MTD 10Q 6.30.2014
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, 2014, 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 | | (I.R.S Employer Identification No.) |
incorporation or organization) | | |
1900 Polaris Parkway Columbus, Ohio 43240 and Im Langacher, P.O. Box MT-100 CH 8606 Greifensee, Switzerland _________________________________________________________ (Address of principal executive offices) (Zip Code) |
1-614-438-4511 and +41-44-944-22-11
________________________________________________________________________________
(Registrant's telephone number, including area code)
not applicable
______________________________________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No ___
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer. X Accelerated filer __ Non-accelerated filer __ (Do not check if a smaller reporting company)Smaller reporting company __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
The Registrant had 28,887,558 shares of Common Stock outstanding at June 30, 2014.
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
| |
Item 1. | Financial Statements |
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended June 30, 2014 and 2013
(In thousands, except share data)
(unaudited)
|
| | | | | | | |
| June 30, 2014 | | June 30, 2013 |
Net sales | | | |
Products | $ | 468,678 |
| | $ | 450,128 |
|
Service | 140,156 |
| | 128,552 |
|
Total net sales | 608,834 |
| | 578,680 |
|
Cost of sales | | | |
Products | 199,458 |
| | 193,839 |
|
Service | 81,200 |
| | 75,998 |
|
Gross profit | 328,176 |
| | 308,843 |
|
Research and development | 32,125 |
| | 29,003 |
|
Selling, general and administrative | 183,103 |
| | 173,434 |
|
Amortization | 7,283 |
| | 5,807 |
|
Interest expense | 5,956 |
| | 5,543 |
|
Restructuring charges | 1,905 |
| | 3,196 |
|
Other charges (income), net | 406 |
| | 987 |
|
Earnings before taxes | 97,398 |
| | 90,873 |
|
Provision for taxes | 23,376 |
| | 21,811 |
|
Net earnings | $ | 74,022 |
| | $ | 69,062 |
|
| | | |
Basic earnings per common share: | | | |
Net earnings | $ | 2.55 |
| | $ | 2.29 |
|
Weighted average number of common shares | 29,074,695 |
| | 30,119,889 |
|
| | | |
Diluted earnings per common share: | | | |
Net earnings | $ | 2.49 |
| | $ | 2.24 |
|
Weighted average number of common and common equivalent shares | 29,750,815 |
| | 30,849,934 |
|
| | | |
Comprehensive income, net of tax (Note 8) | $ | 71,631 |
| | $ | 74,897 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Six months ended June 30, 2014 and 2013
(In thousands, except share data)
(unaudited)
|
| | | | | | | |
| June 30, 2014 | | June 30, 2013 |
Net sales | | | |
Products | $ | 890,826 |
| | $ | 852,466 |
|
Service | 268,629 |
| | 250,567 |
|
Total net sales | 1,159,455 |
| | 1,103,033 |
|
Cost of sales | | | |
Products | 380,656 |
| | 366,428 |
|
Service | 157,982 |
| | 148,604 |
|
Gross profit | 620,817 |
| | 588,001 |
|
Research and development | 61,622 |
| | 56,703 |
|
Selling, general and administrative | 355,294 |
| | 339,459 |
|
Amortization | 14,377 |
| | 10,929 |
|
Interest expense | 11,622 |
| | 10,943 |
|
Restructuring charges | 3,397 |
| | 8,198 |
|
Other charges (income), net | 723 |
| | 1,760 |
|
Earnings before taxes | 173,782 |
| | 160,009 |
|
Provision for taxes | 41,709 |
| | 38,403 |
|
Net earnings | $ | 132,073 |
| | $ | 121,606 |
|
| | | |
Basic earnings per common share: | | | |
Net earnings | $ | 4.52 |
| | $ | 4.03 |
|
Weighted average number of common shares | 29,221,647 |
| | 30,209,729 |
|
| | | |
Diluted earnings per common share: | | | |
Net earnings | $ | 4.41 |
| | $ | 3.93 |
|
Weighted average number of common and common equivalent shares | 29,918,456 |
| | 30,975,957 |
|
| | | |
Comprehensive income, net of tax (Note 8) | $ | 131,536 |
| | $ | 110,326 |
|
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, 2014 and December 31, 2013
(In thousands, except share data)
(unaudited)
|
| | | | | | | |
| June 30, 2014 | | December 31, 2013 |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 111,012 |
| | $ | 111,874 |
|
Trade accounts receivable, less allowances of $15,925 at June 30, 2014 | 427,495 |
| | 466,703 |
|
and $14,856 at December 31, 2013 | |
Inventories | 224,448 |
| | 210,414 |
|
Current deferred tax assets, net | 59,027 |
| | 57,934 |
|
Other current assets and prepaid expenses | 64,406 |
| | 67,062 |
|
Total current assets | 886,388 |
| | 913,987 |
|
Property, plant and equipment, net | 521,884 |
| | 514,438 |
|
Goodwill | 457,759 |
| | 455,842 |
|
Other intangible assets, net | 114,257 |
| | 114,418 |
|
Non-current deferred tax assets, net | 22,093 |
| | 24,121 |
|
Other non-current assets | 141,039 |
| | 130,013 |
|
Total assets | $ | 2,143,420 |
| | $ | 2,152,819 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities: | | | |
Trade accounts payable | $ | 140,105 |
| | $ | 145,993 |
|
Accrued and other liabilities | 117,763 |
| | 116,831 |
|
Accrued compensation and related items | 104,969 |
| | 123,493 |
|
Deferred revenue and customer prepayments | 97,782 |
| | 83,083 |
|
Taxes payable | 42,260 |
| | 61,502 |
|
Current deferred tax liabilities | 16,196 |
| | 16,219 |
|
Short-term borrowings and current maturities of long-term debt | 121,306 |
| | 17,067 |
|
Total current liabilities | 640,381 |
| | 564,188 |
|
Long-term debt | 345,364 |
| | 395,960 |
|
Non-current deferred tax liabilities | 61,740 |
| | 64,449 |
|
Other non-current liabilities | 188,221 |
| | 193,170 |
|
Total liabilities | 1,235,706 |
| | 1,217,767 |
|
Commitments and contingencies (Note 14) |
|
| |
|
|
Shareholders’ equity: | | | |
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares | — |
| | — |
|
Common stock, $0.01 par value per share; authorized 125,000,000 shares; | | | |
issued 44,786,011 and 44,786,011 shares; outstanding 28,887,558 and 29,487,075 | | | |
shares at June 30, 2014 and December 31, 2013, respectively | 448 |
| | 448 |
|
Additional paid-in capital | 669,322 |
| | 653,250 |
|
Treasury stock at cost (15,898,453 shares at June 30, 2014 and 15,298,936 shares at December 31, 2013) | (1,888,911 | ) | | (1,721,030 | ) |
Retained earnings | 2,162,428 |
| | 2,037,420 |
|
Accumulated other comprehensive income (loss) | (35,573 | ) | | (35,036 | ) |
Total shareholders’ equity | 907,714 |
| | 935,052 |
|
Total liabilities and shareholders’ equity | $ | 2,143,420 |
| | $ | 2,152,819 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Six months ended June 30, 2014 and twelve months ended December 31, 2013
(In thousands, except share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | Additional Paid-in Capital | | | | | | Accumulated Other Comprehensive Income (Loss) | | |
| Common Stock | | | Treasury Stock | | Retained Earnings | | | |
| Shares | | Amount | | | | | | Total |
Balance at December 31, 2012 | 30,410,006 |
| | $ | 448 |
| | $ | 638,705 |
| | $ | (1,463,924 | ) | | $ | 1,749,451 |
| | $ | (97,461 | ) | | $ | 827,219 |
|
Exercise of stock options and restricted | | | | | | | | | | | | | |
stock units | 398,646 |
| | — |
| | — |
| | 37,870 |
| | (18,125 | ) | | — |
| | 19,745 |
|
Repurchases of common stock | (1,321,577 | ) | | — |
| | — |
| | (294,976 | ) | | — |
| | — |
| | (294,976 | ) |
Tax benefit resulting from exercise of | | | | | | | | | | | | | |
certain employee stock options | — |
| | — |
| | 1,906 |
| | — |
| | — |
| | — |
| | 1,906 |
|
Share-based compensation | — |
| | — |
| | 12,639 |
| | — |
| | — |
| | — |
| | 12,639 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | 306,094 |
| | — |
| | 306,094 |
|
Other comprehensive income (loss), | | | | | | | | | | | | | |
net of tax (Note 8) | — |
| | — |
| | — |
| | — |
| | — |
| | 62,425 |
| | 62,425 |
|
Balance at December 31, 2013 | 29,487,075 |
| | $ | 448 |
| | $ | 653,250 |
| | $ | (1,721,030 | ) | | $ | 2,037,420 |
| | $ | (35,036 | ) | | $ | 935,052 |
|
Exercise of stock options and restricted | | | | | | | | | | | | | |
stock units | 157,857 |
| | — |
| | — |
| | 16,097 |
| | (7,065 | ) | | — |
| | 9,032 |
|
Repurchases of common stock | (757,374 | ) | | — |
| | — |
| | (183,978 | ) | | — |
| | — |
| | (183,978 | ) |
Tax benefit resulting from exercise of | | | | | | | | | | | | | |
certain employee stock options | — |
| | — |
| | 9,569 |
| | — |
| | — |
| | — |
| | 9,569 |
|
Share-based compensation | — |
| | — |
| | 6,503 |
| | — |
| | — |
| | — |
| | 6,503 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | 132,073 |
| | — |
| | 132,073 |
|
Other comprehensive income (loss), | | | | | | | | | | | | | |
net of tax (Note 8) | — |
| | — |
| | — |
| | — |
| | — |
| | (537 | ) | | (537 | ) |
Balance at June 30, 2014 | 28,887,558 |
| | $ | 448 |
| | $ | 669,322 |
| | $ | (1,888,911 | ) | | $ | 2,162,428 |
| | $ | (35,573 | ) | | $ | 907,714 |
|
| | | | | | | | | | | | | |
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, 2014 and 2013
(In thousands)
(unaudited)
|
| | | | | | | |
| June 30, 2014 | | June 30, 2013 |
Cash flows from operating activities: | | | |
Net earnings | $ | 132,073 |
| | $ | 121,606 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation | 16,874 |
| | 17,447 |
|
Amortization | 14,377 |
| | 10,929 |
|
Deferred tax benefit | (3,442 | ) | | (5,687 | ) |
Excess tax benefits from share-based payment arrangements | (9,569 | ) | | (519 | ) |
Share-based compensation | 6,503 |
| | 5,852 |
|
Other | 74 |
| | 408 |
|
Increase (decrease) in cash resulting from changes in: | | | |
Trade accounts receivable, net | 39,967 |
| | 12,583 |
|
Inventories | (13,733 | ) | | (8,158 | ) |
Other current assets | 1,990 |
| | (5,690 | ) |
Trade accounts payable | (5,458 | ) | | (19,806 | ) |
Taxes payable | (19,250 | ) | | (2,820 | ) |
Accruals and other | (9,429 | ) | | (11,513 | ) |
Net cash provided by operating activities | 150,977 |
| | 114,632 |
|
Cash flows from investing activities: | | | |
Proceeds from sale of property, plant and equipment | 296 |
| | 115 |
|
Purchase of property, plant and equipment | (37,120 | ) | | (36,781 | ) |
Acquisitions | (3,255 | ) | | (213 | ) |
Net cash used in investing activities | (40,079 | ) | | (36,879 | ) |
Cash flows from financing activities: | | | |
Proceeds from borrowings | 310,018 |
| | 211,112 |
|
Repayments of borrowings | (256,611 | ) | | (136,330 | ) |
Proceeds from stock option exercises | 9,032 |
| | 12,549 |
|
Repurchases of common stock | (183,978 | ) | | (144,844 | ) |
Excess tax benefits from share-based payment arrangements | 9,569 |
| | 519 |
|
Other financing activities | (81 | ) | | (1,170 | ) |
Net cash used in financing activities | (112,051 | ) | | (58,164 | ) |
Effect of exchange rate changes on cash and cash equivalents | 291 |
| | (1,074 | ) |
Net increase (decrease) in cash and cash equivalents | (862 | ) | | 18,515 |
|
Cash and cash equivalents: | | | |
Beginning of period | 111,874 |
| | 101,702 |
|
End of period | $ | 111,012 |
| | $ | 120,217 |
|
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, 2014 – Unaudited
(In thousands, except share data, unless otherwise stated)
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 Columbus, Ohio and Greifensee, Switzerland.
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, 2014 and for the three and six month periods ended June 30, 2014 and 2013 should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
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, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
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 and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
All intercompany transactions and balances have been eliminated.
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. The Company determines the allowance based upon a review of both specific accounts for collection and the age of the accounts receivable portfolio.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
Inventories
Inventories are 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 the Company’s inventory are made for excess and obsolete items based on 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.
Inventories consisted of the following: |
| | | | | | | |
| June 30, 2014 | | December 31, 2013 |
Raw materials and parts | $ | 101,373 |
| | $ | 98,244 |
|
Work-in-progress | 41,242 |
| | 38,061 |
|
Finished goods | 81,833 |
| | 74,109 |
|
| $ | 224,448 |
| | $ | 210,414 |
|
Goodwill and Other Intangible Assets
Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
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 of benefit. 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 in accordance with the provisions of ASC 805 "Business Combinations" and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible - Goodwill and Other" and ASC 360 "Property, Plant and Equipment."
Other intangible assets consisted of the following: |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | December 31, 2013 |
| Gross Amount | | Accumulated Amortization | | Intangibles, Net | | Gross Amount | | Accumulated Amortization | | Intangibles, Net |
Customer relationships | $ | 100,342 |
| | $ | (27,009 | ) | | $ | 73,333 |
| | $ | 98,374 |
| | $ | (25,313 | ) | | $ | 73,061 |
|
Proven technology and patents | 43,086 |
| | (30,554 | ) | | 12,532 |
| | 43,233 |
| | (29,763 | ) | | 13,470 |
|
Tradename (finite life) | 4,375 |
| | (1,832 | ) | | 2,543 |
| | 4,300 |
| | (1,619 | ) | | 2,681 |
|
Tradename (indefinite life) | 25,105 |
| | — |
| | 25,105 |
| | 25,108 |
| | — |
| | 25,108 |
|
Other | 1,599 |
| | (855 | ) | | 744 |
| | 757 |
| | (659 | ) | | 98 |
|
| $ | 174,507 |
| | $ | (60,250 | ) | | $ | 114,257 |
| | $ | 171,772 |
| | $ | (57,354 | ) | | $ | 114,418 |
|
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The Company recognized amortization expense associated with the above intangible assets of $1.6 million and $1.5 million for the three months ended June 30, 2014 and 2013, respectively and $3.2 million and $2.9 million for the six months ended June 30, 2014 and 2013, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $6.4 million for 2014, $6.0 million for 2015, $5.5 million for 2016, $5.1 million for 2017, $4.9 million for 2018 and $4.5 million for 2019. Purchased intangible amortization was $1.4 million, $1.0 million after tax, and $1.3 million, $0.9 million after tax, for the three months ended June 30, 2014 and 2013, respectively and $2.7 million, $1.9 million after tax, and $2.7 million, $1.8 million after tax, for the six months ended June 30, 2014 and 2013, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $5.6 million and $4.3 million for the three months ended June 30, 2014 and 2013, respectively and $11.2 million and $8.0 million for the six months ended June 30, 2014 and 2013, respectively.
Revenue Recognition
Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and, accordingly, title and risk of loss transfers upon shipment. In countries where title cannot legally transfer before delivery, the Company defers revenue recognition until delivery has occurred. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. Shipping and handling costs charged to customers are included in total net sales and the associated expense is recorded in cost of sales for all periods presented. Other than a few small software applications, the Company does not sell software products without the related hardware instrument as the software is embedded in the instrument. The Company’s products typically require no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. To the extent the Company’s solutions have a post-shipment obligation, such as customer acceptance, revenue is deferred until the obligation has been completed. The Company defers product revenue where installation is required, unless such installation is deemed perfunctory. The Company also sometimes enters into certain arrangements that require the separate delivery of multiple goods and/or services. These deliverables are accounted for separately if the deliverables have standalone value and the performance of undelivered items is probable and within the Company's control. The allocation of revenue between the separate deliverables is typically based on the relative selling price at the time of the sale in accordance with a number of factors including service technician billing rates, time to install and geographic location.
Further, certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the customer upon title transfer. Revenue is recognized on these products upon transfer of title and risk of loss to its distributors. Distributor discounts are offset against revenue at the time such revenue is recognized.
Service revenue not under contract is recognized upon the completion of the service performed. Spare parts sold on a stand-alone basis are recognized upon title and risk of loss transfer which is generally at the time of shipment. Revenues from service contracts are recognized ratably over the contract period. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification and preventative maintenance on a customer’s pre-defined equipment over the contract period. Service contracts are separately priced and payment is typically received from the customer at the beginning of the contract period.
Warranty
The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized. While the Company engages in extensive product quality
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
programs and processes, its 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:
|
| | | | | | | |
| June 30, 2014 | | June 30, 2013 |
Balance at beginning of period | $ | 16,991 |
| | $ | 16,295 |
|
Accruals for warranties | 9,427 |
| | 9,467 |
|
Foreign currency translation | (3 | ) | | (185 | ) |
Payments / utilizations | (9,914 | ) | | (9,815 | ) |
Balance at end of period | $ | 16,501 |
| | $ | 15,762 |
|
Employee Termination Benefits
In situations where contractual termination benefits exist, the Company records accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. All other employee termination arrangements are recognized and measured at their fair value at the communication date unless the employee is required to render additional service beyond the legal notification period, in which case the liability is recognized ratably over the future service period.
Share-Based Compensation
The Company recognizes share-based compensation expense 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. The Company recorded $3.3 million and $6.5 million of share-based compensation expense for the three and six months ended June 30, 2014, respectively, compared to $3.0 million and $5.8 million for the corresponding periods in 2013.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.
As more fully described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company’s fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company’s exposure to currency fluctuations on the respective hedged items. The Company does not use derivative financial instruments for trading purposes. For additional disclosures on the fair value of financial instruments, also see Note 4 to the interim consolidated financial statements.
Cash Flow Hedges
The Company has an interest rate swap agreement, designated as a cash flow hedge. The agreement changes the floating rate LIBOR-based interest payments associated with $100 million in borrowings under the Company’s credit agreement to a fixed obligation of 3.24%. The swap is recorded
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
gross in other non-current liabilities in the consolidated balance sheet at its fair value as of June 30, 2014 and December 31, 2013 of $4.0 million and $5.3 million, respectively. The amount recognized in other comprehensive income (loss) during the three month periods ended June 30, 2014 and 2013 was a loss of $0.1 million before and after tax, and a gain of $0.2 million, $0.1 million after tax, respectively, and during the six month periods ended June 30, 2014 and 2013 the amount recognized was a loss of $0.2 million, $0.1 million after tax, and a gain of $0.2 million, $0.1 million after tax, respectively. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to interest expense was $0.8 million, $0.5 million after tax, for both the three month periods ended June 30, 2014 and 2013, and $1.5 million, $1.0 million after tax, and $1.5 million, $0.9 million after tax, for the six month periods ended June 30, 2014 and 2013, respectively. A derivative loss of $3.1 million, $1.9 million after tax, based upon interest rates at June 30, 2014, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through June 30, 2014 no hedge ineffectiveness has occurred in relation to this hedge.
In June 2013, the Company entered into a forward starting interest rate swap agreement, designated as a cash flow hedge. The agreement which will change the floating rate LIBOR-based interest payments associated with $50 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.52% beginning in October 2015. The swap is recorded in other non-current liabilities in the consolidated balance sheet at its fair value as of June 30, 2014 of $0.4 million and in other non-current assets in the consolidated balance sheet at its fair value as of December 31, 2013 of $1.3 million. The amount recognized in other comprehensive income (loss) during the three and six months ended June 30, 2014 was a loss of $0.9 million, $0.6 million after tax, and a loss of $1.6 million, $1.0 million after tax, respectively. The amount recognized in other comprehensive income (loss) during the three and six months ended June 30, 2013 was a gain of $0.9 million, $0.6 million after tax.
In July 2012, the Company began entering into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based businesses. The notional amount of foreign currency forward contracts outstanding at June 30, 2014 and December 31, 2013 was $77.4 million and $78.2 million, respectively. The foreign currency forward contracts are recorded gross at their fair value in the consolidated balance sheet at June 30, 2014 in other current assets of $0.4 million. At December 31, 2013, the foreign currency forward contracts are recorded gross at their fair value in the consolidated balance sheet in other current assets of $0.3 million and in accrued and other liabilities of $0.1 million. The Company records the effective portion of the cash flow derivative hedging gains and losses in accumulated other comprehensive income (loss), net of tax and reclassifies these amounts into earnings in the period in which the transactions affect earnings. The amount recognized in other comprehensive income (loss) during the three month period ended June 30, 2014 and 2013 was a gain of $0.1 million before and after tax, and a loss of $0.5 million, $0.4 million after tax, respectively, and during the six months ended June 30, 2014 and 2013, was a gain of $0.4 million, $0.3 million after tax, and a loss of $1.3 million, $1.1 million after tax, respectively. The effective portion reclassified from accumulated other comprehensive income (loss) to cost of sales was a gain of $0.2 million, $0.1 million after tax, and a loss of $0.6 million, $0.4 million after tax, during the three months ended June 30, 2014 and 2013 and a gain of $0.2 million before and after tax, and a loss of $1.0 million, $0.8 million after tax, for the six months ended June 30, 2014 and 2013, respectively. A derivative gain of $0.4 million, $0.3 million after tax, based upon foreign currency rates at June 30, 2014, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through June 30, 2014 no hedge ineffectiveness has occurred in relation to this hedge.
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc and other major European currencies with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts were reported at their fair value in the consolidated balance sheet
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
at June 30, 2014 and December 31, 2013 in other current assets of $0.3 million and $0.7 million, respectively, and in other liabilities of $0.4 million for both periods. The Company recognized in other charges (income), net, a net loss of $0.7 million and a net gain of $1.5 million during the three months ended June 30, 2014 and 2013, respectively, and a net loss of $0.9 million and $0.7 million during the six months ended June 30, 2014 and 2013, respectively. At June 30, 2014 and December 31, 2013, these contracts had a notional value of $189.2 million and $180.3 million, respectively.
| |
4. | FAIR VALUE MEASUREMENTS |
At June 30, 2014 and December 31, 2013, the Company had derivative assets totaling $0.6 million and $2.3 million, respectively, and derivative liabilities totaling $4.8 million and $5.8 million, respectively. The fair values of the interest rate swap agreement, foreign currency forward contracts designated as cash flow hedges and foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant at June 30, 2014 and December 31, 2013.
At June 30, 2014 and December 31, 2013, the Company had $12.8 million and $16.9 million of cash equivalents, respectively, the fair value of which is determined through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.
The difference between the fair value and carrying value of the Company's long-term debt is not material and is classified in Level 2 and Level 3 of the fair value hierarchy. The fair value of the Company's debt is estimated based on either similar issues or other inputs derived from available market information, including interest rates, term of debt and creditworthiness.
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.
A fair value hierarchy has been established that categorizes these inputs into three levels:
| |
Level 1: | Quoted prices in active markets for identical assets and liabilities |
| |
Level 2: | Observable inputs other than quoted prices in active markets for identical assets and liabilities |
| |
Level 3: | Unobservable inputs |
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The following table presents for each of these hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2014 and December 31, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | December 31, 2013 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | | | | |
Cash equivalents | $ | 12,805 |
| | $ | — |
| | $ | 12,805 |
| | $ | — |
| | $ | 16,868 |
| | $ | — |
| | $ | 16,868 |
| | $ | — |
|
Interest rate swap agreement | — |
| | — |
| | — |
| | — |
| | 1,269 |
| | — |
| | 1,269 |
| | — |
|
Foreign currency forwards contracts designed as cash flow hedges | 361 |
| | — |
| | 361 |
| | — |
| | 268 |
| | — |
| | 268 |
| | — |
|
Foreign currency forward contracts not designated as hedging instruments | 284 |
| | — |
| | 284 |
| | — |
| | 719 |
| | — |
| | 719 |
| | — |
|
Total | $ | 13,450 |
| | $ | — |
| | $ | 13,450 |
| | $ | — |
| | $ | 19,124 |
| | $ | — |
| | $ | 19,124 |
| | $ | — |
|
| | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | |
Interest rate swap agreement | $ | 4,379 |
| | $ | — |
| | $ | 4,379 |
| | $ | — |
| | $ | 5,312 |
| | $ | — |
| | $ | 5,312 |
| | $ | — |
|
Foreign currency forwards contracts designed as cash flow hedges | 7 |
| | — |
| | 7 |
| | — |
| | 103 |
| | — |
| | 103 |
| | — |
|
Foreign currency forward contracts not designated as hedging instruments | 377 |
| | — |
| | 377 |
| | — |
| | 355 |
| | — |
| | 355 |
| | — |
|
Total | $ | 4,763 |
| | $ | — |
| | $ | 4,763 |
| | $ | — |
| | $ | 5,770 |
| | $ | — |
| | $ | 5,770 |
| | $ | — |
|
The provision for taxes for both the three and six month periods ended June 30, 2014 is based upon the Company’s projected annual effective rate of 24%.
Debt consisted of the following at June 30, 2014:
|
| | | | | | | | | | | |
| June 30, 2014 |
| U.S. Dollar | | Other Principal Trading Currencies | | Total |
6.30% $100 million Senior Notes due June 25, 2015 | $ | 100,000 |
| | $ | — |
| | $ | 100,000 |
|
3.67% $50 million Senior Notes due December 17, 2022 | 50,000 |
| | — |
| | 50,000 |
|
4.10% $50 million Senior Notes due September 19, 2023 | 50,000 |
| | — |
| | 50,000 |
|
Credit agreement | 201,811 |
| | 43,553 |
| | 245,364 |
|
Other local arrangements | 1,355 |
| | 19,951 |
| | 21,306 |
|
Total debt | 403,166 |
| | 63,504 |
| | 466,670 |
|
Less: current portion | (101,355 | ) | | (19,951 | ) | | (121,306 | ) |
Total long-term debt | $ | 301,811 |
| | $ | 43,553 |
| | $ | 345,364 |
|
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
As of June 30, 2014, the Company had $550.9 million of availability remaining under the credit agreement. The Company was in compliance with its covenants at June 30, 2014.
In June 2014, the Company entered into an agreement to issue and sell $250 million of ten-year Senior Notes in a private placement. The Company will issue $125 million with a fixed interest rate of 3.84% ("3.84% Senior Notes") in September 2014 and $125 million with a fixed interest rate of 4.24% ("4.24% Senior Notes") in June 2015. The Senior Notes are senior unsecured obligations of the Company.
Interest on the 3.84% Senior Notes is payable semi-annually in March and September of each year, beginning in March 2015. Interest on the 4.24% Senior Notes is payable semi-annually in June and December of each year, beginning in December 2015. The Company may at any time prepay the Senior Notes, in whole or in part (but in an amount not less than 10% of the original aggregate principal amount), at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, plus a "make-whole" prepayment premium.
The Senior Notes contain customary affirmative and negative covenants for agreements of this type that are substantially similar to those contained in the previously issued debt of the Company. The Senior Notes also contain customary events of default with customary grace periods, as applicable.
| |
7. | SHARE REPURCHASE PROGRAM AND TREASURY STOCK |
The Company has a $3 billion share repurchase program, of which there were $708.4 million of remaining common shares authorized to be repurchased under the program at June 30, 2014. We expect that the authorization will be utilized over the next few years. 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 amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.
The Company has purchased 22.2 million shares since the inception of the program through June 30, 2014. During the six months ended June 30, 2014 and 2013, the Company spent $184.0 million and $144.8 million on the repurchase of 757,374 shares and 680,934 shares at an average price per share of $242.89 and $212.69, respectively. The Company also reissued 157,857 shares and 216,176 shares held in treasury for the exercise of stock options and restricted stock units during the six months ended June 30, 2014 and 2013, respectively.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
| |
8. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
The following table presents changes in accumulated other comprehensive income by component for the six months ended June 30, 2014 and 2013: |
| | | | | | | | | | | | | | | |
| Currency Translation Adjustment, Net of Tax | | Net Unrealized Gain (Loss) on Cash Flow Hedging Arrangements, Net of Tax | | Pension and Post-Retirement Benefit Related Items, Net of Tax | | Total |
Balance at December 31, 2013 | $ | 77,915 |
| | $ | (2,433 | ) | | $ | (110,518 | ) | | $ | (35,036 | ) |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized gains (losses) on cash flow hedging arrangements | — |
| | (854 | ) | | — |
| | (854 | ) |
Foreign currency translation adjustment | (1,286 | ) | | 10 |
| | 8 |
| | (1,268 | ) |
Amounts recognized from accumulated other comprehensive income (loss), net of tax | — |
| | 788 |
| | 797 |
| | 1,585 |
|
Net change in other comprehensive income (loss), net of tax | (1,286 | ) | | (56 | ) | | 805 |
| | (537 | ) |
Balance at June 30, 2014 | $ | 76,629 |
| | $ | (2,489 | ) | | $ | (109,713 | ) | | $ | (35,573 | ) |
|
| | | | | | | | | | | | | | | |
| Currency Translation Adjustment, Net of Tax | | Net Unrealized Gain (Loss) on Cash Flow Hedging Arrangements, Net of Tax | | Pension and Post-Retirement Benefit Related Items, Net of Tax | | Total |
Balance at December 31, 2012 | $ | 56,012 |
| | $ | (5,438 | ) | | $ | (148,035 | ) | | $ | (97,461 | ) |
Other comprehensive income (loss), net of tax: |
| |
| |
| |
|
Unrealized gains (losses) on cash flow hedging arrangements | — |
| | (398 | ) | | — |
| | (398 | ) |
Foreign currency translation adjustment | (19,393 | ) | | (4 | ) | | 2,872 |
| | (16,525 | ) |
Amounts recognized from accumulated other comprehensive income (loss), net of tax | — |
| | 1,756 |
| | 3,887 |
| | 5,643 |
|
Net change in other comprehensive income (loss), net of tax | (19,393 | ) | | 1,354 |
| | 6,759 |
| | (11,280 | ) |
Balance at June 30, 2013 | $ | 36,619 |
| | $ | (4,084 | ) | | $ | (141,276 | ) | | $ | (108,741 | ) |
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and six month periods ended June 30:
|
| | | | | | | | | | |
| | Three months ended June 30, | | |
| | 2014 | | 2013 | | Location of Amounts Recognized in Earnings |
Effective portion of losses on cash flow hedging arrangements: | | | | | | |
Interest rate swap agreements | | $ | 778 |
| | $ | 766 |
| | Interest expense |
Foreign currency forward contracts | | (164 | ) | | 557 |
| | Cost of sales - products |
Total before taxes | | 614 |
| | 1,323 |
| | |
Provision for taxes | | 266 |
| | 409 |
| | Provision for taxes |
Total, net of taxes | | $ | 348 |
| | $ | 914 |
| | |
| | | | | | |
Recognition of defined benefit pension and post-retirement items: | | | | | | |
Recognition of actuarial losses, plan amendments and prior service cost, before taxes | | $ | 717 |
| | $ | 2,564 |
| | (a) |
Provision for taxes | | 316 |
| | 632 |
| | Provision for taxes |
Total, net of taxes | | $ | 401 |
| | $ | 1,932 |
| | |
|
| | | | | | | | | | |
| | Six months ended June 30, | | |
| | 2014 | | 2013 | | Location of Amounts Recognized in Earnings |
Effective portion of losses on cash flow hedging arrangements: | | | | | | |
Interest rate swap agreements | | $ | 1,546 |
| | $ | 1,522 |
| | Interest expense |
Foreign currency forward contracts | | (205 | ) | | 1,031 |
| | Cost of sales - products |
Total before taxes | | 1,341 |
| | 2,553 |
| | |
Provision for taxes | | 553 |
| | 797 |
| | Provision for taxes |
Total, net of taxes | | $ | 788 |
| | $ | 1,756 |
| | |
| | | | | | |
Recognition of defined benefit pension and post-retirement items: | | | | | | |
Recognition of actuarial losses, plan amendments and prior service cost, before taxes | | $ | 1,429 |
| | $ | 5,136 |
| | (a) |
Provision for taxes | | 632 |
| | 1,249 |
| | Provision for taxes |
Total, net of taxes | | $ | 797 |
| | $ | 3,887 |
| | |
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 10 for additional details for the three and six months ended June 30, 2014 and 2013.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
Comprehensive income (loss), net of tax consisted of the following as of June 30:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 2014 | | 2013 | | 2014 | | 2013 |
Net earnings | $ | 74,022 |
| | $ | 69,062 |
| | $ | 132,073 |
| | $ | 121,606 |
|
Other comprehensive income (loss), net of tax | (2,391 | ) | | 5,835 |
| | (537 | ) | | (11,280 | ) |
Comprehensive income, net of tax | $ | 71,631 |
| | $ | 74,897 |
| | $ | 131,536 |
| | $ | 110,326 |
|
| |
9. | 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, solely relating to outstanding stock options and restricted stock units:
|
| | | | | |
| 2014 | | 2013 |
Three months ended | 676,120 |
| | 730,045 |
|
Six months ended | 696,809 |
| | 766,228 |
|
Outstanding options and restricted stock units to purchase or receive 158,484 and 141,650 shares of common stock for the three month periods ended June 30, 2014 and 2013, respectively, and options and restricted stock units to purchase or receive 158,548 and 141,636 shares of common stock for the six month periods ended June 30, 2014 and 2013, respectively, have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.
| |
10. | 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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | Non-U.S. Pension Benefits | | Other U.S. Post-retirement Benefits | | Total |
| 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
Service cost, net | $ | 223 |
| | $ | 123 |
| | $ | 3,923 |
| | $ | 4,257 |
| | $ | 43 |
| | $ | 54 |
| | $ | 4,189 |
| | $ | 4,434 |
|
Interest cost on projected benefit obligations | 1,599 |
| | 1,439 |
| | 5,519 |
| | 4,822 |
| | 60 |
| | 101 |
| | 7,178 |
| | 6,362 |
|
Expected return on plan assets | (2,137 | ) | | (1,788 | ) | | (9,596 | ) | | (8,570 | ) | | — |
| | — |
| | (11,733 | ) | | (10,358 | ) |
Recognition of prior service cost | — |
| | — |
| | (1,030 | ) | | (979 | ) | | (195 | ) | | 22 |
| | (1,225 | ) | | (957 | ) |
Recognition of actuarial losses/(gains) | 1,200 |
| | 1,945 |
| | 1,100 |
| | 1,823 |
| | (358 | ) | | (247 | ) | | 1,942 |
| | 3,521 |
|
Net periodic pension cost/(credit) | $ | 885 |
| | $ | 1,719 |
| | $ | (84 | ) | | $ | 1,353 |
| | $ | (450 | ) | | $ | (70 | ) | | $ | 351 |
| | $ | 3,002 |
|
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | Non-U.S. Pension Benefits | | Other U.S. Post-retirement Benefits | | Total |
| 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
Service cost, net | $ | 446 |
| | $ | 247 |
| | $ | 7,885 |
| | $ | 8,627 |
| | $ | 85 |
| | $ | 108 |
| | $ | 8,416 |
| | $ | 8,982 |
|
Interest cost on projected benefit obligations | 3,198 |
| | 2,878 |
| | 11,002 |
| | 9,705 |
| | 120 |
| | 202 |
| | 14,320 |
| | 12,785 |
|
Expected return on plan assets | (4,274 | ) | | (3,576 | ) | | (19,140 | ) | | (17,262 | ) | | — |
| | — |
| | (23,414 | ) | | (20,838 | ) |
Recognition of prior service cost | — |
| | — |
| | (2,070 | ) | | (1,973 | ) | | (389 | ) | | 43 |
| | (2,459 | ) | | (1,930 | ) |
Recognition of actuarial losses/(gains) | 2,400 |
| | 3,891 |
| | 2,206 |
| | 3,669 |
| | (718 | ) | | (494 | ) | | 3,888 |
| | 7,066 |
|
Net periodic pension cost/(credit) | $ | 1,770 |
| | $ | 3,440 |
| | $ | (117 | ) | | $ | 2,766 |
| | $ | (902 | ) | | $ | (141 | ) | | $ | 751 |
| | $ | 6,065 |
|
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, the Company expects to make employer contributions of approximately $21.8 million to its non-U.S. pension plans and employer contributions of approximately $0.5 million to its U.S. post-retirement medical plan during the year ended December 31, 2014. These estimates may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.
For the three and six months ended June 30, 2014, we have incurred $1.9 million and $3.4 million, respectively of restructuring expenses which primarily comprised employee-related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.
A rollforward of the Company’s accrual for restructuring activities for the six months ended June 30, 2014 is as follows:
|
| | | | | | | | | | | |
| Employee Related | | Other | | Total |
Balance at December 31, 2013 | $ | 13,054 |
| | $ | 131 |
| | $ | 13,185 |
|
Restructuring charges | 2,945 |
| | 452 |
| | 3,397 |
|
Cash payments and utilization | (5,488 | ) | | (470 | ) | | (5,958 | ) |
Impact of foreign currency | (77 | ) | | — |
| | (77 | ) |
Balance at June 30, 2014 | $ | 10,434 |
| | $ | 113 |
| | $ | 10,547 |
|
| |
12. | OTHER CHARGES (INCOME), NET |
Other charges (income), net consists primarily of interest income, (gains) losses from foreign currency transactions and other items.
As disclosed in Note 18 to the Company's consolidated financial statements for the year ended December 31, 2013, the Company has determined there are five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
The Company evaluates segment performance based on Segment Profit (gross profit less research and development and selling, general and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net and taxes).
The following tables show the operations of the Company’s operating segments:
|
| | | | | | | | | | | | | | | | | | | |
| Net Sales to | | Net Sales to | | | | | | As of June 30, |
For the three months ended | External | | Other | | Total Net | | Segment | | 2014 |
June 30, 2014 | Customers | | Segments | | Sales | | Profit | | Goodwill |
U.S. Operations | $ | 193,353 |
| | $ | 21,136 |
| | $ | 214,489 |
| | $ | 34,723 |
| | $ | 307,975 |
|
Swiss Operations | 33,742 |
| | 108,163 |
| | 141,905 |
| | 36,559 |
| | 24,229 |
|
Western European Operations | 169,917 |
| | 27,435 |
| | 197,352 |
| | 23,685 |
| | 109,921 |
|
Chinese Operations | 99,922 |
| | 37,398 |
| | 137,320 |
| | 31,497 |
| | 738 |
|
Other (a) | 111,900 |
| | 1,947 |
| | 113,847 |
| | 10,929 |
| | 14,896 |
|
Eliminations and Corporate (b) | — |
| | (196,079 | ) | | (196,079 | ) | | (24,445 | ) | | — |
|
Total | $ | 608,834 |
| | $ | — |
| | $ | 608,834 |
| | $ | 112,948 |
| | $ | 457,759 |
|
|
| | | | | | | | | | | | | | | | | |
| Net Sales to | | Net Sales to | | | | | | |
For the six months ended | External | | Other | | Total Net | | Segment | | |
June 30, 2014 | Customers | | Segments | | Sales | | Profit | | |
U.S. Operations | $ | 357,347 |
| | $ | 41,912 |
| | $ | 399,259 |
| | $ | 58,418 |
| | |
Swiss Operations | 65,798 |
| | 216,388 |
| | 282,186 |
| | 72,725 |
| | |
Western European Operations | 331,434 |
| | 56,874 |
| | 388,308 |
| | 44,561 |
| | |
Chinese Operations | 191,543 |
| | 72,942 |
| | 264,485 |
| | 57,296 |
| | |
Other (a) | 213,333 |
| | 3,082 |
| | 216,415 |
| | 20,088 |
| | |
Eliminations and Corporate (b) | — |
| | (391,198 | ) | | (391,198 | ) | | (49,187 | ) | | |
Total | $ | 1,159,455 |
| | $ | — |
| | $ | 1,159,455 |
| | $ | 203,901 |
| | |
|
| | | | | | | | | | | | | | | | | | | |
| Net Sales to | | Net Sales to | | | | | | As of June 30, |
For the three months ended | External | | Other | | Total Net | | Segment | | 2013 |
June 30, 2013 | Customers | | Segments | | Sales | | Profit | | Goodwill |
U.S. Operations | $ | 186,829 |
| | $ | 16,694 |
| | $ | 203,523 |
| | $ | 33,339 |
| | $ | 307,933 |
|
Swiss Operations | 31,166 |
| | 103,519 |
| | 134,685 |
| | 36,059 |
| | 22,966 |
|
Western European Operations | 156,515 |
| | 26,481 |
| | 182,996 |
| | 23,357 |
| | 102,114 |
|
Chinese Operations | 97,771 |
| | 37,743 |
| | 135,514 |
| | 29,374 |
| | 733 |
|
Other (a) | 106,399 |
| | 1,509 |
| | 107,908 |
| | 9,431 |
| | 13,420 |
|
Eliminations and Corporate (b) | — |
| | (185,946 | ) | | (185,946 | ) | | (25,154 | ) | | — |
|
Total | $ | 578,680 |
| | $ | — |
| | $ | 578,680 |
| | $ | 106,406 |
| | $ | 447,166 |
|
| |
(a) | Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries. |
| |
(b) | Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments. |
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)
|
| | | | | | | | | | | | | | | | | |
| Net Sales to | | Net Sales to | | | | | | |
For the six months ended | External | | Other | | Total Net | | Segment | | |
June 30, 2013 | Customers | | Segments | | Sales | | Profit | | |
U.S. Operations | $ | 345,013 |
| | $ | 35,273 |
| | $ | 380,286 |
| | $ | 57,996 |
| | |
Swiss Operations | 61,863 |
| | 200,642 |
| | 262,505 |
| | 70,260 |
| | |
Western European Operations | 302,517 |
| | 54,593 |
| | 357,110 |
| | 41,655 |
| | |
Chinese Operations | 188,498 |
| | 68,145 |
| | 256,643 |
| | 54,022 |
| | |
Other (a) | 205,142 |
| | 2,929 |
| | 208,071 |
| | 18,918 |
| | |
Eliminations and Corporate (b) | — |
| | (361,582 | ) | | (361,582 | ) | | (51,012 | ) | | |
Total | $ | 1,103,033 |
| | $ | — |
| | $ | 1,103,033 |
| | $ | 191,839 |
| | |
| |
(a) | Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries. |
| |
(b) | Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, 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 |
| 2014 | | 2013 | | 2014 | | 2013 |
Earnings before taxes | $ | 97,398 |
| | $ | 90,873 |
| | $ | 173,782 |
| | $ | 160,009 |
|
Amortization | 7,283 |
| | 5,807 |
| | 14,377 |
| | 10,929 |
|
Interest expense | 5,956 |
| | 5,543 |
| | 11,622 |
| | 10,943 |
|
Restructuring charges | 1,905 |
| | 3,196 |
| | 3,397 |
| | 8,198 |
|
Other charges (income), net | 406 |
| | 987 |
| | 723 |
| | 1,760 |
|
Segment profit | $ | 112,948 |
| | $ | 106,406 |
| | $ | 203,901 |
| | $ | 191,839 |
|
During the three months ended June 30, 2014, restructuring charges of $1.9 million were recognized, of which $1.0 million, $0.3 million, $0.5 million, and $0.1 million related to the Company’s U.S., Swiss, Western European, and Chinese Operations, respectively. Restructuring charges of $3.2 million were recognized during the three months ended June 30, 2013, of which $0.2 million, $2.4 million, $0.6 million, and $0.1 million related to the Company’s U.S., Swiss, Western European, and Chinese Operations, respectively. Restructuring charges of $3.4 million were recognized during the six months ended June 30, 2014, of which $1.6 million, $0.6 million, $0.6 million, $0.3 million, and $0.3 million related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $8.2 million were recognized during the six months ended June 30, 2013, of which $0.6 million, $5.2 million, $1.3 million, $0.8 million and $0.2 million related to the Company’s U.S., Swiss, Western European, Chinese and Other Operations, respectively.
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, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
| |
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. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
Local currency changes exclude the effect of currency exchange rate fluctuations. Local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates. We believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We present non-GAAP financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results.
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, 2014 and 2013 (amounts in thousands).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| (unaudited) | | % | | (unaudited) | | % | | (unaudited) | | % | | (unaudited) | | % |
Net sales | $ | 608,834 |
| | 100.0 | | $ | 578,680 |
| | 100.0 | | $ | 1,159,455 |
| | 100.0 | | $ | 1,103,033 |
| | 100.0 |
Cost of sales | 280,658 |
| | 46.1 | | 269,837 |
| | 46.6 | | 538,638 |
| | 46.5 | | 515,032 |
| | 46.7 |
Gross profit | 328,176 |
| | 53.9 | | 308,843 |
| | 53.4 | | 620,817 |
| | 53.5 | | 588,001 |
| | 53.3 |
Research and development | 32,125 |
| | 5.3 | | 29,003 |
| | 5.0 | | 61,622 |
| | 5.3 | | 56,703 |
| | 5.1 |
Selling, general and administrative | 183,103 |
| | 30.1 | | 173,434 |
| | 30.0 | | 355,294 |
| | 30.6 | | 339,459 |
| | 30.8 |
Amortization | 7,283 |
| | 1.2 | | 5,807 |
| | 1.0 | | 14,377 |
| | 1.2 | | 10,929 |
| | 1.0 |
Interest expense | 5,956 |
| | 1.0 | | 5,543 |
| | 1.0 | | 11,622 |
| | 1.0 | | 10,943 |
| | 1.0 |
Restructuring charges | 1,905 |
| | 0.3 | | 3,196 |
| | 0.6 | | 3,397 |
| | 0.3 | | 8,198 |
| | 0.7 |
Other charges (income), net | 406 |
| | — | | 987 |
| | 0.1 | | 723 |
| | 0.1 | | 1,760 |
| | 0.2 |
Earnings before taxes | 97,398 |
| | 16.0 | | 90,873 |
| | 15.7 | | 173,782 |
| | 15.0 | | 160,009 |
| | 14.5 |
Provision for taxes | 23,376 |
| | 3.8 | | 21,811 |
| | 3.8 | | 41,709 |
| |