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 9% in 2017 and 5% in 2016. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 8% in 2017 and increased 7% in 2016. Net sales growth in local currencies during 2017 reflected broad-based growth across most geographies and product categories as a result of favorable global market conditions and strong execution of our growth initiatives. 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 global market conditions are currently favorable, we will face challenging prior period comparisons in 2018 due to strong results in 2017. Economic conditions can also change quickly, particularly in emerging markets, and it is uncertain that favorable market conditions will continue.

With respect to our end-user markets, we experienced increased results during 2017 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 2017. The local currency increase in net sales of our laboratory-related products during 2017 was driven by strong growth in most product categories.

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 with core industrial customers catching up on their product replacement cycles. 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 sales declined during 2017 due to reduced investment by retailers for our type of products. 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.

In 2018, 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 few years, we have added field sales and service resources to pursue under-penetrated market opportunities and will look to continue to make investments to front-end resources in 2018. 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 34% 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 approximately 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 favorable during 2017. We experienced a 12% increase in emerging market local currency sales during 2017 versus the prior year, which included 19% local currency sales growth in China. 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 under-penetrated emerging markets. However, emerging market sales can be volatile. China's credit availability can also be particularly volatile, and certain industrial-related end-user segments still have overcapacity.

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 accelerate product replacement 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.

Expanding Our Margins. We continue to strive to improve our margins by more effectively pricing our products and services and optimizing our cost structure. For example, sophisticated data analytic tools

provide us new insights to further refine our price strategies and processes. We also focus 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, and have further increased our focus on these programs during the past year with the global launch of our SternDrive initiative. SternDrive is our global program for continuous improvement efforts within our supply chain, manufacturing, and back-office operations. Blue Ocean is also an important enabler of our various margin expansion initiatives. Our move to standardized business processes, systems, and data structures throughout our global organization provides greater data transparency and faster access to real-time data. 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 2017, we acquired the shares of Biotix, Inc., a manufacturer and distributor of plastic consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market, based in the United States for an initial cash payment of $105 million. We also may be required to pay additional cash consideration up to a maximum amount of $65 million, of which we recorded an estimated $30.7 million as of December 31, 2017. During 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 has been integrated into our laboratory product offering.

Results of Operations — Consolidated

Net sales

Net sales were $2.7 billion for the year ended December 31, 2017, compared to $2.5 billion in 2016 and $2.4 billion in 2015. This represents an increase of 9% in 2017 and an increase of 5% in 2016 in U.S. dollars and an increase of 8% and 7% in local currencies, respectively. The Biotix and Troemner acquisitions contributed 1% to our net sales in 2017. Global market conditions were favorable during 2017 and we continue to benefit from the execution of our global sales and marketing programs and development of our robust product portfolio. However, we will face difficult prior period comparisons in 2018 due to strong results in 2017. Economic conditions can also change quickly, especially in emerging markets, and it's uncertain that favorable market conditions will continue.

In 2017, our net sales by geographic destination increased in U.S. dollars 8% in the Americas, 6% in Europe, and 11% in Asia/Rest of World. In local currencies, our net sales by geographic destination increased in 2017 by 8% in the Americas, 5% in Europe, and 11% in Asia/Rest of World. The Biotix and Troemner acquisitions contributed approximately 2% to net sales in the Americas during 2017. In addition, our food retailing sales declined in 2017 due to reduced investment by retailers for our type of products in the Americas, which decreased local currency sales in the Americas by 3%. 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 9% in U.S. dollars and in local currencies during 2017 and increased 5% in U.S. dollars and 7% in local currencies in 2016. The Biotix and Troemner acquisitions contributed approximately 2% to our net sales of products during 2017. Service revenue (including spare parts) increased 7% in U.S. dollars and in local currencies in 2017 and increased 4% in U.S. dollars and 6% in local currencies in 2016. The Troemner acquisition contributed approximately 1% to our net sales of service during 2017.

Net sales of our laboratory-related products and services, which represented approximately 50% of our total net sales in 2017, increased 11% in U.S. dollars and 10% in local currencies during 2017. The local currency increase in net sales of our laboratory-related products during 2017 includes strong growth in most product categories, particularly analytical instruments. The Biotix and Troemner acquisitions also contributed approximately 2% to our net sales growth of laboratory-related products and services.

Net sales of our industrial-related products and services, which represented approximately 42% of our total net sales in 2017, increased 8% in U.S. dollars and 8% in local currencies during 2017. In 2017, we experienced strong growth in product inspection and core industrial. Our core-industrial results include very strong results in China.

Net sales of our food retailing products and services, which represented approximately 8% of our total net sales in 2017, decreased 3% in U.S. dollars and 4% in local currencies during 2017. The decline in net sales of our food retailing products is due to a decrease in the Americas driven by reduced investment by these retailers for our type of products.

Gross profit

Gross profit as a percentage of net sales was 57.7% for 2017, compared to 57.2% for 2016 and 56.4% for 2015.

Gross profit as a percentage of net sales for products was 60.9% for 2017, compared to 60.8% for 2016 and 60.1% for 2015. Gross profit as a percentage of net sales for services (including spare parts) was 46.1% for 2017, compared to 44.6% for 2016 and 43.6% for 2015.

The increase in gross profit as a percentage of net sales for 2017 includes favorable price realization, offset in part by unfavorable business mix, changes in foreign currency, and increased material costs.

Research and development and selling, general, and administrative expenses

Research and development expenses as a percentage of net sales were 4.7% for 2017, 4.8% for 2016, and 5.0% for 2015. Research and development expenses in U.S. dollars increased 8% in 2017 and 1% in 2016, and in local currencies increased 8% in 2017 and 4% in 2016, relating to increased investments in new product development.

Selling, general, and administrative expenses as a percentage of net sales were 28.9% for 2017, compared to 29.2% for 2016 and 29.3% for 2015. Selling, general, and administrative expenses increased 8% in both U.S. dollars and local currencies in 2017 and increased 4% in U.S. dollars and 6% in local currencies in 2016. The increase during 2017 includes higher cash incentive expense, investments in our field sales organization, and increased employee benefit costs.

Amortization expense

Amortization expense was $42.7 million in 2017, compared to $36.1 million and $31.0 million in 2016 and 2015, 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 Biotix and Troemner acquisitions.

Restructuring charges

During the past few years, we initiated various cost reduction measures. For the year ended December 31, 2017, we have incurred $12.8 million of restructuring expenses which primarily comprise employee-related costs. See Note 14 and Note 17 to our audited consolidated financial statements for a summary of restructuring activity during 2017.

Other charges (income), net

Other charges (income), net consisted of net income of $5.9 million in 2017, compared to net charges of $8.5 million and net income of $0.9 million in 2016 and 2015, respectively. Other charges (income), net includes $1.7 million and $1.1 million of acquisition costs for 2017 and 2016, respectively. Other charges (income), net for 2017 also includes a one-time gain of $3.4 million relating to the sale of a facility in Switzerland in connection with our initiative to consolidate certain Swiss operations into a new facility. Other charges in 2016 includes a one-time non-cash pension settlement charge of $8.2 million related to a lump sum offering to former employees of our U.S. pension plan. Other charges (income), net also includes net (gains) losses from foreign currency transactions and hedging activities, interest income, and other items.

Interest expense and taxes

Interest expense was $32.8 million for 2017, compared to $28.0 million for 2016 and $27.5 million for 2015.

Our annual effective tax rate was 22% for 2017 and 24% for both 2016 and 2015 excluding one-time charges in 2017 associated with the Tax Cuts and Job Act described below. The reduction in our annual effective tax rate from 24% in 2016 and 2015 to 22% in 2017 is primarily related to our adoption of ASU 2016-09 pertaining to excess tax benefits in the current year associated with stock option exercises as discussed in Note 2.

On December 22, 2017, the Tax Cuts and Jobs Act ("the Act") significantly revised U.S. corporate income tax law. The Act includes, among other things, a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective for taxable years beginning after December 31, 2017, and the implementation of a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax") that is payable over a period of up to eight years. The tax effects of the Act are reflected in Note 13 to our consolidated financial statements for the year ended December 31, 2017.

In connection with the Act, we recorded a provisional one-time charge of $72 million during the fourth quarter of 2017. This amount includes a one-time cash charge of $59 million for un-repatriated foreign earnings which is expected to be paid over a period of up to eight years, and a one-time non-cash charge of $13 million related to certain deferred tax and other non-cash items.

Our accounting for the above items is based upon reasonable estimates of the tax effects of the Act; however, our estimates may change upon the finalization of our implementation and additional interpretive guidance from regulatory authorities. We will complete our accounting for the above tax effects of the Act during 2018, as provided in Staff Accounting Bulletin 118, and will reflect any adjustments to our provisional amounts as an adjustment to the provision for taxes in the reporting period in which the amounts are finally determined.

Additionally, certain provisions of the Act are not effective until 2018. We are in the process of evaluating the impact of these provisions and have not yet recorded any impact in the financial statements, nor have we made any accounting policy elections with respect to these items.

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)

	2017				2016				2015				Increase (Decrease) in % 2017 vs. 2016		Increase (Decrease) in % 2016 vs. 2015
Net sales	$	1,043,942			$	958,542			$	913,842			9%		5%
Net sales to external customers	$	944,825			$	867,962			$	826,354			9%		5%
Segment profit	$	177,705			$	161,539			$	147,491			10%		10%

The increase in both total net sales and net sales to external customers of 9% in 2017 includes strong growth in product inspection and laboratory-related products, offset in part by a significant decline in food retailing, which reduced net sales to external customers by 3% during 2017. Net sales to external customers in our U.S. Operations during 2017 also benefited approximately 3% from the Biotix and Troemner acquisitions.

Segment profit increased $16.2 million in our U.S. Operations segment during 2017, compared to an increase of $14.0 million during 2016. Our segment profit includes the impact of increased net sales and benefits from our margin expansion initiatives, offset in part by increased sales, service, and research and development investments, as well as higher cash incentive and employee benefit costs.

Swiss Operations (amounts in thousands)

	2017				2016				2015				Increase (Decrease) in % (1)2017 vs. 2016		Increase (Decrease) in % (1) 2016 vs. 2015
Net sales	$	697,008			$	655,657			$	632,326			6%		4%
Net sales to external customers	$	133,925			$	130,674			$	133,684			2%		(2)%
Segment profit	$	174,447			$	163,663			$	160,763			7%		2%

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

Total net sales in U.S. dollars increased 6% in 2017 and 4% in 2016, and in local currencies increased 6% in 2017 and 5% in 2016. Net sales to external customers in U.S. dollars increased 2% in 2017 and decreased 2% in 2016, and in local currencies increased 2% in 2017 and decreased 1% in 2016. The increase in local currency net sales to external customers for 2017 includes modest growth in most product categories.

Segment profit increased $10.8 million in our Swiss Operations segment during 2017, compared to an increase of $2.9 million during 2016. Segment profit includes the impact of increased net sales and productivity improvements, offset by currency hedging gains in the prior year, higher cash incentive costs, and increased research and development activity.

Western European Operations (amounts in thousands)

	2017				2016				2015				Increase (Decrease) in % (1) 2017 vs. 2016		Increase (Decrease) in % (1)2016 vs. 2015
Net sales	$	844,596			$	817,059			$	785,660			3%		4%
Net sales to external customers	$	673,776			$	640,558			$	620,128			5%		3%
Segment profit	$	117,324			$	123,507			$	107,424			(5)%		15%

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

Total net sales in U.S. dollars increased 3% in 2017 and 4% in 2016, and in local currencies increased 2% in 2017 and 7% in 2016. Net sales to external customers in U.S. dollars increased 5% in 2017 and 3% in 2016, and in local currencies increased 3% in 2017 and 5% in 2016. The increase in local currency net sales to external customers during 2017 includes growth in most product categories especially in laboratory-related products.

Segment profit decreased $6.2 million in our Western European Operations segment during 2017, compared to an increase of $16.1 million in 2016. The segment profit decline includes increased research and development activity, sales and service investments, higher cash incentive costs, and the impact of inter-segment product transfers, offset in part by increased net sales to external customers and favorable currency translation.

Chinese Operations (amounts in thousands)

	2017				2016				2015				Increase (Decrease) in % (1)2017 vs. 2016		Increase (Decrease) in % (1)2016 vs. 2015
Net sales	$	685,499			$	606,307			$	591,178			13%		3%
Net sales to external customers	$	452,617			$	386,541			$	376,291			17%		3%
Segment profit	$	231,860			$	187,924			$	165,532			23%		14%

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

Total net sales in U.S. dollars increased 13% in 2017 and 3% in 2016, and in local currencies increased 15% in 2017 and 10% in 2016. Net sales to external customers in U.S. dollars increased 17% in 2017 and increased 3% in 2016, and in local currencies increased 19% in 2017 and increased 9% in 2016. The increase in net sales to external customers during 2017 reflects very strong growth in most product categories. Our Chinese performance reflects a good economic environment with customers catching up in 2017 on their product replacement cycles, as well as our ability to shift resources towards faster growing markets. While Chinese market conditions have improved and are currently favorable, we will face difficult prior period comparisons in 2018 due to the strong performance in 2017. In addition to the tough comparisons, the Chinese economy has historically been volatile and market conditions may deteriorate, especially in industrial markets.

Segment profit increased $43.9 million in our Chinese Operations segment during 2017, compared to an increase of $22.4 million in 2016. The increase in segment profit during 2017 includes increased local currency net sales volume, benefits from our margin expansion and cost savings initiatives, and inter-segment transfers.

Other (amounts in thousands)

	2017				2016				2015				Increase (Decrease) in % (1)2017 vs. 2016		Increase (Decrease) in % (1)2016 vs. 2015
Net sales	$	527,844			$	490,231			$	447,077			8%		10%
Net sales to external customers	$	519,910			$	482,522			$	438,990			8%		10%
Segment profit	$	72,744			$	64,060			$	50,821			14%		26%

(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 8% in 2017 and 10% in 2016, and in local currencies increased 6% and 12% in 2017 and 2016, respectively. The local currency increase in total net sales and net sales to external customers includes strong volume growth and increased price realization in several countries.

Segment profit increased $8.7 million in our Other segment during 2017, compared to an increase of $13.2 million during 2016. The increase in segment profit during 2017 includes benefits from increased net sales and our margin expansion initiatives, 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 can be uncertain, and our ability to generate cash flows could be reduced by a deterioration in global markets.

Cash provided by operating activities totaled $516.3 million in 2017, compared to $460.8 million in 2016 and $439.8 million in 2015. The increase in 2017 is primarily related to higher net earnings.

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 $127.4 million in 2017, $124.0 million in 2016, and $82.5 million in 2015. Cash flow from investing activities in 2017 also includes proceeds of $9.9 million relating to the sale of a facility in Switzerland in connection with our initiative to consolidate certain Swiss operations into a new facility. We expect to make net investments in new or expanded manufacturing facilities of $40 million to $50 million over the next two years. The 2016 amount also includes a $37 million purchase of our previously leased pipette manufacturing facility.

Cash flows used in financing activities during 2017 included share repurchases. As further described below, in accordance with our share repurchase plan, we repurchased 749,254 shares and 1,348,507 shares in the amount of $400 million and $500 million during 2017 and 2016, 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 2017, we acquired all of the shares of Biotix, Inc., a manufacturer and distributor of plastic consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market, based in the United States for an initial cash payment of $105 million. We may also be required to pay additional cash consideration up to a maximum amount of $65 million of which we recorded an estimated $30.7 million as of December 31, 2017. During 2016, we also 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 integrated into our laboratory product offering.

In 2017 and 2016, we also incurred additional acquisition payments totaling $2.1 million and $15.6 million, respectively.

As previously described, we have recorded a provisional one-time charge of $72 million for the estimated income tax effects of the Transition Tax associated with the Tax Cuts and Jobs Act of which $59 million is expected to be paid over a period of up to eight years. We also plan to continue to repatriate earnings from China, Switzerland, Germany, 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. We believe the ongoing 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.

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. Interest on the 4.24% Senior Notes is payable semi-annually in June and December each year.

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 in other comprehensive income (loss) related to this net investment hedge an unrealized loss of $18.2 million and an unrealized gain of $5.1 million for the years ended December 31, 2017 and 2016, 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, 2017, set at LIBOR plus 97.5 basis points.

We must also pay facility fees that are tied to our leverage ratio. As of December 31, 2017, approximately $332.6 million was available under the facility.

Our short-term borrowings and long-term debt consisted of the following at December 31, 2017:

	U.S. Dollar				Other Principal Trading Currencies				Total
3.67% $50 million Senior Notes due December 17, 2022	$	50,000			$	—			$	50,000
4.10% $50 million Senior Notes due September 19, 2023	50,000				—				50,000
3.84% $125 million Senior Notes due September 19, 2024	125,000				—				125,000
4.24% $125 million Senior Notes due June 25, 2025	125,000				—				125,000
1.47% EUR 125 million Senior Notes due June 17, 2030	—				149,736				149,736
Debt issuance costs, net	(1,082		)		(356		)		(1,438		)
Total Senior Notes	348,918				149,380				498,298
$800 million Credit Agreement, interest at LIBOR plus 97.5 basis points(1)	396,107				65,765				461,872
Other local arrangements	2,402				17,275				19,677
Total debt	747,427				232,420				979,847
Less: current portion	(2,402		)		(17,275		)		(19,677		)
Total long-term debt	$	745,025			$	215,145			$	960,170

(1) See Note 5 for additional disclosures on the financial instruments associated with the Credit Agreement.

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, 2017 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	$	981,270			$	19,677			$	461,857			$	50,000			$	449,736
Interest on debt	159,780				27,021				60,965				32,381.1				39,413
Non-cancelable operating leases	109,126				33,939				42,424				21,474				11,289
Pension and post-retirement funding(1)	26,403				26,403				—				—				—
Purchase obligations	83,511				80,479				3,032				—				—
Total(1)	$	1,360,090			$	187,519			$	568,278			$	103,855			$	500,438

(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 2018 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 were $583.4 million common shares remaining to be repurchased under the program as of December 31, 2017. The share repurchases are expected to be funded from cash balances, borrowings, and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.

We have purchased 26.7 million common shares since the inception of the program in 2004 through December 31, 2017, at a total cost of $3.9 billion. During the years ended December 31, 2017 and 2016, we spent $400 million and $500 million on the repurchase of 749,254 shares and 1,348,507 shares at an average price per share of $533.84 and $370.75, respectively. We reissued 270,413 shares and 278,623 shares held in treasury for the exercise of stock options and restricted stock units during 2017 and 2016, 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 estimate a 1% strengthening of the Swiss franc against the euro would reduce our earnings before tax by approximately $1.6 million to $1.8 million annually.

We also conduct business 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 $1.0 million to $1.2 million annually.

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, the Swiss franc, and euro. Based on our outstanding debt at December 31, 2017, 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 $25.9 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 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 $1.3 million at December 31, 2017. Based on our agreements outstanding at December 31, 2017, a 100-basis-point increase in interest rates would result in an increase in the net aggregate market value of these instruments of $5.4 million. Conversely, a 100-basis-point decrease in interest rates would result in a $5.6 million decrease in the net aggregate market value of these instruments at December 31, 2017. Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled.

We also entered into a cross currency swap in 2017. The fair value of this contract was a net loss of $0.1 million at December 31, 2017. Based on our agreements outstanding at December 31, 2017, a 100-basis-point increase in interest rates and foreign currency exchange rates would result in an increase in the net aggregate market value of these instruments of $2.5 million. Conversely, a 100-basis-point decrease in interest rates and foreign currency exchange rates would result in a $1.5 million decrease in the net aggregate market value of these instruments at December 31, 2017. 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 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 2017 and projected benefit obligation as of December 31, 2017 were $4.8 million and $142.6 million, respectively, for our U.S. pension plan. The net periodic cost for 2017 and projected benefit obligation as of December 31, 2017 were $10.8 million and $918.5 million, respectively, for our international pension plans. The net periodic post-retirement benefit for 2017 and expected post-retirement benefit obligation as of December 31, 2017 for our U.S. post-retirement medical benefit plan were $2.6 million and $2.7 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 2017, the weighted average return on assets assumption was 6.50% for the U.S. plan and 3.86% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately $6.4 million after tax.

The discount rates for defined benefit and post-retirement plans are set by benchmarking against high-quality corporate bonds. For 2017, the weighted average discount rate assumption was 3.5% 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 $11.0 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 had 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, 2017, trade accounts receivable were $528.6 million, net of a $15.5 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, 2017, inventories were $255.4 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, 2017, our consolidated balance sheet included goodwill of $539.8 million and other intangible assets of $226.7 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 evaluations of 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 whether 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 whether 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 $574.2 million for the year ended December 31, 2017, each increase of $5.7 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 transfer upon shipment. In countries where title cannot legally transfer before delivery, we defer revenue recognition until delivery has occurred. We generally maintain the right to accept or reject a product return in our terms and conditions and also maintain 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, we do not sell software products without the related hardware instrument as the software is embedded in the instrument. Our 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 our solutions have a significant post-shipment obligation, revenue is deferred on the undelivered element until the obligation has been completed. We also sometimes enter 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 our 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 are 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.