10-Q 1 mtd10q63018.htm FORM 10-Q Q2 2018 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, 2018, 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 25,213,828 shares of Common Stock outstanding at June 30, 2018.
 




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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the Interim Consolidated Financial Statements at June 30, 2018                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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, 2018 and 2017
(In thousands, except share data)
(unaudited)

 
June 30,
2018
 
June 30,
2017
Net sales
 
 
 
Products
$
562,476

 
$
512,848

Service
159,520

 
140,808

Total net sales
721,996

 
653,656

Cost of sales
 
 
 
Products
221,729

 
199,586

Service
87,642

 
78,458

Gross profit
412,625

 
375,612

Research and development
35,315

 
32,582

Selling, general and administrative
208,024

 
195,624

Amortization
11,970

 
10,249

Interest expense
8,309

 
8,171

Restructuring charges
7,321

 
4,023

Other charges (income), net
(1,916
)
 
(1,884
)
Earnings before taxes
143,602

 
126,847

Provision for taxes
32,134

 
25,267

Net earnings
$
111,468

 
$
101,580

 


 
 
Basic earnings per common share:
 
 
 
Net earnings
$
4.41

 
$
3.94

Weighted average number of common shares
25,299,414

 
25,751,374

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
4.31

 
$
3.84

Weighted average number of common and common equivalent shares
25,867,383

 
26,439,529

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
82,263

 
$
134,314



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, 2018 and 2017
(In thousands, except share data)
(unaudited)

 
June 30,
2018
 
June 30,
2017
Net sales
 
 
 
Products
$
1,073,422

 
$
970,108

Service
309,395

 
278,115

Total net sales
1,382,817

 
1,248,223

Cost of sales
 
 
 
Products
424,316

 
374,899

Service
170,943

 
154,323

Gross profit
787,558

 
719,001

Research and development
70,028

 
63,782

Selling, general and administrative
408,698

 
381,280

Amortization
23,705

 
20,294

Interest expense
16,668

 
15,912

Restructuring charges
11,734

 
5,455

Other charges (income), net
(4,316
)
 
(8,417
)
Earnings before taxes
261,041

 
240,695

Provision for taxes
56,269

 
46,649

Net earnings
$
204,772

 
$
194,046

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
8.07

 
$
7.51

Weighted average number of common shares
25,383,402

 
25,841,243

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
7.88

 
$
7.32

Weighted average number of common and common equivalent shares
25,979,508

 
26,514,311

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
204,457

 
$
250,658



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, 2018 and December 31, 2017
(In thousands, except share data)
(unaudited)

 
June 30,
2018
 
December 31,
2017
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
183,190

 
$
148,687

Trade accounts receivable, less allowances of $16,074 at June 30, 2018
 
 
 
and $15,549 at December 31, 2017
486,203

 
528,615

Inventories
270,047

 
255,390

Other current assets and prepaid expenses
63,867

 
74,031

Total current assets
1,003,307

 
1,006,723

Property, plant and equipment, net
678,706

 
668,271

Goodwill
536,407

 
539,838

Other intangible assets, net
219,858

 
226,718

Deferred tax assets, net
36,880

 
41,425

Other non-current assets
83,058

 
66,830

Total assets
$
2,558,216

 
$
2,549,805

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
170,865

 
$
167,627

Accrued and other liabilities
145,892

 
152,834

Accrued compensation and related items
116,567

 
170,159

Deferred revenue and customer prepayments
126,835

 
107,166

Taxes payable
76,606

 
72,210

Short-term borrowings and current maturities of long-term debt
52,052

 
19,677

Total current liabilities
688,817

 
689,673

Long-term debt
1,020,420

 
960,170

Deferred tax liabilities, net
46,138

 
51,230

Other non-current liabilities
270,407

 
301,452

Total liabilities
2,025,782

 
2,002,525

Commitments and contingencies (Note 15)


 


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 25,213,828 and
 
 
 
25,541,393 shares at June 30, 2018 and December 31, 2017, respectively
448

 
448

Additional paid-in capital
755,374

 
747,138

Treasury stock at cost (19,572,183 shares at June 30, 2018, and 19,244,618 shares at December 31, 2017)
(3,595,296
)
 
(3,368,182
)
Retained earnings
3,637,629

 
3,433,282

Accumulated other comprehensive loss
(265,721
)
 
(265,406
)
Total shareholders’ equity
532,434

 
547,280

Total liabilities and shareholders’ equity
$
2,558,216

 
$
2,549,805



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, 2018 and twelve months ended December 31, 2017
(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, 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
270,413

 

 

 
38,586

 
(9,937
)
 

 
28,649

Repurchases of common stock
(749,254
)
 

 

 
(399,997
)
 

 

 
(399,997
)
Effect of accounting change

 

 

 

 
1,539

 

 
1,539

Share-based compensation

 

 
16,582

 

 

 

 
16,582

Net earnings

 

 

 

 
375,972

 

 
375,972

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax

 

 

 

 

 
89,592

 
89,592

Balance at December 31, 2017
25,541,393

 
$
448

 
$
747,138

 
$
(3,368,182
)
 
$
3,433,282

 
$
(265,406
)
 
$
547,280

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
68,653

 

 

 
10,385

 
(425
)
 

 
9,960

Repurchases of common stock
(396,218
)
 

 

 
(237,499
)
 

 

 
(237,499
)
Share-based compensation

 

 
8,236

 

 

 

 
8,236

Net earnings

 

 

 

 
204,772

 

 
204,772

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax (Note 9)

 

 

 

 

 
(315
)
 
(315
)
Balance at June 30, 2018
25,213,828

 
$
448

 
$
755,374

 
$
(3,595,296
)
 
$
3,637,629

 
$
(265,721
)
 
$
532,434

 
 
 
 
 
 
 
 
 
 
 
 
 
 


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, 2018 and 2017
(In thousands)
(unaudited)

 
June 30,
2018
 
June 30,
2017
Cash flows from operating activities:
 
 
 
Net earnings
$
204,772

 
$
194,046

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
18,606

 
15,919

Amortization
23,705

 
20,294

Deferred tax benefit
(10,109
)
 
(3,840
)
Share-based compensation
8,236

 
7,793

Gain on facility sale

 
(3,394
)
Other
(1,200
)
 
230

Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
34,509

 
23,541

Inventories
(19,959
)
 
(21,164
)
Other current assets
844

 
(235
)
Trade accounts payable
5,425

 
(7,176
)
Taxes payable
1,268

 
(9,058
)
Accruals and other
(49,338
)
 
(11,579
)
Net cash provided by operating activities
216,759

 
205,377

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
4,530

 
10,209

Purchase of property, plant and equipment
(61,586
)
 
(48,529
)
Acquisitions
(500
)
 
(697
)
Net hedging settlements on intercompany loans
7,042

 
(1,033
)
Net cash used in investing activities
(50,514
)
 
(40,050
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
603,180

 
672,921

Repayments of borrowings
(502,524
)
 
(615,162
)
Proceeds from stock option exercises
9,960

 
16,935

Repurchases of common stock
(237,499
)
 
(249,949
)
Other financing activities
(1,635
)
 
(7,205
)
Net cash used in financing activities
(128,518
)
 
(182,460
)
Effect of exchange rate changes on cash and cash equivalents
(3,224
)
 
4,793

Net increase (decrease) in cash and cash equivalents
34,503

 
(12,340
)
Cash and cash equivalents:
 
 
 
Beginning of period
148,687

 
158,674

End of period
$
183,190

 
$
146,334



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, 2018 – 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, 2017.
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, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.
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, 2017.
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, 2018 – 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,
2018
 
December 31,
2017
Raw materials and parts
$
121,265

 
$
118,790

Work-in-progress
50,186

 
43,035

Finished goods
98,596

 
93,565

 
$
270,047

 
$
255,390

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, 2018
 
December 31, 2017
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
197,817

 
$
(45,864
)
 
$
151,953

 
$
198,527

 
$
(41,794
)
 
$
156,733

Proven technology and patents
70,156

 
(40,720
)
 
29,436

 
70,311

 
(38,890
)
 
31,421

Tradenames (finite life)
4,494

 
(2,817
)
 
1,677

 
4,518

 
(2,807
)
 
1,711

Tradenames (indefinite life)
35,520

 

 
35,520

 
35,562

 

 
35,562

Other
3,631

 
(2,359
)
 
1,272

 
3,490

 
(2,199
)
 
1,291

 
$
311,618

 
$
(91,760
)
 
$
219,858

 
$
312,408

 
$
(85,690
)
 
$
226,718


- 9 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company recognized amortization expense associated with the above intangible assets of $3.5 million and $2.5 million for the three months ended June 30, 2018 and 2017, respectively and $7.1 million and $5.0 million for the six months ended June 30, 2018 and 2017, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $14.0 million for 2018, $13.4 million for 2019, $13.1 million for 2020, $12.5 million for 2021, $12.0 million for 2022 and $11.8 million for 2023. Purchased intangible amortization was $3.3 million, $2.5 million after tax, and $2.3 million, $1.5 million after tax, for the three months ended June 30, 2018 and 2017, respectively and $6.7 million, $5.0 million after tax, and $4.6 million, $3.0 million after tax, for the six months ended June 30, 2018 and 2017, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $8.4 million and $7.7 million for the three months ended June 30, 2018 and 2017, respectively and $16.5 million and $15.2 million for the six months ended June 30, 2018 and 2017, respectively.
Revenue Recognition
Product revenue is recognized from contracts with customers when a customer has obtained control of a product. The Company considers control to have transferred upon shipping terms. To the extent the Company’s contracts have a separate performance obligation, revenue related to any post-shipment performance obligation is deferred until completed. Shipping and handling costs charged to customers are included in total net sales and the associated expense is a component of cost of sales. Certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the end customer. Revenue is recognized on these distributor arrangements upon transfer of control to the distributor. Contracts do not contain variable pricing arrangements that are retrospective, except for rebate programs. Rebates are estimated based on expected sales volumes and offset against revenue at the time such revenue is recognized. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. The provisions for estimated returns and rebates are immaterial to the consolidated financial statements.
Certain of the Company’s arrangements include separate performance obligations, primarily related to installation. Such performance obligations are accounted for separately when the deliverables have stand-alone value and the satisfaction of the undelivered performance obligations is probable and within the Company's control. The allocation of revenue between the performance obligations is based on the observable standalone selling prices at the time of the sale in accordance with a number of factors including service technician billing rates, time to install and geographic location.
Software is generally not considered a distinct performance obligation with the exception of a few small software applications. The Company does not sell software products without the related hardware instrument as the software is embedded in the product. The Company’s products typically require no significant production, modification, or customization of the hardware or software that is essential to the functionality of the products.
Service revenue not under contract is recognized upon the completion of the service performed. Revenue from spare parts sold on a stand-alone basis is recognized when control is transferred to the customer, which is generally at the time of shipment or delivery. Revenue from service contracts is recognized ratably over the contract period using a time-based method. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification, and preventative maintenance on a customer’s pre-defined equipment over the contract period.

- 10 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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 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 $8.2 million of share-based compensation expense for the three and six months ended June 30, 2018, respectively, compared to $3.9 million and $7.8 million for the corresponding periods in 2017.
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
On January 1, 2018 the Company retrospectively implemented ASU 2017-7 to ASC 715 "Compensation - Retirement Benefits," which requires the Company to report the non-service cost components of net periodic benefit cost (pension cost) in other charges (income), net. These amounts were previously reported in selling, general, and administrative, cost of sales and research and development in the consolidated statement of operations. Nonservice pension benefits were $1.5 million and $1.1 million for the three months ended June 30, 2018 and 2017, respectively, and $3.1 million and $1.9 million and for the six months ended June 30, 2018 and 2017, respectively.
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. The Company's primary leasing arrangements are related to leased facilities and vehicle fleet leases. The Company is currently evaluating the impact of this guidance.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income". The accounting update provided entities with guidance on how to reclassify certain stranded tax effects from accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act, which was a tax bill enacted by the U.S. government in December 2017. The new guidance is effective for the year beginning January 1, 2019 and the Company is still evaluating the impact on the financial statements.

- 11 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

3.
REVENUE
On January 1, 2018, the Company adopted ASC 606 "Revenue from Contracts with Customers" and all the related amendments using the modified retrospective method, whereby the adoption does not impact any prior periods. The effect of adopting the new standard did not require any cumulative effect adjustment to retained earnings as of January 1, 2018. There was no impact to our consolidated statements of operations, balance sheet, or statement of cash flows as of and for the period ended June 30, 2018.
The Company disaggregates revenue from contracts with customers by product, service, timing of revenue recognition and geography. A summary by the Company’s reportable segments follows for the three and six months ended June 30, 2018:
Three months ended June 30, 2018
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
191,511

 
$
25,163

 
$
124,336

 
$
119,709

 
$
101,757

 
$
562,476

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
49,985

 
4,919

 
33,081

 
10,885

 
24,969

 
123,839

Over time
9,978

 
2,072

 
16,355

 
2,678

 
4,598

 
35,681

Total
$
251,474

 
$
32,154

 
$
173,772

 
$
133,272

 
$
131,324

 
$
721,996

Six months ended June 30, 2018
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
364,012

 
$
50,728

 
$
241,268

 
$
224,002

 
$
193,412

 
$
1,073,422

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
97,605

 
9,748

 
62,966

 
18,012

 
49,208

 
237,539

Over time
19,602

 
4,143

 
34,910

 
5,188

 
8,013

 
71,856

Total
$
481,219

 
$
64,619

 
$
339,144

 
$
247,202

 
$
250,633

 
$
1,382,817

A summary of revenue by major geographic destination for the three and six months ended June 30 follows:
 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
Americas
$
274,328

 
$
526,607

Europe
220,718

 
426,558

Asia / Rest of World
226,950

 
429,652

Total
$
721,996

 
$
1,382,817


- 12 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company's global revenue mix by product category is laboratory (51% of sales), industrial (41% of sales) and retail (8% of sales). The Company's product revenue by reportable segment is proportionately similar to the Company's global mix except the Company's Swiss Operations is largely comprised of laboratory products while the Company's Chinese Operations has a slightly higher percentage of industrial products. A summary of the Company’s revenue by product category for the three and six months ended June 30, 2018 is as follows:
 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
Laboratory
$
361,726

 
$
706,885

Industrial
305,277

 
567,933

Retail
54,993

 
107,999

Total
$
721,996

 
$
1,382,817


The payment terms in the Company’s contracts with customers do not exceed one year and therefore contracts do not contain a significant financing component. In most cases, after appropriate credit evaluations, payments are due in arrears and are recognized as receivables. Unbilled revenue is recorded when performance obligations have been satisfied, but the Company does not have right to receive payment. Unbilled revenue as of June 30, 2018 was $16.7 million and is included within accounts receivable. Deferred revenue and customer prepayments are recorded when cash payments are received or due in advance of the performance obligation being satisfied. Deferred revenue primarily includes prepaid service contracts, as well as deferred installation.
Changes in the components of deferred revenue and customer prepayments during the period are as follows:
 
 
Deferred Revenue
and Customer Pre-payments
Beginning balances as of December 31, 2017
 
$
107,166

Customer pre-payments/deferred revenue
 
282,446

Revenue recognized
 
(260,280
)
Foreign currency translation
 
(2,497
)
Ending balance as of June 30, 2018
 
$
126,835

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general, and administrative expenses. The Company has not disclosed the value of unsatisfied performance obligations other than customer prepayments and deferred revenue above as most contracts have an expected length of one year or less and amounts greater than one year are immaterial.
4.     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 7, 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 5 to the interim consolidated financial statements.

- 13 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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.
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, 2018 and December 31, 2017, respectively, and disclosed in Note 5 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 9 to the consolidated financial statements. A derivative gain of $3.1 million based upon interest rates and foreign currency rates at June 30, 2018, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through June 30, 2018, 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, 2018 and December 31, 2017, respectively, and disclosed in Note 5. The Company recognized in other charges (income), a net loss of $1.5 million and a net gain of $0.1 million during the three months ended June 30, 2018 and 2017, respectively, and a net gain of $4.2 million and $1.9 million during the six months ended June 30, 2018 and 2017, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At June 30, 2018 and December 31, 2017, these contracts had a notional value of $407.1 million and $394.8 million, respectively.    
5.    FAIR VALUE MEASUREMENTS
At June 30, 2018 and December 31, 2017, the Company had derivative assets totaling $4.5 million and $1.9 million in both periods, respectively, and derivative liabilities totaling $2.7 million and $2.4 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

- 14 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

and counterparty credit risk in determining fair value and determined these adjustments were insignificant at June 30, 2018 and December 31, 2017.
At June 30, 2018 and December 31, 2017, the Company had $13.4 million and $5.6 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 $0.5 million as of June 30, 2018.
The fair value of the contingent consideration obligation of $30.9 million relating to the Biotix acquisition as of June 30, 2018 is based on the Company's forecast of future results. The fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement.
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.

A fair value hierarchy has been established that categorizes these inputs into three levels:
Level 1:
Quoted prices in active markets for identical assets and liabilities
Level 2:
Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3:
Unobservable inputs
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, 2018 and December 31, 2017:
 
 
June 30, 2018
 
December 31, 2017
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
13,402

 
$

 
$
13,402

 
$

 
$
5,616

 
$

 
$
5,616

 
$

Interest rate swap agreements
 
1,727

 

 
1,727

 

 

 

 

 

Cross currency swap agreement
 
1,849

 

 
1,849

 

 

 

 

 

Foreign currency forward contracts not designated as hedging instruments
 
925

 

 
925

 

 
1,912

 

 
1,912

 

Total
 
$
17,903

 
$

 
$
17,903

 
$

 
$
7,528

 
$

 
$
7,528

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$

 
$

 
$

 
$

 
$
1,292

 
$

 
$
1,292

 
$

Cross currency swap agreement
 

 

 

 

 
106

 

 
106

 

Foreign currency forward contracts not designated as hedging instruments
 
2,720

 

 
2,720

 

 
986

 

 
986

 

Total
 
$
2,720

 
$

 
$
2,720

 
$

 
$
2,384

 
$

 
$
2,384

 
$


- 15 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

6.    INCOME TAXES
The Company's reported tax rate was 22.4% and 19.9% during the three months ended June 30, 2018 and 2017, respectively and 21.6% and 19.4% during the six months ended June 30, 2018 and 2017, respectively. The provision for taxes is based upon using the Company's projected annual effective tax rate of 22.0% before non-recurring discrete tax items for the three and six months periods ended June 30, 2018. The difference between the Company's projected annual effective tax rate of 22.0% and the reported tax rate is related to the timing of excess tax benefits associated with stock option exercises.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") significantly revised U.S. corporate income tax law. The Act includes, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective for taxable years beginning after December 31, 2017, and the implementation of a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax") that is payable over a period of up to eight years.
The Company's accounting for the Act is based upon reasonable estimates, however, the estimates may change upon the finalization of the Act's implementation and additional interpretive guidance from regulatory authorities. Among other things, the Company needs to complete its analysis of historical foreign earnings and related taxes paid and its analysis of foreign cash equivalents. In addition, the Company needs to complete its analysis of deemed repatriation of deferred foreign income and related.
7.    DEBT
Debt consisted of the following at June 30, 2018:
 
June 30, 2018
 
U.S. Dollar
 
Other Principal Trading Currencies
 
Total
$50 million Senior Notes, interest 3.67%, due December 17, 2022
50,000

 

 
50,000

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

 

 
50,000

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

 

 
125,000

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

 

 
125,000

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

 
145,163

 
145,163

Debt issuance costs, net
(994
)
 
(342
)
 
(1,336
)
Total Senior Notes
349,006

 
144,821

 
493,827

$1.1 billion Credit Agreement, interest at LIBOR plus 87.5 basis points
469,719

 
56,874

 
526,593

Other local arrangements
359

 
51,693

 
52,052

Total debt
819,084

 
253,388

 
1,072,472

Less: current portion
(359
)
 
(51,693
)
 
(52,052
)
Total long-term debt
$
818,725

 
$
201,695

 
$
1,020,420

Credit Agreement
On June 15, 2018 the Company entered into an amended $1.1 billion Credit Agreement (the "Credit Agreement"), which amended its $800 million Amended and Restated Credit Agreement (the "Prior Credit Agreement"). As of June 30, 2018, the Company had $566.9 million of availability remaining under its Credit Agreement.

- 16 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Credit Agreement is provided by a group of financial institutions (similar to the Company's Prior Credit Agreement) and has a maturity date of June 15, 2023. It is a revolving credit facility and is not subject to any scheduled principal payments prior to maturity. The obligations under the Credit Agreement are unsecured.
Borrowings under the Credit Agreement bear interest at current market rates plus a margin based on the Company’s consolidated leverage ratio, which was set at LIBOR plus 87.5 basis points as of June 15, 2018. The Company must also pay facility fees that are tied to its leverage ratio. The Credit Agreement contains covenants that are the same as those contained in the prior Credit Agreement, with which the Company was in compliance as of June 30, 2018. The Company is required to maintain a ratio of funded debt to Consolidated EBITDA of 3.5 to1.0 or less and an interest coverage ration of 3.5 to 1.0 or greater. The Credit Agreement also places certain limitations on the Company, including limiting the ability to incur liens or indebtedness at a subsidiary level. In addition, the Credit Agreement has several events of default. The Company incurred approximately $0.1 million of debt extinguishment costs during 2018 related to the Prior Credit Agreement. The Company capitalized $2.0 million in financing fees during 2018 associated with the Credit Agreement which will be amortized to interest expense through 2023.
Other Local Arrangements
In April 2018, two of the Company's non-U.S. pension plans issued loans totaling $39.6 million (Swiss franc 38 million) to a wholly owned subsidiary of the Company. The loans have the same terms and conditions which include an interest rate of Swiss franc LIBOR plus 87.5 basis points and a maturity date of April 2019 and a one year renewal term and, as such, are classified as short-term debt on the Company's consolidated balance sheet. The proceeds were used to repay outstanding amounts on the Company's credit facility.

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 gain of $10.1 million and loss $7.1 million for the three months ended June 30, 2018 and 2017, respectively, and a gain of $4.6 million and a loss $10.5 million for the six months periods ended June 30, 2018 and 2017, respectively.

8.    SHARE REPURCHASE PROGRAM AND TREASURY STOCK
The Company has a share repurchase program of which there was $345.9 million of remaining common shares to be repurchased under the program as of June 30, 2018. 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 27.1 million shares since the inception of the program in 2004 through June 30, 2018. During the six months ended June 30, 2018 and 2017, the Company spent $237.5 million and $249.9 million on the repurchase of 396,218 shares and 505,593 shares at an average price per share of $599.40 and $494.35, respectively. The Company also reissued 68,653 shares and 153,413 shares held in treasury for the exercise of stock options and restricted stock units during the six months ended June 30, 2018 and 2017, respectively.

- 17 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

9.    ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive income by component for the six months ended June 30, 2018 and 2017:
 
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, 2017
$
(31,340
)
 
$
(1,081
)
 
$
(232,985
)
 
$
(265,406
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) cash flow hedging arrangements

 
1,782

 

 
1,782

Foreign currency translation adjustment
(13,894
)
 

 
3,865

 
(10,029
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
682

 
7,250

 
7,932

Net change in other comprehensive income (loss), net of tax
(13,894
)
 
2,464

 
11,115

 
(315
)
Balance at June 30, 2018
$
(45,234
)
 
$
1,383

 
$
(221,870
)
 
$
(265,721
)
 
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:

 

 

 

Unrealized gains (losses) cash flow hedging arrangements

 
(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
)


- 18 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – 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,
 
 
 
 
2018
 
2017
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
158

 
$
505

 
Interest expense
Cross currency swap agreement
 
4,098

 
1,412

 
(a)
Total before taxes
 
4,256

 
1,917

 
 
Provision for taxes
 
360

 
305

 
Provision for taxes
Total, net of taxes
 
$
3,896

 
$
1,612

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses and prior service cost, before taxes
 
$
4,687

 
$
5,054

 
(b)
Provision for taxes
 
1,123

 
1,301

 
Provision for taxes
Total, net of taxes
 
$
3,564

 
$
3,753

 
 
(a) The cross currency swap reflects an unrealized loss of $4.8 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 $0.7 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 months ended June 30, 2018 and 2017.
 
 
Six months ended June 30,
 
 
 
 
2018
 
2017
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
435

 
$
849

 
Interest expense
Cross currency swap agreement
 
387

 
1,412

 
(a)
Total before taxes
 
822

 
2,261

 
 
Provision for taxes
 
140

 
437

 
Provision for taxes
Total, net of taxes
 
$
682

 
$
1,824

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses and prior service cost, before taxes
 
$
9,498

 
$
10,093

 
(b)
Provision for taxes
 
2,248

 
2,628

 
Provision for taxes
Total, net of taxes
 
$
7,250

 
$
7,465

 
 
(a) The cross currency swap reflects an unrealized loss of $1.8 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 $1.4 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 12 for additional details for the six months ended June 30, 2018 and 2017.


- 19 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – 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
 
2018
 
2017
 
2018
 
2017
Net earnings
$
111,468

 
$
101,580

 
$
204,772

 
$
194,046

Other comprehensive income (loss), net of tax
(29,205
)
 
32,734

 
(315
)
 
56,612

Comprehensive income, net of tax
$
82,263

 
$
134,314

 
$
204,457

 
$
250,658

10.    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:
 
2018
 
2017
Three months ended
567,969

 
688,155

Six months ended
596,106

 
673,068

Outstanding options and restricted stock units to purchase or receive 56,419 shares of common stock for the three month period ended June 30, 2018 have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive. For the three months ended June 30, 2017, there were no anti-dilutive outstanding options or restricted stock units. Options and restricted stock units to purchase or receive 56,380 and 75,182 for the six month period ended June 30, 2018 and 2017, 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.
11.    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
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost, net
$
272

 
$
141

 
$
3,744

 
$
3,952

 
$

 
$

 
4,016

 
4,093

Interest cost on projected benefit obligations
1,061

 
1,094

 
2,131

 
2,053

 
16

 
18

 
3,208

 
3,165

Expected return on plan assets
(1,732
)
 
(1,684
)
 
(7,688
)
 
(7,629
)
 

 

 
(9,420
)
 
(9,313
)
Recognition of prior service cost

 

 
(1,727
)
 
(974
)
 
(93
)
 
(195
)
 
(1,820
)
 
(1,169
)
Recognition of actuarial losses/(gains)
1,451

 
1,639

 
5,369

 
5,058

 
(313
)
 
(474
)
 
6,507

 
6,223

Net periodic pension cost/(credit)
$
1,052

 
$
1,190

 
$
1,829

 
$
2,460

 
$
(390
)
 
$
(651
)
 
$
2,491

 
$
2,999



- 20 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – 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
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost, net
$
544

 
$
282

 
$
7,664

 
$
7,976

 
$

 
$

 
8,208

 
8,258

Interest cost on projected benefit obligations
2,122

 
2,188

 
4,354

 
4,122

 
32

 
36

 
6,508

 
6,346

Expected return on plan assets
(3,464
)
 
(3,368
)
 
(15,675
)
 
(15,014
)
 

 

 
(19,139
)
 
(18,382
)
Recognition of prior service cost

 

 
(3,521
)
 
(2,797
)
 
(186
)
 
(390
)
 
(3,707
)
 
(3,187
)
Recognition of actuarial losses/(gains)
2,902

 
3,278

 
10,929

 
10,950

 
(626
)
 
(948
)
 
13,205

 
13,280

Net periodic pension cost/(credit)
$
2,104

 
$
2,380

 
$
3,751

 
$
5,237

 
$
(780
)
 
$
(1,302
)
 
$
5,075

 
$
6,315


As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, the Company expects to make employer contributions of approximately $25.9 million to its non-U.S. pension plans during the year ended December 31, 2018. This estimate may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.

12.    RESTRUCTURING CHARGES
For the three and six months ended June 30, 2018, the Company has incurred $7.3 million and $11.7 million of restructuring expenses which primarily relates to employee and other cost costs associated with the consolidation of facilities. 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, 2018 is as follows:
 
 
Total
Balance at December 31, 2017
 
$
10,620

Restructuring charges
 
11,734

Cash payments and utilization
 
(13,409
)
Impact of foreign currency
 
(130
)
Balance at June 30, 2018
 
$
8,815


13.    OTHER CHARGES (INCOME), NET
Other charges (income), net includes non-service pension costs (benefits), (gains) losses from foreign currency transactions and related hedging activities, interest income and other items. Nonservice pension benefits were $1.5 million and $1.1 million for the three months ended June 30, 2018 and 2017, respectively, and $3.1 million and $1.9 million and for the six months ended June 30, 2018 and 2017, respectively. Other charges (income), net for the six months ended June 30, 2017 also includes a one-time gain of $3.4 million 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.

- 21 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

14.    SEGMENT REPORTING
As disclosed in Note 17 to the Company's consolidated financial statements for the year ended December 31, 2017, 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
 
2018
June 30, 2018
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
251,474

 
$
23,487

 
$
274,961

 
$
42,006

 
$
409,470

Swiss Operations
32,154

 
148,959

 
181,113

 
47,737

 
21,787

Western European Operations
173,772

 
45,141

 
218,913

 
27,333

 
89,412

Chinese Operations
133,272

 
58,588

 
191,860

 
65,884

 
678

Other (a)
131,324

 
1,463

 
132,787

 
17,642

 
15,060

Eliminations and Corporate (b)

 
(277,638
)
 
(277,638
)
 
(31,316
)
 

Total
$
721,996

 
$

 
$
721,996

 
$
169,286

 
$
536,407


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the six months ended
External
 
Other
 
Total Net
 
Segment
 
 
June 30, 2018
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
481,219

 
$
47,153

 
$
528,372

 
$
76,251

 
 
Swiss Operations
64,619

 
292,541

 
357,160

 
93,712

 
 
Western European Operations
339,144

 
86,153

 
425,297

 
45,615

 
 
Chinese Operations
247,202

 
118,995

 
366,197

 
125,437

 
 
Other (a)
250,633

 
3,103

 
253,736

 
31,523

 
 
Eliminations and Corporate (b)

 
(547,945
)
 
(547,945
)
 
(63,706
)
 
 
Total
$
1,382,817

 
$

 
$
1,382,817

 
$
308,832

 
 

(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.

- 22 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – 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
 
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

 
24,709

 
87,388

Chinese Operations
108,092

 
57,036

 
165,128

 
54,127

 
653

Other (a)
123,285

 
2,129

 
125,414

 
15,181

 
15,390

Eliminations and Corporate (b)

 
(257,487
)
 
(257,487
)
 
(29,708
)
 

Total
$
653,656

 
$

 
$
653,656

 
$
147,406

 
$
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

 
49,427

 
 
Chinese Operations
198,873

 
109,969

 
308,842

 
98,787

 
 
Other (a)
234,648

 
3,726

 
238,374

 
28,289

 
 
Eliminations and Corporate (b)

 
(504,924
)
 
(504,924
)
 
(60,501
)
 
 
Total
$
1,248,223

 
$

 
$
1,248,223

 
$
273,939

 
 

(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
 
2018
 
2017
 
2018
 
2017
Earnings before taxes
$
143,602

 
$
126,847

 
$
261,041

 
$
240,695

Amortization
11,970

 
10,249

 
23,705

 
20,294

Interest expense
8,309

 
8,171

 
16,668

 
15,912

Restructuring charges
7,321

 
4,023

 
11,734

 
5,455

Other charges (income), net
(1,916
)
 
(1,884
)
 
(4,316
)
 
(8,417
)
Segment profit
$
169,286

 
$
147,406

 
$
308,832

 
$
273,939


During the three months ended June 30, 2018, restructuring charges of $7.3 million were recognized, of which $6.4 million, $0.3 million, $0.5 million, and $0.1 million related to the Company’s U.S., Swiss, Western European and Other Operations, respectively. Restructuring charges of $4.0 million were recognized during the three months ended June 30, 2017, of which $2.2 million, $0.5 million, $0.7 million and $0.6 million, related to the Company’s U.S., Swiss, and Western European Operations, respectively. Restructuring charges of $11.7 million were recognized during the six months ended June 30, 2018, of which $10.0 million, $0.7 million, $0.9 million, and $0.1 million related to the Company’s U.S., Swiss, Western European, and Other Operations, respectively. Restructuring charges of

- 23 -

METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2018 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

$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.

15.    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.

- 24 -


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, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.
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, 2018 and 2017 (amounts in thousands).
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017