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 8% in 2018 and 9% in 2017. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 6% in 2018 and 8% in 2017. Net sales growth in local currencies during 2018 reflected strong execution of our growth initiatives and favorable global market conditions. We expect to continue to benefit from our strong global leadership positions, diversified customer base, innovative 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. However, economic conditions can also change quickly, particularly in emerging markets, and it is uncertain that favorable market conditions will continue. We also remain cautious as economic uncertainties exist in certain regions of the world, especially the potential impact of international trade/tariff disputes.

With respect to our end-user markets, we experienced increased results during 2018 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

favorable during 2018. The local currency increase in net sales of our laboratory-related products during 2018 was driven by strong growth in most product categories.

Our industrial markets experienced favorable market conditions in China with strong growth despite challenging prior period comparisons. 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. However, our core industrial-related products are especially sensitive to changes in economic growth. We also expect our industrial markets to continue to benefit from our customers' focus on brand protection and food safety within our product inspection end-market.

Our food retailing sales increased during 2018 with strong project activity in the Americas. 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 2019, 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 2019. 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 35% 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 14% on a compound annual growth basis in local currencies since 1999. Over the years, we have also broadened our product offering to the Asian markets. 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 2018. We experienced a 10% increase in emerging market local currency sales during 2018 versus the prior year, which included 13% 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, chemical, 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 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. While Chinese market conditions are currently favorable, there is uncertainty, including the potential impact of international trade disputes. The Chinese economy has historically been volatile and market conditions may change unfavorably due to various factors.

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 which also supports our pricing differentiation. 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 cost reduction programs over the past few years. 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 two years 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 2017, we acquired the shares of Biotix, Inc., a U.S.-based manufacturer and distributor of plastic consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market, for an initial cash payment of $105 million plus additional cash consideration of $10 million that will be paid in the first quarter of 2019.

Results of Operations — Consolidated

Net sales

Net sales were $2.9 billion for the year ended December 31, 2018, compared to $2.7 billion in 2017 and $2.5 billion in 2016. This represents an increase of 8% in 2018 and 9% in 2017 in U.S. dollars and an increase of 6% and 8% in local currencies, respectively. The Biotix and Troemner acquisitions contributed approximately 1% to local currency sales in 2018 and 2017. Global market conditions were favorable during 2018, and we continue to benefit from the execution of our global sales and marketing programs, our innovative product portfolio, and investments in our field resources. However, we remain cautious as market conditions are subject to change and economic uncertainties exist, particularly concerning international trade/tariff disputes.

In 2018, our net sales by geographic destination increased in U.S. dollars 5% in the Americas, 7% in Europe, and 12% in Asia/Rest of World. In local currencies, our net sales by geographic destination increased in 2018 by 5% in the Americas, 4% in Europe, and 10% in Asia/Rest of World. The Biotix and

Troemner acquisitions contributed approximately 1% and 2% to net sales in the Americas during 2018 and 2017, respectively. A discussion of sales by operating segment is included below.

As described in Note 3 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 8% in U.S. dollars and 6% in local currencies during 2018 and increased 9% in both U.S. dollars and in local currencies in 2017. The Biotix and Troemner acquisitions contributed approximately 1% and 2% to our net sales of products during 2018 and 2017, respectively. Service revenue (including spare parts) increased 8% in U.S. dollars and 6% in local currencies in 2018 and increased 7% in both U.S. dollars and in local currencies in 2017.

Net sales of our laboratory products and services, which represented approximately 51% of our total net sales in 2018, increased 11% in U.S. dollars and 9% in local currencies during 2018. The local currency increase in net sales of our laboratory products during 2018 includes strong growth in most product categories, especially process analytics, pipettes, and automated chemistry. The Biotix acquisition also contributed approximately 2% to our net sales growth of laboratory-related products and services.

Net sales of our industrial products and services, which represented approximately 41% of our total net sales in 2018, increased 5% in U.S. dollars and 3% in local currencies during 2018. The local currency increase in net sales of our industrial products includes growth in core-industrial, offset in part by a slight decline in product inspection.

Net sales of our food retailing products and services, which represented approximately 8% of our total net sales in 2018, increased 5% in U.S. dollars and 3% in local currencies during 2018. Food retailing experienced strong project activity in the Americas, while net sales in Europe declined in 2018 related to reduced customer activity.

Gross profit

Gross profit as a percentage of net sales was 57.4% for 2018, compared to 57.8% for 2017 and 57.3% for 2016.

Gross profit as a percentage of net sales for products was 60.3% for 2018, compared to 61.1% for 2017 and 60.9% for 2016. Gross profit as a percentage of net sales for services (including spare parts) was 47.0% for 2018, compared to 46.1% for 2017 and 44.6% for 2016.

The decrease in gross profit as a percentage of net sales for 2018 was primarily due to initial costs associated with a new manufacturing facility and product introductions, tariff costs, and unfavorable business mix, offset in part by favorable price realization.

In 2018, the U.S. government enacted tariffs on certain products imported from China. The tariffs became effective at various points during 2018. We estimate the associated annualized cost increase is approximately $25 million (assuming a 25% tariff rate). We continue to evaluate and implement various actions to mitigate the effect of these tariffs.

Research and development and selling, general, and administrative expenses

Research and development expenses as a percentage of net sales were 4.8% for 2018, 4.7% for 2017, and 4.8% for 2016. Research and development expenses in U.S. dollars increased 11% in 2018 and 8% in 2017, and in local currencies increased 9% in 2018 and 8% in 2017, relating to increased project activity.

Selling, general, and administrative expenses as a percentage of net sales were 27.7% for 2018, compared to 28.9% for 2017 and 29.2% for 2016. Selling, general, and administrative expenses increased 2% in U.S. dollars and 1% in local currencies in 2018 and increased 8% in both U.S. dollars and local currencies in 2017. The increase during 2018 includes investments in our field sales organization and growth initiatives, offset in part by benefits from our cost savings initiatives and lower variable cash incentives.

Amortization expense

Amortization expense was $47.5 million in 2018, compared to $42.7 million and $36.1 million in 2017 and 2016, 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 acquisition.

Restructuring charges

During the past few years, we initiated various cost reduction measures. For the year ended December 31, 2018, we have incurred $18.4 million of restructuring expenses which primarily comprise employee-related costs. See Note 15 and Note 18 to our audited consolidated financial statements for a summary of restructuring activity during 2018.

Other charges (income), net

Other charges (income), net consisted of net income of $21.8 million, $9.9 million and $1.3 million in 2018, 2017 and 2016, respectively. Other charges (income), net includes non-service pension costs (benefits), net (gains) losses from foreign currency transactions and hedging activities, interest income, and other items. Non-service pension benefits were $6.2 million, $4.0 million and $9.8 million in 2018, 2017 and 2016, respectively. Other charges (income), net in 2018 also includes a one-time gain of $18.7 million associated with the settlement of the Biotix acquisition contingent consideration, as well as a one time legal charge of $3 million. Other charges (income), net includes $1.7 million and $1.1 million of acquisition costs during 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, while 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.

Interest expense and taxes

Interest expense was $34.5 million for 2018, compared to $32.8 million for 2017 and $28.0 million for 2016.

Our reported tax rate was 21.4% during 2018, compared to 34.5% and 23.8% in 2017 and 2016, respectively. The 2018 and 2017 reported tax rates include charges of $3.6 million and $72 million, respectively, associated with the Tax Cuts and Jobs Act described below.

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 14 to our consolidated financial statements.

In connection with the Act, we recorded charges of $3.6 million and $72 million during 2018 and 2017, respectively. These amounts include an aggregate cash charge of $62 million for un-repatriated foreign earnings which is expected to be paid over a period of up to eight years beginning in 2018, and a 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 additional interpretive guidance from regulatory authorities.

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)

	2018				2017				2016				Increase (Decrease) in % 2018 vs. 2017		Increase (Decrease) in % 2017 vs. 2016
Net sales	$	1,112,256			$	1,043,942			$	958,542			7%		9%
Net sales to external customers	$	1,007,798			$	944,825			$	867,962			7%		9%
Segment profit	$	161,615			$	177,705			$	161,539			(9)%		10%

The increase in both total net sales and net sales to external customers of 7% in 2018 reflects particularly strong results in our laboratory products, as well as strong food retailing project activity. These results were offset in part by a decrease in product inspection which had strong growth in 2017. Net sales to external customers in our U.S. Operations during 2018 also benefited approximately 3% from the Biotix acquisition.

Segment profit decreased $16.1 million in our U.S. Operations segment during 2018, compared to an increase of $16.2 million during 2017, primarily due to initial costs associated with a new manufacturing facility and new product introductions, continued investments in our field and service organization, and increased tariff costs, offset in part by benefits from our margin expansion initiatives.

Swiss Operations (amounts in thousands)

	2018				2017				2016				Increase (Decrease) in % (1)2018 vs. 2017		Increase (Decrease) in % (1) 2017 vs. 2016
Net sales	$	762,593			$	697,008			$	655,657			9%		6%
Net sales to external customers	$	134,064			$	133,925			$	130,674			0%		2%
Segment profit	$	202,027			$	174,447			$	163,663			16%		7%

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

Total net sales in U.S. dollars increased 9% in 2018 and 6% in 2017, and in local currencies increased 9% in 2018 and 6% in 2017. Net sales to external customers in U.S. dollars and local currencies

were flat in 2018, compared to an increase of 2% in U.S dollars and local currencies in 2017. Net sales to external customers includes growth in industrial-related products, offset by a decline in food retailing.

Segment profit increased $27.6 million in our Swiss Operations segment during 2018, compared to an increase of $10.8 million during 2017. Segment profit includes the impact of increased inter-segment sales volume, our margin expansion initiatives, and favorable currency translation, offset in part by higher research and development activity.

Western European Operations (amounts in thousands)

	2018				2017				2016				Increase (Decrease) in % (1) 2018 vs. 2017		Increase (Decrease) in % (1)2017 vs. 2016
Net sales	$	895,783			$	844,596			$	817,059			6%		3%
Net sales to external customers	$	718,788			$	673,776			$	640,558			7%		5%
Segment profit	$	122,574			$	123,841			$	129,001			(1)%		(4)%

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

Total net sales in U.S. dollars increased 6% in 2018 and 3% in 2017, and in local currencies increased 2% in both 2018 and 2017. Net sales to external customers in U.S. dollars increased 7% in 2018 and 5% in 2017, and in local currencies increased 3% in both 2018 and 2017. The increase in local currency net sales to external customers during 2018 includes growth in most product categories, offset in part by a decline in food retailing related to reduced project activity.

Segment profit decreased $1.3 million in our Western European Operations segment during 2018, compared to a decrease of $5.2 million in 2017. The decrease in segment profit for 2018 includes higher research and development activity, an inter-segment product transfer, and roll-in costs associated with our Blue Ocean program, offset by benefits from our margin expansion initiatives and favorable currency translation.

Chinese Operations (amounts in thousands)

	2018				2017				2016				Increase (Decrease) in % (1)2018 vs. 2017		Increase (Decrease) in % (1)2017 vs. 2016
Net sales	$	767,561			$	685,499			$	606,307			12%		13%
Net sales to external customers	$	525,109			$	452,617			$	386,541			16%		17%
Segment profit	$	270,668			$	231,860			$	187,924			17%		23%

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

Total net sales in U.S. dollars increased 12% in 2018 and 13% in 2017, and in local currencies increased 10% in 2018 and 15% in 2017. Net sales by origin to external customers in U.S. dollars increased 16% in 2018 and 17% in 2017, and in local currencies increased 14% in 2018 and 19% in 2017. The increase in net sales to external customers during 2018 reflects strong growth in most product categories, especially laboratory products. While Chinese market conditions are currently favorable, there is uncertainty, including the potential impact of international trade/tariff disputes. The Chinese economy has historically been volatile and market conditions may change unfavorably due to various factors.

Segment profit increased $38.8 million in our Chinese Operations segment during 2018, compared to an increase of $43.9 million in 2017. The increase in segment profit during 2018 includes increased net sales volume and benefits from our margin expansion and cost savings initiatives, offset in part by incremental investments in sales and marketing.

Other (amounts in thousands)

	2018				2017				2016				Increase (Decrease) in % (1)2018 vs. 2017		Increase (Decrease) in % (1)2017 vs. 2016
Net sales	$	556,370			$	527,844			$	490,231			5%		8%
Net sales to external customers	$	549,827			$	519,910			$	482,522			6%		8%
Segment profit	$	78,317			$	72,681			$	64,146			8%		13%

(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 5% in 2018 and 8% in 2017, and in local currencies increased 5% and 6% in 2018 and 2017, respectively. Local currency sales growth during 2018 reflects strong growth in laboratory and core-industrial products.

Segment profit increased $5.6 million in our Other segment during 2018, compared to an increase of $8.5 million during 2017. The increase in segment profit during 2018 is primarily due to our increased sales volume, benefits from our margin expansion initiatives, and favorable foreign currency translation, offset in part by increased 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 $565.0 million in 2018, compared to $516.3 million in 2017 and $460.8 million in 2016. The increase in 2018 is primarily related to higher net earnings, offset in part by higher cash incentive payments, the timing of tax payments, and a Transition Tax payment of $4.2 million (see below).

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 $142.7 million in 2018, $127.4 million in 2017, and $124.0 million in 2016. The increase is primarily related to investments in manufacturing facilities and information technology. We expect to make net investments in a new manufacturing facility of approximately $15 million over the next two years.

Cash flows used in financing activities during 2018 included share repurchases. As further described below, in accordance with our share repurchase plan, we repurchased 802,809 shares and 749,254 shares in the amount of $475 million and $400 million during 2018 and 2017, respectively.

We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness. As further described in Note 4 of our Consolidated Financial Statements, in the third quarter of 2017, we acquired all of the shares of Biotix, Inc., a U.S.-based manufacturer and distributor of plastic consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market, for an initial cash payment of $105 million plus additional cash consideration of $10 million that will be paid in the first quarter of 2019. We also recorded a one-time gain of $18.7 million during 2018 related to the settlement of the Biotix acquisition contingent consideration.

In 2018 and 2017, we also incurred additional acquisition payments totaling $5.5 million and $2.1 million, respectively.

As previously described, we recorded charges of $3.6 million and $72 million in 2018 and 2017, respectively, for the estimated income tax effects of the Transition Tax associated with the Tax Cuts and Jobs Act of which $62 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 10 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 gain of $6.7 million and an unrealized loss of $18.2 million for the years ended December 31, 2018 and 2017, respectively.

Credit Agreement

In 2018, we entered into an amended $1.1 billion Credit Agreement (the "Credit Agreement"), which amended 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 June 15, 2023. It is a revolving credit facility and is not subject to any scheduled principal payments prior to maturity. The obligations under the Credit Agreement are unsecured.

Borrowings under the Credit Agreement bear interest at current market rates plus a margin based on our consolidated leverage ratio, which was, as of December 31, 2018, 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, 2018, approximately $600.7 million was available under the facility.

Other Local Arrangements

In April 2018, two of our non-U.S. pension plans issued loans totaling $39.6 million (Swiss franc 38 million) to a wholly owned subsidiary of the Company. The loans have the same terms and conditions which include an interest rate of Swiss franc LIBOR plus 87.5 basis points, a maturity date of April 2019 and a one year mutual renewal term and, as such, are classified as short-term debt on our consolidated balance sheet. The proceeds were used to repay outstanding amounts on the Company's credit facility.

Our short-term borrowings and long-term debt consisted of the following at December 31, 2018:

	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	—				143,053				143,053
Senior notes debt issuance costs, net	(906		)		(328		)		(1,234		)
Total Senior Notes	349,094				142,725				491,819
$1.1 billion Credit Agreement, interest at LIBOR plus 87.5 basis points(1)	414,444				78,758				493,202
Other local arrangements	654				49,016				49,670
Total debt	764,192				270,499				1,034,691
Less: current portion	(654		)		(49,016		)		(49,670		)
Total long-term debt	$	763,538			$	221,483			$	985,021

(1) See Note 6 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, 2018 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	$	1,035,926			$	49,670			$	—			$	593,203			$	393,053
Interest on debt	173,728				30,679				64,131				53,920				24,998
Non-cancelable operating leases	95,241				32,113				40,757				17,290				5,081
Pension and post-retirement funding(1)	25,804				25,804				—				—				—
Purchase obligations	64,150				46,438				10,783				6,929				—
Biotix contingent consideration	10,000				10,000				—				—				—
Total(1)	$	1,404,849			$	194,704			$	115,671			$	671,342			$	423,132

(1)	In addition to the above table, we also have liabilities for pension and post-retirement funding and income taxes (and transition tax liabilities of $49 million). However, we cannot determine the timing or the amounts for income taxes or the timing and amounts beyond 2019 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

In November 2018, the Company's Board of Directors authorized an additional $2.0 billion to the share repurchase program which has $2.1 billion of remaining availability as of December 31, 2018. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.

We have purchased 27.5 million common shares since the inception of the program in 2004 through December 31, 2018, at a total cost of $4.4 billion. During the years ended December 31, 2018 and 2017, we spent $475 million and $400 million on the repurchase of 802,809 shares and 749,254 shares at an average price per share of $591.65 and $533.84, respectively. We reissued 183,379 shares and 270,413 shares held in treasury for the exercise of stock options and restricted stock units during 2018 and 2017, 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 $1.5 million to $1.7 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, 2018, 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 $30.1 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 6 to our audited consolidated financial statements. The fair value of these contracts was a net asset of $0.5 million at December 31, 2018. Based on our agreements outstanding at December 31, 2018, a 100-basis-point increase in interest rates would result in an increase in the net aggregate market value of these instruments of $4.0 million. Conversely, a 100-basis-point decrease in interest rates would result in a $4.1 million decrease in the net aggregate market value of these instruments at December 31, 2018. 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 asset of $1.1 million at December 31, 2018. Based on our agreements outstanding at December 31, 2018, 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 $1.5 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, 2018. 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 2018 and projected benefit obligation as of December 31, 2018 were $4.2 million and $130.2 million, respectively, for our U.S. pension plan. The net periodic cost for 2018 and projected benefit obligation as of December 31, 2018 were $7.7 million and $864.1 million, respectively, for our international pension plans. The net periodic post-retirement benefit for 2018 and expected post-retirement benefit obligation as of December 31, 2018 for our U.S. post-retirement medical benefit plan were $1.6 million and $2.2 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 2018, the weighted average return on assets assumption was 6.5% for the U.S. plan and 3.8% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately $6.8 million after tax.

The discount rates for defined benefit and post-retirement plans are set by benchmarking against high-quality corporate bonds. For 2018, the weighted average discount rate assumption was 4.1% for the U.S. plan and 1.2% 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 $7.0 million after tax.

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, 2018, trade accounts receivable were $535.5 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, 2018, inventories were $268.8 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, 2018, our consolidated balance sheet included goodwill of $534.8 million and other intangible assets of $217.3 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, the United Kingdom, and certain other countries in future years and expect the additional tax costs associated with the repatriation of such earnings will be non-U.S. withholding taxes, certain state taxes, and U.S. taxes on currency gains, if any. 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 $651.9 million for the year ended December 31, 2018, each increase of $6.5 million in tax expense would increase our effective tax rate by 1%.

Revenue recognition

Product revenue is recognized from contracts with customers when a customer has obtained control of a product. We consider control to have transferred based upon shipping terms. To the extent that our contracts have a separate performance obligation, revenue related to any post-shipment performance obligation is deferred until completed. Shipping and handling costs charged to customers are included in total net sales and the associated expense is a component of cost of sales. Certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the end customer. Revenue is recognized on these distributor arrangements upon transfer of control to the distributor. Contracts do not contain variable pricing arrangements that are retrospective, except for rebate programs. Rebates are estimated based on expected sales volumes and offset against revenue at the time such revenue is recognized. 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. The provisions for estimated returns and rebates are immaterial to the consolidated financial statements.

Certain of our product arrangements include separate performance obligations, primarily related to installation. Such performance obligations are accounted for separately when the deliverables have stand-alone value and the satisfaction of the undelivered performance obligations is probable and within our control. The allocation of revenue between the performance obligations is based on the observable

standalone selling prices at the time of the sale in accordance with a number of factors including service technician billing rates, time to install, and geographic location.

Software is generally not considered a distinct performance obligation with the exception of a few small software applications. We generally do not sell software products without the related hardware instrument as the software is usually embedded in the product. Our products typically require no significant production, modification, or customization of the hardware or software that is essential to the functionality of the products.

Service revenue not under contract is recognized upon the completion of the service performed. Revenue from spare parts sold on a stand-alone basis is recognized when control is transferred to the customer, which is generally at the time of shipment or delivery. Revenue from service contracts is recognized ratably over the contract period using a time-based method. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification, and preventative maintenance on a customer’s pre-defined equipment over the contract period.

New Accounting Pronouncements

See Note 2 to the audited consolidated financial statements.