10-Q 1 mtd10q63017.htm FORM 10-Q Q2 2017 Document

 

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

Form 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2017, OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________
Commission File Number: 1-13595
Mettler-Toledo International Inc.
_______________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)

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

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act __

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

The Registrant had 25,668,054 shares of Common Stock outstanding at June 30, 2017.
 




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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended June 30, 2017 and 2016
(In thousands, except share data)
(unaudited)

 
June 30,
2017
 
June 30,
2016
Net sales
 
 
 
Products
$
512,848

 
$
470,605

Service
140,808

 
137,681

Total net sales
653,656

 
608,286

Cost of sales
 
 
 
Products
200,281

 
183,322

Service
78,458

 
77,388

Gross profit
374,917

 
347,576

Research and development
32,854

 
30,701

Selling, general and administrative
193,517

 
187,798

Amortization
10,249

 
8,655

Interest expense
8,171

 
6,872

Restructuring charges
4,023

 
2,205

Other charges (income), net
(744
)
 
8,173

Earnings before taxes
126,847

 
103,172

Provision for taxes
25,267

 
23,584

Net earnings
$
101,580

 
$
79,588

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
3.94

 
$
2.99

Weighted average number of common shares
25,751,374

 
26,631,015

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
3.84

 
$
2.93

Weighted average number of common and common equivalent shares
26,439,529

 
27,143,284

 
 
 
 
Comprehensive income, net of tax (Note 8)
$
134,314

 
$
56,630



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

- 3 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Six months ended June 30, 2017 and 2016
(In thousands, except share data)
(unaudited)

 
June 30,
2017
 
June 30,
2016
Net sales
 
 
 
Products
$
970,108

 
$
883,897

Service
278,115

 
264,063

Total net sales
1,248,223

 
1,147,960

Cost of sales
 
 
 
Products
376,083

 
349,179

Service
154,323

 
151,298

Gross profit
717,817

 
647,483

Research and development
64,246

 
59,674

Selling, general and administrative
377,689

 
356,719

Amortization
20,294

 
17,079

Interest expense
15,912

 
13,452

Restructuring charges
5,455

 
3,085

Other charges (income), net
(6,474
)
 
7,889

Earnings before taxes
240,695

 
189,585

Provision for taxes
46,649

 
44,323

Net earnings
$
194,046

 
$
145,262

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
7.51

 
$
5.42

Weighted average number of common shares
25,841,243

 
26,781,154

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
7.32

 
$
5.32

Weighted average number of common and common equivalent shares
26,514,311

 
27,283,012

 
 
 
 
Comprehensive income, net of tax (Note 8)
$
250,658

 
$
129,136



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

- 4 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of June 30, 2017 and December 31, 2016
(In thousands, except share data)
(unaudited)

 
June 30,
2017
 
December 31,
2016
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
146,334

 
$
158,674

Trade accounts receivable, less allowances of $15,306 at June 30, 2017
 
 
 
and $14,234 at December 31, 2016
448,098

 
454,988

Inventories
253,734

 
222,047

Other current assets and prepaid expenses
65,587

 
61,075

Total current assets
913,753

 
896,784

Property, plant and equipment, net
600,900

 
563,707

Goodwill
483,757

 
476,378

Other intangible assets, net
164,134

 
167,055

Deferred tax assets, net
39,326

 
33,951

Other non-current assets
46,080

 
28,902

Total assets
$
2,247,950

 
$
2,166,777

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
143,607

 
$
146,593

Accrued and other liabilities
124,879

 
133,167

Accrued compensation and related items
118,705

 
140,461

Deferred revenue and customer prepayments
126,190

 
100,330

Taxes payable
53,820

 
47,990

Short-term borrowings and current maturities of long-term debt
21,608

 
18,974

Total current liabilities
588,809

 
587,515

Long-term debt
947,781

 
875,056

Deferred tax liabilities
37,106

 
64,306

Other non-current liabilities
212,335

 
204,957

Total liabilities
1,786,031

 
1,731,834

Commitments and contingencies (Note 14)


 


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

 

Common stock, $0.01 par value per share; authorized 125,000,000 shares;
 
 
 
issued 44,786,011 and 44,786,011 shares; outstanding 25,668,054 and
 
 
 
26,020,234 shares at June 30, 2017 and December 31, 2016, respectively
448

 
448

Additional paid-in capital
738,349

 
730,556

Treasury stock at cost (19,117,957 shares at June 30, 2017, and 18,765,777 shares at December 31, 2016)
(3,235,176
)
 
(3,006,771
)
Retained earnings
3,256,684

 
3,065,708

Accumulated other comprehensive income (loss)
(298,386
)
 
(354,998
)
Total shareholders’ equity
461,919

 
434,943

Total liabilities and shareholders’ equity
$
2,247,950

 
$
2,166,777



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

- 5 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Six months ended June 30, 2017 and twelve months ended December 31, 2016
(In thousands, except share data)
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Common Stock
 
 
Treasury Stock
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
 
 
 
 
Total
Balance at December 31, 2015
27,090,118

 
$
448

 
$
697,570

 
$
(2,543,229
)
 
$
2,692,317

 
$
(266,649
)
 
$
580,457

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
278,623

 

 

 
36,450

 
(10,979
)
 

 
25,471

Repurchases of common stock
(1,348,507
)
 

 

 
(499,992
)
 

 

 
(499,992
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
17,680

 

 

 

 
17,680

Share-based compensation

 

 
15,306

 

 

 

 
15,306

Net earnings

 

 

 

 
384,370

 

 
384,370

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax

 

 

 

 

 
(88,349
)
 
(88,349
)
Balance at December 31, 2016
26,020,234

 
$
448

 
$
730,556

 
$
(3,006,771
)
 
$
3,065,708

 
$
(354,998
)
 
$
434,943

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
153,413

 

 

 
21,544

 
(4,609
)
 

 
16,935

Repurchases of common stock
(505,593
)
 

 

 
(249,949
)
 

 

 
(249,949
)
Share-based compensation

 

 
7,793

 

 

 

 
7,793

Effect of accounting change (Note 2)

 

 

 

 
1,539

 

 
1,539

Net earnings

 

 

 

 
194,046

 

 
194,046

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

 

 

 

 

 
56,612

 
56,612

Balance at June 30, 2017
25,668,054

 
$
448

 
$
738,349

 
$
(3,235,176
)
 
$
3,256,684

 
$
(298,386
)
 
$
461,919

 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

- 6 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2017 and 2016
(In thousands)
(unaudited)

 
June 30,
2017
 
June 30,
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
194,046

 
$
145,262

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
15,919

 
16,116

Amortization
20,294

 
17,079

Deferred tax benefit
(3,840
)
 
(8,852
)
Share-based compensation
7,793

 
7,249

Gain on facility sale
(3,394
)
 

Other
230

 
(101
)
Non-cash pension settlement charge

 
8,189

Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
23,541

 
5,189

Inventories
(21,164
)
 
(20,029
)
Other current assets
(235
)
 
(3,519
)
Trade accounts payable
(7,176
)
 
(8,673
)
Taxes payable
(9,058
)
 
5,351

Accruals and other
(11,579
)
 
(884
)
Net cash provided by operating activities
205,377

 
162,377

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
10,209

 
218

Purchase of property, plant and equipment
(48,529
)
 
(28,858
)
Acquisitions
(697
)
 
(4,329
)
Net hedging settlements on intercompany loans
(1,033
)
 
1,075

Net cash used in investing activities
(40,050
)
 
(31,894
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
672,921

 
392,560

Repayments of borrowings
(615,162
)
 
(269,684
)
Proceeds from stock option exercises
16,935

 
13,965

Repurchases of common stock
(249,949
)
 
(249,997
)
Other financing activities
(7,205
)
 
(680
)
Net cash used in financing activities
(182,460
)
 
(113,836
)
Effect of exchange rate changes on cash and cash equivalents
4,793

 
(888
)
Net increase (decrease) in cash and cash equivalents
(12,340
)
 
15,759

Cash and cash equivalents:
 
 
 
Beginning of period
158,674

 
98,887

End of period
$
146,334

 
$
114,646



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

- 7 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited
(In thousands, except share data, unless otherwise stated)


1.
BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company") is a leading global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. The Company also manufactures several related analytical instruments and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging and provides solutions for use in certain process analytics applications. The Company's primary manufacturing facilities are located in China, Germany, Switzerland, the United Kingdom and the United States. The Company's principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all entities in which the Company has control, which are its wholly-owned subsidiaries. The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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 six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. A discussion of the Company’s critical accounting policies is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
All intercompany transactions and balances have been eliminated.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses in its existing trade accounts receivable. The Company determines the allowance based upon a review of both specific accounts for collection and the age of the accounts receivable portfolio.

- 8 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Inventories
Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated net realizable value is based on assumptions for future demand and related pricing. Adjustments to the cost basis of the Company’s inventory are made for excess and obsolete items based on usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.
Inventories consisted of the following:
 
June 30,
2017
 
December 31,
2016
Raw materials and parts
$
113,113

 
$
100,408

Work-in-progress
50,245

 
41,454

Finished goods
90,376

 
80,185

 
$
253,734

 
$
222,047

Goodwill and Other Intangible Assets
Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
Other intangible assets include indefinite-lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period of benefit. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company assesses the initial acquisition of intangible assets in accordance with the provisions of ASC 805 "Business Combinations" and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible - Goodwill and Other" and ASC 360 "Property, Plant and Equipment".
Other intangible assets consisted of the following:
 
June 30, 2017
 
December 31, 2016
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
148,275

 
$
(37,831
)
 
$
110,444

 
$
147,466

 
$
(34,672
)
 
$
112,794

Proven technology and patents
59,884

 
(37,365
)
 
22,519

 
58,394

 
(35,128
)
 
23,266

Tradename (finite life)
4,421

 
(2,725
)
 
1,696

 
4,182

 
(2,514
)
 
1,668

Tradename (indefinite life)
28,369

 

 
28,369

 
28,272

 

 
28,272

Other
3,042

 
(1,936
)
 
1,106

 
2,871

 
(1,816
)
 
1,055

 
$
243,991

 
$
(79,857
)
 
$
164,134

 
$
241,185

 
$
(74,130
)
 
$
167,055


- 9 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company recognized amortization expense associated with the above intangible assets of $2.5 million and $1.7 million for the three months ended June 30, 2017 and 2016, respectively and $5.0 million and $3.5 million for the six months ended June 30, 2017 and 2016, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $9.9 million for 2017, $9.7 million for 2018, $9.2 million for 2019, $8.9 million for 2020, $8.3 million for 2021 and $7.3 million for 2022. Purchased intangible amortization was $2.3 million, $1.5 million after tax, and $1.5 million, $1.0 million after tax, for the three months ended June 30, 2017 and 2016, respectively and $4.6 million, $3.0 million after tax, and $3.2 million, $2.1 million after tax, for the six months ended June 30, 2017 and 2016, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $7.7 million and $6.9 million for the three months ended June 30, 2017 and 2016, respectively and $15.2 million and $13.4 million for the six months ended June 30, 2017 and 2016, respectively.
Revenue Recognition
Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and, accordingly, title and risk of loss transfers upon shipment. In countries where title cannot legally transfer before delivery, the Company defers revenue recognition until delivery has occurred. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. Shipping and handling costs charged to customers are included in total net sales and the associated expense is recorded in cost of sales for all periods presented. Other than a few small software applications, the Company does not sell software products without the related hardware instrument as the software is embedded in the instrument. The Company’s products typically require no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. To the extent the Company’s solutions have a post-shipment obligation, revenue is deferred until the obligation has been completed. The Company defers product revenue where installation is required, unless such installation is deemed perfunctory. The Company also sometimes enters into certain arrangements that require the separate delivery of multiple goods and/or services. These deliverables are accounted for separately if the deliverables have standalone value and the performance of undelivered items is probable and within the Company's control. The allocation of revenue between the separate deliverables is typically based on the relative selling price at the time of the sale in accordance with a number of factors including service technician billing rates, time to install and geographic location.
Further, certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the customer upon title transfer. Revenue is recognized on these products upon transfer of title and risk of loss to its distributors. Distributor discounts are offset against revenue at the time such revenue is recognized.
Service revenue not under contract is recognized upon the completion of the service performed. Spare parts sold on a stand-alone basis are recognized upon title and risk of loss transfer which is generally at the time of shipment. Revenues from service contracts are recognized ratably over the contract period. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification and preventative maintenance on a customer’s pre-defined equipment over the contract period. Service contracts are separately priced and payment is typically received from the customer at the beginning of the contract period.
Warranty
The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized. While the Company engages in extensive product quality

- 10 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

programs and processes, its warranty obligations are affected by product failure rates, material usage and service costs incurred in correcting a product failure.
Employee Termination Benefits
In situations where contractual termination benefits exist, the Company records accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. All other employee termination arrangements are recognized and measured at their fair value at the communication date unless the employee is required to render additional service beyond the legal notification period, in which case the liability is recognized ratably over the future service period.
Share-Based Compensation
The Company recognizes share-based compensation expense within selling, general and administrative in the consolidated statements of operations and other comprehensive income with a corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company recorded $3.9 million and $7.8 million of share-based compensation expense for the three and six months ended June 30, 2017, respectively, compared to $3.6 million and $7.2 million for the corresponding periods in 2016.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.

Recent Accounting Pronouncements
In January 2017, the Company adopted ASU 2016-09, to ASC 718 "Compensation - Stock Compensation." The primary impact of adoption was the recognition of excess tax benefits from stock option exercises within the provision for taxes rather than within shareholder's equity, and a change in the determination of diluted earnings per common share. The Company adopted the guidance on a prospective basis, and expects its estimated annual tax rate will be reduced by 2% in 2017. The adoption of this guidance also reduced the Company's income tax rate by approximately 4% and 5% for the three and six months ending June 30, 2017. In addition, the Company recognized additional deferred tax assets of $1.5 million as a cumulative adjustment within shareholder's equity. The Company also classified on a retrospective basis the excess tax benefits from stock option exercises of $11.2 million as operating activities in the prior period Statements of Cash Flows. For additional disclosure, see Note 5 to the interim consolidated financial statements.
The FASB issued ASU 2014-09, ASU 2016-10 and ASU 2016-12 to ASC 606 "Revenue from Contracts with Customers." ASU 2014-09 provides authoritative guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. ASU 2016-10 provides guidance for identifying performance obligations as they pertain to immaterial promised goods or services, shipping and handling activities, and identifying when promises represent performance obligations. ASU 2016-12 provides guidance for assessing collectability, presentation of sales taxes, noncash considerations, and completed contract modifications at transition. The guidance becomes effective for the Company for the year beginning January 1, 2018. The Company is finalizing its evaluation of the impact of the adoption of this guidance and believes it will have an immaterial impact on the Company's consolidated results of operations and financial position. The

- 11 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

estimated impact to the Company's results is expected to be immaterial because most of its performance obligations are satisfied at the time of title transfer and risk of loss to the customer which is generally upon shipment. In addition, contracts with end-customers typically do not exceed a year, and generally pertain to service contracts that represent an obligation to perform repair or other services on a customer's pre-defined equipment over the contract period. The Company also sometimes enters into contracts with end-customers that comprise arrangements that require separate delivery of multiple goods and/or services, including post-shipment obligations such as installation. Immaterial impacts from adopting the new standard include the recognition of certain revenue for performance obligations that were deferred until post-shipment obligations were completed. The number of performance obligations under the new standard is also not materially different from the Company's financial accounting and reporting model under the existing standard. The Company is still evaluating the adoption method it will elect upon implementation. The Company is also in the process of implementing appropriate changes to its business processes, systems and controls to support recognition and disclosures under the new standard.
In March 2017, the FASB issued ASU 2017-7, to ASC 715 "Compensation-Retirement Benefits," which will require the Company to report the non-service cost components of net periodic benefit cost in other charges (income), net. The new guidance must be applied retrospectively and becomes effective for the year beginning January 1, 2018. The Company expects the impact of this guidance will be immaterial.
In February 2016, the FASB issued ASU 2016-02 to ASC 842 "Leases." The accounting guidance primarily requires lessees to recognize most leases on their balance sheet as a right to use asset and a lease liability, with the exception of short term leases. A lessee will continue to recognize lease expense on a straight-line basis for leases classified as operating leases. The guidance becomes effective for fiscal years beginning after December 15, 2018 and must be applied on a retrospective basis with early adoption permitted. The Company is currently evaluating the impact of this guidance on the financial statements and the timing of adoption.

3.     FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. As also mentioned in Note 6, the Company has designated its euro denominated debt as a hedge of a portion of its net investment in euro-denominated foreign operations. For additional disclosures on the fair value of financial instruments, see Note 4 to the interim consolidated financial statements.
Cash Flow Hedges
In June 2017, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $100 million of borrowings under the Company's credit facility into synthetic Swiss franc debt which allows the Company to effectively change the floating rate LIBOR-based interest payment to a fixed Swiss franc income of 0.01%. The swap began in June 2017 and matures in June 2019.
The Company has an interest rate swap agreement designated as a cash flow hedge. The agreement is a swap which has the effect of changing the floating rate LIBOR-based interest payments associated with $50 million of borrowings under the Company’s credit facility to a fixed obligation of 2.52%. The swap began in October 2015 and matures in October 2020.

- 12 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

In March 2015, the Company entered into a forward-starting interest rate swap agreement. The agreement is a swap which has the effect of changing the floating rate LIBOR-based interest payments associated with $100 million of borrowings under the Company's credit agreement to a fixed obligation of 2.25% beginning in February 2017 and matures in February 2022.
The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at June 30, 2017 and December 31, 2016, respectively, and disclosed in Note 4 to the consolidated financial statements. Amounts reclassified into other comprehensive income and the effective portions of the cash flow hedges are further disclosed in Note 8 to the consolidated financial statements. A derivative gain of $1.3 million based upon interest rates and foreign currency rates at June 30, 2017, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through June 30, 2017, no hedge ineffectiveness has occurred in relation to the cash flow hedges.
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term trade and non-trade intercompany balances largely denominated in Swiss franc, other major European currencies, and the Chinese Renminbi with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts are recorded at fair value in the consolidated balance sheet at June 30, 2017 and June 30, 2016, respectively, and disclosed in Note 4. The Company recognized in other charges (income), a net gain of $0.1 million and a net loss of $1.7 million during the three months ended June 30, 2017 and 2016, respectively, and a net gain of $1.9 million and a net loss of $0.6 million during the six months ended June 30, 2017 and 2016, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At June 30, 2017 and December 31, 2016, these contracts had a notional value of $343.0 million and $353.0 million, respectively.    
4.    FAIR VALUE MEASUREMENTS
At June 30, 2017 and December 31, 2016, the Company had derivative assets totaling $0.8 million in both periods, respectively, and derivative liabilities totaling $5.9 million and $5.8 million, respectively. The fair values of the interest rate swap agreements, foreign currency forward contracts designated as cash flow hedges and foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant at June 30, 2017 and December 31, 2016.
At June 30, 2017 and December 31, 2016, the Company had $33.0 million and $21.5 million of cash equivalents, respectively, the fair value of which is determined through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.
The fair value of the Company's fixed interest rate debt was estimated using Level 2 inputs, primarily discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The fair value of the Company's debt exceeds the carrying value by approximately $4.1 million as of June 30, 2017 and $4.2 million as of December 31, 2016.
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair

- 13 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.

A fair value hierarchy has been established that categorizes these inputs into three levels:
Level 1:
Quoted prices in active markets for identical assets and liabilities
Level 2:
Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3:
Unobservable inputs
The following table presents for each of these hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016:
 
 
June 30, 2017
 
December 31, 2016
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
33,041

 
$

 
$
33,041

 
$

 
$
21,513

 
$

 
$
21,513

 
$

Foreign currency forward contracts not designated as hedging instruments
 
804

 

 
804

 

 
791

 

 
791

 

Total
 
$
33,845

 
$

 
$
33,845

 
$

 
$
22,304

 
$

 
$
22,304

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
3,361

 
$

 
$
3,361

 
$

 
$
3,630

 
$

 
$
3,630

 
$

Cross currency swap agreement
 
1,857

 

 
1,857

 

 

 

 

 

Foreign currency forward contracts not designated as hedging instruments
 
691

 

 
691

 

 
2,123

 

 
2,123

 

Total
 
$
5,909

 
$

 
$
5,909

 
$

 
$
5,753

 
$

 
$
5,753

 
$

5.    INCOME TAXES
The provision for taxes is based upon using the Company's projected annual effective tax rate of 22% before non-recurring discrete items for both the three and six month periods ended June 30, 2017. The reduction in the Company's estimated annual effective tax rate from 24% in 2016 to 22% in 2017, as well as the Company's reported tax rate of 20% and 19% during the three and six months ending June 30, 2017, is primarily related to the Company's adoption of ASU 2016-09 pertaining to excess tax benefits associated with stock option exercises. The Company's 2017 estimated annual tax rate of 22% includes an estimated benefit of 2% related to the adoption of ASU 2016-09, the effects of which will be treated discretely each quarter.


- 14 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

6.    DEBT
Debt consisted of the following at June 30, 2017:
 
June 30, 2017
 
U.S. Dollar
 
Other Principal Trading Currencies
 
Total
3.67% $50 million Senior Notes due December 17, 2022
50,000

 

 
50,000

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

 

 
50,000

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

 

 
125,000

4.24% $125 million Senior Notes due June 25, 2025
125,000

 

 
125,000

1.47% EUR 125 million Senior Notes due June 17, 2030

 
141,986

 
141,986

Debt issuance costs, net
(1,169
)
 
(371
)
 
(1,540
)
Total Senior Notes
348,831

 
141,615

 
490,446

$800 million Credit Agreement, interest at LIBOR plus 87.5 basis points
415,416

 
41,919

 
457,335

Other local arrangements

 
21,608

 
21,608

Total debt
764,247

 
205,142

 
969,389

Less: current portion

 
(21,608
)
 
(21,608
)
Total long-term debt
$
764,247

 
$
183,534

 
$
947,781

As of June 30, 2017, the Company had $336.3 million of availability remaining under its Credit Agreement.

1.47% Euro Senior Notes
The Company has designated the 1.47% Euro Senior Notes as a hedge of a portion of its net investment in euro-denominated foreign subsidiaries to reduce foreign currency risk associated with the net investment in these operations. Changes in the carrying value of this debt resulting from fluctuations in the euro to U.S. dollar exchange rate are recorded as foreign currency translation adjustments within other comprehensive income (loss). The unrealized gain (loss) recorded in other comprehensive income (loss) related to this net investment hedge was a loss of $7.1 million and $2.0 million for the three months ended June 30, 2017 and 2016, respectively, and a loss of $10.5 million and a gain $1.6 million for the six months periods ended June 30, 2017 and 2016, respectively.

7.    SHARE REPURCHASE PROGRAM AND TREASURY STOCK
The Company has a share repurchase program of which there was $733.5 million common shares remaining to be repurchased under the program as of June 30, 2017. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.
The Company has purchased 26.5 million shares since the inception of the program in 2004 through June 30, 2017. During the six months ended June 30, 2017 and 2016, the Company spent $249.9 million and $250.0 million on the repurchase of 505,593 shares and 732,245 shares at an average price per share of $494.35 and $341.39, respectively. The Company also reissued 153,413 shares and 131,737 shares held in treasury for the exercise of stock options and restricted stock units during the six months ended June 30, 2017 and 2016, respectively.

- 15 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

8.    ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive income by component for the six months ended June 30, 2017 and 2016:
 
Currency Translation Adjustment, Net of Tax
 
Net Unrealized
Gain (Loss) on
Cash Flow Hedging Arrangements,
Net of Tax
 
Pension and Post-Retirement Benefit Related Items,
Net of Tax
 
Total
Balance at December 31, 2016
$
(115,322
)
 
$
(2,232
)
 
$
(237,444
)
 
$
(354,998
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Amounts recognized in accumulated other comprehensive income (loss), net of tax

 
(2,016
)
 

 
(2,016
)
Foreign currency translation adjustment
61,299

 

 
(11,960
)
 
49,339

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

 
1,824

 
7,465

 
9,289

Net change in other comprehensive income (loss), net of tax
61,299

 
(192
)
 
(4,495
)
 
56,612

Balance at June 30, 2017
$
(54,023
)
 
$
(2,424
)
 
$
(241,939
)
 
$
(298,386
)
 
Currency Translation Adjustment, Net of Tax
 
Net Unrealized
Gain (Loss) on
Cash Flow Hedging Arrangements,
Net of Tax
 
Pension and Post-Retirement Benefit Related Items,
Net of Tax
 
Total
Balance at December 31, 2015
$
(57,394
)
 
$
3,016

 
$
(212,271
)
 
$
(266,649
)
Other comprehensive income (loss), net of tax:

 

 

 

Unrealized gains (losses) on cash flow hedging arrangements

 
(3,692
)
 
(4,546
)
 
(8,238
)
Foreign currency translation adjustment
(15,350
)
 
(556
)
 
(810
)
 
(16,716
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(2,007
)
 
10,835

 
8,828

Net change in other comprehensive income (loss), net of tax
(15,350
)
 
(6,255
)
 
5,479

 
(16,126
)
Balance at June 30, 2016
$
(72,744
)
 
$
(3,239
)
 
$
(206,792
)
 
$
(282,775
)


- 16 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and six month periods ended June 30:
 
 
Three months ended June 30,
 
 
 
 
2017
 
2016
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
505

 
$
262

 
Interest expense
Cross currency swap agreement
 
1,412

 

 
(a)
Foreign currency forward contracts
 

 
(1,498
)
 
Cost of sales - products
Total before taxes
 
1,917

 
(1,236
)
 
 
Provision for taxes
 
305

 
(206
)
 
Provision for taxes
Total, net of taxes
 
$
1,612

 
$
(1,030
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, settlement loss and prior service cost, before taxes
 
$
5,054

 
$
12,008

 
(b)
Provision for taxes
 
1,301

 
4,110

 
Provision for taxes
Total, net of taxes
 
$
3,753

 
$
7,898

 
 
(a) The cross currency swap reflects an unrealized loss of $1.5 million recorded in other charges (income) that was offset by the underlying unrealized gain on the hedged debt. The cross currency swap also reflects a realized gain of $0.1 million recorded in interest expense.
(b) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 11 for additional details for the three and six months ended June 30, 2017 and 2016.
 
 
Six months ended June 30,
 
 
 
 
2017
 
2016
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
849

 
$
526

 
Interest expense
Cross currency swap agreement
 
1,412

 

 
(a)
Foreign currency forward contracts
 

 
(2,931
)
 
Cost of sales - products
Total before taxes
 
2,261

 
(2,405
)
 
 
Provision for taxes
 
437

 
(398
)
 
Provision for taxes
Total, net of taxes
 
$
1,824

 
$
(2,007
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, settlement loss and prior service cost, before taxes
 
$
10,093

 
$
15,968

 
(b)
Provision for taxes
 
2,628

 
5,133

 
Provision for taxes
Total, net of taxes
 
$
7,465

 
$
10,835

 
 
(a) The cross currency swap reflects an unrealized loss of $1.5 million recorded in other charges (income) that was offset by the underlying unrealized gain on the hedged debt. The cross currency swap also reflects a realized gain of $0.1 million recorded in interest expense.
(b) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 11 for additional details for the three and six months ended June 30, 2017 and 2016.


- 17 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Comprehensive income (loss), net of tax consisted of the following as of June 30:
 
Three Months Ended
 
Six Months Ended
 
2017
 
2016
 
2017
 
2016
Net earnings
$
101,580

 
$
79,588

 
$
194,046

 
$
145,262

Other comprehensive income (loss), net of tax
32,734

 
(22,958
)
 
56,612

 
(16,126
)
Comprehensive income, net of tax
$
134,314

 
$
56,630

 
$
250,658

 
$
129,136

9.    EARNINGS PER COMMON SHARE
In accordance with the treasury stock method, the Company has included the following common equivalent shares in the calculation of diluted weighted average number of common shares outstanding for the three and six month periods ended June 30, relating to outstanding stock options and restricted stock units:
 
2017
 
2016
Three months ended
688,155

 
512,269

Six months ended
673,068

 
501,858

The determination of the common share equivalents for the three and six months ended June 30, 2017 includes the effect of the adoption of guidance ASU 2016-09 as described in Note 2. For the three months ended June 30, 2017, there were no anti-dilutive outstanding options or restricted stock units. Outstanding options and restricted stock units to purchase or receive 84,392 shares of common stock for the three month periods ended June 30, 2016, and options and restricted stock units to purchase or receive 75,182 and 108,361 for the six month periods ended June 30, 2017 and 2016, respectively, have been excluded from the calculation of diluted weighted average of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.

10.    NET PERIODIC BENEFIT COST
Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the three months ended June 30:
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost, net
$
141

 
$
145

 
$
3,952

 
$
4,153

 
$

 
$

 
4,093

 
4,298

Interest cost on projected benefit obligations
1,094

 
1,072

 
2,053

 
2,673

 
18

 
19

 
3,165

 
3,764

Expected return on plan assets
(1,684
)
 
(1,945
)
 
(7,629
)
 
(8,341
)
 

 

 
(9,313
)
 
(10,286
)
Recognition of prior service cost

 

 
(974
)
 
(1,278
)
 
(195
)
 
(469
)
 
(1,169
)
 
(1,747
)
Recognition of actuarial losses/(gains)
1,639

 
1,902

 
5,058

 
4,563

 
(474
)
 
(673
)
 
6,223

 
5,792

Settlement charge

 
7,963

 

 

 

 

 

 
7,963

Net periodic pension cost/(credit)
$
1,190

 
$
9,137

 
$
2,460

 
$
1,770

 
$
(651
)
 
$
(1,123
)
 
$
2,999

 
$
9,784



- 18 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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 six months ended June 30:

 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost, net
$
282

 
$
262

 
$
7,976

 
$
8,383

 
$

 
$

 
8,258

 
8,645

Interest cost on projected benefit obligations
2,188

 
2,364

 
4,122

 
5,345

 
36

 
38

 
6,346

 
7,747

Expected return on plan assets
(3,368
)
 
(4,044
)
 
(15,014
)
 
(16,681
)
 

 

 
(18,382
)
 
(20,725
)
Recognition of prior service cost

 

 
(2,797
)
 
(2,556
)
 
(390
)
 
(938
)
 
(3,187
)
 
(3,494
)
Recognition of actuarial losses/(gains)
3,278

 
3,792

 
10,950

 
9,053

 
(948
)
 
(1,346
)
 
13,280

 
11,499

Settlement charge

 
7,963

 

 

 

 

 

 
7,963

Net periodic pension cost/(credit)
$
2,380

 
$
10,337

 
$
5,237

 
$
3,544

 
$
(1,302
)
 
$
(2,246
)
 
$
6,315

 
$
11,635


As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, the Company expects to make employer contributions of approximately $19.4 million to its non-U.S. pension plans and employer contributions of approximately $0.5 million to its U.S. post-retirement medical plan during the year ended December 31, 2017. These estimates may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.

In February 2016 the Company offered former employees a one-time option to receive a lump sum distribution of their vested pension plan benefits. Based upon the eligible participant acceptance, $14.6 million was paid from plan assets to these former employees in the second quarter of 2016 with a corresponding decrease in the benefit obligation. The Company incurred a one-time non-cash settlement charge recorded in other charges (income), net during the second quarter of 2016 of approximately $8.2 million, of which $8.0 million, $4.9 million after tax, was reclassified from accumulated other comprehensive income.

11.    RESTRUCTURING CHARGES
For the three and six months ended June 30, 2017, the Company has incurred $4.0 million and $5.5 million of restructuring expenses which primarily comprised of employee-related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.
A rollforward of the Company’s accrual for restructuring activities for the six months ended June 30, 2017 is as follows:
 
 
Total
Balance at December 31, 2016
 
$
9,531

Restructuring charges
 
5,455

Cash payments and utilization
 
(5,326
)
Impact of foreign currency
 
524

Balance at June 30, 2017
 
$
10,184



- 19 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

12.    OTHER CHARGES (INCOME), NET
Other charges (income), net includes a one time gain of $3.4 million for the six months ended June 30, 2017 relating to the sale of a facility in Switzerland in connection with the Company's initiative to consolidate certain Swiss operations into a new facility. Other charges (income), net for the three and six months ended June 30, 2016 includes a one-time non-cash pension settlement charge of $8.2 million related to a lump sum offering to former employees of our U.S. pension plan. Other charges (income), net also includes (gains) losses from foreign currency transactions and hedging activity, interest income and other items.

13.    SEGMENT REPORTING
As disclosed in Note 16 to the Company's consolidated financial statements for the year ended December 31, 2016, the Company has determined there are five reportable segments:  U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other.
The Company evaluates segment performance based on Segment Profit (gross profit less research and development and selling, general and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net and taxes).
The following tables show the operations of the Company’s operating segments:
 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of June 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2017
June 30, 2017
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
238,831

 
$
23,092

 
$
261,923

 
$
45,147

 
$
357,782

Swiss Operations
32,287

 
131,347

 
163,634

 
37,950

 
22,544

Western European Operations
151,161

 
43,883

 
195,044

 
23,172

 
87,388

Chinese Operations
108,092

 
57,036

 
165,128

 
54,128

 
653

Other (a)
123,285

 
2,129

 
125,414

 
15,212

 
15,390

Eliminations and Corporate (b)

 
(257,487
)
 
(257,487
)
 
(27,063
)
 

Total
$
653,656

 
$

 
$
653,656

 
$
148,546

 
$
483,757


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the six months ended
External
 
Other
 
Total Net
 
Segment
 
 
June 30, 2017
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
454,184

 
$
45,505

 
$
499,689

 
$
83,969

 
 
Swiss Operations
62,034

 
258,899

 
320,933

 
73,968

 
 
Western European Operations
298,484

 
86,825

 
385,309

 
46,398

 
 
Chinese Operations
198,873

 
109,969

 
308,842

 
98,787

 
 
Other (a)
234,648

 
3,726

 
238,374

 
28,330

 
 
Eliminations and Corporate (b)

 
(504,924
)
 
(504,924
)
 
(55,570
)
 
 
Total
$
1,248,223

 
$

 
$
1,248,223

 
$
275,882

 
 

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

- 20 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of June 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2016
June 30, 2016
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
216,968

 
$
22,102

 
$
239,070

 
$
41,112

 
$
319,715

Swiss Operations
30,720

 
126,983

 
157,703

 
34,997

 
22,105

Western European Operations
154,264

 
38,945

 
193,209

 
24,303

 
87,452

Chinese Operations
92,886

 
58,655

 
151,541

 
45,934

 
672

Other (a)
113,448

 
1,700

 
115,148

 
13,249

 
14,334

Eliminations and Corporate (b)

 
(248,385
)
 
(248,385
)
 
(30,518
)
 

Total
$
608,286

 
$

 
$
608,286

 
$
129,077

 
$
444,278


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the six months ended
External
 
Other
 
Total Net
 
Segment
 
 
June 30, 2016
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
404,903

 
$
41,733

 
$
446,636

 
$
70,267

 
 
Swiss Operations
57,685

 
247,294

 
304,979

 
70,819

 
 
Western European Operations
291,915

 
77,492

 
369,407

 
44,493

 
 
Chinese Operations
177,833

 
104,581

 
282,414

 
82,560

 
 
Other (a)
215,624

 
3,054

 
218,678

 
24,343

 
 
Eliminations and Corporate (b)

 
(474,154
)
 
(474,154
)
 
(61,392
)
 
 
Total
$
1,147,960

 
$

 
$
1,147,960

 
$
231,090

 
 

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.
A reconciliation of earnings before taxes to segment profit for the three and six month periods ended June 30 follows:

 
Three Months Ended
 
Six Months Ended
 
2017
 
2016
 
2017
 
2016
Earnings before taxes
$
126,847

 
$
103,172

 
$
240,695

 
$
189,585

Amortization
10,249

 
8,655

 
20,294

 
17,079

Interest expense
8,171

 
6,872

 
15,912

 
13,452

Restructuring charges
4,023

 
2,205

 
5,455

 
3,085

Other charges (income), net
(744
)
 
8,173

 
(6,474
)
 
7,889

Segment profit
$
148,546

 
$
129,077

 
$
275,882

 
$
231,090


During the three months ended June 30, 2017, restructuring charges of $4.0 million were recognized, of which $2.2 million, $0.5 million, $0.7 million, and $0.6 million related to the Company’s U.S., Swiss, Western European and Other Operations, respectively. Restructuring charges of $2.2 million were recognized during the three months ended June 30, 2016, of which $0.8 million, $0.2 million, and $1.2 million related to the Company’s U.S., Swiss, and Western European Operations, respectively. Restructuring charges of $5.5 million were recognized during the six months ended June 30, 2017, of which $3.0 million, $0.9 million, $0.7 million, $0.1 million, and $0.8 million related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of

- 21 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2017 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

$3.1 million were recognized during the six months ended June 30, 2016, of which $1.1 million, $0.6 million, $1.2 million, $0.1 million and $0.1 million related to the Company’s U.S., Swiss, Western European, Chinese and Other Operations, respectively.

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

- 22 -


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.
General
Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
Changes in local currency exclude the effect of currency exchange rate fluctuations. Local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates. We believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We present non-GAAP financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results.
We also include in the discussion below disclosures of immaterial qualitative factors that are not quantified. Although the impact of such factors is not considered material, we believe these disclosures can be useful in evaluating our operating results.
Results of Operations – Consolidated
The following tables set forth certain items from our interim consolidated statements of operations for the three and six month periods ended June 30, 2017 and 2016 (amounts in thousands).
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
Net sales
$
653,656

 
100.0

 
$
608,286

 
100.0
 
$
1,248,223

 
100.0

 
$
1,147,960

 
100.0
Cost of sales
278,739

 
42.6

 
260,710

 
42.9
 
530,406

 
42.5

 
500,477

 
43.6
Gross profit
374,917

 
57.4

 
347,576

 
57.1
 
717,817

 
57.5

 
647,483

 
56.4
Research and development
32,854

 
5.0

 
30,701

 
5.0
 
64,246

 
5.1

 
59,674

 
5.2
Selling, general and administrative
193,517

 
29.6

 
187,798

 
30.9
 
377,689

 
30.3

 
356,719

 
31.1
Amortization
10,249

 
1.6

 
8,655

 
1.4
 
20,294

 
1.6

 
17,079

 
1.5
Interest expense
8,171

 
1.3

 
6,872

 
1.1
 
15,912

 
1.3

 
13,452

 
1.2
Restructuring charges
4,023

 
0.6

 
2,205

 
0.4
 
5,455

 
0.4

 
3,085

 
0.2
Other charges (income), net
(744
)
 
(0.1
)
 
8,173

 
1.3
 
(6,474
)
 
(0.5
)
 
7,889

 
0.7
Earnings before taxes
126,847

 
19.4

 
103,172

 
17.0
 
240,695

 
19.3

 
189,585

 
16.5
Provision for taxes
25,267

 
3.9

 
23,584

 
3.9
 
46,649

 
3.8

 
44,323

 
3.8
Net earnings
$
101,580

 
15.5

 
$
79,588

 
13.1
 
$
194,046

 
15.5

 
$
145,262

 
12.7

Net sales
Net sales were $653.7 million and $608.3 million for the three months ended June 30, 2017 and June 30, 2016, respectively, and $1,248.2 million and $1,148.0 million for the six months ended June 30, 2017 and June 30, 2016. This represents an increase of 7% and 9% in U.S. dollars for the three and six months ended June 30, 2017. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 10% and 11% for the three and six months ended June 30, 2017. Excluding the 2016 Troemner acquisition net sales in local currencies were

- 23 -


8% and 10% for the three and six months ended June 30, 2017, respectively. Global market conditions were generally favorable during the first half of 2017 and we continue to benefit from the execution of our global sales and marketing programs. However, we remain cautious given the economic uncertainty that exists in certain regions of the world. Most importantly, we will also face more difficult prior period comparisons during the second half of 2017 and our Retail business is expected to have a meaningful decline.
Net sales by geographic destination for the three and six months ended June 30, 2017 in U.S. dollars increased in the Americas 9% and 11%, in Europe 1% and 4%, and in Asia/Rest of World 13% and 10%, respectively. Our net sales by geographic destination for the three and six months ended June 30, 2017 in local currencies increased in the Americas 10% and 12%, in Europe 4% and 8%, and in Asia/Rest of World 15% and 12%, respectively. The Troemner acquisition contributed approximately 3% to net sales in the Americas for both the three and six months ended June 30, 2017. A discussion of sales by operating segment is included below.
As described in Note 16 to our consolidated financial statements for the year ended December 31, 2016, our net sales comprise product sales of precision instruments and related services. Service revenues are primarily derived from repair and other services, including regulatory compliance qualification, calibration, certification, preventative maintenance and spare parts.
Net sales of products increased 9% in U.S. dollars and 11% in local currencies for the three months ended June 30, 2017 and increased 10% in U.S. dollars and 12% in local currencies for the six months ended June 30, 2017, compared to the corresponding periods in 2016. The Troemner acquisition contributed approximately 1% to our net sales of products for the three and six