10-Q 1 l28576ae10vq.htm METTLER-TOLEDO INTERNATIONAL INC. 10-Q Mettler-Toledo International Inc. 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007, OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 1-13595
Mettler-Toledo International Inc.
 
(Exact name of registrant as specified in its charter)
     
Delaware   13-3668641
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S Employer Identification No.)
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
and
1900 Polaris Parkway
Columbus, OH 43240
 
(Address of principal executive offices)
(Zip Code)
+41-44-944-22-11 and 1-614-438-4511
 
(Registrant’s telephone number, including area code)
not applicable
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exhange Act. (Check one):
Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The Registrant had 36,058,608 shares of Common Stock outstanding at September 30, 2007.
 
 

 


 

METTLER-TOLEDO INTERNATIONAL INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
             
        PAGE
PART I. FINANCIAL INFORMATION
 
           
  Financial Statements        
 
           
 
  Unaudited Interim Consolidated Financial Statements:     3  
 
           
 
  Interim Consolidated Statements of Operations for the three months ended September 30, 2007 and 2006     4  
 
           
 
  Interim Consolidated Statements of Operations for the nine months ended September 30, 2007 and 2006        
 
           
 
  Interim Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006     5  
 
           
 
  Interim Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the nine months ended September 30, 2007 and twelve months ended December 31, 2006     6  
 
           
 
  Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006     7  
 
           
 
  Notes to the Interim Consolidated Financial Statements at September 30, 2007     8  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     17  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     26  
 
           
  Controls and Procedures     26  
 
           
PART II. OTHER INFORMATION
 
           
  Legal Proceedings     27  
 
           
  Risk Factors     27  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     27  
 
           
  Defaults upon Senior Securities     28  
 
           
  Submission of Matters to a Vote of Security Holders     28  
 
           
  Other Information     28  
 
           
  Exhibits     28  
 
           
SIGNATURE     29  
 EX-31.1
 EX-31.2
 EX-32

 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 2007 and 2006
(In thousands, except share data)
(unaudited)
                 
    September 30,     September 30,  
    2007     2006  
Net sales
               
Products
  $ 341,436     $ 307,143  
Service
    101,164       90,175  
 
           
Total net sales
    442,600       397,318  
Cost of sales
               
Products
    159,176       146,763  
Service
    64,415       56,498  
 
           
Gross profit
    219,009       194,057  
Research and development
    22,699       20,478  
Selling, general and administrative
    129,520       117,762  
Amortization
    2,825       2,793  
Interest expense
    5,515       4,409  
Other charges (income), net
    58       (1,441 )
 
           
Earnings before taxes
    58,392       50,056  
Provision for taxes
    14,620       3,016  
 
           
Net earnings
  $ 43,772     $ 47,040  
 
           
 
               
Basic earnings per common share:
               
Net earnings
  $ 1.19     $ 1.18  
Weighted average number of common shares
    36,650,215       39,795,452  
 
               
Diluted earnings per common share:
               
Net earnings
  $ 1.16     $ 1.16  
Weighted average number of common and common equivalent shares
    37,597,020       40,455,687  
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
Nine months ended September 30, 2007 and 2006
(In thousands, except share data)
(unaudited)
                 
    September 30,     September 30,  
    2007     2006  
Net sales
               
Products
  $ 967,248     $ 867,885  
Service
    293,659       264,750  
 
           
Total net sales
    1,260,907       1,132,635  
Cost of sales
               
Products
    446,812       407,776  
Service
    188,516       168,027  
 
           
Gross profit
    625,579       556,832  
Research and development
    66,489       60,979  
Selling, general and administrative
    379,810       347,469  
Amortization
    8,708       8,498  
Interest expense
    14,977       12,835  
Other income, net
    (688 )     (6,536 )
 
           
Earnings before taxes
    156,283       133,587  
Provision for taxes
    41,050       28,075  
 
           
Net earnings
  $ 115,233     $ 105,512  
 
           
 
               
Basic earnings per common share:
               
Net earnings
  $ 3.08     $ 2.61  
Weighted average number of common shares
    37,390,019       40,460,563  
 
               
Diluted earnings per common share:
               
Net earnings
  $ 3.01     $ 2.56  
Weighted average number of common and common equivalent shares
    38,312,676       41,155,856  
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, 2007 and December 31, 2006
(In thousands, except share data)
(unaudited)
                 
    September 30,     December 31,  
    2007     2006  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 75,385     $ 151,269  
Trade accounts receivable, less allowances of
$9,531 at September 30, 2007 and $7,073 at December 31, 2006
    299,906       306,879  
Inventory
    171,294       148,372  
Current deferred tax assets, net
    37,909       33,054  
Other current assets and prepaid expenses
    34,610       30,196  
 
           
Total current assets
    619,104       669,770  
Property, plant and equipment, net
    237,140       229,138  
Goodwill
    438,714       432,871  
Other intangible assets, net
    100,830       102,750  
Non-current deferred tax assets, net
    71,913       69,083  
Other non-current assets
    89,975       83,473  
Total assets
  $ 1,557,676     $ 1,587,085  
 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Trade accounts payable
  $ 95,942     $ 95,971  
Accrued and other liabilities
    67,739       71,209  
Accrued compensation and related items
    109,826       110,644  
Deferred revenue and customer prepayments
    57,733       41,553  
Taxes payable
    55,994       49,607  
Current deferred tax liabilities
    6,361       5,433  
Short-term borrowings
    12,512       9,962  
 
           
Total current liabilities
    406,107       384,379  
Long-term debt
    359,290       345,705  
Non-current deferred tax liabilities
    84,305       82,613  
Other non-current liabilities
    173,980       143,526  
 
           
Total liabilities
    1,023,682       956,223  
Commitments and contingencies (Note 11)
               
 
               
Shareholders’ equity:
               
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares; issued 0
           
Common stock, $0.01 par value per share; authorized 125,000,0000 shares; issued 44,786,011 and 44,786,011 shares; outstanding 36,058,608 and 38,430,124 shares at September 30, 2007 and December 31, 2006, respectively
    448       448  
Additional paid-in capital
    541,326       528,863  
Treasury stock at cost (8,727,403 shares at September 31, 2007 and 6,355,887 shares at December 31, 2006)
    (603,679 )     (374,819 )
Retained earnings
    595,968       493,691  
Accumulated other comprehensive income (loss)
    (69 )     (17,321 )
 
           
Total shareholders’ equity
    533,994       630,862  
 
           
Total liabilities and shareholders’ equity
  $ 1,557,676     $ 1,587,085  
 
           
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 AND
COMPREHENSIVE INCOME (LOSS)
Nine months ended September 30, 2007 and twelve months ended December 31, 2006
(In thousands, except share data)
(unaudited)
                                                         
                                            Accumulated        
                    Additional                     Other        
    Common Stock     Paid-in     Treasury     Retained     Comprehensive        
    Shares     Amount     Capital     Stock     Earnings     Income (Loss)     Total  
 
                                                       
Balance at December 31, 2006
    38,430,124     $ 448     $ 528,863     $ (374,819 )   $ 493,691     $ (17,321 )   $ 630,862  
Exercise of stock options
    339,015                   20,198       (8,711 )           11,487  
Repurchases of common stock
    (2,710,531 )                 (249,058 )                 (249,058 )
Tax benefit resulting from exercise of certain employee stock options
                6,277                         6,277  
Share-based compensation
                6,186                         6,186  
Adoption of FIN 48
                            (4,245 )           (4,245 )
Comprehensive income:
                                                       
Net earnings
                            115,233             115,233  
Change in currency translation adjustment
                                  15,497       15,497  
Change in pension items
                                  1,755       1,755  
 
                                                     
Comprehensive income
                                        132,485  
 
                                         
Balance at September 30, 2007
    36,058,608     $ 448     $ 541,326     $ (603,679 )   $ 595,968     $ (69 )   $ 533,994  
 
                                         
 
                                                       
Balance at December 31, 2005
    41,404,071     $ 448     $ 457,129     $ (170,325 )   $ 417,075     $ (45,325 )   $ 659,002  
Exercise of stock options and restricted stock units
    1,166,612                   61,388       (30,956 )           30,432  
Common stock issued as equity compensation
    1,000             8       53                   61  
Repurchases of common stock
    (4,141,559 )                 (265,935 )                 (265,935 )
Reclassification related to treasury stock reissuances
                49,960             (49,960 )            
Tax benefit resulting from exercise of certain employee stock options
                13,527                         13,527  
Share-based compensation
                8,239                         8,239  
Adoption of SFAS 158, net of tax
                                  19,638       19,638  
Comprehensive income:
                                                       
Net earnings
                            157,532             157,532  
Change in currency translation adjustment
                                  10,570       10,570  
Minimum pension liability adjustment, net of tax
                                            (2,204 )     (2,204 )
 
                                                     
Comprehensive income
                                        165,898  
 
                                         
Balance at December 31, 2006
    38,430,124     $ 448     $ 528,863     $ (374,819 )   $ 493,691     $ (17,321 )   $ 630,862  
 
                                         
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, 2007 and 2006
(In thousands)
(unaudited)
                 
    September 30,     September 30,  
    2007     2006  
Cash flows from operating activities:
               
Net earnings
  $ 115,233     $ 105,512  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation
    19,501       19,317  
Amortization
    8,708       8,498  
Deferred taxes
    (6,654 )     (6,594 )
Excess tax benefits from share-based payment arrangements
    (5,223 )     (8,160 )
Share-based compensation
    6,186       6,278  
Other
    (656 )     (1,231 )
Increase (decrease) in cash resulting from changes in:
               
Trade accounts receivable, net
    19,301       11,119  
Inventory
    (15,654 )     (4,067 )
Other current assets
    (8,981 )     (3,996 )
Trade accounts payable
    2,413       (4,753 )
Taxes payable
    30,953       13,873  
Accruals and other
    3,959       3,920  
 
           
Net cash provided by operating activities
    169,086       139,716  
 
           
 
Cash flows from investing activities:
               
Proceeds from sale of property, plant and equipment
    3,398       4,036  
Purchase of property, plant and equipment
    (24,826 )     (20,607 )
Acquisitions
    (106 )     (790 )
 
           
Net cash used in investing activities
    (21,534 )     (17,361 )
 
           
 
Cash flows from financing activities:
               
Proceeds from borrowings
    104,312       51,873  
Repayments of borrowings
    (95,014 )     (149,605 )
Proceeds from exercise of stock options
    11,530       22,532  
Repurchases of common stock
    (254,506 )     (186,616 )
Excess tax benefits from share-based payment arrangements
    5,223       8,160  
 
           
Net cash used in financing activities
    (228,455 )     (253,656 )
 
           
 
Effect of exchange rate changes on cash and cash equivalents
    5,019       2,081  
 
           
 
Net decrease in cash and cash equivalents
    (75,884 )     (129,220 )
 
Cash and cash equivalents:
               
Beginning of period
    151,269       324,578  
 
           
End of period
  $ 75,385     $ 195,358  
 
           
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
At September 30, 2007 — 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 Greifensee, Switzerland and Columbus, Ohio.
     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 of the Company’s wholly owned subsidiaries. The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements as of September 30, 2007 and for the three and nine month periods ended September 30, 2007 and 2006 should be read in conjunction with the December 31, 2006 and 2005 consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
     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, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.
     The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. A discussion of the Company’s critical accounting policies is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
     All intercompany transactions and balances have been eliminated.
     Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
     Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses in its existing trade accounts receivable.
Inventory
     Inventory is 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 inventory are made for excess and obsolete items based on forecast usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.
     Inventory consisted of the following:
                 
    September 30,     December 31,  
    2007     2006  
Raw materials and parts
  $ 85,384     $ 81,596  
Work-in-progress
    23,489       18,163  
Finished goods
    62,421       48,613  
 
           
 
  $ 171,294     $ 148,372  
 
           
Other Intangible Assets
     Other intangible assets include indefinite lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period to be benefited. The 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 and the continued accounting for previously recognized intangible assets in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”
     Other intangible assets consisted of the following:
                                 
    September 30, 2007     December 31, 2006  
    Gross     Accumulated     Gross     Accumulated  
    Amount     Amortization     Amount     Amortization  
Customer relationships
  $ 73,862     $ (10,753 )   $ 73,340     $ (9,166 )
Proven technology and patents
    31,653       (17,327 )     30,691       (15,538 )
Tradename (finite life)
    1,589       (628 )     1,539       (550 )
Tradename (indefinite life)
    22,434             22,434        
 
                       
 
  $ 129,538     $ (28,708 )   $ 128,004     $ (25,254 )
 
                       

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
     The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $4.5 million for 2007 through 2010 and $4.3 million for 2011. The Company had amortization expense associated with the above intangible assets of $3.4 million and $3.4 million for the nine months ended September 30, 2007 and 2006, respectively.
     In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $5.3 million and $5.1 million for the nine months ended September 30, 2007 and 2006, respectively.
Warranty
     The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized for certain product shipments. While the Company engages in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service costs incurred in correcting a product failure.
     The Company’s accrual for product warranties is included in accrued and other liabilities in the consolidated balance sheets. Changes to the Company’s accrual for product warranties are as follows:
                 
    September 30,     September 30,  
    2007     2006  
Balance at beginning of period
  $ 10,977     $ 10,732  
Accruals for warranties
    9,951       9,301  
Foreign currency translation
    618       411  
Payments / utilizations
    (9,881 )     (9,856 )
 
           
Balance at end of period
  $ 11,665     $ 10,588  
 
           
Share-Based Compensation
     On January 1, 2006, the Company adopted SFAS 123R and Staff Accounting Bulletin (“SAB”) 107, “Share-Based Payments”, applying the modified prospective method. The Company recognizes compensation expense in selling, general and administrative expense in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company had $2.0 million and $6.2 million of share-based compensation expense for the three and nine months ended September 30, 2007, respectively, compared to $2.0 million and $6.3 million for the corresponding periods in 2006.

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
Research and Development
     Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as they are incurred.
3.   INCOME TAXES
     On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance regarding uncertain tax positions relating to derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of the date of adoption, the Company recognized a $4.1 million increase in the liability for unrecognized tax benefits with a corresponding reduction in retained earnings.
     The Company’s total balance of unrecognized tax benefits as of January 1, 2007 was $24.3 million. Included in this balance are $21.0 million of unrecognized 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. The amount of accrued interest and penalties included within other non-current liabilities within the Company’s consolidated balance sheet as of January 1, 2007 was $1.2 million.
     The Company believes it is reasonably possible that the unrecognized tax benefit balance could change over the next 12 months, primarily relating to potential disputes raised by taxing authorities over income and expense recognition. An estimate of the range of these increases cannot currently be made. However, the Company does not expect that it would have a material impact on its statements of operations, balance sheet or cash flows.
     As of September 30, 2007, no material changes in the Company’s uncertain tax positions have occurred since the adoption of FIN 48 on January 1, 2007.
     As of September 30, 2007, the major jurisdictions for which the Company is subject to examinations are Germany for years after 2002, France and the United States after 2003, Switzerland and the United Kingdom after 2004 and China after 2005.
     The provision for taxes is based upon our projected annual effective tax rate of 27% for the three and nine months ended September 30, 2007 and 2006. During the third quarter of 2007, the Company recorded certain discrete tax items which resulted in a net tax benefit of $1.1 million. The discrete items include a benefit of $3.4 million related to the favorable resolution of certain tax matters and other adjustments related to prior years, which was partially offset by a charge of $2.3 million primarily due to a tax law change in Germany. The net impact of the items described above decreased the effective tax rate to 25.0% and 26.3% for the three and nine months ended September 30, 2007, respectively.

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
     During the third quarter of 2006, the Company implemented a legal reorganization that resulted in a reduction of the estimated annual effective tax rate before discrete items from 30% to approximately 27%. In addition to the change in the Company’s estimated annual effective tax rate, the Company recorded four discrete tax items during the third quarter of 2006: a charge of $10.5 million related to the establishment of a valuation allowance on foreign tax credit carryforwards, a benefit of $13.4 million associated with a reduction of a liability previously established for estimated costs to repatriate unremitted earnings of foreign subsidiaries, a favorable tax law change resulting in a benefit of $5.1 million and a cumulative tax benefit adjustment of $2.5 million, associated with the six months ended June 30, 2006, for the estimated annual effective tax rate change described above. The net impact of the items described above decreased the effective tax rate to 6.0% and 21.0% for the three and nine months ended September 30, 2006, respectively.
4.   SHARE REPURCHASE PROGRAM AND TREASURY STOCK
     The Company has a share repurchase program. Under the program, the Company has been authorized to buy back up to $900 million of equity shares. As of September 30, 2007, there were $116.6 million of remaining equity shares authorized to be repurchased under the plan by December 31, 2008. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the timing will depend on the level of acquisition activity, business and market conditions, the stock price, trading restrictions and other factors. The Company has purchased 12.3 million shares since the inception of the program through September 30, 2007.
     The Company spent $249.1 million and $182.4 million on the repurchase of 2,710,531 shares and 3,008,300 shares at an average price per share of $91.86 and $60.62 during the nine months ended September 30, 2007 and 2006, respectively. An additional $5.4 million and $4.2 million were cash settled during the nine month periods ended September 30, 2007 and 2006, respectively, relating to the settlement of a liability for shares repurchased as of December 31, 2006 and 2005. The Company reissued 339,015 shares and 896,899 shares held in treasury for the exercise of stock options for the nine months ended September 30, 2007 and 2006, respectively.
5.   EARNINGS PER COMMON SHARE
     In accordance with the treasury stock method, the Company has included the following common equivalent shares in the calculation of diluted weighted average number of common shares outstanding for the three and nine month periods ended September 30, relating to outstanding stock options and restricted stock units:
                 
    2007   2006
Three months ended
    946,805       660,235  
Nine months ended
    922,656       695,292  

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
     Outstanding options to purchase 3,000 and 426,000 shares of common stock for the three month periods ended September 30, 2007 and 2006, respectively, and options to purchase 119,567 and 434,333 shares of common stock for the nine month periods ended September 30, 2007 and 2006, respectively, have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options would be anti-dilutive.
6. NET PERIODIC BENEFIT COST
     Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the three months ended September 30:
                                                 
                                    Other U.S.  
    U.S. Pension Benefits     Non-U.S. Pension Benefits     Post-Retirement Benefits  
    2007     2006     2007     2006     2007     2006  
Service cost, net
  $ 170     $ 165     $ 4,072     $ 3,606     $ 101     $ 63  
Interest cost on projected benefit obligations
    1,590       1,557       4,784       4,175       331       330  
Expected return on plan assets
    (2,072 )     (2,011 )     (6,910 )     (6,012 )            
Net amortization and deferral
                            (239 )     (240 )
Recognition of actuarial losses (gains)
    515       645       223       140              
 
                                   
Net periodic pension cost
  $ 203     $ 356     $ 2,169     $ 1,909     $ 193     $ 153  
 
                                   
     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:
                                                 
                                    Other U.S.  
    U.S. Pension Benefits     Non-U.S. Pension Benefits     Post-Retirement Benefits  
    2007     2006     2007     2006     2007     2006  
Service cost, net
  $ 509     $ 495     $ 11,997     $ 10,568     $ 304     $ 190  
Interest cost on projected benefit obligations
    4,769       4,671       14,086       12,266       992       991  
Expected return on plan assets
    (6,217 )     (6,035 )     (20,273 )     (17,692 )            
Net amortization and deferral
                            (718 )     (719 )
Recognition of actuarial losses (gains)
    1,544       1,937       632       413              
 
                                   
Net periodic pension cost
  $ 605     $ 1,068     $ 6,442     $ 5,555     $ 578     $ 462  
 
                                   
     As previously disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2006, the Company expects to make normal employer contributions of approximately $9.2 million to its non-U.S. pension plans and $2.3 million to its U.S. post-retirement medical plan during the year ended December 31, 2007.
7. OTHER CHARGES (INCOME), NET
     Other charges (income), net consists primarily of interest income, (gains) losses from foreign currency transactions and other items.

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
8. SEGMENT REPORTING
     As disclosed in Note 15 to the Company’s consolidated financial statements for the year ending December 31, 2006, operating segments are the individual reporting units within the Company. These units are managed separately and it is at this level where the determination of resource allocation is made. The units have been aggregated based on operating segments in geographic regions that have similar economic characteristics and meet the aggregation criteria of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). 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, selling, general and administrative expenses and restructuring, before amortization, interest expense and other charges (income) and taxes).
     The following tables show the operations of the Company’s reportable segments:
                                         
    Net Sales to     Net Sales to                    
For the three months ended   External     Other     Total Net     Segment        
September 30, 2007   Customers     Segments     Sales     Profit     Goodwill  
U.S. Operations
  $ 155,425     $ 13,060     $ 168,485     $ 27,901     $ 272,439  
Swiss Operations
    26,942       67,446       94,388       20,696       24,511  
Western European Operations
    144,056       19,618       163,674       11,402       121,520  
Chinese Operations
    45,476       22,415       67,891       15,079       1,918  
Other (a)
    70,701       798       71,499       7,229       18,326  
Eliminations and Corporate (b)
          (123,337 )     (123,337 )     (15,517 )      
 
                             
Total
  $ 442,600     $     $ 442,600     $ 66,790     $ 438,714  
 
                             
                                 
    Net Sales to     Net Sales to              
For the nine months ended   External     Other     Total Net     Segment  
September 30, 2007   Customers     Segments     Sales     Profit  
U.S. Operations
  $ 449,743     $ 37,694     $ 487,437     $ 73,089  
Swiss Operations
    74,964       196,959       271,923       55,800  
Western European Operations
    427,908       59,102       487,010       37,517  
Chinese Operations
    115,510       64,703       180,213       39,134  
Other (a)
    192,782       2,525       195,307       16,709  
Eliminations and Corporate (b)
          (360,983 )     (360,983 )     (42,969 )
 
                       
Total
  $ 1,260,907     $     $ 1,260,907     $ 179,280  
 
                       

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
                                         
    Net Sales to     Net Sales to                    
For the three months ended   External     Other     Total Net     Segment        
September 30, 2006   Customers     Segments     Sales     Profit     Goodwill  
U.S. Operations
  $ 149,232     $ 11,296     $ 160,528     $ 21,906     $ 272,811  
Swiss Operations
    23,910       59,916       83,826       16,400       23,507  
Western European Operations
    127,669       19,319       146,988       10,928       115,028  
Chinese Operations
    35,552       16,453       52,005       11,502       1,844  
Other (a)
    60,955       122       61,077       5,729       17,957  
Eliminations and Corporate (b)
          (107,106 )     (107,106 )     (10,648 )      
 
                             
Total
  $ 397,318     $     $ 397,318     $ 55,817     $ 431,147  
 
                             
                                 
    Net Sales to     Net Sales to              
For the nine months ended   External     Other     Total Net     Segment  
September 30, 2006   Customers     Segments     Sales     Profit  
U.S. Operations
  $ 426,200     $ 35,062     $ 461,262     $ 62,228  
Swiss Operations
    68,134       173,779       241,913       46,755  
Western European Operations
    377,176       54,296       431,472       30,825  
Chinese Operations
    91,434       51,598       143,032       32,535  
Other (a)
    169,691       56       169,747       13,792  
Eliminations and Corporate (b)
          (314,791 )     (314,791 )     (37,751 )
 
                       
Total
  $ 1,132,635     $     $ 1,132,635     $ 148,384  
 
                       
 
(a)   Other includes reporting units that do not meet the quantitative thresholds of SFAS 131 and also do not meet the majority of the SFAS 131 aggregation criteria to be included in the Company’s reportable operating segments.
 
(b)   Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses, 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  
    2007     2006     2007     2006  
Earnings before taxes
  $ 58,392     $ 50,056     $ 156,283     $ 133,587  
Amortization
    2,825       2,793       8,708       8,498  
Interest expense
    5,515       4,409       14,977       12,835  
Other charges (income), net
    58       (1,441 )     (688 )     (6,536 )
 
                       
Segment profit
  $ 66,790     $ 55,817     $ 179,280     $ 148,384  
 
                       

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2007 — Unaudited (Continued)

(In thousands, except share data, unless otherwise stated)
9. RELATED PARTY TRANSACTIONS
     As part of the Rainin acquisition, the Company entered into an agreement to lease certain property from the former owner of Rainin. The Company made lease payments in respect of this agreement of $0.7 million and $0.6 million during the three months ended September 30, 2007 and 2006, respectively, and $1.9 million for both of the nine month periods ended September 30, 2007 and 2006. All of the Company’s transactions with the former owner of Rainin were in the normal course of business.
10. 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 will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.
General
     Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a basis which reflects the interim consolidated financial statements of Mettler-Toledo International Inc. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.
Results of Operations — Consolidated
     The following tables set forth certain items from our interim consolidated statements of operations for the three and nine month periods ended September 30, 2007 and 2006 (amounts in thousands).
                                                                 
    Three months ended September 30,     Nine months ended September 30,  
    2007     2006     2007     2006  
    (unaudited)     %     (unaudited)     %     (unaudited)     %     (unaudited)     %  
 
                                                               
Net sales
  $ 442,600       100.0     $ 397,318       100.0     $ 1,260,907       100.0     $ 1,132,635       100.0  
Cost of sales
    223,591       50.5       203,261       51.2       635,328       50.4       575,803       50.8  
 
                                               
Gross profit
    219,009       49.5       194,057       48.8       625,579       49.6       556,832       49.2  
Research and development
    22,699       5.1       20,478       5.2       66,489       5.3       60,979       5.4  
Selling, general and administrative
    129,520       29.3       117,762       29.6       379,810       30.1       347,469       30.7  
Amortization
    2,825       0.6       2,793       0.7       8,708       0.7       8,498       0.8  
Interest expense
    5,515       1.3       4,409       1.1       14,977       1.2       12,835       1.1  
Other charges (income), net
    58       0.0       (1,441 )     (0.4 )     (688 )     (0.1 )     (6,536 )     (0.6 )
 
                                               
Earnings before taxes
    58,392       13.2       50,056       12.6       156,283       12.4       133,587       11.8  
Provision for taxes (a)
    14,620       3.3       3,016       0.8       41,050       3.3       28,075       2.5  
 
                                               
Net earnings
  $ 43,772       9.9     $ 47,040       11.8     $ 115,233       9.1     $ 105,512       9.3  
 
                                               
 
Notes:
(a)   Includes $1.1 million of discrete tax items for the three and nine months ended September 30, 2007. The discrete items include a benefit of $3.4 million related to the favorable resolution of certain tax matters and other adjustments related to prior years, which was partially offset by a charge of $2.3 million primarily related to a tax law change in Germany.

The three and nine months ended September 30, 2006 include net tax benefits related to a legal reorganization that resulted in a reduction of the estimated annual effective tax rate from 30% to 27% and $10.5 and $8.0 million of discrete tax items, respectively. The discrete items for the nine months ended September 30, 2006 include a benefit of $2.9 million, net, associated with the legal reorganization and a benefit of $5.1 million from a favorable tax law change. The three months ended September 30, 2006 also include a cumulative tax benefit adjustment of $2.5 million related to the tax rate change associated with the six month period ended June 30, 2006.

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Net sales
     Net sales were $442.6 million and $1,260.9 million for the three and nine months ended September 30, 2007, compared to $397.3 million and $1,132.6 million for the corresponding periods in 2006. This represents an increase in U.S. dollars of 11% for the three and nine months ended September 30, 2007. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 7% for the three and nine months ended September 30, 2007.
     During the three and nine months ended September 30, 2007, our net sales by geographic destination in local currencies increased by 4% and 6% in the Americas, by 5% in both periods in Europe and by 18% and 14% in Asia/Rest of World. A discussion of sales by operating segment is included below.
     As described in Note 15 to our consolidated financial statements for the year ending December 31, 2006, our net sales comprise product sales of precision instruments and related services. Service revenues are primarily derived from regulatory compliance qualification, calibration, certification and repair services, much of which is provided under separately priced contracts, as well as sales of spare parts.
     Net sales of products increased in U.S. dollars by 11% during the three and nine months ended September 30, 2007, respectively, compared to the corresponding period and by 7% respectively in local currencies. Service revenue (including spare parts) increased in U.S. dollars by 12% and 11% during the three and nine months ended September 30, 2007, respectively, compared to the corresponding periods and by 8% and 7% respectively in local currencies.
     Net sales for our laboratory-related products increased 8% and 7% in local currencies during the three and nine months ended September 30, 2007, principally driven by growth across most product categories, especially analytical instruments, process analytics and laboratory balances.
     Net sales of our industrial-related products increased 10% in local currencies for the three and nine months ended September 30, 2007, particularly due to growth in our core industrial and product inspection products during the nine months ended September 30, 2007.
     In our food retailing markets, net sales decreased 5% and increased 1% in local currencies during the three and nine months ended September 30, 2007, respectively. The sales decrease for the three months ended September 30, 2007 is primarily related to difficult comparisons associated with strong project activity in the Americas during 2006. The year-to-date sales increase is primarily due to increased sales in Asia offset in part by difficult comparisons associated with strong project activity in Europe and the Americas during 2006.
     Gross profit
     Gross profit as a percentage of net sales was 49.5 % and 49.6% for the three and nine months ended September 30, 2007, compared to 48.8% and 49.2% for the corresponding periods in 2006.
     Gross profit as a percentage of net sales for products was 53.4% and 53.8% for the three and nine months ended September 30, 2007, compared to 52.2% and 53.0% for the corresponding periods in 2006.
     Gross profit as a percentage of net sales for services (including spare parts) was 36.3% and 35.8% for the three and nine months ended September 30, 2007, compared to 37.3% and 36.5% for the corresponding periods in 2006.

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     The increase in gross profit reflects several factors, including increased sales volume leveraging our fixed production costs, favorable product mix and our cost rationalization initiatives. These benefits are partly offset by increased steel prices and investments in our field service organization.
     Research and development and selling, general and administrative expenses
     Research and development expenses increased 7% and 6%, in local currencies, during the three and nine months ended September 30, 2007, respectively, compared to the corresponding periods in 2006. Our research and development spending levels reflect increased research and development investments.
     Selling, general and administrative expenses increased 6% and 5%, in local currencies, during the three and nine months ended September 30, 2007, respectively, compared to the corresponding periods in 2006. This is primarily due to continued sales and marketing investments, especially in China and other emerging market countries, as well as higher performance-related compensation costs. These increases are partly offset by savings from our cost reduction programs implemented during the second half of 2006.
     Interest expense, other charges (income), net and taxes
     Interest expense was $5.5 million and $15.0 million for the three and nine months ended September 30, 2007, respectively, and $4.4 million and $12.8 million for the corresponding periods in 2006. The increase is due to higher average borrowing rates in 2007 offset in part by reduced borrowings in the comparable periods in 2006.
     Other charges (income), net consists primarily of interest income, as well as (gains) losses from foreign currency transactions, and other items. The decrease in other charges (income), net for the three and nine months ended September 30, 2007 compared to the prior year is due to lower interest income associated with the decrease in cash balances resulting from share repurchases. For the three and nine months ended September 30, 2006, other income, net includes increased interest income associated with higher cash balances in the U.S. as a result of our foreign earnings repatriation during 2005 associated with the American Jobs Creation Act of 2004.
     The provision for taxes is based upon our projected annual effective tax rate of 27% for the three and nine months ended September 30, 2007 and 2006. During the third quarter of 2007, the Company recorded certain discrete tax items which resulted in a net tax benefit of $1.1 million. The discrete items include a benefit of $3.4 million related to the favorable resolution of certain tax matters and other adjustments related to prior years, which was partially offset by a charge of $2.3 million primarily due to a tax law change in Germany. The net impact of the items described above decreased the effective tax rate to 25.0% and 26.3% for the three and nine months ended September 30, 2007, respectively.
     During the third quarter of 2006, the Company implemented a legal reorganization that resulted in a reduction of the estimated annual effective tax rate before discrete items from 30% to approximately 27%. In addition to the change in the Company’s estimated annual effective tax rate, the Company recorded four discrete tax items: a charge of $10.5 million related to the establishment of a valuation allowance on foreign tax credit carryforwards, a benefit of $13.4 million associated with a reduction of a liability previously established for estimated costs to repatriate unremitted earnings of foreign subsidiaries, a favorable tax law change resulting in a

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benefit of $5.1 million and a cumulative tax benefit adjustment of $2.5 million, associated with the six months ended June 30, 2006, for the estimated annual effective tax rate change described above. The net impact of the items described above decreased the effective tax rate to 6.0% and 21.0% for the three and nine months ended September 30, 2006, respectively.
Results of Operations — by Operating Segment
     The following is a discussion of the financial results of our operating segments. We currently have five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other. A more detailed description of these segments is outlined in Note 15 to our consolidated financial statements for the year ending December 31, 2006.

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     U.S. Operations
                                                 
    Three months ended September 30   Nine months ended September 30
    2007   2006   %1)   2007   2006   %1)
Total net sales
  $ 168,485     $ 160,528       5 %   $ 487,437     $ 461,262       6 %
Net sales to external customers
  $ 155,425     $ 149,232       4 %   $ 449,743     $ 426,200       6 %
Segment profit
  $ 27,901     $ 21,906       27 %   $ 73,089     $ 62,228       17 %
 
1)   Represents U.S. dollar growth (decline) for net sales and segment profit.
     The increase in total net sales and net sales to external customers for the three and nine months ended September 30, 2007 reflects growth across most product lines, particularly our industrial and product inspection products. The increase in sales for the three months ended September 30, 2007 were partially offset by a decrease in sales of our food retailing products due to difficult comparisons associated with strong project activity in the Americas during 2006.
     Segment profit increased $6.0 million and $10.9 million for the three and nine month periods ended September 30, 2007, respectively, compared to the corresponding periods in 2006. The increase in segment profit was primarily due to increased sales volume, leveraging our fixed production costs and benefits of our cost reduction programs. Segment profit for the nine months ended September 30, 2007 also benefited from the resolution of two legal matters, which were partially offset by a loss on the sale of our SFC (Supercritical Fluid Chromatography) product line within our laboratory-related products.
     Swiss Operations
                                                 
    Three months ended September 30   Nine months ended September 30
    2007   2006   %1)   2007   2006   %1)
Total net sales
  $ 94,388     $ 83,826       13 %   $ 271,923     $ 241,913       12 %
Net sales to external customers
  $ 26,942     $ 23,910       13 %   $ 74,964     $ 68,134       10 %
Segment profit
  $ 20,696     $ 16,400       26 %   $ 55,800     $ 46,755       19 %
 
1)   Represents U.S. dollar growth (decline) for net sales and segment profit.
     Total net sales in local currency increased 11% and 9% for the three and nine month periods ended September 30, 2007. Net sales to external customers in local currency increased 9% and 7% for the same periods versus the prior year comparable period. The increase in sales to external customers relates to continued growth in our laboratory-related products. We also continue to experience strong export sales growth to emerging markets for the nine months ended September 30, 2007.
     Segment profit increased $4.3 million and $9.0 million for the three and nine month periods ended September 30, 2007, respectively, compared to the corresponding periods in 2006. The increase in segment profit in 2007 is primarily due to increased sales volume, favorable product mix, and favorable currency translation fluctuations, partially offset by increased research and development investments.

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     Western European Operations
                                                 
    Three months ended September 30   Nine months ended September 30
    2007   2006   %1)   2007   2006   %1)
Total net sales
  $ 163,674     $ 146,988       11 %   $ 487,010     $ 431,472       13 %
Net sales to external customers
  $ 144,056     $ 127,669       13 %   $ 427,908     $ 377,176       13 %
Segment profit
  $ 11,402     $ 10,928       4 %   $ 37,517     $ 30,825       22 %
 
1)   Represents U.S. dollar growth (decline) for net sales and segment profit.
     Total net sales increased 5% in local currency for the three and nine months ended September 30, 2007. Net sales in local currency to external customers increased 5% for the three and nine month periods compared to the corresponding periods in 2006, primarily due to strong sales growth in our product inspection products and laboratory products due to benefits from our sales and marketing initiatives as well as improved market conditions, offset in part by a decline in food retailing products related to strong project activity in the prior year. The nine months ended September 30, 2007 also included strong sales in our core industrial products.
     Segment profit increased $0.5 million and $6.7 million for the three and nine month periods ended September 30, 2007, respectively, compared to the corresponding periods in 2006. The increase in segment profit is principally a result of increased sales volume leveraging our fixed production costs, favorable product mix, favorable currency translation fluctuations and benefits of our cost reduction programs, partially offset by charges associated with cost reduction initiatives.
     Chinese Operations
                                                 
    Three months ended September 30   Nine months ended September 30
    2007   2006   %1)   2007   2006   %1)
Total net sales
  $ 67,891     $ 52,005       31 %   $ 180,213     $ 143,032       26 %
Net sales to external customers
  $ 45,476     $ 35,552       28 %   $ 115,510     $ 91,434       26 %
Segment profit
  $ 15,079     $ 11,502       31 %   $ 39,134     $ 32,535       20 %
 
1)   Represents U.S. dollar growth (decline) for net sales and segment profit.
     Total net sales in local currency increased 24% and 21% and net sales to external customers increased 21% for the three and nine months ended September 30, 2007 as compared to the corresponding periods in 2006. These increases were due to continued sales growth for all product lines, in particular industrial-related products
     Segment profit increased $3.6 million and $6.6 million for the three and nine month periods ended September 30, 2007, respectively, compared to the corresponding periods in 2006. The increase in segment profit is primarily due to the continued improvement in sales volume, partially offset by continued investments in sales and marketing and investments in research and development.

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     Other
                                                 
    Three months ended September 30   Nine months ended September 30
    2007   2006   %1)   2007   2006   %1)
Total net sales
  $ 71,499     $ 61,077       17 %   $ 195,307     $ 169,747       15 %
Net sales to external customers
  $ 70,701     $ 60,955       16 %   $ 192,782     $ 169,691       14 %
Segment profit
  $ 7,229     $ 5,729       26 %   $ 16,709     $ 13,792       21 %
 
1)   Represents U.S. dollar growth (decline) for net sales and segment profit.
     Total net sales in local currency increased 11% and net sales to external customers in local currency increased 10% and 9% for the three and nine months ended September 30, 2007 compared to the previous year comparable periods. This performance reflects increased sales growth across most product lines in our Other Asian Pacific, Eastern European and Other North American markets.
     Segment profit increased $1.5 million and $2.9 million during the three and nine months ended September 30, 2007, primarily due to strong sales volume and benefits from our cost reduction programs, partially offset by costs associated with a contractual termination during the nine months ended September 30, 2007.
Liquidity and Capital Resources
     Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments as well as our ability to obtain appropriate financing. Currently, our financing requirements are primarily driven by working capital requirements, capital expenditures, share repurchases and acquisitions.
     Cash provided by operating activities totaled $169.1 million in the nine months ended September 30, 2007, compared to $139.7 million in the corresponding period in 2006. The increase in 2007 resulted principally from improved operating results and a reduction in tax payments which included a $6 million tax refund, offset in part by approximately $11 million of higher payments related to 2006 performance related compensation incentives (bonus payments) compared to the corresponding period in 2006. Operating cash flows for the nine months ended September 30, 2007 and 2006 excludes excess tax benefits from share-based payment arrangements of $5.2 million and $8.2 million, respectively. These benefits have been classified as financing activities pursuant to SFAS 123R.
     We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness.
     Capital expenditures are a significant use of funds and are made primarily for investments in information systems and technology, machinery, equipment and the purchase and expansion of facilities. Our capital expenditures totaled $24.8 million for the nine months ended September 30, 2007 compared to $20.6 million in the corresponding period in 2006. The increase in our capital expenditures is particularly related to investments associated with our new Chinese facility. We expect capital expenditures to increase as our business grows, and to fluctuate as currency exchange rates change.

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     Senior Notes and Credit Facility Agreement
     Our short-term borrowings and long-term debt consisted of the following at September 30, 2007.
                         
            Other        
            principal        
            trading        
    U.S dollar     currencies     Total  
$150m Senior notes (net of unamortized discount)
  $ 149,826     $     $ 149,826  
Credit facility
    91,285       106,888       198,173  
Other local arrangements (long-term)
          11,291       11,291  
 
                 
Total long-term debt
    241,111       118,179       359,290  
Other local arrangements (short-term)
          12,512       12,512  
 
                 
Total debt
  $ 241,111     $ 130,691     $ 371,802  
 
                 
     As of September 30, 2007, we had $241.8 million of availability remaining under our credit facility. Changes in exchange rates between the currencies in which we generate cash flows and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates.
     We currently believe that cash flow from operating activities, together with liquidity available under our Amended Credit Agreement and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements.
     Share repurchase program
     We have a share repurchase program. Under the program, we are authorized to buy back up to $900 million of equity shares. As of September 30, 2007, there were $116.6 million of remaining equity shares authorized to be repurchased under the plan by December 31, 2008. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the timing will depend on the level of acquisition activity, business and market conditions, the stock price, trading restrictions and other factors. We have purchased 12.3 million shares since the inception of the program through September 30, 2007.
     We spent $249.1 million and $182.4 million on the repurchase of 2,710,531 shares and 3,008,300 shares at an average price per share of $91.86 and $60.62 during the nine months ended September 30, 2007 and 2006, respectively, as well as an additional $5.4 million and $4.2 million during the nine month periods ended September 30, 2007 and 2006, respectively, relating to the settlement of the liability for shares repurchased as of December 31, 2006 and 2005. See Part II Item 2 regarding details of the share repurchase program for the three months ended September 30, 2007. We reissued 339,015 shares and 896,899 shares held in treasury for the exercise of stock options for the nine months ended September 30, 2007 and 2006, respectively.
Effect of Currency on Results of Operations
     We conduct operations in many countries and, as a result, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our operating expenses than Swiss franc-denominated sales represent of our net sales. In part, this is because most of our manufacturing costs in Switzerland relate to products that are sold outside Switzerland. We also incur a substantial percentage of our research and development expenses and general and administrative expenses in Switzerland. If the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the euro, other major European currencies and the Japanese yen), our operating profit is reduced. We also have significantly more sales in European currencies (other than the Swiss franc) than we have

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expenses in those currencies. When European currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating profits. Accordingly, the Swiss franc exchange rate to the euro is an important cross-rate monitored by the Company. We estimate that a 1% strengthening of the Swiss franc against the euro would result in a decrease in our earnings before tax of approximately $1.1 million on an annual basis. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. Based on our outstanding debt at September 30, 2007, we estimate that a 10% weakening of the U.S. dollar against the currencies in which our debt is denominated would result in an increase of approximately $14.5 million in the reported U.S. dollar value of the debt.
New Accounting Pronouncements
     See Note 2 to the consolidated financial statements for the year ending December 31, 2006.
Forward-Looking Statements and Associated Risks
     Some of the statements in this quarterly report constitute “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, annual amortization expense, outcome of litigation, effect of potential loss of licensed rights, potential growth opportunities in both developed markets and emerging markets, planned research and development efforts, product introductions and innovation, manufacturing capacity, expected customer demand, meeting customer expectations, planned operational changes and productivity improvements, research and development expenditures, competitors’ product development, expected capital expenditures, source of funding, method and timing of share repurchases, timing and effect of potential exercises of options, future cash sources and requirements, liquidity, impact of taxes, impact of changes in tax laws, expected compliance with laws, impact of environmental costs and environmental proceedings, expected pension contribution, expected cost savings and benefits of completed or future acquisitions, which involve known and unknown risks, impact of currency fluctuations, uncertainties and other factors that may cause our or our businesses’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements.
     In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors. Moreover, we do not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. Unless otherwise required by applicable laws, we disclaim any intention or obligation to publicly update or revise any of the forward-looking statements after the date of this quarterly report to conform them to actual results, whether as a result of new information, future events, or otherwise. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption, “Factors affecting our future operating results” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, which describes risks and factors that could cause results to differ materially from those projected in those forward-looking statements.
     We caution the reader that the above list of risks and factors that may affect results addressed in the forward-looking statements may not be exhaustive. Other sections of this quarterly

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report and other documents incorporated by reference may describe additional risks or factors that could adversely impact our business and financial performance. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict these new risk factors, nor can it assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     As of September 30, 2007, there was no material change in the information provided under Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
Item 4. Controls and Procedures
     Our management carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report under the supervision and with the participation of our disclosure committee, our Chief Financial Officer (“CFO”) and Chief Executive Officer (“CEO”). Based upon that evaluation, our CFO and CEO concluded that our disclosure controls and procedures are effective in permitting us to comply with our disclosure obligations and ensure that the material information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. There were no changes in our internal controls over financial reporting during the three months ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our controls over financial reporting.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 1A. Risk Factors.
     For the nine months ended September 30, 2007 there were no material changes from risk factors as disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
     Issuer Purchases of Equity Securities
                                 
                            (d)  
                            Maximum  
                    (c)     Number (or  
                    Total     Approximate Dollar  
                    Number of     Value) of  
                    Shares     Shares that  
                    Purchased     May Yet Be  
    (a)             as Part     Purchased  
    Total     (b)     of Publicly     Under the  
    Number of     Average     Announced     Plans or  
    Shares     Price Paid     Plans or     Programs (amounts  
    Purchased     per Share     Programs     in thousands)  
July 1 to July 31, 2007
    210,000     $ 97.48       210,000     $ 204,753  
August 1 to August 31, 2007
    656,931     $ 92.00       656,931     $ 144,298  
September 1 to September 30, 2007
    287,600     $ 96.19       287,600     $ 116,626  
 
                       
Total
    1,154,531     $ 94.04       1,154,531     $ 116,626  
 
                       
     The Company has a share repurchase program that was announced in 2004. Under the program, the Company has been authorized to buy back up to $900 million of equity shares. As of September 30, 2007, there were $116.6 million of remaining equity shares authorized to be repurchased under the plan by December 31, 2008. The Company has purchased 12.3 million shares since the inception of the program through September 30, 2007.
     The Company spent $249.1 million and $182.4 million on the repurchase of 2,710,531 shares and 3,008,300 shares at an average price per share of $91.86 and $60.62 during the nine months ended September 30, 2007 and 2006, respectively, as well as an additional $5.4 million and $4.2 million during the nine month periods ended September 30, 2007 and 2006, respectively, relating to the settlement of the liability for shares repurchased as of December 31, 2006 and 2005. The Company reissued 339,015 shares and 896,899 shares held in treasury for the exercise of stock options for the nine months ended September 30, 2007 and 2006, respectively.

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Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other information. None
Item 6. Exhibits.
31.1   Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
 
31.2   Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
 
32   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Mettler-Toledo International Inc.
 
 
Date: November 2, 2007  By:   /s/ William P. Donnelly    
    William P. Donnelly   
    Group Vice President and Chief Financial Officer   
 

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