Quarterly Report (10-q)

Date : 11/08/2019 @ 4:09PM
Source : Edgar (US Regulatory)
Stock : Mettler Toledo International Inc (MTD)
Quote : 724.82  11.17 (1.57%) @ 10:18PM
Mettler Toledo share price Chart
After Hours
Last Trade
Last $ 724.82 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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

Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2019, 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, OH 43240
and
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Swizterland
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
MTD
New York Stock Exchange

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 No

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 No     
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer. Accelerated filer Non-accelerated filer 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

The Registrant had 24,354,201 shares of Common Stock outstanding at September 30, 2019.
 




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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
Notes to the Interim Consolidated Financial Statements at September 30, 2019                                                                                                                                                                                                                                                                                                                                                                             
8
 
 
 
28
 
 
 
37
 
 
 
37
 
 
 
 
 
 
 
 
38
 
 
 
38
 
 
 
38
 
 
 
38
 
 
 
38
 
 
 
38
 
 
 
40




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, 2019 and 2018
(In thousands, except share data)
(unaudited)

 
September 30,
2019
 
September 30,
2018
Net sales
 
 
 
Products
$
586,756

 
$
576,340

Service
167,110

 
158,506

Total net sales
753,866

 
734,846

Cost of sales
 
 
 
Products
233,369

 
232,851

Service
85,441

 
82,741

Gross profit
435,056

 
419,254

Research and development
36,015

 
34,838

Selling, general and administrative
202,826

 
202,451

Amortization
12,329

 
11,856

Interest expense
9,800

 
9,003

Restructuring charges
6,732

 
2,222

Other charges (income), net
(2,005
)
 
(1,479
)
Earnings before taxes
169,359

 
160,363

Provision for taxes
39,964

 
33,710

Net earnings
$
129,395

 
$
126,653

 


 
 
Basic earnings per common share:
 
 
 
Net earnings
$
5.28

 
$
5.04

Weighted average number of common shares
24,487,268

 
25,126,061

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
5.20

 
$
4.93

Weighted average number of common and common equivalent shares
24,880,179

 
25,683,365

 
 
 
 
Comprehensive income, net of tax (Note 10)
$
115,842

 
$
108,845



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
Nine months ended September 30, 2019 and 2018
(In thousands, except share data)
(unaudited)

 
September 30,
2019
 
September 30,
2018
Net sales
 
 
 
Products
$
1,677,030

 
$
1,649,762

Service
487,654

 
467,901

Total net sales
2,164,684

 
2,117,663

Cost of sales
 
 
 
Products
670,401

 
657,167

Service
251,370

 
253,684

Gross profit
1,242,913

 
1,206,812

Research and development
108,650

 
104,866

Selling, general and administrative
612,466

 
611,149

Amortization
36,877

 
35,561

Interest expense
27,776

 
25,671

Restructuring charges
11,146

 
13,956

Other charges (income), net
(4,253
)
 
(5,795
)
Earnings before taxes
450,251

 
421,404

Provision for taxes
81,891

 
89,979

Net earnings
$
368,360

 
$
331,425

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
14.93

 
$
13.10

Weighted average number of common shares
24,677,546

 
25,296,680

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
14.67

 
$
12.81

Weighted average number of common and common equivalent shares
25,103,173

 
25,877,979

 
 
 
 
Comprehensive income, net of tax (Note 10)
$
355,788

 
$
313,302



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

- 4 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2019 and December 31, 2018
(In thousands, except share data)
(unaudited)

 
September 30,
2019
 
December 31,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
120,534

 
$
178,110

Trade accounts receivable, less allowances of $16,370 at September 30, 2019
 
 
 
and $15,469 at December 31, 2018
503,247

 
535,528

Inventories
280,978

 
268,821

Other current assets and prepaid expenses
59,049

 
63,401

Total current assets
963,808

 
1,045,860

Property, plant and equipment, net
722,592

 
717,526

Goodwill
531,224

 
534,780

Other intangible assets, net
209,371

 
217,308

Deferred tax assets, net
34,599

 
35,066

Other non-current assets
174,275

 
68,307

Total assets
$
2,635,869

 
$
2,618,847

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
148,220

 
$
196,641

Accrued and other liabilities
158,009

 
156,449

Accrued compensation and related items
147,299

 
152,516

Deferred revenue and customer prepayments
126,925

 
105,381

Taxes payable
90,225

 
73,777

Short-term borrowings and current maturities of long-term debt
48,577

 
49,670

Total current liabilities
719,255

 
734,434

Long-term debt
1,124,279

 
985,021

Deferred tax liabilities, net
39,954

 
48,818

Other non-current liabilities
314,080

 
260,511

Total liabilities
2,197,568

 
2,028,784

Commitments and contingencies (Note 17)


 


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 24,354,201 and
 
 
 
24,921,963 shares at September 30, 2019 and December 31, 2018, respectively
448

 
448

Additional paid-in capital
778,868

 
764,717

Treasury stock at cost (20,430,810 shares at September 30, 2019, and 19,864,048 shares at December 31, 2018)
(4,335,747
)
 
(3,814,604
)
Retained earnings
4,309,718

 
3,941,916

Accumulated other comprehensive loss
(314,986
)
 
(302,414
)
Total shareholders’ equity
438,301

 
590,063

Total liabilities and shareholders’ equity
$
2,635,869

 
$
2,618,847



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

- 5 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2019 and 2018
(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, 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
39,362

 

 

 
5,900

 
(231
)
 

 
5,669

Repurchases of common stock
(187,880
)
 

 

 
(118,750
)
 

 

 
(118,750
)
Share-based compensation

 

 
4,354

 

 

 

 
4,354

Net earnings

 

 

 

 
93,304

 

 
93,304

Other comprehensive income (loss), net of tax

 

 

 

 

 
28,890

 
28,890

Balance at March 31, 2018
25,392,875

 
$
448

 
$
751,492

 
$
(3,481,032
)
 
$
3,526,355

 
$
(236,516
)
 
$
560,747

Exercise of stock options and restricted stock units
29,291

 

 

 
4,485

 
(194
)
 

 
4,291

Repurchases of common stock
(208,338
)
 

 

 
(118,749
)
 

 

 
(118,749
)
Share-based compensation

 

 
3,882

 

 

 

 
3,882

Net earnings

 

 

 

 
111,468

 

 
111,468

Other comprehensive income (loss), net of tax

 

 

 

 

 
(29,205
)
 
(29,205
)
Balance at June 30, 2018
25,213,828

 
$
448

 
$
755,374

 
$
(3,595,296
)
 
$
3,637,629

 
$
(265,721
)
 
$
532,434

Exercise of stock options and restricted stock units
33,521

 

 

 
5,241

 
(424
)
 

 
4,817

Repurchases of common stock
(202,321
)
 

 

 
(118,750
)
 

 

 
(118,750
)
Share-based compensation

 

 
4,269

 

 

 

 
4,269

Net earnings

 

 

 

 
126,653

 

 
126,653

Other comprehensive income (loss), net of tax

 

 

 

 

 
(17,808
)
 
(17,808
)
Balance at September 30, 2018
25,045,028

 
$
448

 
$
759,643

 
$
(3,708,805
)
 
$
3,763,858

 
$
(283,529
)
 
$
531,615

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
24,921,963

 
$
448

 
$
764,717

 
$
(3,814,604
)
 
$
3,941,916

 
$
(302,414
)
 
$
590,063

Exercise of stock options and restricted stock units
171,752

 

 
751

 
28,257

 
(18
)
 

 
28,990

Repurchases of common stock
(290,429
)
 

 

 
(186,250
)
 

 

 
(186,250
)
Share-based compensation

 

 
4,482

 

 

 

 
4,482

Net earnings

 

 

 

 
111,805

 

 
111,805

Other comprehensive income (loss), net of tax

 

 

 

 

 
12,660

 
12,660

Balance at March 31, 2019
24,803,286

 
$
448

 
$
769,950

 
$
(3,972,597
)
 
$
4,053,703

 
$
(289,754
)
 
$
561,750

Exercise of stock options and restricted stock units
54,843

 

 

 
9,307

 
(540
)
 

 
8,767

Repurchases of common stock
(248,897
)
 

 

 
(186,250
)
 

 

 
(186,250
)
Share-based compensation

 

 
4,338

 

 

 

 
4,338

Net earnings

 

 

 

 
127,160

 

 
127,160

Other comprehensive income (loss), net of tax

 

 

 

 

 
(11,679
)
 
(11,679
)
Balance at June 30, 2019
24,609,232

 
$
448

 
$
774,288

 
$
(4,149,540
)
 
$
4,180,323

 
$
(301,433
)
 
$
504,086

Exercise of stock options and restricted stock units
246

 

 
117

 
43

 

 

 
160

Repurchases of common stock
(255,277
)
 

 

 
(186,250
)
 

 

 
(186,250
)
Share-based compensation

 

 
4,463

 

 

 

 
4,463

Net earnings

 

 

 

 
129,395

 

 
129,395

Other comprehensive income (loss), net of tax

 

 

 

 

 
(13,553
)
 
(13,553
)
Balance at September 30, 2019
24,354,201

 
$
448

 
$
778,868

 
$
(4,335,747
)
 
$
4,309,718

 
$
(314,986
)
 
$
438,301


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

- 6 -


METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2019 and 2018
(In thousands)
(unaudited)

 
September 30,
2019
 
September 30,
2018
Cash flows from operating activities:
 
 
 
Net earnings
$
368,360

 
$
331,425

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
29,348

 
27,889

Amortization
36,877

 
35,561

Deferred tax benefit
(17,963
)
 
(11,901
)
Share-based compensation
13,283

 
12,505

Other
(28
)
 
(2,706
)
Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
23,096

 
26,017

Inventories
(17,494
)
 
(26,224
)
Other current assets
(7,713
)
 
863

Trade accounts payable
(45,659
)
 
(7,753
)
Taxes payable
16,658

 
13,482

Accruals and other
2,976

 
(32,725
)
Net cash provided by operating activities
401,741

 
366,433

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
1,248

 
7,809

Purchase of property, plant and equipment
(71,627
)
 
(96,665
)
Acquisitions
(2,004
)
 
(4,962
)
Net hedging settlements on intercompany loans
(4,099
)
 
(780
)
Net cash used in investing activities
(76,482
)
 
(94,598
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
807,711

 
772,274

Repayments of borrowings
(660,795
)
 
(703,704
)
Proceeds from stock option exercises
37,916

 
14,777

Repurchases of common stock
(558,749
)
 
(356,249
)
Acquisition contingent consideration payment
(10,000
)
 

Other financing activities
1,753

 
(1,664
)
Net cash used in financing activities
(382,164
)
 
(274,566
)
Effect of exchange rate changes on cash and cash equivalents
(671
)
 
(8,508
)
Net (decrease) increase in cash and cash equivalents
(57,576
)
 
(11,239
)
Cash and cash equivalents:
 
 
 
Beginning of period
178,110

 
148,687

End of period
$
120,534

 
$
137,448



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 (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, 2018.
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, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.
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, 2018.
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 (Unaudited)
(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,
2019
 
December 31,
2018
Raw materials and parts
$
128,371

 
$
122,945

Work-in-progress
45,843

 
47,098

Finished goods
106,764

 
98,778

 
$
280,978

 
$
268,821


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, 2019
 
December 31, 2018
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
197,467

 
$
(56,508
)
 
$
140,959

 
$
197,942

 
$
(49,887
)
 
$
148,055

Proven technology and patents
75,482

 
(46,076
)
 
29,406

 
73,880

 
(42,750
)
 
31,130

Tradenames (finite life)
4,482

 
(2,981
)
 
1,501

 
4,504

 
(2,874
)
 
1,630

Tradenames (indefinite life)
35,442

 

 
35,442

 
35,500

 

 
35,500

Other
5,455

 
(3,392
)
 
2,063

 
3,684

 
(2,691
)
 
993

 
$
318,328

 
$
(108,957
)
 
$
209,371

 
$
315,510

 
$
(98,202
)
 
$
217,308



- 9 -

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

The Company recognized amortization expense associated with the above intangible assets of $3.8 million and $3.6 million for the three months ended September 30, 2019 and 2018, respectively and $11.3 million and $10.7 million for the nine months ended September 30, 2019 and 2018, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $15.1 million for 2019, $15.4 million for 2020, $14.1 million for 2021, $12.7 million for 2022, $13.3 million for 2023 and $11.7 million for 2024. Purchased intangible amortization was $3.7 million, $2.8 million after tax, and $3.4 million, $2.5 million after tax, for the three months ended September 30, 2019 and 2018, respectively and $10.6 million, $8.0 million after tax, and $10.0 million, $7.5 million after tax, for the nine months ended September 30, 2019 and 2018, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $8.4 million and $8.2 million for the three months ended September 30, 2019 and 2018, respectively and $25.4 million and $24.7 million for the nine months ended September 30, 2019 and 2018, 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 based upon shipping terms. To the extent the Company’s arrangements 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 related provisions for estimated returns and rebates are immaterial to the consolidated financial statements.
Certain of the Company’s product 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 stand-alone 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 generally 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 (Unaudited)
(In thousands, except share data, unless otherwise stated)

Leases
The Company considers an arrangement a lease if the arrangement transfers the right to control the use of an identified asset in exchange for consideration. The Company has operating leases, but does not have financing leases.
Operating lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of the lease payments over the lease term. Lease payments include both lease and non-lease components for items or activities that transfer a good and service. Vehicle lease and non-lease components are separately accounted for based on standalone value. Real estate lease and non-lease components are accounted for as a single component. Operating lease right-of-use assets include initial direct costs, advanced lease payments and lease incentives.
The lease term reflects the noncancellable period of the lease together with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option. The Company generally uses its incremental borrowing rate at the lease commencement date in determining the present value of lease payments as the information necessary to determine the rate implicit in the lease is not readily available. The incremental borrowing rate reflects similar terms by geographic location to the underlying leases. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the right-of-use asset and lease liabilities and are expensed as incurred. Short-term leases are less than one year without purchase or renewal options that are reasonably certain to be exercised and are recognized on a straight-line basis over the lease term. The right-of-use asset is tested for impairment in accordance with ASC 360.
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 $4.5 million and $13.3 million of share-based compensation expense for the three and nine months ended September 30, 2019, respectively, compared to $4.3 million and $12.5 million for the corresponding periods in 2018.

- 11 -

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

Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.

Business Combinations and Asset Acquisitions
The Company accounts for business acquisitions under the accounting standards for business combinations. The results of each acquisition are included in the Company's consolidated results as of the acquisition date. The purchase price of an acquisition is allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values and any consideration in excess of the net assets acquired is recognized as goodwill. Acquisition transaction costs are expensed when incurred.

In circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the expected contingent payments as of the acquisition date. Subsequent changes in the fair value of the contingent consideration are recorded to other charges (income), net.

Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14 "Compensation - Retirement Benefit" which amends the current disclosure requirements for defined benefit pension plans and other post-retirement plans. The change in the disclosures will be applied retrospectively and become effective December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the benefit plan disclosures and the timing of adoption.
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 and comprehensive income, balance sheets, or statements of cash flows as of and for the period ended September 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 for the three and nine months ended September 30, 2019 and 2018 follows:
For the three months ended September 30, 2019
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
203,291

 
$
26,114

 
$
120,510

 
$
129,163

 
$
107,678

 
$
586,756

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
53,035

 
5,191

 
31,852

 
10,111

 
27,665

 
127,854

Over time
12,712

 
2,110

 
16,290

 
3,018

 
5,126

 
39,256

Total
$
269,038

 
$
33,415

 
$
168,652

 
$
142,292

 
$
140,469

 
$
753,866


- 12 -

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

For the three months ended September 30, 2018
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
195,554

 
$
24,791

 
$
124,412

 
$
127,050

 
$
104,533

 
$
576,340

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
48,910

 
4,663

 
29,365

 
10,200

 
25,645

 
118,783

Over time
10,915

 
2,009

 
19,393

 
2,848

 
4,558

 
39,723

Total
$
255,379

 
$
31,463

 
$
173,170

 
$
140,098

 
$
134,736

 
$
734,846


For the nine months ended September 30, 2019
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
580,155

 
$
77,142

 
$
352,260

 
$
364,620

 
$
302,853

 
$
1,677,030

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
156,221

 
15,176

 
97,182

 
27,363

 
80,324

 
376,266

Over time
35,202

 
6,032

 
48,798

 
8,490

 
12,866

 
111,388

Total
$
771,578

 
$
98,350

 
$
498,240

 
$
400,473

 
$
396,043

 
$
2,164,684

For the nine months ended September 30, 2018
U.S. Operations
 
Swiss Operations
 
Western European Operations
 
Chinese Operations
 
Other Operations
 
Total
Product Revenue
$
559,566

 
$
75,520

 
$
365,680

 
$
351,052

 
$
297,944

 
$
1,649,762

Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
Point in time
146,515

 
14,410

 
92,331

 
28,212

 
74,853

 
356,321

Over time
30,517

 
6,152

 
54,303

 
8,037

 
12,571

 
111,580

Total
$
736,598

 
$
96,082

 
$
512,314

 
$
387,301

 
$
385,368

 
$
2,117,663

A summary of revenue by major geographic destination for the three and nine months ended September 30 follows:
 
Three Months Ended
 
Nine Months Ended
 
2019
 
2018
 
2019
 
2018
Americas
$
298,304

 
$
280,512

 
$
849,282

 
$
807,119

Europe
212,736

 
216,956

 
629,600

 
643,514

Asia / Rest of World
242,826

 
237,378

 
685,802

 
667,030

Total
$
753,866

 
$
734,846

 
$
2,164,684

 
$
2,117,663


- 13 -

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

The Company's global revenue mix by product category is comprised of laboratory (52% of sales), industrial (41% of sales) and retail (7% 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 nine months ended September 30 is as follows:
 
Three Months Ended
 
Nine Months Ended
 
2019
 
2018
 
2019
 
2018
Laboratory
$
388,441

 
$
368,967

 
$
1,127,833

 
$
1,075,853

Industrial
315,337

 
305,248

 
889,716

 
873,181

Retail
50,088

 
60,631

 
147,135

 
168,629

Total
$
753,866

 
$
734,846

 
$
2,164,684

 
$
2,117,663



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 not yet billed to the customer. Unbilled revenue as of September 30, 2019 and December 31, 2018 was $21.6 million and $12.4 million respectively, 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 periods ended September 30, 2019 and 2018:
 
 
2019
 
2018
Beginning balances as of January 1
 
$
105,381

 
$
107,166

Customer pre-payments/deferred revenue
 
466,617

 
469,173

Revenue recognized
 
(442,904
)
 
(450,312
)
Foreign currency translation
 
(2,169
)
 
(2,501
)
Ending balance as of September 30
 
$
126,925

 
$
123,526


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.
ACQUISITIONS
In 2018, the Company incurred acquisition payments totaling $5.5 million. The Company recorded $4.9 million of identified intangibles primarily pertaining to technology and patents in connection with these acquisitions, which is amortized on a straight-line basis over 10 years years. Goodwill recorded in connection with these acquisitions totaled $0.6 million.
In September 2017, the Company acquired all of the shares of Biotix, Inc., a U.S.-based manufacturer and distributor of plastics consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market. The initial cash payment was $105 million plus the settlement of contingent consideration of $10.0 million which was paid in the first quarter of 2019.

- 14 -

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

5.     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. For additional disclosures on derivative instruments regarding balance sheet location, fair value, and the amounts reclassified into other comprehensive income and the effective portion of the cash flow hedges, also see Note 6 and Note 10 to the interim consolidated financial statements. As also mentioned in Note 8, the Company has designated its euro-denominated debt as a hedge of a portion of its net investment in euro-denominated foreign subsidiary.
Cash Flow Hedges
In June 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 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 payments, excluding the credit spread to a fixed Swiss franc income of 0.82%. The swap began in June 2019 and matures in June 2023.
In June 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 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 payments, excluding the credit spread to a fixed Swiss franc income of 0.95%. The swap began in June 2019 and matures in June 2021.
In February 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 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 payments, excluding the credit spread to a fixed Swiss franc income of 0.78%. The swap began in February 2019 and matures in June 2021.
In 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 payments, including the credit spread to a fixed Swiss franc income of 0.01%. The swap began in June 2017 and matured in June 2019.
In 2015, the Company entered into 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 $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.
In 2013, the Company entered into 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.
The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at September 30, 2019 and December 31, 2018, respectively. A derivative gain of $2.7 million based upon interest rates and foreign currency rates at September 30, 2019, is expected to be reclassified from other

- 15 -

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

comprehensive income (loss) to earnings in the next twelve months. Through September 30, 2019, 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, 2019 and December 31, 2018, respectively, and disclosed in Note 6. The Company recognized in other charges (income), a net loss of $3.7 million and $4.4 million during the three months ended September 30, 2019 and 2018, respectively, and a net loss of $8.2 million and $0.2 million during the nine months ended September 30, 2019 and 2018, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At September 30, 2019 and December 31, 2018, these contracts had a notional value of $446.2 million and $436.7 million, respectively.    
6.    FAIR VALUE MEASUREMENTS
At September 30, 2019 and December 31, 2018, the Company had derivative assets totaling $0.6 million and $3.2 million respectively, and derivative liabilities totaling $5.6 million and $1.1 million, respectively. The Company has limited involvement with derivative financial instruments and therefore does not present all the required disclosures in tabular format. The fair values of the interest rate swap agreements, the cross-currency swap agreements 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, 2019 and December 31, 2018.
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

- 16 -

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

The following table presents the Company's assets and liabilities, which are all categorized as Level 2 and are measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018. The Company does not have any assets or liabilities that are categorized as Level 1 or Level 3.
 
 
September 30, 2019
 
December 31, 2018
 
Balance Sheet Location
Foreign currency forward contracts not designated as hedging instruments
 
$
558

 
$
1,534

 
Other current assets and prepaid expenses
Cash Flow Hedges:
 
 
 
 
 
 
Interest rate swap agreements
 

 
545

 
Other non-current assets
Cross currency swap agreement
 

 
1,154

 
Other current assets and prepaid expenses
Total derivative assets
 
$
558

 
$
3,233

 
 
 
 
 
 
 
 
 
Foreign currency forward contracts not designated as hedging instruments
 
$
2,254

 
$
1,059

 
Accrued and other liabilities
Cash Flow Hedges:
 
 
 
 
 
 
Interest rate swap agreements
 
2,444

 
27

 
Other non-current liabilities
Cross currency swap agreement
 
885

 

 
Other non-current liabilities
Total derivative liabilities
 
$
5,583

 
$
1,086

 
 

At September 30, 2019 and December 31, 2018, the Company had $12.8 million and $9.0 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 debt exceeds the carrying value by approximately $31.5 million as of September 30, 2019. 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.
7.    INCOME TAXES
The Company's reported tax rate was 23.6% and 21% during the three months ended September 30, 2019 and 2018, respectively and 18.2% and 21.4% during the nine months ended September 30, 2019 and 2018, respectively. The provision for taxes is based upon using the Company's projected annual effective tax rate of 20% and 21.5% before non-recurring discrete tax items during 2019 and 2018, respectively. The difference between the Company's projected annual effective tax rate and the reported tax rate is primarily related to the timing of excess tax benefits associated with stock option exercises.
In May 2019, a public referendum was held in Switzerland that approved Swiss federal tax reform proposals previously approved by Swiss Parliament. The changes in Swiss federal tax had an immaterial effect on the Company's financial statements. Additional changes in Swiss cantonal law were enacted in October 2019. The Company expects it will recognize a discrete non-cash deferred tax benefit as a result of the enactment of the cantonal law in the fourth quarter; however we are currently unable to reasonably estimate such amount as the Swiss authorities are still providing interpretive guidance on the new law and related transitional methodology.

- 17 -

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

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") significantly revised U.S. corporate income tax law. The Company's accounting for the above items was based upon reasonable estimates of the tax effects of the Act, and its evaluation of recently issued regulatory guidance. In January 2019, further interpretive guidance was issued related to Transition Tax. The Company has completed its analysis of this recently issued guidance and concluded there is no additional impact to its financial position, results of operations, or cash flows.
8.    DEBT
Debt consisted of the following at September 30, 2019:
 
September 30, 2019
 
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

3.91% $75 million Senior Notes due June 25 2029
75,000

 

 
75,000

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

 
136,747

 
136,747

Debt issuance costs, net
(1,111
)
 
(307
)
 
(1,418
)
Total Senior Notes
423,889

 
136,440

 
560,329

$1.1 billion Credit Agreement, interest at LIBOR plus 87.5 basis points
485,016

 
78,934

 
563,950

Other local arrangements
1,058

 
47,519

 
48,577

Total debt
909,963

 
262,893

 
1,172,856

Less: current portion
(1,058
)
 
(47,519
)
 
(48,577
)
Total long-term debt
$
908,905

 
$
215,374

 
$
1,124,279


As of September 30, 2019, the Company had $529.2 million of availability remaining under its Credit Agreement.
1.30% Euro-Senior Notes and 3.19% Senior Notes
In November 2019, the Company entered into an agreement to issue and sell EUR 135 million of fifteen years 1.30% Euro-Senior Notes ("1.30% Senior Notes") and $50 million of fifteen years 3.19% Senior Notes ("3.19% Senior Notes") in a private placement. The proceeds will be used to repay outstanding amounts on the Company's credit facility and fund operational expenses. The Company also entered into a forward contract to receive $149.9 million at the time of issuing the EUR 135 million Euro-Senior Notes.
The Company issued the 1.30% Euro-Senior Notes with a fixed interest rate of 1.30% in November 2019. The 1.30% Euro-Senior Notes are unsecured obligations of the Company and will mature in November 1, 2034. Interest on the 1.30% Euro-Senior Notes is payable semi-annually in April and November of each year.
The Company will issue the 3.19% Senior Notes with a fixed interest rate of 3.19% in January 2020. The 3.19% Senior Notes are unsecured obligations of the Company and will mature in January 1, 2035. Interest on the 3.19% Senior Notes is payable semi-annually in January and July of each year.

- 18 -

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

The Company will designate the 1.30% 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 fair value of this debt resulting from fluctuations in the euro to U.S. dollar exchange rates will be recorded as foreign currency translation adjustments within other comprehensive income (loss). The Company may at any time prepay the Senior Notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, and if applicable a "make-whole" prepayment premium and a swap related currency loss.
3.91% Senior Notes
In April 2019, the Company entered into an agreement to issue and sell $75 million of ten-year Senior Notes in a private placement. The Company issued the Senior Notes with a fixed interest rate of 3.91% ("3.91% Senior Notes") in June 2019. The 3.91% Senior Notes are unsecured obligations of the Company and will mature in June 2029. Interest on the 3.91% Senior Notes is payable semi-annually in June and December of each year. The proceeds were used to repay outstanding amounts on the Company's credit facility.
The 3.91% Senior Notes, the 1.30% Euro-Senior Notes and the 3.19% Senior Notes contain customary affirmative and negative covenants for agreements of this type that are substantially similar to those contained in previously issued debt of the Company. The 3.91% Senior Notes, 1.30% Euro-Senior Notes and the 3.19% Senior Notes also contain customary events of default with customer grace periods, as applicable.

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 pre-tax unrealized gain (loss) recorded in other comprehensive income (loss) related to this net investment hedge was a gain of $5.3 million and a loss of $1.8 million for the three months ended September 30, 2019 and 2018, respectively, and a gain of $6.3 million and $2.8 million for the nine month periods ended September 30, 2019 and 2018, respectively. The Company has a gain of $5.0 million recorded in accumulated other comprehensive income (loss) as of September 30, 2019.

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. The loans were renewed for one year in April 2019 and, as such, are classified as short-term debt on the Company's consolidated balance sheet.

9.    SHARE REPURCHASE PROGRAM AND TREASURY STOCK
In November 2018, the Company's Board of Directors authorized an additional $2 billion to the share repurchase program, which has $1.5 billion of remaining availability as of September 30, 2019. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. 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.

- 19 -

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

The Company has purchased 28.3 million shares since the inception of the program in 2004 through September 30, 2019. During the nine months ended September 30, 2019 and 2018, the Company spent $558.7 million and $356.2 million on the repurchase of 794,603 shares and 598,539 shares at an average price per share of $703.16 and $595.18, respectively. The Company also reissued 226,841 shares and 102,174 shares held in treasury for the exercise of stock options and restricted stock units during the nine months ended September 30, 2019 and 2018, respectively.
10.    ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income (loss), net of tax consisted of the following as of September 30:        
 
Three Months Ended
 
Nine Months Ended
 
2019
 
2018
 
2019
 
2018
Net earnings
$
129,395

 
$
126,653

 
$
368,360

 
$
331,425

Other comprehensive income (loss), net of tax
(13,553
)
 
(17,808
)
 
(12,572
)
 
(18,123
)
Comprehensive income, net of tax
$
115,842

 
$
108,845

 
$
355,788

 
$
313,302

The following table presents changes in accumulated other comprehensive income by component for the nine months ended September 30, 2019 and 2018:
 
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, 2018
$
(63,913
)
 
$
702

 
$
(239,203
)
 
$
(302,414
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) cash flow hedging arrangements

 
1,170

 

 
1,170

Foreign currency translation adjustment
(21,854
)
 

 
2,677

 
(19,177
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(3,586
)
 
9,021

 
5,435

Net change in other comprehensive income (loss), net of tax
(21,854
)
 
(2,416
)
 
11,698

 
(12,572
)
Balance at September 30, 2019
$
(85,767
)
 
$
(1,714
)
 
$
(227,505
)
 
$
(314,986
)

 
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

 
6,523

 

 
6,523

Foreign currency translation adjustment
(32,206
)
 

 
(749
)
 
(32,955
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(2,528
)
 
10,837

 
8,309

Net change in other comprehensive income (loss), net of tax
(32,206
)
 
3,995

 
10,088

 
(18,123
)
Balance at September 30, 2018
$
(63,546
)
 
$
2,914

 
$
(222,897
)
 
$
(283,529
)


- 20 -

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

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,
 
 
 
 
2019
 
2018
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
31

 
$
97

 
Interest expense
Cross currency swap agreement
 
(3,621
)
 
(3,559
)
 
(a)
Total before taxes
 
(3,590
)
 
(3,462
)
 
 
Provision for taxes
 
(275
)
 
(252
)
 
Provision for taxes
Total, net of taxes
 
$
(3,315
)
 
$
(3,210
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses and prior service cost, before taxes
 
$
3,890

 
$
4,651

 
(b)
Provision for taxes
 
874

 
1,064

 
Provision for taxes
Total, net of taxes
 
$
3,016

 
$
3,587

 
 

(a) The cross currency swap reflects an unrealized gain of $2.4 million recorded in other charges (income) that was offset by the underlying unrealized loss on the hedged debt. The cross currency swap also reflects a realized gain of $1.2 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 three months ended September 30, 2019 and 2018.
 
 
Nine Months Ended September 30,
 
 
 
 
2019
 
2018
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
(82
)
 
$
531

 
Interest expense
Cross currency swap agreement
 
(3,823
)
 
(3,171
)
 
(a)
Total before taxes
 
(3,905
)
 
(2,640
)
 
 
Provision for taxes
 
(319
)
 
(112
)
 
Provision for taxes
Total, net of taxes
 
$
(3,586
)
 
$
(2,528
)
 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses and prior service cost, before taxes
 
$
11,639

 
$
14,150

 
(b)
Provision for taxes
 
2,618

 
3,313

 
Provision for taxes
Total, net of taxes
 
$
9,021

 
$
10,837

 
 
(a) The cross currency swap reflects an unrealized gain of $0.3 million recorded in other charges (income) that was offset by the underlying unrealized loss on the hedged debt. The cross currency swap also reflects a realized gain of $3.5 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 nine months ended September 30, 2019 and 2018.

- 21 -

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

11.    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 months ended September 30, relating to outstanding stock options and restricted stock units:
 
 
2019
 
2018
Three months ended
 
392,911

 
557,304

Nine months ended
 
425,627

 
581,299

Outstanding options and restricted stock units to purchase or receive 55,568 and 54,708 shares of common stock for the three month period ended September 30, 2019 and 2018, respectively, 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. Options and restricted stock units to purchase or receive 64,649 and 55,775 for the nine month period ended September 30, 2019 and 2018, 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.
12.    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
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Service cost, net
$
266

 
$
273

 
$
3,788

 
$
3,752

 
$

 
$

 
4,054

 
4,025

Interest cost on projected benefit obligations
1,146

 
1,060

 
2,547

 
2,180

 
16

 
16

 
3,709

 
3,256

Expected return on plan assets
(1,472
)
 
(1,733
)
 
(7,342
)
 
(7,733
)
 

 

 
(8,814
)
 
(9,466
)
Recognition of prior service cost

 

 
(1,679
)
 
(1,727
)
 

 
(93
)
 
(1,679