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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-13595
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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)
IM LANGACHER
P.O. BOX MT-100
CH 8606 GREIFENSEE, SWITZERLAND -------------
(Address of principal executive offices) (Zip Code)
011-41-1-944-2211
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12 b-2 of the Act).
Yes X No
----- -----
As of March 8th, 2004 there were 44,497,811 shares of the Registrant's
Common Stock, $0.01 par value per share, outstanding. The aggregate market
value of the shares of Common Stock held by non-affiliates of the
Registrant on June 30, 2003 (based on the closing price for the Common
Stock on the New York Stock Exchange as of the last business day of the
registrant's most recently completed second fiscal quarter, June 30, 2003)
was approximately $1.6 billion. For purposes of this computation, shares
held by affiliates and by directors of the Registrant have been excluded.
Such exclusion of shares held by directors is not intended, nor shall it be
deemed, to be an admission that such persons are affiliates of the
Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
-------- INTO WHICH INCORPORATED
PROXY STATEMENT FOR 2004 -----------------------
ANNUAL MEETING OF STOCKHOLDERS PART III
METTLER-TOLEDO INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
PAGE
PART I
Item 1. Business........................................................ 2
Item 2. Properties......................................................12
Item 3. Legal Proceedings...............................................13
Item 4. Submission of Matters to a Vote of Security Holders.............13
Executive Officers of the Registrant............................13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................14
Item 6. Selected Financial Data.........................................16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......37
Item 8. Financial Statements and Supplementary Data.....................37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................37
Item 9A. Controls and Procedures.........................................37
PART III
Item 10. Directors and Executive Officers of the Registrant..............38
Item 11. Executive Compensation..........................................41
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......................41
Item 13. Certain Relationships and Related Transactions..................42
Item 14. Principal Accountant Fees and Services..........................42
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................42
SIGNATURES ................................................................43
DISCLAIMER
Some of the statements in this annual report and in documents
incorporated by reference constitute "forward-looking statements" within
the meaning of Section 27A of the U.S. Securities Act of 1933 and Section
21E of the U.S. Securities Exchange Act of 1934. These statements relate to
future events or our future financial performance, including, but not
limited to, strategic plans, potential growth opportunities in both
developed markets and emerging markets, planned research and development
efforts, product introductions and innovation, manufacturing capacity,
expected customer demand, meeting customer expectations, planned
operational changes and productivity improvements, research and development
expenditures, competitors' product development, expected capital
expenditures, future cash sources and requirements, liquidity, impact of
taxes, expected compliance with laws, impact of environmental costs,
expected cost savings and benefits of completed or future acquisitions,
which involve known and unknown risks, uncertainties and other factors that
may cause our or our businesses' actual results, levels of activity,
performance or achievements to be materially different from those expressed
or implied by any forward looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"could," "would," "should," "expect," "plan," "anticipate," "intend,"
"believe," "estimate," "predict," "potential" or "continue" or the negative
of those terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially because of
market conditions in our industries or other factors. Moreover, we do not,
nor does any other person, assume responsibility for the accuracy and
completeness of those statements. Unless otherwise required by applicable
laws, we disclaim any intention or obligation to publicly update or revise
any of the forward-looking statements after the date of this annual report
to conform them to actual results, whether as result of new information,
future events, or otherwise. All of the forward-looking statements are
qualified in their entirety by reference to the factors discussed under the
captions "Factors affecting our future operating results" in Exhibit 99.1
and in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" to this annual report, which describe risks and
factors that could cause results to differ materially from those projected
in those forward-looking statements.
We caution the reader that the above list of risks and factors that
may affect results addressed in the forward-looking statements may not be
exhaustive. Other sections of this annual report and other documents
incorporated by reference may describe additional risks or factors that
could adversely impact our business and financial performance. We operate
in a continually changing business environment, and new risk factors emerge
from time to time. Management cannot predict these new risk factors, nor
can it assess the impact, if any, of these new risk factors on our
businesses or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those projected in any
forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
PART I
Item 1. BUSINESS
We are a leading global supplier of precision instruments and
services. We are the world's largest manufacturer of weighing instruments
for use in laboratory, industrial, packaging, logistics and food retailing
applications. We also hold top-three market positions in several related
analytical instruments, and are a leading provider of automated chemistry
systems used in drug and chemical compound discovery and development. In
addition, we are the world's largest manufacturer and marketer of metal
detection and other end-of-line inspection systems used in production and
packaging, and hold a leading position in certain process analytics
applications.
Our business is geographically diversified, with sales in 2003 derived
42% from Europe, 43% from North and South America and 15% from Asia and
other countries. Our customer base is also diversified by industry and by
individual customer.
Mettler-Toledo International Inc., was incorporated as a Delaware
corporation in 1991 and became a publicly traded company with its initial
public offering in November 1997. In November 2001, we acquired Rainin
Instrument, a leading manufacturer of pipetting solutions used in
pharmaceutical, biotech and medical research applications.
LABORATORY INSTRUMENTS
We make a wide variety of precision laboratory instruments, including
laboratory balances, pipettes, titrators, thermal analysis systems and
other analytical instruments. The laboratory instruments business accounted
for approximately 40% of our net sales in 2003.
Laboratory Balances
The balance is the most frequently used instrument in the laboratory
and the Mettler-Toledo name is identified worldwide with accuracy,
reliability and innovation. The weighing step is one of the most critical
steps in the research process. Our balances have weighing ranges from one
ten-millionth of a gram up to 32 kilograms. To cover a wide range of
customer needs and price points, we market laboratory balances in a range
of product tiers offering different levels of functionality. We also
manufacture mass comparators, which are used by weights and measures
regulators as well as laboratories to ensure the accuracy of reference
weights.
In addition to Mettler-Toledo branded products, we manufacture and
sell balances under the brand name "Ohaus." Ohaus branded products
principally target the educational market and other markets in which
customers are interested in lower cost, a more limited set of features and
less comprehensive support and service.
Pipettes
Pipettes are the third most widely used instrument in laboratories,
after pH meters and balances, and are used for dispensing small volumes of
liquids. In late 2001, we acquired Rainin Instrument, a premier provider of
pipetting solutions based in California. Rainin develops, manufactures and
distributes advanced pipettes, tips and accessories, including single- and
multi-channel manual and electronic pipettes. Rainin's principal end
markets are pharmaceutical, biotech, clinical and academia.
Titrators
Titrators measure the chemical composition of samples and are used in
laboratories as well as the food and beverage and other industries. Our
high-end titrators are multi-tasking models, which can perform two
determinations simultaneously on multiple vessels. Our offering includes
robotics to automate routine work in quality control applications.
Thermal Analysis Systems
Thermal analysis systems measure material properties as a function of
temperature, such as weight, dimension, energy flow and viscoelastic
properties. Thermal analysis systems are used in nearly every industry, but
primarily in the plastics and polymer industries and increasingly in the
pharmaceutical industry.
Other Analytical Instruments
pH meters measure acidity in laboratory samples, and are the second
most widely used measurement instruments in the laboratory after the
balance. We also sell density and refractometry instruments, which measure
chemical concentrations in solutions. In addition, we manufacture and sell
moisture analyzers, which precisely determine the moisture content of a
sample by utilizing an infrared dryer to evaporate moisture.
Laboratory Software
LabX, our PC-based laboratory software platform, manages and analyzes
data generated by our titrators and balances. LabX provides full network
capability, has efficient, intuitive protocols, and enables customers to
collect and archive data in compliance with the U.S. Food and Drug
Administration's traceability requirements for electronically stored data
(also known as 21 CFR Part 11). We plan to expand LabX to include other
laboratory instruments.
Automated Chemistry Solutions
Our current drug discovery offerings are focused on key aspects of
process development, as well as on identification of leads and optimization
of those leads. Our automated lab reactors and reaction calorimeters are
integral to the process research and development and scale-up activities of
our customers. We offer a range of technologies including automated
synthesizers to support chemists working on lead identification and
optimization, automated workstations that support the synthesis process,
and systems for cleaning up and purifying synthesis products. We believe
that our portfolio of integrated technologies can bring significant
efficiencies to the drug discovery process, enabling our customers to
create larger numbers of higher quality candidate compounds and bring them
to market faster.
INDUSTRIAL INSTRUMENTS
We manufacture numerous industrial weighing instruments and related
terminals and we offer dedicated software solutions for the chemical,
pharmaceutical and food industries. We supply automatic identification and
data capture solutions, which integrate in-motion weighing, dimensioning
and identification technologies for transport, shipping and logistics
customers. We also offer heavy industrial scales and related software. The
industrial instruments business accounted for approximately 30% of our net
sales in 2003.
Industrial Weighing Instruments
We offer a comprehensive line of industrial scales and balances, such
as bench scales and floor scales, for weighing loads from a few grams to
several thousand kilograms in applications ranging from measuring materials
in chemical production to weighing mail and packages. Our products are used
in a wide range of applications, such as counting applications and in
formulating and mixing ingredients.
Industrial Terminals
Our industrial scale terminals integrate collected data and control
and automate manufacturing processes. They allow users to remotely download
programs or access setup data and can minimize down time through predictive
rather than reactive maintenance.
Transportation / Shipping and Logistics
We are the leading global supplier of automatic identification and
data capture solutions, which integrate in-motion weighing, dimensioning
and identification technologies. With these solutions, customers can
measure the weight and cubic volume of packages for appropriate billing,
logistics and quality control. Our solutions also integrate into customers'
information systems.
Vehicle Scale Systems
Our primary heavy industrial products are scales for weighing trucks
or railcars (i.e., weighing bulk goods as they enter or leave a factory or
at a toll station). Heavy industrial scales are capable of measuring
weights up to 500 tons and permit accurate weighing under extreme
environmental conditions. We also offer advanced computer software,
including OverDrive, that can be used with our heavy industrial scales to
facilitate a broad range of customer solutions and provides a complete
system for managing vehicle transaction processing.
Industrial Software
We offer a wide range of software that can be used with our industrial
instruments. Examples include FreeWeigh.net, a statistical quality control
software, Formweigh, our formulation/batching software, and OverDrive. In
addition, our Q.i365 software controls batching processes by monitoring the
material transfer control process. Q.i365 also provides statistical,
diagnostic and operational information for asset management, process
control and database applications.
RETAIL WEIGHING SOLUTIONS
Supermarkets, hypermarkets and other food retail organizations make
use of multiple weighing applications for handling fresh goods (such as
meat, vegetables, fruits and cheese). We offer stand-alone scales for basic
counter weighing and pricing, price finding and printing. In addition, we
offer network scales and software, which can integrate backroom, counter,
self-service and checkout functions and can incorporate weighing data into
a supermarket's overall fresh goods management system. The retail business
accounted for approximately 12% of our net sales in 2003.
Retail Software
In March 2002, we acquired SofTechnics Inc, based in Texas.
SofTechnics provides retail software for in-store item and inventory
management solutions. SofTechnics' offering complements our solutions to
food retailers. Its software provides the full scope of real-time item
management, thereby allowing retailers to match local store inventory
levels with local customer demand. SofTechnics strongly complements our
leadership position in solutions for the management of fresh goods. In
addition to cross-selling benefits, we will be able to offer an integrated
data management solution for fresh goods in the future.
PACKAGING CONTROL SYSTEMS
Increasing safety and consumer protection requirements are driving the
need for more and more sophisticated end-of-line inspection systems (e.g.,
for use in food processing and packaging, and pharmaceutical and other
industries). We are the world's leading provider of metal detectors, x-ray
visioning equipment and checkweighers that are used in these industries.
Metal detectors are most commonly used to detect fine particles of metal
that may be contained in raw materials or may be generated by the
manufacturing process itself. X-ray-based vision inspection helps detect
non-metallic contamination, such as glass, stones and pits, which enter the
manufacturing process for similar reasons. Our x-ray systems can detect
metal in metallized containers and can be used for mass control. Both x-ray
and metal detection systems may be used together with checkweighers as
components of integrated packaging lines. Checkweighers are used to control
the filling content of packaged goods such as food, pharmaceuticals and
cosmetics. FreeWeigh.net is our statistical and quality control software
that optimizes package filling, monitors weight-related data and integrates
it in real time into customers' enterprise resource planning and/or process
control systems. The packaging business accounted for approximately 13% of
our net sales in 2003.
PROCESS ANALYTICS
Our process analytics business provides instruments for the in-line
measurement of liquid parameters used primarily in the production process
of pharmaceutical, biotech and chemical companies. About half of our
process analytics sales are to the pharmaceutical and biotech markets,
where our customers need fast and secure scale-up and production that meets
the validation processes required for GMP (Good Manufacturing Processes)
and other regulatory standards. We are the leading supplier of pH and
oxygen measurement instruments used in biotech and pharmaceutical
("Biopharma") manufacturing. The process analytics business accounted for
approximately 5% of our net sales in 2003.
CUSTOMERS AND DISTRIBUTION
Our principal customers include companies in the following key end
markets: the life science industry (pharmaceutical and biotech companies,
as well as independent research organizations); food producers; food
retailers; the beverage industry; specialty chemicals and cosmetics
companies; the transportation and logistics industry; the metals industry;
the electronics industry; and the academic market.
Our products are sold through a variety of distribution channels.
Generally, more technically sophisticated products are sold through our
direct sales force, while less complicated products are sold through
indirect channels. Our sales through direct channels exceed our sales
through indirect channels. A significant portion of our sales in the
Americas is generated through the indirect channels. We have a diversified
customer base, with no single customer accounting for more than 3% of 2003
net sales.
SALES AND SERVICE
Market Organizations
We maintain geographically focused market organizations around the
world that are responsible for all aspects of our sales and service. The
market organizations are local marketing and service organizations designed
to maintain close relationships with our customers. Each market
organization has the flexibility to adapt its marketing and service efforts
to account for different cultural and economic conditions. Market
organizations also work closely with our producing organizations (described
below) by providing feedback on manufacturing and product development
initiatives and relaying new product and application ideas.
We have one of the largest and broadest global sales and service
organizations among precision instrument manufacturers. At December 31,
2003, our sales and services group consisted of over 4,400 employees in
sales, marketing and customer service (including related administration)
and post-sales technical service, located in 37 countries. This field
organization has the capability to provide service and support to our
customers and distributors in major markets across the globe. This is
important because our customers are seeking to do more and more business
with a consistent global approach.
Service
We have expanded our service business from one centered on
calibration, repair and maintenance to one driven by regulatory compliance
and other value-added services, which we call Service XXL. We have a unique
offering to our pharmaceutical customers in assuring that our instruments
are used in compliance with FDA regulations and we can provide these
services regardless of the customer's location throughout the world. This
global service network also is an important factor in our ability to expand
in emerging markets. We estimate that we have the largest installed base of
weighing instruments in the world. In 2003, service (representing service
contracts, repairs and replacement parts) accounted for approximately 22%
of our total net sales. A significant portion of this amount is derived
from replacement parts.
Beyond revenue opportunities, we believe service is a key part of our
solution offering and helps significantly in customer retention. The close
relationships and frequent contact with our large customer base provides us
with sales opportunities and innovative product and application ideas.
RESEARCH AND DEVELOPMENT AND MANUFACTURING
Producing Organizations
Our research, product development and manufacturing efforts are
organized into a number of producing organizations which specialize in
specific products on a global basis. Our focused producing organizations
help reduce product development time and costs, improve customer focus and
maintain technological leadership. The producing organizations work
together to share ideas and best practices, and there is a close interface
and coordinated customer interaction among marketing organizations and
producing organizations.
Research and Development
We intend to continue to invest in product innovation in order to
provide technologically advanced products to our customers for existing and
new applications. Over the last three years, we have invested $213.2
million in research and development ($78.0 million in 2003; $70.6 million
in 2002; and $64.6 million in 2001). In 2003, we spent approximately 6.0%
of net sales on research and development. Our research and development
efforts fall into two categories:
o technology advancements, which increase the value of our products.
These advancements may be in the form of enhanced functionality, new
applications for our technologies, more accurate or reliable
measurement, additional software capability or automation through
robotics or other means, and
o cost reductions, which reduce the manufacturing cost of our products
through better overall design.
We have devoted an increasing proportion of our research and
development budget to software development. This includes software to
process the signals captured by the sensors of our instruments,
application-specific software, and software that connects our solutions
into customers' IT systems. We closely integrate research and development
with marketing, manufacturing and product engineering. We have over 830
employees in research and development and product engineering.
Manufacturing
We are a worldwide manufacturer, with facilities principally in the
United States, Switzerland, Germany, the United Kingdom and China.
Laboratory instruments are produced mainly in Switzerland and to a lesser
extent in the United States and China, while our remaining products are
produced worldwide. We emphasize product quality in our manufacturing
operations, and most of our products require very strict tolerances and
exact specifications. We use an extensive quality control system that is
integrated into each step of the manufacturing process. All major
manufacturing facilities have achieved ISO 9001 certification. We believe
that our manufacturing capacity is sufficient to meet our present and
currently anticipated needs.
We generally manufacture only critical components ourselves, usually
components that contain proprietary technology. When outside manufacturing
is more efficient, we contract with others for certain components. We use a
wide range of suppliers. We believe our supply arrangements to be adequate
and that there are no material constraints on the sources and availability
of materials. From time to time we rely on a single supplier for all of our
requirements of a particular component. Supply arrangements for electronics
are generally made globally.
BUSINESS SEGMENTS
We have six reportable segments: Principal U.S. Operations, Other
Western European Operations, Principal Central European Operations, Swiss
R&D and Manufacturing Operations, Asia and Other. In previous reporting
periods, results from Asia were included within the Other operating
segment. Segment disclosure for 2002 and 2001 has been reclassified
accordingly. See Note 17 to the audited consolidated financial statements
and Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations under "Results of Operations - by Operating Segment"
for detailed results by segment and geographic region.
We manufacture a wide variety of precision instruments and provide
value added services to our customers. Our principal products and principal
services are set forth above. Given the inherently global nature of our
business, the above description of our products, customers and
distribution, sales and services, research and development, manufacturing
and other elements of our business apply, for the most part, to each of our
segments. In some instances particular products are targeted for particular
segments but none of these are material in nature to the entire business or
an individual segment.
BACKLOG; SEASONALITY
Our manufacturing turnaround time is generally sufficiently short so
as to permit us to manufacture to fill orders for most of our products,
which helps to limit inventory costs. Backlog is therefore generally a
function of requested customer delivery dates and is typically no longer
than one to two months.
Our business has historically experienced a slight amount of seasonal
variation, particularly the high-end laboratory instruments business.
Traditionally, sales in the first quarter are slightly lower than, and
sales in the fourth quarter are slightly higher than, sales in the second
and third quarters. Fourth quarter sales have historically generated
approximately 27-28% of our sales. This trend has a somewhat greater effect
on income from operations than on net sales because fixed costs are spread
evenly across all quarters.
EMPLOYEES
As of December 31, 2003, we had approximately 8,650 employees
throughout the world, including approximately 4,180 in Europe, 3,000 in
North and South America, and 1,470 in Asia and other countries.
We believe our employee relations are good, and we have not suffered
any material employee work stoppage or strike during the last five years,
except for a strike in early 2003 at our Bethune, France facility, which
has been closed. Labor unions do not represent a meaningful number of our
employees.
INTELLECTUAL PROPERTY
We hold over 1,700 patents and trademarks, primarily in the United
States, Switzerland, Germany, the United Kingdom, France, Japan and China.
Our products generally incorporate a wide variety of technological
innovations, some of which are protected by patents of various durations.
Products are generally not protected as a whole by individual patents, and
as a result, no one patent or group of related patents is material to our
business. We have numerous trademarks, including the Mettler-Toledo name
and logo, which are material to our business. We regularly protect against
infringement of our intellectual property.
REGULATION
Our products are subject to various regulatory standards and approvals
by weights and measures regulatory authorities. All of our electrical
components are subject to electrical safety standards. We believe that we
are in compliance in all material respects with applicable regulations.
Approvals are required to ensure our instruments do not impermissibly
influence other instruments, and are themselves not affected by other
instruments. In addition, some of our products are used in "legal for
trade" applications, in which prices based on weight are calculated, and
for which specific weights and measures approvals are required. Although
there are a large number of regulatory agencies across our markets, there
is an increasing trend toward harmonization of standards, and weights and
measures regulation is harmonized across the European Union.
Our products may also be subject to special requirements depending on
the end-user and market. For example, laboratory customers are typically
subject to Good Laboratory Practices (GLP), industrial customers to Good
Manufacturing Practices (GMP), pharmaceutical customers to U.S. Food and
Drug Administration (FDA) regulations, and customers in food processing
industries may be subject to Hazard Analysis and Critical Control Point
(HACCP) regulations. Products used in hazardous environments may also be
subject to special requirements.
ENVIRONMENTAL MATTERS
We are subject to environmental laws and regulations in the
jurisdictions in which we operate. We own or lease a number of properties
and manufacturing facilities around the world. Like many of our
competitors, we have incurred, and will continue to incur, capital and
operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad.
We are currently involved in, or have potential liability with respect
to, the remediation of past contamination in certain of our facilities in
both the United States and abroad. Our subsidiary, Hi-Speed Checkweigher,
is subject to an administrative consent order from the New Jersey
Department of Environmental Protection that provides for the remediation of
a former manufacturing site in Landing, New Jersey. Under the terms of the
stock purchase agreement between GEI International Corporation and the
predecessor to Hi-Speed, GEI assumed all responsibility for the
administrative consent order and to date has performed and paid for all
action it requires.
In addition, certain of our present and former facilities have or had
been in operation for many decades and, over such time, some of these
facilities may have used substances or generated and disposed of wastes
which are or may be considered hazardous. It is possible that these sites,
as well as disposal sites owned by third parties to which we have sent
wastes, may in the future be identified and become the subject of
remediation. Accordingly, although we believe that we are in substantial
compliance with applicable environmental requirements and to date we have
not incurred material expenditures in connection with environmental
matters, it is possible that we could become subject to additional
environmental liabilities in the future that could result in a material
adverse effect on our financial condition, results of operations, or
competitive position in the market.
COMPETITION
Our markets are highly competitive. Weighing and analytical
instruments markets are fragmented both geographically and by application,
particularly the industrial and food retailing markets. As a result, we
face numerous regional or specialized competitors, many of which are well
established in their markets. In addition, some of our competitors are
divisions of larger companies with potentially greater financial and other
resources than our own. Taken together, the competitive forces present in
our markets can impair our operating margins in certain product lines and
geographic markets.
We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with
competitive prices. Although we believe that we have technological and
other competitive advantages over many of our competitors, we may not be
able to realize and maintain these advantages. These advantages include our
worldwide market leadership positions; our global brand and reputation; our
track record of technological innovation; our comprehensive, high-quality
solution offering; our global sales and service offering; our large
installed base of weighing instruments; and the fact that our revenue base
is diversified by geographic region, product range and customer. To remain
competitive, we must continue to invest in research and development, sales
and marketing and customer service and support. We cannot be sure that we
will have sufficient resources to continue to make these investments or
that we will be successful in identifying, developing and maintaining any
competitive advantages.
We believe that the principal competitive factors in developed markets
for purchasing decisions are the product itself, application support,
service support and price. In emerging markets, where there is greater
demand for less sophisticated products, price is a more important factor
than in developed markets. Competition in the U.S. laboratory market is
also influenced by the presence of large distributors that sell not only
our products but those of our competitors as well.
COMPANY WEBSITE AND INFORMATION
Our website can be found on the Internet at www.mt.com. The website
contains information about us and our operations. Copies of each of our
filings with the SEC on Form 10-K, Form 10-Q and Form 8-K and all
amendments to those reports can be viewed and downloaded free of charge
when they are filed with the SEC by accessing www.mt.com, clicking on
Investor Relations and then clicking on SEC Filings.
Our website also contains copies of the following documents that can
be downloaded free of charge:
o Corporate Governance Guidelines
o Audit Committee Charter
o Compensation Committee Charter
o Nominating and Corporate Governance Committee Charter
o Code of Conduct
Any of the above documents, and any of our reports on Form 10-K, Form
10-Q and Form 8-K and all amendments to those reports, can also be obtained
in print by sending a written request to our Investor Relations Department:
Investor Relations
Mettler-Toledo International Inc.
1900 Polaris Parkway
Columbus, OH 43240
U.S.A.
Phone: +1 614 438 4748
Fax: +1 614 438 4646
E-mail: [email protected]
Item 2. PROPERTIES
The following table lists our principal facilities, indicating the
location and whether the facility is owned or leased. Our Greifensee,
Switzerland facility also serves as our worldwide headquarters and our
Columbus, Ohio, facility serves as our North American headquarters. We
believe our facilities are adequate for our current and reasonably
anticipated future needs.
LOCATION OWNED/LEASED BUSINESS SEGMENT
- -------- ------------ ----------------
Europe:
Greifensee/Nanikon, Switzerland..... Owned Swiss R&D and Manufacturing Operations
Uznach, Switzerland................. Owned Swiss R&D and Manufacturing Operations
Urdorf, Switzerland................. Owned Swiss R&D and Manufacturing Operations
Schwerzenbach, Switzerland.......... Leased Swiss R&D and Manufacturing Operations
Albstadt, Germany................... Owned Principal Central European Operations
Giessen, Germany.................... Owned Principal Central European Operations
Manchester, England................. Leased Other Western European Operations
Oslo, Norway........................ Leased Other Western European Operations
Americas:
Columbus, Ohio...................... Leased Principal U.S. Operations
Worthington, Ohio................... Owned Principal U.S. Operations
Oakland, California ................ Leased Principal U.S. Operations
Ithaca, New York.................... Owned Principal U.S. Operations
Woburn, Massachusetts............... Leased Principal U.S. Operations
Tampa, Florida...................... Leased Other
Other:
Shanghai, China..................... Building Owned; Land Leased Asia
Changzhou, China (two facilities)... Buildings Owned; Land Leased Asia
Item 3. LEGAL PROCEEDINGS
Routine litigation is incidental to our business. Nevertheless, we are
not currently involved in any legal proceeding which we believe could have
a material adverse effect upon our financial condition or results of
operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
See Part III, Item 10 of this annual report for information about our
executive officers.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the
symbol "MTD". The following table sets forth on a per share basis the high
and low sales prices for consolidated trading in our common stock as
reported on the New York Stock Exchange Composite Tape for the quarters
indicated.
COMMON STOCK
PRICE RANGE
-----------
HIGH LOW
---- ---
2003
Fourth Quarter $42.73 $36.06
Third Quarter $39.75 $34.60
Second Quarter $38.00 $29.82
First Quarter $34.12 $28.90
2002
Fourth Quarter $37.04 $25.41
Third Quarter $36.87 $24.85
Second Quarter $45.74 $35.65
First Quarter $51.85 $42.80
HOLDERS
At March 8th, 2004 there were 208 holders of record of common stock
and 44,497,811 shares of common stock outstanding. The number of holders of
record excludes beneficial owners of common stock held in street name.
DIVIDEND POLICY
Historically we have not paid dividends on our common stock. However,
we will evaluate this policy on a periodic basis taking into account our
results of operations, financial condition, capital requirements, including
potential acquisitions, the taxation of dividends to our shareholders, and
other factors deemed relevant by our Board of Directors.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003
Number of securities remaining
Number of securities to Weighted-average available for future issuance
be issued upon exercise exercise price of under equity compensation
of outstanding options, outstanding options, plans (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 5,621,976 $29.61 388,598
Equity compensation plans
not approved by security
holders - - -
--------- ------ -------
Total 5,621,976 $29.61 388,598
========= ====== =======
We do not have any equity compensation plans that have not been
approved by our shareholders that are required to be disclosed in this
annual report on Form 10-K or our proxy statement.
Further details in relation to our stock option plan are given in Note
12 to the audited consolidated financial statements included herein.
Item 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below at
December 31 and for the years then ended is derived from our audited
consolidated financial statements. The financial information presented
below, in thousands except share data, was prepared in accordance with
generally accepted accounting principles in the United States of America
("U.S. GAAP").
2003 (a) 2002 (a) 2001 (a) 2000 1999
STATEMENT OF OPERATIONS DATA:
Net sales..........................$1,304,431 $1,213,707 $1,148,022 $1,095,547 $1,065,473
Cost of sales...................... 686,255 645,970 619,140 600,185 585,007 (b)
---------- ---------- ---------- ---------- ----------
Gross profit....................... 618,176 567,737 528,882 495,362 480,466
Research and development........... 78,003 70,625 64,627 56,334 57,393
Selling, general and administrative 372,822 331,959 299,191 296,187 300,389
Amortization (c)................... 11,724 9,332 14,114 11,564 10,359
Interest expense................... 14,153 17,209 17,162 20,034 21,980
Other charges, net (d)............. 4,563 28,202 15,354 2,614 10,468
---------- ---------- ---------- ---------- ----------
Earnings before taxes and minority
interest......................... 136,911 110,410 118,434 108,629 79,877
Provision for taxes ............... 41,073 9,989(e) 46,170 38,510 31,398
Minority interest.................. - - - - 378
---------- ---------- ---------- ---------- ----------
Net earnings (f)................... $ 95,838 $100,421 $ 72,264 $ 70,119 $ 48,101
========== ========== ========== ========== =========
Basic earnings per common share:
Net earnings ..................... $ 2.15 $ 2.27 $ 1.78 $ 1.80 $ 1.25
Weighted average number of common
shares...........................44,473,913 44,280,605 40,609,716 38,897,879 38,518,084
Diluted earnings per common share:
Net earnings .................... $ 2.11 $ 2.21 $ 1.68 $ 1.66 $ 1.16
Weighted average number of common
shares...........................45,508,847 45,370,053 42,978,895 42,141,548 41,295,757
BALANCE SHEET DATA :
Cash and cash equivalents.......... $ 45,116 $ 31,427 $ 27,721 $ 21,725 $ 17,179
Working capital (g)................ 150,789 127,214 106,689 103,021 81,470
Total assets....................... 1,387,276 1,303,393 1,189,412 887,582 820,973
Long-term debt..................... 223,239 262,093 309,479 237,807 249,721
Other non-current liabilities (h).. 135,613 133,600 119,109 95,843 100,334
Shareholders' equity............... 653,996 502,386 388,184 178,840 112,015
(a) Includes the results of the Rainin acquisition from November 2001.
(b) In connection with acquisitions in 1999, including the acquisition of
the Testut-Lutrana group, we allocated $998 of the purchase price to
revalue certain inventories (principally work-in-progress and finished
goods) to fair value (net realizable value). Substantially all such
inventories were sold during the second quarter of 1999.
(c) Includes goodwill amortization of $10,054, $8,844 and $8,640 in 2001,
2000 and 1999 respectively. Beginning in 2002, the Company ceased
amortization of goodwill as required by U.S. GAAP.
(d) Other charges, net consists primarily of charges related to the
Company's restructuring programs, interest income, (gains) losses from
foreign currency transactions, (gains) losses from sales of assets and
other items. The 2003 amount includes a charge of $5,444 related to
the final union settlement on the closure of our French manufacturing
facility. The 2002 and 2001 amounts also include charges of $28,661
and $15,196 respectively, primarily related to headcount reductions
and manufacturing transfers. The 2000 amount includes a charge of
$1,425 related to the close-down and consolidation of operations. The
1999 amount includes a gain on an asset sale of approximately $3,100,
a charge of $8,007 to transfer production lines from the Americas to
China and Europe and the closure of facilities and losses of
approximately $4,100 in connection with the exit from our glass
batching business based in Belgium. For the year ended December 31,
1999, the amount shown also includes $825 of expenses incurred on
behalf of certain selling shareholders in connection with secondary
offerings.
(e) The provision for taxes for 2002 includes a benefit of $23,135 related
to the completion of a tax restructuring program and related tax
audits.
(f) No dividends were paid during the five-year period ended December 31,
2003.
(g) Working capital represents total current assets net of cash, less
total current liabilities net of short-term borrowings and current
maturities of long-term debt.
(h) Other non-current liabilities consists of pension and other
post-retirement liabilities, plus certain other non-current
liabilities. See Note 13 to the audited consolidated financial
statements included herein.
Item 7. 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 together with our audited consolidated
financial statements.
OVERVIEW
We operate a global business, with net sales that are diversified by
geographic region, product range and customer. We hold leading positions
worldwide in many of our markets and attribute this leadership to several
factors, including the strength of our brand name and reputation, our
comprehensive solution offering, the quality of our global sales and
service network, our continued investment in product development, our
pursuit of technology leadership and our focus on capitalizing on
opportunities in developed and emerging markets.
Net sales in local currencies were flat in 2003, compared to an
increase of 3% in 2002. As discussed in "Acquisition of Rainin Instrument"
below, 2002 includes the benefit of the Rainin acquisition. During 2003, we
continued to face a challenging world economy and political environment
with conditions generally strong in Asia, improving in the United States
but remaining weak in Europe.
Specifically, we were affected by the unexpected softness in our
biotech and pharmaceutical ("Biopharma") end user markets, particularly in
our higher price point drug discovery product line. Biopharma firms are
facing short-term pressures such as new drug approval activity, heightened
price regulation and industry consolidation. However, we believe that the
long-term fundamentals of this market are strong, as demonstrated by 12%
compound annual growth rate in research and development spending over the
last 30 years. An aging world population with more discretionary healthcare
spending capacity drives the need for Biopharma companies to improve both
scale and productivity in new drug research and development, which often
requires products that mitigate bottlenecks in chemistry-oriented
solutions, which Mettler-Toledo can provide.
In our industrial markets, there is an accelerating trend of
multinational companies investing in production in China to take advantage
of cost savings. Although this provides a significant opportunity for our
China operations, this manufacturing shift has a negative impact on our
industrial related businesses in the U.S. and Europe.
In our retail end markets, spending patterns continued to be
suppressed in Europe after the significant euro conversion related
investments by customers in 2001 and weak consumer confidence in major
European economies. In our U.S. retail business, results were down relative
to strong 2002 project activity.
In spite of these external challenges, we continued to build for the
future by investing in strong new marketing programs to further penetrate
our markets and leading customers, turning our record R&D investments into
new product launches, growing our Chinese operations into our third largest
global market, expanding our unique services offering and improving our
cost structure.
Looking forward to 2004, we anticipate a gradual improvement in our
customers' spending patterns. In Asia we expect further strong economic
growth, and in the U.S. we expect the economic improvements experienced
over the last several months to continue. We remain concerned however about
Europe, where the major economies face low consumer confidence, a strong
euro and lack of structural government reforms.
In terms of our key earnings growth drivers for 2004, we expect to
benefit from the introduction of new products. This follows our significant
investment in research and development over the last few years,
particularly in respect of our industrial and laboratory end markets. We
also expect continued growth opportunities for most of our product lines in
China, as our global customers develop in this region, and as we expand our
geographic sales and service coverage. We also anticipate further sales
growth in our service business as we continue to extend our regulatory and
compliance service offerings. Finally, we expect to generate a further $4
million incremental savings from our cost reduction programs in 2004.
More generally, we believe our sales growth over the next several
years will come primarily from our solutions approach to the principal
challenges facing our customer base. These include the need for increased
efficiency (for example, in accelerating time to market for new products,
achieving better yields, improving work processes and outsourcing non-core
activities), the desire to integrate information captured by instruments
into management information systems, the drive for ever higher quality of
our customers' products and services, including the need to adhere to
stringent regulatory and industry standards, and the move towards
globalization in all major customer groups.
Acquisitions are also an integral part of our growth strategy. Our
acquisitions leverage our global sales and service network, respected brand
name, extensive distribution channels and technological leadership. We are
particularly attracted to acquisitions that leverage these attributes or
increase our solutions capability. In addition, we continue to focus on the
following end markets: drug discovery; process analytics; food and drug
packaging; and transportation and logistics.
NON-GAAP FINANCIAL MEASURES
We supplement our U.S. GAAP results with non-GAAP financial measures.
The principal non-GAAP financial measure we use is Adjusted Operating
Income. We define Adjusted Operating Income as gross profit less research
and development, selling general and administrative expenses and
restructuring charges, before amortization, interest, other charges and
taxes. The most directly comparable U.S. GAAP financial measure is net
earnings.
We believe that Adjusted Operating Income is important supplemental
information for investors. Adjusted Operating Income is used internally as
the principal profit measurement by our segments in their reporting to
management. We use this measure because it excludes amortization, interest,
other charges and taxes, which are not allocated to the segments.
On a consolidated basis, we also believe Adjusted Operating Income is
an important supplemental method of measuring profitability. It is used
internally by senior management for measuring profitability, setting
performance targets for managers and has historically been used as one of
the means of publicly providing guidance on possible future results. We
also believe that Adjusted Operating Income is an important performance
measure because it provides a measure of comparability to other companies
with different capital or legal structures which accordingly may be subject
to disparate interest rates and effective tax rates, and to companies which
may incur different amortization expenses or impairment charges related to
intangible assets.
Adjusted Operating Income is used in addition to and in conjunction
with results presented in accordance with U.S. GAAP. Adjusted Operating
Income is not intended to represent operating income under U.S. GAAP and
should not be considered as an alternative to net earnings as an indicator
of our performance because of the following limitations.
Limitations of our non-GAAP measure, Adjusted Operating Income
Our non-GAAP measure, Adjusted Operating Income, has certain material
limitations as follows:
o It does not include interest expense. Because we have borrowed money
to finance some of our operations, interest is a necessary and ongoing
part of our costs and has assisted us in generating revenue. Therefore
any measure that excludes interest expense has material limitations;
o It does not include taxes. Because payment of taxes is a necessary and
ongoing part of our operations, any measure that excludes taxes has
material limitations;
o It excludes amortization expense and other charges. Because these
items are recurring, any measure that excludes them has material
limitations.
Adjusted Operating Income should not be relied upon to the exclusion
of U.S. GAAP financial measures, but reflects an additional measure of
comparability and means of viewing aspects of our operations that, when
viewed together with our U.S. GAAP results and the accompanying
reconciliation to net earnings, provides a more complete understanding of
factors and trends affecting our business.
Because Adjusted Operating Income is not standardized, it may not be
possible to compare with other companies' non-GAAP financial measures
having the same or a similar name. We strongly encourage investors to
review our financial statements and publicly filed reports in their
entirety and not to rely on any single financial measure.
Our Adjusted Operating Income increased from $149.9 million in 2001 to
$161.9 million in 2003. This performance was achieved while we continued to
invest in product development and in our distribution and manufacturing
infrastructure. Adjusted Operating Income includes restructuring charges of
$15.2 million in 2001, $28.7 million in 2002 and $5.4 million in 2003.
These charges are described more fully below. A reconciliation of Adjusted
Operating Income to net earnings for 2001 to 2003 is included in "Results
of Operations" below.
ACQUISITION OF RAININ INSTRUMENT
In November 2001, we acquired Rainin Instrument, based in California,
USA. Rainin is a leading manufacturer of pipetting solutions used in
pharmaceutical, biotech and medical research applications. Rainin has a
market leadership position in North America, a truly differentiating
technology and a broad patent portfolio in areas like electronic pipetting,
ergonomic designs for pipettes and tip designs. This acquisition further
broadens our offering of instruments and solutions to the life sciences
market and positions us to bring greater value to our customers. Assuming
we acquired Rainin as of the beginning of 2001, the acquisition would have
added sales of approximately $65 million, Adjusted Operating Income of
approximately $20 million, and diluted earnings per share of negative $0.01
for 2001 on a pro forma basis.
COST REDUCTION PROGRAMS
In 2001, we recorded a restructuring charge of $15.2 million ($14.6
million after tax) associated primarily with headcount reductions and
manufacturing transfers. This charge comprised primarily severance and
other related benefits and costs of exiting facilities, including lease
termination costs and the write-down of impaired assets.
As further described in Note 15 to our audited consolidated financial
statements, during the three months ended June 30, 2002 we recorded a
restructuring charge of $28.7 million ($20.1 million after tax) which
comprised severance, asset write-downs and other exit costs, primarily
related to headcount reductions and manufacturing transfers. As a result of
these actions, we expect to eliminate approximately $18 million of costs
from the business. We estimate that approximately $6 million of these
savings were realized in 2002, $8 million in 2003, and a further $4 million
is expected in 2004.
As noted in previous filings, in accordance with U.S. GAAP, the charge
taken in the second quarter of 2002 related to the exit of our French
manufacturing facility was limited to the minimum contractual payment
required by French law. During the three months ended March 31, 2003, we
recorded a restructuring charge of $5.4 million ($3.8 million after tax),
related to the final union settlement on the closure of this facility. This
charge comprises the additional employee-related costs resulting from final
settlement of the social plan negotiated with the French workers' council
during the first quarter of 2003.
We assess our accrual for restructuring activities on an ongoing
basis. During the three months ended September 30, 2003, we recorded a
reduction in the restructuring accrual of $0.96 million, included within
Other charges (income), net, as a result of lower employee-related charges
than originally anticipated. Also, a restructuring charge of $1.4 million
was recorded during the three months ended September 30, 2003, related to
an extension of manufacturing consolidation activities. This charge
comprised severance of $1.0 million, included within Other charges
(income), net, and inventory write-downs of $0.4 million, included within
Cost of sales.
The Company's aforementioned restructuring programs and related
accruals were substantially completed at December 31, 2003.
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated
statements of operations for the years ended December 31, 2003, 2002 and
2001 (amounts in thousands).
2003 2002 2001
---- ---- ----
Net sales................................. $1,304,431 $1,213,707 $1,148,022
Cost of sales............................. 686,255 645,970 619,140
---------- ---------- ----------
Gross profit.............................. 618,176 567,737 528,882
Research and development.................. 78,003 70,625 64,627
Selling, general and administrative....... 372,822 331,959 299,191
Amortization.............................. 11,724 9,332 14,114
Interest expense.......................... 14,153 17,209 17,162
Other charges, net (a).................... 4,563 28,202 15,354
---------- ---------- ----------
Earnings before taxes..................... $ 136,911 $ 110,410 $ 118,434
---------- ---------- ----------
Net earnings.............................. $ 95,838 $ 100,421 $ 72,264
========== ========== ==========
Adjusted Operating Income (after
restructuring charges)(b)................ $ 161,907 $ 136,492 $ 149,868
========== ========== ==========
A reconciliation of Adjusted Operating Income to net earnings for the
years ended December 31 follows:
2003 2002 2001
---- ---- ----
Adjusted Operating Income (after restructuring
charges) (b).................................... $161,907 $136,492 $149,868
Amortization...................................... 11,724 9,332 14,114
Interest expense.................................. 14,153 17,209 17,162
Other charges, net (excluding restructuring
charges)........................................ (881) (459) 158
Provision for taxes............................... 41,073 9,989 46,170
-------- -------- --------
Net earnings...................................... $ 95,838 $100,421 $ 72,264
======== ======== ========
(a) Other charges, net consists primarily of charges related to our
restructuring programs, interest income, (gains) losses from foreign
currency transactions, (gains) losses from sales of assets and other
items. The 2003, 2002 and 2001 amounts include restructuring charges
of $5,444, $28,661 and $15,196 respectively, related primarily to
headcount reductions and manufacturing transfers.
(b) See "Non-GAAP Financial Measures" above. Adjusted Operating Income is
defined as gross profit less research and development, selling,
general and administrative expenses and restructuring charges, before
amortization, interest expense and other charges. Restructuring
charges that have been included are the costs set forth in Note (a)
above.
RESULTS OF OPERATIONS - CONSOLIDATED
Net sales
Net sales were $1,304.4 million for the year ended December 31, 2003,
compared to $1,213.7 million in 2002 and $1,148.0 million in 2001. In local
currencies, this represents flat sales for 2003 and an increase of 3% in
2002. The fluctuation of the U.S. dollar versus our major trading
currencies increased U.S. dollar-reported sales growth in 2003 and 2002.
Net sales in U.S. dollars increased 7% in 2003, and 6% in 2002.
2003 sales were affected by the unexpected softness in our Biopharma
end user market, particularly in our higher price point drug discovery
product line. Spending patterns in our retail end markets continued to be
suppressed in Europe after the significant euro conversion related
investments by customers in 2001 and down in the U.S. relative to strong
2002 project activity. These trends were partially mitigated by solid
results in our industrial markets, particularly for packaging, and
transportation and logistics products.
As discussed in "Acquisition of Rainin Instrument" above, results for
2002 include the benefit of the Rainin acquisition. However, we also
experienced a sharp decline in sales of our European retail products in
2002, as a result of the euro conversion related investments by customers
in 2001. Excluding the impact of European retail products in both 2002 and
2001, consolidated local currency sales growth would be 9% in 2002. A
discussion of sales by operating segment is included below.
As described in Note 17 to our consolidated financial statements, our
net sales comprise product sales of precision instruments, and related
services. Service revenues are primarily derived from regulatory compliance
qualification, calibration, certification and repair services, much of
which is provided under contracts, as well as sales of spare parts.
Net sales of products declined 1% in local currencies in 2003 and
increased 2% in 2002, whereas service revenue (including spare parts)
increased 3% and 8% in 2003 and 2002 respectively. The higher service
growth was generated by our consultative based value-added services
approach, including the provision of instrument qualification and asset
management services and training, rather than via increased sales of spare
parts.
Gross profit
Gross profit as a percentage of net sales was 47.4% for 2003, compared
to 46.8% for 2002 and 46.1% for 2001. Improvements in the margin over the
two year period reflect the benefits from our cost rationalization and
product transfer initiatives, partially offset by adverse currency impacts.
On a constant currency basis relative to the prior year, gross margin as a
percentage of net sales was 47.8% for 2003.
Gross profit as a percentage of net sales for products was 50.9% for
2003, compared to 50.8% for 2002 and 49.9% for 2001. These improvements
also reflect the benefits from our cost rationalization initiatives, offset
by adverse currency impacts. On a constant currency basis relative to the
prior year, product gross margin as a percentage of net sales was 51.4% for
2003.
Gross profit as a percentage of net sales for services (including
spare parts) was 35.1% for 2003, compared to 32.0% for 2002 and 31.3% for
2001. The increase in the margin over the two years reflects the expansion
of higher margin regulatory compliance service sales and improved
productivity. On a constant currency basis relative to the prior year,
service gross margin as a percentage of net sales was 34.9% for 2003.
Research and development and selling, general and administrative
expenses
Research and development expenses as a percentage of net sales was
6.0% for 2003, compared to 5.8% for 2002 and 5.6% in 2001. In local
currencies, research and development expenses increased 2% in 2003 and 5% in
2002 compared to the previous year. The increase in 2003 is principally due
to investments in our new laboratory, and transportation and logistics
products.
Selling, general and administrative expenses as a percentage of net
sales increased to 28.6% for 2003, compared to 27.4% for 2002 and 26.1% for
2001. In local currencies, and adjusting for acquisitions, selling, general
and administrative expenses increased 3% in 2003 and 2% in 2002. The
increase in 2003 is principally due to higher medical plan costs in the
U.S. and higher marketing costs related to the roll-out of our new
laboratory products.
Other charges (income), net
Other charges (income), net were $4.6 million in 2003, compared to
$28.2 million in 2002 and $15.4 million in 2001. The 2003, 2002 and 2001
amounts include the restructuring charges of $5.4 million ($3.8 million
after tax), $28.7 million ($20.1 million after tax) and $15.2 million
($14.6 million after tax), comprising severance, asset write-downs and
other exit costs primarily related to headcount reductions and
manufacturing transfers, described more fully in "Cost Reduction Programs"
above.
Interest expense and taxes
Interest expense was $14.2 million for 2003, compared to $17.2 million
for both 2002 and 2001. The decrease in 2003 is principally due to reduced
borrowing rates and lower average borrowings over the year. In 2002,
reduced interest rates were offset by higher average borrowings used to
fund the Rainin acquisition.
The provision for taxes is based upon our effective tax rate for the
related periods. This rate was 30% for 2003, 9% for 2002 and 39% for 2001.
The reduction from 39% to 30% reflects the effects of a restructuring of
our European operations and other tax initiatives. In addition, during the
three months ended June 30, 2002 we recorded a one-time tax gain of $23.1
million related to the completion of a tax reorganization program and
related tax audits.
During the fourth quarter of 2002, we began a program of repatriating
foreign subsidiary earnings to the United States in a tax efficient manner.
This program resulted in a repatriation of $85 million of foreign earnings
during 2002 and a further $100 million in 2003. In addition, this program
will result in the repatriation of $80 million of foreign earnings over the
next few years. The 2002 repatriation of $85 million created additional
U.S. taxable income resulting in the utilization of certain historical tax
attributes related to our U.S. operations and release of the related U.S.
federal deferred tax valuation allowance. The 2003 repatriation of $100
million also utilized certain historical U.S. tax attributes. The tax
effects related to the future repatriation of $80 million are also accrued.
Earnings before taxes and net earnings
Earnings before taxes were $136.9 million for 2003, compared to $110.4
million in 2002 and $118.4 million in 2001. Net earnings were $95.8 million
for 2003, compared to $100.4 million in 2002 and $72.3 million in 2001.
These results include the restructuring charge of $5.4 million ($3.8
million after tax) in 2003, the restructuring charge of $28.7 million
($20.1 million after tax) and the one-time tax gain of $23.1 million in
2002, and the restructuring charge of $15.2 million ($14.6 million after
tax) in 2001.
Supplemental data: Adjusted Operating Income
See "Non-GAAP Financial Measures" above. Adjusted Operating Income
(gross profit less research and development, selling, general and
administrative expenses and restructuring charges, before amortization,
interest expense and other charges) increased to $161.9 million, or 12.4%
of net sales, for 2003, compared to $136.5 million, or 11.2% of net sales
in 2002 and $149.9 million, or 13.1% of net sales in 2001. Adjusted
Operating Income includes restructuring charges of $5.4 million in 2003,
$28.7 million in 2002 and $15.2 million in 2001.
In 2003, Adjusted Operating Income increased primarily as a result of
the lower restructuring charge relative to 2002. The related benefits of
our cost rationalization and product transfer initiatives and strong sales
and manufacturing productivity improvements in China were offset by higher
research and development costs and selling costs principally related to
investments in new products, as well as higher medical plan costs in the
U.S. In 2002, Adjusted Operating Income decreased primarily due to
recording a higher restructuring charge relative to 2001 and the
aforementioned volume impact on European retail following the euro
conversion related investments by customers in 2001, partially offset by
the benefit of the Rainin acquisition. A discussion of Adjusted Operating
Income by operating segment is included below.
RESULTS OF OPERATIONS - BY OPERATING SEGMENT
Principal U.S. Operations
Net sales to external customers in our Principal U.S. Operations
segment decreased 3% in 2003, compared to an increase of 22% in 2002.
Although not as significant as in Europe, we experienced slightly lower
sales in our laboratory business in the U.S. in 2003, due to reduced
spending in our Biopharma end market. In addition, retail sales declined
relative to strong project activity in 2002. These trends were partially
offset by increased sales of packaging products. The increase in 2002 is
principally due to the Rainin acquisition. Approximately 86% of Rainin's
operations were based in the Americas in 2002.
Adjusted Operating Income increased $11.5 million in our Principal
U.S. Operations in 2003, compared to an increase of $32.0 million in 2002.
The increase in 2003 is due primarily to the restructuring charge recorded
in 2002, of which $11.8 million relates to this segment. Adjusted Operating
Income in 2003 was also impacted by lower sales of laboratory and food
retailing products, combined with higher medical plan costs relative to
2002, partially offset by the impact of increased sales of packaging
products and improved service profitability. The increase in 2002 is due
primarily to the Rainin acquisition and improvements in service
profitability partially offset by the impact of restructuring charges of
$11.8 million in 2002 and $6.0 million in 2001.
Other Western European Operations (including France, U.K., Italy and
Spain)
Net sales in local currencies to external customers in our Other
Western European Operations segment decreased 1% in 2003, compared to a
decrease of 7% in 2002. The reduced sales in 2003 were principally due to
lower spending in our Biopharma and retail end markets. These trends were
partially mitigated by solid results for packaging and transportation and
logistics products. Our European sales trends in 2002 were primarily the
result of the decline in sales of our European retail products following
the significant euro conversion related investments by customers in 2001.
Adjusted Operating Income increased $14.8 million in our Other Western
European Operations segment in 2003, compared to a decrease of $22.9 million
in 2002. The increase in 2003 is principally the result of a lower
restructuring charge of $4.4 million recorded in 2003, compared to $11.4
million recorded in 2002. 2003 also benefited from the related benefits of
our cost rationalization and product transfer initiatives, partially offset
by the impact of declines in sales of laboratory and retail products. The
decrease in 2002 was principally due to the aforementioned volume impact on
European retail following the euro related investments by customers in
2001, as well as the impact of the restructuring charges of $11.4 million
in 2002 and $0.9 million in 2001.
Principal Central European Operations (including Germany)
Net sales in local currencies to external customers in our Principal
Central European Operations segment decreased 4% in 2003, compared to a
decrease of 20% in 2002. Similar to our Other Western European Operations
segment, the decline in 2003 was principally due to weakness in our
laboratory and retail end markets, partially offset by solid results for
packaging and transportation and logistics products. The decline in 2002
was principally due to a reduction in post-euro conversion retail sales.
Adjusted Operating Income increased $7.1 million in our Principal
Central European Operations segment in 2003, compared to a decrease of $16.8
million in 2002. The increase in 2003 is principally the result of the
lower restructuring charge recorded in 2002, of which $2.8 million relates
to this segment, and the related benefits from our cost rationalization and
product transfer initiatives, partially offset by the impact of declines in
sales of laboratory and retail products, while 2002 suffered from the
aforementioned volume impact on European retail.
Swiss R&D and Manufacturing Operations
Net sales in local currencies to external customers in our Swiss R&D
and Manufacturing Operations segment decreased 13% in 2003, compared to a
decrease of 11% in 2002. These declines are principally the result of
reduced sales in our laboratory markets.
Adjusted Operating Income decreased $7.2 million in our Swiss R&D and
Manufacturing Operations segment in 2003, compared to a decrease of $9.8
million in 2002. These declines were principally as a result of lower sales
in our laboratory markets, and increased research and development costs in
both years, as well as higher marketing costs in 2003 related to our new
laboratory product launches.
Asia
As disclosed in Note 17 to the consolidated financial statements,
continued growth resulted in the Company's reporting units in Asia
exceeding the quantitative threshold for disclosure as a separate operating
segment during the three months ended December 31, 2003.
Net sales in local currencies to external customers in Asia increased
21% in 2003, compared to an increase of 11% in 2002. These results reflect
strong sales performance in China for most of our product lines, partially
offset by declines in Japan. As well as expanding our manufacturing
capacity in China, we have also significantly increased our local sales and
service resources in Asia. For example, our headcount in Asia increased by
19% to 1,383 in 2003. Selling, general and administrative expenses
increased 18% in local currencies in Asia in 2003, reflecting the
additional investment in this region and the strong sales performance.
Adjusted Operating Income increased $8.6 million in Asia in 2003,
compared to an increase of $4.1 million in 2002, principally due to
stronger sales and improved manufacturing productivity in China, partially
offset by declines, primarily in Japan.
Other
Net sales in local currencies to external customers in our Other
operating segment increased 3% in 2003, compared to an increase of 5% in
2002. These results reflect modest sales growth in countries such as Russia
and Australia, and in Eastern Europe, partially offset by a decline in
sales of our drug discovery products.
Adjusted Operating Income increased $5.0 million in our Other
operating segment in 2003, compared to a decrease of $0.3 million in 2002.
These results reflect the impact of restructuring charges, offset by the
impact of declines in sales of our drug discovery products. In addition,
2002 was also negatively affected by the economic downturn in Latin
America.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is our ability to generate sufficient cash flows from
operating activities to meet our obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate financing. Therefore,
liquidity cannot be considered separately from capital resources that
consist of current and potentially available funds for use in achieving
long-range business objectives and meeting debt service commitments.
Currently, our liquidity needs arise primarily from: working capital
requirements; capital expenditures; and acquisitions.
Cash provided by operating activities totaled $117.2 million in 2003,
compared to $115.4 million in 2002 and $101.6 million in 2001. The increase
in 2003 resulted principally from improved management of operating assets
and liabilities, partially offset by higher restructuring and tax payments.
Included in 2003 cash provided by operating activities are voluntary
incremental pension contributions of $10.0 million to the U.S. pension plan
and $7.1 million to the U.K. pension plan. Included in 2002 cash provided
by operating activities is a voluntary contribution of $19.0 million to the
U.S. pension plan. In 2004, similar to previous years, we expect to make
normal employer pension contributions of $11.4 million. Cash provided by
operating activities also includes payments for restructuring and certain
acquisition integration activities. These amounts totaled $16.8 million,
$11.1 million and $10.7 million in 2003, 2002 and 2001, respectively.
During 2003, we spent approximately $4.5 million on acquisitions,
including additional consideration related to earn-out periods associated
with acquisitions consummated in prior years. The cash portions of these
purchases were funded from cash generated from operations and additional
borrowings. We continue to explore potential acquisitions. In connection
with any acquisition, we may incur additional indebtedness. In addition,
the terms of certain of our acquisitions in 2003 and earlier years provide
for possible additional earn-out payments of up to $1.0 million.
Capital expenditures are a significant use of funds and are made
primarily for machinery, equipment and the purchase and expansion of
facilities. Our capital expenditures totaled $27.2 million in 2003, $33.2
million in 2002 and $33.2 million in 2001. Capital expenditures in 2003
include spending of $2.4 million associated with our new facility in China
and in 2002 include spending of $8.3 million associated with Rainin's new
facility in California. We expect capital expenditures in 2004 to be
slightly above 2003. We also expect capital expenditures to increase as our
business grows, and to fluctuate as currency exchange rates change.
November 2003 refinancing
On November 12, 2003, we closed a new five-year $300 million credit
facility ("the $300 million Credit Facility" or "the Credit Facility") and
completed the issuance of $150 million seven-year Senior Notes. The
proceeds from this refinancing were immediately used to repay all of the
borrowings under our former credit agreement, which was then terminated.
Credit Facility Agreement
The $300 million Credit Facility is provided by a group of financial
institutions and has a bullet maturity in November 2008. It is not subject
to any scheduled principal payments. Borrowings under the $300 million
Credit Facility bear interest at current market rates plus a margin which
is based on our senior unsecured credit ratings (currently "BBB" by
Standard & Poor's and "Baa3" by Moody's), and is currently set at LIBOR plus
0.6%. We must also pay utilization and facility fees that are tied to our
credit ratings. The $300 million Credit Facility contains covenants
including maintaining a ratio of debt to earnings before interest, tax,
depreciation and amortization of less than 3.25 to 1.0 and an interest
coverage ratio of more than 3.5 to 1.0. The new facility also places
certain limitations on us including limiting the ability to grant liens or
incur debt at a subsidiary level. In addition, the $300 million Credit
Facility has several events of default including upon a change of control.
The Credit Facility is unsecured.
Senior Notes
In November 2003, we issued $150 million of 4.85% unsecured Senior
Notes due November 15, 2010 ("the Senior Notes"). The Senior Notes rank
equally with all our unsecured and unsubordinated indebtedness. Interest is
payable semi-annually in May and November. Discount and issuance costs
approximated $1.2 million and are being amortized to interest expense over
the seven-year term of the Senior Notes.
At our option, the Senior Notes may be redeemed in whole or in part at
any time at a redemption price equal to the greater of:
o The principal amount of the Senior Notes; or
o The sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the redemption date on a
semi-annual basis at a comparable treasury rate plus a margin of
0.20%.
The new seven-year Senior Notes contain limitations on the ability to
incur liens and enter into sale and leaseback transactions exceeding 10% of
our consolidated net worth.
At December 31, 2003, our consolidated debt, net of cash of $45.1
million, was $196.4 million. In addition to the Senior Notes, we had
borrowings of $73.1 million under our Credit Facility and $18.3 million
under various other local arrangements. Also at December 31, 2003, we had
$218.6 million of availability remaining under the Credit Facility.
At December 31, 2003, approximately $49.4 million of the borrowings
under the Credit Facility and local working capital facilities were
denominated in U.S. dollars. The balance of the borrowings under the Credit
Facility and local working capital facilities were denominated in certain
of our other principal trading currencies amounting to approximately $42.0
million. Changes in exchange rates between the currencies in which we
generate cash flow and the currencies in which our borrowings are
denominated affect our liquidity. In addition, because we borrow in a
variety of currencies, our debt balances fluctuate due to changes in
exchange rates.
At December 31, 2003, we are in compliance with all covenants set
forth in our Credit Facility and Senior Notes agreements. In addition, we
do not have any downgrade triggers that would accelerate the maturity dates
of our debt.
We currently believe that cash flow from operating activities,
together with liquidity available under our Credit Facility and local
working capital facilities, will be sufficient to fund currently
anticipated working capital needs and capital spending requirements for at
least several years, but there can be no assurance that this will be the
case.
Contractual obligations
The following summarizes certain of our contractual obligations at
December 31, 2003 and the effect such obligations are expected to have on
our liquidity and cash flow in future periods. We do not have significant
outstanding letters of credit or other financial commitments.
Payments due by period
----------------------
Total Less than 1 year 1-3 years 3-5 years After 5 years
----- ---------------- --------- --------- ------------
Long-term debt (a) $ 223,239 $ - $ - $ 73,080 $ 150,159
Non-cancelable operating leases (b) 92,935 19,437 28,322 17,605 27,571
Purchase obligations (c) 8,519 6,109 2,410 - -
---------- --------- --------- --------- ----------
Total $ 324,693 $ 25,546 $ 30,732 $ 90,685 $ 177,730
========== ========= ========= ========= ==========
(a) As described in Note 10 to the audited consolidated financial statements.
(b) As described in Note 16 to the audited consolidated financial statements.
(c) Represents agreements to purchase goods or services that are enforceable and legally binding on the Company.
We have purchase commitments for materials, supplies, services and
fixed assets as part of the normal course of business. Due to the
proprietary nature of many of our materials and processes, certain supply
contracts contain penalty provisions. We do not expect potential payments
under these provisions to materially affect results of operations or
financial condition. This conclusion is based upon reasonably likely
outcomes derived by reference to historical experience and current business
plans.
Share repurchase program
On February 5, 2004, we announced a share repurchase program,
commencing with an initial buyback of up to $100 million over the two-year
period ending December 31, 2005. The repurchases will be made through open
market transactions, and the timing will depend on the level of acquisition
activity, business and market conditions, the stock price, trading
restrictions and other factors. We cannot assure you that we will
repurchase shares representing the full value of the program over the
two-year period.
OFF-BALANCE SHEET ARRANGEMENTS
Currently, we have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates.
Swiss franc-denominated expenses represent a much greater percentage of our
operating expenses than Swiss franc-denominated sales represent of our net
sales. In part, this is because most of our manufacturing costs in
Switzerland relate to products that are sold outside Switzerland. Moreover,
a substantial percentage of our research and development expenses, and
general and administrative expenses are incurred in Switzerland. Therefore,
if the Swiss franc strengthens against all or most of our major trading
currencies (e.g., the U.S. dollar, the euro, other major European
currencies and the Japanese yen), our operating profit is reduced. We also
have significantly more sales in European currencies (other than the Swiss
franc) than we have expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also
decreases our operating profits. Accordingly, the Swiss franc exchange rate
to the euro is an important cross-rate monitored by the Company. We
estimate that a 1% strengthening of the Swiss franc against the euro would
result in a decrease in our earnings before tax of $0.8 million to $1.2
million on an annual basis. In addition to the effects of exchange rate
movements on operating profits, our debt levels can fluctuate due to
changes in exchange rates, particularly between the U.S. dollar and the
Swiss franc. Based on our outstanding debt at December 31, 2003, we
estimate that a 10% weakening of the U.S. dollar against the currencies in
which our debt is denominated, would result in an increase of approximately
$4.7 million in the reported U.S. dollar value of the debt.
TAXES
We are subject to taxation in many jurisdictions throughout the world.
Our effective tax rate and tax liability will be affected by a number of
factors, such as the amount of taxable income in particular jurisdictions,
the tax rates in such jurisdictions, tax treaties between jurisdictions,
the extent to which we transfer funds between jurisdictions, earnings
repatriations between jurisdictions and changes in law. Generally, the tax
liability for each taxpayer within the group is determined either (i) on a
non-consolidated/non-combined basis or (ii) on a consolidated/combined
basis only with other eligible entities subject to tax in the same
jurisdiction, in either case without regard to the taxable losses of
non-consolidated/non-combined affiliated legal entities. As a result, we
may pay income taxes to certain jurisdictions even though on an overall
basis we incur a net loss for the period.
Our effective tax rates for the years ended December 31, 2003, 2002
and 2001 were approximately 30%, 9% and 39% respectively, as described in
"Interest expense and taxes" above.
ENVIRONMENTAL MATTERS
We are subject to environmental laws and regulations in the
jurisdictions in which we operate. We own or lease a number of properties
and manufacturing facilities around the world. Like many of our
competitors, we have incurred, and will continue to incur, capital and
operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad.
We are currently involved in, or have potential liability with respect
to, the remediation of past contamination in certain of our facilities in
both the United States and abroad. Our subsidiary, Hi-Speed Checkweigher,
is subject to an administrative consent order from the New Jersey
Department of Environmental Protection that provides for the remediation of
a former manufacturing site in Landing, New Jersey. Under the terms of the
stock purchase agreement between GEI International Corporation and the
predecessor to Hi-Speed, GEI assumed all responsibility for the
administrative consent order and to date has performed and paid for all
action it requires. In addition, certain of our present and former
facilities have or had been in operation for many decades and, over such
time, some of these facilities may have used substances or generated and
disposed of wastes which are or may be considered hazardous. It is possible
that these sites, as well as disposal sites owned by third parties to which
we have sent wastes, may in the future be identified and become the subject
of remediation. Accordingly, although we believe that we are in substantial
compliance with applicable environmental requirements and to date we have
not incurred material expenditures in connection with environmental
matters, it is possible that we could become subject to additional
environmental liabilities in the future that could result in a material
adverse effect on our financial condition or results of operations.
INFLATION
Inflation can affect the costs of goods and services that we use. The
competitive environment in which we operate limits somewhat our ability to
recover higher costs through increased selling prices. Moreover, there may
be differences in inflation rates between countries in which we incur the
major portion of our costs and other countries in which we sell products,
which may limit our ability to recover increased costs. We remain committed
to operations in China and Eastern Europe, which have experienced
inflationary conditions. To date, inflationary conditions have not had a
material effect on our operating results. However, as our presence in China
and Eastern Europe increases, these inflationary conditions could have a
greater impact on our operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have only limited involvement with derivative financial instruments
and do not use them for trading purposes.
We have entered into foreign currency forward contracts to
economically hedge short-term intercompany balances with our international
businesses and a portion of our Swiss franc / euro exposure on a monthly
basis. Such contracts limit our exposure to both favorable and unfavorable
currency fluctuations. A sensitivity analysis to changes in the U.S. dollar
and Swiss franc on these foreign currency-denominated contracts indicates
that if the U.S. dollar and Swiss franc uniformly worsened by 10% against
all of our currency exposures, the fair value of these instruments would
decrease by $4.5 million at December 31, 2003, as compared with $2.9
million at December 31, 2002. Any resulting changes in fair value would be
offset by changes in the underlying hedged balance sheet position. The
sensitivity analysis assumes a parallel shift in foreign currency exchange
rates. The assumption that exchange rates change in parallel fashion may
overstate the impact of changing exchange rates on assets and liabilities
denominated in a foreign currency. We also have other currency risks as
described under "Effect of Currency on Results of Operations" above.
We have entered into certain interest rate swap agreements. These
contracts are more fully described in Note 5 to our audited consolidated
financial statements. The market value of these contracts as at December
31, 2003 and 2002 was $0.4 million and negative $4.4 million, respectively.
Based on our agreements outstanding at December 31, 2003, a 100 basis point
increase in interest rates would result in a decrease in the net aggregate
market value of these instruments of $1.9 million, as compared with an
increase of $1.4 million at December 31, 2002. Conversely, a 100 basis
point decrease in interest rates would result in a $1.9 million increase in
the net aggregate market value of these instruments, as compared with a net
reduction of $1.4 million at December 31, 2002. Any change in fair value
would not affect our consolidated statement of operations unless such
agreements and the debt they hedge were prematurely settled.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of our financial condition and
results of operations are based upon our audited consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, including those related to
pensions and other post-retirement benefits, inventories, intangible
assets, income taxes, revenue and warranty costs. We base our estimates on
historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our audited
consolidated financial statements. For a detailed discussion on the
application of these and other accounting policies, see Note 2 to our
audited consolidated financial statements.
Employee benefit plans
The net periodic pension cost for 2003 and projected benefit
obligation as at December 31, 2003 were $3.7 million and $99.8 million
respectively for our U.S. pension plans, and $11.1 million and $402.5
million respectively for our international pension plans. The net periodic
post-retirement cost for 2003 and projected benefit obligation as at
December 31, 2003 for our U.S. post-retirement medical benefit plan were
$0.5 million and $29.8 million respectively.
Pension and post-retirement benefit plan expense and obligations are
developed from assumptions in actuarial valuations. These assumptions
include the discount rate and expected return on plan assets. In accordance
with U.S. GAAP, actual results that differ from the assumptions are
accumulated and amortized over future periods. While management believes
the assumptions used are appropriate, differences in actual experience or
changes in assumptions may affect our plan obligations and future expense.
The expected rates of return on the various defined benefit pension
plans' assets are based on the asset allocation of each plan and the
long-term projected return of those assets, which represent a diversified
mix of U.S. and international corporate equities and government and
corporate debt securities. In April 2002, we froze our U.S. defined benefit
pension plan and discontinued our retiree medical program for certain
current and all future employees. Consequently, no significant future
service costs will be incurred on these plans. For 2003, the average return
on assets assumption was 8.5% for the U.S. plan and 6.1% for the
international plans. A change in the rate of return of 1% would impact
annual benefit plan expense by approximately $3.4 million after tax.
The discount rates for defined benefit and post-retirement plans are
set by benchmarking against high quality corporate bonds. For 2003, the
average discount rate assumption was 6.25% for the U.S. plans and 4.5% for
the international plans, representing a weighted average of local rates in
countries where such plans exist. A change in the discount rate of 1% would
impact annual benefit plan expense by approximately $3.5 million after tax.
In 2003 and 2002, we made voluntary incremental funding payments of
$17.1 million and $19.0 million respectively, to reduce the underfunded
status of the U.S. and U.K. pension plans. As a result, we do not expect to
make any significant required pension funding payments, other than normal
employer contributions, during the next two years. However, if the equity
markets do not mirror expected rates of return, in the future, we could be
required to make additional cash funding payments or adjust the $43.6
million additional minimum pension liability recorded at December 31, 2003.
The Company also has employee stock option plans which are accounted
for under the intrinsic value recognition and measurement provisions of
Accounting Principles Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. As stock options have been issued
with exercise prices equal to the market value of the underlying shares on
the grant date, no compensation cost has resulted. Note 12 to the audited
consolidated financial statements provides supplemental information,
including pro forma earnings and earnings per share, as if the Company had
accounted for options based on the fair value method prescribed by SFAS No.
123, "Accounting for Stock-Based Compensation." That methodology yields an
estimate of fair value based in part on a number of management estimates,
including future volatility and estimated option lives. Changes in these
assumptions could significantly impact the estimated fair value of stock
options.
Inventory
As at December 31, 2003, net inventories were $151.8 million.
We record our inventory 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
market value is based on assumptions for future demand and related pricing.
Excess and obsolete reserves are established based on forecast usage,
orders and technological obsolescence. If actual market conditions are less
favorable than those projected by management, reductions in the value of
inventory may be required.
Goodwill and other intangible assets
As at December 31, 2003, our consolidated balance sheet included
goodwill of $421.9 million and other intangible assets of $126.9 million.
Our business acquisitions typically result in goodwill and other
intangible assets, which affect the amount of future period amortization
expense and possible impairment expense that we will incur. The
determination of the value of such intangible assets requires management to
make estimates and assumptions that affect our consolidated financial
statements.
In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), our goodwill and indefinite-lived intangible assets
are not amortized, but are evaluated 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 is based on
valuation models that estimate fair value based on expected future cash
flows and profitability projections. In preparing the valuation models we
consider a number of factors, including operating results, business plans,
economic conditions, future cash flows, and transactions and market place
data. There are inherent uncertainties related to these factors and our
judgment in applying them to the impairment analyses. The significant
estimates and assumptions within our fair value models include sales
growth, controllable cost growth, perpetual growth, effective tax rates and
discount rates. Our assessments to date have indicated that there has been
no impairment of these assets.
Our drug discovery reporting unit is sensitive to changes in Biopharma
capital spending. As a result of aforementioned trends in this market, drug
discovery experienced a double-digit decline in revenue and profitability
during 2003. However, the fair value of the Company's drug discovery
reporting unit exceeded its carrying value of $29 million as of September
30, 2003 and December 31, 2003. In accordance with the provisions of SFAS
142, the Company will monitor the fair value of this reporting unit closely
to determine if the 2004 business plan is being achieved. For example, we
will monitor whether the forecasted benefits of our drug discovery cost
reduction programs are being realized, including the program of
manufacturing site rationalization currently in progress.
Should any of these estimates or assumptions in the preceding
paragraphs not be accurate, or should we incur lower than expected
operating performance or cash flows, we may experience a triggering event
that requires a new fair value assessment for our reporting units, possibly
prior to the required annual assessment. These types of events and
resulting analysis could result in impairment charges for goodwill and
other indefinite lived intangible assets if the fair value estimate
declines below the carrying value.
Our amortization expense related to intangible assets with finite
lives may materially change should our estimates of their useful lives
change.
Income taxes
Income tax expense and deferred tax assets and liabilities reflect
management's assessment of actual future taxes to be paid on items
reflected in the financial statements. We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not
to be realized. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event we were to determine that we would be
able to realize our deferred tax assets in the future in excess of the net
recorded amount, an adjustment to the deferred tax asset would increase
income, equity or goodwill in the period such determination was made.
Likewise, should we determine that we would not be able to realize all or
part of the net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such
determination was made.
In 2002 and 2003, provisions were made for U.S. income taxes on
certain undistributed earnings of non-U.S. subsidiaries as a decision was
made to repatriate these earnings rather than permanently reinvest them. If
we decide to repatriate an amount of undistributed earnings in excess of
those originally planned, we could be subject to additional income tax.
The significant assumptions and estimates described in the preceding
paragraphs are important contributors to our ultimate effective tax rate
for each year in addition to our income mix from geographical regions. If
any of our assumptions or estimates were to change, or should our income
mix from our geographical regions change, our effective tax rate can be
materially affected. Based on pre-tax income of $136.9 million for the year
ended December 31, 2003, each increase of $1.4 million in tax expense would
increase our effective tax rate by 1%.
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 transfers upon shipment. For those few countries where title cannot
legally transfer before delivery, we defer revenue recognition until
delivery has occurred. Other than a few small software applications,
Mettler-Toledo does not sell its software products without the related
hardware instrument as the software is embedded in the instrument. The
Company's typical solution requires no significant production, modification
or customization of the hardware or software that is essential to the
functionality of the products. Revenues from service contracts are
recognized ratably over 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
for certain product shipments. While the Company engages in extensive
product quality programs and processes, our warranty obligation is affected
by product failure rates, material usage and service costs incurred in
correcting a product failure. If we experience claims or significant cost
changes in material, freight and vendor charges, our cost of goods sold
could be affected.
NEW ACCOUNTING STANDARDS
See Note 2 to the audited consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Some of the statements in this annual report and in documents
incorporated by reference constitute "forward-looking statements" within
the meaning of Section 27A of the U.S. Securities Act of 1933 and Section
21E of the U.S. Securities Exchange Act of 1934. These statements relate to
future events or our future financial performance, including, but not
limited to, strategic plans, potential growth opportunities in both
developed markets and emerging markets, planned research and development
efforts, product introductions and innovation, manufacturing capacity,
expected customer demand, meeting customer expectations, planned
operational changes and productivity improvements, research and development
expenditures, competitors' product development, expected capital
expenditures, future cash sources and requirements, liquidity, impact of
taxes, expected compliance with laws, impact of environmental costs,
expected cost savings and benefits of completed or future acquisitions,
which involve known and unknown risks, uncertainties and other factors that
may cause our or our businesses' actual results, levels of activity,
performance or achievements to be materially different from those expressed
or implied by any forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"could," "would," "should," "expect," "plan," "anticipate," "intend,"
"believe," "estimate," "predict," "potential" or "continue" or the negative
of those terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially because of
market conditions in our industries or other factors. Moreover, we do not,
nor does any other person, assume responsibility for the accuracy and
completeness of those statements. Unless otherwise required by applicable
laws, we disclaim any intention or obligation to publicly update or revise
any of the forward-looking statements after the date of this annual report
to conform them to actual results, whether as result of new information,
future events, or otherwise. All of the forward-looking statements are
qualified in their entirety by reference to the factors discussed under the
caption "Factors affecting our future operating results" in Exhibit 99.1
to this annual report, which describes risks and factors that could cause
results to differ materially from those projected in those forward-looking
statements.
We caution the reader that the above list of risks and factors that
may affect results addressed in the forward-looking statements may not be
exhaustive. Other sections of this annual report and other documents
incorporated by reference may describe additional risks or factors that
could adversely impact our business and financial performance. We operate
in a continually changing business environment, and new risk factors emerge
from time to time. Management cannot predict these new risk factors, nor
can it assess the impact, if any, of these new risk factors on our
businesses or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those projected in any
forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Discussion of this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-39 and the related financial schedule is set forth on page
S-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Our management carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by
this annual report under the supervision and with the participation of our
disclosure committee, our CFO and CEO. Based upon that evaluation, our CFO
and CEO concluded that our disclosure controls and procedures are effective
in permitting us to comply with our disclosure obligations and ensure that
the material information required to be disclosed is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the SEC. There were no changes in our internal controls over
financial reporting during the quarter ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, our
controls over financial reporting.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are set forth
below. All directors hold office until the annual meeting of shareholders
following their election or until their successors are duly elected and
qualified. Officers are appointed by the Board of Directors and serve at
the discretion of the Board.
NAME AGE POSITION
- ---- --- --------
Robert F. Spoerry 48 President, Chief Executive Officer and Chairman
of the Board of Directors
Dennis W. Braun 39 Chief Financial Officer
Peter Burker 58 Head of Human Resources
William P. Donnelly 42 Head of Packaging Industry
Olivier A. Filliol 37 Head of Process Analytics
Jean-Lucien Gloor 51 Head of Information Systems and Logistics
Timothy P. Haynes 39 Head of Retail
Karl M. Lang 57 Head of Asia/Pacific
Beat E. Luthi 42 Head of Laboratory
Urs Widmer 53 Head of Industrial
Philip Caldwell 84 Director
John T. Dickson 58 Director
Philip H. Geier 69 Director
John D. Macomber 76 Director
Hans Ulrich Maerki 57 Director
George M. Milne 60 Director
Thomas P. Salice 44 Director
- ---------------------------------------------------------------------------------------------------
Robert F. Spoerry has been President and Chief Executive Officer of
the Company since 1993. He served as Head of Industrial and Retail (Europe)
of the Company from 1987 to 1993. Mr. Spoerry has been a Director since
October 1996. Mr. Spoerry has been Chairman of the Board of Directors since
May 1998.
Dennis W. Braun has been Chief Financial Officer of the Company since
July 2002. From 1986 until joining the Company, he held various positions
within the public accounting firm PricewaterhouseCoopers LLP, except for a
period between 1996 and 1997 when he obtained his M.B.A. degree from
Harvard Business School. From 1999 to March 2002, Mr. Braun was a partner
of PricewaterhouseCoopers in its Audit & Business Advisory Services
practice.
Peter Burker has been Head of Human Resources of the Company since
1995. From 1992 to 1994 he was the Company's General Manager in Spain, and
from 1989 to 1991 he headed the Company's operations in Italy.
William P. Donnelly has been Head of Packaging Industry and the
company's pipetting business since July 2002. He was Chief Financial
Officer of the Company from 1997 to July 2002.
Olivier A. Filliol has been Head of Process Analytics of the Company
since June 1999. From June 1998 to June 1999 he served as General Manager
of Hi-Speed Checkweigher Inc., a subsidiary of the Company based in New
York. Prior to joining the Company, he was a Strategy Consultant with the
international consulting firm Bain & Company working in the Geneva, Paris,
London and Sydney offices.
Jean-Lucien Gloor has been Head of Information Systems and Logistics
and Chief Information Officer of the Company since March 2001. From 1999
until joining the Company, he served as Head of Central Server Platforms at
Credit Suisse Financial Services. Prior to 1999, he held various senior
information systems positions during fifteen years with The Dow Chemical
Company.
Timothy P. Haynes has been Head of Retail of the Company since October
2001. From 1999 to 2001 he served as Business Unit Leader for the Company's
Transport, Shipping, Mail and Components business. Prior to joining the
Company, he held various management positions at Emerson Electric in their
process control and measurement businesses, including from 1997 to 1999
when he served as Vice President of Marketing and Product Development in
its Process Analytic Division.
Karl M. Lang has been Head of Asia/Pacific of the Company since
January 2000. From 1994 to January 2000 he served as Head of Laboratory.
From 1991 to 1994 he was based in Japan as a representative of senior
management with responsibility for expansion of the Asian operations.
Beat E. Luthi has been Head of Laboratory of the Company since March
2003. From 1998 until returning to the Company, he served as Chief
Executive Officer of Feintool International Holding, a Swiss public
company. Feintool is a global technology and systems provider in
fineblanking / forming and assembly / automation as well as a global
supplier of metal and plastic components. From 1990 to 1998 he held various
management positions with the Company in Switzerland.
Urs Widmer has been Head of Industrial since 1999. From 1984 to 1999
he served in various management functions within the Company, including
most recently Head of Standard Industrial (Europe) from 1995 to 1999. Prior
to 1984 he held various management positions with Siemens, a global
manufacturer of solutions for information and communications, automation
and control, power and transportation.
Philip Caldwell has been a Director since October 1996. Prior to May
1998, Mr. Caldwell served as Chairman of the Board of Directors. Mr.
Caldwell spent 32 years at Ford Motor Company, where he served as Chairman
of the Board of Directors and Chief Executive Officer from 1979 to 1985 and
a Director from 1973 to 1990. He served as a Director and Senior Managing
Director of Lehman Bros. Inc. and its predecessor, Shearson Lehman Brothers
Holdings, Inc., from 1985 to February 1998. Mr. Caldwell is also a Director
of the Mexico Fund, Russell Reynolds Associates, Inc. and Waters
Corporation.
John T. Dickson has been a Director since March 2000. Mr. Dickson is
Chief Executive Officer and President of Agere Systems Inc, the former
Microelectronics Group of Lucent, a position he has held since March 2001.
Mr. Dickson joined the Microelectronics and Communications Technologies
Group of Lucent Technologies in 1993. He served as Chief Executive Officer
of the Microelectronics Group since January 1998 and Executive Vice
President of Lucent Technologies since 1999. Mr. Dickson is also a Director
of the Semiconductor Industry Association and a member of the Board of
Trustees of Lehigh Valley Health Network.
Philip H. Geier has been a Director since July 2001. Mr. Geier was
Chairman of the Board and Chief Executive Officer of the Interpublic Group
of Companies, Inc. from 1980 to 2000 and was a Director of Interpublic
since 1975. Mr. Geier is a Director of AEA Investors LLC, Alcon, Inc.,
Fiduciary Trust Co. International, Foot Locker, Inc. and Intermedia
Advertising Group.
John D. Macomber has been a Director since October 1996. He has been a
principal of JDM Investment Group since 1992. He was Chairman and President
of the Export-Import Bank of the United States (an agency of the U.S.
Government) from 1989 to 1992. From 1973 to 1986 Mr. Macomber was Chairman
and Chief Executive Officer of Celanese Corporation. Prior to that, Mr.
Macomber was a Senior Partner of McKinsey & Company. Mr. Macomber is also a
Director of AEA Investors LLC, Lehman Brothers Holdings Inc., Mirror Worlds
Technology, Sovereign Specialty Chemicals, Inc. and Textron Inc.
Hans Ulrich Maerki has been a Director since September 2002. Mr.
Maerki has been the General Manager of IBM Europe/Middle East/Africa since
July 2003 and Chairman since August 2001. He is also a member of the World
Wide Management Council of IBM Corporation. From 1996 to July 1991, Mr.
Maerki was General Manager of IBM Global Services, Europe/Middle
East/Africa. Mr. Maerki has been with IBM in various positions since 1973.
Mr. Maerki is also a Director of ABB Ltd.
George M. Milne, Jr., Ph.D., has been a Director since September 1999.
From 1970 to July 2002, Dr. Milne held various management positions with
Pfizer Corporation, including most recently Executive Vice President,
Pfizer Global Research and Development and President, Worldwide Strategic
and Operations Management. Dr. Milne was also a Senior Vice President of
Pfizer Inc. and a member of the Pfizer Management Council. He was President
of Central Research from 1993 to July 2002 with global responsibility for
Pfizer's Human and Veterinary Medicine Research and Development. Dr. Milne
is also a Director of Athersys, Inc. and Charles River Laboratories, Inc.
Thomas P. Salice has been a Director since October 1996. Mr. Salice
joined AEA Investors LLC, a private equity firm, in July 1989 and became
President and a director in January 1999, Chief Executive Officer in 2000
and Vice Chairman in September 2002. Mr. Salice is also a Director of Agere
Systems Inc., Marbo, Inc., Sovereign Specialty Chemicals, Inc. and Waters
Corporation. He also serves on the Board of Trustees of Fordham University.
AUDIT COMMITTEE
The Company has a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
members of the Audit Committee are Philip Caldwell, John Macomber (Chair)
and Thomas Salice.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that each member of the Audit
Committee is an audit committee financial expert as defined by Item 401(h)
of Regulation S-K of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and is independent within the meaning of Item 7(d)(3)(iv)
of Schedule 14A of the Exchange Act.
CODE OF ETHICS
The Company has adopted a code of business conduct and ethics for
directors, officers (including the principal executive officer, principal
financial officer and controller) and employees, known as the Code of
Conduct. The Code of Conduct is available on the Company's website at
http://www.mt.com under Investor Relations / Corporate Governance.
Stockholders may request a free copy of the Code of Conduct from:
Investor Relations
Mettler-Toledo International Inc.
1900 Polaris Parkway
Columbus, OH 43240
U.S.A.
Phone: +1 614 438 4748
Fax: +1 614 438 4646
E-mail: [email protected]
CORPORATE GOVERNANCE GUIDELINES
The Company has adopted Corporate Governance Guidelines, which are
available on the Company's website at http://www.mt.com under Investor
Relations / Corporate Governance. Stockholders may request a free copy of
the Corporate Governance Guidelines from the address and phone numbers set
forth under "Code of Ethics" above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information regarding Section 16(a) beneficial ownership reporting
compliance is set forth under "General Information - Compliance with
Section 16(a) Beneficial Ownership Reporting Requirements" in the Proxy
Statement for the 2004 Annual Meeting of Stockholders (the "2004 Proxy
Statement"), which information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information appearing in the sections captioned "Board of
Directors Information," "Executive Compensation" and "General Information -
Compensation Committee Interlocks and Insider Participation" in the 2004
Proxy Statement is incorporated by reference herein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information appearing in the section "Share Ownership" in the 2004
Proxy Statement is incorporated by reference herein.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing in the sections "Fees Paid to
PricewaterhouseCoopers" and "Audit Committee Report" in the 2004 Proxy
Statement is hereby incorporated by reference.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits Financial Statements and Schedules:
1. Financial Statements. See Index to Consolidated
Financial Statements included on page F-1.
2. Financial Statement Schedule. See Schedule II, which
is included on page S-1.
3. List of Exhibits. See Index of Exhibits included on
page E-1.
(b) Reports on Form 8-K:
Date Filed Description
February 5, 2004 Press release announcing financial
results for the fourth quarter and full
year ended December 31, 2003
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Mettler-Toledo International Inc.
(Registrant)
Date: March 15, 2004 By: /s/ ROBERT F. SPOERRY
--------------------------------
Robert F. Spoerry
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the registrant as of the date set out above
and in the capacities indicated.
Signature Title
--------- -----
Chairman of the Board,
President and
/s/ ROBERT F. SPOERRY Chief Executive Officer
- ------------------------------------------
Robert F. Spoerry
Vice President and
Chief Financial Officer
(Principal financial and accounting
/s/ DENNIS W. BRAUN officer)
- ------------------------------------------
Dennis W. Braun
/s/ PHILIP CALDWELL Director
- ------------------------------------------
Philip Caldwell
/s/ JOHN T. DICKSON Director
- ------------------------------------------
John T. Dickson
/s/ PHILIP H. GEIER Director
- ------------------------------------------
Philip H. Geier
/s/ JOHN D. MACOMBER Director
- ------------------------------------------
John D. Macomber
/s/ HANS ULRICH MAERKI Director
- ------------------------------------------
Hans Ulrich Maerki
Director
- ------------------------------------------
George M. Milne
/s/ THOMAS P. SALICE Director
- ------------------------------------------
Thomas P. Salice
EXHIBIT DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the Company
(1)
3.2 Amended By-laws of the Company, effective February 6, 2003 (12)
4.6 Rights Agreement dated as of August 26, 2002 between the Company
and Mellon Investor Services LLC, as Rights Agent, which includes
as Exhibit A thereto, the Certificate of Designation, as Exhibit
B thereto, the Form of Rights Certificate, and as Exhibit C
thereto, the Summary of Rights to Purchase Preferred Shares (11).
10.10 Credit Agreement, dated as of November 12, 2003 (3)
10.11* Registration Rights Agreement, dated as of November 12, 2003
10.12* Indenture, dated as of November 12, 2003
10.20 1997 Amended and Restated Stock Option Plan (4)
10.21 Amendment to the 1997 Amended and Restated Stock Option Plan (5)
10.31 Regulations of the Performance Oriented Bonus System (POBS) -
Incentive System for the Management of Mettler Toledo, effective
as of November 5, 1998 (6)
10.32 Regulations of the POBS Plus - Incentive Scheme for Senior
Management of Mettler Toledo, effective as of March 14, 2000 (7)
10.33 Regulations of the POBS PLUS - Incentive Scheme for Members of
the Group Management of Mettler Toledo, effective as of March 7,
2000 (7)
10.41 Employment Agreement between Robert Spoerry and Mettler-Toledo
AG, dated as of October 30, 1996 (8)
10.42 Indemnification Agreement between Robert Spoerry and
Mettler-Toledo International Inc., dated June 6, 2002 (12)
10.43 Employment Agreement between Dennis Braun and Mettler-Toledo
International Inc., dated as of June 12, 2002 (2)
10.44 Employment Agreement between William Donnelly and Mettler-Toledo
GmbH, dated as of November 10, 1997 (1)
10.45 Employment Agreement between Olivier Filliol and Mettler-Toledo
GmbH, dated as of May 21, 2001 (9)
10.46 Indemnification Agreement between Olivier Filliol and
Mettler-Toledo International Inc., dated June 6, 2002 (12)
10.47 Employment Agreement between Beat Luthi and Mettler-Toledo Inc.,
dated as of October 31, 2002 (13)
10.48 Indemnification Agreement between Beat Luthi and Mettler-Toledo
International Inc., dated March 31, 2003 (13)
10.5 Purchase Agreement among the Company, Mettler-Toledo, Inc. and
Rainin Instrument Company, Inc., dated as of October 13, 2001
(10)
21* Subsidiaries of the Company
23.1* Consent of PricewaterhouseCoopers
31.1* Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.1* Factors Affecting our Future Operating Results
- ---------------------------
(1) Incorporated by reference to the Company's Report on Form 10-K
dated March 13, 1998
(2) Incorporated by reference to the Company's Report on Form 10-Q
dated August 12, 2002
(3) Incorporated by reference to the Company's Report on Form 10-Q
dated November 13, 2003
(4) Incorporated by reference to the Company's Registration Statement
on Form S-1 (Reg. No. 333-35597)
(5) Incorporated by reference to the Company's Report on Form 10-Q
dated August 15, 2000
(6) Incorporated by reference to the Company's Report on Form 10-K
dated March 18, 1999
(7) Incorporated by reference to the Company's Report on Form 10-K
dated March 24, 2000
(8) Incorporated by reference to the Company's Report on Form 10-K
dated March 31, 1997
(9) Incorporated by reference to the Company's Report on Form 10-K
dated March 4, 2002
(10) Incorporated by reference to the Company's Report on Form 8-K
dated November 28, 2001
(11) Incorporated by reference to the Company's Registration Statement
on Form 8-K/A filed on August 29, 2002
(12) Incorporated by reference to the Company's Report on Form 10-K
dated March 14, 2003
(13) Incorporated by reference to the Company's Report on Form 10-Q
dated August 4, 2003
* Filed herewith
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors........................................... F-2
Consolidated Statements of Operations
for the years ended December 31, 2003, 2002 and 2001................. F-3
Consolidated Balance Sheets as of December 31, 2003 and 2002............. F-4
Consolidated Statements of Shareholders' Equity and Comprehensive
Income (Loss) for the years ended December 31, 2003, 2002 and 2001... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001................. F-6
Notes to the Consolidated Financial Statements at December 31, 2003...... F-7
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Mettler-Toledo International Inc.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Mettler-Toledo
International Inc. and its subsidiaries at December 31, 2003 and December
31, 2002, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2003 in conformity with
accounting principles, which, as described in Note 1, are generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15
(a) (2) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, on January
1, 2002, Mettler-Toledo International Inc. adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
As discussed in Note 2 to the consolidated financial statements, on
September 30, 2003, Mettler-Toledo International Inc. adopted Emerging
Issues Task Force Issue No. 03-4, "Accounting for `Cash Balance' Pension
Plans."
PricewaterhouseCoopers AG
Zurich, Switzerland
March 15, 2004
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
2003 2002 2001
------ ------ ------
Net sales
Products............................... $ 1,014,722 $ 954,081 $ 912,664
Service................................ 289,709 259,626 235,358
----------- ----------- -----------
Total net sales............................ 1,304,431 1,213,707 1,148,022
Cost of sales
Products............................... 498,207 469,453 457,342
Service................................ 188,048 176,517 161,798
----------- ----------- -----------
Gross profit............................... 618,176 567,737 528,882
Research and development................... 78,003 70,625 64,627
Selling, general and administrative........ 372,822 331,959 299,191
Amortization............................... 11,724 9,332 14,114
Interest expense........................... 14,153 17,209 17,162
Other charges, net......................... 4,563 28,202 15,354
----------- ----------- -----------
Earnings before taxes................. 136,911 110,410 118,434
Provision for taxes........................ 41,073 9,989 46,170
----------- ----------- -----------
Net earnings........................... $ 95,838 $ 100,421 $ 72,264
=========== =========== ===========
Basic earnings per common share:
Net earnings........................... $2.15 $2.27 $1.78
Weighted average number of common
shares................................. 44,473,913 44,280,605 40,609,716
Diluted earnings per common share:
Net earnings........................... $2.11 $2.21 $1.68
Weighted average number of common
shares................................. 45,508,847 45,370,053 42,978,895
The accompanying notes are an integral part of these
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
2003 2002
------ ------
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 45,116 $ 31,427
Trade accounts receivable, less allowances of $10,489 in 2003 and
$10,916 in 2002....................................................... 249,353 231,673
Inventories, net........................................................ 151,764 150,441
Current deferred tax assets, net........................................ 27,644 33,584
Other current assets and prepaid expenses............................... 31,660 28,602
----------- -----------
Total current assets.................................................. 505,537 475,727
Property, plant and equipment, net......................................... 231,512 217,754
Goodwill, net of accumulated amortization
of $45,861 in 2003 and $43,337 in 2002.................................. 421,940 408,351
Other intangible assets, net .............................................. 126,874 129,441
Non-current deferred tax assets, net ...................................... 40,683 24,346
Other non-current assets .................................................. 60,730 47,774
----------- -----------
Total assets.......................................................... $ 1,387,276 $ 1,303,393
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $ 68,243 $ 73,072
Accrued and other liabilities........................................... 97,966 107,527
Accrued compensation and related items.................................. 56,575 47,013
Deferred service revenue................................................ 20,759 18,547
Taxes payable........................................................... 51,347 66,511
Current deferred tax liabilities........................................ 14,742 4,416
Short-term borrowings and current maturities of long-term debt......... 18,277 50,578
----------- -----------
Total current liabilities............................................. 327,909 367,664
Long-term debt............................................................. 223,239 262,093
Pension and other post-retirement liabilities.............................. 131,448 123,438
Non-current deferred taxes................................................. 46,519 37,650
Other non-current liabilities.............................................. 4,165 10,162
----------- -----------
Total liabilities.................................................... 733,280 801,007
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 44,582,017 in 2003 and 44,384,820 in 2002..................... 446 444
Additional paid-in capital.............................................. 471,628 459,213
Retained earnings....................................................... 200,216 104,378
Accumulated other comprehensive loss.................................... (18,294) (61,649)
----------- -----------
Total shareholders' equity ........................................... 653,996 502,386
Commitments and contingencies.............................................. - -
----------- -----------
Total liabilities and shareholders' equity ........................... $ 1,387,276 $ 1,303,393
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
--------------------- PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) TOTAL
--------- --------- ------------- --------------- ----------------- ---------
Balance at December 31, 2000....... 39,372,873 $393 $294,558 $ (68,307) $ (47,804) $ 178,840
Issuance of shares................. 3,388,132 34 144,300 - - 144,334
Exercise of stock options.......... 1,384,737 14 16,826 - - 16,840
Comprehensive income:
Net earnings.................... - - - 72,264 - 72,264
Unrealized loss on cash flow
hedging arrangements......... - - - - (1,591) (1,591)
Change in currency translation
adjustment................... - - - - (2,494) (2,494)
Minimum pension liability
adjustment................... - - - - (20,009) (20,009)
---------
Comprehensive income............... 48,170
----------- ----- --------- ---------- ---------- ----------
Balance at December 31, 2001....... 44,145,742 $441 $455,684 $ 3,957 $ (71,898) $ 388,184
Exercise of stock options.......... 239,078 3 3,529 - - 3,532
Comprehensive income:
Net earnings.................... - - - 100,421 - 100,421
Unrealized loss on cash flow
hedging arrangements......... - - - - (2,805) (2,805)
Change in currency translation
adjustment................... - - - - 26,933 26,933
Minimum pension liability
adjustment (a)............... - - - - (13,879) (13,879)
---------
Comprehensive income............... 110,670
----------- ----- --------- ---------- ---------- ----------
Balance at December 31, 2002....... 44,384,820 $444 $459,213 $ 104,378 $ (61,649) $ 502,386
Exercise of stock options.......... 197,197 2 3,575 - - 3,577
Tax benefit resulting from exercise
of certain employee stock options - - 8,840 - - 8,840
Comprehensive income:
Net earnings.................... - - - 95,838 - 95,838
Unrealized gain on cash flow
hedging arrangements......... - - - - 3,960 3,960
Change in currency translation
adjustment................... - - - - 34,209 34,209
Minimum pension liability
adjustment (a)............... - - - - 5,186 5,186
---------
Comprehensive income............... 139,193
----------- ----- --------- ---------- ---------- ----------
Balance at December 31, 2003....... 44,582,017 $446 $471,628 $ 200,216 $ (18,294) $ 653,996
=========== ===== ========= ========== ========== =========
(a) The minimum pension liability adjustments in 2003 and 2002 are net of
deferred tax benefits of $8,215 and $6,650, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS)
2003 2002 2001
------ ------ ------
Cash flows from operating activities:
Net earnings............................................. $ 95,838 $ 100,421 $ 72,264
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation........................................ 25,086 25,392 22,858
Amortization........................................ 11,724 9,332 14,114
Other............................................... 13 2,950 1,055
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net...................... 3,516 13,663 (11,502)
Inventories......................................... 8,773 7,378 3,531
Other current assets................................ 1,708 6,061 570
Trade accounts payable.............................. (8,452) 919 (14,825)
Taxes payable....................................... (19,440) (13,340) 15,937
Accruals and other liabilities...................... (1,535) (a) (37,366) (a) (2,430) (a)
---------- ---------- ----------
Net cash provided by operating activities......... 117,231 115,410 101,572
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment.... 2,092 1,995 3,518
Purchase of property, plant and equipment.............. (27,152) (33,157) (33,228)
Acquisitions........................................... (4,450) (b) (21,305) (b) (165,471) (b)
---------- ---------- ----------
Net cash used in investing activities............. (29,510) (52,467) (195,181)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings............................... 248,726 81,425 188,448
Repayments of borrowings............................... (325,946) (142,609) (105,062)
Proceeds from options exercised........................ 3,577 3,532 16,840
Refinancing fees....................................... (3,077) - -
---------- ---------- ----------
Net cash provided by (used in) financing
activities...................................... (76,720) (57,652) 100,226
---------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents............................................ 2,688 (1,585) (621)
---------- ---------- ----------
Net increase in cash and cash equivalents................. 13,689 3,706 5,996
---------- ---------- ----------
Cash and cash equivalents:
Beginning of period.................................... 31,427 27,721 21,725
---------- ---------- ----------
End of period.......................................... $ 45,116 $ 31,427 $ 27,721
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 13,955 $ 16,249 $ 15,504
Taxes................................................ $ 40,451 $ 31,387 $ 26,838
Non-cash financing and investing activities:
Issuance of common stock on acquisitions............... - - $ 144,334
(a) Accruals and other liabilities include payments for restructuring and
certain acquisition integration activities of $16.8 million, $11.1
million and $10.7 million in 2003, 2002 and 2001, respectively.
(b) Amounts paid for acquisitions including cash and the issuance of
common stock were $4.5 million, $21.3 million and $309.8 million in
2003, 2002 and 2001, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS OTHERWISE STATED)
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company")
is a 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 Switzerland, the
United States, Germany, the United Kingdom and China. The Company's
principal executive offices are located in Greifensee, Switzerland.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America ("U.S. GAAP") and include all entities in which the Company has
control, including its majority owned subsidiaries.
All intercompany transactions and balances have been eliminated.
Investments in which the Company has voting rights between 20% and 50% are
accounted for using the equity method of accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with
original maturity dates of three months or less.
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
market value is based on assumptions for future demand and related pricing.
Excess and obsolete reserves are established based on forecast usage,
orders and technological obsolescence.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Long-Lived Assets
a) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is charged on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements 15 to 50 years
Machinery and equipment 3 to 12 years
Computer software 3 to 5 years
Leasehold improvements Shorter of useful life or lease term
b) Capitalized Software
In accordance with Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", the
Company expenses all internal-use software costs incurred in the
preliminary project stage and capitalizes certain direct costs associated
with the development and purchase of internal-use software within property,
plant and equipment. Capitalized costs are amortized on a straight-line
basis over the estimated useful lives of the software, generally not
exceeding five years.
c) Goodwill and Other Intangible Assets
Effective January 1, 2002, in accordance with SFAS No. 142, "Goodwill
and Other Intangible Assets"("SFAS 142"), 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 is based on valuation models that estimate fair value
based on expected future cash flows and profitability projections.
Other intangible assets include indefinite lived assets and assets
subject to amortization. Where applicable amortization is charged on a
straight-line basis over the expected period to be benefited. The Company
assesses the recoverability of other intangible assets subject to
amortization in accordance with SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS 144"), as discussed below.
Prior to January 1, 2002, goodwill and other intangible assets were
amortized on a straight-line basis over the expected period to be benefited.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Accounting for Impairment of Long-Lived Assets
Effective January 1, 2002, in accordance with SFAS 144, the Company
assesses the need to record impairment losses on long-lived assets with
finite lives when events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. An impairment loss would
be recognized when future estimated undiscounted cash flows expected to
result from use of the asset are less than the asset's carrying value, with
the loss measured at fair value based on discounted expected cash flows.
Taxation
The Company files tax returns in each jurisdiction in which it
operates. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
the respective jurisdictions in which the Company operates. In assessing
the ability to realize deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax assets
will not be realized.
Deferred taxes are not provided on the unremitted earnings of
subsidiaries outside of the United States when it is expected that these
earnings are permanently reinvested. Such earnings may become taxable upon
the sale or liquidation of these subsidiaries or upon the remittance of
dividends. Deferred taxes are provided in situations where the Company's
subsidiaries plan to make future dividend distributions.
Currency Translation and Transactions
The reporting currency for the consolidated financial statements of
the Company is the U.S. dollar. The functional currency for the Company's
operations is generally the applicable local currency. Accordingly, the
assets and liabilities of companies whose functional currency is other than
the U.S. dollar are included in the consolidated financial statements by
translating the assets and liabilities into the reporting currency at the
exchange rates applicable at the end of the reporting period. The
statements of operations and cash flows of such non-U.S. dollar functional
currency operations are translated at the monthly average exchange rates
during the year. Translation gains or losses are accumulated in other
comprehensive income (loss) in the consolidated statements of shareholders'
equity.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 transfers upon shipment. For those few countries where title cannot
legally transfer before delivery, we defer revenue recognition until
delivery has occurred. Other than a few small software applications,
Mettler-Toledo does not sell its software products without the related
hardware instrument as the software is embedded in the instrument. The
Company's typical solution requires no significant production, modification
or customization of the hardware or software that is essential to the
functionality of the products. Revenues from service contracts are
recognized ratably over the contract period.
Research and Development
Research and development costs are expensed as incurred.
Warranty
The Company generally offers one-year warranties on most of its
products. Product warranties are recorded at the time revenue is recognized
for certain product shipments. While the Company engages in extensive
product quality programs and processes, our warranty obligation is affected
by product failure rates, material usage and service costs incurred in
correcting a product failure.
Earnings per Common Share
In accordance with the treasury stock method, the Company has included
1,034,934, 1,089,448 and 2,369,179 equivalent shares in the calculation of
diluted weighted average number of common shares for the years ending
December 31, 2003, 2002 and 2001, respectively, relating to outstanding
stock options.
Outstanding options to purchase 1,955,938, 1,360,600 and 354,250
shares of common stock for the years ending December 31, 2003, 2002 and
2001, respectively, have been excluded from the calculation of diluted
weighted average number of common shares on the grounds that such options
would be anti-dilutive.
Stock-Based Compensation
The Company applies the intrinsic valuation methodology under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plan.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Derivative Financial Instruments
The Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended ("SFAS 133"), on January 1,
2001. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The cumulative effect of adopting
SFAS 133 as of January 1, 2001 was not material to the Company's
consolidated financial statements.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. As described more
fully in Note 5, the Company enters into foreign currency forward contracts
to economically hedge short-term intercompany transactions with its
international businesses and a portion of its Swiss franc / euro exposure.
Such contracts limit the Company's exposure to both favorable and
unfavorable currency fluctuations. These contracts are adjusted to reflect
market values as of each balance sheet date, with the resulting changes in
fair value being recognized in the appropriate financial statement caption
in the income statement consistent with the underlying position.
The Company also enters into certain interest rate swap agreements in
order to manage its exposure to changes in interest rates. The differential
paid or received on interest rate swap agreements is recognized as interest
expense over the life of the agreements as incurred. The Company's floating
to fixed interest rate swap agreements are generally cash flow hedges,
while the fixed to floating interest rate swap agreements are generally
fair value hedges. The change in fair value of outstanding interest rate
swap agreements that are effective cash flow hedges is included in the
Company's consolidated statement of shareholders' equity. The change in
fair value of outstanding interest rate swap agreements that are effective
as fair value hedges is recognized in earnings as incurred and is offset by
the change in fair value of the hedged item.
Concentration of Credit Risk
The Company's revenue base is widely diversified by geographic region
and by individual customer. The Company's products are utilized in many
different industries, although extensively in the pharmaceutical, food and
beverage, transportation and logistics and chemicals industries. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The provisions
of SFAS 143 are effective for annual financial statements for fiscal years
beginning on or after June 15, 2002. The adoption of SFAS 143 did not have
a material impact on the Company's consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
New Accounting Pronouncements - (continued)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of SFAS 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The
adoption of SFAS 146 did not have a material impact on the Company's
consolidated financial statements.
In November 2002, the Emerging Issues Task Force reached a consensus
on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 00-21 provides guidance on how to
account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets and applies to
revenue arrangements entered into in fiscal periods beginning after June
15, 2003. The adoption of EITF 00-21 did not have a material impact on the
Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123" ("SFAS 148"). Effective for annual financial statements
after December 15, 2002, SFAS 148 amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. SFAS 148 also amends
the disclosure provisions of SFAS 123 to require prominent disclosure in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company applied the disclosure provisions of SFAS
148. See Note 12 to the consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). FIN 46 expands upon existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another
entity and provides additional disclosure guidance. The implementation of
FIN 46 did not have a material impact on the Company's consolidated
financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS
149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 149, which is to be
applied prospectively, is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June
30, 2003. The adoption of SFAS 149 did not have a material impact on the
Company's consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
New Accounting Pronouncements - (continued)
In 2003, the Emerging Issues Task Force reached a consensus on Issue
No. 03-4, "Accounting for Cash Balance Pension Plans" ("EITF 03-4"). The
Company determined that its Swiss cash balance pension plan met the
requirements necessitating a change in the method of expense attribution
used in its actuarial calculations from the `projected unit credit' method
to the `traditional unit credit' method. This required change in
methodology resulted in a reduction in the projected benefit obligation of
our Swiss cash balance pension plan of $53.3 million, which will be
amortized over the expected future service life of Switzerland-based
employees, beginning in 2004. See Note 13 to the consolidated financial
statements.
In December 2003, the FASB issued a revision to SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits"
("SFAS 132"). SFAS 132 revises employers' disclosures about pension plans
and other post-retirement benefit plans. It requires additional disclosures
related to the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit
post-retirement plans. It does not change the measurement or recognition of
those plans. The Company has adopted the provisions of this statement. See
Note 13 to the consolidated financial statements.
In December 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act
introduces a prescription drug benefit under Medicare and also provides
that a nontaxable federal subsidy will be paid to sponsors of
post-retirement benefit plans that provide retirees with a drug benefit
that is at least "actuarially equivalent" to the Medicare benefit.
Although the Company sponsors a post-retirement medical benefit plan that
provides prescription drugs, as described in Note 15 to the consolidated
financial statements, the Company's U.S. retiree medical program was
discontinued in 2002 for certain current and all future active employees.
As permitted by the FASB Staff Position document issued in January 2004,
which acknowledged the issues associated with measuring and recognizing the
effects of the Act and federal subsidy at this point in time, the Company
elected to defer the accounting for such effects until authoritative
guidance is issued.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS
During the year ended December 31, 2003, the Company spent
approximately $4.5 million on acquisitions and additional consideration
related to earn-out periods associated with acquisitions consummated in
prior years. Goodwill recognized in connection with these acquisition
payments totaled $4.4 million, which is primarily included in the Company's
Principal U.S. Operations segment. The Company accounted for the
acquisition payments and additional consideration using the purchase method
of accounting.
During 2002, the Company spent approximately $21.3 million on
acquisitions, including the acquisition of SofTechnics Inc. and
approximately $4.2 million of additional consideration related to earn-out
periods associated with acquisitions consummated in prior years.
SofTechnics is a leading provider of in-store retail item management
software solutions. Goodwill recognized in connection with these
acquisition payments totaled $18.8 million, which is primarily included in
the Company's Principal U.S. Operations segment. The Company accounted for
the acquisition payments using the purchase method of accounting.
Rainin Acquisition
In November 2001, the Company acquired Rainin Instrument for
approximately $294.2 million. Rainin develops, manufactures and distributes
advanced pipettes, tips and accessories, including single- and
multi-channel manual and electronic pipettes. As a result of the
acquisition the Company became the leading provider of pipetting solutions
in North America.
The aggregate purchase price for Rainin was $294.2 million, including
$149.9 million of cash and the issuance of common stock valued at $144.3
million.
The following table summarizes the estimated fair values of the Rainin
assets acquired and liabilities assumed at the date of acquisition.
Current assets.......................................... $ 22,653
Property, plant and equipment........................... 4,168
Intangible assets....................................... 127,074
Goodwill................................................ 148,624
--------
Total assets acquired ................................ 302,519
Current liabilities..................................... 8,228
Non-current liabilities................................. 57
--------
Total liabilities assumed............................. 8,285
--------
Net assets acquired................................... $294,234
========
The identifiable intangible assets include customer relationships of
$67.4 million, tradename of $22.4 million, intellectual property license of
$19.9 million and technology and patents of $17.4 million. The $148.6
million of goodwill was primarily assigned to the Company's Principal U.S.
Operations segment and is expected to be fully deductible for tax purposes.
This goodwill and certain intangible assets with indefinite useful lives
approximating $42.3 million are not subject to amortization in accordance
with U.S. GAAP. The non-indefinite lived identifiable intangible assets are
amortized on a straight-line basis over periods ranging from 11 to 45
years.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
3. BUSINESS COMBINATIONS - (CONTINUED)
Rainin Acquisition - (continued)
The following summarized unaudited pro forma information assumes the
acquisition of Rainin occurred on January 1, 2001. The pro forma data
reflects adjustments directly related to the acquisition, and does not
include adjustments that may arise as a consequence of the acquisition.
Accordingly, the unaudited pro forma information does not purport to be
indicative of what the Company's combined results of operations would
actually have been had the acquisition occurred on January 1, 2001 or to
project the Company's combined results of operations for any future
periods.
Year ended December 31: 2001
------
Net sales:
As reported........................................ $1,148,022
Pro forma.......................................... 1,212,587
=========
Net earnings:
As reported........................................ $72,264
Pro forma.......................................... 76,561
======
Basic earnings per common share:
As reported........................................ $ 1.78
Pro forma.......................................... 1.76
====
Diluted earnings per common share:
As reported........................................ $ 1.68
Pro forma.......................................... 1.67
====
Other Acquisitions
During 2001, the Company spent a further $15.6 million on other
acquisitions, including approximately $9.3 million additional consideration
related to earn-out periods associated with acquisitions consummated in
prior years. Goodwill recognized in connection with these acquisition
payments totaled $21.3 million, which is primarily included in the
Company's Principal U.S. Operations segment. The Company accounted for the
acquisition payments using the purchase method of accounting.
A reconciliation of the change in goodwill during the years ended
December 31, 2003 and 2002 is provided in Note 7 to these consolidated
financial statements.
The terms of certain of our acquisitions in 2003 and earlier years
provide for possible additional earn-out payments. Although we do not
currently believe we will make any material payments relating to such
earn-outs, the maximum amount potentially payable in cash is approximately
$1.0 million. Any additional earn-out payments incurred will be treated as
additional purchase price and accounted for using the purchase method of
accounting.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
4. INVENTORIES, NET
Inventories, net consisted of the following at December 31:
2003 2002
------- ------
Raw materials and parts.................... $ 71,950 $ 73,667
Work-in-progress........................... 32,432 33,683
Finished goods............................. 47,382 43,091
----------- -----------
$ 151,764 $ 150,441
=========== ===========
5. FINANCIAL INSTRUMENTS
At December 31, 2002, the Company had certain interest rate swap
agreements outstanding that fixed the variable interest obligation
associated with CHF 50 million of Swiss franc-based debt and $155 million
of USD-based debt incurred under the Company's former credit agreement.
These agreements had various maturities through 2004. The fixed rates
associated with the swap of Swiss franc debt were approximately 3.6%, while
the rates associated with the USD were approximately 4.0% plus the
Company's normal interest margin. The swaps were effective as cash flow
hedges at three-month LIBOR rates. At December 31, 2002, the fair market
value of such financial instruments was approximately negative $4.4
million.
As described in Note 10, on November 12, 2003 the Company closed a new
five-year $300 million credit facility and completed the issuance of $150
million seven-year Senior Notes. The proceeds from this refinancing were
immediately used to repay all of the Company's borrowings under its former
credit agreement, which was then terminated. In connection with this
refinancing, on November 4, 2003 the Company unwound the outstanding swap
agreements referred to in the preceding paragraph. The resulting loss of
$1.0 million was settled in cash and, in accordance with U.S. GAAP, is
being charged to interest expense over the original life of the agreements
up to May 2004.
Also in connection with the refinancing, the Company entered into a
new interest rate swap agreement, designated as a fair value hedge, which
changes the fixed interest obligation associated with $30 million of the
Senior Notes into a floating rate. This agreement has a maturity date of
November 15, 2010. Under the swap the Company will receive a fixed interest
rate of 4.85% (i.e. the same rate as the Senior Notes) and pay interest at
a rate of LIBOR plus 0.22%. At December 31, 2003, the fair value of the swap
was approximately $0.4 million.
At December 31, 2003, the Company had outstanding foreign currency
forward contracts in the amount of $69.5 million, in order to economically
hedge short-term intercompany balances with its foreign businesses and
$13.2 million in order to economically hedge a portion of its Swiss franc /
euro exposure. These agreements had various maturities through March 2004.
The fair value of these contracts was not materially different from the
carrying value at December 31, 2003.
The Company may be exposed to credit losses in the event of
nonperformance by the counterparties to its derivative financial instrument
contracts. Counterparties are established banks and financial institutions
with high credit ratings. The Company has no reason to believe that such
counterparties will not be able to fully satisfy their obligations under
these contracts.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
5. FINANCIAL INSTRUMENTS - (CONTINUED)
The fair values of all derivative financial instruments are estimated
based on current settlement prices of comparable contracts obtained from
dealer quotes. The values represent the estimated amount the Company would
pay or receive to terminate the agreements at the reporting date, taking
into account current creditworthiness of the counterparties.
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the following at
December 31:
2003 2002
------ ------
Land............................................. $ 52,119 $ 45,421
Buildings and leasehold improvements............. 143,755 128,711
Machinery and equipment.......................... 225,307 193,802
Computer software................................ 5,414 4,934
-------- --------
426,595 372,868
Less accumulated depreciation and amortization... (195,083) (155,114)
-------- --------
$231,512 $217,754
======== ========
7. GOODWILL AND OTHER INTANGIBLE ASSETS
As of January 1, 2002, the Company adopted SFAS 142, effective for
fiscal years beginning after December 15, 2001. This statement requires
that goodwill and indefinite lived intangible assets no longer be amortized
to earnings, but instead be reviewed for impairment upon initial adoption
of SFAS 142 and on an annual basis going forward. Other intangible assets
with finite lives will continue to be amortized over their useful lives.
Under the transition provisions of SFAS 142, we concluded that there was no
impairment of goodwill and indefinite lived intangible assets at January 1,
2002.
We estimate that application of the non-amortization provisions of
SFAS 142 would have increased our net earnings for 2001 by $6.5 million,
our basic earnings per share by $0.15 and our diluted earnings per share by
$0.14, adjusting for additional shares issued in connection with our
acquisition of Rainin. The reconciliations of reported net earnings to
adjusted net earnings before amortization of goodwill for the years ended
December 31 are as follows:
2003 2002 2001
---- ---- ----
Net earnings:
Reported................................. $ 95,838 $100,421 $ 72,264
Goodwill amortization.................... - - 6,535
-------- -------- --------
Adjusted................................. $ 95,838 $100,421 $ 78,799
======== ======== ========
Basic earnings per share:
Reported................................. $ 2.15 $ 2.27 $ 1.78
Goodwill amortization (a)............... - - 0.15
-------- -------- --------
Adjusted................................. $ 2.15 $ 2.27 $ 1.93
======== ======== ========
Diluted earnings per share:
Reported................................. $ 2.11 $ 2.21 $ 1.68
Goodwill amortization (a)............... - - 0.14
-------- -------- --------
Adjusted................................. $ 2.11 $ 2.21 $ 1.82
======== ======== ========
(a) Adjusted for additional shares issued in connection with our
acquistion of Rainin.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
7. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONTINUED)
The following table shows the changes in the carrying amount of
goodwill for the years ended December 31:
2003 2002
---- ----
Balance at beginning of year......................... $ 408,351 $ 384,947
Goodwill acquired - Principal U.S. Operations........ 4,363 18,762
Acquisition related tax assets realized.............. - (9,488)
Other (principally the effect of changes in foreign
currency exchange rates).......................... 9,226 14,130
--------- ---------
Balance at end of year............................... $ 421,940 $ 408,351
========= =========
In accordance with SFAS 142, goodwill and indefinite lived assets are
reviewed for impairment on an annual basis in the fourth quarter. The
Company completed its impairment review under SFAS 142 and determined that
through December 31, 2003, there had been no impairment of these assets.
The components of other intangible assets as of December 31, are as
follows:
2003 2002
---- ----
Gross Accumulated Gross Accumulated
amount amortization amount amortization
------ ------------ ------ ------------
Customer relationships.................. $ 70,955 $ (3,424) $ 70,955 $ (1,839)
Proven technology and patents........... 19,999 (3,809) 19,138 (2,008)
Tradename (finite life)................. 893 (79) 893 (37)
Tradename (indefinite life)............. 22,434 - 22,434 -
Intellectual property license (indefinite
life)..................... 19,905 - 19,905 -
-------- -------- --------- ---------
$134,186 $ (7,312) $ 133,325 $ (3,884)
======== ======== ========= =========
Other intangible assets substantially relate to the acquisition of
Rainin. The annual aggregate amortization expense based on the current
balance of other intangible assets for each of the next five years is
estimated at $3.5 million.
8. WARRANTY
Changes to the Company's accrual for product warranties for the years
ended December 31, 2003 and 2002 are as follows:
2003 2002
--------- --------
Balance at beginning of period............................... $ 8,850 $ 7,740
Accruals for warranties...................................... 12,429 11,073
Payments / utilizations...................................... (11,158) (9,963)
--------- --------
Balance at end of period..................................... $ 10,121 $ 8,850
========= ========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
9. SHORT-TERM BORROWINGS AND CURRENT MATURITIES OF LONG-TERM DEBT
Short-term borrowings and current maturities of long-term debt
consisted of the following at December 31:
2003 2002
-------- ----------
Current maturities of long-term debt......................... $ - $ 38,646
Other short-term borrowings.................................. 18,277 11,932
-------- ---------
$ 18,277 $ 50,578
======== =========
10. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
2003 2002
-------- --------
$150 million Senior Notes, interest at 4.85%, due November 15, 2010 $150,402 $ -
Less: unamortized discount (243) -
-------- --------
150,159 -
Credit Agreement / Credit Facility Borrowings:
Term A USD Loans, interest at LIBOR plus 0.45% payable in
quarterly installments due May 19, 2004........................... - 34,709
Term A CHF Loans, interest at LIBOR plus 0.45% payable in
quarterly installments due May 19, 2004........................... - 21,050
Term A GBP Loans, interest at LIBOR plus 0.45% payable in
quarterly installments due May 19, 2004........................... - 11,865
Revolving credit facilities, interest at LIBOR plus 0.6% (LIBOR
plus 0.3% at December 31, 2002)................................... 73,080 224,467
Other................................................................. - 20,580
-------- --------
73,080 312,671
Less current maturities............................................... - (50,578)
-------- --------
$223,239 $262,093
======== ========
November 2003 Refinancing
On November 12, 2003, the Company closed a new five-year $300 million
credit facility ("the $300 million Credit Facility" or "the Credit
Facility") and completed the issuance of $150 million seven-year Senior
Notes. The proceeds from this refinancing were immediately used to repay
all of the Company's borrowings under its former credit agreement, which
was then terminated.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
10. LONG-TERM DEBT - (CONTINUED)
Credit Facility Agreement
The $300 million Credit Facility is provided by a group of financial
institutions and has a bullet maturity in November 2008. It is not subject
to any scheduled principal payments. Borrowings under the $300 million
Credit Facility bear interest at current market rates plus a margin which
is based on the Company's senior unsecured credit ratings (currently "BBB"
by Standard & Poor's and "Baa3" by Moody's), and is currently set at LIBOR
plus 0.6%. The Company must also pay utilization and facility fees that are
tied to the Company's credit ratings. The $300 million Credit Facility
contains covenants including maintaining a ratio of debt to earnings before
interest, tax, depreciation and amortization of less than 3.25 to 1.0 and
an interest coverage ratio of more than 3.5 to 1.0. The new facility also
places certain limitations on the Company including limiting the ability to
grant liens or incur debt at a subsidiary level. In addition, the $300
million Credit Facility has several events of default including upon a
change of control. As at December 31, 2003, approximately $218.6 million
was available under the facility. The Credit Facility is unsecured.
Senior Notes
In November 2003, the Company issued $150 million of 4.85% unsecured
Senior Notes due November 15, 2010 ("the Senior Notes"). The Senior Notes
rank equally with all our unsecured and unsubordinated indebtedness.
Interest is payable semi-annually in May and November. Discount and
issuance costs approximated $1.2 million and are being amortized to
interest expense over the seven-year term of the Senior Notes.
At the Company's option, the Senior Notes may be redeemed in whole or
in part at any time at a redemption price equal to the greater of:
o The principal amount of the Senior Notes; or
o The sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the
redemption date on a semi-annual basis at a comparable
treasury rate plus a margin of 0.20%.
The new seven-year Senior Notes contain limitations on the ability to
incur liens and enter into sale and leaseback transactions exceeding 10% of
the Company's consolidated net worth.
The Company's weighted average interest rate for both of the years
ended December 31, 2003 and 2002 was approximately 5.0%. The carrying value
of the Company's debt obligations approximates fair value.
11. SHAREHOLDERS' EQUITY
Common Stock
The number of authorized shares of the Company's common stock is
125,000,000 shares with a par value of $0.01 per share. Holders of the
Company's common stock are entitled to one vote per share. At December 31,
2003, 6,010,574 shares of the Company's common stock were reserved for
issuance pursuant to the Company's stock option plan.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
11. SHAREHOLDERS' EQUITY - (CONTINUED)
Preferred Stock
The Board of Directors, without further shareholder authorization, is
authorized to issue up to 10,000,000 shares of preferred stock, par value
$0.01 per share in one or more series and to determine and fix the rights,
preferences and privileges of each series, including dividend rights and
preferences over dividends on the common stock and one or more series of
the preferred stock, conversion rights, voting rights (in addition to those
provided by law), redemption rights and the terms of any sinking fund
therefore, and rights upon liquidation, dissolution or winding up,
including preferences over the common stock and one or more series of the
preferred stock. The issuance of shares of preferred stock, or the issuance
of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Company or an
unsolicited acquisition proposal.
Shareholder Rights Plan
On August 26, 2002, the Board of Directors adopted a Shareholder Rights
Plan under which the Company declared a non-cash dividend of one right for
each outstanding share of common stock. The Rights, which expire on
September 5, 2012, entitle stockholders to buy one one-thousandth of a
share of preferred stock at an exercise price of $150. The Rights were
distributed to those stockholders of record as of close of business on
September 5, 2002 and are attached to all certificates representing those
shares of common stock.
The Rights Plan provides that should any person or group acquire, or
announce a tender or exchange offer for 15% or more of the Company's common
stock, each Right, other than Rights held by the acquiring person or group,
would entitle its holder to purchase a number of shares of the Company's
common stock for 50% of its then-current market value. Unless a 15%
acquisition has occurred, the Rights may be redeemed by the Board of
Directors of the Company at any time. The Rights Plan will not be triggered
by a tender or exchange offer for all outstanding shares of the Company at
a price and on terms that the Company's Board of Directors determines to be
adequate and in the best interest of the Company and its stockholders.
The Rights Plan exempts any stockholder that beneficially owned 15% or
more of the Company's common stock as of August 26, 2002. However, the
Rights will become exercisable if, at any time after August 26, 2002, any
of these stockholders acquire additional shares of the Company's common
stock in an amount which is greater than 2% of the Company's outstanding
common stock.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
11. SHAREHOLDERS' EQUITY - (CONTINUED)
Share Repurchase Program
On February 5, 2004, the Company announced a share repurchase program,
commencing with an initial buyback of up to $100 million over the two-year
period ending December 31, 2005. The repurchases will be made through open
market transactions, and the timing will depend on the level of acquisition
activity, business and market conditions, the stock price, trading
restrictions and other factors. The Company cannot assure that it will
repurchase shares representing the full value of the program over the
two-year period.
Comprehensive Income
Accumulated other comprehensive income consisted of the following at
December 31:
2003 2002 2001
-------- -------- --------
Currency translation adjustment.......................... $ 10,844 $(23,365) $(50,298)
Unrealized gain (loss) on cash flow hedging
arrangements........................................... (436) (4,396) (1,591)
Additional minimum pension liability..................... (43,567) (40,538) (20,009)
Deferred tax on additional minimum pension liability..... 14,865 6,650 -
-------- -------- --------
Total accumulated other comprehensive loss............... $(18,294) $(61,649) $(71,898)
======== ======== ========
12. STOCK OPTION PLAN
The Company's stock option plan provides certain key employees and
directors of the Company additional incentive to join and/or remain in the
service of the Company as well as to maintain and enhance the long-term
performance and profitability of the Company. Under the terms of the plan,
options granted shall be nonqualified and the exercise price shall not be
less than the fair market value of the common stock on the date of grant.
Options generally vest equally over a five-year period from the date of
grant and have a maximum term of up to 10 years and 6 months.
Stock option activity is shown below:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Outstanding at December 31, 2000........................ 5,173,777 $ 19.02
Granted................................................. 901,000 45.09
Exercised............................................... (1,384,737) (12.02)
Forfeited............................................... (310,465) (30.44)
---------- ---------
Outstanding at December 31, 2001........................ 4,379,575 $ 25.79
Granted................................................. 912,250 35.21
Exercised............................................... (239,078) (14.77)
Forfeited............................................... (252,974) (34.97)
---------- ---------
Outstanding at December 31, 2002........................ 4,799,773 $ 27.65
Granted................................................. 1,088,000 36.88
Exercised............................................... (197,197) (18.16)
Forfeited............................................... (68,600) (40.77)
---------- ---------
Outstanding at December 31, 2003........................ 5,621,976 $ 29.61
========== =========
Options exercisable at December 31, 2001................ 2,112,471 $ 14.29
Options exercisable at December 31, 2002................ 2,620,713 $ 18.34
Options exercisable at December 31, 2003................ 3,005,676 $ 22.10
========== =========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. STOCK OPTION PLAN - (CONTINUED)
At December 31, 2003, 388,598 options to purchase shares of common
stock were available for grant.
The following table details the weighted average remaining contractual
life of options outstanding at December 31, 2003 by range of exercise
prices:
Number of Options Weighted Average Remaining Contractual Options
Outstanding Exercise Price Life of Options Outstanding Exercisable
----------- -------------- --------------------------- -------------
1,270,090 $ 7.95 2.8 1,270,090
299,391 $ 15.92 3.7 299,391
790,100 $ 24.73 4.3 607,600
1,848,045 $ 35.81 9.3 183,245
1,414,350 $ 45.80 7.3 645,350
--------- --- -----------
5,621,976 6.3 3,005,676
========= ===========
As of the date granted, the weighted average grant-date fair value of
the options granted during the years ended December 31, 2003, 2002 and 2001
was approximately $7.83, $11.20 and $16.72 per share, respectively. Such
weighted average grant-date fair value was determined using an option
pricing model that incorporated the following assumptions:
2003 2002 2001
---- ----- ----
Risk-free interest rate.............. 3.0% 3.0% 4.3%
Expected life in years (a)........... 4 4 4
Expected volatility.................. 25% 35% 40%
Expected dividend yield.............. -- -- --
(a) 385,000 options to purchase shares of common stock with a grant date
fair value of $5.40 were granted on a performance-related basis and
have an expected life of 1.5 years. The performance criteria were met
during 2003 and the options will vest over a 2-year period.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
12. STOCK OPTION PLAN - (CONTINUED)
The Company applies the intrinsic valuation methodology under
Accounting Standards Board Opinion No. 25 and related interpretations in
accounting for its plan. Had compensation cost for the Company's stock
option plan been determined based upon the fair value of such awards at the
grant date, consistent with the methods of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net earnings and basic and diluted net earnings per common share
for the years ended December 31 would have been as follows:
2003 2002 2001
------ ------ ------
Net earnings:
As reported........................................ $ 95,838 $ 100,421 $ 72,264
Compensation expense............................... (6,748) (5,809) (4,916)
-------- --------- ---------
Pro forma.......................................... $ 89,090 $ 94,612 $ 67,348
======== ========= =========
Basic earnings per common share:
As reported........................................ $ 2.15 $ 2.27 $ 1.78
Compensation expense............................... (0.15) (0.13) (0.12)
------- ------- -------
Pro forma.......................................... $ 2.00 $ 2.14 $ 1.66
======= ======= =======
Diluted earnings per common share:
As reported........................................ $ 2.11 $ 2.21 $ 1.68
Compensation expense............................... (0.15) (0.12) (0.11)
------- ------- -------
Pro forma.......................................... $ 1.96 $ 2.09 $ 1.57
======= ======= =======
13. BENEFIT PLANS
Mettler-Toledo maintains a number of retirement and other
post-retirement employee benefit plans.
Certain subsidiaries sponsor defined contribution plans. Benefits are
determined and funded annually based upon the terms of the plans. Amounts
recognized as cost under these plans amounted to $7.0 million, $3.3 million
and $2.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
Certain subsidiaries sponsor defined benefit plans. Benefits are
provided to employees primarily based upon years of service and employees'
compensation for certain periods during the last years of employment. The
Company's U.S. operations also provide post-retirement medical benefits to
their employees. Contributions for medical benefits are related to employee
years of service.
As described in Note 15, during the year ended December 31, 2002 the
Company revised its U.S. defined benefit pension plan to freeze the
benefits for current participants and to discontinue the plan for all
future employees, resulting in an expense of $1.1 million. In addition, the
Company's U.S. retiree medical program was also discontinued during 2002
for certain current and all future active employees, resulting in a
curtailment gain of $1.3 million.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. BENEFIT PLANS - (CONTINUED)
In accordance with Emerging Issues Task Force Issue No. 03-4,
"Accounting for Cash Balance Pension Plans" ("EITF 03-4"), the Company
determined that its Swiss cash balance pension plan met the requirements
necessitating a change in the method of expense attribution used in its
actuarial calculations from the 'projected unit credit' method to the
`traditional unit credit' method. Unlike the projected unit credit method,
the traditional unit credit method does not assume compensation increases
in calculating the benefit obligation, because the pension benefit is based
on a guaranteed return on pension contributions, rather than employees'
compensation for certain periods during the last years of employment.
Accordingly, this required change in methodology resulted in a reduction in
the projected benefit obligation of approximately $53.3 million, which will
be amortized over the expected future service life of Switzerland-based
employees, beginning in 2004.
The Company uses a measurement date of September 30 for its defined
benefit pension and other benefit plans. The following table sets forth the
change in benefit obligation, the change in plan assets, the funded status
and amounts recognized in the consolidated financial statements for the
Company's defined benefit plans and post-retirement plans at December 31,
2003 and 2002:
U.S. Pension Non-U.S.
------------ -------- Other Benefits
Benefits Pension Benefits --------------
-------- ----------------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of
year................................ $ 89,249 $ 83,164 $404,057 $335,323 $ 33,303 $ 36,839
Service cost, gross............... 431 2,033 19,807 19,539 132 324
Interest cost..................... 6,129 6,167 18,807 17,386 1,856 2,551
Actuarial (gains) losses.......... 9,339 4,540 (73,647) (18,385) 3,956 (3,601)
Plan amendments and other......... - (2,051) 238 682 (6,984) -
Benefits paid..................... (5,353) (4,604) (15,823) (15,034) (2,485) (2,810)
Impact of foreign currency........ - - 49,041 64,546 - -
-------- -------- -------- -------- -------- --------
Benefit obligation at end of year. $ 99,795 $ 89,249 $402,480 $404,057 $ 29,778 $ 33,303
-------- -------- -------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at
beginning of year............... $ 47,167 $ 54,555 $355,081 $302,617 $ - $ -
Actual return on plan assets...... 9,624 (5,397) 3,721 (8,256) - -
Employer contributions............ 19,028 2,613 11,306 10,882 2,485 2,810
Plan participants' contributions.. - - 5,873 5,557 - -
Benefits paid..................... (5,353) (4,604) (15,823) (15,034) (2,485) (2,810)
Impact of foreign currency........ - - 43,493 59,314 - -
Fair value of plan assets at end -------- -------- -------- -------- -------- --------
of year......................... $ 70,466 $ 47,167 $403,651 $355,080 $ - $ -
-------- -------- -------- -------- -------- --------
Funded status..................... $(29,329) $(42,082) $ 1,171 $(48,977) $(29,778) $(33,303)
Unrecognized net actuarial (gain)
loss............................ 35,914 33,302 (60,665) 806 (1,324) 77
Post-measurement date
contributions................... 10,000 19,007 7,111 - - -
-------- -------- -------- -------- -------- --------
Net amount recognized............. $ 16,585 $ 10,227 $(52,383) $(48,171) $(31,102) $(33,226)
======== ======== ======== ======== ======== ========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. BENEFIT PLANS - (CONTINUED)
Amounts recognized in the consolidated balance sheets consist of:
U.S. Pension Non-U.S.
------------ -------- Other Benefits
Benefits Pension Benefits --------------
-------- ----------------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Other non-current assets.......... $ - $ - $ 20,981 $ 11,730 $ - $ -
Pension and other post-retirement
liabilities..................... (19,323) (23,078) (81,023) (67,134) (31,102) (33,226)
Accumulated other comprehensive
loss............................ 35,908 33,305 7,659 7,233 - -
------- ------- -------- -------- -------- --------
Net amount recognized............. $16,585 $10,227 $(52,383) $(48,171) $(31,102) $(33,226)
======= ======= ======== ======== ======== ========
The accumulated benefit obligations at December 31, 2003 and 2002 were
$99.8 million and $89.2 million respectively for the U.S. defined benefit
pension plan, and $397.9 million and $397.1 million respectively for all
non-U.S. plans.
The assumed discount rates and rates of increase in future
compensation levels used in calculating the projected benefit obligations
vary according to the economic conditions of the country in which the
retirement plans are situated. The weighted average rates used for the
purposes of the Company's plans are as follows:
U.S. Non-U.S.
--------------------------- ----------------------------
2003 2002 2001 2003 2002 2001
---- ---- ----- ---- ---- ----
Discount rate................................... 6.25% 7.0% 7.5% 4.5% 4.5% 4.7%
Compensation increase rate...................... n/a n/a 4.0% 2.5% 2.5% 2.9%
Expected long-term rate of return on plan
assets........................................ 8.5% 8.5% 9.5% 6.1% 6.1% 6.1%
Net periodic pension cost for the defined benefit plans includes the
following components for the year ended December 31:
U.S. Non-U.S.
---------------------------- ---------------------------
2003 2002 2001 2003 2002 2001
----- ----- ----- ----- ----- ----
Service cost, net........................... $ 431 $ 897 $ 3,487 $13,934 $13,982 $ 10,789
Interest cost on projected benefit
obligations............................... 6,129 6,167 5,596 18,807 17,386 14,399
Expected return on plan assets.............. (5,033) (5,196) (6,484) (22,281) (21,662) (17,373)
Impact of plan freeze....................... - 1,136 - - - -
Impact of early retirement.................. 428 1,615 1,013 - - -
Recognition of actuarial losses (gains)..... 1,714 791 5 642 333 (731)
-------- ------- ------- ------- ------- ---------
Net periodic pension cost................... $ 3,669 $ 5,410 $ 3,617 $11,102 $10,039 $ 7,084
======== ======= ======= ======= ======= =========
Net periodic post-retirement benefit cost for the U.S. post-retirement
plans includes the following components for the year ended December 31:
2003 2002 2001
--------- ---------- ----------
Service cost............................... $ 132 $ 324 $ 495
Interest cost on projected benefit
obligations.............................. 1,856 2,551 2,480
Curtailment gain on plan freeze............ (929) (1,334) -
Impact of early retirement................. - 365 -
Net amortization and deferral.............. (576) (209) -
------- ------- -------
Net periodic post-retirement benefit cost.. $ 483 $ 1,697 $ 2,975
======= ======= =======
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. BENEFIT PLANS - (CONTINUED)
The accumulated post-retirement benefit obligation and net periodic
post-retirement benefit cost were principally determined using discount
rates of 6.25% in 2003, 7.0% in 2002 and 7.5% in 2001 and health care cost
trend rates ranging from 9% to 14% in 2003 and 2002, and from 10% to 15% in
2001, decreasing to 4.5% in 2008.
The health care cost trend rate assumption has a significant effect on
the accumulated post-retirement benefit obligation and net periodic
post-retirement benefit cost. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
One-Percentage-Point One-Percentage-
Increase Point Decrease
-------------------- ---------------
Effect on total of service and interest cost components.............. $ 142 $ (132)
Effect on post-retirement benefit obligation......................... $2,461 $ (2,273)
Plan assets relate principally to the Company's U.S. and Swiss
subsidiaries and consist of equity investments, obligations of the U.S.
Treasury or other governmental agencies, and other interest-bearing
investments. Actual and target asset allocations in the Company's pension
plans at December 31, 2003 and 2002 were as follows:
U.S. Non-U.S.
--------------------------------- ---------------------------------
Target 2003 2002 Target 2003 2002
------ ---- ---- ------ ---- ----
Debt securities............... 33% 31% 38% 50% 52% 63%
Equity securities............. 65% 67% 58% 25% 23% 20%
Real estate and other......... 2% 2% 4% 25% 25% 17%
---- ---- ---- ---- ---- ----
Total......................... 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
Investment policies and strategies for each of the Company's pension
plans are determined periodically by pension trustees for each plan, having
regard to the potential risks and returns offered by investment in the
various assets available. Target asset allocation and investment return
criteria are established by the trustees with the overriding objective of
stable earnings growth. Actual results are monitored against those targets
and the trustees are required to report to the members of each plan,
including an analysis of investment performance on an annual basis at a
minimum. Day to day asset management is typically performed by a third
party asset management company, reporting to the pension trustees. The
long-term rate of return on plan asset assumptions used to determine
pension expense under U.S. GAAP, are generally based on historical
investment performance and the target investment return criteria for the
future determined by the trustees.
As a result of the voluntary incremental pension payments made to the
Company's underfunded pension plans of $17.1 million in 2003 and $19.0
million in 2002, the Company does not expect to make any significant
required pension funding payments during the next two years. However,
similar to 2003 and 2002, voluntary contributions to the Company's pension
plans may be made, for example if the funded status of the plans
deteriorate significantly, and if cash flow generation is sufficient.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
13. BENEFIT PLANS - (CONTINUED)
In 2004, the Company expects to make normal employer pension
contributions of approximately $11.4 million to its non-U.S. pension plans
and normal employer contributions of approximately $2.4 million to its U.S.
post-retirement medical plan.
14. TAXES
The sources of the Company's earnings before taxes were as follows for
the years ending December 31:
2003 2002 2001
-------- -------- ---------
United States.................................... $ 29,208 $ 29,669 $ (3,202)
Non-United States................................ 107,703 80,741 121,636
--------- --------- ---------
Earnings before taxes............................ $ 136,911 $ 110,410 $ 118,434
========= ========= =========
The provisions for taxes consist of:
Adjustments
to
Current Deferred Goodwill Total
-------- -------- ----------- -------
Year ended December 31, 2003:
United States federal............................ $ 3,470 $ 10,356 $ - $13,826
State and local.................................. 585 700 - 1,285
Non-United States................................ 26,885 (923) - 25,962
-------- --------- -------- -------
$ 30,940 $ 10,133 $ - $41,073
======== ========= ======== =======
Adjustments
to
Current Deferred Goodwill Total
-------- -------- ----------- -------
Year ended December 31, 2002:
United States federal............................ $ 14,291 $ (12,517) $ 9,488 $11,262
State and local.................................. 539 - - 539
Non-United States................................ 120 (1,932) - (1,812)
-------- --------- -------- -------
$ 14,950 $ (14,449) $ 9,488 $ 9,989
======== ========= ======== =======
Adjustments
to
Current Deferred Goodwill Total
-------- -------- ----------- -------
Year ended December 31, 2001:
United States federal............................ $ 129 $ 214 $ - $ 343
State and local.................................. 553 - - 553
Non-United States................................ 42,564 1,749 961 45,274
-------- --------- -------- ---------
$ 43,246 $ 1,963 $ 961 $46,170
======== ========= ======== =========
During 2002, the Company recorded a one-time benefit of $23.1 million
related to the completion of a tax restructuring program and related
audits.
The adjustments to goodwill during the years ending December 31, 2002
and 2001 relate to tax benefits utilized that were not previously
recognized in the purchase price allocation pertaining to previous
acquisitions.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
14. TAXES - (CONTINUED)
The provisions for tax expense for the years ending December 31, 2003,
2002 and 2001 differed from the amounts computed by applying the United
States federal income tax rate of 35% to the earnings before taxes as a
result of the following:
2003 2002 2001
------------- ------------- -------------
Expected tax......................................... $ 47,919 $ 38,643 $41,453
United States state and local income taxes, net of
federal income tax benefit....................... 1,285 350 553
Non-deductible intangible amortization............... - - 2,222
Change in valuation allowance........................ (2,728) 6,751 1,288
Tax restructuring program and audit settlements...... - (23,135) -
Other non-United States income taxes at other than a
35% rate......................................... (8,695) (13,499) 373
Other, net........................................... 3,292 879 281
-------- --------- -------
Total provision for taxes............................ $ 41,073 $ 9,989 $46,170
======== ========= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below at December 31:
2003 2002
--------- ----------
Deferred tax assets:
Inventory............................................ $ 522 $ 497
Accrued and other liabilities........................ 21,364 29,931
Deferred losses...................................... 2,099 2,099
Accrued post-retirement benefit and pension costs.... 29,265 28,304
Net operating loss and tax credit carryforwards...... 51,315 60,935
Other................................................ - 4,508
-------- --------
Total deferred tax assets................................ 104,565 126,274
Less valuation allowance................................. (36,238) (68,344)
-------- --------
Total deferred tax assets less valuation allowance....... 68,327 57,930
-------- --------
Deferred tax liabilities:
Inventory............................................ 3,455 1,510
Property, plant and equipment........................ 18,465 16,976
Rainin intangibles amortization...................... 13,103 6,283
Other................................................ 15,379 13,482
International earnings............................... 10,859 3,815
-------- --------
Total deferred tax liabilities........................... 61,261 42,066
-------- --------
Net deferred tax asset................................... $ 7,066 $ 15,864
======== ========
The Company has recorded valuation allowances related to its deferred
income tax assets due to the uncertainty of the ultimate realization of
future benefits from such assets. The potential decrease or increase of the
valuation allowance in the near term is dependent on the future ability of
the Company to realize the deferred tax assets that are affected by the
future profitability of operations in various worldwide jurisdictions. The
2003 net change in the valuation allowance includes a $2.7 million release
of the valuation allowance attributable to deferred tax assets associated
with temporary differences and tax credit carryforwards and a $29.4 million
reduction in deferred tax assets and the related valuation allowance
primarily related to tax credit carryforwards. $2.6 million and $4.9
million of the valuation allowance will be credited to shareholders' equity
and goodwill if and when realized.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
14. TAXES - (CONTINUED)
At December 31, 2003, for U.S. federal income tax purposes, the
Company had net operating loss carryforwards of $4.6 million that expire in
various amounts through 2018 and foreign tax credits of $10.9 million that
will expire in various amounts through 2007. The Company has various U.S.
state net operating losses and various foreign net operating losses that
expire in varying amounts through 2023.
The Company plans to repatriate in future years $80 million of
previously unremitted earnings of foreign subsidiaries. Accordingly, a
deferred tax liability of $10.9 million was established to account for the
incremental tax costs associated with the planned repatriation. No deferred
tax liability has been recognized on the residual unremitted earnings
approximating $219 million, as such earnings have been permanently
reinvested in the business.
The Company is currently under examination in various taxing
jurisdictions in which it conducts business operations. While the Company
has not yet received any material assessments from these taxing
authorities, the Company believes that adequate amounts of taxes and
related interest and penalties have been provided for any adverse
adjustments as a result of these examinations and that the ultimate outcome
of these examinations will not result in an adverse material impact on the
Company's consolidated results of operations or financial position.
15. OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of charges related to
the Company's restructuring programs, interest income, (gains) losses from
foreign currency transactions, (gains) losses from sales of assets and
other items.
As part of its efforts to reduce costs, the Company recorded a charge
of approximately $15.2 million ($14.6 million after tax) in 2001,
associated primarily with headcount reductions and manufacturing transfers.
This charge comprised primarily severance and other related benefits and
costs of exiting facilities, including lease termination costs and the
write-down of impaired assets.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
15. OTHER CHARGES (INCOME), NET - (CONTINUED)
During the three months ended June 30, 2002, the Company recorded a
restructuring charge of $28.7 million ($20.1 million after tax), primarily
related to the exit of manufacturing facilities in France and the United
States, and in order to further reduce the Company's expense structure.
This charge comprised restructuring liabilities of $24.3 million and
related asset impairments of $4.4 million. In total, the Company expects
this restructuring plan to result in cash outlays of approximately $20.2
million and non-cash items of $8.5 million. The charge comprised
involuntary employee separation benefits, write-downs of impaired assets to
be disposed and other exit costs. The Company involuntarily terminated
approximately net 300 employees in targeted manufacturing and
administrative areas. The asset impairments of $4.4 million primarily
relate to plant and equipment disposals resulting from the exit of certain
manufacturing facilities. Fair value of these assets was determined on the
basis of their net realizable value on disposal.
As part of this restructuring program, the Company revised its U.S.
defined benefit pension plan to freeze the benefits for current
participants and to discontinue the plan for all future employees,
resulting in an expense of $1.1 million. In addition, the Company's U.S.
retiree medical program was also discontinued for certain current and all
future active employees, resulting in a curtailment gain of $1.3 million.
As noted in previous filings, in accordance with U.S. GAAP, the charge
taken in the second quarter of 2002 related to the exit of our French
manufacturing facility was limited to the minimum contractual payment
required by French law. During the three months ended March 31, 2003, the
Company recorded a restructuring charge of $5.4 million ($3.8 million after
tax), related to the final union settlement on the closure of this
facility. This charge comprises the additional employee-related costs
resulting from final settlement of the social plan negotiated with the
French workers' council during the first quarter of 2003.
The Company assesses its accrual for restructuring activities on an
ongoing basis. During the three months ended September 30, 2003, the
Company recorded a reduction in the restructuring accrual of $0.96 million,
included within Other charges (income), net, as a result of lower
employee-related charges than originally anticipated. Also, a restructuring
charge of $1.4 million was recorded during the three months ended September
30, 2003, related to an extension of manufacturing consolidation
activities. This charge comprised severance of $1.0 million, included
within Other charges (income), net, and inventory write-downs of $0.4
million, included within Cost of sales.
The Company's aforementioned restructuring programs and related
accruals were substantially completed at December 31, 2003.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
15. OTHER CHARGES (INCOME), NET - (CONTINUED)
A roll-forward of the Company's accrual for restructuring activities
follows:
Employee Lease
related termination Other Total
------- ----------- ----- -----
(a) (b) (c)
Balance at December 31, 2001........................ $ 2,001 $ 279 $ 324 $ 2,604
Restructuring expense (d)........................... 21,967 2,051 283 24,301
Cash payments....................................... (9,660) (433) (238) (10,331)
Increase in retirement benefit obligation........... (3,850) - - (3,850)
Impact of foreign currency.......................... 1,345 135 51 1,531
-------- ------- ------ -------
Balance at December 31, 2002........................ $ 11,803 $ 2,032 $ 420 $14,255
Restructuring expense (d)........................... 6,404 - - 6,404
Adjustment to previous accrual...................... (960) - - (960)
Cash payments....................................... (16,492) (293) (7) (16,792)
Other utilizations and transfers to operating
liabilities........................................ (2,398) (1,866) (460) (4,724)
Impact of foreign currency.......................... 1,643 127 47 1,817
-------- ------- ------ --------
Balance at December 31, 2003........................ $ - $ - $ - $ -
======== ======= ====== ========
(a) Employee related costs include severance, medical and early
retirement costs for approximately net 300 employees, substantially
all of which had been terminated as of December 31, 2003. These
employees include positions primarily in manufacturing, as well as
administrative and other personnel, primarily at the Company's
Principal U.S. and Other Western European Operations.
The increases in the Company's retirement benefit obligation
represent enhanced early retirement benefits provided to impacted
employees.
(b) Lease termination costs primarily relate to the early termination of
leases on vacated property, primarily at the Company's Principal
U.S. and Other Western European Operations.
(c) Other costs include expenses associated with equipment dismantling
and disposal, and other exit costs.
(d) Excludes the charges in respect of inventory and other asset
write-downs of $4.4 million in 2002 and $0.4 million in 2003,
recorded as reductions in the book values of the related assets.
16. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain of its facilities and equipment under
operating leases. The future minimum lease payments under non-cancelable
operating leases are as follows at December 31, 2003:
2004.............................. $ 19,437
2005.............................. 15,745
2006.............................. 12,577
2007.............................. 9,550
2008.............................. 8,055
Thereafter........................ 27,571
-------------
Total........................... $ 92,935
=============
Rent expense for operating leases amounted to $28.2 million, $24.7
million and $20.0 million for the years ended December 31, 2003, 2002 and
2001, respectively.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
16. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Legal
The Company is party to various legal proceedings, including certain
environmental matters, incidental to the normal course of business.
Management does not expect that any of such proceedings will have a
material adverse effect on the Company's financial condition or results of
operations.
17. SEGMENT REPORTING
Operating segments are the individual reporting units within the
Company. These units are managed separately, and it is at this level where
the determination of resource allocation is made. The units have been
aggregated based on operating segments in geographic regions that have
similar economic characteristics and meet the aggregation criteria of SFAS
131. The Company has determined that as of December 31, 2003 there are six
reportable segments: Principal U.S. Operations, Other Western European
Operations, Principal Central European Operations, Swiss R&D and
Manufacturing Operations, Asia and Other. In previous reporting periods,
results from Asia were included within the Other operating segment. During
the three months ended December 31, 2003, the Company's reporting units in
Asia exceeded the quantitative threshold for disclosure as a separate
operating segment. Segment disclosure for 2002 and 2001 has been
reclassified accordingly.
Principal U.S. Operations represent certain of the Company's marketing
and producing organizations located in the United States. Other Western
European Operations include the Company's market organizations in Western
Europe that are not included in Principal Central European Operations.
Principal Central European Operations primarily include the Company's
German marketing and producing organizations that primarily serve the
German market and, to a lesser extent, Europe. Swiss R&D and Manufacturing
Operations consist of the organizations located in Switzerland that are
responsible for the development, production and marketing of precision
instruments, including weighing, analytical and measurement technologies
for use in a variety of industrial and laboratory applications. Asia
represents the Company's marketing and producing organizations located in
Asia.
The Company's market organizations are geographically focused and are
responsible for all aspects of the Company's sales and service. Operating
segments that exist outside these reportable segments are included in
Other.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
17. SEGMENT REPORTING - (CONTINUED)
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies. The
Company evaluates performance based on Segment Profit (gross profit less
research and development, selling, general and administrative expenses and
restructuring charges before amortization, interest expense and other
charges). Intersegment sales and transfers are priced to reflect
consideration of market conditions and the regulations of the countries in
which the transferring entities are located. The following tables show the
operations of the Company's operating segments:
Net Purchase
Net sales of
sales to to Segment property,
For the year ended external other Total profit Total plant and
December 31, 2003 customers segments net sales (c) Depreciation assets equipment Goodwill
- --------------------------- --------- -------- --------- --- ------------ ------ --------- --------
Principal U.S. Operations.. $ 426,680 $ 39,259 $ 465,939 $ 68,516 $ 6,936 $ 687,875 $ 7,689 $200,294
Other Western European
Operations.............. 306,644 22,954 329,598 18,491 3,370 270,416 3,927 83,939
Principal Central European
Operations.............. 180,272 59,048 239,320 20,453 2,810 186,754 2,049 26,931
Swiss R&D and Mfg.
Operations.............. 49,897 185,798 235,695 39,970 6,595 196,012 6,239 23,091
Asia....................... 147,537 37,320 184,857 29,575 2,505 141,504 4,352 10,234
Other (a).................. 193,401 38,984 232,385 12,330 2,179 675,292 2,754 77,451
Eliminations and Corporate
(b)....................... - (383,363) (383,363) (27,428) 691 (770,577) 142 -
---------- -------- ---------- -------- ------- ---------- -------- --------
Total...................... $1,304,431 $ - $1,304,431 $161,907 $25,086 $1,387,276 $ 27,152 $421,940
========== ======== ========== ======== ======= ========== ======== ========
Net Purchase
Net sales of
sales to to Segment property,
For the year ended external other Total profit Total plant and
December 31, 2002 customers segments net sales (d) Depreciation assets equipment Goodwill
- --------------------------- --------- -------- --------- --- ------------ ------ --------- --------
Principal U.S. Operations.. $ 441,898 $ 33,380 $ 475,278 $ 57,008 $ 8,457 $ 678,797 $ 14,480 $201,663
Other Western European
Operations.............. 264,683 22,359 287,042 3,709 3,195 184,044 2,156 76,184
Principal Central European
Operations.............. 158,232 49,052 207,284 13,360 2,607 149,198 2,908 23,607
Swiss R&D and Mfg.
Operations.............. 49,632 176,496 226,128 47,193 5,916 495,442 4,905 21,512
Asia....................... 118,936 23,349 142,285 20,966 2,143 108,027 4,121 8,728
Other (a).................. 180,326 37,162 217,488 7,357 2,479 632,746 1,853 76,657
Eliminations and Corporate
(b)..................... - (341,798) (341,798) (13,101) 595 (944,861) 2,734 -
---------- -------- ---------- -------- ------- ---------- -------- --------
Total...................... $1,213,707 $ - $1,213,707 $136,492 $25,392 $1,303,393 $ 33,157 $408,351
========== ======== ========== ======== ======= ========== ======== ========
Footnotes on following page
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
17. SEGMENT REPORTING - (CONTINUED)
Net Purchase
Net sales of
sales to to Segment property,
For the year ended external other Total profit Total plant and
December 31, 2001 customers segments net sales (e) Depreciation assets equipment Goodwill
- --------------------------- ----------- -------- ----------- --- ------------ ------ --------- --------
Principal U.S. Operations.. $ 362,855 $ 32,507 $ 395,362 $ 25,036 $ 6,762 $ 585,357 $ 7,007 $187,565
Other Western European
Operations.............. 269,733 44,616 314,349 26,566 2,962 183,120 3,498 77,982
Principal Central European
Operations.............. 185,606 60,886 246,492 30,145 2,283 144,967 4,386 21,100
Swiss R&D and Mfg.
Operations.............. 51,300 190,485 241,785 56,999 5,769 381,873 5,980 19,205
Asia....................... 107,642 24,307 131,949 16,909 1,950 91,398 2,689 6,827
Other (a).................. 170,886 55,242 226,128 7,684 2,681 466,370 3,292 72,268
Eliminations and Corporate
(b)..................... - (408,043) (408,043) (13,471) 451 (663,673) 6,376 -
---------- -------- ---------- -------- ------- ---------- ------- --------
Total...................... $1,148,022 $ - $1,148,022 $149,868 $22,858 $1,189,412 $33,228 $384,947
========== ======== ========== ======== ======= ========== ======= ========
(a) Other includes reporting units in Eastern Europe, Latin America and
segments from other countries that do not meet the quantitative
thresholds but meet the majority of the aggregation criteria of SFAS
131.
(b) Eliminations and Corporate includes the elimination of intersegment
transactions as well as certain corporate expenses, intercompany
investments and certain goodwill, which are not included in the
Company's operating segments.
(c) The results for the year ended December 31, 2003 include a
restructuring charge of $5.4 million recorded in the Other Western
European Operations segment ($4.4 million) and Other segment ($1.0
million).
(d) The results for the year ended December 31, 2002 include a
restructuring charge of $28.7 million, recorded in the second
quarter, in the Principal U.S. Operations ($11.8 million), Principal
Central European Operations ($2.8 million), Swiss R&D and
Manufacturing Operations ($0.1 million), Other Western European
Operations ($11.4 million), Asia ($0.1 million) and Other ($2.5
million) segments.
(e) The results for the year ended December 31, 2001 include a
restructuring charge of $15.2 million, recorded in the second
quarter, in the Principal U.S. Operations ($6.0 million), Principal
Central European Operations ($0.3 million), Other Western European
Operations ($0.9 million), Asia ($0.3 million), Other ($5.5 million)
and Corporate ($2.2 million) segments.
Non-GAAP Financial Measures
The Company supplements U.S. GAAP results with non-GAAP financial
measures. The principal non-GAAP financial measure used is Adjusted
Operating Income. Adjusted Operating Income is defined as gross profit less
research and development, selling general and administrative expenses and
restructuring charges, before amortization, interest, other charges and
taxes. The most directly comparable U.S. GAAP financial measure is net
earnings.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
17. SEGMENT REPORTING - (CONTINUED)
Non-GAAP Financial Measures - (continued)
The Company believes that Adjusted Operating Income is important
supplemental information for investors. Adjusted Operating Income, or
Segment Profit, is used internally as the principal profit measurement by
our segments in their reporting to management. The Company uses this
measure because it excludes amortization, interest, other charges and
taxes, which are not allocated to the segments.
On a consolidated basis, the Company also believes Adjusted Operating
Income is an important supplemental method of measuring profitability. It
is used internally by senior management for measuring profitability,
setting performance targets for managers and has historically been used as
one of the means of publicly providing guidance on possible future results.
The Company also believes that Adjusted Operating Income is an important
performance measure because it provides a measure of comparability to other
companies with different capital or legal structures which accordingly may
be subject to disparate interest rates and effective tax rates, and to
companies which may incur different amortization expenses or impairment
charges related to intangible assets.
Adjusted Operating Income is used in addition to and in conjunction
with results presented in accordance with U.S. GAAP. Adjusted Operating
Income is not intended to represent operating income under U.S. GAAP and
should not be considered as an alternative to net earnings as an indicator
of the Company's performance because of the following limitations.
Limitations of the non-GAAP measure, Adjusted Operating Income
The non-GAAP measure, Adjusted Operating Income, has certain material
limitations as follows:
o It does not include interest expense. Because the Company has borrowed
money to finance some of its operations, interest is a necessary and
ongoing part of the Company's costs and has assisted the Company in
generating revenue. Therefore any measure that excludes interest
expense has material limitations;
o It does not include taxes. Because payment of taxes is a necessary and
ongoing part of the Company's operations, any measure that excludes
taxes has material limitations;
o It excludes amortization expense and other charges. Because these
items are recurring, any measure that excludes them has material
limitations.
Adjusted Operating Income should not be relied upon to the exclusion
of U.S. GAAP financial measures, but reflects an additional measure of
comparability and means of viewing aspects of the Company's operations
that, when viewed together with U.S. GAAP results and the accompanying
reconciliation to net earnings, provides a more complete understanding of
factors and trends affecting the business.
Because Adjusted Operating Income is not standardized, it may not be
possible to compare with other companies' non-GAAP financial measures
having the same or a similar name. The Company strongly encourages
investors to review these financial statements and publicly-filed reports
in their entirety and not to rely on any single financial measure.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
17. SEGMENT REPORTING - (CONTINUED)
A reconciliation of Adjusted Operating Income, or Segment Profit to
earnings before taxes for the years ended December 31 follows:
2003 2002 2001
---- ---- ----
Adjusted operating income (after restructuring
charges) (a).................................... $ 161,907 $ 136,492 $ 149,868
Amortization...................................... 11,724 9,332 14,114
Interest expense.................................. 14,153 17,209 17,162
Other charges, net (excluding restructuring charges) (881) (459) 158
Provision for taxes............................... 41,073 9,989 46,170
--------- --------- ---------
Net earnings...................................... $ 95,838 $ 100,421 $ 72,264
========= ========= =========
(a) Adjusted Operating Income for 2003, 2002 and 2001 includes
restructuring charges of $5,444, $28,661 and $15,196 respectively,
primarily related to headcount reductions and manufacturing transfers.
See Note 15 to the consolidated financial statements.
The Company sells precision instruments, including weighing
instruments and certain analytical and measurement technologies, and
related services to a variety of customers and industries. None of these
customers account for more than 3% of net sales. Service revenues are
primarily derived from sales of spare parts and services such as
calibration, certification and repair, much of which is provided under
contracts. A breakdown of the Company's sales by category for the years
ended December 31 follows:
2003 2002 2001
---------- ---------- ----------
Weighing-related instruments..... $ 629,797 $ 594,465 $ 639,308
Non-weighing instruments......... 384,925 359,616 273,356
Service.......................... 289,709 259,626 235,358
---------- ---------- ----------
Total net sales.................. $1,304,431 $1,213,707 $1,148,022
========== ========== ==========
The breakdown of net sales by geographic customer destination and
property, plant and equipment, net for the year ended December 31 is as
follows:
Property, plant and
Net sales equipment, net
----------------------------------------- -----------------------
2003 2002 2001 2003 2002
---------- ----------- ------------ ---------- ----------
United States....... $ 480,418 $ 494,913 $417,886 $41,398 $46,650
Other Americas...... 73,750 72,754 74,020 614 1,859
---------- ----------- ------------ ---------- ----------
Total Americas...... 554,168 567,667 491,906 42,012 48,509
Germany............. 122,706 104,311 130,641 30,781 26,842
France.............. 99,303 90,046 104,206 5,196 5,497
United Kingdom...... 55,215 47,228 44,689 7,074 5,156
Switzerland......... 51,750 46,274 45,437 118,402 108,249
Other Europe........ 224,790 197,225 185,961 6,154 5,930
---------- ----------- ------------ ---------- ----------
Total Europe........ 553,764 485,084 510,934 167,607 151,674
Rest of World....... 196,499 160,956 145,182 21,893 17,571
---------- ----------- ------------ ---------- ----------
Total............... $1,304,431 $1,213,707 $1,148,022 $231,512 $217,754
========== =========== ============ ========== ==========
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
18. RELATED PARTY TRANSACTIONS
As part of the Rainin acquisition (see Note 3 to the consolidated
financial statements), the Company entered into an agreement to lease
certain property from the former owner and current General Manager of
Rainin. During the years ended December 31, 2003, 2002 and 2001, the Company
made lease payments in respect of this agreement of $2.2 million, $1.9
million and $0.2 million respectively. In addition, Rainin continued to
purchase certain products from its former owner. During the years ended
December 31, 2003, 2002 and 2001, the volume of these purchases was $1.1
million, $1.5 million and $0.3 million respectively. All of the Company's
transactions with the former owner of Rainin are in the normal course of
business.
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS UNLESS OTHERWISE STATED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 2003 and
2002 are as follows:
FIRST SECOND THIRD FOURTH
QUARTER (a) QUARTER (b) QUARTER QUARTER
2003 ----------- ----------- ------- --------
Net sales .................................... $ 291,808 $ 321,363 $ 320,814 $ 370,446
Gross profit.................................. 133,658 156,411 151,864 176,243
Net earnings.................................. $ 12,935 $ 25,780 $ 24,182 $ 32,941
Basic earnings per common share:
Net earnings................................ $ 0.29 $0.58 $0.54 $ 0.74
Weighted average number of common shares.... 44,393,312 44,434,612 44,485,712 44,582,017
Diluted earnings per common share:
Net earnings................................ $ 0.29 $ 0.57 $ 0.53 $ 0.72
Weighted average number of common shares.... 45,288,823 45,467,106 45,568,383 45,711,078
Market price per share:
High........................................ $ 34.12 $ 38.00 $ 39.75 $ 42.73
Low......................................... $ 28.90 $ 29.82 $ 34.60 $ 36.06
2002
Net sales .................................... $ 272,957 $ 296,454 $ 306,990 $ 337,306
Gross profit.................................. 125,137 141,082 142,923 158,595
Net earnings.................................. $ 18,674 $ 27,478 $ 22,977 $ 31,292
Basic earnings per common share:
Net earnings................................ $ 0.42 $ 0.62 $ 0.52 $ 0.71
Weighted average number of common shares.... 44,173,850 44,208,274 44,355,475 44,384,820
Diluted earnings per common share:
Net earnings................................ $ 0.41 $ 0.61 $ 0.51 $ 0.69
Weighted average number of common shares.... 45,517,058 45,409,690 45,235,544 45,317,919
Market price per share:
High........................................ $ 51.85 $ 45.74 $ 36.87 $ 37.04
Low......................................... $ 42.80 $ 35.65 $ 24.85 $ 25.41
(a) The financial data for the first quarter of 2003 includes a charge
of $5.4 million ($3.8 million after tax) primarily related to
headcount reductions and manufacturing transfers (Note 15).
(b) The financial data for the second quarter of 2002 includes a
charge of $28.7 million ($20.1 million after tax) primarily
related to headcount reductions and manufacturing transfers (Note
15). The financial data for the second quarter of 2002 also
includes a benefit of $23.1 million related to tax restructuring
activities and the completion of related tax audits (Note 14).
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged
the beginning to costs and Charged to Balance at
Description of period expenses other accounts -Deductions- end of period
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
Note (A) Note (B)
Accounts Receivable- allowance
for doubtful accounts:
Year ended
December 31, 2003 10,916 765 742 1,934 10,489
Year ended
December 31, 2002 9,450 778 776 88 10,916
Year ended
December 31, 2001 9,097 996 (244) 399 9,450
Allowance for inventory :
Year ended
December 31, 2003 30,831 8,033 3,485 3,604 38,745
Year ended
December 31, 2002 30,965 6,022 3,047 9,203 30,831
Year ended
December 31, 2001 30,619 3,498 (1,117) 2,035 30,965
Deferred Tax valuation
allowance:
Year ended
December 31, 2003 68,344 (2,728) - 29,378 36,238
Year ended
December 31, 2002 71,081 6,751 - 9,488 68,344
Year ended
December 31, 2001 49,027 1,288 21,727 961 71,081
- -------------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
Note A
For accounts receivable and inventory, primarily comprised of
currency translation adjustments.
Note B
For accounts receivable, represents excess of uncollectible balances
written off over recoveries of accounts previously written off.
For inventory, represents excess of book value of unsold inventory
disposed over proceeds received on disposal.
For deferred tax valuation allowance 2003, represents a reduction in
the deferred tax assets related to tax credit carryforwards, while
2002 represents tax benefits utilized that were not previously
recognized in the purchase price allocation pertaining to previous
acquisitions.