Item 7. 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 together with our audited consolidated financial statements.

Changes in local currencies 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.

Overview

We operate a global business with sales that are diversified by geographic region, product range, and customer. We hold leading positions worldwide in many of our markets and attribute this leadership to several factors, including the strength of our brand name and reputation, our comprehensive offering of innovative instruments and solutions, and the breadth and quality of our global sales and service network.

Net sales in U.S. dollars increased 5% in 2016 and decreased 4% in 2015. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 7% in 2016 and increased 3% in 2015. Currency exchange rate fluctuations negatively impacted net sales as most of our non-U.S. dollar trading currencies, especially the euro, have weakened against the U.S. dollar. Net sales growth in local currencies during 2016 reflected broad-based growth across most geographies and product categories with generally favorable global market conditions. We expect to continue to benefit from our strong global leadership positions, diversified customer base, robust product offering, investment in emerging markets, significant installed base, and the impact of our global sales and marketing programs. Examples of these programs include identifying and investing in growth and market penetration opportunities, more effectively pricing our products and services, increasing our sales force effectiveness through improved guidance, and continuing to optimize our lead generation and lead nurturing processes. While market conditions were generally stable in 2016 for our customers to maintain their replacement cycles, we remain cautious regarding our sales outlook given the uncertainty in global markets.

With respect to our end-user markets, we experienced increased results during 2016 versus the prior year in our laboratory-related markets, such as pharmaceutical and biotech customers, as well as the laboratories of chemical companies and food and beverage companies. Demand from these markets was generally favorable during 2016. The local currency increase in net sales of our laboratory-related products during 2016 was driven by strong growth in most product categories, especially pipettes and automated chemistry.

Our industrial markets continued to benefit from our customers' focus on brand protection and food safety within our product inspection end-market. We also experienced improved market conditions in China despite continued market uncertainty related to overcapacity in a number of industries and volatility in credit availability. Emerging market economies have historically been an important source of growth based upon the expansion of their domestic economies, as well as increased exports as companies have

moved production to low-cost countries. Our industrial-related products are especially sensitive to changes in economic growth.

Our food retailing markets experienced growth in each geographic region during 2016, with strong growth in Europe and Asia/Rest of World. Traditionally the spending levels in this sector have experienced more volatility than our other customer sectors due to the timing of customer project activity and new regulations. Similar to our industrial business, emerging markets have also historically provided growth as the expansion of local emerging market economies creates a significant number of new retail stores each year.

In 2017, we expect to continue to pursue the overall business growth strategies which we have followed in recent years:

Gaining Market Share. Our global sales and marketing initiative, “Spinnaker,” continues to be an important growth strategy. For example, over the past two years we have added more than 450 field sales and service resources to pursue under-penetrated market opportunities and will look to continue to make investments to front-end resources in 2017. We also aim to gain market share by implementing sophisticated sales and marketing programs, leveraging our extensive customer databases, and leveraging our product offering to larger customers through key account management. While this initiative is broad-based, efforts to improve these processes include leveraging big data analytics to identify, prioritize and pursue growth opportunities, the implementation of more effective pricing and value-based selling strategies and processes, improved sales force guidance, training and effectiveness, cross-selling, increased segment marketing and leads generation and nurturing activities. Our comprehensive service offerings, and our initiatives to globalize and harmonize these offerings, help us further penetrate developed markets. We estimate that we have the largest installed base of weighing instruments in the world, and we continue to leverage big data analytics and invest in sales and marketing activities aimed at increasing the proportion of our installed base that is under service contract, or selling new products that replace old products in our installed base. In addition to traditional repair and maintenance, our service offerings continue to expand into value-added services for a range of market needs, including regulatory compliance.

Expanding Emerging Markets. Emerging markets, comprising Asia (excluding Japan), Eastern Europe, Latin America, the Middle East, and Africa, account for approximately 33% of our total net sales. We have a two-pronged strategy in emerging markets: first, to capitalize on long-term growth opportunities in these markets and second, to leverage our low-cost manufacturing operations in China. We have almost a 30-year track record in China, and our sales in Asia have grown more than 13% on a compound annual growth basis in local currencies since 1999. We have broadened our product offering to the Asian markets and benefit as multinational customers shift production to China. India has also been a source of emerging market sales growth in past years due to increased life science research activities. Overall, market conditions in emerging markets were generally favorable during 2016. We experienced a 9% increase in emerging market local currency sales during 2016 versus the prior year, which included 9% local currency sales growth in China. Emerging market sales can be volatile and uncertain. We continue to experience unfavorable market conditions and reduced demand in certain industrial-related end-user segments in China due to overcapacity. Within China, we continue to redeploy resources and sales and marketing efforts to the faster-growing segments of pharma, food safety, and environment. We believe the long-term growth of these segments will be favorably impacted by the Chinese government's emphasis on science, high-value industries, and product quality. We expect our laboratory, process analytics, and product inspection businesses will particularly benefit from these segments. We also continue to invest and add sales and marketing resources to pursue growth in underpenetrated emerging markets.

Extending Our Technology Lead. We continue to focus on product innovation. In the last three years, we spent approximately 5% of net sales on research and development. We seek to drive shorter product life cycles, as well as improve our product offerings and their capabilities with additional integrated technologies and software. In addition, we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base.

Maintaining Cost Leadership. We continue to strive to improve our margins by optimizing our cost structure. For example, we have focused on reallocating resources and better aligning our cost structure to support our investments in market penetration initiatives, higher growth areas, and opportunities for margin improvement. We have also initiated various restructuring programs over the past few years in response to changing market conditions. As previously mentioned, shifting production to China has also been an important component of our cost savings initiatives. We have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs. Our cost leadership and productivity initiatives are also focused on continuously improving our invested capital efficiency, such as reducing our working capital levels and ensuring appropriate returns on our expenditures.

Pursuing Strategic Acquisitions. We seek to pursue "bolt-on" acquisitions that may leverage our global sales and service network, respected brand, extensive distribution channels, and technological leadership. We have identified life sciences, product inspection, and process analytics as three key areas for acquisitions. For example, during the third quarter of 2016, we 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 $95.8 million that will be integrated into our laboratory product offering. During the third quarter of 2015, we also acquired a real-time water purity technology in the United States that has been integrated into our process analytics product offering.

Results of Operations — Consolidated

Net sales

Net sales were $2,508.3 million for the year ended December 31, 2016, compared to $2,395.4 million in 2015, and $2,486.0 million in 2014. This represents an increase of 5% in 2016 and a decrease of 4% in 2015 in U.S. dollars and an increase of 7% and 3% in local currencies, respectively. The Troemner acquisition contributed approximately 1% to our net sales during 2016.

In 2016, our net sales by geographic destination increased in U.S. dollars 5% in the Americas, 3% in Europe, and 6% in Asia/Rest of World. In local currencies, our net sales by geographic destination increased in 2016 by 5% in the Americas, 5% in Europe, and 10% in Asia/Rest of World. Excluding the Troemner acquisition, our local currency net sales growth in the Americas was 4%. While market conditions were generally favorable during 2016, we remain cautious regarding our sales outlook given the uncertainty in global markets. A discussion of sales by operating segment is included below.

As described in Note 17 to our audited consolidated financial statements, our net sales comprise product sales of precision instruments and related services. Service revenues are primarily derived from repair and other services, including regulatory compliance qualification, calibration, certification, preventative maintenance, and spare parts.

Net sales of products increased 5% in U.S. dollars and 7% in local currencies during 2016 and decreased 3% in U.S. dollars and increased 3% in local currencies in 2015. The Troemner acquisition contributed approximately 1% to our net sales of products during 2016. Service revenue (including spare parts) increased 4% in U.S. dollars and 6% in local currencies in 2016, and decreased 5% in U.S. dollars and increased 4% in local currencies in 2015. The Troemner acquisition contributed approximately 1% to our net sales of service during 2016.

Net sales of our laboratory-related products, which represented approximately 49% of our total net sales in 2016, increased 6% in U.S. dollars and 8% in local currencies during 2016. The local currency increase in net sales of our laboratory-related products during 2016 was driven by strong growth in most product categories, especially pipettes and automated chemistry. The Troemner acquisition contributed approximately 1% to our net sales growth of laboratory-related products and services.

Net sales of our industrial-related products, which represented approximately 42% of our total net sales in 2016, increased 3% in U.S. dollars and 5% in local currencies during 2016. Local currency net sales included strong sales growth in product inspection.

Net sales of our food retailing products, which represented approximately 9% of our total net sales in 2016, increased 4% in U.S. dollars and 6% in local currencies during 2016. The increase in net sales in local currencies of our food retailing products during 2016 included growth in each geographic region, with strong growth in Europe and Asia/Rest of World.

Gross profit

Gross profit as a percentage of net sales was 57.2% for 2016, compared to 56.4% for 2015 and 54.7% for 2014.

Gross profit as a percentage of net sales for products was 60.8% for 2016, compared to 60.1% for 2015 and 58.1% for 2014. Gross profit as a percentage of net sales for services (including spare parts) was 44.6% for 2016, compared to 43.6% for 2015 and 42.8% for 2014.

The increase in gross profit as a percentage of net sales for 2016 includes benefits from higher sales volume, favorable price realization and reduced material costs, partially offset by investments in our field service organization.

Research and development and selling, general, and administrative expenses

Research and development expenses as a percentage of net sales were 4.8% for 2016 and 5.0% for both 2015 and 2014. Research and development expenses in U.S. dollars increased 1% in 2016 and decreased 3% in 2015, and in local currencies increased 4% in 2016 and 2% in 2015, relating to the timing of research and development project activity.

Selling, general, and administrative expenses as a percentage of net sales were 29.2% for 2016, compared to 29.3% for both 2015 and 2014. Selling, general, and administrative expenses increased 4% in 2016 in U.S. dollars and 6% in local currencies and decreased 4% in U.S. dollars and increased 3% in local currencies in 2015. The increase during 2016 includes higher cash incentive expense, investments in our field sales organization and acquisitions, offset in part by benefits from our cost savings programs.

Amortization expense

Amortization expense was $36.1 million in 2016, compared to $31.0 million and $29.2 million in 2015 and 2014, respectively. The increase in amortization expense is primarily related to our investments in information technology, including the Company's Blue Ocean program, as well as the Troemner acquisition.

Restructuring charges

During the past few years, we initiated cost reduction measures in response to global economic conditions. For the year ended December 31, 2016, we have incurred $6.2 million of restructuring expenses which primarily comprise employee-related costs. See Note 14 to our audited consolidated financial statements for a summary of restructuring activity during 2016.

Other charges (income), net

Other charges (income), net consisted of net charges of $8.5 million in 2016, compared to net income of $0.9 million and net charges of $2.2 million in 2015 and 2014, respectively. During 2016, other charges (income), net 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, as well as $1.1 million of acquisition transaction costs. Other charges (income), net also includes (gains) losses from foreign currency transactions and hedging activity, interest income, and other items.

Interest expense and taxes

Interest expense was $28.0 million for 2016, compared to $27.5 million for 2015 and $24.5 million for 2014.

Our annual effective tax rate was 24% for 2016, 2015, and 2014. Our consolidated income tax rate is lower than the U.S. statutory rate primarily because of benefits from lower-taxed non-U.S. operations. The most significant of these lower-taxed operations are in Switzerland and China.

Results of Operations — by Operating Segment

The following is a discussion of the financial results of our operating segments. We currently have five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations, and Other. A more detailed description of these segments is outlined in Note 17 to our audited consolidated financial statements.

U.S. Operations (amounts in thousands)

	2016				2015				2014				Increase (Decrease) in % 2016 vs. 2015		Increase (Decrease) in % 2015 vs. 2014
Net sales	$	958,542			$	913,842			$	847,706			5%		8%
Net sales to external customers	$	867,962			$	826,354			$	757,243			5%		9%
Segment profit	$	161,539			$	147,491			$	123,278			10%		20%

The increase in total net sales and net sales to external customers of 5% in 2016 reflects solid sales growth in most product categories against difficult comparisons in the previous year. Net sales in our U.S. operations also benefited approximately 1% from the Troemner acquisition during 2016.

Segment profit increased $14.0 million in our U.S. Operations segment during 2016, compared to an increase of $24.2 million during 2015. The increase in segment profit during 2016 is primarily related to increased sales and benefits from our margin expansion initiatives, offset in part by increased cash incentive expense and sales and service investments.

Swiss Operations (amounts in thousands)

	2016				2015				2014				Increase (Decrease) in % (1)2016 vs. 2015		Increase (Decrease) in % (1) 2015 vs. 2014
Net sales	$	655,657			$	632,326			$	687,541			4%		(8)%
Net sales to external customers	$	130,674			$	133,684			$	137,756			(2)%		(3)%
Segment profit	$	163,663			$	160,763			$	149,987			2%		7%

(1)	Represents U.S. dollar growth for net sales and segment profit.

Total net sales in U.S. dollars increased 4% in 2016 and decreased 8% in 2015, and in local currencies increased 5% in 2016 and decreased 2% in 2015. Net sales to external customers in U.S. dollars decreased 2% in 2016 and 3% in 2015, and in local currencies decreased 1% in 2016 and increased 1% in 2015. The decrease in local currency net sales to external customers during 2016 primarily relates to soft market conditions in Switzerland.

Segment profit increased $2.9 million in our Swiss Operations segment during 2016, compared to an increase of $10.8 million during 2015. Segment profit includes increased inter-segment sales, benefits from our cost savings programs and reduced material costs, offset by the impact of lower currency hedging gains in the current year.

Western European Operations (amounts in thousands)

	2016				2015				2014				Increase (Decrease) in % (1) 2016 vs. 2015		Increase (Decrease) in % (1)2015 vs. 2014
Net sales	$	817,059			$	785,660			$	903,052			4%		(13)%
Net sales to external customers	$	640,558			$	620,128			$	708,755			3%		(13)%
Segment profit	$	123,507			$	107,424			$	119,603			15%		(10)%

(1)	Represents U.S. dollar growth for net sales and segment profit.

Total net sales in U.S. dollars increased 4% in 2016 and decreased 13% in 2015, and in local currencies increased 7% in 2016 and 2% in 2015. Net sales to external customers in U.S. dollars increased 3% in 2016 and decreased 13% in 2015, and in local currencies increased 5% in 2016 and 3% in 2015. The increase in local currency net sales to external customers during 2016 includes strong growth in laboratory-related products and related services and food retailing products.

Segment profit increased $16.1 million in our Western European Operations segment during 2016, compared to a decrease of $12.2 million in 2015. Segment profit increased primarily due to increased sales, benefits from our margin expansion and cost savings initiatives and favorable currency translation fluctuations, offset by sales and service investments.

Chinese Operations (amounts in thousands)

	2016				2015				2014				Increase (Decrease) in % (1)2016 vs. 2015		Increase (Decrease) in % (1)2015 vs. 2014
Net sales	$	606,307			$	591,178			$	579,557			3%		2%
Net sales to external customers	$	386,541			$	376,291			$	415,474			3%		(9)%
Segment profit	$	187,924			$	165,532			$	163,832			14%		1%

(1)	Represents U.S. dollar growth for net sales and segment profit.

Total net sales in U.S. dollars increased 3% in 2016 and increased 2% in 2015, and in local currencies increased 10% in 2016 and 3% in 2015. Net sales to external customers in U.S. dollars increased 3% in 2016 and decreased 9% in 2015, and in local currencies increased 9% in 2016 and decreased 8% in 2015. The increase in net sales to external customers during 2016 includes growth in most product categories with particularly strong growth in laboratory-related products and related services and food retailing products. While we were pleased with our 2016 local currency sales growth in China, the outlook remains uncertain due to overcapacity in a number of industries and volatility in credit availability.

Segment profit increased $22.4 million in our Chinese Operations segment during 2016, compared to an increase of $1.7 million in 2015. The increase in segment profit during 2016 includes increased local currency sales and benefits from our cost savings initiatives.

Other (amounts in thousands)

	2016				2015				2014				Increase (Decrease) in % (1)2016 vs. 2015		Increase (Decrease) in % (1)2015 vs. 2014
Net sales	$	490,231			$	447,077			$	474,282			10%		(6)%
Net sales to external customers	$	482,522			$	438,990			$	466,755			10%		(6)%
Segment profit	$	64,060			$	50,821			$	52,869			26%		(4)%

(1)	Represents U.S. dollar growth for net sales and segment profit.

Other includes reporting units in Southeast Asia, Latin America, Eastern Europe and other countries. Total net sales and net sales to external customers in U.S. dollars increased 10% in 2016 and decreased 6% in 2015, and in local currencies increased 12% and 5% in 2016 and 2015, respectively. The increase in local currency total net sales and net sales to external customers includes strong growth in several countries.

Segment profit increased $13.2 million in our Other segment during 2016, compared to a decrease of $2.0 million during 2015. The increase in segment profit during 2016 is primarily related to the increased sales, offset in part by sales and service investments.

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing. Currently, our financing requirements are primarily driven by working capital requirements, capital expenditures, share repurchases, and acquisitions. Global market conditions are uncertain, and our ability to generate cash flows could be reduced by a deterioration in global market conditions.

Cash provided by operating activities totaled $443.1 million in 2016, compared to $426.9 million in 2015 and $418.9 million in 2014. The increase in 2016 includes higher net earnings, partly offset by increased working capital that is primarily related to our increased local currency sales.

Capital expenditures are made primarily for investments in information systems and technology, machinery, equipment, and the purchase and expansion of facilities. Our capital expenditures totaled $124.0 million in 2016, $82.5 million in 2015, and $89.4 million in 2014. The 2016 amount includes a $37 million purchase of our previously leased pipette manufacturing facility. We also expect to make net investments in new or expanded manufacturing facilities of $65 million to $75 million over the next two years.

Cash flows used in financing activities during 2016 included share repurchases. As further described below, in accordance with our share repurchase plan, we repurchased 1,348,507 shares and 1,556,797 shares in the amount of $500 million and $495 million during 2016 and 2015, respectively.

We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness. As further described in Note 3 of our Consolidated Financial Statements, in the third quarter of 2016, we 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 our laboratory instrument offering.

In 2016, we also incurred additional acquisition payments totaling $15.6 million.

We plan to repatriate earnings from China, Switzerland, Germany, Luxembourg, the United Kingdom, and certain other countries in future years and expect the only additional cost associated with the repatriation of such foreign earnings will be withholding taxes. All other undistributed earnings are considered to be permanently reinvested. As of December 31, 2016, we had an immaterial amount of cash

and cash equivalents in foreign subsidiaries where undistributed earnings are considered permanently reinvested. Accordingly, we believe the tax impact associated with repatriating our undistributed foreign earnings will not have a material effect on our liquidity.

Senior Notes

As further described in Note 9 of our Consolidated Financial Statements, we have the following Senior Notes.

In 2012, we issued and sold $50 million of 3.67% Senior Notes due December 17, 2022 in a private placement. The 3.67% Senior Notes are senior unsecured obligations of the Company. Interest is payable semi-annually in June and December.

In 2013, we issued and sold $50 million of 4.10% Senior Notes due September 19, 2023 in a private placement. The 4.10% Senior Notes are senior unsecured obligations of the Company. Interest on the 4.10% Senior Notes is payable semi-annually in March and September of each year, beginning in March 2014.

In 2014, we entered into an agreement to issue and sell $250 million of ten-year Senior Notes in a private placement. We issued $125 million with a fixed interest rate of 3.84% ("3.84% Senior Notes") in September 2014 and issued $125 million with a fixed interest rate of 4.24% ("4.24% Senior Notes") in June 2015. The Senior Notes are senior unsecured obligations of the Company. Interest on the 3.84% Senior Notes is payable semi-annually in March and September each year, beginning in March 2015. Interest on the 4.24% Senior Notes is payable semi-annually in June and December each year, beginning in December 2015. The 4.24% Senior Notes were used to repay $100 million of 6.30% Senior Notes which were due June 25, 2015.

In 2015, we issued in a private placement Euro 125 million fifteen-year Senior Notes with a fixed interest rate of 1.47% ("1.47% Euro Senior Notes"). The Euro Senior Notes are senior unsecured obligations of the Company. We have designated the 1.47% Euro Senior Notes as a hedge of a portion of our net investment in a euro denominated foreign subsidiary to reduce foreign currency translation risk associated with this net investment. 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). We recorded an unrealized gain in other comprehensive income (loss) related to this net investment hedge of $5.1 million and $3.6 million for the years ended December 31, 2016 and 2015, respectively.

Credit Agreement

In 2015, we entered into an $800 million Amended Credit Agreement (the "Credit Agreement"), which replaced our $800 million Amended and Restated Credit Agreement (the "Prior Credit Agreement"). The Credit Agreement is provided by a group of financial institutions (similar to our Prior Credit Agreement) and has a maturity date of December 17, 2020. It is a revolving credit facility and is not subject to any scheduled principal payments prior to maturity. The obligations under the Credit Agreement are unsecured.

Borrowings under the Credit Agreement bear interest at current market rates plus a margin based on our consolidated leverage ratio, which was, as of December 31, 2016, set at LIBOR plus 87.5 basis points. We must also pay facility fees that are tied to our leverage ratio. As of December 31, 2016, approximately $399.6 million was available under the facility.

Our short-term borrowings and long-term debt consisted of the following at December 31, 2016:

	U.S. Dollar				Other Principal Trading Currencies				Total
$50 million Senior Notes, interest at 3.67%, due December 17, 2022	$	50,000			$	—			$	50,000
$50 million Senior Notes, interest 4.10%, due September 19, 2023	50,000				—				50,000
$125 million Senior Notes, interest 3.84%, due September 19, 2024	125,000				—				125,000
$125 million Senior Notes, interest 4.24%, due June 25, 2025	125,000				—				125,000
Euro 125 million Senior Notes, interest 1.47%, due June 17, 2030	—				131,507				131,507
Debt issuance costs, net	(1,257		)		(385		)		(1,642		)
Total Senior Notes	348,743				131,122				479,865
$800 million Credit Agreement, interest at LIBOR plus 87.5 basis points	338,541				56,650				395,191
Other local arrangements	304				18,670				18,974
Total debt	687,588				206,442				894,030
Less: current portion	(304		)		(18,670		)		(18,974		)
Total long-term debt	$	687,284			$	187,772			$	875,056

Changes in exchange rates between the currencies in which we generate cash flow and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates. Further, we do not have any downgrade triggers relating to ratings from rating agencies that would accelerate the maturity dates of our debt.

We currently believe that cash flows from operating activities, together with liquidity available under our Credit Agreement and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements for at least the foreseeable future.

Contractual Obligations

The following summarizes certain of our contractual obligations at December 31, 2016 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We do not have significant outstanding letters of credit or other financial commitments.

	Payments Due by Period
	Total				Less than 1 Year				1-3 Years				3-5 Years				After 5 Years
Short and long-term debt	$	895,672			$	18,974			$	—			$	—			$	876,698
Interest on debt	189,903				26,383				55,157				55,075				53,288
Non-cancelable operating leases	111,388				30,177				43,419				23,675				14,117
Pension and post-retirement funding(1)	19,501				19,501				—				—				—
Purchase obligations	65,054				61,329				3,725				—				—
Total(1)	$	1,281,518			$	156,364			$	102,301			$	78,750			$	944,103

(1)	In addition to the above table, we also have liabilities for pension and post-retirement funding and income taxes. However, we cannot determine the timing or the amounts for income taxes or the timing and amounts beyond 2017 for pension and post-retirement funding.

We have purchase commitments for materials, supplies, services, and fixed assets in the normal course of business. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions. We do not expect potential payments under these provisions to materially affect our results of operations or financial condition. This conclusion is based upon reasonably likely outcomes derived by reference to historical experience and current business plans.

Share Repurchase Program

We have a share repurchase program of which there was $983.4 million common shares remaining to be repurchased under the program as of December 31, 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.

We have purchased 26.0 million common shares since the inception of the program in 2004 through December 31, 2016, at a total cost of $3.5 billion. During the years ended December 31, 2016 and 2015, we spent $500 million and $495 million on the repurchase of 1,348,507 shares and 1,556,797 shares at an average price per share of $370.75 and $317.92, respectively. We reissued 278,623 shares and 403,908 shares held in treasury for the exercise of stock options and restricted stock units during 2016 and 2015, respectively.

Off-Balance Sheet Arrangements

Currently, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material.

Effect of Currency on Results of Operations

Our earnings are affected by changing exchange rates. We are most sensitive to changes in the exchange rates between the Swiss franc, euro, and U.S. dollar. We have more Swiss franc expenses than we do Swiss franc sales because we develop and manufacture products in Switzerland that we sell globally and have a number of corporate functions located in Switzerland. When the Swiss franc strengthens against our other trading currencies, particularly the U.S. dollar and euro, our earnings go down. We also have significantly more sales in the euro than we do expenses. When the euro weakens against the U.S. dollar and Swiss franc, our earnings also go down.

We entered into foreign currency forward contracts that reduce our exposure from the Swiss franc strengthening against the euro through 2016. Absent these foreign currency forward contracts, we estimate a 1% strengthening of the Swiss franc against the euro would reduce our earnings before tax by approximately $1.5 million to $1.7 million annually. We also estimate a 1% strengthening of the Swiss franc against the U.S. dollar would reduce our earnings before tax by approximately $0.2 million annually in addition to the previously mentioned strengthening of the Swiss franc against the euro impact.

We also conduct business in many geographies throughout the world, including Asia Pacific, the United Kingdom, Eastern Europe, Latin America, and Canada. Fluctuations in these currency exchange rates against the U.S. dollar can also affect our operating results. The most significant of these currency exposures is the Chinese Renminbi. The impact on our earnings before tax of the Chinese Renminbi weakening 1% against the U.S. dollar is a reduction of approximately $0.4 million to $0.6 million annually.

Over the past two years, the U.S. dollar strengthened against most of the major currencies throughout the world. The strength of the U.S. dollar may have a significant negative impact on the Company’s financial performance in the future.

In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Euro. Based on our outstanding debt at December 31, 2016, we estimate that a 10% weakening of the U.S. dollar against the

currencies in which our debt is denominated would result in an increase of approximately $23.0 million in the reported U.S. dollar value of our debt.

Taxes

We are subject to taxation in many jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as changes in law, the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions, and earnings repatriations between jurisdictions. Generally, the tax liability for each taxpayer within the group is determined either (i) on a non-consolidated/non-combined basis or (ii) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities.

Environmental Matters

We are subject to environmental laws and regulations in the jurisdictions in which we operate. We own or lease a number of properties and manufacturing facilities around the world. Like many of our competitors, we have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations.

We are currently involved in, or have potential liability with respect to, the remediation of past contamination in certain of our facilities. A former subsidiary of Mettler-Toledo, LLC known as Hi-Speed Checkweigher Co., Inc. was one of two private parties ordered by the New Jersey Department of Environmental Protection, in an administrative consent order signed on June 13, 1988, to investigate and remediate certain ground water contamination at a property in Landing, New Jersey. After the other party under this order failed to fulfill its obligations, Hi-Speed became solely responsible for compliance with the order. Residual ground water contamination at this site is now within a Classification Exception Area which the Department of Environmental Protection has approved and within which the Company oversees monitoring of the decay of contaminants of concern. A concurrent Well Restriction Area also exists for the site. The Department of Environmental Protection does not view these vehicles as remedial measures, but rather as “institutional controls” that must be adequately maintained and periodically evaluated. We estimate that the costs of compliance associated with the site over the next several years will approximate a total of $0.4 million.

In addition, certain of our present and former facilities have or had been in operation for many decades and, over such time, some of these facilities may have used substances or generated and disposed of wastes which are or may be considered hazardous. It is possible that these sites, as well as disposal sites owned by third parties to which we have sent wastes, may in the future be identified and become the subject of remediation. Although we believe that we are in substantial compliance with applicable environmental requirements and, to date, we have not incurred material expenditures in connection with environmental matters, it is possible that we could become subject to additional environmental liabilities in the future that could have a material adverse effect on our financial condition, results of operations, or cash flows.

Inflation

Inflation can affect the costs of goods and services that we use, including raw materials to manufacture our products. The competitive environment in which we operate limits somewhat our ability to recover higher costs through increased selling prices.

Moreover, there may be differences in inflation rates between countries in which we incur the major portion of our costs and other countries in which we sell products, which may limit our ability to recover

increased costs. We remain committed to operations in China, Eastern Europe, India and Brazil, which have experienced inflationary conditions. To date, inflationary conditions have not had a material effect on our operating results. However, as our presence in China, Eastern Europe, India and Brazil increases, these inflationary conditions could have a greater impact on our operating results.

Quantitative and Qualitative Disclosures about Market Risk

We have only limited involvement with derivative financial instruments and do not use them for trading purposes.

We have entered into foreign currency forward contracts to hedge certain forecasted intercompany sales and to economically hedge short-term intercompany balances with our international businesses on a monthly basis. Such contracts limit our exposure to both favorable and unfavorable currency fluctuations. The net fair value of the foreign currency contracts hedging short-term intercompany balances was a $1.3 million net liability at December 31, 2016. A sensitivity analysis to changes on the foreign currency-denominated contracts indicates that if the primary currency (primarily U.S. dollar, Swiss franc, and the euro) declined by 10%, the fair value of derivatives not designated as hedging instruments would increase by $0.2 million at December 31, 2016. Any resulting changes in fair value would be offset by changes in the underlying economic position. The sensitivity analysis assumes a parallel shift in foreign currency exchange rates. The assumption that exchange rates change in parallel fashion may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency. We also have other currency risks as described under “Effect of Currency on Results of Operations.”

We have entered into certain interest rate swap agreements. These contracts are more fully described in Note 5 to our audited consolidated financial statements. The fair value of these contracts was a net loss of $3.6 million at December 31, 2016. Based on our agreements outstanding at December 31, 2016, a 100-basis-point increase in interest rates would result in an increase in the net aggregate market value of these instruments of $6.7 million. Conversely, a 100-basis-point decrease in interest rates would result in a $7.0 million decrease in the net aggregate market value of these instruments at December 31, 2016. Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to pensions and other post-retirement benefits, trade accounts receivable, inventories, intangible assets, income taxes, and revenue. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our audited consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note 2 to our audited consolidated financial statements.

Employee benefit plans

The net periodic pension cost for 2016 and projected benefit obligation as of December 31, 2016 were $12.6 million and $138.2 million, respectively, for our U.S. pension plan. The net periodic cost for 2016 and projected benefit obligation as of December 31, 2016 were $7.2 million and $838.3 million, respectively, for our international pension plans. The net periodic post-retirement benefit for 2016 and expected post-retirement benefit obligation as of December 31, 2016 for our U.S. post-retirement medical benefit plan were $4.5 million and $3.0 million, respectively.

Pension and post-retirement benefit plan expense and obligations are developed from assumptions utilized in actuarial valuations. The most significant of these assumptions include the discount rate and expected return on plan assets. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and deferred over future periods. While management believes the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our plan obligations and future expense.

The expected rates of return on the various defined benefit pension plans’ assets are based on the asset allocation of each plan and the long-term projected return of those assets, which represent a diversified mix of U.S. and international corporate equities and government and corporate debt securities. In 2002, we froze our U.S. defined benefit pension plan and discontinued our retiree medical program for certain current and all future employees. Consequently, no significant future service costs will be incurred on these plans. For 2016, the weighted average return on assets assumption was 6.75% for the U.S. plan and 4.1% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately $6.3 million after tax.

The discount rates for defined benefit and post-retirement plans are set by benchmarking against high-quality corporate bonds. For 2016, the average discount rate assumption was 4.0% for the U.S. plan and 1.0% for the international plans, representing a weighted average of local rates in countries where such plans exist. A change in the discount rate of 1% would impact annual benefit plan expense by approximately $11.6 million after tax.

In early 2016, in order to reduce the size and potential volatility of our U.S. defined benefit pension plan obligation, we offered approximately 700 former employees who have deferred vested pension plan benefits a one-time option to receive a lump sum distribution of their 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.

Equity-based compensation

We also have an equity incentive plan that provides for the grant of stock options, restricted stock units, and other equity-based awards which are accounted for and recognized in the consolidated statement of operations based on the grant-date fair value of the award. This methodology yields an estimate of fair value based in part on a number of management estimates, the most significant of which include future volatility and estimated option lives. Changes in these assumptions could significantly impact the estimated fair value of stock options.

Trade accounts receivable

As of December 31, 2016, trade accounts receivable were $455.0 million, net of a $14.2 million allowance for doubtful accounts.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents our best estimate of probable credit losses in our existing trade accounts receivable. We determine the allowance based upon a review of both specific accounts for collection and the age of the accounts receivable portfolio.

Inventories

As of December 31, 2016, inventories were $222.0 million.

We record our inventory 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 our 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.

Goodwill and other intangible assets

As of December 31, 2016, our consolidated balance sheet included goodwill of $476.4 million and other intangible assets of $167.1 million.

Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements.

In accordance with U.S. GAAP, our goodwill and indefinite-lived intangible assets are not amortized, but are evaluated 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 factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.

If we are unable to conclude that the goodwill asset is not impaired after considering the totality of events and circumstances during our qualitative assessment, we perform the first step of the two-step impairment test by estimating the fair value of the goodwill asset and comparing the fair value to the carrying amount of the goodwill asset. If the carrying amount of the goodwill asset exceeds its fair value, then we perform the second step of the impairment test to measure the amount of the impairment loss, if any.

If we are unable to conclude that the indefinite-lived intangible asset is not impaired after considering the totality of events and circumstances, we perform an impairment test to measure the amount of the impairment loss, if any.

Both the qualitative and quantitative evaluations consider operating results, business plans, economic conditions and market data, among other factors. There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses. Our assessments to date have indicated that there has been no impairment of these assets.

Should any of these estimates or assumptions change, or should we incur lower than expected operating performance or cash flows, including from a prolonged economic slowdown, we may

experience a triggering event that requires a new fair value assessment for our reporting units, possibly prior to the required annual assessment. These types of events and resulting analysis could result in impairment charges for goodwill and other indefinite-lived intangible assets if the fair value estimate declines below the carrying value.

Our amortization expense related to intangible assets with finite lives may materially change should our estimates of their useful lives change.

Income taxes

Income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s assessment of estimated future taxes to be paid on items in the consolidated financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income or equity in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

We plan to repatriate earnings from China, Switzerland, Germany, Luxembourg, the United Kingdom, and certain other countries in future years and expect the only additional cost associated with the repatriation of such earnings outside the United States will be withholding taxes. All other undistributed earnings are considered permanently reinvested.

The significant assumptions and estimates described in the preceding paragraphs are important contributors to our ultimate effective tax rate for each year in addition to our income mix from geographical regions. If any of our assumptions or estimates were to change, or should our income mix from our geographical regions change, our effective tax rate could be materially affected. Based on earnings before taxes of $504.2 million for the year ended December 31, 2016, each increase of $5.0 million in tax expense would increase our effective tax rate by 1%.

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 significant 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 stand-alone 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.

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 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.

New Accounting Pronouncements

See Note 2 to the audited consolidated financial statements.