filings.toolsItem 15. Exhibits and Financial Statement Schedules
146K characters. Original on sec.gov · Markdown
Item 15. Exhibits and Financial Statement Schedules
(a) Exhibits, Financial Statements, and Schedules:
-
Financial Statements. See Index to Consolidated Financial Statements included on page F-1.
-
Financial Statement Schedule. See Schedule II, which is included on page S-1.
-
List of Exhibits. See Exhibit Index included on page E-1.
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: February 4, 2016
| By: | /s/ Olivier A. Filliol |
| Olivier A. Filliol | |
| 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 | |
| /s/ Olivier A. Filliol | President and Chief Executive Officer | |
| Olivier A. Filliol | ||
| /s/ William P. Donnelly | Executive Vice President | |
| William P. Donnelly | (Principal Financial Officer) | |
| /s/ Shawn P. Vadala | Chief Financial Officer | |
| Shawn P. Vadala | (Principal Accounting Officer) | |
| /s/ Olivier A. Filliol | Director | |
| Olivier A. Filliol | ||
| /s/ Wah-Hui Chu | Director | |
| Wah-Hui Chu | ||
| /s/ Francis A. Contino | Director | |
| Francis A. Contino | ||
| /s/ Connie L. Harvey | Director | |
| Connie L. Harvey | ||
| /s/ Michael A. Kelly | Director | |
| Michael A. Kelly | ||
| /s/ Hans Ulrich Maerki | Director | |
| Hans Ulrich Maerki | ||
| /s/ George M. Milne | Director | |
| George M. Milne | ||
| /s/ Thomas P. Salice | Director | |
| Thomas P. Salice | ||
| /s/ Robert F. Spoerry | Director | |
| Robert F. Spoerry |
EXHIBIT INDEX
| Exhibit | |
| No. | Description |
| 3.1 | Amended and Restated Certificate of Incorporation of the Company(1) |
| 3.2 | Amended By-laws of the Company, effective as of May 7, 2015(2) |
| 10.1 | Credit Agreement among Mettler-Toledo International Inc., certain of its subsidiaries, JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, and certain other financial institutions, dated as of December 17, 2015(3) |
| 10.11 | Note Purchase Agreement dated as of October 10, 2012 by and among Mettler-Toledo International Inc., Massachusetts Mutual Life Insurance Company, C.M. Life Insurance Company, MassMutual Asia Limited, The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York and Aviva Life and Annuity Company Royal Neighbors of America.(4) |
| 10.12 | Note Purchase Supplement dated July 29, 2013 by and among Mettler-Toledo International Inc., Aviva Life and Annuity Company and Teachers Insurance and Annuity Association of America to a Note Purchase Agreement dated October 10, 2012 by and among Mettler-Toledo International Inc., Massachusetts Mutual Life Insurance Company, C.M. Life Insurance Company, MassMutual Asia Limited, The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York and Aviva Life and Annuity Company Royal Neighbors of America(5) |
| 10.13 | Note Purchase Agreement dated as of June 27, 2014 by and among Mettler-Toledo International Inc., Babson Capital Management LLC, Cigna Investments, Inc. and Teachers Insurance and Annuity Association of America. (6) |
| 10.14 | Note Purchase Agreement dates as of March 31, 2015 by and among Mettler-Toledo International Inc., Metropolitan Life Insurance Company, MetLife Insurance Company USA, OMI MLIC Investments Limited and Massachusetts Mutual Life Insurance Company.(7) |
| 10.20 | Mettler-Toledo International Inc. 2004 Equity Incentive Plan(8) |
| 10.21 | Mettler-Toledo International Inc. 2007 Share Plan, effective February 7, 2008(9) |
| 10.22 | Mettler-Toledo International Inc. 2013 Equity Incentive Plan(10) |
| 10.31 | Regulations of the POBS PLUS — Incentive Scheme for Senior Management of Mettler Toledo, effective as of November, 2006(11) |
| 10.32 | Regulations of the POBS PLUS — Incentive Scheme for Members of the Group Management of Mettler Toledo, effective as of January, 2009(11) |
| 10.50 | Employment Agreement between Thomas Caratsch and Mettler-Toledo International Inc., dated as of December 4, 2007(9) |
| 10.51 | Employment Agreement between Marc de La Guéronnière and Mettler-Toledo International Inc., dated as of January 27, 2011(12) |
| 10.52 | Employment Agreement between William Donnelly and Mettler-Toledo GmbH, dated as of November 10, 1997(1) |
| 10.53 | Employment Agreement between Olivier Filliol and Mettler-Toledo International Inc., dated as of November 1, 2007(13) |
| 10.54 | Employment Agreement between Michael Heidingsfelder and Mettler-Toledo International Inc., dated as of November 30, 2011 (16) |
| 10.55 | Employment Agreement between Simon Kirk and Mettler-Toledo International Inc., dated as of November 28, 2011(16) |
| 10.56 | Employment Agreement between Christian Magloth and Mettler-Toledo International Inc., dated as of March 22, 2010(12) |
| 10.57 | Employment Agreement between Waldemar Rauch and Mettler-Toledo International Inc., dated as of June 10, 2011(15) |
| 10.58 | Employment Agreement between Robert Spoerry and Mettler-Toledo International Inc., dated as of November 1, 2007(13) |
| 10.59 | Form of Tax Equalization Agreement between Messrs. Caratsch, Filliol, Kirk, Magloth, and Spoerry, and Mettler-Toledo International Inc., dated October 10, 2007(9) |
| 21* | Subsidiaries of the Company |
| 23.1* | Consent of PricewaterhouseCoopers LLP |
E- 1
| Exhibit | |
| No. | Description |
| 31.1* | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2* | Certification of the Executive Vice President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.3* | 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 |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
| (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 8-K dated May 11, 2015 |
| (3) | Incorporated by reference to the Company’s Report on Form 8-K dated December 18, 2015 |
| (4) | Incorporated by reference to the Company's Report on Form 8-K dated October 16, 2012 |
| (5) | Incorporated by reference to the Company's Report on Form 8-K dated July 29, 2013 |
| (6) | Incorporated by reference to the Company's Report on Form 8-K dated July 2, 2014 |
| (7) | Incorporated by reference to the Company's Report on Form 8-K dated March 31, 2015 |
| (8) | Incorporated by reference to the Company’s Form DEF 14-A filed March 29, 2004 |
| (9) | Incorporated by reference to the Company’s Report on Form 10-K dated February 15, 2008 |
| (10) | Incorporated by reference to the Company's Registration Statement on Form S-8 dated July 26, 2013 (Reg. No. 333-190181) |
| (11) | Incorporated by reference to the Company’s Report on Form 10-K dated February 13, 2009 |
| (12) | Incorporated by reference to the Company's Report on Form 10-K dated February 16, 2010 |
| (13) | Incorporated by reference to the Company’s Report on Form 8-K dated November 1, 2007 |
| (14) | Incorporated by reference to the Company’s Report on Form 10-K dated March 4, 2002 |
| (15) | Incorporated by reference to the Company's Report on Form 10-K dated February 13, 2012 |
| (16) | Incorporated by reference to the Company's Report on Form 10-K dated February 8, 2013 |
| * | Filed herewith |
E- 2
METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Mettler-Toledo International Inc.
In our opinion, the consolidated financial statements listed in the index appearing on page F-1 present fairly, in all material respects, the financial position of Mettler-Toledo International Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules appearing on page S-1 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| /s/ PricewaterhouseCoopers LLP |
| PricewaterhouseCoopers LLP |
Columbus, Ohio
February 4, 2016
F - 2
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(In thousands, except share data)
| 2015 | 2014 | 2013 | |||||||||
| Net sales | |||||||||||
| Products | $ | 1,865,884 | $ | 1,930,497 | $ | 1,860,893 | |||||
| Service | 529,563 | 555,486 | 518,079 | ||||||||
| Total net sales | 2,395,447 | 2,485,983 | 2,378,972 | ||||||||
| Cost of sales | |||||||||||
| Products | 744,867 | 810,547 | 795,225 | ||||||||
| Service | 298,587 | 316,686 | 301,816 | ||||||||
| Gross profit | 1,351,993 | 1,358,750 | 1,281,931 | ||||||||
| Research and development | 119,076 | 123,297 | 116,346 | ||||||||
| Selling, general, and administrative | 700,810 | 728,582 | 692,693 | ||||||||
| Amortization | 30,951 | 29,185 | 24,539 | ||||||||
| Interest expense | 27,451 | 24,537 | 22,711 | ||||||||
| Restructuring charges | 11,148 | 5,915 | 19,830 | ||||||||
| Other charges (income), net | (867 | ) | 2,230 | 3,103 | |||||||
| Earnings before taxes | 463,424 | 445,004 | 402,709 | ||||||||
| Provision for taxes | 110,604 | 106,763 | 96,615 | ||||||||
| Net earnings | $ | 352,820 | $ | 338,241 | $ | 306,094 | |||||
| Basic earnings per common share: | |||||||||||
| Net earnings | $ | 12.75 | $ | 11.71 | $ | 10.22 | |||||
| Weighted average number of common shares | 27,680,918 | 28,890,771 | 29,945,954 | ||||||||
| Diluted earnings per common share: | |||||||||||
| Net earnings | $ | 12.48 | $ | 11.44 | $ | 9.96 | |||||
| Weighted average number of common and common equivalent shares | 28,269,615 | 29,571,308 | 30,728,482 |
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31
(In thousands, except share data)
| 2015 | 2014 | 2013 | |||||||||
| Net earnings | $ | 352,820 | $ | 338,241 | $ | 306,094 | |||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Foreign currency translation adjustment | (52,434 | ) | (82,875 | ) | 21,903 | ||||||
| Unrealized gains (losses) on cash flow hedging arrangements: | |||||||||||
| Unrealized gains (losses) | 13,221 | (768 | ) | (491 | ) | ||||||
| Effective portion of (gains) losses included in net earnings | (8,261 | ) | 1,257 | 3,496 | |||||||
| Defined benefit pension and post-retirement plans: | |||||||||||
| Net actuarial gains (losses) | (30,759 | ) | (106,837 | ) | 30,381 | ||||||
| Plan amendments and prior service cost | 9,189 | 1,607 | 2,371 | ||||||||
| Amortization of actuarial (gains) losses and plan amendments and prior service cost | 9,509 | 1,614 | 6,775 | ||||||||
| Impact of foreign currency | 5,835 | 8,089 | (2,010 | ) | |||||||
| Total other comprehensive income (loss), net of tax | (53,700 | ) | (177,913 | ) | 62,425 | ||||||
| Comprehensive income | $ | 299,120 | $ | 160,328 | $ | 368,519 |
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(In thousands, except share data)
| 2015 | 2014 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 98,887 | $ | 85,263 | |||
| Trade accounts receivable, less allowances of $14,435 in 2015 and $15,961 in 2014 | 411,420 | 435,648 | |||||
| Inventories | 214,383 | 204,531 | |||||
| Current deferred tax assets, net | 67,483 | 62,341 | |||||
| Other current assets and prepaid expenses | 70,642 | 61,647 | |||||
| Total current assets | 862,815 | 849,430 | |||||
| Property, plant, and equipment, net | 517,229 | 511,462 | |||||
| Goodwill | 446,284 | 444,085 | |||||
| Other intangible assets, net | 115,252 | 112,784 | |||||
| Non-current deferred tax assets, net | 22,873 | 30,273 | |||||
| Other non-current assets | 54,032 | 61,076 | |||||
| Total assets | $ | 2,018,485 | $ | 2,009,110 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Trade accounts payable | $ | 142,075 | $ | 145,896 | |||
| Accrued and other liabilities | 127,645 | 120,530 | |||||
| Accrued compensation and related items | 136,414 | 136,107 | |||||
| Deferred revenue and customer prepayments | 88,829 | 82,219 | |||||
| Taxes payable | 63,241 | 59,297 | |||||
| Current deferred tax liabilities, net | 22,435 | 18,677 | |||||
| Short-term borrowings and current maturities of long-term debt | 14,488 | 116,164 | |||||
| Total current liabilities | 595,127 | 678,890 | |||||
| Long-term debt | 576,984 | 335,790 | |||||
| Non-current deferred tax liabilities, net | 71,365 | 56,727 | |||||
| Other non-current liabilities | 194,552 | 218,108 | |||||
| Total liabilities | 1,438,028 | 1,289,515 | |||||
| Commitments and contingencies (Note 16) | |||||||
| 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 27,090,118 and 28,243,007 shares at December 31, 2015 and 2014, respectively | 448 | 448 | |||||
| Additional paid-in capital | 697,570 | 670,418 | |||||
| Treasury stock at cost (17,695,893 and 16,543,004 shares at December 31, 2015 and 2014, respectively) | (2,543,229 | ) | (2,095,656 | ) | |||
| Retained earnings | 2,692,317 | 2,357,334 | |||||
| Accumulated other comprehensive income (loss) | (266,649 | ) | (212,949 | ) | |||
| Total shareholders’ equity | 580,457 | 719,595 | |||||
| Total liabilities and shareholders’ equity | $ | 2,018,485 | $ | 2,009,110 |
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31
(In thousands, except share data)
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| 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 | 373,431 | — | — | 39,374 | (18,327 | ) | — | 21,047 | ||||||||||||||||||
| Repurchases of common stock | (1,617,499 | ) | — | — | (414,000 | ) | — | — | (414,000 | ) | ||||||||||||||||
| Tax benefit resulting from exercise of certain employee stock options | — | — | 3,557 | — | — | — | 3,557 | |||||||||||||||||||
| Share-based compensation | — | — | 13,611 | — | — | — | 13,611 | |||||||||||||||||||
| Net earnings | — | — | — | — | 338,241 | — | 338,241 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (177,913 | ) | (177,913 | ) | |||||||||||||||||
| Balance at December 31, 2014 | 28,243,007 | $ | 448 | $ | 670,418 | $ | (2,095,656 | ) | $ | 2,357,334 | $ | (212,949 | ) | $ | 719,595 | |||||||||||
| Exercise of stock options and restricted stock units | 403,908 | — | — | 47,393 | (17,837 | ) | — | 29,556 | ||||||||||||||||||
| Repurchases of common stock | (1,556,797 | ) | — | — | (494,966 | ) | — | — | (494,966 | ) | ||||||||||||||||
| Tax benefit resulting from exercise of certain employee stock options | — | — | 12,929 | — | — | — | 12,929 | |||||||||||||||||||
| Share-based compensation | — | — | 14,223 | — | — | — | 14,223 | |||||||||||||||||||
| Net earnings | — | — | — | — | 352,820 | — | 352,820 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (53,700 | ) | (53,700 | ) | |||||||||||||||||
| Balance at December 31, 2015 | 27,090,118 | $ | 448 | $ | 697,570 | $ | (2,543,229 | ) | $ | 2,692,317 | $ | (266,649 | ) | $ | 580,457 |
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
METTLER-TOLEDO INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(In thousands)
| 2015 | 2014 | 2013 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 352,820 | $ | 338,241 | $ | 306,094 | |||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation | 33,087 | 33,617 | 34,765 | ||||||||
| Amortization | 30,951 | 29,185 | 24,539 | ||||||||
| Deferred tax provision | 7,258 | 13,033 | 8,816 | ||||||||
| Excess tax benefits from share-based payment arrangements | (12,929 | ) | (3,557 | ) | (1,847 | ) | |||||
| Share-based compensation | 14,223 | 13,611 | 12,639 | ||||||||
| Other | 155 | 211 | 498 | ||||||||
| Increase (decrease) in cash resulting from changes in: | |||||||||||
| Trade accounts receivable, net | 1,625 | 7,492 | (28,995 | ) | |||||||
| Inventories | (18,785 | ) | (9,302 | ) | (8,484 | ) | |||||
| Other current assets | (5,119 | ) | 4,392 | 1,606 | |||||||
| Trade accounts payable | 1,698 | 6,298 | 295 | ||||||||
| Taxes payable | 2,758 | 1,868 | (3,540 | ) | |||||||
| Accruals and other | 19,126 | (16,177 | ) | (458 | ) | ||||||
| Net cash provided by operating activities | 426,868 | 418,912 | 345,928 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of property, plant, and equipment | 949 | 728 | 211 | ||||||||
| Purchase of property, plant, and equipment | (82,506 | ) | (89,388 | ) | (82,349 | ) | |||||
| Acquisitions | (13,779 | ) | (5,784 | ) | (2,661 | ) | |||||
| Net hedging settlements on intercompany loans | (5,415 | ) | 123 | (1,224 | ) | ||||||
| Net cash used in investing activities | (100,751 | ) | (94,321 | ) | (86,023 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings | 741,864 | 628,832 | 556,059 | ||||||||
| Repayments of borrowings | (594,477 | ) | (585,867 | ) | (531,045 | ) | |||||
| Proceeds from exercise of stock options | 29,556 | 21,047 | 19,745 | ||||||||
| Repurchases of common stock | (494,966 | ) | (414,000 | ) | (294,976 | ) | |||||
| Excess tax benefits from share-based payment arrangements | 12,929 | 3,557 | 1,847 | ||||||||
| Acquisition contingent consideration paid | (572 | ) | (859 | ) | — | ||||||
| Debt issuance costs | (1,366 | ) | (941 | ) | (1,522 | ) | |||||
| Net cash provided by (used in) financing activities | (307,032 | ) | (348,231 | ) | (249,892 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (5,461 | ) | (2,971 | ) | 159 | ||||||
| Net increase (decrease) in cash and cash equivalents | 13,624 | (26,611 | ) | 10,172 | |||||||
| Cash and cash equivalents: | |||||||||||
| Beginning of period | 85,263 | 111,874 | 101,702 | ||||||||
| End of period | $ | 98,887 | $ | 85,263 | $ | 111,874 | |||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the year for: | |||||||||||
| Interest | $ | 27,303 | $ | 23,219 | $ | 22,121 | |||||
| Taxes | $ | 85,458 | $ | 95,143 | $ | 83,200 |
The accompanying notes are an integral part of these consolidated financial statements.
F - 7
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise stated)
| 1. | BUSINESS DESCRIPTION AND 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, Switzerland, the United States, Germany, and the United Kingdom. The Company’s principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.
The 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 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.
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 |
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturity dates of three months or less. The carrying value of these cash equivalents approximates fair value.
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.
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.
F - 8
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
Long-Lived Assets
| a) | Property, Plant, and Equipment |
Property, plant, and equipment are stated at cost less accumulated depreciation. Repair and maintenance costs are charged to expense as incurred. 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 10 years.
Depreciation and amortization are 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 10 years |
| Leasehold improvements | Shorter of useful life or lease term |
| b) | Goodwill and Other Intangible Assets |
Goodwill, representing the excess of purchase price over the fair value of net assets from 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 is 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."
Accounting for Impairment of Long-Lived Assets
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 as the difference between carrying value and fair value.
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, their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in the
F - 9
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
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 when the Company no longer considers subsidiary earnings to be permanently invested, such as in situations where the Company’s subsidiaries plan to make future dividend distributions.
The Company recognizes accrued amounts of interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations.
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. Transaction gains and losses are included as a component of net earnings or in certain circumstances as a component of other comprehensive income (loss) where the underlying item is considered a hedge of a net investment.
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 significant post-shipment obligation, 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 stand-alone 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.
F - 10
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
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.
Research and Development
Research and development costs primarily consist of salaries, consulting, and other costs. The Company expenses these costs as incurred.
Warranty
The Company generally offers one-year warranties on most of its products. Estimated product warranties are recorded at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates, material usage, and service costs incurred in correcting a product failure.
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.
Earnings per Common Share
In accordance with the treasury stock method, the Company has included 588,697, 680,537, and 782,528 common equivalent shares in the calculation of diluted weighted average number of common shares for the years ended December 31, 2015, 2014, and 2013, respectively, relating to outstanding stock options and restricted stock units.
Outstanding options and restricted stock units to purchase or receive 112,562, 127,995, and 23,951 shares of common stock for the years ended December 31, 2015, 2014, and 2013, respectively, have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.
Equity-Based Compensation
The Company applies the fair value methodology in accounting for its equity-based compensation plan.
F - 11
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
Derivative Financial Instruments
The Company has 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 exchange contracts to economically hedge certain short-term intercompany balances involving its international businesses. Such contracts limit the Company’s exposure to currency fluctuations on the items they hedge. These contracts are adjusted to fair market value as of each balance sheet date, with the resulting changes in fair value being recognized in other charges (income), consistent with the underlying hedged item.
The Company also enters into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales. Such contracts limit the Company’s exposure to currency fluctuations on the items they hedge. Changes in fair value of outstanding foreign currency forward contract agreements that are effective as cash flow hedges are recognized in other comprehensive income as incurred.
The Company also enters into 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 in interest expense over the life of the agreements as incurred. Floating to fixed interest rate swap agreements are accounted for as cash flow hedges. Changes in fair value of outstanding interest rate swap agreements that are effective as cash flow hedges are recognized in other comprehensive income as incurred.
Fair Value Measurements
The Company measures or monitors certain assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities in which fair value is the primary basis of accounting, mainly derivative instruments. 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. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the fair value hierarchy established under U.S. GAAP and when possible looks to active and observable markets to price identical assets and liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities.
Recent Accounting Pronouncements
In November 2015, the FASB issued an ASU 2015-17, to ASC 740 "Income Taxes". The guidance simplifies the balance sheet classification of deferred taxes. The new guidance requires that all deferred tax balances be presented as non-current. This change, which can be early adopted, conforms U.S. GAAP to IFRS. The guidance becomes effective for the Company for the year beginning January 1, 2017. The adoption of this guidance would have reduced current and increased non-current assets by $67.5 million and reduced current and increased non-current liabilities by $22.4 million on the Company's consolidated balance sheet at December 31, 2015.
In May 2015, the FASB issued ASU 2015-07, to ASC 820 "Fair Value Measurements." ASU 2015-07 removes the requirement to categorize investments using the net asset value per share method within the fair value hierarchy. This change, which can be early adopted, becomes effective for the Company for the
F - 12
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
year beginning January 1, 2016. We are currently evaluating the impact this guidance will have on the Company's pension assets fair value hierarchy table in Note 12 of the financial statements.
In April 2015, the FASB issued ASU 2015-03, to ASC 835-30 "Interest - Imputation of Interest." ASU 2015-03 will require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In August 2015, the FASB issued ASU 2015-15 and update to ASU 2015-03, which addresses the accounting for debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortized over the term of the arrangements. The guidance becomes effective for financial statements issued for fiscal years beginning January 1, 2016, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial position of the Company.
In July 2014, the Company adopted ASU 2013-11 "Income Taxes." The amendment provided further guidance to the balance sheet presentation of unrecognized tax benefits when an net operating loss or similar tax loss carryforward or a tax credit carryforward exists. The adoption of this guidance did not have a material impact on the Company's consolidated results of operations or financial position.
In May 2014, the FASB issued ASU 2014-09, to ASC 606 "Revenue from Contracts with Customers." ASU 2014-09 provides authoritative guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The guidance becomes effective for the Company for the year beginning January 1, 2018. We are currently evaluating the impact the adoption of this guidance will have on the Company's consolidated results of operations, financial position, and disclosures.
- ACQUISITIONS AND DIVESTITURES
In 2015, the Company consummated acquisitions totaling $16.6 million, including the
acquisition of a real-time monitoring water purity technology for an estimated aggregate purchase price of
$14.7 million that will be integrated into the Company's process analytics product offering. The Company
may be required to pay additional cash consideration related to an earn-out period. Goodwill recorded in
connection with the acquisition totaled $9.0 million, which is included in the Company's U.S. Operations
segment. The Company also recorded $6.8 million of identified intangibles primarily pertaining to
technology in connection with the acquisitions, which will be amortized on a straight-line basis over 10 years.
- INVENTORIES
Inventory consisted of the following at December 31:
| 2015 | 2014 | ||||||
| Raw materials and parts | $ | 98,252 | $ | 97,969 | |||
| Work-in-progress | 35,100 | 34,973 | |||||
| Finished goods | 81,031 | 71,589 | |||||
| Total Inventory | $ | 214,383 | $ | 204,531 |
F - 13
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
- FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. As described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. At December 31, 2015, the interest payments associated with 91% of the Company's debt are fixed obligations. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreement and the level and composition of its debt. The Company also enters into separate foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. As also mentioned in Note 9, the Company has designated its euro-denominated debt as a hedge of a portion of its net investment in euro-denominated foreign operations. For additional disclosures on the fair value of financial instruments, see Note 6.
Cash Flow Hedges
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 business. The Company increased the notional amount of the cash flow hedges to a total notional value and average forward rate of Euro 86 million and 1.21 for contracts that matured in 2015 and Euro 67 million and 1.19 for contracts that mature in 2016, prior to the Swiss National Bank's abandonment in January 2015 of its previously established exchange rate floor of 1.20 Swiss francs per euro. The notional amount of foreign currency forward contracts outstanding were $73 million (Euro 67 million) and $87 million (Euro 72 million) at December 31, 2015 and 2014, respectively. The amount recognized in other comprehensive income (loss) during 2015 and 2014 was a gain of $19.0 million and a gain of $1.2 million, respectively.
The Company had an interest rate swap agreement designated as a cash flow hedge. The agreement was a forward-starting swap which had the effect of changing the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company’s credit facility to a fixed obligation of 3.24% beginning in October 2010 that matured in October 2015.
In June 2013, the Company entered into a forward-starting interest rate swap agreement, designated as a cash flow hedge. The agreement changes 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 and matures in October 2020.
In March 2015, the Company entered into a forward-starting interest rate swap agreement. The
agreement will change the floating rate LIBOR-based interest payments associated with $100 million in
forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.25% beginning in
February 2017 and matures in February 2022.
The cash flow hedges are recorded gross at fair value in the consolidated balance sheet at December 31, 2015 and 2014, and disclosed in Note 6 to the consolidated financial statements. Amounts reclassified into other comprehensive income and the effective portions of the cash flow hedges are further disclosed in Note 10 to the consolidated financial statements. A derivative gain of $5.0 million based upon interest rates and foreign currency rates at December 31, 2015 is expected to be reclassified from other comprehensive income (loss) to earnings in the next 12 months. Through December 31, 2015, no hedge ineffectiveness has occurred in relation to these cash flow hedges.
F - 14
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc, other major European currencies, and the Chinese renminbi with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts are recorded at fair value in the consolidated balance sheet at December 31, 2015 and 2014, as disclosed in Note 6 to the consolidated financial statements. The Company recognized in other charges (income), a net loss of $5.3 million and $3.5 million during the years ended December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, these contracts had a notional value of $318.7 million and $325.4 million, respectively.
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 believes that such counterparties will be able to fully satisfy their obligations under these contracts.
- FAIR VALUE MEASUREMENTS
At December 31, 2015 and 2014, the Company had derivative assets totaling $8.2 million and $2.2 million, respectively, and derivative liabilities totaling $4.7 million and $5.6 million, respectively. The fair values of the interest rate swap agreements, 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 for the years ended December 31, 2015 and 2014.
The Company had $18.8 million and $14.2 million of cash equivalents at December 31, 2015 and 2014, 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 fair value of the Company's fixed interest rate debt was estimated using Level 2 inputs, primarily discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The carrying value of the Company's debt exceeds the fair value by approximately $9.2 million as of December 31, 2015. The fair value of the Company's debt exceeds the carrying value by approximately $17.8 million as of December 31, 2014.
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.
F - 15
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
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
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 December 31, 2015 and 2014:
| December 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||
| Cash equivalents | $ | 18,755 | $ | — | $ | 18,755 | $ | — | $ | 14,188 | $ | — | $ | 14,188 | $ | — | |||||||||||||||
| Foreign currency forward contracts designated as cash flow hedges | 7,056 | — | 7,056 | — | 567 | — | 567 | — | |||||||||||||||||||||||
| Foreign currency forward contracts not designated as hedging instrument | 1,166 | — | 1,166 | — | 1,611 | — | 1,611 | — | |||||||||||||||||||||||
| Total | $ | 26,977 | $ | — | $ | 26,977 | $ | — | $ | 16,366 | $ | — | $ | 16,366 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 4,092 | $ | — | $ | 4,092 | $ | — | $ | 3,768 | $ | — | $ | 3,768 | $ | — | |||||||||||||||
| Foreign currency forward contracts not designated as hedging instrument | 625 | — | 625 | — | 1,799 | — | 1,799 | — | |||||||||||||||||||||||
| Total | $ | 4,717 | $ | — | $ | 4,717 | $ | — | $ | 5,567 | $ | — | $ | 5,567 | $ | — |
- PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consisted of the following at December 31:
| 2015 | 2014 | ||||||
| Land | $ | 47,358 | $ | 51,123 | |||
| Building and leasehold improvements | 211,490 | 210,008 | |||||
| Machinery and equipment | 341,820 | 345,888 | |||||
| Computer software | 353,556 | 327,753 | |||||
| Property, plant, and equipment, gross | 954,224 | 934,772 | |||||
| Less accumulated depreciation and amortization | (436,995 | ) | (423,310 | ) | |||
| Property, plant, and equipment, net | $ | 517,229 | $ | 511,462 |
F - 16
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
- GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows the changes in the carrying amount of goodwill for the years ended December 31:
| 2015 | 2014 | ||||||
| Balance at beginning of year | $ | 444,085 | $ | 455,842 | |||
| Goodwill acquired | 9,773 | 1,282 | |||||
| Foreign currency translation | (7,574 | ) | (13,039 | ) | |||
| Balance at year end | $ | 446,284 | $ | 444,085 |
Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis in the fourth quarter. The Company completed its impairment review and determined that, through December 31, 2015, there had been no impairment of these assets.
The components of other intangible assets as of December 31 are as follows:
| 2015 | 2014 | ||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Intangibles, Net | Gross Amount | Accumulated Amortization | Intangibles, Net | ||||||||||||||||||
| Customer relationships | $ | 98,175 | $ | (30,836 | ) | $ | 67,339 | $ | 98,325 | $ | (28,159 | ) | $ | 70,166 | |||||||||
| Proven technology and patents | 52,938 | (32,444 | ) | 20,494 | 45,588 | (30,761 | ) | 14,827 | |||||||||||||||
| Tradenames (finite life) | 4,200 | (2,158 | ) | 2,042 | 4,140 | (1,786 | ) | 2,354 | |||||||||||||||
| Tradenames (indefinite life) | 24,814 | — | 24,814 | 24,947 | — | 24,947 | |||||||||||||||||
| Other | 2,111 | (1,548 | ) | 563 | 1,573 | (1,083 | ) | 490 | |||||||||||||||
| $ | 182,238 | $ | (66,986 | ) | $ | 115,252 | $ | 174,573 | $ | (61,789 | ) | $ | 112,784 |
The Company recognized amortization expense associated with the above intangible assets of $6.3 million, $6.5 million, and $5.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $6.6 million for 2016, $6.3 million for 2017, $6.0 million for 2018, $5.7 million for 2019, and $5.5 million for 2020. The finite-lived intangible assets are amortized on a straight-line basis over periods ranging from 3 to 45 years. 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. Purchased intangibles amortization was $5.7 million, $3.9 million after tax, $5.6 million, $3.9 million after tax, and $5.3 million, $3.6 million after tax, for the years ended December 31, 2015, 2014, and 2013, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $24.4 million, $22.4 million, and $18.6 million for the years ended December 31, 2015, 2014, and 2013, respectively.
F - 17
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
- DEBT
Debt consisted of the following at December 31:
| 2015 | 2014 | ||||||
| $100 million Senior Notes, interest at 6.30%, due June 25, 2015 | — | 100,000 | |||||
| $50 million Senior Notes, interest at 3.67%, due December 17, 2022 | 50,000 | 50,000 | |||||
| $50 million Senior Notes, interest 4.10%, due September 19, 2023 | 50,000 | 50,000 | |||||
| $125 million Senior Notes, interest 3.84%, due September 19, 2024 | 125,000 | 125,000 | |||||
| $125 million Senior Notes, interest 4.24% due June 25, 2025 | 125,000 | — | |||||
| Euro 125 million Senior Notes, interest 1.47% due June 17, 2030 | 136,575 | — | |||||
| $800 million Credit Agreement, interest at LIBOR plus 87.5 basis points | 90,409 | 110,790 | |||||
| Other local arrangements | 14,488 | 16,164 | |||||
| Total debt | 591,472 | 451,954 | |||||
| Less: current portion | (14,488 | ) | (116,164 | ) | |||
| Long-term debt | $ | 576,984 | $ | 335,790 |
6.30% Senior Notes
In 2009, the Company issued and sold $100 million of 6.30% Senior Notes due June 25, 2015 in a private placement. The 6.30% Senior Notes were senior unsecured obligations of the Company and were fully paid on the due date.
3.67% Senior Notes
In 2012, the Company issued and sold $50 million of 3.67% Senior Notes due December 17, 2022 in a private placement. The 3.67% Senior Notes are senior unsecured obligations of the Company. Interest is payable semi-annually in June and December.
The 3.67% Senior Notes contain customary affirmative and negative covenants including, among others, limitations on the Company and its subsidiaries with respect to incurrence of liens and priority indebtedness, disposition of assets, mergers, and transactions with affiliates. The note purchase agreement also requires the Company to maintain a consolidated interest coverage ratio of not less than 3.5 to 1.0 and a consolidated leverage ratio of not more than 3.5 to 1.0. The 3.67% Senior Notes also contain customary events of default with customary grace periods, as applicable. The Company was in compliance with these covenants at December 31, 2015.
Issuance costs approximating $0.4 million are being amortized to interest expense over the ten-year term of the 3.67% Senior Notes.
4.10% Senior Notes
In 2013, the Company issued and sold $50 million of 4.10% Senior Notes due September 19, 2023 in a private placement. The 4.10% Senior Notes are senior unsecured obligations of the Company. Interest on the 4.10% Senior Notes is payable semi-annually in March and September each year, beginning in March 2014.
The 4.10% Senior Notes contain customary affirmative and negative covenants, change in control and prepayment provisions, that are substantially similar to those contained in the previously issued debt of the Company as described above. The 4.10% Senior Notes also contain customary events of default
F - 18
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
with customary grace periods, as applicable. The Company was in compliance with these covenants at December 31, 2015.
Issuance costs approximating $0.4 million are being amortized to interest expense over the ten-year term of the 4.10% Senior Notes.
3.84% Senior Notes and 4.24% Senior Notes
In the second quarter of 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 issued $125 million with a fixed interest rate of 4.24% ("4.24% Senior Notes") in June 2015. The Senior Notes are senior unsecured obligations of the Company. Interest on the 3.84% Senior Notes is payable semi-annually in March and September each year, beginning in March 2015. Interest on the 4.24% Senior Notes is payable semi-annually in June and December of each year, beginning in December 2015. The 4.24% Senior Notes were used to repay $100 million of 6.30% Senior Notes which were due June 25, 2015.
The 3.84% Senior Notes and 4.24% Senior Notes contain customary affirmative and negative covenants, change in control and prepayment provisions, that are substantially similar to those contained in the previously issued debt of the Company as described above. The 3.84% Senior Notes and 4.24% Senior Notes also contain customary events of default with customary grace periods, as applicable. The Company was in compliance with these covenants at December 31, 2015.
Issuance costs approximating $0.9 million are being amortized to interest expense over the ten-year term of the Senior Notes.
1.47% Euro Senior Notes
In June 2015, the Company issued in a private placement Euro 125 million with a fixed interest rate of 1.47% ("1.47% Euro Senior Notes") fifteen-year Senior Notes. The Euro Senior Notes are senior unsecured obligations of the Company. The Company has designated the 1.47% Euro Senior Notes as a hedge of a portion of its net investment in a euro-functional currency subsidiary to reduce foreign currency translation risk associated with the net investment in these operations. Changes in the carrying value of this debt resulting from fluctuations in the euro to U.S. dollar exchange rate are recorded as foreign currency translation adjustments within other comprehensive income (loss). The unrealized gain recorded in other comprehensive income (loss) related to this net investment hedge was $3.6 million for the period ended December 31, 2015.
Interest on the 1.47% Senior Notes is payable in June and December each year, beginning in December 2015. The Company may at any time prepay the Senior Notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, plus in some instances, a "make-whole" prepayment premium and a swap related currency loss. The Company was in compliance with these covenants at December 31, 2015.
Issuance costs approximating $0.4 million are being amortized to interest expense over the fifteen-year term of the Euro Senior Notes.
Credit Agreement
In 2015, the Company entered into an $800 million Credit Agreement (the "Credit Agreement"), which amended its $800 million Amended and Restated Credit Agreement (the "Prior Credit Agreement").
F - 19
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The Credit Agreement is provided by a group of financial institutions (similar to the Company's Prior Credit Agreement) and has a maturity date of December 17, 2020. It is a revolving credit facility and is not subject to any scheduled principal payments prior to maturity. The obligations under the Credit Agreement are unsecured.
Borrowings under the Credit Agreement bear interest at current market rates plus a margin based on the Company’s consolidated leverage ratio, which was set at LIBOR plus 87.5 basis points as of December 31, 2015. The Company must also pay facility fees that are tied to its leverage ratio. The Credit Agreement contains covenants that are substantially similar to those contained in the previously issued debt of the Company as described above, with which the Company was in compliance as of December 31, 2015. The Credit Agreement also places certain limitations on the Company, including limiting the ability to incur liens or indebtedness at a subsidiary level. In addition, the Credit Agreement has several events of default. The Company incurred approximately $0.1 million of debt extinguishment costs during 2015 related to the Prior Credit Agreement. The Company capitalized $1.1 million in financing fees during 2015 associated with the Credit Agreement which will be amortized to interest expense through 2020. As of December 31, 2015, approximately $704.7 million was available under the facility.
The Company’s weighted average interest rate was 4.7% and 5.2% for the years ended December 31, 2015 and 2014, respectively.
- 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, 2015, 3,985,412 shares of the Company’s common stock were reserved for issuance pursuant to the Company’s stock option plans.
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.
Share Repurchase Program
The Company has a share repurchase program of which there was $1.5 billion of remaining common shares authorized to be repurchased under the program as of December 31, 2015. This includes the Board of Directors authorization of an additional $1.5 billion to the program in November 2015. The share repurchases are expected to be funded from existing cash balances, borrowings, and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of repurchases will depend on business and market conditions, stock price, trading restrictions, the level of acquisition activity, and other factors.
F - 20
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The Company has purchased 24.6 million common shares since the inception of the program in 2004 through December 31, 2015, at a total cost of $3.0 billion. During the years ended December 31, 2015 and 2014, the Company spent $495.0 million and $414.0 million on the repurchase of 1,556,797 shares and 1,617,499 shares at an average price per share of $317.92 and $255.93, respectively.
Accumulated Other Comprehensive Income (Loss)
The following table presents changes in accumulated other comprehensive income by component for the period ended December 31, 2015 and 2014:
| 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: | |||||||||||||||
| Net unrealized actuarial gains (loss), prior service costs, and plan amendments | — | — | (105,230 | ) | (105,230 | ) | |||||||||
| Net unrealized gains (loss) on cash flow hedging arrangements | — | (713 | ) | — | (713 | ) | |||||||||
| Foreign currency translation adjustment | (82,875 | ) | (55 | ) | 8,089 | (74,841 | ) | ||||||||
| Amounts recognized from accumulated other comprehensive income (loss), net of tax | — | 1,257 | 1,614 | 2,871 | |||||||||||
| Net change in other comprehensive income (loss), net of tax | (82,875 | ) | 489 | (95,527 | ) | (177,913 | ) | ||||||||
| Balance at December 31, 2014 | $ | (4,960 | ) | $ | (1,944 | ) | $ | (206,045 | ) | $ | (212,949 | ) | |||
| Other comprehensive income (loss), net of tax: | |||||||||||||||
| Net unrealized actuarial gains (loss), prior service costs and plan amendments | — | — | (21,570 | ) | (21,570 | ) | |||||||||
| Net unrealized gains (loss) on cash flow hedging arrangements | — | 14,026 | — | 14,026 | |||||||||||
| Foreign currency translation adjustment | (52,434 | ) | (805 | ) | 5,835 | (47,404 | ) | ||||||||
| Amounts recognized from accumulated other comprehensive income (loss), net of tax | — | (8,261 | ) | 9,509 | 1,248 | ||||||||||
| Net change in other comprehensive income (loss), net of tax | (52,434 | ) | 4,960 | (6,226 | ) | (53,700 | ) | ||||||||
| Balance at December 31, 2015 | $ | (57,394 | ) | $ | 3,016 | $ | (212,271 | ) | $ | (266,649 | ) |
F - 21
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The following table presents amounts recognized from accumulated other comprehensive income (loss) for the twelve months period ended December 31, 2015 and 2014:
| 2015 | 2014 | Location of Amounts Recognized in Earnings | ||||||||
| Effective portion of losses (gains) on cash flow hedging arrangements: | ||||||||||
| Interest rate swap agreements | $ | 2,764 | $ | 3,119 | Interest expense | |||||
| Foreign currency forward contracts | (12,529 | ) | (831 | ) | Cost of sales - products | |||||
| Total before taxes | (9,765 | ) | 2,288 | |||||||
| Provision for taxes | (1,504 | ) | 1,031 | Provision for taxes | ||||||
| Total, net of taxes | $ | (8,261 | ) | $ | 1,257 | |||||
| Recognition of defined benefit pension and post-retirement items: | ||||||||||
| Recognition of actuarial losses, plan amendments, and prior service cost, before taxes | $ | 13,018 | $ | 2,877 | (a) | |||||
| Provision for taxes | 3,509 | 1,263 | Provision for taxes | |||||||
| Total, net of taxes | $ | 9,509 | $ | 1,614 |
| (a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 12 for additional details for the year ended December 31, 2015. |
- EQUITY INCENTIVE PLAN
The Company’s equity incentive plan provides employees and directors of the Company additional incentives 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. The Company’s 2013 equity incentive plan was approved by shareholders on May 2, 2013 and provides that 2 million shares of common stock, plus any options outstanding under the Company’s prior option plan that terminate without being exercised, may be the subject of awards. The plan provides for the grant of options, restricted stock, restricted stock units and other equity-based awards. The exercise price of options granted shall not be less than the fair market value of the common stock on the date of the award. Options primarily vest equally over a five-year period from the date of grant and have a maximum term of up to ten years and six months. Restricted units primarily vest equally over a five-year period from the date of grant. Since 2005, the compensation committee of the Board of Directors has generally granted restricted share units to participating managers and non-qualified stock options to executive officers.
All share-based compensation arrangements granted to employees, including stock option grants, are recognized in the consolidated statement of operations based on the grant-date fair value of the award over the period during which an employee is required to provide service in exchange for the award. Share-based compensation expense is recorded within selling, general, and administrative in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet.
F - 22
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The fair values of stock options granted were calculated using the Black-Scholes pricing model. The aggregate intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The following table summarizes all stock option activity from December 31, 2014 through December 31, 2015:
| Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value (in millions) | ||||
| Outstanding at December 31, 2014 | 1,646,483 | $133.80 | $277.7 | |||
| Granted | 108,694 | 312.36 | ||||
| Exercised | (372,355 | ) | 79.37 | |||
| Forfeited | (8,117 | ) | 208.17 | |||
| Outstanding at December 31, 2015 | 1,374,705 | $162.29 | $243.1 | |||
| Options exercisable at December 31, 2015 | 1,000,773 | $130.15 | $209.1 |
The following table details the weighted average remaining contractual life of options outstanding at December 31, 2015 by range of exercise prices:
| Number of Options Outstanding | Weighted Average Exercise Price | Remaining Contractual Life of Options Outstanding | Options Exercisable | |||||||
| 294,206 | $ | 84.18 | 3.4 | 294,206 | ||||||
| 202,950 | $ | 109.00 | 1.9 | 202,950 | ||||||
| 340,650 | $ | 141.50 | 5.3 | 309,259 | ||||||
| 173,273 | $ | 169.37 | 6.8 | 109,023 | ||||||
| 363,626 | $ | 271.34 | 8.8 | 85,335 | ||||||
| 1,374,705 | 5.5 | 1,000,773 |
As of the date granted, the weighted average grant-date fair value of the options granted during the years ended December 31, 2015, 2014, and 2013 was $92.81, $77.64, and $66.33, respectively.
Such weighted average grant-date fair value was determined using the following assumptions:
| 2015 | 2014 | 2013 | ||||||
| Risk-free interest rate | 1.65 | % | 1.66 | % | 1.31 | % | ||
| Expected life in years | 5.7 | 5.6 | 5.0 | |||||
| Expected volatility | 28 | % | 28 | % | 28 | % | ||
| Expected dividend yield | — | — | — |
The total intrinsic value of options exercised during the years ended December 31, 2015, 2014, and 2013 was approximately $90.7 million, $66.9 million, and $60.0 million, respectively.
The total fair value of options vested during the years ended December 31, 2015, 2014, and 2013 was approximately $8.6 million, $6.4 million, and $5.7 million, respectively.
F - 23
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The following table summarizes all restricted stock unit activity from December 31, 2014 through December 31, 2015:
| Number of Restricted Stock Units | Aggregate Intrinsic Value (in millions) | |||||
| Outstanding at December 31, 2014 | 96,097 | $ | 29.1 | |||
| Granted | 25,970 | |||||
| Vested | (31,553 | ) | ||||
| Forfeited | (8,440 | ) | ||||
| Outstanding at December 31, 2015 | 82,074 | $ | 27.8 |
The weighted average grant-date fair value of the restricted stock units granted during years ended 2015 and 2014 was $312.57 and $263.58 per unit, respectively, and the restricted units vest ratably primarily over a five-year period. The total fair value of the restricted stock units on the date of grant of $8.1 million for 2015 and $7.8 million for 2014 will be recorded as compensation expense on a straight-line basis over the vesting period. The total fair value of restricted stock units vested during the years ended December 31, 2015, 2014, and 2013 was approximately $6.0 million, $5.8 million, and $5.6 million, respectively. Approximately $5.8 million and $5.6 million of compensation expense was recognized during the years ended December 31, 2015 and 2014, respectively.
At December 31, 2015, a total of 2,448,666 shares of common stock were available for grant in the form of stock options or restricted stock units.
As of December 31, 2015, the unrecorded deferred share-based compensation balance related to both stock options and restricted stock units was $44.9 million and will be recognized using a straight-line method over an estimated weighted average amortization period of 2.3 years.
- BENEFIT PLANS
The Company 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 $16.0 million, $15.6 million, and $15.1 million for the years ended December 31, 2015, 2014, and 2013, 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. Prior to 2002, the Company’s U.S. operations also provided post-retirement medical benefits to their employees. Contributions for medical benefits are related to employee years of service.
F - 24
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The following tables set 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 plan at December 31, 2015 and 2014:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits | Total | ||||||||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | 164,367 | $ | 138,147 | $ | 863,639 | $ | 814,200 | $ | 3,754 | $ | 5,295 | $ | 1,031,760 | $ | 957,642 | |||||||||||||||
| Service cost, gross | 837 | 893 | 31,514 | 28,579 | — | 170 | 32,351 | 29,642 | |||||||||||||||||||||||
| Interest cost | 6,431 | 6,396 | 14,071 | 21,445 | 139 | 240 | 20,641 | 28,081 | |||||||||||||||||||||||
| Actuarial losses (gains) | (10,145 | ) | 25,848 | (4,959 | ) | 117,902 | 113 | 477 | (14,991 | ) | 144,227 | ||||||||||||||||||||
| Plan amendments and other | — | — | (12,391 | ) | (453 | ) | 163 | (1,951 | ) | (12,228 | ) | (2,404 | ) | ||||||||||||||||||
| Benefits paid | (7,075 | ) | (6,917 | ) | (49,010 | ) | (35,279 | ) | (897 | ) | (477 | ) | (56,982 | ) | (42,673 | ) | |||||||||||||||
| Impact of foreign currency | — | — | (24,595 | ) | (82,755 | ) | — | — | (24,595 | ) | (82,755 | ) | |||||||||||||||||||
| Benefit obligation at end of year | $ | 154,415 | $ | 164,367 | $ | 818,269 | $ | 863,639 | $ | 3,272 | $ | 3,754 | $ | 975,956 | $ | 1,031,760 | |||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 132,030 | $ | 117,903 | $ | 751,193 | $ | 786,532 | $ | — | $ | — | $ | 883,223 | $ | 904,435 | |||||||||||||||
| Actual return on plan assets | (5,907 | ) | 2,974 | (2,925 | ) | 40,893 | — | — | (8,832 | ) | 43,867 | ||||||||||||||||||||
| Employer contributions | 70 | 18,070 | 22,812 | 25,448 | 734 | 343 | 23,616 | 43,861 | |||||||||||||||||||||||
| Plan participants’ contributions | — | — | 12,850 | 13,409 | 163 | 134 | 13,013 | 13,543 | |||||||||||||||||||||||
| Benefits paid | (7,075 | ) | (6,917 | ) | (49,010 | ) | (35,279 | ) | (897 | ) | (477 | ) | (56,982 | ) | (42,673 | ) | |||||||||||||||
| Impact of foreign currency and other | — | — | (9,323 | ) | (79,810 | ) | — | — | (9,323 | ) | (79,810 | ) | |||||||||||||||||||
| Fair value of plan assets at end of year | $ | 119,118 | $ | 132,030 | $ | 725,597 | $ | 751,193 | $ | — | $ | — | $ | 844,715 | $ | 883,223 | |||||||||||||||
| Funded status | $ | (35,297 | ) | $ | (32,337 | ) | $ | (92,672 | ) | $ | (112,446 | ) | $ | (3,272 | ) | $ | (3,754 | ) | $ | (131,241 | ) | $ | (148,537 | ) |
Amounts recognized in the consolidated balance sheets consist of:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits | Total | ||||||||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||
| Other non-current assets | $ | — | $ | — | $ | 32,786 | $ | 38,922 | $ | — | $ | — | $ | 32,786 | $ | 38,922 | |||||||||||||||
| Accrued and other liabilities | (92 | ) | (69 | ) | (4,508 | ) | (4,676 | ) | (483 | ) | (579 | ) | (5,083 | ) | (5,324 | ) | |||||||||||||||
| Pension and other post-retirement liabilities | (35,205 | ) | (32,268 | ) | (120,950 | ) | (146,692 | ) | (2,789 | ) | (3,175 | ) | (158,944 | ) | (182,135 | ) | |||||||||||||||
| Accumulated other comprehensive loss (income) | 83,347 | 85,636 | 216,224 | 213,702 | (9,943 | ) | (15,303 | ) | 289,628 | 284,035 | |||||||||||||||||||||
| Total | $ | 48,050 | $ | 53,299 | $ | 123,552 | $ | 101,256 | $ | (13,215 | ) | $ | (19,057 | ) | $ | 158,387 | $ | 135,498 |
F - 25
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The following amounts have been recognized in accumulated other comprehensive income (loss), before taxes, at December 31, 2015 and have not yet been recognized as a component of net periodic pension cost:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits | Total | Total, After Tax | |||||||||||||||
| Plan amendments and prior service cost | $ | — | $ | (27,114 | ) | $ | (3,028 | ) | $ | (30,142 | ) | $ | (23,079 | ) | |||||
| Actuarial losses (gains) | 83,347 | 243,338 | (6,915 | ) | 319,770 | 235,350 | |||||||||||||
| Total | $ | 83,347 | $ | 216,224 | $ | (9,943 | ) | $ | 289,628 | $ | 212,271 |
The following changes in plan assets and benefit obligations were recognized in other comprehensive income (loss), before taxes, for the year ended December 31, 2015:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits | Total | Total, After Tax | |||||||||||||||
| Net actuarial losses (gains) | $ | 5,337 | $ | 33,507 | $ | 113 | $ | 38,957 | $ | 30,759 | |||||||||
| Plan amendments and prior service cost, net | — | (12,058 | ) | — | (12,058 | ) | (9,189 | ) | |||||||||||
| Amortization of: | |||||||||||||||||||
| Actuarial (losses) gains | (7,626 | ) | (15,084 | ) | 1,877 | (20,833 | ) | (15,134 | ) | ||||||||||
| Plan amendments and prior service cost | — | 4,445 | 3,370 | 7,815 | 5,625 | ||||||||||||||
| Impact of foreign currency | — | (8,288 | ) | — | (8,288 | ) | (5,835 | ) | |||||||||||
| Total | $ | (2,289 | ) | $ | 2,522 | $ | 5,360 | $ | 5,593 | $ | 6,226 |
The accumulated benefit obligations at December 31, 2015 and 2014 were $154.4 million and $164.4 million, respectively, for the U.S. defined benefit pension plan and $803.3 million and $834.7 million, respectively, for all non-U.S. plans. Certain of the plans included within non-U.S. pension benefits have accumulated benefit obligations which exceed the fair value of plan assets. The projected benefit obligation, the accumulated benefit obligation, and fair value of assets of these plans as of December 31, 2015 were $168.4 million, $158.2 million, and $42.9 million, respectively.
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. | ||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||
| Discount rate | 4.27 | % | 4.00 | % | 4.75 | % | 1.31 | % | 1.65 | % | 2.73 | % | |||||
| Compensation increase rate | n/a | n/a | n/a | 1.03 | % | 1.61 | % | 1.61 | % | ||||||||
| Expected long-term rate of return on plan assets | 7.25 | % | 7.50 | % | 7.50 | % | 4.58 | % | 4.82 | % | 4.87 | % |
F - 26
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The assumed discount rates, rates of increase in future compensation levels, and the long-term rate of return used in calculating the net periodic pension cost 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. | ||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||
| Discount rate | 4.00 | % | 4.75 | % | 3.75 | % | 1.65 | % | 2.73 | % | 2.50 | % | |||||
| Compensation increase rate | n/a | n/a | n/a | 1.61 | % | 1.61 | % | 1.60 | % | ||||||||
| Expected long-term rate of return on plan assets | 7.50 | % | 7.50 | % | 7.75 | % | 4.82 | % | 4.87 | % | 4.89 | % |
Net periodic pension cost and net periodic post-retirement benefit for the defined benefit plans and U.S. post-retirement plan includes the following components for the years ended December 31:
| U.S. | Non-U.S. | Other Benefits | Total | ||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||
| Service cost, net | $ | 837 | $ | 893 | $ | 494 | $ | 18,664 | $ | 15,189 | $ | 17,386 | $ | — | $ | 170 | $ | 216 | $ | 19,501 | $ | 16,252 | $ | 18,096 | |||||||||||||||||||||||
| Interest cost on projected benefit obligations | 6,431 | 6,396 | 5,755 | 14,071 | 21,445 | 19,566 | 139 | 240 | 405 | 20,641 | 28,081 | 25,726 | |||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (9,575 | ) | (8,549 | ) | (7,154 | ) | (36,832 | ) | (37,361 | ) | (35,048 | ) | — | — | — | (46,407 | ) | (45,910 | ) | (42,202 | ) | ||||||||||||||||||||||||||
| Recognition of actuarial losses/(gains) and prior service costs | 7,626 | 4,800 | 7,782 | 10,639 | 292 | 3,545 | (5,247 | ) | (2,215 | ) | (901 | ) | 13,018 | 2,877 | 10,426 | ||||||||||||||||||||||||||||||||
| Net periodic pension cost / (benefit) | $ | 5,319 | $ | 3,540 | $ | 6,877 | $ | 6,542 | $ | (435 | ) | $ | 5,449 | $ | (5,108 | ) | $ | (1,805 | ) | $ | (280 | ) | $ | 6,753 | $ | 1,300 | $ | 12,046 |
The amounts remaining in accumulated other comprehensive income (loss) that are expected to be recognized as a component of net periodic pension cost during 2016 are as follows:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits | Total | ||||||||||||
| Plan amendments and prior service costs | $ | — | $ | (3,889 | ) | $ | (1,877 | ) | $ | (5,766 | ) | ||||
| Actuarial losses (gains) | 7,561 | 17,935 | (2,692 | ) | 22,804 | ||||||||||
| Total | $ | 7,561 | $ | 14,046 | $ | (4,569 | ) | $ | 17,038 |
The projected post-retirement benefit obligation was principally determined using discount rates of 3.54% in 2015, 4.00% in 2014, and 4.75% in 2013. Net periodic post-retirement benefit cost was principally determined using discount rates of 4.00% in 2015, and 4.75% in 2014, and 3.75% in 2013. The health care cost trend rate was 8.0% in 2015, ranged from 7.75% to 8.50% in 2014, and was 8.0% 2013, decreasing to 5.00% in 2022. A one-percentage-point change in health care cost trend rates would have an immaterial impact on total service and interest cost components and the post-retirement benefit obligation.
The Company’s overall asset investment strategy is to achieve long-term growth while minimizing volatility by widely diversifying among asset types and strategies. Target asset allocations and investment return criteria are established by the pension committee or designated officers of each plan. Target asset allocation ranges for the U.S. pension plan include 33-53% in equity securities, 11-21% in fixed income securities, and 30-50% in other types of investments. International plan assets relate primarily to the Company’s Swiss plan with target allocations of 25-45% in equities, 35-55% in fixed income securities, and 15-25% in other types of investments. Actual results are monitored against 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 third-party asset managers, reporting to the pension committees or designated officers.
F - 27
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The long-term rate of return on plan asset assumptions used to determine pension expense under U.S. GAAP are generally based on estimated future returns for the target investment mix determined by the trustees as well as historical investment performance.
The following table presents the fair value measurement of the Company’s plan assets by hierarchy level:
| December 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Observable Inputs for Identical Assets (Level 2) | Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Observable Inputs for Identical Assets (Level 2) | Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||||||
| Asset Category: | |||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 86,135 | $ | — | $ | — | $ | 86,135 | $ | 140,959 | $ | — | $ | — | $ | 140,959 | |||||||||||||||
| Equity Securities: | |||||||||||||||||||||||||||||||
| Mettler-Toledo Stock | 3,229 | — | — | 3,229 | 3,638 | — | — | 3,638 | |||||||||||||||||||||||
| Equity Mutual Funds: | |||||||||||||||||||||||||||||||
| U.S.(1) | 6,320 | 27,614 | — | 33,934 | 7,377 | 30,268 | — | 37,645 | |||||||||||||||||||||||
| International(2) | 41,982 | 50,748 | — | 92,730 | 39,515 | 52,476 | — | 91,991 | |||||||||||||||||||||||
| Emerging Markets(3) | 95,065 | 6,117 | — | 101,182 | 72,360 | 6,679 | — | 79,039 | |||||||||||||||||||||||
| Fixed Income Securities: | |||||||||||||||||||||||||||||||
| Corporate/Government | 91,533 | — | — | 91,533 | 124,709 | — | — | 124,709 | |||||||||||||||||||||||
| Bonds(4) | |||||||||||||||||||||||||||||||
| Fixed Income Mutual Funds: | |||||||||||||||||||||||||||||||
| Insurance Contracts(5) | — | 20,351 | 1,367 | 21,718 | — | 23,288 | 1,388 | 24,676 | |||||||||||||||||||||||
| Core Bond(6) | 138,073 | 37,099 | — | 175,172 | 120,840 | 38,757 | — | 159,597 | |||||||||||||||||||||||
| Real Asset Mutual Funds: | |||||||||||||||||||||||||||||||
| Real Estate(7) | 65,597 | — | — | 65,597 | 61,849 | — | — | 61,849 | |||||||||||||||||||||||
| Commodities(8) | 21,092 | 3,880 | 33,505 | 58,477 | 20,920 | 3,118 | 28,196 | 52,234 | |||||||||||||||||||||||
| Other Types of Investments: | |||||||||||||||||||||||||||||||
| Global Allocation Funds(9) | 12,661 | 13,605 | — | 26,266 | 13,790 | 12,145 | — | 25,935 | |||||||||||||||||||||||
| Multi-Strategy Fund of | — | — | 88,742 | 88,742 | — | — | 80,951 | 80,951 | |||||||||||||||||||||||
| Hedge Funds(10) | |||||||||||||||||||||||||||||||
| $ | 561,687 | $ | 159,414 | $ | 123,614 | $ | 844,715 | $ | 605,957 | $ | 166,731 | $ | 110,535 | $ | 883,223 |
| (1) | Represents primarily large capitalization equity mutual funds tracking the S&P 500 Index. |
| (2) | Represents all capitalization core and value equity mutual funds located primarily in Switzerland, the United Kingdom, and Canada. |
| (3) | Represents core and growth mutual funds and funds of mutual funds invested in emerging markets primarily in Eastern Europe, Latin America, and Asia. |
| (4) | Represents investments in high-grade corporate and government bonds located in Switzerland and the European Union. |
| (5) | Represents fixed and variable rate annuity contracts provided by insurance companies. |
| (6) | Represents fixed income mutual funds invested in the U.S., the United Kingdom, Switzerland, and European government bonds, high-grade corporate bonds, mortgage-backed securities, and collateralized mortgage obligations. |
| (7) | Represents mutual funds invested in real estate located primarily in Switzerland. |
| (8) | Represents commodity funds invested across a broad range of sectors. |
| (9) | Represents mutual funds invested globally in both equities and fixed income securities. |
| (10) | Represents primarily equity investments to profit from long and short equity positions, economic and government driven events and relative value, and tactical trading strategies. |
F - 28
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The fair value of the Company’s stock and corporate and government bonds are valued at the year end closing price as reported on the securities exchange on which they are traded. Mutual funds are valued at the exchange-listed year end closing price or at the net asset value of shares held by the fund at the end of the year. Insurance contracts are valued by discounting the related cash flows using a current year end market rate or at cash surrender value, which is presumed to equal fair value. Funds of hedge funds are valued at the net asset value of shares held by the fund at the end of the year.
The following table presents a rollforward of activity for the years ended December 31, 2015 and 2014 for Level 3 asset categories:
| Multi- Strategy Fund of Hedge Funds | Commodities | Insurance Contract | Total | ||||||||||||
| Balance at December 31, 2013 | $ | 77,312 | $ | 23,136 | $ | 1,475 | $ | 101,923 | |||||||
| Actual return on plan assets: | |||||||||||||||
| Related to assets held at end of year | 4,456 | 2,952 | 34 | 7,442 | |||||||||||
| Related to assets sold during the year | 4,811 | — | — | 4,811 | |||||||||||
| Purchases | 22,867 | 5,030 | 115 | 28,012 | |||||||||||
| Sales | (21,649 | ) | — | (54 | ) | (21,703 | ) | ||||||||
| Impact of foreign currency | (6,846 | ) | (2,922 | ) | (182 | ) | (9,950 | ) | |||||||
| Balance at December 31, 2014 | $ | 80,951 | $ | 28,196 | $ | 1,388 | $ | 110,535 | |||||||
| Actual return on plan assets: | |||||||||||||||
| Related to assets held at end of year | 6,453 | 2,408 | 22 | 8,883 | |||||||||||
| Purchases | 9,980 | 2,911 | 99 | 12,990 | |||||||||||
| Sales | (8,317 | ) | — | — | (8,317 | ) | |||||||||
| Impact of foreign currency | (325 | ) | (10 | ) | (142 | ) | (477 | ) | |||||||
| Balance at December 31, 2015 | $ | 88,742 | $ | 33,505 | $ | 1,367 | $ | 123,614 |
There were no transfers between any asset levels during the years ended December 31, 2015 and 2014.
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other Benefits Net of Subsidy | Total | ||||||||||||
| 2016 | $ | 7,484 | $ | 40,900 | $ | 483 | $ | 48,867 | |||||||
| 2017 | 7,842 | 40,576 | 441 | 48,859 | |||||||||||
| 2018 | 8,181 | 40,616 | 381 | 49,178 | |||||||||||
| 2019 | 8,460 | 40,390 | 331 | 49,181 | |||||||||||
| 2020 | 8,782 | 40,746 | 263 | 49,791 | |||||||||||
| 2021-2025 | 47,773 | 193,094 | 973 | 241,840 |
The Company made voluntary incremental pension contributions of $18 million in 2014 to increase the funded status of its pension plans. The Company does not expect to receive any refunds from its benefit plans during 2016.
In 2016, the Company expects to make employer pension contributions of approximately $19.4 million to its non-U.S. pension plan and employer contributions of approximately $0.5 million to its U.S. post-retirement medical plan.
F - 29
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
In early 2016, in order to reduce the size and potential volatility of our U.S. defined benefit pension plan obligation, we offered approximately 700 former employees who have deferred vested pension plan benefits a one-time option to receive a lump sum distribution of their benefits in early May 2016. The vested benefit obligation associated with these former employees is approximately $32 million, equivalent to 21% of the company's benefit obligation for this U.S. plan. Eligible participants have 45 days to make their election. If the percentage of benefits distributed through the lump sum option exceeds 18% of the benefit obligation associated with these former employees, we anticipate recognizing a one-time non-cash settlement charge of approximately $7 million to $13 million in the second quarter of 2016. The lump sum payments will be funded from existing pension plan assets.
- TAXES
The sources of the Company’s earnings before taxes were as follows for the years ended December 31:
| 2015 | 2014 | 2013 | |||||||||
| United States | $ | 20,992 | $ | 33,157 | $ | 18,119 | |||||
| Non-United States | 442,432 | 411,847 | 384,590 | ||||||||
| Earnings before taxes | $ | 463,424 | $ | 445,004 | $ | 402,709 |
The provisions for taxes consist of:
| Current | Deferred | Total | |||||||||
| Year ended December 31, 2015: | |||||||||||
| United States federal | $ | 11,071 | $ | 3,029 | $ | 14,100 | |||||
| State and local | 2,164 | 617 | 2,781 | ||||||||
| Non-United States | 90,111 | 3,612 | 93,723 | ||||||||
| Total | $ | 103,346 | $ | 7,258 | $ | 110,604 | |||||
| Year ended December 31, 2014: | |||||||||||
| United States federal | $ | — | $ | 5,676 | $ | 5,676 | |||||
| State and local | 1,372 | 527 | 1,899 | ||||||||
| Non-United States | 92,358 | 6,830 | 99,188 | ||||||||
| Total | $ | 93,730 | $ | 13,033 | $ | 106,763 | |||||
| Year ended December 31, 2013: | |||||||||||
| United States federal | $ | — | $ | 8,249 | $ | 8,249 | |||||
| State and local | 1,459 | 965 | 2,424 | ||||||||
| Non-United States | 86,340 | (398 | ) | 85,942 | |||||||
| Total | $ | 87,799 | $ | 8,816 | $ | 96,615 |
The provisions for tax expense for the years ended December 31, 2015, 2014, and 2013 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:
F - 30
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
| 2015 | 2014 | 2013 | |||||||||
| Expected tax | $ | 162,198 | $ | 155,751 | $ | 140,948 | |||||
| United States state and local income taxes, net of federal income tax benefit | 2,551 | 1,899 | 1,167 | ||||||||
| Change in valuation allowance | (1,098 | ) | (172 | ) | 1,178 | ||||||
| Non-United States income taxes at other than a 35% rate | (54,798 | ) | (51,360 | ) | (50,041 | ) | |||||
| Other, net | 1,751 | 645 | 3,363 | ||||||||
| Total provision for taxes | $ | 110,604 | $ | 106,763 | $ | 96,615 |
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:
| 2015 | 2014 | ||||||
| Deferred tax assets: | |||||||
| Inventory | $ | 28,973 | $ | 27,164 | |||
| Accrued and other liabilities | 69,956 | 74,780 | |||||
| Accrued post-retirement benefit and pension costs | 59,175 | 68,709 | |||||
| Net operating loss and tax credit carryforwards | 32,818 | 45,806 | |||||
| Other | 9,778 | 9,044 | |||||
| Total deferred tax assets | 200,700 | 225,503 | |||||
| Less valuation allowance | (25,435 | ) | (36,263 | ) | |||
| Total deferred tax assets less valuation allowance | 175,265 | 189,240 | |||||
| Deferred tax liabilities: | |||||||
| Inventory | 3,946 | 3,918 | |||||
| Property, plant, and equipment | 57,373 | 47,547 | |||||
| Rainin intangibles amortization | 71,388 | 65,409 | |||||
| Prepaid post-retirement benefit and pension costs | 30,884 | 36,548 | |||||
| International earnings | 14,998 | 13,506 | |||||
| Other | 120 | 5,102 | |||||
| Total deferred tax liabilities | 178,709 | 172,030 | |||||
| Net deferred tax (liability) asset | $ | (3,444 | ) | $ | 17,210 |
A reconciliation of the beginning and end amounts of unrecognized tax benefits is as follows:
| 2015 | 2014 | ||||||
| Unrecognized tax benefits at beginning of year | $ | 16,864 | $ | 18,848 | |||
| Increases related to current tax positions | 2,676 | 990 | |||||
| Increases related to prior year tax positions | 186 | 1,944 | |||||
| Decreases relating to taxing authority settlements | (1,102 | ) | (1,886 | ) | |||
| Decreases resulting from a lapse of the applicable statute of limitations | (2,764 | ) | (2,106 | ) | |||
| Other, net | $ | (601 | ) | $ | (926 | ) | |
| Unrecognized tax benefits at end of year | $ | 15,259 | $ | 16,864 |
Included in the balance of unrecognized tax benefits at December 31, 2015 and 2014 were $12.0 million and $13.6 million, respectively, of tax benefits that if recognized would reduce the Company’s effective tax rate. The Company recognizes accrued amounts of interest and penalties related to its uncertain tax positions as part of its income tax expense within its consolidated statement of operations.
F - 31
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
The amount of accrued interest and penalties included within other non-current liabilities within the Company’s consolidated balance sheet as of December 31, 2015 and 2014 was $1.9 million and $1.6 million, respectively.
The Company believes that it is reasonably possible that the unrecognized tax benefit balance could change over the next twelve months, primarily related to potential disputes raised by the taxing authorities over income and expense recognition. The Company does not expect a change would have a material impact on its financial position, results of operations, or cash flows.
The Company has recorded valuation allowances related to certain of 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 $10.8 million decrease in the total valuation allowance during 2015 is primarily attributable to changes in the foreign tax credit carryforward and foreign currency fluctuation.
The deferred tax assets and valuation allowance as of December 31, 2015 do not include certain deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation expense recorded. Shareholders' equity will be increased by $66.5 million if and when such tax assets are ultimately realized.
At December 31, 2015, the Company has various U.S. state net operating losses and various foreign net operating losses that have various expiration periods.
The Company plans to repatriate earnings from China, Switzerland, Germany, the United Kingdom, and certain other countries in future years and believes that there will be no additional cost associated with the repatriation of such foreign earnings other than withholding taxes. All other undistributed earnings are considered to be permanently reinvested. As of December 31, 2015, we had an immaterial amount of cash and cash equivalents in foreign subsidiaries where undistributed earnings are considered permanently reinvested. Accordingly, we believe the tax impact associated with repatriating our undistributed foreign earnings will not have a material effect on our liquidity.
As of December 31, 2015, the major jurisdictions for which the Company is subject to examinations are Germany for years after 2012, the United States after 2012, France after 2011, Switzerland after 2011, the United Kingdom after 2013, and China after 2012. Additionally, 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 a material impact on the Company’s consolidated results of operations or financial position.
- RESTRUCTURING CHARGES
During the past few years, we initiated additional cost reduction measures in response to global economic conditions. For the years ended December 31, 2015 and 2014, we have incurred $11.1 million and $5.9 million, respectively, of restructuring expenses which primarily comprise employee related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.
F - 32
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
A rollforward of the Company’s accrual for restructuring activities for the years ended December 31, 2015 and 2014 is as follows:
| Total | ||||
| Balance at December 31, 2013 | $ | 13,185 | ||
| Restructuring charges | 5,915 | |||
| Cash payments / utilization | (9,657 | ) | ||
| Impact of foreign currency | (1,007 | ) | ||
| Balance at December 31, 2014 | 8,436 | |||
| Restructuring charges | 11,148 | |||
| Cash payments / utilization | (6,568 | ) | ||
| Impact of foreign currency | (805 | ) | ||
| Balance at December 31, 2015 | $ | 12,211 |
- OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of (gains) losses from foreign currency transactions and hedging activity, interest income, and other items.
- 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, 2015:
| 2016 | $ | 30,873 | |
| 2017 | 22,398 | ||
| 2018 | 15,276 | ||
| 2019 | 10,407 | ||
| 2020 | 8,091 | ||
| Thereafter | 9,504 | ||
| Total | $ | 96,549 |
Rent expense for operating leases amounted to $31.6 million, $34.9 million, and $37.0 million for the years ended December 31, 2015, 2014, and 2013, respectively.
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, results of operations, or cash flows.
F - 33
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
- SEGMENT REPORTING
The Company has five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations, and Other. U.S. Operations represent certain of the Company’s marketing and producing organizations located in the United States. Western European Operations include the Company’s marketing and producing organizations in Western Europe, excluding operations located in Switzerland. Swiss Operations include marketing and producing organizations located in Switzerland as well as extensive R&D operations that are responsible for the development, production, and marketing of precision instruments, including weighing, analytical, and measurement technologies for use in a variety of laboratory and industrial applications. Chinese Operations represent the Company’s marketing and producing organizations located in China. 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.
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 for segment reporting (gross profit less research and development and selling, general, and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net, and taxes). Inter-segment 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 reportable segments:
| For the Year Ended December 31, 2015 | Net Sales to External Customers | Net Sales to Other Segments | Total Net Sales | Segment Profit | Depreciation | Total Assets | Purchase of Property, Plant and Equipment | Goodwill | ||||||||||||||||||||||||
| U.S. Operations | $ | 825,290 | $ | 87,488 | $ | 912,778 | $ | 147,331 | $ | 6,153 | $ | 1,511,618 | $ | (7,113 | ) | $ | 317,856 | |||||||||||||||
| Swiss Operations | 134,169 | 454,429 | 588,598 | 163,243 | 6,488 | 1,137,664 | (6,650 | ) | 21,841 | |||||||||||||||||||||||
| Western European Operations | 623,153 | 127,479 | 750,632 | 108,539 | 4,076 | 1,018,255 | (5,940 | ) | 92,389 | |||||||||||||||||||||||
| Chinese Operations | 376,291 | 183,604 | 559,895 | 153,314 | 7,086 | 510,327 | (14,770 | ) | 692 | |||||||||||||||||||||||
| Other(a) | 436,544 | 8,087 | 444,631 | 50,454 | 2,883 | 270,236 | (4,306 | ) | 13,506 | |||||||||||||||||||||||
| Eliminations and Corporate(b) | — | (861,087 | ) | (861,087 | ) | (90,774 | ) | 6,401 | (2,429,615 | ) | (43,727 | ) | — | |||||||||||||||||||
| Total | $ | 2,395,447 | $ | — | $ | 2,395,447 | $ | 532,107 | $ | 33,087 | $ | 2,018,485 | $ | (82,506 | ) | $ | 446,284 |
| For the Year Ended December 31, 2014 | Net Sales to External Customers | Net Sales to Other Segments | Total Net Sales | Segment Profit (c) | Depreciation | Total Assets | Purchase of Property, Plant and Equipment | Goodwill | ||||||||||||||||||||||||
| U.S. Operations | $ | 759,135 | $ | 90,463 | $ | 849,598 | $ | 123,080 | $ | 6,068 | $ | 1,294,037 | $ | (6,627 | ) | $ | 308,861 | |||||||||||||||
| Swiss Operations | 138,581 | 461,171 | 599,752 | 152,090 | 6,621 | 1,018,941 | (6,567 | ) | 21,873 | |||||||||||||||||||||||
| Western European Operations | 708,755 | 124,349 | 833,104 | 120,580 | 4,422 | 1,061,455 | (5,581 | ) | 99,341 | |||||||||||||||||||||||
| Chinese Operations | 415,474 | 155,690 | 571,164 | 160,793 | 6,746 | 816,801 | (19,793 | ) | 740 | |||||||||||||||||||||||
| Other(a) | 464,038 | 7,527 | 471,565 | 52,461 | 2,820 | 261,036 | (3,315 | ) | 13,270 | |||||||||||||||||||||||
| Eliminations and Corporate(b) | — | (839,200 | ) | (839,200 | ) | (102,133 | ) | 6,940 | (2,443,160 | ) | (47,505 | ) | — | |||||||||||||||||||
| Total | $ | 2,485,983 | $ | — | $ | 2,485,983 | $ | 506,871 | $ | 33,617 | $ | 2,009,110 | $ | (89,388 | ) | $ | 444,085 |
F - 34
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
| For the Year Ended December 31, 2013 | Net Sales to External Customers | Net Sales to Other Segments | Total Net Sales | Segment Profit (c) | Depreciation | Total Assets | Purchase of Property, Plant and Equipment | Goodwill | ||||||||||||||||||||||||
| U.S. Operations | $ | 718,671 | $ | 83,182 | $ | 801,853 | $ | 126,423 | $ | 6,223 | $ | 1,242,501 | $ | (6,297 | ) | $ | 307,933 | |||||||||||||||
| Swiss Operations | 132,240 | 435,904 | 568,144 | 129,158 | 6,576 | 1,090,353 | (6,801 | ) | 24,288 | |||||||||||||||||||||||
| Western European Operations | 674,278 | 112,049 | 786,327 | 111,951 | 4,708 | 1,059,525 | (6,096 | ) | 108,662 | |||||||||||||||||||||||
| Chinese Operations | 407,131 | 149,084 | 556,215 | 152,459 | 6,527 | 731,650 | (6,200 | ) | 746 | |||||||||||||||||||||||
| Other(a) | 446,652 | 6,308 | 452,960 | 49,673 | 2,694 | 257,141 | (7,172 | ) | 14,213 | |||||||||||||||||||||||
| Eliminations and Corporate(b) | — | (786,527 | ) | (786,527 | ) | (96,772 | ) | 8,037 | (2,228,351 | ) | (49,783 | ) | — | |||||||||||||||||||
| Total | $ | 2,378,972 | $ | — | $ | 2,378,972 | $ | 472,892 | $ | 34,765 | $ | 2,152,819 | $ | (82,349 | ) | $ | 455,842 |
| (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 as well as certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments. |
| (c) | 2014 and 2013 segment profit between the U.S., Swiss, and Chinese Operations has been reclassified to conform to the current |
period.
A reconciliation of earnings before taxes to segment profit follows:
| 2015 | 2014 | 2013 | |||||||||
| Earnings before taxes | $ | 463,424 | $ | 445,004 | $ | 402,709 | |||||
| Amortization | 30,951 | 29,185 | 24,539 | ||||||||
| Interest expense | 27,451 | 24,537 | 22,711 | ||||||||
| Restructuring charges | 11,148 | 5,915 | 19,830 | ||||||||
| Other charges (income), net | (867 | ) | 2,230 | 3,103 | |||||||
| Segment profit | $ | 532,107 | $ | 506,871 | $ | 472,892 |
During 2015, restructuring charges of $11.1 million were recognized, of which $0.6 million, $2.4 million, $2.6 million, $4.7 million, and $0.8 million relate to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $5.9 million were recognized in 2014, of which $2.0 million, $1.3 million, $0.7 million, $1.2 million, and $0.7 million relate to the Company's U.S., Swiss, Western European, Chinese, and Other Operations, respectively.
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 1% of net sales. Service revenues are primarily derived from repair and other services including regulatory compliance qualification, calibration, certification, and preventative maintenance.
A breakdown of the Company's sales by product category for the years ended December 31 follows:
| 2015 | 2014 | 2013 | |||||||||
| Laboratory | $ | 1,154,905 | $ | 1,161,207 | $ | 1,100,632 | |||||
| Industrial | 1,034,310 | 1,107,606 | 1,065,605 | ||||||||
| Retail | 206,232 | 217,170 | 212,735 | ||||||||
| Total net sales | $ | 2,395,447 | $ | 2,485,983 | $ | 2,378,972 |
F - 35
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
In certain circumstances, our operating segments sell directly into other geographies. A breakdown of net sales to external customers by geographic customer destination and property, plant, and equipment, net for the years ended December 31 follows:
| Net Sales | Property, Plant, and Equipment, Net | ||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||
| United States | $ | 768,815 | $ | 708,293 | $ | 665,365 | $ | 132,255 | $ | 128,125 | |||||||||
| Other Americas | 157,962 | 166,150 | 167,647 | 4,120 | 4,110 | ||||||||||||||
| Total Americas | 926,777 | 874,443 | 833,012 | 136,375 | 132,235 | ||||||||||||||
| Germany | 176,491 | 204,747 | 195,521 | 29,100 | 32,984 | ||||||||||||||
| France | 110,477 | 127,363 | 122,658 | 5,174 | 5,802 | ||||||||||||||
| United Kingdom | 71,679 | 77,271 | 65,922 | 15,854 | 6,112 | ||||||||||||||
| Switzerland | 64,622 | 71,347 | 74,574 | 233,763 | 235,593 | ||||||||||||||
| Other Europe | 349,178 | 398,645 | 377,353 | 6,158 | 6,983 | ||||||||||||||
| Total Europe | 772,447 | 879,373 | 836,028 | 290,049 | 287,474 | ||||||||||||||
| China | 362,950 | 404,293 | 396,620 | 82,528 | 83,412 | ||||||||||||||
| Rest of World | 333,273 | 327,874 | 313,312 | 8,277 | 8,341 | ||||||||||||||
| Total Asia/Rest of World | 696,223 | 732,167 | 709,932 | 90,805 | 91,753 | ||||||||||||||
| Total | $ | 2,395,447 | $ | 2,485,983 | $ | 2,378,972 | $ | 517,229 | $ | 511,462 |
F - 36
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share data, unless otherwise stated)
- QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 2015 and 2014 are as follows:
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| 2015 | |||||||||||||||
| Net sales | $ | 535,701 | $ | 582,057 | $ | 604,154 | $ | 673,535 | |||||||
| Gross profit | 298,805 | 322,912 | 339,529 | 390,747 | |||||||||||
| Net earnings | $ | 63,051 | $ | 77,557 | $ | 88,861 | $ | 123,351 | |||||||
| Basic earnings per common share: | |||||||||||||||
| Net earnings | $ | 2.24 | $ | 2.79 | $ | 3.23 | $ | 4.53 | |||||||
| Weighted average number of common shares | 28,115,220 | 27,843,905 | 27,547,734 | 27,228,026 | |||||||||||
| Diluted earnings per common share: | |||||||||||||||
| Net earnings | $ | 2.19 | $ | 2.73 | $ | 3.16 | $ | 4.44 | |||||||
| Weighted average number of common and common equivalent shares | 28,762,935 | 28,460,336 | 28,113,287 | 27,755,045 | |||||||||||
| Market price per share: | |||||||||||||||
| High | $ | 331.84 | $ | 343.44 | $ | 346.92 | $ | 345.75 | |||||||
| Low | $ | 289.09 | $ | 317.01 | $ | 277.62 | $ | 283.27 | |||||||
| 2014 | |||||||||||||||
| Net sales | $ | 550,621 | $ | 608,834 | $ | 629,100 | $ | 697,428 | |||||||
| Gross profit | 292,641 | 328,176 | 343,551 | 394,382 | |||||||||||
| Net earnings | $ | 58,051 | $ | 74,022 | $ | 84,996 | $ | 121,172 | |||||||
| Basic earnings per common share: | |||||||||||||||
| Net earnings | $ | 1.98 | $ | 2.55 | $ | 2.96 | $ | 4.27 | |||||||
| Weighted average number of common shares | 29,370,232 | 29,074,695 | 28,732,152 | 28,398,579 | |||||||||||
| Diluted earnings per common share: | |||||||||||||||
| Net earnings | $ | 1.93 | $ | 2.49 | $ | 2.89 | $ | 4.17 | |||||||
| Weighted average number of common and common equivalent shares | 30,088,245 | 29,750,815 | 29,408,614 | 29,045,269 | |||||||||||
| Market price per share: | |||||||||||||||
| High | $ | 255.85 | $ | 253.18 | $ | 272.84 | $ | 305.89 | |||||||
| Low | $ | 231.19 | $ | 223.80 | $ | 249.99 | $ | 233.85 |
F - 37
Schedule II — Valuation and Qualifying Accounts (in thousands)
| Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
| Additions | ||||||||||||||||||||
| (1) | (2) | |||||||||||||||||||
| Balance at the Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Balance at End of Period | |||||||||||||||||
| Description | -Deductions- | |||||||||||||||||||
| Note (A) | Note (B) | |||||||||||||||||||
| Accounts receivable — allowance for doubtful accounts: | ||||||||||||||||||||
| Year ended December 31, 2015 | $ | 15,961 | $ | 883 | $ | (2,302 | ) | $ | 107 | $ | 14,435 | |||||||||
| Year ended December 31, 2014 | $ | 14,856 | $ | 2,453 | $ | (784 | ) | $ | 564 | $ | 15,961 | |||||||||
| Year ended December 31, 2013 | $ | 14,120 | $ | 1,775 | $ | 115 | $ | 1,154 | $ | 14,856 | ||||||||||
| Deferred tax valuation allowance: | ||||||||||||||||||||
| Year ended December 31, 2015 | $ | 36,263 | $ | — | $ | — | $ | 10,828 | $ | 25,435 | ||||||||||
| Year ended December 31, 2014 | $ | 31,697 | $ | — | $ | 5,191 | $ | 625 | $ | 36,263 | ||||||||||
| Year ended December 31, 2013 | $ | 23,177 | $ | — | $ | 10,131 | $ | 1,611 | $ | 31,697 |
Note (A)
For accounts receivable, amounts comprise currency translation adjustments.
For deferred tax valuation allowance in 2015, 2014, and 2013, amounts relate primarily to changes in foreign tax credit carryforwards and foreign currency differences recorded through other comprehensive income.
Note (B)
For accounts receivable, amounts represent excess of uncollectible balances written off over recoveries of accounts previously written off.
For deferred tax valuation allowance, the decrease in 2015, 2014, and 2013 relates primarily to decreases in foreign tax loss carryforwards.
S- 1
Previous: Item 14. Principal Accounting Fees and Services