filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended September 30, 2021 and 2020
(In thousands, except share data)
(unaudited)
| September 30, 2021 | September 30, 2020 | ||||||||||
| Net sales | |||||||||||
| Products | $ | 760,844 | $ | 630,372 | |||||||
| Service | 191,106 | 176,985 | |||||||||
| Total net sales | 951,950 | 807,357 | |||||||||
| Cost of sales | |||||||||||
| Products | 304,290 | 254,050 | |||||||||
| Service | 91,840 | 83,699 | |||||||||
| Gross profit | 555,820 | 469,608 | |||||||||
| Research and development | 42,276 | 34,656 | |||||||||
| Selling, general and administrative | 240,734 | 204,974 | |||||||||
| Amortization | 16,039 | 14,121 | |||||||||
| Interest expense | 11,791 | 9,310 | |||||||||
| Restructuring charges | 650 | 4,570 | |||||||||
| Other income, net | (3,257) | (3,832) | |||||||||
| Earnings before taxes | 247,587 | 205,809 | |||||||||
| Provision for taxes | 43,899 | 44,042 | |||||||||
| Net earnings | $ | 203,688 | $ | 161,767 | |||||||
| Basic earnings per common share: | |||||||||||
| Net earnings | $ | 8.83 | $ | 6.76 | |||||||
| Weighted average number of common shares | 23,056,924 | 23,922,272 | |||||||||
| Diluted earnings per common share: | |||||||||||
| Net earnings | $ | 8.71 | $ | 6.68 | |||||||
| Weighted average number of common and common equivalent shares | 23,393,579 | 24,225,204 | |||||||||
| Comprehensive income, net of tax (Note 10) | $ | 208,428 | $ | 180,099 |
The accompanying notes are an integral part of these interim consolidated financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine months ended September 30, 2021 and 2020
(In thousands, except share data)
(unaudited)
| September 30, 2021 | September 30, 2020 | ||||||||||
| Net sales | |||||||||||
| Products | $ | 2,124,245 | $ | 1,656,819 | |||||||
| Service | 556,446 | 490,373 | |||||||||
| Total net sales | 2,680,691 | 2,147,192 | |||||||||
| Cost of sales | |||||||||||
| Products | 843,613 | 662,681 | |||||||||
| Service | 272,658 | 242,524 | |||||||||
| Gross profit | 1,564,420 | 1,241,987 | |||||||||
| Research and development | 124,151 | 100,236 | |||||||||
| Selling, general and administrative | 701,531 | 593,852 | |||||||||
| Amortization | 46,141 | 42,008 | |||||||||
| Interest expense | 31,701 | 29,111 | |||||||||
| Restructuring charges | 2,719 | 7,335 | |||||||||
| Other income, net | (5,208) | (10,118) | |||||||||
| Earnings before taxes | 663,385 | 479,563 | |||||||||
| Provision for taxes | 125,271 | 93,119 | |||||||||
| Net earnings | $ | 538,114 | $ | 386,444 | |||||||
| Basic earnings per common share: | |||||||||||
| Net earnings | $ | 23.19 | $ | 16.13 | |||||||
| Weighted average number of common shares | 23,203,257 | 23,963,311 | |||||||||
| Diluted earnings per common share: | |||||||||||
| Net earnings | $ | 22.86 | $ | 15.92 | |||||||
| Weighted average number of common and common equivalent shares | 23,536,615 | 24,272,354 | |||||||||
| Comprehensive income, net of tax (Note 10) | $ | 575,187 | $ | 382,844 |
The accompanying notes are an integral part of these interim consolidated financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2021 and December 31, 2020
(In thousands, except share data)
(unaudited)
| September 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 183,672 | $ | 94,254 | |||||||
| Trade accounts receivable, less allowances of $21,055 at September 30, 2021 | |||||||||||
| and $18,625 at December 31, 2020 | 603,364 | 593,809 | |||||||||
| Inventories | 381,457 | 297,611 | |||||||||
| Other current assets and prepaid expenses | 77,731 | 71,230 | |||||||||
| Total current assets | 1,246,224 | 1,056,904 | |||||||||
| Property, plant and equipment, net | 783,813 | 798,868 | |||||||||
| Goodwill | 639,184 | 550,270 | |||||||||
| Other intangible assets, net | 288,593 | 196,785 | |||||||||
| Deferred tax assets, net | 39,272 | 41,836 | |||||||||
| Other non-current assets | 210,075 | 169,886 | |||||||||
| Total assets | $ | 3,207,161 | $ | 2,814,549 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 219,294 | $ | 175,801 | |||||||
| Accrued and other liabilities | 196,520 | 196,834 | |||||||||
| Accrued compensation and related items | 209,356 | 179,252 | |||||||||
| Deferred revenue and customer prepayments | 195,234 | 149,106 | |||||||||
| Taxes payable | 127,633 | 89,017 | |||||||||
| Short-term borrowings and current maturities of long-term debt | 53,524 | 50,317 | |||||||||
| Total current liabilities | 1,001,561 | 840,327 | |||||||||
| Long-term debt | 1,639,583 | 1,284,174 | |||||||||
| Deferred tax liabilities, net | 42,656 | 34,448 | |||||||||
| Other non-current liabilities | 364,190 | 372,925 | |||||||||
| Total liabilities | 3,047,990 | 2,531,874 | |||||||||
| 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 22,985,655 and | |||||||||||
| 23,471,841 shares at September 30, 2021 and December 31, 2020, respectively | $ | 448 | 448 | ||||||||
| Additional paid-in capital | $ | 820,272 | 805,140 | ||||||||
| Treasury stock at cost (21,800,356 shares at September 30, 2021 and 21,314,170 shares at December 31, 2020) | $ | (5,995,662) | (5,283,584) | ||||||||
| Retained earnings | $ | 5,631,965 | 5,095,596 | ||||||||
| Accumulated other comprehensive loss | $ | (297,852) | (334,925) | ||||||||
| Total shareholders’ equity | 159,171 | 282,675 | |||||||||
| Total liabilities and shareholders’ equity | $ | 3,207,161 | $ | 2,814,549 |
The accompanying notes are an integral part of these interim consolidated financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2021 and 2020
(In thousands, except share data)
(unaudited)
| Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Retained Earnings | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 24,125,317 | $ | 448 | $ | 783,871 | $ | (4,539,154) | $ | 4,499,288 | $ | (323,673) | $ | 420,780 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 50,372 | — | — | 9,355 | (2,220) | — | 7,135 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (268,161) | — | — | (200,000) | — | — | (200,000) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,395 | — | — | — | 4,395 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 98,115 | — | 98,115 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (24,028) | (24,028) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 23,907,528 | $ | 448 | $ | 788,266 | $ | (4,729,799) | $ | 4,595,183 | $ | (347,701) | $ | 306,397 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 63,737 | — | — | 11,837 | (1,222) | — | 10,615 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,423 | — | — | — | 4,423 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 126,562 | — | 126,562 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 2,096 | 2,096 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 23,971,265 | $ | 448 | $ | 792,689 | $ | (4,717,962) | $ | 4,720,523 | $ | (345,605) | $ | 450,093 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 30,667 | — | 2,582 | 5,865 | (3) | — | 8,444 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (207,369) | — | — | (199,999) | — | — | (199,999) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,430 | — | — | — | 4,430 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 161,767 | — | 161,767 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 18,332 | 18,332 | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 23,794,563 | $ | 448 | $ | 799,701 | $ | (4,912,096) | $ | 4,882,287 | $ | (327,273) | $ | 443,067 | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 23,471,841 | $ | 448 | $ | 805,140 | $ | (5,283,584) | $ | 5,095,596 | $ | (334,925) | $ | 282,675 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 22,388 | — | 1,239 | 4,682 | (872) | — | 5,049 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (224,808) | — | — | (262,500) | — | — | (262,500) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,575 | — | — | — | 4,575 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 149,663 | — | 149,663 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 23,181 | 23,181 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 23,269,421 | $ | 448 | $ | 810,954 | $ | (5,541,402) | $ | 5,244,387 | $ | (311,744) | $ | 202,643 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 13,248 | — | — | 2,849 | (65) | — | 2,784 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (165,730) | — | — | (212,499) | — | — | (212,499) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,581 | — | — | — | 4,581 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 184,763 | — | 184,763 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 9,152 | 9,152 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 23,116,939 | $ | 448 | $ | 815,535 | $ | (5,751,052) | $ | 5,429,085 | $ | (302,592) | $ | 191,424 | ||||||||||||||||||||||||||||
| Exercise of stock options and restricted stock units | 35,488 | — | — | 7,889 | (808) | — | 7,081 | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (166,772) | — | — | (252,499) | — | — | (252,499) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 4,737 | — | — | — | 4,737 | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 203,688 | — | 203,688 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 4,740 | 4,740 | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 22,985,655 | $ | 448 | $ | 820,272 | $ | (5,995,662) | $ | 5,631,965 | $ | (297,852) | $ | 159,171 | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2021 and 2020
(In thousands)
(unaudited)
| September 30, 2021 | September 30, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 538,114 | $ | 386,444 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation | 33,440 | 30,949 | |||||||||
| Amortization | 46,141 | 42,008 | |||||||||
| Deferred tax benefit | (6,072) | (6,990) | |||||||||
| Share-based compensation | 13,893 | 13,248 | |||||||||
| Increase (decrease) in cash resulting from changes in: | |||||||||||
| Trade accounts receivable, net | (19,153) | 49,084 | |||||||||
| Inventories | (87,568) | (11,421) | |||||||||
| Other current assets | (3,596) | (8,733) | |||||||||
| Trade accounts payable | 44,170 | (40,874) | |||||||||
| Taxes payable | 42,474 | 19,117 | |||||||||
| Accruals and other | 65,876 | 998 | |||||||||
| Net cash provided by operating activities | 667,719 | 473,830 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of property, plant and equipment | 3,399 | 3,046 | |||||||||
| Purchase of property, plant and equipment | (69,796) | (57,428) | |||||||||
| Acquisitions | (193,387) | (6,242) | |||||||||
| Other investing activities | 8,559 | (9,421) | |||||||||
| Net cash used in investing activities | (251,225) | (70,045) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings | 1,638,321 | 1,148,360 | |||||||||
| Repayments of borrowings | (1,249,177) | (1,231,191) | |||||||||
| Proceeds from stock option exercises | 14,914 | 26,194 | |||||||||
| Repurchases of common stock | (727,498) | (399,999) | |||||||||
| Other financing activities | (2,864) | (800) | |||||||||
| Net cash used in financing activities | (326,304) | (457,436) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (772) | (448) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 89,418 | (54,099) | |||||||||
| Cash and cash equivalents: | |||||||||||
| Beginning of period | 94,254 | 207,785 | |||||||||
| End of period | $ | 183,672 | $ | 153,686 |
The accompanying notes are an integral part of these interim consolidated financial statements.
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
**1.**BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company") is a leading global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. The Company also manufactures several related analytical instruments and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging and provides solutions for use in certain process analytics applications. The Company's primary manufacturing facilities are located in China, Germany, Switzerland, the United Kingdom and the United States. The Company's principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all entities in which the Company has control, which are its wholly-owned subsidiaries. The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The accompanying interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.
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. These financial statements were prepared using information reasonably available as of September 30, 2021 and through the date of this Report. Actual results may differ from those estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors.
All intercompany transactions and balances have been eliminated.
**2.**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for expected credit losses represents the Company’s best estimate based on historical information, current information, and reasonable and supportable forecasts of future events and circumstances.
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated net realizable value is based on assumptions for future demand and related pricing. Adjustments to the cost basis of the Company’s inventory are made for excess and obsolete items based on usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.
Inventories consisted of the following:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Raw materials and parts | $ | 158,541 | $ | 132,041 | |||||||
| Work-in-progress | 73,105 | 55,688 | |||||||||
| Finished goods | 149,811 | 109,882 | |||||||||
| $ | 381,457 | $ | 297,611 |
Goodwill and Other Intangible Assets
Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
Other intangible assets include indefinite-lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period of benefit. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company assesses the initial acquisition of intangible assets in accordance with the provisions of ASC 805 "Business Combinations" and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible - Goodwill and Other" and ASC 360 "Property, Plant and Equipment".
Other intangible assets consisted of the following:
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Intangibles, Net | Gross Amount | Accumulated Amortization | Intangibles, Net | ||||||||||||||||||||||||||||||
| Customer relationships | $ | 279,380 | $ | (76,777) | $ | 202,603 | $ | 201,445 | $ | (68,319) | $ | 133,126 | |||||||||||||||||||||||
| Proven technology and patents | 98,539 | (54,858) | 43,681 | 78,312 | (52,138) | 26,174 | |||||||||||||||||||||||||||||
| Tradenames (finite life) | 8,176 | (3,654) | 4,522 | 4,896 | (3,444) | 1,452 | |||||||||||||||||||||||||||||
| Tradenames (indefinite life) | 35,528 | — | 35,528 | 35,595 | — | 35,595 | |||||||||||||||||||||||||||||
| Other | 8,048 | (5,789) | 2,259 | 5,215 | (4,777) | 438 | |||||||||||||||||||||||||||||
| $ | 429,671 | $ | (141,078) | $ | 288,593 | $ | 325,463 | $ | (128,678) | $ | 196,785 |
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
The Company recognized amortization expense associated with the above intangible assets of $5.7 million and $4.0 million for the three months ended September 30, 2021 and 2020, respectively, and $15.9 million and $11.8 million for the nine months ended September 30, 2021 and 2020, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $21.6 million for 2021, $21.1 million for 2022, $20.3 million for 2023, $19.8 million for 2024, $18.9 million for 2025, and $16.7 million for 2026. Purchased intangible amortization was $5.5 million, $4.1 million after tax, and $3.8 million, $2.8 million after tax, for the three months ended September 30, 2021 and 2020, respectively, and $15.2 million, $11.5 million after tax, and $11.2 million, $8.5 million after tax, for the nine months ended September 30, 2021 and 2020, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $10.3 million and $10.1 million for the three months ended September 30, 2021 and 2020, respectively, and $30.0 million for both the nine months ended September 30, 2021 and 2020.
Revenue Recognition
Product revenue is recognized from contracts with customers when a customer has obtained control of a product. The Company considers control to have transferred based upon shipping terms. To the extent the Company’s arrangements have a separate performance obligation, revenue related to any post-shipment performance obligation is deferred until completed. Shipping and handling costs charged to customers are included in total net sales and the associated expense is a component of cost of sales. Certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the end customer. Revenue is recognized on these distributor arrangements upon transfer of control to the distributor. Contracts do not contain variable pricing arrangements that are retrospective, except for rebate programs. Rebates are estimated based on expected sales volumes and offset against revenue at the time such revenue is recognized. 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. The related provisions for estimated returns and rebates are immaterial to the consolidated financial statements.
Certain of the Company’s product arrangements include separate performance obligations, primarily related to installation. Such performance obligations are accounted for separately when the deliverables have stand-alone value and the satisfaction of the undelivered performance obligations is probable and within the Company's control. The allocation of revenue between the performance obligations is based on the observable stand-alone selling prices at the time of the sale in accordance with a number of factors including service technician billing rates, time to install, and geographic location.
Software is generally not considered a distinct performance obligation with the exception of a few small software applications. The Company generally does not sell software products without the related hardware instrument as the software is embedded in the product. 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.
Service revenue not under contract is recognized upon the completion of the service performed. Revenue from spare parts sold on a stand-alone basis is recognized when control is transferred to the customer, which is generally at the time of shipment or delivery. Revenue from service contracts is recognized ratably over the contract period using a time-based method. 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.
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
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 after the legal notification period, in which case the liability is recognized ratably over the future service period.
Share-Based Compensation
The Company recognizes share-based compensation expense within selling, general and administrative in the consolidated statements of operations and other comprehensive income with a corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company recorded $4.7 million and $13.9 million of share-based compensation expense for the three and nine months ended September 30, 2021, respectively, compared to $4.4 million and $13.2 million for the corresponding periods in 2020.
On May 6, 2021, the Company's shareholders approved the adoption of the Company's 2013 Equity Incentive Plan (Amended and Restated), with the effect that approximately 0.9 million additional shares of common stock were added to the 2.1 million shares that remained available under the plan prior to its amendment. In addition, shares subject to options granted under the Company's prior equity incentive plan that terminate or are forfeited without being exercised, are also available for awards under the amended plan. The amended plan expires in 2031.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.
Business Combinations and Asset Acquisitions
The Company accounts for business acquisitions under the accounting standards for business combinations. The results of each acquisition are included in the Company's consolidated results as of the acquisition date. The purchase price of an acquisition is allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values and any consideration in excess of the net assets acquired is recognized as goodwill. The determination of the values of the acquired assets and assumed liabilities, including goodwill and intangible assets, require significant judgment. Acquisition transaction costs are expensed when incurred.
In circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the expected contingent payments as of the acquisition date. Subsequent changes in the fair value of the contingent consideration are recorded to other charges (income), net.
Recent Accounting Pronouncements
In March 2020 and January 2021, the FASB issued ASU 2020-04 and ASU 2021-01: Reference Rate Reform which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuance of LIBOR or another referenced rate. The guidance may be applied to any applicable contract entered into before December 31, 2022. The Company's interest rate and cross currency swaps, as mentioned in Note 5 to the consolidated financial statements, are governed by International Swaps and Derivatives Association ("ISDA") agreements, and the Company adheres to the ISDA's fallback protocol when LIBOR is discontinued. In addition, the
- 11 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
Company renewed the LIBOR based credit agreement, as discussed further in Note 8, which includes a fallback protocol when LIBOR is discontinued. Based on these procedures, when LIBOR is discontinued the interest rate and cross currency swaps will not require de-designation if certain criteria are met. The Company expects the financial impact of the rate change when LIBOR is discontinued to be immaterial to its financial statements.
**3.**REVENUE
The Company disaggregates revenue from contracts with customers by product, service, timing of revenue recognition and geography. A summary of revenue by the Company’s reportable segments for the three and nine months ended September 30, 2021 and 2020 follows:
| For the three months ended September 30, 2021 | U.S. Operations | Swiss Operations | Western European Operations | Chinese Operations | Other Operations | Total | |||||||||||||||||||||||||||||
| Product Revenue | $ | 263,885 | $ | 33,612 | $ | 142,318 | $ | 193,727 | $ | 127,302 | $ | 760,844 | |||||||||||||||||||||||
| Service Revenue: | |||||||||||||||||||||||||||||||||||
| Point in time | 56,325 | 6,092 | 37,524 | 12,680 | 30,120 | 142,741 | |||||||||||||||||||||||||||||
| Over time | 16,498 | 2,146 | 18,790 | 4,053 | 6,878 | 48,365 | |||||||||||||||||||||||||||||
| Total | $ | 336,708 | $ | 41,850 | $ | 198,632 | $ | 210,460 | $ | 164,300 | $ | 951,950 |
| For the three months ended September 30, 2020 | U.S. Operations | Swiss Operations | Western European Operations | Chinese Operations | Other Operations | Total | |||||||||||||||||||||||||||||
| Product Revenue | $ | 212,607 | $ | 30,507 | $ | 124,073 | $ | 150,879 | $ | 112,306 | $ | 630,372 | |||||||||||||||||||||||
| Service Revenue: | |||||||||||||||||||||||||||||||||||
| Point in time | 52,000 | 6,329 | 34,519 | 11,414 | 28,602 | 132,864 | |||||||||||||||||||||||||||||
| Over time | 14,341 | 2,012 | 19,038 | 2,938 | 5,792 | 44,121 | |||||||||||||||||||||||||||||
| Total | $ | 278,948 | $ | 38,848 | $ | 177,630 | $ | 165,231 | $ | 146,700 | $ | 807,357 |
| For the nine months ended September 30, 2021 | U.S. Operations | Swiss Operations | Western European Operations | Chinese Operations | Other Operations | Total | |||||||||||||||||||||||||||||
| Product Revenue | $ | 721,744 | $ | 95,797 | $ | 424,904 | $ | 525,855 | $ | 355,945 | $ | 2,124,245 | |||||||||||||||||||||||
| Service Revenue: | |||||||||||||||||||||||||||||||||||
| Point in time | 162,409 | 19,517 | 110,243 | 34,655 | 87,708 | 414,532 | |||||||||||||||||||||||||||||
| Over time | 47,824 | 6,653 | 57,557 | 11,545 | 18,335 | 141,914 | |||||||||||||||||||||||||||||
| Total | $ | 931,977 | $ | 121,967 | $ | 592,704 | $ | 572,055 | $ | 461,988 | $ | 2,680,691 |
| For the nine months ended September 30, 2020 | U.S. Operations | Swiss Operations | Western European Operations | Chinese Operations | Other Operations | Total | |||||||||||||||||||||||||||||
| Product Revenue | $ | 578,405 | $ | 76,796 | $ | 334,408 | $ | 369,351 | $ | 297,859 | $ | 1,656,819 | |||||||||||||||||||||||
| Service Revenue: | |||||||||||||||||||||||||||||||||||
| Point in time | 148,577 | 16,611 | 93,855 | 28,304 | 77,768 | 365,115 | |||||||||||||||||||||||||||||
| Over time | 42,714 | 6,286 | 51,743 | 9,083 | 15,432 | 125,258 | |||||||||||||||||||||||||||||
| Total | $ | 769,696 | $ | 99,693 | $ | 480,006 | $ | 406,738 | $ | 391,059 | $ | 2,147,192 |
- 12 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
A summary of revenue by major geographic destination for the three and nine months ended September 30 follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Americas | $ | 367,278 | $ | 304,963 | $ | 1,024,033 | $ | 840,087 | |||||||||||||||
| Europe | 258,925 | 232,133 | 760,491 | 621,126 | |||||||||||||||||||
| Asia / Rest of World | 325,747 | 270,261 | 896,167 | 685,979 | |||||||||||||||||||
| Total | $ | 951,950 | $ | 807,357 | $ | 2,680,691 | $ | 2,147,192 |
The Company's global revenue mix by product category is comprised of laboratory (56% of sales), industrial (39% of sales) and retail (5% of sales). The Company's product revenue by reportable segment is proportionately similar to the Company's global mix except the Company's Swiss Operations is largely comprised of laboratory products while the Company's Chinese Operations has a slightly higher percentage of industrial products. A summary of the Company’s revenue by product category for the three and nine months ended September 30 is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Laboratory | $ | 536,489 | $ | 430,516 | $ | 1,487,222 | $ | 1,147,078 | |||||||||||||||
| Industrial | 370,505 | 322,808 | 1,049,295 | 863,987 | |||||||||||||||||||
| Retail | 44,956 | 54,033 | 144,174 | 136,127 | |||||||||||||||||||
| Total | $ | 951,950 | $ | 807,357 | $ | 2,680,691 | $ | 2,147,192 |
The payment terms in the Company’s contracts with customers do not exceed one year and therefore contracts do not contain a significant financing component. In most cases, after appropriate credit evaluations, payments are due in arrears and are recognized as receivables. Unbilled revenue is recorded when performance obligations have been satisfied, but not yet billed to the customer. Unbilled revenue as of September 30, 2021 and December 31, 2020 was $37.3 million and $22.6 million, respectively, and is included within accounts receivable. Deferred revenue and customer prepayments are recorded when cash payments are received or due in advance of the performance obligation being satisfied. Deferred revenue primarily includes prepaid service contracts, as well as deferred installation.
Changes in the components of deferred revenue and customer prepayments during the nine month periods ending September 30, 2021 and 2020 are as follows:
| 2021 | 2020 | |||||||||||||
| Beginning balances as of January 1 | $ | 149,106 | $ | 122,489 | ||||||||||
| Customer pre-payments/deferred revenue | 496,437 | 435,952 | ||||||||||||
| Revenue recognized | (446,775) | (409,391) | ||||||||||||
| Foreign currency translation | (3,534) | 1,426 | ||||||||||||
| Ending balance as of September 30 | $ | 195,234 | $ | 150,476 |
The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general, and administrative expenses. The Company has not disclosed the value of unsatisfied performance obligations other than customer prepayments and deferred revenue above as most contracts have an expected length of one year or less and amounts greater than one year are immaterial.
- 13 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
4. ACQUISITIONS
In March 2021, the Company acquired all the membership interests of Mayfair Technology, LLC, ("PendoTECH") a manufacturer and distributor of single-use sensors, transmitters, control systems and software for measuring, monitoring and data collection primarily in bioprocess applications. PendoTECH serves bio-pharmaceutical manufacturers and life science laboratories and is located in the United States. The initial cash payment was $185.0 million and the Company may be required to pay additional consideration of up to $20.0 million and other post-closing amounts. The additional consideration is based upon financial thresholds in 2022 and 2023. The estimated fair value of the contingent consideration obligation at the time of acquisition of $13.5 million was determined using a Monte Carlo simulation based on the Company's forecast of future financial results.
Goodwill recorded in connection with the acquisition totaled $93.1 million, which is deductible for tax purposes. Identified intangible finite-life assets acquired include customer relationships of $78.6 million, technology and patents of $21.7 million, trade name of $3.4 million, and other intangibles of $2.4 million. The Company used variations of the income statement approach in determining the fair value of the intangible assets acquired. Specifically, the multi-period excess earnings method was used to determine the fair value of the customer relationships acquired and the relief from royalty method was used to determine the fair value of the technology and patents. The Company's determination of the fair value of the intangible assets acquired involved the use of significant estimates and assumptions principally related to revenue growth, royalty and customer attrition rates.
The identifiable finite-live intangible assets will be amortized on a straight-line basis over periods of 5 to 20 years and the annual aggregate amortization expense is estimated at $6.9 million. Net tangible assets acquired were $7.4 million and were recorded at fair value in the consolidated financial statements. All of the acquired assets are included in the Company's U.S. Operations segment.
In October 2021, the Company acquired Scale-up Systems Inc., a leading software provider for scale-up and reaction modelling serving the biopharma and chemical markets. The initial cash payment was $22.2 million and the Company may be required to pay additional amounts up to EUR 3.0 million.
5. FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into certain interest rate and cross currency swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate and cross currency swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. For additional disclosures on derivative instruments regarding balance sheet location, fair value, and the amounts reclassified into other comprehensive income and the effective portion of the cash flow hedges, also see Note 6 and Note 10 to the interim consolidated financial statements. As also described in Note 8, the Company has designated its euro-denominated debt as a hedge of a portion of its net investment in euro-denominated foreign subsidiary.
- 14 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
Cash Flow Hedges
In June 2021, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payments, excluding the credit spread to a fixed Swiss franc income of 0.57%. The swap matures in June 2025. This cross currency swap replaced a similar $50 million swap entered into in June 2019 which matured in June 2021, which converted floating rate LIBOR to a fixed Swiss franc income of 0.95%.
In June 2021, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payments, excluding the credit spread to a fixed Swiss franc income of 0.66%. The swap matures in June 2024. This cross currency swap replaced a similar $50 million swap entered into in February 2019 which matured in June 2021, which converted floating rate LIBOR to a fixed Swiss franc income of 0.78%.
In June 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payments, excluding the credit spread to a fixed Swiss franc income of 0.82%. The swap matures in June 2023.
In 2015, the Company entered into an interest rate swap agreement designated as a cash flow hedge. The agreement has the effect of changing the floating rate LIBOR-based interest payments associated with $100 million of borrowings under the Company's credit agreement to a fixed obligation of 2.25% beginning in February 2017 and matures in February 2022.
The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at September 30, 2021 and December 31, 2020, respectively. A derivative gain of $0.3 million based upon interest rates and foreign currency rates at September 30, 2021, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. The cash flow hedges remain effective as of September 30, 2021.
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term trade and non-trade 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 September 30, 2021 and December 31, 2020, respectively, and disclosed in Note 6. The Company recognized in other charges (income) related to these instruments, a net gain of $3.3 million and $7.1 million during the three months ended September 30, 2021 and 2020, respectively, and a net gain of $16.5 million and $0.1 million during the nine months ended September 30, 2021 and 2020, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At September 30, 2021 and December 31, 2020, these contracts had a notional value of $652.0 million and $536.5 million, respectively.
- 15 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
6. FAIR VALUE MEASUREMENTS
At September 30, 2021 and December 31, 2020, the Company had derivative assets totaling $6.9 million and $2.2 million respectively, and derivative liabilities totaling $5.9 million and $23.3 million, respectively. The Company has limited involvement with derivative financial instruments and therefore does not need to present all the required disclosures in tabular format. The fair values of the interest rate swap agreements, the cross-currency swap agreements and foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant at September 30, 2021 and December 31, 2020.
The estimated fair value of the contingent consideration obligation of $13.5 million relating to the PendoTECH acquisition was determined using a Monte Carlo simulation based on the Company's forecast of future financial results. The fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement.
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.
A fair value hierarchy has been established that categorizes these inputs into three levels:
Level 1: Quoted prices in active markets for identical assets and liabilities
Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3: Unobservable inputs
- 16 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
The following table presents the Company's assets and liabilities, which are all categorized as Level 2, that are measured at fair value on a recurring basis. The Company does not have any assets or liabilities which are categorized as Level 1 or Level 3, with the exception of the PendoTECH contingent consideration described above.
| September 30, 2021 | December 31, 2020 | Balance Sheet Classification | ||||||||||||||||||
| Foreign currency forward contracts not designated as hedging instruments | $ | 2,971 | $ | 2,227 | Other current assets and prepaid expenses | |||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||
| Cross currency swap agreement | 3,932 | — | Other non-current assets | |||||||||||||||||
| Total derivative assets | $ | 6,903 | $ | 2,227 | ||||||||||||||||
| Foreign currency forward contracts not designated as hedging instruments | $ | 1,637 | $ | 1,399 | Accrued and other liabilities | |||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||
| Interest rate swap agreements | 901 | — | Accrued and other liabilities | |||||||||||||||||
| Cross currency swap agreement | — | 13,093 | Accrued and other liabilities | |||||||||||||||||
| Interest rate swap agreements | — | 2,502 | Other non-current liabilities | |||||||||||||||||
| Cross currency swap agreement | 3,312 | 6,297 | Other non-current liabilities | |||||||||||||||||
| Total derivative liabilities | $ | 5,850 | $ | 23,291 |
The Company had $25.6 million and $14.3 million of cash equivalents at September 30, 2021 and December 31, 2020, respectively, the fair value of which is determined using Level 2 inputs, through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.
The fair value of the Company's debt exceeds the carrying value by approximately $30.2 million as of September 30, 2021. 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.
7. INCOME TAXES
The Company's reported tax rate was 17.7% and 21.4% during the three months ended September 30, 2021 and 2020, respectively and 18.9% and 19.4% during the nine months ended September 30, 2021 and 2020, respectively. The provision for taxes is based upon using the Company's projected annual effective tax rate of 19.5% and 20.5% before non-recurring discrete tax items during 2021 and 2020, respectively. The difference between the Company's projected annual effective tax rate and the reported tax rate is primarily related to the timing of excess tax benefits associated with stock option exercises.
- 17 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
8. DEBT
Debt consisted of the following at September 30, 2021:
| U.S. Dollar | Other Principal Trading Currencies | Total | |||||||||||||||
| 3.67% $50 million ten-year Senior Notes due December 17, 2022 | $ | 50,000 | $ | — | $ | 50,000 | |||||||||||
| 4.10% $50 million ten-year Senior Notes due September 19, 2023 | 50,000 | — | 50,000 | ||||||||||||||
| 3.84% $125 million ten-year Senior Notes due September 19, 2024 | 125,000 | — | 125,000 | ||||||||||||||
| 4.24% $125 million ten-year Senior Notes due June 25, 2025 | 125,000 | — | 125,000 | ||||||||||||||
| 3.91% $75 million ten-year Senior Notes due June 25, 2029 | 75,000 | — | 75,000 | ||||||||||||||
| 3.19% $50 million fifteen-year Senior Notes due January 24, 2035 | 50,000 | — | 50,000 | ||||||||||||||
| 2.83% $125 million twelve-year Senior Notes due July 22, 2033 | 125,000 | — | 125,000 | ||||||||||||||
| 1.47% Euro 125 million fifteen-year Senior Notes due June 17, 2030 | — | 146,056 | 146,056 | ||||||||||||||
| 1.30% Euro 135 million fifteen-year Senior Notes due November 6, 2034 | — | 157,740 | 157,740 | ||||||||||||||
| 1.06% Euro 125 million fifteen-year Senior Notes due March 19, 2036 | — | 146,056 | 146,056 | ||||||||||||||
| Debt issuance costs, net | (1,519) | (1,600) | (3,119) | ||||||||||||||
| Total Senior Notes | 598,481 | 448,252 | 1,046,733 | ||||||||||||||
| $1.25 billion Credit Agreement, interest at LIBOR plus 87.5 basis points | 412,473 | 177,092 | 589,565 | ||||||||||||||
| Other local arrangements | 3,494 | 53,315 | 56,809 | ||||||||||||||
| Total debt | 1,014,448 | 678,659 | 1,693,107 | ||||||||||||||
| Less: current portion | (351) | (53,173) | (53,524) | ||||||||||||||
| Total long-term debt | $ | 1,014,097 | $ | 625,486 | $ | 1,639,583 |
Credit Agreement
On June 25, 2021, the Company entered into a $1.25 billion Credit Agreement ("the Credit Agreement"), which amended its $1.1 billion Amended and Restated Credit Agreement (the "Prior Credit Agreement"). As of September 30, 2021, the Company had $654.2 million of additional borrowings available under its Credit Agreement, and the Company maintained $183.7 million of cash and cash equivalents.
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 June 25, 2026. 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. The Company must also pay facility fees that are tied to its leverage ratio. The Credit Agreement contains covenants that are similar as those contained in the prior Credit Agreement, with which the Company was in compliance as of September 30, 2021. The Company is required to maintain (i) a ratio of net funded indebtedness to EBITDA of 3.5 to 1.0 or less except that the required maximum ratio may increase to 4.0 to 1.0 for the four consecutive fiscal quarter period commencing with the fiscal quarter in which an acquisition having total consideration (including, without limitation, all cash payments, assumed indebtedness, issued equity interests and earn outs in connection with such acquisition) greater than $250 million and (ii) an interest coverage ratio of 3.0 to 1.0 or greater. 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
- 18 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
default. The Company incurred approximately $0.2 million of debt extinguishment costs during 2021 related to the Prior Credit Agreement. The Company capitalized $2.0 million in financing fees during 2021 associated with the Credit Agreement which will be amortized to interest expense through 2026.
Senior Notes
In May 2021, the Company entered into an agreement to issue and sell $125 million twelve-year Senior Notes with a fixed interest rate of 2.83%. The Senior Notes were issued in July 2021 and will mature July 2033. The terms of the Senior Notes are consistent with the previous Senior Notes as described above. The Company used the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.
In December 2020, the Company entered into an agreement to issue and sell EUR 125.0 million of 15-year 1.06% Euro Senior Notes ("1.06% Euro Senior Notes"). The terms of the Euro Senior Notes are consistent with the previous Euro Senior Notes as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company also entered into a forward contract to receive $152.1 million at the time of issuing the 1.06% Euro Senior Notes in March 2021. The Company issued the 1.06% Euro Senior Notes with a fixed interest rate of 1.06% in March 2021. The 1.06% Euro Senior Notes are unsecured obligations of the Company and will mature on March 19, 2036. Interest on the 1.06% Euro Senior Notes is payable semi-annually in March and September of each year. The Company was in compliance with its debt covenants at September 30, 2021.
The Company has designated the EUR 125 million 1.47% Euro Senior Notes, the EUR 135 million 1.30% Euro Senior Notes, and the EUR 125 million 1.06% Euro Senior Notes as a hedge of a portion of its net investment in euro-denominated foreign subsidiaries to reduce foreign currency risk associated with the net investment. 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 Company recorded in other comprehensive income (loss) related to this net investment hedge an unrealized gain of $9.4 million and an unrealized loss of $11.2 million for the three months ended September 30, 2021 and 2020, respectively, and an unrealized gain of $21.2 million and an unrealized loss of $11.3 million for the nine month periods ended September 30, 2021 and 2020, respectively. The Company has a loss of $7.6 million recorded in accumulated other comprehensive income (loss) as of September 30, 2021.
Other Local Arrangements
In April 2018, two of the Company's non-U.S. pension plans issued loans totaling $39.6 million (Swiss franc 38 million) to a wholly owned subsidiary of the Company. The loans have the same terms and conditions, which include an interest rate of Swiss franc LIBOR plus 87.5 basis points. The loans were renewed for one year in April 2021.
9. SHARE REPURCHASE PROGRAM AND TREASURY STOCK
In November 2020, the Company's Board of Directors authorized an additional $2.5 billion to be added to its share repurchase program, which has $2.3 billion of remaining availability as of September 30, 2021. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.
The Company has purchased 30.0 million shares since the inception of the program in 2004 through September 30, 2021. During the nine months ended September 30, 2021 and 2020, the Company spent $727.5 million and $400.0 million on the repurchase of 557,310 shares and 475,530 shares at an average price per share of $1,305.35 and $841.14, respectively. The Company also reissued 71,124 shares
- 19 -
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
and 144,776 shares held in treasury upon the exercise of stock options and vesting of restricted stock units during the nine months ended September 30, 2021 and 2020, respectively.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income (loss), net of tax consisted of the following as of September 30:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net earnings | $ | 203,688 | $ | 161,767 | $ | 538,114 | $ | 386,444 | |||||||||||||||
| Other comprehensive income (loss), net of tax | 4,740 | 18,332 | 37,073 | (3,600) | |||||||||||||||||||
| Comprehensive income, net of tax | $ | 208,428 | $ | 180,099 | $ | 575,187 | $ | 382,844 |
The following table presents changes in accumulated other comprehensive income by component for the nine months ended September 30, 2021 and 2020:
| 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, 2020 | $ | (31,101) | $ | (1,479) | $ | (302,345) | $ | (334,925) | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Unrealized gains (losses) cash flow hedging arrangements | — | 7,327 | — | 7,327 | |||||||||||||||||||
| Foreign currency translation adjustment | 8,102 | — | 12,062 | 20,164 | |||||||||||||||||||
| Amounts recognized from accumulated other comprehensive income (loss), net of tax | — | (5,773) | 15,355 | 9,582 | |||||||||||||||||||
| Net change in other comprehensive income (loss), net of tax | 8,102 | 1,554 | 27,417 | 37,073 | |||||||||||||||||||
| Balance at September 30, 2021 | $ | (22,999) | $ | 75 | $ | (274,928) | $ | (297,852) |
| 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, 2019 | $ | (61,015) | $ | (1,222) | $ | (261,436) | $ | (323,673) | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Unrealized gains (losses) cash flow hedging arrangements | — | (7,689) | — | (7,689) | |||||||||||||||||||
| Foreign currency translation adjustment | (571) | — | (11,662) | (12,233) | |||||||||||||||||||
| Amounts recognized from accumulated other comprehensive income (loss), net of tax | — | 5,524 | 10,798 | 16,322 | |||||||||||||||||||
| Net change in other comprehensive income (loss), net of tax | (571) | (2,165) | (864) | (3,600) | |||||||||||||||||||
| Balance at September 30, 2020 | $ | (61,586) | $ | (3,387) | $ | (262,300) | $ | (327,273) |
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and nine month periods ended September 30:
| Three Months Ended | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2021 | 2020 | Location of Amounts Recognized in Earnings | ||||||||||||||||||
| Effective portion of (gains) / losses on cash flow hedging arrangements: | ||||||||||||||||||||
| Interest rate swap agreements | $ | 551 | $ | 833 | Interest expense | |||||||||||||||
| Cross currency swap agreement | (1,793) | 2,936 | (a) | |||||||||||||||||
| Total before taxes | (1,242) | 3,769 | ||||||||||||||||||
| Provision for taxes | (201) | 440 | Provision for taxes | |||||||||||||||||
| Total, net of taxes | $ | (1,041) | $ | 3,329 | ||||||||||||||||
| Recognition of defined benefit pension and post-retirement items: | ||||||||||||||||||||
| Recognition of actuarial losses and prior service cost, before taxes | $ | 6,449 | $ | 4,746 | (b) | |||||||||||||||
| Provision for taxes | 1,361 | 1,047 | Provision for taxes | |||||||||||||||||
| Total, net of taxes | $ | 5,088 | $ | 3,699 |
(a) The cross currency swap reflects an unrealized gain of $1.5 million for the three months ended September 30, 2021 recorded in other charges (income) that was offset by the underlying unrealized loss on the hedged debt. The cross currency swap also reflects a realized gain of $0.3 million recorded in interest expense for the three months ended September 30, 2021.
(b) 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 three months ended September 30, 2021 and 2020.
| Nine Months Ended | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2021 | 2020 | Location of Amounts Recognized in Earnings | ||||||||||||||||||
| Effective portion of (gains) / losses on cash flow hedging arrangements: | ||||||||||||||||||||
| Interest rate swap agreements | $ | 1,625 | $ | 1,774 | Interest expense | |||||||||||||||
| Cross currency swap agreement | (8,625) | 4,555 | (a) | |||||||||||||||||
| Total before taxes | (7,000) | 6,329 | ||||||||||||||||||
| Provision for taxes | (1,227) | 805 | Provision for taxes | |||||||||||||||||
| Total, net of taxes | $ | (5,773) | $ | 5,524 | ||||||||||||||||
| Recognition of defined benefit pension and post-retirement items: | ||||||||||||||||||||
| Recognition of actuarial losses and prior service cost, before taxes | $ | 19,460 | $ | 13,835 | (b) | |||||||||||||||
| Provision for taxes | 4,105 | 3,037 | Provision for taxes | |||||||||||||||||
| Total, net of taxes | $ | 15,355 | $ | 10,798 |
(a) The cross currency swap reflects an unrealized gain of $7.5 million for the nine months ended September 30, 2021 recorded in other charges (income) that was offset by the underlying unrealized loss on the hedged debt. The cross currency swap also reflects a realized gain of $1.1 million recorded in interest expense for the nine months ended September 30, 2021.
(b) 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 nine months ended September 30, 2021 and 2020.
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
11. EARNINGS PER COMMON SHARE
In accordance with the treasury stock method, the Company has included the following common equivalent shares in the calculation of diluted weighted average number of common shares outstanding for the three and nine months ended September 30, relating to outstanding stock options and restricted stock units:
| 2021 | 2020 | |||||||||||||
| Three months ended | 336,655 | 302,932 | ||||||||||||
| Nine months ended | 333,358 | 309,044 |
Outstanding options and restricted stock units to purchase or receive 3,692 shares of common stock for the three month period ended September 30, 2021 have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive. For the three months ended September 30, 2020, there were no-anti-dilutive outstanding options or restricted stock units. Options and restricted stock units to purchase or receive 20,384 and 56,371 for the nine month period ended September 30, 2021 and 2020, respectively, have been excluded from the calculation of diluted weighted average of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.
12. NET PERIODIC PENSION COST
Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the three months ended September 30:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other U.S. Post-retirement Benefits | Total | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| Service cost, net | $ | 374 | $ | 326 | $ | 4,858 | $ | 4,750 | $ | — | $ | — | $ | 5,232 | $ | 5,076 | |||||||||||||||||||||||||||||||
| Interest cost on projected benefit obligations | 546 | 889 | 843 | 1,208 | 2 | 5 | 1,391 | 2,102 | |||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (1,494) | (1,523) | (8,851) | (8,426) | — | — | (10,345) | (9,949) | |||||||||||||||||||||||||||||||||||||||
| Recognition of prior service cost | — | — | (462) | (1,819) | (18) | (18) | (480) | (1,837) | |||||||||||||||||||||||||||||||||||||||
| Recognition of actuarial losses/(gains) | 728 | 643 | 6,211 | 5,947 | (10) | (7) | 6,929 | 6,583 | |||||||||||||||||||||||||||||||||||||||
| Net periodic pension cost/(credit) | $ | 154 | $ | 335 | $ | 2,599 | $ | 1,660 | $ | (26) | $ | (20) | $ | 2,727 | $ | 1,975 |
Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the nine months ended September 30:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Other U.S. Post-retirement Benefits | Total | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| Service cost, net | $ | 1,122 | $ | 978 | $ | 14,710 | $ | 13,795 | $ | — | $ | — | $ | 15,832 | $ | 14,773 | |||||||||||||||||||||||||||||||
| Interest cost on projected benefit obligations | 1,644 | 2,667 | 2,551 | 3,541 | 6 | 19 | 4,201 | 6,227 | |||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (4,482) | (4,571) | (26,726) | (24,530) | — | — | (31,208) | (29,101) | |||||||||||||||||||||||||||||||||||||||
| Recognition of prior service cost | — | — | (1,398) | (5,279) | (56) | (56) | (1,454) | (5,335) | |||||||||||||||||||||||||||||||||||||||
| Recognition of actuarial losses/(gains) | 2,186 | 1,933 | 18,756 | 17,258 | (28) | (21) | 20,914 | 19,170 | |||||||||||||||||||||||||||||||||||||||
| Net periodic pension cost/(credit) | $ | 470 | $ | 1,007 | $ | 7,893 | $ | 4,785 | $ | (78) | $ | (58) | $ | 8,285 | $ | 5,734 |
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, the Company expects to make employer contributions of approximately $27.9 million to its non-U.S. pension plans and employer contributions of approximately $0.2 million to its U.S. post-retirement medical plan during the year ended December 31, 2021. These estimates may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.
13. RESTRUCTURING CHARGES
For the three and nine months ended September 30, 2021, the Company has incurred $0.7 million and $2.7 million of restructuring expenses, respectively, which primarily relates to employee related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet. A roll forward of the Company’s accrual for restructuring activities for the nine months ended September 30, 2021 is as follows:
| Total | ||||||||
| Balance at December 31, 2020 | $ | 9,184 | ||||||
| Restructuring charges | 2,719 | |||||||
| Cash payments and utilization | (7,422) | |||||||
| Impact of foreign currency | (319) | |||||||
| Balance at September 30, 2021 | $ | 4,162 |
14. OTHER CHARGES (INCOME), NET
Other charges (income), net includes non-service pension costs (benefits), (gains) losses from foreign currency transactions and related hedging activities, interest income and other items. Non-service pension benefits for the three months ended September 30, 2021 and 2020 were $2.5 million and $3.1 million, respectively, and $7.5 million and $9.0 million for the nine months ended September 30, 2021 and 2020, respectively. Other charges (income), net also included $2.8 million of acquisition costs for the nine months ended September 30, 2021.
15. SEGMENT REPORTING
As disclosed in Note 19 to the Company's consolidated financial statements for the year ended December 31, 2020, the Company has determined there are five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other.
The Company evaluates segment performance based on Segment Profit (gross profit less research and development and selling, general and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net and taxes).
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
The following tables show the operations of the Company’s operating segments:
| Net Sales to | Net Sales to | As of September 30, | |||||||||||||||||||||||||||
| For the three months ended | External | Other | Total Net | Segment | 2021 | ||||||||||||||||||||||||
| September 30, 2021 | Customers | Segments | Sales | Profit | Goodwill | ||||||||||||||||||||||||
| U.S. Operations | $ | 336,708 | $ | 36,895 | $ | 373,603 | $ | 72,638 | $ | 508,942 | |||||||||||||||||||
| Swiss Operations | 41,850 | 208,411 | 250,261 | 78,454 | 23,319 | ||||||||||||||||||||||||
| Western European Operations | 198,632 | 52,259 | 250,891 | 40,288 | 91,228 | ||||||||||||||||||||||||
| Chinese Operations | 210,460 | 79,001 | 289,461 | 108,636 | 696 | ||||||||||||||||||||||||
| Other (a) | 164,300 | 835 | 165,135 | 24,381 | 14,999 | ||||||||||||||||||||||||
| Eliminations and Corporate (b) | — | (377,401) | (377,401) | (51,587) | — | ||||||||||||||||||||||||
| Total | $ | 951,950 | $ | — | $ | 951,950 | $ | 272,810 | $ | 639,184 |
| Net Sales to | Net Sales to | ||||||||||||||||||||||||||||
| For the nine months ended | External | Other | Total Net | Segment | |||||||||||||||||||||||||
| September 30, 2021 | Customers | Segments | Sales | Profit | |||||||||||||||||||||||||
| U.S. Operations | $ | 931,977 | $ | 112,186 | $ | 1,044,163 | $ | 215,581 | |||||||||||||||||||||
| Swiss Operations | 121,967 | 594,057 | 716,024 | 212,849 | |||||||||||||||||||||||||
| Western European Operations | 592,704 | 160,386 | 753,090 | 116,630 | |||||||||||||||||||||||||
| Chinese Operations | 572,055 | 220,608 | 792,663 | 275,323 | |||||||||||||||||||||||||
| Other (a) | 461,988 | 3,207 | 465,195 | 65,967 | |||||||||||||||||||||||||
| Eliminations and Corporate (b) | — | (1,090,444) | (1,090,444) | (147,612) | |||||||||||||||||||||||||
| Total | $ | 2,680,691 | $ | — | $ | 2,680,691 | $ | 738,738 |
(a)Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.
| Net Sales to | Net Sales to | As of September 30, | |||||||||||||||||||||||||||
| For the three months ended | External | Other | Total Net | Segment | 2020 | ||||||||||||||||||||||||
| September 30, 2020 | Customers | Segments | Sales | Profit | Goodwill | ||||||||||||||||||||||||
| U.S. Operations | $ | 278,948 | $ | 30,857 | $ | 309,805 | $ | 65,493 | $ | 414,370 | |||||||||||||||||||
| Swiss Operations | 38,848 | 167,335 | 206,183 | 61,902 | 23,353 | ||||||||||||||||||||||||
| Western European Operations | 177,630 | 42,130 | 219,760 | 36,954 | 88,292 | ||||||||||||||||||||||||
| Chinese Operations | 165,231 | 54,314 | 219,545 | 81,055 | 651 | ||||||||||||||||||||||||
| Other (a) | 146,700 | 1,509 | 148,209 | 23,554 | 15,056 | ||||||||||||||||||||||||
| Eliminations and Corporate (b) | — | (296,145) | (296,145) | (38,980) | — | ||||||||||||||||||||||||
| Total | $ | 807,357 | $ | — | $ | 807,357 | $ | 229,978 | $ | 541,722 |
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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share data, unless otherwise stated)
| Net Sales to | Net Sales to | ||||||||||||||||||||||||||||
| For the nine months ended | External | Other | Total Net | Segment | |||||||||||||||||||||||||
| September 30, 2020 | Customers | Segments | Sales | Profit | |||||||||||||||||||||||||
| U.S. Operations | $ | 769,696 | $ | 84,761 | $ | 854,457 | $ | 163,012 | |||||||||||||||||||||
| Swiss Operations | 99,693 | 462,671 | 562,364 | 164,060 | |||||||||||||||||||||||||
| Western European Operations | 480,006 | 123,543 | 603,549 | 91,406 | |||||||||||||||||||||||||
| Chinese Operations | 406,738 | 148,794 | 555,532 | 190,560 | |||||||||||||||||||||||||
| Other (a) | 391,059 | 3,281 | 394,340 | 47,702 | |||||||||||||||||||||||||
| Eliminations and Corporate (b) | — | (823,050) | (823,050) | (108,841) | |||||||||||||||||||||||||
| Total | $ | 2,147,192 | $ | — | $ | 2,147,192 | $ | 547,899 |
(a)Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.
A reconciliation of earnings before taxes to segment profit for the three and nine month periods ended September 30 follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Earnings before taxes | $ | 247,587 | $ | 205,809 | $ | 663,385 | $ | 479,563 | |||||||||||||||
| Amortization | 16,039 | 14,121 | 46,141 | 42,008 | |||||||||||||||||||
| Interest expense | 11,791 | 9,310 | 31,701 | 29,111 | |||||||||||||||||||
| Restructuring charges | 650 | 4,570 | 2,719 | 7,335 | |||||||||||||||||||
| Other income, net | (3,257) | (3,832) | (5,208) | (10,118) | |||||||||||||||||||
| Segment profit | $ | 272,810 | $ | 229,978 | $ | 738,738 | $ | 547,899 |
During the three months ended September 30, 2021, restructuring charges of $0.7 million were recognized, of which $0.3 million, $0.1 million, and $0.3 million, related to the Company’s U.S., Swiss, and Western European Operations, respectively. Restructuring charges of $4.6 million were recognized during the three months ended September 30, 2020, of which $2.3 million, $0.1 million, $1.8 million, and $0.4 million related to the Company’s U.S., Swiss, Western European, and Other Operations, respectively. Restructuring charges of $2.7 million were recognized during the nine months ended September 30, 2021, of which $0.7 million, $0.4 million, $1.3 million, and $0.3 million related to the Company’s U.S., Swiss, Western European, and Other Operations, respectively. Restructuring charges of $7.3 million were recognized during the nine months ended September 30, 2020, of which $2.9 million, $0.8 million, $2.9 million, $0.1 million, and $0.6 million and related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively.
16. CONTINGENCIES
The Company is party to various legal proceedings, including certain environmental matters, incidental to the normal course of business. Management does not expect that any of such proceedings, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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