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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 September 30, 2016, 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 __     

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 26,235,560 shares of Common Stock outstanding at September 30, 2016.
 




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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended September 30, 2016 and 2015
(In thousands, except share data)
(unaudited)

 
September 30,
2016
 
September 30,
2015
Net sales
 
 
 
Products
$
508,963

 
$
469,548

Service
141,635

 
134,606

Total net sales
650,598

 
604,154

Cost of sales
 
 
 
Products
203,150

 
188,673

Service
77,954

 
75,952

Gross profit
369,494

 
339,529

Research and development
30,139

 
29,711

Selling, general and administrative
187,680

 
175,546

Amortization
9,087

 
7,767

Interest expense
7,167

 
7,029

Restructuring charges
1,494

 
2,561

Other charges (income), net
603

 
(8
)
Earnings before taxes
133,324

 
116,923

Provision for taxes
31,992

 
28,062

Net earnings
$
101,332

 
$
88,861

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
3.84

 
$
3.23

Weighted average number of common shares
26,375,468

 
27,547,734

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
3.77

 
$
3.16

Weighted average number of common and common equivalent shares
26,888,810

 
28,113,287

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
117,704

 
$
48,248



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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine months ended September 30, 2016 and 2015
(In thousands, except share data)
(unaudited)

 
September 30,
2016
 
September 30,
2015
Net sales
 
 
 
Products
$
1,392,860

 
$
1,332,154

Service
405,698

 
389,758

Total net sales
1,798,558

 
1,721,912

Cost of sales
 
 
 
Products
552,329

 
536,466

Service
229,252

 
224,200

Gross profit
1,016,977

 
961,246

Research and development
89,813

 
87,966

Selling, general and administrative
544,399

 
523,392

Amortization
26,166

 
22,929

Interest expense
20,619

 
20,696

Restructuring charges
4,579

 
5,188

Other charges (income), net
8,492

 
(858
)
Earnings before taxes
322,909

 
301,933

Provision for taxes
76,315

 
72,464

Net earnings
$
246,594

 
$
229,469

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
9.25

 
$
8.24

Weighted average number of common shares
26,644,938

 
27,833,541

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
9.08

 
$
8.07

Weighted average number of common and common equivalent shares
27,153,450

 
28,443,478

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
246,840

 
$
204,380



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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2016 and December 31, 2015
(In thousands, except share data)
(unaudited)

 
September 30,
2016
 
December 31,
2015
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
146,133

 
$
98,887

Trade accounts receivable, less allowances of $15,127 at September 30, 2016
 
 
 
and $14,435 at December 31, 2015
414,607

 
411,420

Inventories
239,985

 
214,383

Current deferred tax assets, net
71,629

 
67,483

Other current assets and prepaid expenses
73,748

 
70,642

Total current assets
946,102

 
862,815

Property, plant and equipment, net
527,477

 
517,229

Goodwill
482,144

 
446,284

Other intangible assets, net
169,117

 
115,252

Non-current deferred tax assets, net
22,734

 
22,873

Other non-current assets
73,406

 
52,186

Total assets
$
2,220,980

 
$
2,016,639

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
129,650

 
$
142,075

Accrued and other liabilities
126,599

 
127,645

Accrued compensation and related items
135,568

 
136,414

Deferred revenue and customer prepayments
113,340

 
88,829

Taxes payable
70,993

 
63,241

Current deferred tax liabilities
22,920

 
22,435

Short-term borrowings and current maturities of long-term debt
21,779

 
14,488

Total current liabilities
620,849

 
595,127

Long-term debt
826,022

 
575,138

Non-current deferred tax liabilities
65,341

 
71,365

Other non-current liabilities
208,251

 
194,552

Total liabilities
1,720,463

 
1,436,182

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 26,235,560 and
 
 
 
27,090,118 shares at September 30, 2016 and December 31, 2015, respectively
448

 
448

Additional paid-in capital
725,597

 
697,570

Treasury stock at cost (18,550,451 shares at September 30, 2016, and 17,695,893 shares at December 31, 2015)
(2,893,292
)
 
(2,543,229
)
Retained earnings
2,934,167

 
2,692,317

Accumulated other comprehensive income (loss)
(266,403
)
 
(266,649
)
Total shareholders’ equity
500,517

 
580,457

Total liabilities and shareholders’ equity
$
2,220,980

 
$
2,016,639



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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2016 and twelve months ended December 31, 2015
(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, 2014
28,243,007

 
$
448

 
$
670,418

 
$
(2,095,656
)
 
$
2,357,334

 
$
(212,949
)
 
$
719,595

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
403,908

 

 

 
47,393

 
(17,837
)
 

 
29,556

Repurchases of common stock
(1,556,797
)
 

 

 
(494,966
)
 

 

 
(494,966
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
12,929

 

 

 

 
12,929

Share-based compensation

 

 
14,223

 

 

 

 
14,223

Net earnings

 

 

 

 
352,820

 

 
352,820

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax

 

 

 

 

 
(53,700
)
 
(53,700
)
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
193,517

 

 

 
24,931

 
(4,744
)
 

 
20,187

Repurchases of common stock
(1,048,075
)
 

 

 
(374,994
)
 

 

 
(374,994
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
17,166

 

 

 

 
17,166

Share-based compensation

 

 
10,861

 

 

 

 
10,861

Net earnings

 

 

 

 
246,594

 

 
246,594

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

 

 

 

 

 
246

 
246

Balance at September 30, 2016
26,235,560

 
$
448

 
$
725,597

 
$
(2,893,292
)
 
$
2,934,167

 
$
(266,403
)
 
$
500,517

 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2016 and 2015
(In thousands)
(unaudited)

 
September 30,
2016
 
September 30,
2015
Cash flows from operating activities:
 
 
 
Net earnings
$
246,594

 
$
229,469

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
24,527

 
24,978

Amortization
26,166

 
22,929

Deferred tax benefit
(11,078
)
 
(3,245
)
Excess tax benefits from share-based payment arrangements
(17,166
)
 
(1,418
)
Share-based compensation
10,861

 
10,348

Non-cash pension settlement charge
8,189

 

Other
6

 
165

Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
4,721

 
26,123

Inventories
(19,857
)
 
(27,014
)
Other current assets
(3,558
)
 
402

Trade accounts payable
(11,984
)
 
(5,355
)
Taxes payable
6,577

 
17,449

Accruals and other
26,149

 
(5,005
)
Net cash provided by operating activities
290,147

 
289,826

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
361

 
281

Purchase of property, plant and equipment
(51,234
)
 
(56,756
)
Acquisitions
(109,681
)
 
(10,969
)
Net hedging settlements on intercompany loans
2,031

 
(5,563
)
Net cash used in investing activities
(158,523
)
 
(73,007
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
709,988

 
550,002

Repayments of borrowings
(455,913
)
 
(374,891
)
Proceeds from stock option exercises
20,187

 
21,834

Repurchases of common stock
(374,994
)
 
(371,223
)
Excess tax benefits from share-based payment arrangements
17,166

 
1,418

Other financing activities
(680
)
 
(1,004
)
Net cash used in financing activities
(84,246
)
 
(173,864
)
Effect of exchange rate changes on cash and cash equivalents
(132
)
 
(4,919
)
Net increase (decrease) in cash and cash equivalents
47,246

 
38,036

Cash and cash equivalents:
 
 
 
Beginning of period
98,887

 
85,263

End of period
$
146,133

 
$
123,299



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

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – 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, 2015.
The accompanying interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
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, 2015.
All intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
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.

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – 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:
 
September 30,
2016
 
December 31,
2015
Raw materials and parts
$
109,599

 
$
98,252

Work-in-progress
43,179

 
35,100

Finished goods
87,207

 
81,031

 
$
239,985

 
$
214,383

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:
 
September 30, 2016
 
December 31, 2015
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
146,592

 
$
(33,615
)
 
$
112,977

 
$
98,175

 
$
(30,836
)
 
$
67,339

Proven technology and patents
59,756

 
(34,681
)
 
25,075

 
52,938

 
(32,444
)
 
20,494

Tradename (finite life)
4,301

 
(2,507
)
 
1,794

 
4,200

 
(2,158
)
 
2,042

Tradename (indefinite life)
28,338

 

 
28,338

 
24,814

 

 
24,814

Other
2,771

 
(1,838
)
 
933

 
2,111

 
(1,548
)
 
563

 
$
241,758

 
$
(72,641
)
 
$
169,117

 
$
182,238

 
$
(66,986
)
 
$
115,252


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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company recognized amortization expense associated with the above intangible assets of $2.2 million and $1.5 million for the three months ended September 30, 2016 and 2015, respectively and $5.8 million and $4.7 million for the nine months ended September 30, 2016 and 2015, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $8.2 million for 2016, $9.8 million for 2017, $9.4 million for 2018, $9.0 million for 2019, $8.7 million for 2020 and $8.1 million for 2021. Purchased intangible amortization was $2.0 million, $1.3 million after tax, and $1.3 million, $0.9 million after tax, for the three months ended September 30, 2016 and 2015, respectively and $5.2 million, $3.5 million after tax, and $4.2 million, $2.9 million after tax, for the nine months ended September 30, 2016 and 2015, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $6.8 million and $6.2 million for the three months ended September 30, 2016 and 2015, respectively and $20.2 million and $18.1 million for the nine months ended September 30, 2016 and 2015, 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

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – 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 $3.6 million and $10.9 million of share-based compensation expense for the three and nine months ended September 30, 2016, respectively, compared to $3.4 million and $10.3 million for the corresponding periods in 2015.
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 May 2014, the FASB issued ASU 2014-09, 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. The guidance becomes effective for the Company for the year beginning January 1, 2018. We are currently evaluating the impact the adoption of this guidance will have on the Company's consolidated results of operations, financial position, and disclosures.
In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers," which amends ASU 2014-09. The ASU 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. We are currently evaluating the impact the adoption of this guidance will have on the Company's consolidated results of operations, financial position, and disclosures.
In May 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers," which amends ASU 2014-09. The ASU 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. The guidance becomes effective for the Company for the year beginning January 1, 2018. We are currently evaluating the impact the adoption of this guidance will have on the Company's consolidated results of operations, financial position, and disclosures.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows," which clarifies how certain cash receipts and cash payments are classified in the statement of cash flows. The new guidance must be applied retrospectively and becomes effective for the year beginning January 1, 2018 with early adoption permitted. The Company is currently evaluating the impact of this guidance on our financial statements and the timing of adoption.
In March 2016, the FASB issued ASU 2016-09, to ASC 718 "Compensation - Stock Compensation." The guidance allows for the simplification related to several aspects of the accounting for share-based payment transactions, including income tax consequences, the accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance can be applied either on a retrospective or prospective basis and becomes effective for annual periods beginning after December 15, 2016. We are currently evaluating the impact the adoption of this guidance will have on the Company's consolidated results of operations, financial position, and disclosures.
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 our financial statements and the timing of adoption.
In November 2015, the FASB issued ASU 2015-17, to ASC 740 "Income Taxes." The guidance simplifies the balance sheet classification of deferred taxes. The new guidance requires that all deferred tax balances be presented as non-current. This change, which can be early adopted, conforms U.S. GAAP to IFRS. The guidance becomes effective for the Company for the year beginning January 1, 2017. The adoption of this guidance would have reduced current assets and increased non-current assets by approximately $71.6 million and reduced current liabilities and increased non-current liabilities by approximately $22.9 million on the Company's consolidated balance sheet at September 30, 2016.
In May 2015, the FASB issued ASU 2015-07, to ASC 820 "Fair Value Measurements." ASU 2015-07 removes the requirement to categorize investments using the net asset value per share method within the fair value hierarchy. The Company will adopt the guidance in the fourth quarter of 2016, which will have an immaterial impact on the consolidated financial statements.
3.
ACQUISITIONS
In August 2016, the Company acquired substantially all of the assets of Henry Troemner, LLC, (Troemner) a supplier of lab equipment, weights and weight calibration based in the United States for an aggregate purchase price of $95.8 million that will be included into the Company's laboratory instrument offering. Goodwill recorded in connection with the acquisition totaled $33.8 million, which is included in the Company's U.S. Operations segment. The Company identified intangible assets which included customer relationships of $43.9 million, tradename of $3.4 million, technology and patents of $2.9 million and other intangibles of $0.5 million. The identifiable intangible assets will be amortized on a straight-line basis over periods ranging from 3 to 25 years and the annual aggregate amortization expense is estimated at $2.7 million. Net tangible assets acquired were $11.3 million and are recorded at fair value in the consolidated financial statements.
In 2016, the Company also incurred additional acquisitions payments totaling $13.9 million. Goodwill recorded in connection with these acquisitions totaled $5.8 million. The Company also recorded $7.7 million of identified intangibles primarily pertaining to customer relationships in connection with these acquisitions, which will be amortized on a straight-line basis over 10 to 15 years.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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.
Cash Flow Hedges
The Company has entered into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based business. In January 2015, prior to the Swiss National Bank's abandonment of its previously established exchange rate of 1.20 Swiss franc per euro, the Company increased the notional amount of the cash flow hedges to a total notional value and average forward rate of Euro 86 million and 1.21 for contracts that matured in 2015 and Euro 67 million and 1.19 for contracts that mature in 2016. The notional amount of foreign currency forward contracts outstanding at September 30, 2016 were $23.1 million (Euro 20.6 million) and $73 million (Euro 67 million) at December 31, 2015. The gross amount recognized in other comprehensive income (loss) during the three month periods ended September 30, 2016 and 2015 was a loss of $0.2 million and a loss $6.1 million, respectively. The gross amount recognized in other comprehensive income (loss) during the nine month period ended September 30, 2016 and 2015 was a loss of $0.5 million and a gain $18.1 million, respectively.
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 in forecasted 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 will change the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.25% beginning in February 2017 and matures in February 2022.
The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at September 30, 2016 and December 31, 2015, 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 $0.5 million based upon interest rates and foreign currency rates at September 30, 2016, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through September 30, 2016, 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 September 30, 2016 and December 31, 2015, respectively, and disclosed in Note 5. The amount recognized in other charges (income) during the three

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

months ended September 30, 2016 was insignificant to the consolidated financial statements. The Company recognized in other charges (income), a net gain of $4.7 million during the three months ended September 30, 2015, respectively, and a net loss of $0.7 million and $4.8 million during the nine months months ended September 30, 2016 and 2015, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At September 30, 2016 and December 31, 2015, these contracts had a notional value of $319.4 million and $318.7 million, respectively.    
5.    FAIR VALUE MEASUREMENTS
At September 30, 2016 and December 31, 2015, the Company had derivative assets totaling $2.8 million and $8.2 million, respectively, and derivative liabilities totaling $9.4 million and $4.7 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 September 30, 2016 and December 31, 2015.
At September 30, 2016 and December 31, 2015, the Company had $19.6 million and $18.8 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 $24.7 million as of September 30, 2016. The carrying value of the Company's debt exceeds the fair value by approximately $9.2 million as of December 31, 2015.
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

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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 September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
19,592

 
$

 
$
19,592

 
$

 
$
18,755

 
$

 
$
18,755

 
$

Foreign currency forward contracts designated as cash flow hedges
 
2,067

 

 
2,067

 

 
7,056

 

 
7,056

 

Foreign currency forward contracts not designated as hedging instruments
 
693

 

 
693

 

 
1,166

 

 
1,166

 

Total
 
$
22,352

 
$

 
$
22,352

 
$

 
$
26,977

 
$

 
$
26,977

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
9,184

 
$

 
$
9,184

 
$

 
$
4,092

 
$

 
$
4,092

 
$

Foreign currency forward contracts not designated as hedging instruments
 
247

 

 
247

 

 
625

 

 
625

 

Total
 
$
9,431

 
$

 
$
9,431

 
$

 
$
4,717

 
$

 
$
4,717

 
$

6.    INCOME TAXES
The provision for taxes is based upon using the Company's projected annual effective tax rate of 24% before discrete items for both the three and nine month periods ended September 30, 2016 and 2015.

7.    DEBT
Debt consisted of the following at September 30, 2016:
 
September 30, 2016
 
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

 
140,131

 
140,131

Debt issuance costs, net
(1,301
)
 
(392
)
 
(1,693
)
Total Senior Notes
348,699

 
139,739

 
488,438

$800 million Credit Agreement, interest at LIBOR plus 87.5 basis points
295,325

 
42,259

 
337,584

Other local arrangements

 
21,779

 
21,779

Total debt
644,024

 
203,777

 
847,801

Less: current portion

 
(21,779
)
 
(21,779
)
Total long-term debt
$
644,024

 
$
181,998

 
$
826,022

As of September 30, 2016, the Company had $457.0 million of availability remaining under its Credit Agreement.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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 $2.0 million and a gain $0.3 million for the three months ended September 30, 2016 and 2015, respectively, and a loss of $3.6 million and a gain $0.3 million for the nine month periods ended September 30, 2016 and 2015, respectively.

8.    SHARE REPURCHASE PROGRAM AND TREASURY STOCK
The Company has a share repurchase program of which there was $1.1 billion common shares remaining to be repurchased under the program as of September 30, 2016. 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 25.7 million shares since the inception of the program in 2004 through September 30, 2016. During the nine months ended September 30, 2016 and 2015, the Company spent $375.0 million and $371.2 million on the repurchase of 1,048,075 shares and 1,167,796 shares at an average price per share of $357.77 and $317.86, respectively. The Company also reissued 193,517 shares and 281,627 shares held in treasury for the exercise of stock options and issuance of restricted stock units during the nine months ended September 30, 2016 and 2015, respectively.
9.    ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive income by component for the nine months ended September 30, 2016 and 2015:
 
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:
 
 
 
 
 
 
 
Amounts recognized in accumulated other comprehensive income (loss), net of tax

 
(3,760
)
 
(4,545
)
 
(8,305
)
Foreign currency translation adjustment
162

 
(217
)
 
(2,071
)
 
(2,126
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(3,121
)
 
13,798

 
10,677

Net change in other comprehensive income (loss), net of tax
162

 
(7,098
)
 
7,182

 
246

Balance at September 30, 2016
$
(57,232
)
 
$
(4,082
)
 
$
(205,089
)
 
$
(266,403
)

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
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, 2014
$
(4,960
)
 
$
(1,944
)
 
$
(206,045
)
 
$
(212,949
)
Other comprehensive income (loss), net of tax:

 

 

 

Unrealized gains (losses) on cash flow hedging arrangements

 
13,547

 

 
13,547

Foreign currency translation adjustment
(40,823
)
 
(1,832
)
 
3,146

 
(39,509
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(6,082
)
 
6,955

 
873

Net change in other comprehensive income (loss), net of tax
(40,823
)
 
5,633

 
10,101

 
(25,089
)
Balance at September 30, 2015
$
(45,783
)
 
$
3,689

 
$
(195,944
)
 
$
(238,038
)

The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and nine month periods ended September 30:
 
 
Three months ended September 30,
 
 
 
 
2016
 
2015
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
258

 
$
777

 
Interest expense
Foreign currency forward contracts
 
(1,601
)
 
(2,816
)
 
Cost of sales - products
Total before taxes
 
(1,343
)
 
(2,039
)
 
 
Provision for taxes
 
(229
)
 
(278
)
 
Provision for taxes
Total, net of taxes
 
$
(1,114
)
 
$
(1,761
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses and prior service cost, before taxes
 
$
3,996

 
$
2,675

 
(a)
Provision for taxes
 
1,033

 
761

 
Provision for taxes
Total, net of taxes
 
$
2,963

 
$
1,914

 
 
(a) 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 nine months ended September 30, 2016 and 2015.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
 
Nine months ended September 30,
 
 
 
 
2016
 
2015
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
784

 
$
2,312

 
Interest expense
Foreign currency forward contracts
 
(4,532
)
 
(9,439
)
 
Cost of sales - products
Total before taxes
 
(3,748
)
 
(7,127
)
 
 
Provision for taxes
 
(627
)
 
(1,045
)
 
Provision for taxes
Total, net of taxes
 
$
(3,121
)
 
$
(6,082
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, settlement loss and prior service cost, before taxes
 
$
19,964

 
$
9,545

 
(a)
Provision for taxes
 
6,166

 
2,590

 
Provision for taxes
Total, net of taxes
 
$
13,798

 
$
6,955

 
 
(a) 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 nine months ended September 30, 2016 and 2015.
Comprehensive income (loss), net of tax consisted of the following as of September 30:
 
Three Months Ended
 
Nine Months Ended
 
2016
 
2015
 
2016
 
2015
Net earnings
$
101,332

 
$
88,861

 
$
246,594

 
$
229,469

Other comprehensive income (loss), net of tax
16,372

 
(40,613
)
 
246

 
(25,089
)
Comprehensive income, net of tax
$
117,704

 
$
48,248

 
$
246,840

 
$
204,380

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 nine month periods ended September 30, relating to outstanding stock options and restricted stock units:
 
2016
 
2015
Three months ended
513,342

 
565,553

Nine months ended
508,512

 
609,937

Outstanding options and restricted stock units to purchase or receive 84,293 and 95,832 shares of common stock for the three month periods ended September 30, 2016 and 2015, respectively, and options and restricted stock units to purchase or receive 84,712 and 95,884 for the nine month periods ended September 30, 2016 and 2015, 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.


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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

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 September 30:
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost, net
$
103

 
$
211

 
$
4,216

 
$
4,772

 
$

 
$

 
$
4,319

 
$
4,983

Interest cost on projected benefit obligations
1,014

 
1,607

 
2,542

 
3,554

 
19

 
35

 
3,575

 
5,196

Expected return on plan assets
(1,868
)
 
(2,395
)
 
(8,177
)
 
(9,228
)
 

 

 
(10,045
)
 
(11,623
)
Recognition of prior service cost

 

 
(1,288
)
 
(1,675
)
 
(469
)
 
(469
)
 
(1,757
)
 
(2,144
)
Recognition of actuarial losses/(gains)
1,907

 
1,906

 
4,519

 
3,756

 
(673
)
 
(843
)
 
5,753

 
4,819

Net periodic pension cost/(credit)
$
1,156

 
$
1,329

 
$
1,812

 
$
1,179

 
$
(1,123
)
 
$
(1,277
)
 
$
1,845

 
$
1,231


Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the nine months ended September 30:

 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost, net
$
328

 
$
628

 
$
12,606

 
$
14,228

 
$

 
$

 
$
12,934

 
$
14,856

Interest cost on projected benefit obligations
3,414

 
4,823

 
7,967

 
10,623

 
57

 
104

 
11,438

 
15,550

Expected return on plan assets
(5,912
)
 
(7,183
)
 
(25,020
)
 
(27,867
)
 

 

 
(30,932
)
 
(35,050
)
Recognition of prior service cost

 

 
(3,856
)
 
(3,632
)
 
(1,408
)
 
(1,408
)
 
(5,264
)
 
(5,040
)
Recognition of actuarial losses/(gains)
5,699

 
5,720

 
13,585

 
11,393

 
(2,019
)
 
(2,528
)
 
17,265

 
14,585

Settlement charge
7,963

 

 

 

 

 

 
7,963

 

Net periodic pension cost/(credit)
$
11,492

 
$
3,988

 
$
5,282

 
$
4,745

 
$
(3,370
)
 
$
(3,832
)
 
$
13,404

 
$
4,901


As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, 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, 2016. 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.


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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

12.    RESTRUCTURING CHARGES
For the three and nine months ended September 30, 2016, the Company has incurred $1.5 million and $4.6 million of restructuring expenses which primarily comprised 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 nine months ended September 30, 2016 is as follows:
            
 
 
Total
Balance at December 31, 2015
 
$
12,211

Restructuring charges
 
4,579

Cash payments and utilization
 
(6,304
)
Impact of foreign currency
 
(27
)
Balance at September 30, 2016
 
$
10,459


13.    OTHER CHARGES (INCOME), NET
Other charges (income), net for the three and nine months ended September 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, acquisition transaction costs and other items.

14.    SEGMENT REPORTING
As disclosed in Note 16 to the Company's consolidated financial statements for the year ended December 31, 2015, 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 September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2016
September 30, 2016
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
235,715

 
$
20,151

 
$
255,866

 
$
43,779

 
$
356,089

Swiss Operations
32,390

 
127,569

 
159,959

 
36,854

 
22,280

Western European Operations
159,025

 
43,816

 
202,841

 
30,218

 
87,403

Chinese Operations
99,349

 
62,368

 
161,717

 
51,669

 
669

Other (a)
124,119

 
1,770

 
125,889

 
16,721

 
15,703

Eliminations and Corporate (b)

 
(255,674
)
 
(255,674
)
 
(27,566
)
 

Total
$
650,598

 
$

 
$
650,598

 
$
151,675

 
$
482,144



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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2016
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
640,618

 
$
61,884

 
$
702,502

 
$
114,046

 
 
Swiss Operations
90,075

 
374,863

 
464,938

 
107,673

 
 
Western European Operations
450,940

 
121,308

 
572,248

 
74,711

 
 
Chinese Operations
277,182

 
166,948

 
444,130

 
134,229

 
 
Other (a)
339,743

 
4,824

 
344,567

 
41,064

 
 
Eliminations and Corporate (b)

 
(729,827
)
 
(729,827
)
 
(88,958
)
 
 
Total
$
1,798,558

 
$

 
$
1,798,558

 
$
382,765

 
 

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.
 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2015
September 30, 2015
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
217,831

 
$
21,221

 
$
239,052

 
$
40,547

 
$
317,525

Swiss Operations
32,847

 
122,399

 
155,246

 
39,358

 
22,130

Western European Operations
149,996

 
45,403

 
195,399

 
26,594

 
94,659

Chinese Operations
96,717

 
57,544

 
154,261

 
44,958

 
709

Other (a)
106,763

 
2,014

 
108,777

 
13,464

 
13,319

Eliminations and Corporate (b)

 
(248,581
)
 
(248,581
)
 
(30,649
)
 

Total
$
604,154

 
$

 
$
604,154

 
$
134,272

 
$
448,342


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2015
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
600,917

 
$
62,353

 
$
663,270

 
$
101,964

 
 
Swiss Operations
96,851

 
355,492

 
452,343

 
108,892

 
 
Western European Operations
439,717

 
124,709

 
564,426

 
69,377

 
 
Chinese Operations
274,178

 
160,724

 
434,902

 
119,571

 
 
Other (a)
310,249

 
4,959

 
315,208

 
32,652

 
 
Eliminations and Corporate (b)

 
(708,237
)
 
(708,237
)
 
(82,568
)
 
 
Total
$
1,721,912

 
$

 
$
1,721,912

 
$
349,888

 
 

(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.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2016 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

A reconciliation of earnings before taxes to segment profit for the three and nine month periods ended September 30 follows:

 
Three Months Ended
 
Nine Months Ended
 
2016
 
2015
 
2016
 
2015
Earnings before taxes
$
133,324

 
$
116,923

 
$
322,909

 
$
301,933

Amortization
9,087

 
7,767

 
26,166

 
22,929

Interest expense
7,167

 
7,029

 
20,619

 
20,696

Restructuring charges
1,494

 
2,561

 
4,579

 
5,188

Other charges (income), net
603

 
(8
)
 
8,492

 
(858
)
Segment profit
$
151,675

 
$
134,272

 
$
382,765

 
$
349,888


During the three months ended September 30, 2016, restructuring charges of $1.5 million were recognized, of which $0.6 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 $2.6 million were recognized during the three months ended September 30, 2015, of which $0.6 million, $1.9 million and $0.1 million related to the Company’s Swiss, Western European and Chinese Operations, respectively. Restructuring charges of $4.6 million were recognized during the nine months ended September 30, 2016, of which $1.7 million, $0.9 million, $1.7 million, $0.1 million, and $0.2 million related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $5.2 million were recognized during the nine months ended September 30, 2015, of which $0.1 million, $1.7 million, $2.4 million, $0.4 million and $0.6 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.

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Table of Contents

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 nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
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 nine month periods ended September 30, 2016 and 2015 (amounts in thousands).
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
Net sales
$
650,598

 
100.0
 
$
604,154

 
100.0

 
$
1,798,558

 
100.0
 
$
1,721,912

 
100.0

Cost of sales
281,104

 
43.2
 
264,625

 
43.8

 
781,581

 
43.5
 
760,666

 
44.2

Gross profit
369,494

 
56.8
 
339,529

 
56.2

 
1,016,977

 
56.5
 
961,246

 
55.8

Research and development
30,139

 
4.6
 
29,711

 
4.9

 
89,813

 
5.0
 
87,966

 
5.1

Selling, general and administrative
187,680

 
28.8
 
175,546

 
29.1

 
544,399

 
30.3
 
523,392

 
30.4

Amortization
9,087

 
1.4
 
7,767

 
1.3

 
26,166

 
1.5
 
22,929

 
1.3

Interest expense
7,167

 
1.1
 
7,029

 
1.1

 
20,619

 
1.1
 
20,696

 
1.2

Restructuring charges
1,494

 
0.3
 
2,561

 
0.4

 
4,579

 
0.2
 
5,188

 
0.3

Other charges (income), net
603

 
0.1
 
(8
)
 

 
8,492

 
0.5
 
(858
)
 

Earnings before taxes
133,324

 
20.5
 
116,923

 
19.4

 
322,909

 
17.9
 
301,933

 
17.5

Provision for taxes
31,992

 
4.9
 
28,062

 
4.7

 
76,315

 
4.2
 
72,464

 
4.2

Net earnings
$
101,332

 
15.6
 
$
88,861

 
14.7

 
$
246,594

 
13.7
 
$
229,469

 
13.3


Net sales
Net sales were $650.6 million and $604.2 million for the three months ended September 30, 2016 and 2015, respectively, and $1.799 billion and $1.722 billion for the nine months ended September 30, 2016 and 2015. This represents an increase of 8% and 4% in U.S. dollars for the thr