to our consolidated financial statements for
the year ending December 31, 2005, 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, some of which is provided under
separately priced contracts, as well as sales of spare parts.
Net sales of products increased in U.S. dollars by 5% and 4% during
the three and six months ended June 30, 2006 compared to the corresponding
period in 2005. Excluding the effect of currency exchange rate fluctuations
for the three and six month periods then ended net sales of products
increased 5% and 6%, respectively. Service revenue (including spare parts)
increased in U.S. dollars by 7% and 5% during the three and six months
ended June 30, 2006 compared to the corresponding period in 2005. Excluding
currency exchange rate fluctuations for the three and six month period then
ended net service revenues increased 7% in both periods.
Net sales for our laboratory-related products increased 3% and 6% in
local currencies during the three and six months ended June 30, 2006,
principally driven by strong growth in process analytics, analytical
instruments and laboratory balances.
Net sales of our industrial-related products increased 3% and 4% in
local currencies for the three and six months ended June 30, 2006,
particularly due to growth in our product inspection products.
In our food retailing markets, net sales increased 20% and 16% in
local currencies during the three and six months ended June 30, 2006, due
to increased sales in all of our key geographic markets related to strong
project activity.
Gross profit
Gross profit as a percentage of net sales was 49.4% and 49.3% for the
three and six months ended June 30, 2006, compared to 48.9% and 48.6% for
the corresponding periods in 2005.
Gross profit as a percentage of net sales for products was 53.8% and
53.6% for the three and six months ended June 30, 2006, compared to 53.0%
and 53.0% for the corresponding periods in 2005.
Gross profit as a percentage of net sales for services (including
spare parts) was 35.2% and 35.6% for the three and six months ended June
30, 2006, compared to 35.3% and 34.4% for the corresponding periods in
2005.
The increase in gross profit reflects benefits from our sales volume
leveraging our fixed production costs, as well as pricing, benefits from
our cost rationalization initiatives.
Research and development and selling, general and administrative
expenses
Research and development expenses decreased 1% and were unchanged, in
local currencies, during the three and six months ended June 30, 2006,
respectively, compared to the corresponding periods in 2005. This reflects
the timing of previous year projects as well as our desire to continue to
reallocate research and development resources to marketing.
Selling, general and administrative expenses increased 9% and 10%, in
local currencies, during the three and six months ended June 30, 2006,
respectively, compared to the corresponding periods in 2005. This is
primarily due to share-based compensation expense, performance related
compensation costs, as well as our continued sales and marketing
investments, especially in China.
Interest expense, other charges (income), net, taxes and net earnings
Interest expense was $4.4 million and $8.4 million for the three and
six months ended June 30, 2006, respectively, and $3.8 million and $7.3
million for the corresponding periods in 2005. The increase is due to
higher average borrowings in 2006 over the comparable period in 2005.
Other income, net consists primarily of interest income, as well as
(gains) losses from foreign currency transactions, and other items. The
increase in other income, net over the prior year comparable period is due
to higher interest income associated with the increase in cash balances
resulting from our earnings repatriation associated with the American Jobs
Creation Act of 2004. For the three and six months ended June 30, 2005,
other charges (income), net also includes a $21.8 million ($13.1 million
after-tax) charge related to pipette litigation. We wrote-off a $19.9
million intangible asset relating to an intellectual property license that
was subject to litigation with the grantor in June 2005. This license
enabled a wholly owned subsidiary of the Company exclusive rights to
distribute certain third-party manufactured pipettes in the United States.
A judgment entered on June 6, 2005 terminated the license agreement and
awarded damages to the other party. We also incurred $1.9 million of
related legal costs during the three months ended June 30, 2005, which
includes damages of $0.6 million.
The provision for taxes for the three month and six month periods
ended June 30, 2006 is based upon our projected annual effective tax rate
of 30%.
Subsequent to June 30, 2006, we completed a legal entity
reorganization of certain international subsidiaries which will impact the
recorded amounts of certain deferred tax assets and deferred tax
liabilities. As a result, we will record two discrete items in our tax
provision during the third quarter. A valuation allowance will be
established pertaining to our ability to realize deferred tax assets
associated with our foreign tax credit carryforwards in the range of $8 to
$11 million. In addition, we will reverse an $11 million deferred tax
liability associated with the tax effect on unremitted earnings of foreign
subsidiaries. We are currently evaluating the impact of this reorganization
and the discrete items on our annual and third quarter effective tax rate.
Net earnings were $34.8 million and $58.5 million during the three and
six months ended June 30, 2006, respectively, compared to net earnings of
$18.3 million and $39.1 million during the three and six months ended June
30, 2005. Net earnings for the three and six months ended June 30, 2006
includes $1.4 million and $2.8 million of share-based compensation expense,
after tax. Net earnings for the three and six months ended June 30, 2005
included the previously described $13.1 million one-time pipette litigation
charge. Net earnings, as reported, increased 90% and 50% for the three and
six months ended June 30, 2006 compared to the same periods in 2005.
Excluding the effect of share-based compensation expense and the one-time
pipette litigation charge, net earnings would have increased 15% and 17%
for the three and six months ended June 30, 2006. Excluding these items,
the increase in net earnings primarily reflects improved sales volume in
2006 and the benefits from leveraging our fixed production costs as well as
our improved gross margin.
Net earnings per diluted share were $0.84 and $1.41 during the three
and six months ended June 30, 2006 compared to $0.42 and $0.89 during the
three and six months ended June 30, 2005. Net earnings for the three and
six months ended June 30, 2006 include $0.04 and $0.07 per diluted share of
share-based compensation expense. Net earnings for the three and six months
ended June 30, 2005 included the previously described $0.30 one-time
pipette litigation charge. Net earnings per diluted share, as reported,
increased 100% and 58% for the three and six months ended June 30, 2006
compared to the same periods in 2005. Excluding the effect of share-based
compensation expense and the one-time pipette litigation charge, net
earnings per diluted share would have increased 22% and 24% for the three
and six months ended June 30, 2006. The increase in net earnings per
diluted share primarily reflects improved sales volume in 2006, the
benefits from leveraging our fixed production costs, our improved gross
margin and the benefits from our share repurchase program.
RESULTS OF OPERATIONS - BY OPERATING SEGMENT
U.S. Operations
Three months ended June 30 Six months ended June 30
2006 2005 %(1) 2006 2005 %(1)
---- ---- ---- ---- ---- ----
Total net sales $ 161,887 $ 150,915 7% $ 300,735 $ 287,578 5%
Net sales to external customers $ 148,351 $ 139,728 6% $ 276,969 $ 265,943 4%
Segment profit $ 25,785 $ 19,234 34% $ 40,323 $ 31,686 27%
(1) Represents U.S. dollar growth (decline) for net sales and segment profit.
The increase in total net sales and net sales to external customers
for the six months ended June 30, 2006 reflects growth across most product
lines, particularly our food retailing products due to the timing of
project activity as well as continued growth in our in-store retail
software solutions. Our U.S. Operations have also experienced solid results
in process analytics, analytical instruments and product inspection
products. Net sales growth to external customers for the three months ended
June 30, 2006 included particularly strong results in laboratory balances.
Segment profit increased 34% and 27% for the three and six month
periods ended June 30, 2006, respectively, compared to the corresponding
periods in 2005. The increase was primarily due to increased sales volume
and our ability to leverage our fixed production costs, benefits of our
cost rationalization initiatives, improved profitability in our liquid
handling business and reduced losses in our drug discovery business.
Swiss Operations
Three months ended June 30 Six months ended June 30
2006 2005 %(1) 2006 2005 %(1)
---- ---- ---- ---- ---- ----
Total net sales $ 81,500 $ 82,448 -1% $158,087 $158,417 0%
Net sales to external customers $ 23,654 $ 22,900 3% $ 44,224 $ 43,537 2%
Segment profit $ 15,208 $ 16,221 -6% $ 30,355 $ 31,805 -5%
(1) Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales in local currency increased 2% and 6% for the three
and six month periods ended June 30, 2006. Net sales to external customers
in local currency increased 5% and 7% for the same periods versus the prior
year comparable period. The increase in sales to external customers relates
to continued growth in our process analytics and industrial-related
products. We also experienced strong export sales growth to emerging
markets for the six months ended June 30, 2006.
The decrease in segment profit during the three and six month periods
ending June 30, 2006 primarily reflects increased selling, general and
administrative expense versus the previous year due to investments in our
global sales and marketing initiatives, as well as increased performance
related compensation. The decrease in segment profit for the six months
ended June 30, 2006 is due in part to lower research and development
expense in the previous year offset in part by benefits from our cost
rationalization initiatives as well as favorable changes in foreign
currency translation fluctuations.
Western European Operations
Three months ended June 30 Six months ended June 30
2006 2005 %(1) 2006 2005 %(1)
---- ---- ---- ---- ---- ----
Total net sales $ 147,981 $ 145,160 2% $ 284,484 $ 281,112 1%
Net sales to external customers $ 129,791 $ 127,039 2% $ 249,507 $ 249,115 0%
Segment profit $ 10,939 $ 10,912 0% $ 19,897 $ 18,129 10%
(1) Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales increased 4% and 7% in local currency for the three
and six months ended June 30, 2006. Net sales in local currency to external
customers increased 3% and 5% for the three and six month periods compared
to the corresponding periods in 2005 primarily due to strong sales growth
in our food retailing products primarily related to strong project activity
as well as solid growth in our laboratory-related products.
The increase in segment profit for the six months ended June 30, 2006
is principally a result of increased net sales volume, our ability to
leverage our fixed production costs and benefits of our cost
rationalization initiatives partially offset by unfavorable currency
translation fluctuations. Segment profit for the three and six months ended
June 30, 2006 also included a restructuring charge of $1.2 million related
primarily to severance charges.
Chinese Operations
Three months ended June 30 Six months ended June 30
2006 2005 %(1) 2006 2005 %(1)
---- ---- ---- ---- ---- ----
Total net sales $ 49,770 $ 43,069 16% $ 91,027 $ 79,156 15%
Net sales to external customers $ 31,216 $ 28,535 9% $ 55,881 $ 50,499 11%
Segment profit $ 11,494 $ 9,508 21% $ 21,033 $ 16,849 25%
(1) Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales in local currency increased 12% and 12% and net sales
to external customers increased 6% and 7% for the three and six months
ended June 30, 2006 as compared to the corresponding periods in 2005. These
increases were due to continued sales growth for most product lines.
The increase in segment profit is primarily due to the continued
improvement in sales volume and our ability to leverage our fixed
production costs.
Other
Three months ended June 30 Six months ended June 30
2006 2005 %(1) 2006 2005 %(1)
---- ---- ---- ---- ---- ----
Total net sales $ 55,987 $ 50,618 11% $ 108,669 $ 96,885 12%
Net sales to external customers $ 56,145 $ 50,435 11% $ 108,736 $ 96,703 12%
Segment profit $ 4,347 $ 2,341 86% $ 8,063 $ 5,811 39%
(1) Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales and net sales to external customers increased 10% and
13% in local currency for the three and six months ended June 30, 2006
compared to the previous year comparable periods. This performance reflects
increased sales in our Other Asian Pacific, Eastern European and Other
North American markets.
Segment profit increased during the three and six months ended June
30, 2006 primarily due to increased sales volume in Eastern Europe and the
timing of certain expenses and inventory charges that occurred during the
three months ended June 30, 2005.
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. In 2005, we also
increased our debt balance in Europe and our cash balance in the United
States as a result of our foreign earnings repatriation associated with the
American Jobs Creation Act of 2004.
Cash provided by operating activities totaled $72.2 million in the six
months ended June 30, 2006, compared to $57.3 million in the corresponding
period in 2005. The increase in 2006 resulted principally from improved
operating results and strong cash collections compared to the corresponding
period in 2005. Operating cash flows for the six months ended June 30, 2006
excludes excess tax benefits from share-based payment arrangements of $7.7
million. These benefits have been classified as financing activities
pursuant to SFAS 123R.
We continue to explore potential acquisitions. In connection with any
acquisition, we may incur additional indebtedness. In addition, the terms
of certain of our acquisitions provide for possible additional earn-out
payments. However, we do not currently believe we will make any material
payments relating to such earn-outs.
Capital expenditures are a significant use of funds and are made
primarily for investments in information systems and technology, machinery,
equipment and the purchase and expansion of facilities. Our capital
expenditures totaled $11.8 million for the six months ended June 30, 2006
compared to $11.9 million in the corresponding period in 2005. The decrease
is due primarily to timing. However, 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 June 30, 2006.
June 30, 2006
------------------------------------------------------
Other principal
U.S. dollar trading currencies Total
---------------- ------------------ ----------------
$150m Senior notes (net of unamortized discount) $ 148,662 $ - $ 148,662
Credit facility - 264,125 264,125
---------------- ------------------ ----------------
Total long-term debt 148,662 264,125 412,787
Other local arrangements - 8,201 8,201
---------------- ------------------ ----------------
Total debt $ 148,662 $ 272,326 $ 420,988
================ ================== ================
As of June 30, 2006, we had $176.6 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.
Share repurchase program
We have a share repurchase program. Under the program, we are
authorized to buy back up to $500 million of equity shares. As of June 30,
2006, there were $114.4 million of remaining equity shares authorized to be
repurchased under the plan by December 31, 2007. During July 2006, we have
been authorized to buy back an additional $400 million of shares through
December 2008. 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 7.4 million shares since the inception of the program
through June 30, 2006.
We spent $117.2 million and $73.3 million on the repurchase of
1,941,900 shares and 1,505,900 shares at an average price of $60.32 and
$48.62 during the six months ended June 30, 2006 and 2005, respectively, as
well as an additional $4.2 million and $1.4 million during the six month
periods ended June 30, 2006 and 2005, respectively, relating to the
settlement of the liability for shares repurchased as of December 31, 2005
and 2004. See Part II Item 2 regarding details of the share repurchase
program for the three months ended June 30, 2006. We reissued 766,259
shares and 121,825 shares held in treasury for the exercise of stock
options for the six months ended June 30, 2006 and 2005, respectively.
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 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 June 30, 2006, 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 $30.3 million in
the reported U.S. dollar value of the debt.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the interim consolidated financial statements.
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, 2005,
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2006, 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, 2005.
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 six months ended June 30, 2006 that
have materially affected, or are reasonably likely to materially affect,
our controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. None
Item 1A. RISK FACTORS.
See Risk Factors identified in the Company's most recently filed Form
10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
---------------------------- ------------ ---------------- ------------------- ----------------------
(a) (b) (c) (d)
Total Number Maximum Number
of Shares (or Approximate
Purchased as Dollar Value) of
Total Part of Publicly Shares that May
Number of Average Announced Yet be Purchased
Shares Price Paid Plans or Under the Plans or
Purchased per Share Programs Programs
---------------------------- ------------ ---------------- ------------------- ----------------------
April 1 to April 30, 2006 285,000 $ 61.94 285,000 $ 146,012
---------------------------- ------------ ---------------- ------------------- ----------------------
May 1 to May 31, 2006 200,300 $ 65.64 200,300 $ 132,858
---------------------------- ------------ ---------------- ------------------- ----------------------
June 1 to June 30, 2006 303,000 $ 60.78 303,000 $ 114,431
---------------------------- ------------ ---------------- ------------------- ----------------------
Total 788,300 $ 62.44 788,300 $ 114,431
---------------------------- ------------ ---------------- ------------------- ----------------------
The Company has a share repurchase program. Under the program the
Company has been authorized to buy back up to $500 million of equity
shares. As of June 30, 2006, there were $114.4 million of remaining equity
shares authorized to be repurchased under the plan by December 31, 2007.
During July 2006, the Company has been authorized to buy back an additional
$400 million of shares through December 2008. The Company has purchased 7.4
million shares since the inception of the program through June 30, 2006.
The Company spent $117.2 million and $73.3 million on the repurchase
of 1,941,900 shares and 1,505,900 shares at an average price of $60.32 and
$48.62 during the six months ended June 30, 2006 and 2005, respectively, as
well as an additional $4.2 million and $1.4 million during the six month
periods ended June 30, 2006 and 2005, respectively, relating to the
settlement of the liability for shares repurchased as of December 31, 2005
and 2004. The Company reissued 766,259 shares and 121,825 shares held in
treasury for the exercise of stock options for the six months ended June
30, 2006 and 2005, respectively.
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Mettler-Toledo International Inc. annual meeting of stockholders
was held on May 3, 2006. At the meeting, the following matters were
submitted to a vote of stockholders: the election of directors, the
ratification of the appointment of the company's independent auditors, and
the approval of the POBS Plus Incentive System.
As of the record date of March 6, 2006 there were 40,975,959 shares of
common stock entitled to vote at the meeting. The holders of 37,440,545
shares were represented in person or in proxy at the meeting, constituting
a quorum. The vote with respect to the matters submitted to stockholders
was as follows:
Withheld
Matter For or Against Abstained
------ --- ---------- ---------
Election of Directors
Robert F. Spoerry 36,148,859 1,291,686
Francis A. Contino 37,103,801 336,744
John T. Dickson 36,852,924 587,621
Philip H. Geier 36,823,054 617,491
John D. Macomber 23,522,023 13,918,522
Hans Ulrich Maerki 37,070,308 370,237
George M. Milne 37,024,300 416,245
Thomas P. Salice 37,092,102 348,443
Appointment of Independent Auditors 37,370,376 60,438 9,737
Approval of POBS Plus Incentive System 35,091,066 2,280,640 68,839
Item 5. OTHER INFORMATION. None
Item 6. EXHIBITS.
(a) Exhibits
10.1 Employment Agreement between Joakim Weidemanis and
Mettler-Toledo International Inc., dated May 23, 2005
10.2 Employment Agreement between Hans-Peter von Arb and
Mettler-Toledo International Inc., dated April 11,
2006
10.3 Indemnification Agreement between Hans-Peter von Arb
and Mettler-Toledo International Inc., dated June 1,
2006
31.1 Certification of the Chief Executive Officer Pursuant
to Section 302 of the Sarbanes - Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant
to Section 302 of the Sarbanes - Oxley Act of 2002
32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Date Furnished or Filed Item Reported
----------------------------------- -------------------------------------
July 27, 2006 Press release announcing second
quarter 2006 results
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.
Mettler-Toledo International Inc.
Date: July 28, 2006 By: /s/ William P. Donnelly
------------------------------
William P. Donnelly
Group Vice President and
Chief Financial Officer