MTD 10Q 6.30.2014
Table of Contents

 

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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

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.

- 3 -

Table of Contents

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.

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Table of Contents

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.

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Table of Contents

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.

- 6 -

Table of Contents

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.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2014 – 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 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.

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Table of Contents
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


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Table of Contents
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

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Table of Contents
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.

3.
FINANCIAL INSTRUMENTS
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

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Table of Contents
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

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Table of Contents
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

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Table of Contents
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

 
$



5.
INCOME TAXES
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%.

6.
DEBT
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


- 14 -

Table of Contents
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.


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Table of Contents
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
)

- 16 -

Table of Contents
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.

- 17 -

Table of Contents
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



- 18 -

Table of Contents
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.

11.
RESTRUCTURING CHARGES
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.

13.
SEGMENT REPORTING
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.

- 19 -

Table of Contents
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.


- 20 -

Table of Contents
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.

14.
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, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

- 21 -


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