Mettler-Toledo International Inc (MTD) 2002 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to Mettler-Toledo third quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a questions and answer session and instructions will follow at that time. As a reminder this conference call is being recorded. The company would like to remind you that statements made during the conference call which are not historical facts may be considered `forward-looking statements.` Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Mettler-Toledo's quarterly earnings releases, Annual Report, and periodic filings with the Securities and Exchange Commission. And now I would like to introduce your host for today's conference, Mr. Robert Spoerry, CEO of Mettler-Toledo. Mr. Spoerry, you may begin.

Thank you. Welcome to the Mettler-Toledo conference call. I am Robert Spoerry, the Chairman and CEO of Mettler-Toledo and I thank you for joining us today. With me at our Rainin headquarters in California are Dennis Braun, Chief Financial Officer and Mary Finnegan who is our Treasurer and also handles the Investor Relations. This call is being web cast and is available for replay on our website at www.mt.com. A copy of the press release we issued this afternoon is also available on our website. On today's call I would first like to give you a short summary on the quarter and then it will go over to financials in detail and to review our assumptions for Q4. After that I would like to give you some further qualitative comments on our business and markets and finally we will open the line for questions.

Now first, let me make some summary comments on the quarter. I am pleased that we slightly exceeded consensus estimates in spite of a continuous difficult economy. Sales in local currency were up 4%, barring US dollars, sales were up 8% in the quarter. EPS exclude acquisitions, our organic business was down 5% in local currency. This is in line with our expectations and similar to what we saw in the first half of the year. It is important to note that this kind in our organic business is entirely due to the significant drop off in our European food retailing business due to the completion of the Euro conversion at the end of last year.

During the quarter we made measurable progress on our cost reduction programs. Among many different actions we initiated the closure of two manufacturing facilities and the transferring production to our Chinese operations within the next twelve months. We remain confident that we will obtain a permanent cost saving in the range of $15-$20m dollars as outlined at previous occasion. For the quarter operating profit was slightly up despite some of the worst currency impact. EPS was basically [Inaudible] with the prior year after adjusting last year for the new goodwill and accounting standards. Finally, we are very pleased with our excellent cash flow, which was up 24% in the quarter and is up [Inaudible] 1% year-to-date. This in spite of higher capital expenditures. We will cover all these points in more detail through out the course of this call. First let me to begin by taking you through the financial results of the third quarter in detail.

Thanks Robert and good afternoon to everyone. EPS amounted 51 cents a share in the quarter and is based on 45.2m shares outstanding. This compares to consensus estimates of $0.50 per share. If you adjust last year to the new goodwill accounting rule, EPS was $0.52. On a reported basis EPS was 6 percent greater than last year's $0.48. Sales for the quarter amounted to 307m. As Robert mentioned, this represents a 4 percent increase in local currency and an additional 4 percent benefit from currency resulting in total growth in US dollars of 8 percent. If we adjust for acquisitions, our sales declined by 5 percent in local currency in line with our expectations. However, if we exclude the impact of our European food retail business, our organic sales are up 1 percent for the quarter.

Let me give you some additional information about our sales growth by region. As a reminder, these figures are in local currency sales. That is, they exclude the 4 percent benefit we received from currency this quarter. Sales in Europe on a local currency basis were down 14 percent in total in the quarter and 16 percent if we exclude acquisitions. The decline in our European business is due to the food retail business. In other words, excluding retail our European business was slightly down. Again America's total sales were up 19 percent and excluding acquisitions our business was up by 2 percent. Sales in Asia were up 8 percent. Now let me expound by business area.

Starting with lab. As we expected our lab business improved over the second quarter and recognized growth in the low to mid-single digit range. Americas had a strong quarter and we also saw growth in Europe. Balances improved over the last quarter and Analytical instruments and Service had another strong quarter. Drug discovery was up mid-single digit while order entry was even stronger.

Industrial. Our industrial businesses including packaging and industrial instruments were down low to mid-single digits in the quarter. Again, pretty much as we expected. Americas appears to have bottomed out but we are still experiencing some weakness in Europe. Asia continues to experience industrial growth.

Retail. Our retail business was down in the 30 percent range during the quarter. Breaking this down a little further, the Americas had a very strong quarter with high single digit growth, while Europe was down more than 50%. As expected, we continued to experience the one-time effect of a sharp drop in demand in our European food retail business due to the completion of the Euro conversion at the end of last year. That covers the organic business, Rainin had another solid quarter and remains on track for their full year targets.

Gross margins were 46.6 percent, an increase of 60 basis points over the prior year. This improvement is due to cost saving initiatives, such as strategic procurement and the transfer of production to China and also a favorable mix. Continuing down the P&L, R&D expenditures amounted to $17.5m or 5.7 percent of sales. This represents a one percent growth in local currency. As most of you know our R&D growth has well exceeded our sales growth over the last few years as we have built up a strong product pipeline. Now, as we have finished or are close to completing various R&D projects, we will pull it back but it will remain at a solid level.

SG&A in the quarter amounted to $85.3m or 27.8% of sales. A natural question is, why is the SG&A up 12% versus last year, when we are taking measures to reduce cost. First, currency accounts for 5% of the difference and secondly acquisitions contribute an additional 7%. If you adjust for both of these factors, acquisitions and currency, you will see that we were able keep our organic local currency cost flat. If you look at SG&A versus Q2, the sequential increase of 3.5 percent is solely due to currency.

The benefits of our restructuring plans are starting to become visible. Of the total savings of $15m to $20m, we expect to recognize $4m to $6m this year. EBITDA, or earnings before interest taxes and amortization, amounted to $40.2m, a 3% increase over the prior year amount. This translates into a margin of 13.1%, modestly below last year's level of 13.6% However, this apparent margin decline is fully attributable to higher reported US dollar sales due to the strengthening of the Euro versus the dollar. As I mentioned earlier, local currency sales growth was 4% while US dollar sales growth was 8 percent. In addition, we absorbed adverse currency due to the strengthening of the Swiss franc versus the Euro of approximately 700,000. If you adjust for these items, operating margins were slightly better than last year on a constant currency basis. We do not expect a significant currency impact in the fourth quarter based on today's rates. Amortization amounted to $2.8m and interest expense was $4.4m. This results in EPS of $0.51 for the quarter versus $0.52 last year on a comparable basis, after adjusting last year with the new accounting standard on goodwill. As I said earlier, currency cost us a penny this quarter.

Now turning to cash flow. We are very pleased that it continues to be excellent. Free cash flow, which we define as after taxes, working capital in Capex and before restructuring payments in acquisitions, reached $30.3m in the quarter and $61.2m year-to-date. Increases of 24 percent and 31 percent respectively against the prior year. Strong management of working capital was more than able to offset higher tax payments and higher capital expenditures. At quarter end, day sales outstanding was 54 days well below our target of 60, while inventory turn over remain relatively constant at 3.4 times. Capex was $7.5m in the quarter, up 14 percent versus last year. We spent $2.9m on restructuring payments and $1.7m on our now payments. Last 12 months EBITDA amounted to $194.1m and net debt was $302.9m. This results in very strong credit statistics of net debt to EBITDA of 1.6 times and interest coverage of 11.9 times.

Finally, I would like to make some comments on the outlook for the last quarter of this year. We want to reaffirm what we told you last quarter but also give you some current insight. We entered Q4 with a strong order book. Most of you know that Q4 is typically our strongest quarter due to year-end spending of remaining budgets by our customers. We are being some what cautious with this year-end seasonality given the current environment. We also faced difficult comparisons in third retailing due to the Euro conversion that took place at the end of last year. These two factors generally translate into local currency organic sales growth that is modestly worse in Q4 versus Q3. If you add the benefits of acquisitions and the current currency environment, we expect modest US dollar sales growth in Q4. This sales level should translate into EPS in the $0.68 range, which is current consensus and we feel is reasonable. That is it from my side and I will now turn it back over to Robert.

Thank you Dennis. I will begin my comments with my review of current market conditions. I want then to give you an update on our cost reduction program. I will also give a brief update on our initiatives in Asia, service, and highlights on our product launches. Now let me make first a few comments to lab business. Our laboratory business remains on track. Many of you have questioned the impact of pharma spending. It is down from a historical perspective, but still at the healthy level. Recent reports I have seen indicate that big pharma companies increased R&D spending by almost 8 percent in the first half of this year. As pharma companies need to find new drugs to meet their targets and they have many new opportunities to find these drugs, we are convinced that these end markets remain fundamentally a healthy end-user market. Our lab business is being moderately impacted by the pharma slowdown. It is not that significant.

With industrial. Recent reports do indicate that the industrial capital good demand in the US appears to be stabilizing at very low levels. Europe however is more challenging primarily due to the very weak economy in Germany. Asia continues to be a very strong market as more and more multinational chip manufacturing for lower cost areas in Asia. Few comments on the retail business. I think we have already covered these quite extensively. We are seeing strong demand in the US chewing [Inaudible] to continue solid consume spending. As I have already mentioned Europe continues to be down significantly due to the after math of the euro conversion. However, we will have the much easier comparison next year actually, quite early next year.

Turning now to our cost reduction programs. We initiated steps in the quarter to close two plants. One in the US and one in France and transfer most of the production to China. We are also consolidating some smaller drug discovery operations in the US and UK. These transfers will be completed by September 2003. I am confident that these initiatives as well as other cost reduction programs throughout the organization are well on plan. We expect total savings from these programs to amount to $15-20m of which this year we will realize around $4-6m and for next year we expect to save another $8-9m and then in 2004 we do expect $3-4m savings from these programs.

I want to elaborate a little more on Asia now. This is the transfer I outlined a moment ago, we will increase the percentage of product manufactured in China from 4% four years ago to close to 20% percent by the end of 2004. We typically recognize manufacturing cost savings of 25% on the profits transferred to China. This is only a part of our strategy for China. The order, which we have also seen strong successes, is capitalizing on the growth opportunities in the Chinese and as well in the neighboring Asian markets. The approach in these markets with a new range of new cost-affective product including balances, pH meters, and the variety of industrial scales and terminals, which were all developed and manufactured at the low-cost destination in China. We are also introducing new products that are meeting the changing needs of this region.

For example, the needs for quality control as more of the fruit becomes pre-packed, yet the market leading position in Asia and expansive sales force of more than 650 personnel, and we expect solid growth in that region in the coming years. Service is another area that we continue to experience strong growth. We have spoken about pharma customers demanding from service offerings targeted towards FDA compliance for the research applications. This demand continues to be steady and we feel we are unique in the market with our service suite, which we refer to as service XXL. We are now seeing demands by pharma customers for assistance in complying with FDA regulations in their manufacturing environment.

Historically, this has been handled in house, however, as we practically approach this opportunity, we find our customers are looking to outsource the services. Again, here we are in a unique position, not only because of our global sales network, but because of our vast experience when it comes to FDA regulations. We also expect further potential down the road as these regulations cross over to the food side. Finally, we also unveiled a new program in service for total asset management for both laboratory and manufacturing applications. These programs are designed to avoid the criticality of each instrument in a customers operation and then designer service strategy based on criticality. As this approach focuses on the instrument most critical to the customers operation, it allows them to obtain the best return for service.

They have just launched this program but at this meeting with very strong reception. The last item I want to cover is our product pipeline. You have been hearing about our significant currency spending over the last few years, and we are beginning to see the dividends from these investments. We have a record number of new products particularly in the lab area being launched during the rest of this year as well as into 2003. Many of these provide automation and measurable improvement in throughput and efficiency. For example, we have launched a new high throughput purification system, which improves the throughput of purification of compound by a factor of five times. As we have mentioned in the past, a bottleneck the discovery process is purification, which is very time consuming, but the failure to purify can result in false screening results.

By dramatically increasing the throughput, we help to streamline these processes bottleneck. We are also having robotics to our automated lab reactors in order to automate and integrate the previous manual steps of dispensing reagents and sample extraction. We have also expanded the vital capacity to 16 thereby improving both quality and throughput. Finally, we are also introducing a range of personal workstation targeted to the bench chemist. These are smaller, less complex, and easier to use instrument that can bring automation capabilities to the bench chemist. The new automated workstations include liquid extraction, balance automator, and robotics for mapping reagents. We estimate that currently 95% of chemists have little automation at their disposal and therefore are excited about this potential in their markets. I hope that we have given you a full report on our current performance and our assessment as well for the current market condition.

Now before I open for questions, I want to say that I am convinced that Mettler-Toledo continues to strengthen as a franchise during these challenging times. I am confident in saying this because we are maintaining, if not taking, market share. We also have a very robust product pipeline and we also have taken steps to fundamentally improve our cost structure. I know the question of most of -- you must have in your mind, namely the timing where of the strengthening of the economy recovery. This remains difficult to determine and therefore we have taken the actions necessary to insure that we can grow earnings per share next year even if the economy remains challenging. Now I would like to open the lines for questions.

Thank you. If you have a question at this time, please press the number one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And once again if you do have a question, please press number one. And our first question comes from Donna Takeda of Merrill Lynch.

Good afternoon. Hello everybody.

Hi Donna.

Can you hear me okay, Robert?

Yeah. Perfect.

Okay. First on the DSOs. That 54 days looks pretty good. Is that sustainable?

[Laughter] Good question. I think, you know, what we have instituted as a program throughout the organization was that we go in a very complacent manner after overdues more than 30 days and that is very often not only a profit question, it is how making sure that every quality aspect in the whole process is perfect and I think that we have made tremendous progress and that is where actually we made this improvements. It is sustainable, you know, kind of, we had a certain mixed shift as well retail which are not as good payers as laboratory customers. That mix of the retail business as you certainly have heard in the course of the conference call is less. So we benefit to some extent from that but I hope, you know, continued process improvements might offset that mixed shift back to the normal levels.

Okay. On the service XXL Robert, it sounds like that is going pretty well. Are there certain pieces that the pharma companies are finding more appealing on an immediate basis right now as they try to figure out the validation procedures under part 11 or are they taking the total package?

I think, you know, as I already described, we have really a two-fold opportunity. One of them is more in the laboratories but, you know, if you ask me whats is really new then it is on the industrial on the manufacturing side, there are many big pharma companies has been fined because of non-conformance and there are tremendous opportunity. I might, if you tripped here concrete example, we just recently had the customer approaching us here in North America for a quote on preventive maintenance services and after five service call, the story is actually totally different. The customer did provide us the detailed asset list. We went through a process review of each and every instrument. In each and every case, we did review that criticality of the instrument in the whole process in the sense of quality, up time, compliance, and as a result of that came forward with a very differentiated service offering to that customer. The initial bit was very competitive. At the end, of course, the customer realized we are talking to companies which is in a different league and ultimately proves as well to product treatments. Actually the customer did them as well start dialogue with us on a three-year public placement (ph) cycle. I think that is the opportunity we have here. Through the expensive know-how, we have build up with getting in some expertise from the outside into our company. We have a tremendous opportunity to put Mettler-Toledo in a different league and so that is why, you know, go far beyond the excellent products we offer to our customers.

Great. Thanks a lot. I will get back in the queue.

Yes. Thank you, Donna.

Thank you. Our next question comes from Cheri Walker of Deutsche Banc.

Good evening.

Hi Cheri.

Hi Cheri.

Could you go through the lab products, which one seem to be performing better than others and maybe the growth rates of the individual product lines?

Yeah, Sherry. In the third quarter, it was pretty much consistent across the line, but our analytical instruments continued to be pretty strong up, a kind of, high single digits and the autochem as we mentioned in the script were up kind of a mid single digit range.

Great.

And then we also saw some good growth in the balances during the quarter.

Okay. And when we look at the gross margin it was up a year-over-year but down sequentially. Was there a currency mix in there or and how should we think about the fourth quarter?

Yeah, that is a good question, Sherry. Yeah, there is a currency impact in the quarter as we manufacture a lot of our lab instruments in Switzerland. As we are selling those in to the US, we have a negative currency impact where the cost translates into higher cost sales. But as we look forward to the fourth quarter, overall, we are confident that gross margins are on track and in the fourth quarter I would see margins in the 48% range somewhere to last year.

Great. Thank you.

Thank you. Our next question comes from Scott Jones of A.G. Edwards.

Good afternoon. A couple of questions. The first one is, Dennis I think you mentioned that you had a strong order book coming into the fourth quarter. I am wondering if you could just talk about maybe which areas if you can identify any if where the strength is coming from?

Yeah. The order book strong in autochem, and then also in as we are seeing demand for the new products starting to pick up, so autochem is one key area and then another key area is, kind of, in the packaging group as we are seeing demand for some of the Checkweighers and Metal Detectors.

If I may just add here. Even in industrial had increasing order intake. In retail, order intake didn't increase.

And on the industrial side is that primarily the United States that is picking up?

Yeah, correct. Absolutely correct, yeah.

All right, and one follow-up related to the financials. The amortization in the quarter was a little bit higher sequentially and I was just wondering if there was anything special going on there?

Good question Scott. Nothing real special going on there. Some of the increase is due to currency, and then we also tend to build up some amortization during the year.

Great. Thank you.

Thank you. The next question comes from Martin Sankey of Goldman Sachs.

Hi. This is Martin Sankey from Goldman Sachs. Can you hear me?

Yeah, hi Martin.

The shoe is on the other foot tonight, you're in California and I’m in Zurich of all places.

Definitely [Inaudible] .

A little bit bleary eyed right here. [Laughter] Any how, in discussing the working capital you certainly had some improvement, but it was all driven by the accounts receivable side. As you point out the inventories that really happened but… Are you thinking about programs to try to get some structural improvements in the inventory turn over? And why hasn't, and if you've have been working at it to date, why hasn't inventory improved?

Okay couple comments here. Number one: With the closure of plants, we actually had to build some excess inventory and being particularly in France, the dynamics of a bank closure announcement being, France is not very predictable and we felt it's very good to have spare some safety stock. Number two comment is that: With many many new product launches we are now in this right situation where you of course are still having the old products and the new ones being built up and that's always no quick period where you actually have double inventory. Now may be to your right first question do we have some programs in place to improve this? Yes, we do have and we are clearly not happy with where we are right now we feel this is an area for improvement.

Yeah just to add to Roberts comments, one other thing Martin is, if you look at it on a reported basis it looks like the inventories are up a little bit, but on a constant currency basis they are down. So, currency is what going against this little bit during this year.

Okay, are your inventories at a point, where you might be considering taking down time in the fourth quarter to burn off some excesses?

No actually, the manufacturing capacity in terms of pebbling (ph) the plans that has being a long time adjusted and we actually have very flexible work time models there. That's something which we usually can adjust very quickly.

Okay so, now no real excesses in this system?

No.

I doesn't really - -, okay thanks.

Thank you.

Thank you. Our next question comes from Sarah Mitchamore of SG Cowen.

Hi good evening.

Hi Sarah.

Just a question. If you can talk about the retail business as you look into Q1 and you realize that you have favorable year-over-year comparison certainly in that, just curious about your views on, you obviously had a big build up Europe exiting 2001. Does the hangover continue into 2003 and if so, how do we think about that business in Europe. Is it still down? Is there any growth there? What is the right way to think about that?

Okay, just a couple of comments on these. You should expect, -- from an year-on-year base the European retail business will be down this year in the range of 40 percent and yes, it's correct to say that the euro conversion has to be completed by the end of last year. So, we will enter easier comparisons in the beginning of 2003. We have also a little hangover from some customers who were late in, - just achieving that, but I think at the latest point in time, at the Q1 we’ll be through that.

So it's possible that you could see an additional decline in Q1 Robert?

No. Well, -- in Europe there might be some decline in the European retail business. That's right too, but then afterwards we had very easy comparison.

Okay. So, with scale over the course of the year would be your expectation then?

Yes.

Okay and -- now that you are coming on to the point where you are annualizing the Rainin acquisition, can you just comment on the growth of that business and how it impacts the same store growth of the laboratory business?

Okay. Rainin performance has indicated that other occasion is a kind of just high-single digit or double-digit just on that border. We are very happy in general with the Rainin acquisition. The US business for Rainin has somehow slowed down a little bit in light of the overall reduction in pharma spending. At the very same time, we are seeing very nice growth internationally and that's very much back to our strategic intent, 86 percent of Rainin business is US based, and we have a tremendous global opportunity in the global markets by Rainin has been ignored. But that at the very same time to have a very unique product. These [Inaudible] products just as a side note, are doing extremely well. More and more of Rainin business is actually the higher margin of priority technology, not only for the type of [Inaudible] , but as well as for the flowing [Inaudible] business and consumable business. In Europe, we've have taken many measures to set up the infrastructure. All the sales literature is translated into the different languages. We have set up a calibration labs in all major countries. We have started 10-hours teaching the economics of these products and the European business is actually going at a very nice rate.

Okay great and my last question for you Robert, just on the Autochem business, is that a business that you could see reaccelerate and I am just curious on your view. I think there is a bigger opportunity there with just the manual nature of what's being done. What you think drives that? Is it, an issue with this, just getting over this pharmaceutical funding issue or is it a technology barrier?

A couple of comments. Number one, maybe just going back a little bit in history. You know the early product which we did offer in that markets were, what I would call (the dinosaur products), the products half million to million. They could do everything at the very high throughput, but they were highly centralized and that of course, a few units were both by the big pharma guys. Soon afterwards it became quite clear that this might be against the work nature of many people in the labs and that the product, which probably will much more proliferate into the market of these lower end entry product and you know these products, which we are just launching at this very moment are much more geared to that end, actually very modular product concept whereby, you can just buy simple mini block synthesizing tool and you can augment it overtime with more and more automation as you grow up with it.

I think that was a very important technology transition and began these products are just popping out of the pipeline right now. So, to maybe give you further confirmation of that, I think we did mention that our ordering take actually has been very strong in the quarter. I think up, Dennis, something like more than 40 percent in the quarter over previous year and year-to-date, the number will be how much up for all the time order intake?

Yeah, probably in 20 percent range.

Yeah. So, we have actually an excellent order book and I think that just confirms to me that, -- the opportunity is there.

And that is great. And just one quick question for Dennis on the, 8 to 9m in cost savings you are looking for in 2003, how does that scale out over the course of the year, the backend loaded is it evenly spread out, how should we think about that?

Yes, it's probably more backend loaded as we kind of work through the transition plans on these two major plant closings, it will be more of, a little more skewed towards the backend of the year.

Okay. Thanks very much.

Welcome.

Thank you. Our next question comes from Richard Eastman of Robert W. Baird.

Hi, just a couple of quick things, on the plant closings, what product lines are involved there?

In both cases, in the case of Spartanburg and [Inaudible] we are of course addressing those businesses which are most affected by the current business climate, that's industrial and retail products.

Okay. Okay and then also, am I doing the math right, was Rainin in the 25-million dollar range for the quarter? Was it that much in dollars?

No, it's not that big.

Okay. Are there any other acquisitions that you include in that number?

Yeah, we've got SofTechniques, which came in the start of the second quarter.

Okay, so those two combined?

Yes.

And then lastly, Robert in terms of Rainin and the European distribution, you talked a little bit about the sales material and doing some things at work, on the distribution side, is that a direct strategy or is that a distribution strategy or what's happened there?

It is a direct strategy, actually -- Rainin's business model is direct here in the US and with great success they have market shares in the range of 50 percent plus and we are frankly just modeling that. Our European market organizations, sales and service organizations has very much already a direct sales approach and you know that blends very well with the Rainin approach, so I think we are very much in sync there.

Do you leverage Mettler's sales directly - -?

Absolutely.

Okay very good. Thank you.

Thank you. And once again, if you do have a question, please press the number one and our next question comes from Scott Jones of A.G. Edwards.

Dennis, I apologize for not getting this the first time, but what was the total company local currency organic sales growth rate?

Negative 5 percent.

Great. Thank you.

Thank you and our next question is a follow-up from Donna Takeda.

Thanks. Robert, given the progress you are making in Europe with Rainin, have you seen any competitive response yet?

Need to be careful here. Competition might listen to webcast later on. We take competition serious, but I think, you know, what we have is a really unique product. Many are trying to catch up this ergonomics, many do define ergonomics in a very difference way. At Rainin, the definition of ergonomics is how much force you apply on your sum than you use, you'll type it and that's actually what causes repetitive strain injury and in that space nobody is just close to Rainin. Actually Rainin just introduced at the recent neurologic show here on the West Coast a 24-channel pipette and you can imagine that when you got that many channel that becomes even more important and that product was very well received at that show and you can imagine how fast you can fill one of this Mircoplates when you have 24 channels at the same time. This tool is a great productivity tool.

Yeah, that Autochem backlog, sounds like it is pretty high, how much of that is deliverable in the fourth quarter?

That's a good question. My team tells me they got it out in time and they certainly have all the pressure to achieve that.

Okay, and finally on the truck business.

Yeah.

That's has some pretty high highs and low lows over the past couple of years. How's that doing right now?

You know, it is a little below the overall industrial performance.

Okay but that stabilized after the decline..

Yeah. But you know we are actually working on some big project, so that could actually change quickly.

Okay, great, Thanks a lot.

Welcome.

Thank you and our next question is a follow-up from Martin Sankey.

Hello again. It's getting to be towards the end of the year and could you update us on how you see your pension expense evolving and do you have to fund it more and will you be forced to put the unfunded liability on the balance sheet?

Yes, good questions Martin. As you may recall, during this current restructuring, well let me step back a second, we basically got two pension plans, one in Switzerland and one in the US. The Swiss plan is over funded and in a very good shape. The US plan had been under funded, if you look through our financials last year and as part of this current restructuring in the second quarter, we froze the US defined benefit pension plans. So, there will be no future service costs arising out of that plan but it is under funded in the range of $40m that we'll have to put on the balance sheet as of year-end. So, as you know when you are in an under funded situation like that, there are some minimum funding requirements to catch that up. So in the short term that will clearly be a focus of ours to fund that as required and then to the extent, we may have some excess cash flow, we may direct in that area.

Okay. To what extent then will your pension expense increase in 2003 as a result of this?

It is kind of a push, Martin, because we won't have any future service cost but we are going to have to adjust our pension assumptions on the rate of return for the assets. Last year, we were about 9.5 percent and we are going to drop that down in the 8.5 percent range. So that has the impact of increasing the pension expense but the reduction in the service costs should basically keep it flat or may even be a little bit lower.

Now you said, you froze the plan. I’ve been hearing you are shifting through some kind of defined contribution plan for your US employees won’t there be an expense associated with that?

Yes we've switched into more of the defined contribution plan and our estimated incremental expense related to that is kind of in the $2m to $3m range a year.

Okay, so and we should consider that in addition to the parameters you just laid out regarding the defined benefit plan?

Yeah. They kind of net out.

Okay. So what you are saying is service costs go down because you are no longer contributing to the defined benefit plan. You haven't increased fee at the defined contribution plan of 2m to 3m, but and then you've the ROA assumption and that an overall that's an incremental $2m to $3m increase for next year versus this year. So I have it right?

Probably a little less than the $2m to $3m.

Okay.

We probably should have some net savings on the defined benefit plan.

Okay. Thanks.

Okay. Welcome.

I'm showing no further questions at this time.

Okay, good. I would like to thank everybody for joining us in this particular event(ph) at Mettler-Toledo today. I wish everybody a very nice day and good weekend. Thank you.

Ladies and gentlemen this concludes today’s conference. Thank you for your participation. You may disconnect at this time and have a good day.