MTD 10Q 9.30.2014
Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014, OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________
Commission File Number: 1-13595
Mettler-Toledo International Inc.
_______________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)

Delaware
 
13-3668641
(State or other jurisdiction of
 
(I.R.S Employer Identification No.)
incorporation or organization)
 
 
1900 Polaris Parkway
Columbus, Ohio 43240
and
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
_________________________________________________________
 (Address of principal executive offices)
(Zip Code)

1-614-438-4511 and +41-44-944-22-11
________________________________________________________________________________
(Registrant's telephone number, including area code)

not applicable
______________________________________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X   No ___

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   X   No ___             
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer.  X  Accelerated filer __ Non-accelerated filer __ (Do not check if a smaller reporting company)Smaller reporting company __     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No  X 

The Registrant had 28,547,411 shares of Common Stock outstanding at September 30, 2014.
 




METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended September 30, 2014 and 2013
(In thousands, except share data)
(unaudited)

 
September 30,
2014
 
September 30,
2013
Net sales
 
 
 
Products
$
488,829

 
$
462,532

Service
140,271

 
129,155

Total net sales
629,100

 
591,687

Cost of sales
 
 
 
Products
206,227

 
197,593

Service
79,322

 
75,521

Gross profit
343,551

 
318,573

Research and development
30,352

 
29,046

Selling, general and administrative
186,499

 
173,446

Amortization
7,198

 
6,675

Interest expense
5,991

 
5,557

Restructuring charges
1,050

 
5,532

Other charges (income), net
625

 
521

Earnings before taxes
111,836

 
97,796

Provision for taxes
26,840

 
23,470

Net earnings
$
84,996

 
$
74,326

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
2.96

 
$
2.49

Weighted average number of common shares
28,732,152

 
29,818,218

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
2.89

 
$
2.43

Weighted average number of common and common equivalent shares
29,408,614

 
30,579,954

 
 
 
 
Comprehensive income, net of tax (Note 8)
$
44,540

 
$
102,532



The accompanying notes are an integral part of these interim consolidated financial statements.

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine months ended September 30, 2014 and 2013
(In thousands, except share data)
(unaudited)

 
September 30,
2014
 
September 30,
2013
Net sales
 
 
 
Products
$
1,379,655

 
$
1,314,998

Service
408,900

 
379,722

Total net sales
1,788,555

 
1,694,720

Cost of sales
 
 
 
Products
586,883

 
564,021

Service
237,304

 
224,125

Gross profit
964,368

 
906,574

Research and development
91,974

 
85,749

Selling, general and administrative
541,793

 
512,905

Amortization
21,575

 
17,604

Interest expense
17,613

 
16,500

Restructuring charges
4,447

 
13,730

Other charges (income), net
1,348

 
2,281

Earnings before taxes
285,618

 
257,805

Provision for taxes
68,549

 
61,873

Net earnings
$
217,069

 
$
195,932

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
7.47

 
$
6.52

Weighted average number of common shares
29,056,663

 
30,063,021

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
7.30

 
$
6.35

Weighted average number of common and common equivalent shares
29,747,321

 
30,836,160

 
 
 
 
Comprehensive income, net of tax (Note 8)
$
176,076

 
$
212,858



The accompanying notes are an integral part of these interim consolidated financial statements.

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2014 and December 31, 2013
(In thousands, except share data)
(unaudited)

 
September 30,
2014
 
December 31,
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
126,311

 
$
111,874

Trade accounts receivable, less allowances of $17,028 at September 30, 2014
410,900

 
466,703

and $14,856 at December 31, 2013
 
Inventories
219,714

 
210,414

Current deferred tax assets, net
59,414

 
57,934

Other current assets and prepaid expenses
56,573

 
67,062

Total current assets
872,912

 
913,987

Property, plant and equipment, net
512,091

 
514,438

Goodwill
449,539

 
455,842

Other intangible assets, net
111,214

 
114,418

Non-current deferred tax assets, net
21,241

 
24,121

Other non-current assets
140,458

 
130,013

Total assets
$
2,107,455

 
$
2,152,819

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
129,172

 
$
145,993

Accrued and other liabilities
119,641

 
116,831

Accrued compensation and related items
123,337

 
123,493

Deferred revenue and customer prepayments
93,014

 
83,083

Taxes payable
49,602

 
61,502

Current deferred tax liabilities
16,093

 
16,219

Short-term borrowings and current maturities of long-term debt
120,025

 
17,067

Total current liabilities
650,884

 
564,188

Long-term debt
365,007

 
395,960

Non-current deferred tax liabilities
64,751

 
64,449

Other non-current liabilities
177,873

 
193,170

Total liabilities
1,258,515

 
1,217,767

Commitments and contingencies (Note 14)


 


Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares

 

Common stock, $0.01 par value per share; authorized 125,000,000 shares;
 
 
 
issued 44,786,011 and 44,786,011 shares; outstanding 28,547,411 and 29,487,075
 
 
 
shares at September 30, 2014 and December 31, 2013, respectively
448

 
448

Additional paid-in capital
673,493

 
653,250

Treasury stock at cost (16,238,600 shares at September 30, 2014 and 15,298,936 shares at December 31, 2013)
(1,991,994
)
 
(1,721,030
)
Retained earnings
2,243,022

 
2,037,420

Accumulated other comprehensive income (loss)
(76,029
)
 
(35,036
)
Total shareholders’ equity
848,940

 
935,052

Total liabilities and shareholders’ equity
$
2,107,455

 
$
2,152,819



The accompanying notes are an integral part of these interim consolidated financial statements.

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2014 and twelve months ended December 31, 2013
(In thousands, except share data)
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Common Stock
 
 
Treasury Stock
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
 
 
 
 
Total
Balance at December 31, 2012
30,410,006

 
$
448

 
$
638,705

 
$
(1,463,924
)
 
$
1,749,451

 
$
(97,461
)
 
$
827,219

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
398,646

 

 

 
37,870

 
(18,125
)
 

 
19,745

Repurchases of common stock
(1,321,577
)
 

 

 
(294,976
)
 

 

 
(294,976
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
1,906

 

 

 

 
1,906

Share-based compensation

 

 
12,639

 

 

 

 
12,639

Net earnings

 

 

 

 
306,094

 

 
306,094

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax

 

 

 

 

 
62,425

 
62,425

Balance at December 31, 2013
29,487,075

 
$
448

 
$
653,250

 
$
(1,721,030
)
 
$
2,037,420

 
$
(35,036
)
 
$
935,052

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
246,551

 

 

 
25,512

 
(11,467
)
 

 
14,045

Repurchases of common stock
(1,186,215
)
 

 

 
(296,476
)
 

 

 
(296,476
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
10,459

 

 

 

 
10,459

Share-based compensation

 

 
9,784

 

 

 

 
9,784

Net earnings

 

 

 

 
217,069

 

 
217,069

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax (Note 8)

 

 

 

 

 
(40,993
)
 
(40,993
)
Balance at September 30, 2014
28,547,411

 
$
448

 
$
673,493

 
$
(1,991,994
)
 
$
2,243,022

 
$
(76,029
)
 
$
848,940

 
 
 
 
 
 
 
 
 
 
 
 
 
 


The accompanying notes are an integral part of these interim consolidated financial statements.

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2014 and 2013
(In thousands)
(unaudited)

 
September 30,
2014
 
September 30,
2013
Cash flows from operating activities:
 
 
 
Net earnings
$
217,069

 
$
195,932

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
25,469

 
26,024

Amortization
21,575

 
17,604

Deferred tax benefit
(6,102
)
 
(7,807
)
Excess tax benefits from share-based payment arrangements
(10,459
)
 
(565
)
Share-based compensation
9,784

 
8,988

Other
99

 
407

Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
43,313

 
33,841

Inventories
(18,024
)
 
(19,350
)
Other current assets
9,714

 
(3,367
)
Trade accounts payable
(13,180
)
 
(23,814
)
Taxes payable
(9,391
)
 
5,961

Accruals and other
8,371

 
3,561

Net cash provided by operating activities
278,238

 
237,415

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
433

 
208

Purchase of property, plant and equipment
(61,408
)
 
(57,000
)
Acquisitions
(3,385
)
 
(213
)
Net cash used in investing activities
(64,360
)
 
(57,005
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
512,977

 
382,105

Repayments of borrowings
(438,529
)
 
(369,012
)
Proceeds from stock option exercises
14,045

 
15,990

Repurchases of common stock
(296,476
)
 
(217,413
)
Excess tax benefits from share-based payment arrangements
10,459

 
565

Debt issuance costs
(941
)
 
(281
)
Other financing activities
182

 
(1,569
)
Net cash used in financing activities
(198,283
)
 
(189,615
)
Effect of exchange rate changes on cash and cash equivalents
(1,158
)
 
(275
)
Net increase (decrease) in cash and cash equivalents
14,437

 
(9,480
)
Cash and cash equivalents:
 
 
 
Beginning of period
111,874

 
101,702

End of period
$
126,311

 
$
92,222



The accompanying notes are an integral part of these interim consolidated financial statements.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited
(In thousands, except share data, unless otherwise stated)


1.
BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company") is a leading global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. The Company also manufactures several related analytical instruments and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging and provides solutions for use in certain process analytics applications. The Company's primary manufacturing facilities are located in China, Germany, Switzerland, the United Kingdom and the United States. The Company's principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all entities in which the Company has control, which are its wholly-owned subsidiaries. The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements as of September 30, 2014 and for the three and nine month periods ended September 30, 2014 and 2013 should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
The accompanying interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. A discussion of the Company’s critical accounting policies is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
All intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses in its existing trade accounts receivable. The Company determines the allowance based upon a review of both specific accounts for collection and the age of the accounts receivable portfolio.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Inventories
Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated net realizable value is based on assumptions for future demand and related pricing. Adjustments to the cost basis of the Company’s inventory are made for excess and obsolete items based on usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.
Inventories consisted of the following:
 
September 30,
2014
 
December 31,
2013
Raw materials and parts
$
99,949

 
$
98,244

Work-in-progress
41,120

 
38,061

Finished goods
78,645

 
74,109

 
$
219,714

 
$
210,414

Goodwill and Other Intangible Assets
Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
Other intangible assets include indefinite-lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period of benefit. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company assesses the initial acquisition of intangible assets in accordance with the provisions of ASC 805 "Business Combinations" and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible - Goodwill and Other" and ASC 360 "Property, Plant and Equipment."
Other intangible assets consisted of the following:
 
September 30, 2014
 
December 31, 2013
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
99,229

 
$
(27,596
)
 
$
71,633

 
$
98,374

 
$
(25,313
)
 
$
73,061

Proven technology and patents
42,005

 
(30,492
)
 
11,513

 
43,233

 
(29,763
)
 
13,470

Tradename (finite life)
4,192

 
(1,759
)
 
2,433

 
4,300

 
(1,619
)
 
2,681

Tradename (indefinite life)
25,004

 

 
25,004

 
25,108

 

 
25,108

Other
1,582

 
(951
)
 
631

 
757

 
(659
)
 
98

 
$
172,012

 
$
(60,798
)
 
$
111,214

 
$
171,772

 
$
(57,354
)
 
$
114,418


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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company recognized amortization expense associated with the above intangible assets of $1.6 million and $1.5 million for the three months ended September 30, 2014 and 2013, respectively and $4.8 million and $4.4 million for the nine months ended September 30, 2014 and 2013, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $6.3 million for 2014, $5.8 million for 2015, $5.4 million for 2016, $5.0 million for 2017, $4.8 million for 2018 and $4.4 million for 2019. Purchased intangible amortization was $1.5 million, $1.0 million after tax, and $1.3 million, $0.9 million after tax, for the three months ended September 30, 2014 and 2013, respectively and $4.2 million, $2.8 million after tax, and $4.0 million, $2.7 million after tax, for the nine months ended September 30, 2014 and 2013, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $5.5 million and $5.2 million for the three months ended September 30, 2014 and 2013, respectively and $16.7 million and $13.1 million for the nine months ended September 30, 2014 and 2013, respectively.
Revenue Recognition
Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and, accordingly, title and risk of loss transfers upon shipment. In countries where title cannot legally transfer before delivery, the Company defers revenue recognition until delivery has occurred. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. Shipping and handling costs charged to customers are included in total net sales and the associated expense is recorded in cost of sales for all periods presented. Other than a few small software applications, the Company does not sell software products without the related hardware instrument as the software is embedded in the instrument. The Company’s products typically require no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. To the extent the Company’s solutions have a post-shipment obligation, such as customer acceptance, revenue is deferred until the obligation has been completed. The Company defers product revenue where installation is required, unless such installation is deemed perfunctory. The Company also sometimes enters into certain arrangements that require the separate delivery of multiple goods and/or services. These deliverables are accounted for separately if the deliverables have standalone value and the performance of undelivered items is probable and within the Company's control. The allocation of revenue between the separate deliverables is typically based on the relative selling price at the time of the sale in accordance with a number of factors including service technician billing rates, time to install and geographic location.
Further, certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the customer upon title transfer. Revenue is recognized on these products upon transfer of title and risk of loss to its distributors. Distributor discounts are offset against revenue at the time such revenue is recognized.
Service revenue not under contract is recognized upon the completion of the service performed. Spare parts sold on a stand-alone basis are recognized upon title and risk of loss transfer which is generally at the time of shipment. Revenues from service contracts are recognized ratably over the contract period. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification and preventative maintenance on a customer’s pre-defined equipment over the contract period. Service contracts are separately priced and payment is typically received from the customer at the beginning of the contract period.
Warranty
The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized. While the Company engages in extensive product quality

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

programs and processes, its warranty obligation is affected by product failure rates, material usage and service costs incurred in correcting a product failure.
The Company’s accrual for product warranties is included in accrued and other liabilities in the consolidated balance sheets. Changes to the Company’s accrual for product warranties for the nine months ended September 30 are as follows:
 
September 30,
2014
 
September 30,
2013
Balance at beginning of period
$
16,991

 
$
16,295

Accruals for warranties
14,737

 
14,246

Foreign currency translation
(409
)
 
20

Payments / utilizations
(15,278
)
 
(14,354
)
Balance at end of period
$
16,041

 
$
16,207


Employee Termination Benefits
In situations where contractual termination benefits exist, the Company records accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. All other employee termination arrangements are recognized and measured at their fair value at the communication date unless the employee is required to render additional service beyond the legal notification period, in which case the liability is recognized ratably over the future service period.
Share-Based Compensation
The Company recognizes share-based compensation expense within selling, general and administrative in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company recorded $3.3 million and $9.8 million of share-based compensation expense for the three and nine months ended September 30, 2014, respectively, compared to $3.1 million and $9.0 million for the corresponding periods in 2013.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.

3.
FINANCIAL INSTRUMENTS
As more fully described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company’s fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company’s exposure to currency fluctuations on the respective hedged items. The Company does not use derivative financial instruments for trading purposes. For additional disclosures on the fair value of financial instruments, also see Note 4 to the interim consolidated financial statements.
Cash Flow Hedges
The Company has an interest rate swap agreement, designated as a cash flow hedge. The agreement changes the floating rate LIBOR-based interest payments associated with $100 million in

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

borrowings under the Company’s credit agreement to a fixed obligation of 3.24% beginning October 2010 ("Interest rate swaps - October 2010").
In June 2013, the Company entered into a forward starting interest rate swap agreement, designated as a cash flow hedge. The agreement which will change the floating rate LIBOR-based interest payments associated with $50 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.52% beginning in October 2015 ("Interest rate swaps - October 2015").
In July 2012, the Company began entering into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based businesses. The notional amount of foreign currency forward contracts outstanding at September 30, 2014 and December 31, 2013 was $83.6 million and $78.2 million, respectively.
Through September 30, 2014 no hedge ineffectiveness has occurred in relation to these cash flow hedges.
The fair value of the cash flow hedges as of September 30, 2014 and December 31, 2013 are recorded gross in the consolidated balance sheet as follows:
 
 
 
 
Fair Value at
 
 
Balance Sheet Location
 
September 30, 2014
 
December 31, 2013
Derivative designated as cash flow hedging instruments:
 
 
 
 
 
 
Interest rate swaps - October 2010
 
Non-current (liabilities)/assets
 
$
(3,218
)
 
$
(5,312
)
Interest rate swaps - October 2015
 
Non-current (liabilities)/assets
 
(314
)
 
1,269

 
 
 
 
 
 
 
Foreign currency forward contracts:
 
Other current assets
 
607

 
268

 
 
Accrued and other liabilities
 

 
(103
)
The effects of the derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended September 30, 2014 and 2013 are as follows:
 
 
Before Tax
 
After Tax
 
 
2014
 
2013
 
2014
 
2013
Recognized in other comprehensive income (loss):
 
 
 
 
 
 
 
 
Interest rate swaps - October 2010
 
$

 
$
(281
)
 
$

 
$
(173
)
Interest rate swaps - October 2015
 

 
(198
)
 

 
(122
)
Foreign currency forward contracts
 
493

 
(229
)
 
392

 
(182
)
 
 
Location of Derivative Gain (Loss) in Earnings
 
Before Tax
 
After Tax
 
 
 
2014
 
2013
 
2014
 
2013
Effective portion of gain (loss) reclassified into earnings:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps - October 2010
 
Interest expense
 
$
(787
)
 
$
(777
)
 
$
(484
)
 
$
(478
)
Foreign currency forward contracts
 
Cost of sales
 
247

 
(486
)
 
197

 
(386
)

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The effects of the derivative instruments designated as cash flow hedges on the consolidated statements of operations for the nine months ended September 30, 2014 and 2013 are as follows:
 
 
Before Tax
 
After Tax
 
 
2014
 
2013
 
2014
 
2013
Recognized in other comprehensive income (loss):
 
 
 
 
 
 
 
 
Interest rate swaps - October 2010
 
$
(239
)
 
$
(123
)
 
$
(147
)
 
$
(76
)
Interest rate swaps - October 2015
 
(1,582
)
 
717

 
(973
)
 
441

Foreign currency forward contracts
 
887

 
(1,579
)
 
705

 
(1,255
)
 
 
Location of Derivative Gain (Loss) in Earnings
 
Before Tax
 
After Tax
 
 
 
2014
 
2013
 
2014
 
2013
Effective portion of gain (loss) reclassified into earnings:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps - October 2010
 
Interest expense
 
$
(2,333
)
 
$
(2,299
)
 
$
(1,435
)
 
$
(1,414
)
Foreign currency forward contracts
 
Cost of sales
 
453

 
(1,517
)
 
360

 
(1,206
)
A derivative loss of $3.0 million, $1.9 million after tax, based upon interest rates and a derivative gain of $0.6 million, $0.5 million after tax, based upon foreign currency rates at September 30, 2014, are expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months.
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc and other major European currencies with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. At September 30, 2014 and December 31, 2013, these contracts had a notional value of $210.4 million and $180.3 million, respectively.

The fair value of the foreign currency forward contracts as of September 30, 2014 and December 31, 2013 are as follows:
 
 
Fair Value at
 
 
September 30, 2014
 
December 31, 2013
Balance sheet location:
 
 
 
 
Other current assets
 
$
690

 
$
719

Other current liabilities
 
(1,006
)
 
(355
)

The effects of the foreign currency forward contracts on the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013 are as follows:
 
 
2014
 
2013
Gain (loss) recognized in other charges (income), net
 
 
 
 
Three months ended
 
$
(2,048
)
 
$
1,418

Nine months ended
 
(2,983
)
 
727




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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

4.
FAIR VALUE MEASUREMENTS
At September 30, 2014 and December 31, 2013, the Company had derivative assets totaling $1.3 million and $2.3 million, respectively, and derivative liabilities totaling $4.5 million and $5.8 million, respectively. The fair values of the interest rate swap agreement, foreign currency forward contracts designated as cash flow hedges and foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant at September 30, 2014 and December 31, 2013.
At September 30, 2014 and December 31, 2013, the Company had $18.1 million and $16.9 million of cash equivalents, respectively, the fair value of which is determined through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.
The difference between the fair value and carrying value of the Company's long-term debt is not material and is classified in Level 2 and Level 3 of the fair value hierarchy. The fair value of the Company's debt is estimated based on either similar issues or other inputs derived from available market information, including interest rates, term of debt and creditworthiness.
    
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.

A fair value hierarchy has been established that categorizes these inputs into three levels:
Level 1:
Quoted prices in active markets for identical assets and liabilities
Level 2:
Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3:
Unobservable inputs

- 14 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The following table presents for each of these hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013:
 
 
September 30, 2014
 
December 31, 2013
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
18,118

 
$

 
$
18,118

 
$

 
$
16,868

 
$

 
$
16,868

 
$

Interest rate swap agreement
 
 
 

 

 

 
1,269

 

 
1,269

 

Foreign currency forwards contracts designed as cash flow hedges
 
607

 

 
607

 

 
268

 

 
268

 

Foreign currency forward contracts not designated as hedging instruments
 
690

 

 
690

 

 
719

 

 
719

 

Total
 
$
19,415

 
$

 
$
19,415

 
$

 
$
19,124

 
$

 
$
19,124

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreement
 
$
3,532

 
$

 
$
3,532

 
$

 
$
5,312

 
$

 
$
5,312

 
$

Foreign currency forwards contracts designed as cash flow hedges
 

 

 

 

 
103

 

 
103

 

Foreign currency forward contracts not designated as hedging instruments
 
1,006

 

 
1,006

 

 
355

 

 
355

 

Total
 
$
4,538

 
$

 
$
4,538

 
$

 
$
5,770

 
$

 
$
5,770

 
$



5.
INCOME TAXES
The provision for taxes for both the three and nine month periods ended September 30, 2014 is based upon the Company’s projected annual effective rate of 24%.

6.
DEBT
Debt consisted of the following at September 30, 2014:
 
September 30, 2014
 
U.S. Dollar
 
Other Principal Trading Currencies
 
Total
6.30% $100 million Senior Notes due June 25, 2015
$
100,000

 
$

 
$
100,000

3.67% $50 million Senior Notes due December 17, 2022
50,000

 

 
50,000

4.10% $50 million Senior Notes due September 19, 2023
50,000

 

 
50,000

3.84% $125 million Senior Notes due September 19, 2024
125,000

 

 
125,000

Credit agreement
103,937

 
36,070

 
140,007

Other local arrangements
429

 
19,596

 
20,025

Total debt
429,366

 
55,666

 
485,032

Less: current portion
(100,429
)
 
(19,596
)
 
(120,025
)
Total long-term debt
$
328,937

 
$
36,070

 
$
365,007


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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

As of September 30, 2014, the Company had $655.6 million of availability remaining under its Credit Agreement. The Company was in compliance with its covenants at September 30, 2014.

In June 2014, the Company entered into an agreement to issue and sell $250 million of ten-year Senior Notes in a private placement. The Company issued $125 million with a fixed interest rate of 3.84% ("3.84% Senior Notes") in September 2014 and will issue an additional $125 million with a fixed interest rate of 4.24% ("4.24% Senior Notes") in June 2015. The Senior Notes are senior unsecured obligations of the Company.

Issuance costs approximating $0.9 million will be amortized to interest expense over the ten year term of the Senior Notes.

7.
SHARE REPURCHASE PROGRAM AND TREASURY STOCK
The Company has a $3 billion share repurchase program, of which there were $595.9 million of remaining common shares authorized to be repurchased under the program at September 30, 2014. We expect that the authorization will be utilized over the next few years. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.
The Company has purchased 22.6 million shares since the inception of the program through September 30, 2014. During the nine months ended September 30, 2014 and 2013, the Company spent $296.5 million and $217.4 million on the repurchase of 1,186,215 shares and 1,004,398 shares at an average price per share of $249.91 and $216.44, respectively. The Company also reissued 246,551 shares and 280,691 shares held in treasury for the exercise of stock options and restricted stock units during the nine months ended September 30, 2014 and 2013, respectively.

8.ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive income by component for the nine months ended September 30, 2014 and 2013:
 
Currency Translation Adjustment, Net of Tax
 
Net Unrealized
Gain (Loss) on
Cash Flow Hedging Arrangements,
Net of Tax
 
Pension and Post-Retirement Benefit Related Items,
Net of Tax
 
Total
Balance at December 31, 2013
$
77,915

 
$
(2,433
)
 
$
(110,518
)
 
$
(35,036
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedging arrangements

 
(445
)
 

 
(445
)
Foreign currency translation adjustment
(47,483
)
 
30

 
4,644

 
(42,809
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
1,075

 
1,186

 
2,261

Net change in other comprehensive income (loss), net of tax
(47,483
)
 
660

 
5,830

 
(40,993
)
Balance at September 30, 2014
$
30,432

 
$
(1,773
)
 
$
(104,688
)
 
$
(76,029
)

- 16 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
Currency Translation Adjustment, Net of Tax
 
Net Unrealized
Gain (Loss) on
Cash Flow Hedging Arrangements,
Net of Tax
 
Pension and Post-Retirement Benefit Related Items,
Net of Tax
 
Total
Balance at December 31, 2012
$
56,012

 
$
(5,438
)
 
$
(148,035
)
 
$
(97,461
)
Other comprehensive income (loss), net of tax:

 

 

 

Unrealized gains (losses) on cash flow hedging arrangements

 
(924
)
 

 
(924
)
Foreign currency translation adjustment
9,911

 
34

 
(266
)
 
9,679

Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
2,620

 
5,551

 
8,171

Net change in other comprehensive income (loss), net of tax
9,911

 
1,730

 
5,285

 
16,926

Balance at September 30, 2013
$
65,923

 
$
(3,708
)
 
$
(142,750
)
 
$
(80,535
)

The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and nine month periods ended September 30:
 
 
Three months ended September 30,
 
 
 
 
2014
 
2013
 
Location of Amounts Recognized in Earnings
Effective portion of losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
787

 
$
777

 
Interest expense
Foreign currency forward contracts
 
(247
)
 
486

 
Cost of sales - products
Total before taxes
 
540

 
1,263

 
 
Provision for taxes
 
253

 
399

 
Provision for taxes
Total, net of taxes
 
$
287

 
$
864

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, plan amendments and prior service cost, before taxes
 
$
719

 
$
2,571

 
(a)
Provision for taxes
 
313

 
907

 
Provision for taxes
Total, net of taxes
 
$
406

 
$
1,664

 
 
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 10 for additional details for the three and nine months ended September 30, 2014 and 2013.


- 17 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
 
Nine months ended September 30,
 
 
 
 
2014
 
2013
 
Location of Amounts Recognized in Earnings
Effective portion of losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
2,333

 
$
2,299

 
Interest expense
Foreign currency forward contracts
 
(453
)
 
1,517

 
Cost of sales - products
Total before taxes
 
1,880

 
3,816

 
 
Provision for taxes
 
805

 
1,196

 
Provision for taxes
Total, net of taxes
 
$
1,075

 
$
2,620

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, plan amendments and prior service cost, before taxes
 
$
2,131

 
$
7,707

 
(a)
Provision for taxes
 
945

 
2,156

 
Provision for taxes
Total, net of taxes
 
$
1,186

 
$
5,551

 
 
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 10 for additional details for the three and nine months ended September 30, 2014 and 2013.
Comprehensive income (loss), net of tax consisted of the following as of September 30:
 
Three Months Ended
 
Nine Months Ended
 
2014
 
2013
 
2014
 
2013
Net earnings
$
84,996

 
$
74,326

 
$
217,069

 
$
195,932

Other comprehensive income (loss), net of tax
(40,456
)
 
28,206

 
(40,993
)
 
16,926

Comprehensive income, net of tax
$
44,540

 
$
102,532

 
$
176,076

 
$
212,858

9.
EARNINGS PER COMMON SHARE
In accordance with the treasury stock method, the Company has included the following common equivalent shares in the calculation of diluted weighted average number of common shares outstanding for the three and nine month periods ended September 30, solely relating to outstanding stock options and restricted stock units:
 
2014
 
2013
Three months ended
676,462

 
761,736

Nine months ended
690,658

 
773,139

Outstanding options and restricted stock units to purchase or receive 105,570 and 135,858 shares of common stock for the three and nine month periods ended September 30, 2014, respectively have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive. For the three and nine month periods ended September 30, 2013, there were no anti-dilutive outstanding options or restricted stock units.


- 18 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

10.
NET PERIODIC BENEFIT COST
Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the three months ended September 30:
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost, net
$
223

 
$
123

 
$
3,856

 
$
4,364

 
$
43

 
$
54

 
$
4,122

 
$
4,541

Interest cost on projected benefit obligations
1,599

 
1,439

 
5,380

 
4,864

 
60

 
101

 
7,039

 
6,404

Expected return on plan assets
(2,137
)
 
(1,788
)
 
(9,372
)
 
(8,650
)
 

 

 
(11,509
)
 
(10,438
)
Recognition of prior service cost

 

 
(1,009
)
 
(991
)
 
(195
)
 
22

 
(1,204
)
 
(969
)
Recognition of actuarial losses/(gains)
1,200

 
1,945

 
1,082

 
1,842

 
(359
)
 
(247
)
 
1,923

 
3,540

Net periodic pension cost/(credit)
$
885

 
$
1,719

 
$
(63
)
 
$
1,429

 
$
(451
)
 
$
(70
)
 
$
371

 
$
3,078


Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the nine months ended September 30:

 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost, net
$
669

 
$
370

 
$
11,741

 
$
12,991

 
$
129

 
$
162

 
$
12,539

 
$
13,523

Interest cost on projected benefit obligations
4,797

 
4,316

 
16,383

 
14,569

 
180

 
303

 
21,360

 
19,188

Expected return on plan assets
(6,411
)
 
(5,365
)
 
(28,512
)
 
(25,912
)
 

 

 
(34,923
)
 
(31,277
)
Recognition of prior service cost

 

 
(3,079
)
 
(2,965
)
 
(585
)
 
65

 
(3,664
)
 
(2,900
)
Recognition of actuarial losses/(gains)
3,600

 
5,837

 
3,272

 
5,511

 
(1,077
)
 
(741
)
 
5,795

 
10,607

Net periodic pension cost/(credit)
$
2,655

 
$
5,158

 
$
(195
)
 
$
4,194

 
$
(1,353
)
 
$
(211
)
 
$
1,107

 
$
9,141


As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, the Company expects to make employer contributions of approximately $21.8 million to its non-U.S. pension plans and employer contributions of approximately $0.5 million to its U.S. post-retirement medical plan during the year ended December 31, 2014. These estimates may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.

11.
RESTRUCTURING CHARGES
For the three and nine months ended September 30, 2014, we have incurred $1.1 million and $4.4 million, respectively of restructuring expenses which primarily comprised employee-related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.

- 19 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

A rollforward of the Company’s accrual for restructuring activities for the nine months ended September 30, 2014 is as follows:

 
Employee
Related
 
Other
 
Total
Balance at December 31, 2013
$
13,054

 
$
131

 
$
13,185

Restructuring charges
3,907

 
540

 
4,447

Cash payments and utilization
(7,413
)
 
(564
)
 
(7,977
)
Impact of foreign currency
(653
)
 

 
(653
)
Balance at September 30, 2014
$
8,895

 
$
107

 
$
9,002


12.
OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of interest income, (gains) losses from foreign currency transactions and other items.

13.
SEGMENT REPORTING
As disclosed in Note 18 to the Company's consolidated financial statements for the year ended December 31, 2013, the Company has determined there are five reportable segments:  U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other.
The Company evaluates segment performance based on Segment Profit (gross profit less research and development and selling, general and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net and taxes).
The following tables show the operations of the Company’s operating segments:
 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2014
September 30, 2014
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
195,827

 
$
20,058

 
$
215,885

 
$
34,769

 
$
308,112

Swiss Operations
35,375

 
112,544

 
147,919

 
40,286

 
22,748

Western European Operations
174,502

 
32,076

 
206,578

 
29,691

 
103,844

Chinese Operations
107,907

 
41,416

 
149,323

 
35,983

 
741

Other (a)
115,489

 
1,864

 
117,353

 
13,148

 
14,094

Eliminations and Corporate (b)

 
(207,958
)
 
(207,958
)
 
(27,177
)
 

Total
$
629,100

 
$

 
$
629,100

 
$
126,700

 
$
449,539

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.


- 20 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2014
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
553,177

 
$
61,969

 
$
615,146

 
$
93,187

 
 
Swiss Operations
101,172

 
328,932

 
430,104

 
113,011

 
 
Western European Operations
505,935

 
88,950

 
594,885

 
74,252

 
 
Chinese Operations
299,450

 
114,358

 
413,808

 
93,279

 
 
Other (a)
328,821

 
4,946

 
333,767

 
33,236

 
 
Eliminations and Corporate (b)

 
(599,155
)
 
(599,155
)
 
(76,364
)
 
 
Total
$
1,788,555

 
$

 
$
1,788,555

 
$
330,601

 
 

 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2013
September 30, 2013
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
181,224

 
$
21,775

 
$
202,999

 
$
32,810

 
$
307,933

Swiss Operations
33,003

 
107,856

 
140,859

 
34,445

 
23,745

Western European Operations
165,174

 
26,869

 
192,043

 
26,128

 
106,192

Chinese Operations
104,549

 
42,145

 
146,694

 
32,965

 
741

Other (a)
107,737

 
1,302

 
109,039

 
11,885

 
13,488

Eliminations and Corporate (b)

 
(199,947
)
 
(199,947
)
 
(22,152
)
 

Total
$
591,687

 
$

 
$
591,687

 
$
116,081

 
$
452,099


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2013
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
526,239

 
$
57,817

 
$
584,056

 
$
90,806

 
 
Swiss Operations
94,864

 
308,498

 
403,362

 
104,705

 
 
Western European Operations
467,691

 
81,909

 
549,600

 
67,783

 
 
Chinese Operations
293,047

 
110,290

 
403,337

 
86,987

 
 
Other (a)
312,879

 
4,231

 
317,110

 
30,803

 
 
Eliminations and Corporate (b)

 
(562,745
)
 
(562,745
)
 
(73,164
)
 
 
Total
$
1,694,720

 
$

 
$
1,694,720

 
$
307,920

 
 

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.

- 21 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2014 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

A reconciliation of earnings before taxes to segment profit for the three and nine month periods ended September 30 follows:

 
Three Months Ended
 
 Nine Months Ended
 
2014
 
2013
 
2014
 
2013
Earnings before taxes
$
111,836

 
$
97,796

 
$
285,618

 
$
257,805

Amortization
7,198

 
6,675

 
21,575

 
17,604

Interest expense
5,991

 
5,557

 
17,613

 
16,500

Restructuring charges
1,050

 
5,532

 
4,447

 
13,730

Other charges (income), net
625

 
521

 
1,348

 
2,281

Segment profit
$
126,700

 
$
116,081

 
$
330,601

 
$
307,920


During the three months ended September 30, 2014, restructuring charges of $1.1 million were recognized, of which $0.1 million, $0.4 million, $0.1 million and $0.5 million related to the Company’s U.S., Western European, Chinese, and Other Operations, respectively. Restructuring charges of $5.5 million were recognized during the three months ended September 30, 2013, of which $0.8 million, $1.9 million, $2.1 million, and $0.7 million related to the Company’s U.S., Swiss, Western European, and Chinese Operations, respectively. Restructuring charges of $4.4 million were recognized during the nine months ended September 30, 2014, of which $1.7 million, $0.6 million, $1.0 million, $0.4 million, and $0.7 million related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $13.7 million were recognized during the nine months ended September 30, 2013, of which $1.3 million, $7.2 million, $3.4 million, $1.5 million and $0.3 million related to the Company’s U.S., Swiss, Western European, Chinese and Other Operations, respectively.

14.
CONTINGENCIES
The Company is party to various legal proceedings, including certain environmental matters, incidental to the normal course of business. Management does not expect that any of such proceedings, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

- 22 -


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.
General
Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
Local currency changes exclude the effect of currency exchange rate fluctuations. Local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates. We believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We present non-GAAP financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results.
Results of Operations – Consolidated
The following tables set forth certain items from our interim consolidated statements of operations for the three and nine month periods ended September 30, 2014 and 2013 (amounts in thousands).
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
Net sales
$
629,100

 
100.0
 
$
591,687

 
100.0
 
$
1,788,555

 
100.0
 
$
1,694,720

 
100.0
Cost of sales
285,549

 
45.4
 
273,114

 
46.2
 
824,187

 
46.1