Item 16. Form 10-K Summary

182K characters. Original on sec.gov · Markdown

Item 16. Form 10-K Summary

None.

EXHIBIT INDEX



Exhibit
No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Company(1)
3.2	Amended By-laws of the Company, effective as of November 3, 2016(2)
4.3*	Description of Capital Stock
10.1	Credit Agreement among Mettler-Toledo International Inc. certain of its subsidiaries, JPMorgan Chase Bank, N.A. and certain other financial institutions, dated as of June 15, 2018(3)
10.11	Note Purchase Agreement dated as of October 10, 2012 by and among Mettler-Toledo International Inc., Massachusetts Mutual Life Insurance Company, C.M. Life Insurance Company, MassMutual Asia Limited, The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York and Aviva Life, and Annuity Company Royal Neighbors of America(4)
10.12	Note Purchase Supplement dated July 29, 2013 by and among Mettler-Toledo International Inc., Aviva Life and Annuity Company and Teachers Insurance and Annuity Association of America to a Note Purchase Agreement dated October 10, 2012 by and among Mettler-Toledo International Inc., Massachusetts Mutual Life Insurance Company, C.M. Life Insurance Company, MassMutual Asia Limited, The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York, and Aviva Life and Annuity Company Royal Neighbors of America(5)
10.13	Note Purchase Agreement dated as of June 27, 2014 by and among Mettler-Toledo International Inc., Babson Capital Management LLC, Cigna Investments, Inc., and Teachers Insurance and Annuity Association of America(6)
10.14	Note Purchase Agreement dated as of March 31, 2015 by and among Mettler-Toledo International Inc., Metropolitan Life Insurance Company, MetLife Insurance Company USA, OMI MLIC Investments Limited, and Massachusetts Mutual Life Insurance Company(7)
10.15	Note Purchase Agreement dated as of April 18, 2019 by and among Mettler-Toledo International Inc., Connecticut General Life Insurance Company, Life Insurance Company of North America, Cigna Health and Life Insurance Company, MetLife Insurance K.K., Brighthouse Life Insurance Company, Brighthouse Reinsurance Company of Delaware, Transatlantic Reinsurance Company, and Pensionskasse des Bundes PUBLICA(8)
10.16	Note Purchase Agreement dated as of November 6, 2019 by and among Mettler-Toledo International Inc., Metlife Insurance K.K., Metropolitan Tower Life Insurance Company, Pensionskasse des Bundes PUBLICA, The Northwestern Mutual Life Insurance Company, The Prudential Insurance Company of America, Athene Annuity and Life Company, Athene Annuity & Life Assurance Company, and The Lincoln National Life Insurance Company(9)
10.21†	Mettler-Toledo International Inc. 2007 Share Plan, effective February 7, 2008(10)
10.22†	Mettler-Toledo International Inc. 2013 Equity Incentive Plan(11)
10.23†	Form of Restricted Stock Unit Agreement(12)
10.24†	Form of Performance Share Unit Agreement(12)
10.25†	Performance Stock Option Agreement(12)
10.26†	Form of Stock Option Agreement Directors(12)
10.27†	Form of Stock Option Agreement CEO(12)
10.28†	Form of Stock Option Agreement NEOs(12)
10.31†	Regulations of the POBS PLUS — Incentive Scheme for Senior Management of Mettler Toledo, effective as of November, 2006(13)
10.32†	Regulations of the POBS PLUS — Incentive Scheme for Members of the Group Management of Mettler Toledo, effective as of January, 2009(13)
10.50†*	Employment Agreement between Peter Aggersbjerg and Mettler-Toledo International Inc., dated as of November 8, 2019
10.51†	Employment Agreement between Marc de La Guéronnière and Mettler-Toledo International Inc., dated as of January 27, 2011(14)
10.53†	Employment Agreement between Olivier Filliol and Mettler-Toledo International Inc., dated as of November 1, 2007(15)
10.54†	Employment Agreement between Michael Heidingsfelder and Mettler-Toledo International Inc., dated as of November 30, 2011(17)
10.55†	Employment Agreement between Simon Kirk and Mettler-Toledo International Inc., dated as of November 28, 2011(17)
10.56†	Employment Agreement between Christian Magloth and Mettler-Toledo International Inc., dated as of March 22, 2010(14)
10.57†	Employment Agreement between Gerhard Keller and Mettler-Toledo International Inc., dated as of April 27, 2018(16)
10.58†	Employment Agreement between Shawn P. Vadala and Mettler-Toledo International Inc., dated as of October 24, 2016(12)
10.59†	Form of Tax Equalization Agreement between Messrs. Filliol, Aggersbjerg, Keller, Kirkm and Magloth and Mettler-Toledo International Inc., dated October 10, 2007(11)
21*	Subsidiaries of the Company
23.1*	Consent of PricewaterhouseCoopers LLP

E- 1

Table of Contents



Exhibit
No.	Description
31.1*	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL Document)


(1)	Incorporated by reference to the Company’s Report on Form 10-K dated March 13, 1998


(2)	Incorporated by reference to the Company’s Report on Form 8-K dated November 8, 2016


(3)	Incorporated by reference to the Company’s Report on Form 8-K dated June 21, 2018


(4)	Incorporated by reference to the Company's Report on Form 8-K dated October 16, 2012


(5)	Incorporated by reference to the Company's Report on Form 8-K dated July 29, 2013


(6)	Incorporated by reference to the Company's Report on Form 8-K dated July 2, 2014


(7)	Incorporated by reference to the Company's Report on Form 8-K dated March 31, 2015


(8)	Incorporated by reference to the Company's Report on Form 8-K dated April 18, 2019


(9)	Incorporated by reference to the Company's Report on Form 8-K dated November 6, 2019


(10)	Incorporated by reference to the Company’s Report on Form 10-K dated February 15, 2008


(11)	Incorporated by reference to the Company's Registration Statement on Form S-8 dated July 26, 2013 (Reg. No. 333-190181)


(12)	Incorporated by reference to the Company’s Report on Form 10-K dated February 2, 2017


(13)	Incorporated by reference to the Company’s Report on Form 10-K dated February 13, 2009


(14)	Incorporated by reference to the Company's Report on Form 10-K dated February 16, 2011


(15)	Incorporated by reference to the Company’s Report on Form 8-K dated November 1, 2007


(16)	Incorporated by reference to the Company's Report on Form 10-Q dated July 27, 2018


(17)	Incorporated by reference to the Company's Report on Form 10-K dated February 28, 2013


***	Filed herewith


†	Management contract or compensatory arrangement

E- 2

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Mettler-Toledo International Inc.

(Registrant)

Date: February 7, 2020



By:	/s/ Olivier A. Filliol
	Olivier A. Filliol
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant as of the date set out above and in the capacities indicated.



Signature		Title

/s/ Olivier A. Filliol		President and Chief Executive Officer
Olivier A. Filliol

/s/ Shawn P. Vadala		Chief Financial Officer
Shawn P. Vadala

/s/ Olivier A. Filliol		Director
Olivier A. Filliol

/s/ Wah-Hui Chu		Director
Wah-Hui Chu

/s/ Domitille Doat-Le Bigot		Director
Domitille Doat-Le Bigot

/s/ Elisha Finney		Director
Elisha Finney

/s/ Richard Francis		Director
Richard Francis

/s/ Michael A. Kelly		Director
Michael A. Kelly

/s/ Thomas P. Salice		Director
Thomas P. Salice

/s/ Robert F. Spoerry		Director
Robert F. Spoerry

E- 3

METTLER-TOLEDO INTERNATIONAL INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017	F-5
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017	F-6
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-7
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018, and 2017	F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017	F-9
Notes to the Consolidated Financial Statements	F-10

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Mettler-Toledo International Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mettler-Toledo International Inc. and its subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2019 appearing on page S-1 (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 17 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-2

Table of Contents

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Adoption of the Leases Accounting Standard

As described in Notes 2 and 17 to the consolidated financial statements, the Company adopted the new leases accounting standard effective January 1, 2019. Upon adoption, the Company recognized operating lease right-of-use assets of $92.7 million and corresponding operating lease liabilities of $93.5 million. Management’s assessment of the impact of the new lease accounting standard considered both the lease term and the present value of the lease payments, where (i) the lease term reflects the noncancellable period of the lease together with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option, and (ii) the present value of the lease payments was determined by applying the Company’s incremental borrowing rate at the lease commencement date as the information necessary to determine the rate implicit in the lease was not readily available.

The principal considerations for our determination that performing procedures relating to the adoption of the leases accounting standard is a critical audit matter are there was significant judgment by management in determining the terms of the leases, including the evaluation of the certainty related to extending or terminating the leases, and the incremental borrowing rates. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the determination of the terms of the leases and incremental borrowing rates.

F-3

Table of Contents

the leases involved evaluating a sample of contracts and assessing any extension or termination clauses, evaluating whether the lease terms determined by management were consistent with management’s plans or past experience, and whether management’s evaluation of the certainty related to extending or terminating the lease is consistent with evidence obtained in other areas of the audit. Evaluating the reasonableness of management’s assumption relating to the incremental borrowing rates involved evaluating the consistency with the rates of interest on similar debt arrangements.

Valuation of Deferred Taxes

As described in Notes 2 and 14 to the consolidated financial statements, the Company recorded deferred tax assets of $194.2 million, net of a valuation allowance of $50.9 million, as of December 31, 2019. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance is based on management’s estimates of future taxable income and application of relevant income tax law.

The principal considerations for our determination that performing procedures relating to the valuation of deferred taxes is a critical audit matter are there was significant judgment by management when assessing the ability to realize deferred tax assets, particularly as it relates to estimates of future taxable income and application of income tax law in relevant foreign jurisdictions. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures relating to management’s assessment of the realizability of deferred tax assets, as it relates to estimates of future taxable income and application of income tax law.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of deferred taxes, including controls over estimates of future taxable income. These procedures also included, among others, evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional basis. This included evaluating estimates of future taxable income, evaluating management's application of income tax law, and testing the completeness and accuracy of underlying data used in management’s assessment. Evaluating management’s estimates of future taxable income involved evaluating whether the estimates used by management were reasonable considering the current and past performance of the respective entity and whether the estimates were consistent with evidence obtained in other areas of the audit.



/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Columbus, Ohio

February 7, 2020

We have served as the Company’s auditor since 2005.

F-4

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31

(In thousands, except share data)



	2019			2018			2017
Net sales
Products	$	2,346,845		$	2,300,075		$	2,135,051
Service	661,807			635,511			590,002
Total net sales	3,008,652			2,935,586			2,725,053
Cost of sales
Products	929,669			914,086			831,355
Service	337,772			337,122			317,947
Gross profit	1,741,211			1,684,378			1,575,751
Research and development	143,950			141,071			128,308
Selling, general, and administrative	819,183			812,802			794,861
Amortization	49,690			47,524			42,671
Interest expense	37,411			34,511			32,785
Restructuring charges	15,760			18,420			12,772
Other charges (income), net	(6,177		)	(21,808		)	(9,868		)
Earnings before taxes	681,394			651,858			574,222
Provision for taxes	120,285			139,247			198,250
Net earnings	$	561,109		$	512,611		$	375,972

Basic earnings per common share:
Net earnings	$	22.84		$	20.33		$	14.62
Weighted average number of common shares	24,567,609			25,215,674			25,713,575
Diluted earnings per common share:
Net earnings	$	22.47		$	19.88		$	14.24
Weighted average number of common and common equivalent shares	24,974,457			25,781,324			26,393,783

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

F-5

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31

(In thousands, except share data)



	2019			2018			2017

Net earnings	$	561,109		$	512,611		$	375,972

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	2,898			(32,573		)	83,982
Unrealized gains (losses) on cash flow hedging arrangements:
Unrealized gains (losses)	(1,063		)	(658		)	1,424
Effective portion of (gains) losses included in net earnings	(861		)	2,441			(273		)
Defined benefit pension and post-retirement plans:
Net actuarial gains (losses)	(32,699		)	(23,326		)	(10,378		)
Plan amendments and prior service cost	430			(780		)	12,056
Amortization of actuarial (gains) losses and plan amendments and prior service cost	12,144			14,366			14,873
Impact of foreign currency	(2,108		)	3,522			(12,092		)
Total other comprehensive income (loss), net of tax	(21,259		)	(37,008		)	89,592

Comprehensive income	$	539,850		$	475,603		$	465,564

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

F-6

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

As of December 31

(In thousands, except share data)



	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	207,785		$	178,110
Trade accounts receivable, less allowances of $17,009 in 2019 and $15,469 in 2018	566,256			535,528
Inventories	274,285			268,821
Other current assets and prepaid expenses	61,321			63,401
Total current assets	1,109,647			1,045,860
Property, plant, and equipment, net	748,657			717,526
Goodwill	535,979			534,780
Other intangible assets, net	206,242			217,308
Deferred tax assets, net	36,978			35,066
Other non-current assets	151,818			68,307
Total assets	$	2,789,321		$	2,618,847
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	185,592		$	196,641
Accrued and other liabilities	166,118			156,449
Accrued compensation and related items	155,402			152,516
Deferred revenue and customer prepayments	122,489			105,381
Taxes payable	69,043			73,777
Short-term borrowings and current maturities of long-term debt	55,868			49,670
Total current liabilities	754,512			734,434
Long-term debt	1,235,350			985,021
Deferred tax liabilities, net	45,267			48,818
Other non-current liabilities	333,412			260,511
Total liabilities	2,368,541			2,028,784
Commitments and contingencies (Note 18)
Shareholders’ equity:
Preferred stock, $0.01 par value per share; authorized 10,000,000 shares	—			—
Common stock, $0.01 par value per share; authorized 125,000,000 shares; issued 44,786,011 and 44,786,011 shares, outstanding 24,125,317 and 24,921,963 shares at December 31, 2019 and 2018, respectively	448			448
Additional paid-in capital	783,871			764,717
Treasury stock at cost (20,660,694 and 19,864,048 shares at December 31, 2019 and 2018, respectively)	(4,539,154		)	(3,814,604		)
Retained earnings	4,499,288			3,941,916
Accumulated other comprehensive income (loss)	(323,673		)	(302,414		)
Total shareholders’ equity	420,780			590,063
Total liabilities and shareholders’ equity	$	2,789,321		$	2,618,847

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

F-7

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the years ended December 31

(In thousands, except share data)



	Common Stock				Additional Paid-In Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount
Balance at December 31, 2016	26,020,234		$	448	$	730,556	$	(3,006,771	)	$	3,065,708		$	(354,998	)	$	434,943
Exercise of stock options and restricted stock units	270,413		—		—		38,586			(9,937		)	—			28,649
Repurchases of common stock	(749,254	)	—		—		(399,997		)	—			—			(399,997		)
Share-based compensation	—		—		16,582		—			—			—			16,582
Effect of accounting change	—		—		—		—			1,539			—			1,539
Net earnings	—		—		—		—			375,972			—			375,972
Other comprehensive income (loss), net of tax	—		—		—		—			—			89,592			89,592
Balance at December 31, 2017	25,541,393		$	448	$	747,138	$	(3,368,182	)	$	3,433,282		$	(265,406	)	$	547,280
Exercise of stock options and restricted stock units	183,379		—		—		28,577			(3,977		)	—			24,600
Repurchases of common stock	(802,809	)	—		—		(474,999		)	—			—			(474,999		)
Share-based compensation	—		—		17,579		—			—			—			17,579
Net earnings	—		—		—		—			512,611			—			512,611
Other comprehensive income (loss), net of tax	—		—		—		—			—			(37,008		)	(37,008		)
Balance at December 31, 2018	24,921,963		$	448	$	764,717	$	(3,814,604	)	$	3,941,916		$	(302,414	)	$	590,063
Exercise of stock options and restricted stock units	298,002		—		869		50,449			(3,737		)	—			47,581
Repurchases of common stock	(1,094,648	)	—		—		(774,999		)	—			—			(774,999		)
Share-based compensation	—		—		18,285		—			—			—			18,285
Net earnings	—		—		—		—			561,109			—			561,109
Other comprehensive income (loss), net of tax	—		—		—		—			—			(21,259		)	(21,259		)
Balance at December 31, 2019	24,125,317		$	448	$	783,871	$	(4,539,154	)	$	4,499,288		$	(323,673	)	$	420,780

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

F-8

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31

(In thousands)



	2019			2018			2017
Cash flows from operating activities:
Net earnings	$	561,109		$	512,611		$	375,972
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	38,991			37,167			33,458
Amortization	49,690			47,524			42,671
Deferred tax (benefit) provision	11,203			2,302			(2,745		)
Share-based compensation	18,285			17,579			16,582
Swiss tax reform (Note 14)	(15,833		)	—			—
U.S. tax reform charge (Note 14)	—			3,597			71,982
Acquisition gain (Note 4)	—			(18,674		)	—
Other	133			(2,559		)	(3,151		)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable, net	(31,408		)	(19,540		)	(38,985		)
Inventories	(4,603		)	(21,195		)	(13,680		)
Other current assets	(335		)	622			(6,251		)
Trade accounts payable	(12,221		)	33,671			11,885
Taxes payable	(6,176		)	(1,528		)	13,615
Accruals and other	(5,385		)	(26,572		)	14,972
Net cash provided by operating activities	603,450			565,005			516,325
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment	1,422			8,190			11,973
Purchase of property, plant, and equipment	(97,341		)	(142,726		)	(127,426		)
Acquisitions	(2,004		)	(5,527		)	(108,445		)
Net hedging settlements on intercompany loans	(1,160		)	1,119			6,554
Net cash used in investing activities	(99,083		)	(138,944		)	(217,344		)
Cash flows from financing activities:
Proceeds from borrowings	1,435,081			940,615			1,244,195
Repayments of borrowings	(1,176,784		)	(876,324		)	(1,185,172		)
Proceeds from exercise of stock options	47,581			24,600			28,649
Repurchases of common stock	(774,999		)	(474,999		)	(399,997		)
Acquisition contingent consideration paid	(10,000		)	—			—
Other financing activities	1,753			(1,914		)	(7,205		)
Net cash used in financing activities	(477,368		)	(388,022		)	(319,530		)
Effect of exchange rate changes on cash and cash equivalents	2,676			(8,616		)	10,562
Net increase (decrease) in cash and cash equivalents	29,675			29,423			(9,987		)
Cash and cash equivalents:
Beginning of period	178,110			148,687			158,674
End of period	$	207,785		$	178,110		$	148,687
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	37,499		$	34,451		$	33,333
Taxes	$	129,347		$	132,410		$	109,730

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

F-9

Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data, unless otherwise stated)


1.	BUSINESS DESCRIPTION AND BASIS OF PRESENTATION

Mettler-Toledo International Inc. (“Mettler-Toledo” or the “Company”) is a leading global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics, and food retailing applications. The Company also manufactures several related analytical instruments and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging and provides solutions for use in certain process analytics applications. The Company’s primary manufacturing facilities are located in China, Switzerland, the United States, Germany, the United Kingdom, and Mexico. The Company’s principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all entities in which the Company has control, which are its wholly owned subsidiaries.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

All intercompany transactions and balances have been eliminated.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturity dates of three months or less. The carrying value of these cash equivalents approximates fair value.

Trade Accounts Receivable

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

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor, and overhead, is generally determined using the first in, first out (FIFO) method. The estimated net realizable value is based on assumptions for future demand and related pricing. Adjustments to the cost basis of the Company’s inventory are made for excess and obsolete items based on usage, orders, and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.

F-10

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Long-Lived Assets


a)	Property, Plant, and Equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. Repair and maintenance costs are charged to expense as incurred. The Company expenses all internal-use software costs incurred in the preliminary project stage and capitalizes certain direct costs associated with the development and purchase of internal-use software within property, plant, and equipment. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the software, generally not exceeding 10 years.

Depreciation and amortization are charged on a straight-line basis over the estimated useful lives of the assets as follows:



Buildings and improvements	15 to 50 years
Machinery and equipment	3 to 12 years
Computer software	3 to 10 years
Leasehold improvements	Shorter of useful life or lease term


b)	Goodwill and Other Intangible Assets

Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual 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 the Company is unable to conclude whether the goodwill asset is not impaired after considering the totality of events and circumstances during its qualitative assessment, the Company performs 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 the Company performs the second step of the impairment test to measure the amount of the impairment loss, if any.

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

Other intangible assets include indefinite-lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period to be benefited. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company assesses the initial acquisition of intangible assets in accordance with the provisions of ASC 805 - Business Combinations and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 - Intangible - Goodwill and Other and ASC 360 - Property, Plant, and Equipment.

F-11

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Accounting for Impairment of Long-Lived Assets

The Company assesses the need to record impairment losses on long-lived assets (asset group) with finite lives when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. An impairment loss would be recognized when future estimated undiscounted cash flows expected to result from use and eventually disposition of that asset (asset group) are less than the asset’s carrying value, with the loss measured as the difference between carrying value and estimated fair value.

Taxation

The Company files tax returns in each jurisdiction in which it operates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance is based on management's estimates of future taxable income and application of relevant income tax law.

Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. Deferred taxes are provided when the Company no longer considers subsidiary earnings to be permanently invested, such as in situations where the Company’s subsidiaries plan to make future dividend distributions.

In accordance with the Tax Cuts and Jobs Act, the Company treats taxes due on future Global Intangible Low-Taxed Income ("GILTI") inclusions in U.S. taxable income as a current period expense when incurred.

The Company recognizes accrued amounts of interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations.

Currency Translation and Transactions

The reporting currency for the consolidated financial statements of the Company is the U.S. dollar. The functional currency for the Company’s operations is generally the applicable local currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidated financial statements by translating the assets and liabilities into the reporting currency at the exchange rates applicable at the end of the reporting period. The statements of operations and cash flows of such non-U.S. dollar functional currency operations are translated at the monthly weighted average exchange rates during the year. Translation gains or losses are accumulated in other comprehensive income (loss) in the consolidated statements of shareholders’ equity. Transaction gains and losses are included as a component of net earnings or in certain circumstances as a component of other comprehensive income (loss) where the underlying item is considered a hedge of a net investment or relates to intercompany notes that are long-term in nature.

Revenue Recognition

Product revenue is recognized from contracts with customers when a customer has obtained control of a product. The Company considers control to have transferred based upon shipping terms. To the extent

F-12

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

the Company’s 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. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. The related provisions for estimated returns and rebates are immaterial to the consolidated financial statements.

Certain of the Company’s product arrangements include separate performance obligations, primarily related to installation. Such performance obligations are accounted for separately when the deliverables have stand-alone value and the satisfaction of the undelivered performance obligations is probable and within the Company's control. The allocation of revenue between the performance obligations is based on the observable stand-alone selling prices at the time of the sale in accordance with a number of factors including service technician billing rates, time to install, and geographic location.

Software is generally not considered a distinct performance obligation with the exception of a limited number of small software applications. The Company generally does not sell software products without the related hardware instrument as the software is embedded in the product. The Company’s products typically require no significant production, modification, or customization of the hardware or software that is essential to the functionality of the products.

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

Leases

The Company considers an arrangement a lease if the arrangement transfers the right to control the use of an identified asset in exchange for consideration. The Company has operating leases, but does not have material financing leases.

Operating lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of the lease payments over the lease term. Lease payments include both lease and non-lease components for items or activities that transfer a good and service. Vehicle lease and non-lease components are separately accounted for based on stand-alone value. Real estate lease and non-lease components are accounted for as a single component. Operating lease right-of-use assets include initial direct costs, advanced lease payments, and lease incentives.

F-13

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The lease term reflects the noncancellable period of the lease together with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option. The Company applies its incremental borrowing rate at the lease commencement date in determining the present value of lease payments as the information necessary to determine the rate implicit in the lease is not readily available. The incremental borrowing rate reflects similar terms by geographic location to the underlying leases. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the right-of-use asset and lease liabilities and are expensed as incurred. Short-term leases are less than one year without purchase or renewal options that are reasonably certain to be exercised and are recognized on a straight-line basis over the lease term. The right-of-use asset is tested for impairment in accordance with ASC 360.

Research and Development

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

Employee Termination Benefits

In situations where contractual termination benefits exist, the Company records accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. All other employee termination arrangements are recognized and measured at their fair value at the communication date unless the employee is required to render additional service beyond the legal notification period, in which case the liability is recognized ratably over the future service period.

Earnings per Common Share

In accordance with the treasury stock method, the Company has included 406,848, 565,650, and 680,208 common equivalent shares in the calculation of diluted weighted average number of common shares for the years ended December 31, 2019, 2018, and 2017, respectively, relating to outstanding stock options and restricted stock units.

Outstanding options and restricted stock units to purchase or receive 71,660, 63,019, and 9,824 shares of common stock for the years ended December 31, 2019, 2018, and 2017, respectively, have been excluded from the calculation of diluted weighted average number of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.

Equity-Based Compensation

The Company applies the fair value methodology in accounting for its equity-based compensation plan.

F-14

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Derivative Financial Instruments

The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. As described more fully in Note 6, the Company primarily enters into foreign currency forward exchange contracts to economically hedge certain short-term intercompany balances involving its international businesses. Such contracts limit the Company’s exposure to currency fluctuations on the underlying hedged item. These contracts are adjusted to fair market value as of each balance sheet date, with the resulting changes in fair value being recognized in other charges (income), consistent with the underlying hedged item.

The Company also enters into interest rate swap agreements and cross currency swaps in order to manage its exposure to changes in interest rates. The differential paid or received on interest rate swap agreements is recognized as incurred in interest expense over the life of the hedge agreements. Floating to fixed interest rate swap agreements are accounted for as cash flow hedges. Changes in fair value of outstanding interest rate swap agreements that are effective as cash flow hedges are initially recognized in other comprehensive income as incurred.

Fair Value Measurements

The Company measures or monitors certain assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities in which fair value is the primary basis of accounting, mainly derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the fair value hierarchy established under U.S. GAAP and when possible looks to active and observable markets to price identical assets and liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities.

Business Combinations and Asset Acquisitions

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

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

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14: Compensation - Retirement Benefit which amends the current disclosure requirements for defined benefit pension plans and other post-retirement plans. The change in the disclosures will be applied retrospectively and become effective December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the benefit plan disclosures.

F-15

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

In August 2018, the FASB issued ASU 2018-15: Internal-Use Software which clarifies the accounting for implementation costs associated with cloud-computing internal-use software arrangements. The implementation costs should be capitalized and expensed over the service term, including options to extend, and recognized in selling, general, and administrative in the statement of operations. The guidance becomes effective January 1, 2020 and is applied on a prospective basis. The Company is currently evaluating the impact of this guidance on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12: Income Taxes which removes certain exceptions to the general principles of ASC 740 related to intraperiod tax allocation exceptions, deferred tax liabilities related to outside basis differences, and year-to-date losses in interim periods. In addition, the ASU amends the interim guidance to clarify that all tax effects, both deferred and current, related to enactments of tax laws or rate changes should be accounted for in the interim period that includes the enactment date. The change is applied prospectively and becomes effective December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the consolidated financial statements.


3.	REVENUE

On January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers and all the related amendments using the modified retrospective method, whereby the adoption did not impact any prior periods. The effect of adopting the new standard did not require any cumulative effect adjustment to retained earnings as of January 1, 2018. There was no impact to our consolidated statements of operations, balance sheet, or statement of cash flows as of and for the period ended December 31, 2018.

The Company disaggregates revenue from contracts with customers by product, service, timing of revenue recognition, and geography. A summary by the Company’s reportable segments follows for the twelve months ended December 31:



Twelve months ended December 31, 2019	U.S. Operations		Swiss Operations		Western European Operations		Chinese Operations		Other Operations		Total
Product Revenue	$	801,181	$	110,390	$	500,978	$	495,579	$	438,717	$	2,346,845
Service Revenue:
Point in time	207,707		20,968		135,612		37,370		109,802		511,459
Over time	48,227		8,141		64,151		11,767		18,062		150,348
Total	$	1,057,115	$	139,499	$	700,741	$	544,716	$	566,581	$	3,008,652



Twelve months ended December 31, 2018	U.S. Operations		Swiss Operations		Western European Operations		Chinese Operations		Other Operations		Total
Product Revenue	$	769,971	$	106,400	$	517,855	$	475,025	$	430,824	$	2,300,075
Service Revenue:
Point in time	196,314		19,430		134,052		38,528		100,638		488,962
Over time	41,512		8,234		66,881		11,556		18,366		146,549
Total	$	1,007,797	$	134,064	$	718,788	$	525,109	$	549,828	$	2,935,586

F-16

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The Company's global revenue mix by product category is laboratory (52% of sales), industrial (41% of sales), and retail (7% of sales). The Company's product revenue by reportable segment is proportionately similar to the Company's global mix except the Company's Swiss Operations, which is largely comprised of laboratory products while the Company's Chinese Operations has a slightly higher percentage of industrial products. A breakdown of the Company's sales by product category for the year ended December 31 follows:



	2019		2018
Laboratory	$	1,578,625	$	1,504,600
Industrial	1,233,970		1,211,362
Retail	196,057		219,624
Total net sales	$	3,008,652	$	2,935,586

A breakdown of net sales to external customers by geographic customer destination, net for the year ended December 31 follows:



	2019		2018
Americas	$	1,165,847	$	1,105,956
Europe	892,092		908,773
Asia/Rest of World	950,713		920,857
Total	$	3,008,652	$	2,935,586

The payment terms in the Company’s contracts with customers do not exceed one year and therefore contracts do not contain a significant financing component. In most cases, after appropriate credit evaluations, payments are due in arrears and are recognized as receivables. Unbilled revenue is recorded when performance obligations have been satisfied, but not yet billed to the customer. Unbilled revenue as of December 31, 2019 and 2018 was $17.4 million and $12.4 million, respectively, and is included within accounts receivable. Deferred revenue and customer prepayments are recorded when cash payments are received or due in advance of the performance obligation being satisfied. Deferred revenue primarily includes prepaid service contracts, as well as deferred installation.

Changes in the components of deferred revenue and customer prepayments during the period are as follows:



	2019			2018
Beginning balances as of January 1	$	105,381		$	107,166
Customer pre-payments/deferred revenue	633,190			619,257
Revenue recognized	(615,957		)	(618,002		)
Foreign currency translation	(125		)	(3,040		)
Ending balance as of December 31	$	122,489		$	105,381

The Company generally expenses sales commissions when incurred because the contract period is one year or less. These costs are recorded within selling, general, and administrative expenses. The Company has not disclosed the value of unsatisfied performance obligations other than customer prepayments and deferred revenue as most contracts have an expected length of one year or less and amounts greater than one year are immaterial.

F-17

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

4. ACQUISITIONS

In 2018, the Company incurred cumulative acquisition payments totaling $5.5 million. The Company recorded $4.9 million of identified intangibles primarily pertaining to technology and patents in connection with these acquisitions, which will be amortized on a straight-line basis over 10 years. Goodwill recorded in connection with these acquisitions totaled $0.6 million.

In September 2017, the Company acquired all of the shares of Biotix, Inc., a U.S.-based manufacturer and distributor of plastic consumables associated with pipettes, including tips, tubes, and reagent reservoirs used in the life sciences market. The initial cash payment was $105 million plus an initial contingent consideration obligation with an estimated fair value at the acquisition date of $30.7 million. The contingent consideration was initially determined using a Monte Carlo simulation based on a forecast of future results. The Company settled the obligation for cash consideration of $10 million (that was paid in the first quarter of 2019) and the release of certain indemnifications that resulted in a one-time gain of $18.7 million in 2018. Goodwill recorded in connection with the acquisition totaled $51.7 million, which is included in the Company's U.S. Operations segment. Identified intangible finite-life assets acquired include customer relationships of $49.5 million, technology and patents of $8.0 million, indefinite-life tradenames of $7.1 million, and other intangibles of $0.6 million. The identifiable finite-life intangible assets will be amortized on a straight-line basis over periods ranging from 5 to 18 years and the annual aggregate amortization expense is estimated at $3.7 million. Net tangible assets acquired were $18.8 million and recorded at fair value in the consolidated financial statements.

In 2017, the Company also incurred cumulative additional acquisition payments totaling $3.8 million. The Company recorded $3.1 million of identified intangibles primarily pertaining to technology and patents in connection with these acquisitions, which will be amortized on a straight-line basis over 12 years. Goodwill recorded in connection with these acquisitions totaled $0.3 million.

5. INVENTORIES

Inventory consisted of the following at December 31:



	2019		2018
Raw materials and parts	$	129,294	$	122,945
Work-in-progress	43,202		47,098
Finished goods	101,789		98,778
Total inventory	$	274,285	$	268,821

F-18

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

6. FINANCIAL INSTRUMENTS

The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. At December 31, 2019, the interest payments associated with 79% of the Company's debt are fixed obligations. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreement and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. For additional disclosures on derivative instruments regarding balance sheet location, fair value, and the amounts reclassified into other comprehensive income and the effective portion of the cash flow hedges, also see Note 7 and Note 11 to the consolidated financial statements. As also mentioned in Note 10, the Company has designated its euro-denominated debt as a hedge of a portion of its net investment in a euro-denominated foreign subsidiary.

Cash Flow Hedges

In June 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payment, excluding the credit spread, to a fixed Swiss franc income of 0.82%. The swap began in June 2019 and matures in June 2023.

In June 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payment, excluding the credit spread, to a fixed Swiss franc income of 0.95%. The swap began in June 2019 and matures in June 2021.

In February 2019, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $50 million of borrowings under the Company's credit facility into synthetic Swiss franc debt, which allows the Company to effectively change the floating rate LIBOR-based interest payment, excluding the credit spread, to a fixed Swiss franc income of 0.78%. The swap began in February 2019 and matures in June 2021.

In 2017, the Company entered into a cross currency swap arrangement designated as a cash flow hedge. The agreement converts $100 million of borrowings under the Company's credit facility into synthetic Swiss franc debt which allows the Company to effectively change the floating rate LIBOR-based interest payment to a fixed Swiss franc income of 0.01%. The swap began in June 2017 and matured in June 2019.

In 2015, the Company entered into a forward-starting interest rate swap agreement. The

agreement changes the floating rate LIBOR-based interest payments associated with $100 million in

borrowings under the Company's credit agreement to a fixed obligation of 2.25% which began in

February 2017 and matures in February 2022.

In 2013, the Company entered into an interest rate swap agreement designated as a cash flow hedge. The agreement is a swap which has the effect of changing the floating rate LIBOR-based interest payments associated with $50 million in borrowings under the Company's credit agreement to a fixed obligation of 2.52% beginning in October 2015 and maturing in October 2020.

F-19

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at December 31, 2019 and 2018 and are disclosed in Note 7 to the consolidated financial statements. A derivative gain of $2.7 million based upon interest rates at December 31, 2019 is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through December 31, 2019, no hedge ineffectiveness has occurred in relation to these cash flow hedges.

Other Derivatives

The Company primarily enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc, other major European currencies, and the Chinese renminbi with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts are recorded at fair value in the consolidated balance sheet at December 31, 2019 and 2018, as disclosed in Note 7 to the consolidated financial statements. The Company recognized in other charges (income) a net loss of $3.7 million and $1.2 million and a net gain of $9.4 million during the years ended December 31, 2019, 2018, and 2017 respectively, which offset the related net transaction gains (losses) associated with these contracts. At December 31, 2019 and 2018, these contracts had a notional value of $494.6 million and $436.7 million, respectively.

The Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts. Counterparties are established banks and financial institutions with high credit ratings. The Company believes that such counterparties will be able to fully satisfy their obligations under these contracts.

7. FAIR VALUE MEASUREMENTS

At December 31, 2019 and 2018, the Company had derivative assets totaling $1.6 million and $3.2 million, respectively, and derivative liabilities totaling $9.0 million and $1.1 million, respectively. The Company has limited involvement with derivative financial instruments and therefore does not present all the required disclosures in tabular format. The fair value of the interest rate swap agreements, the cross-currency swap agreements, and the foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant for the years ended December 31, 2019 and 2018.

Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.

F-20

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

A fair value hierarchy has been established that categorizes these inputs into three levels:

Level 1: Quoted prices in active markets for identical assets and liabilities

Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3: Unobservable inputs

The following table presents the Company's assets and liabilities, which are all categorized as Level 2 and are measured at fair value on a recurring basis at December 31, 2019 and 2018. The Company does not have any assets or liabilities that are categorized as Level 1 or Level 3.



	2019		2018		Balance Sheet Location
Foreign currency forward contracts not designated as hedging instruments	$	1,568	$	1,534	Other current assets and prepaid expenses
Cash Flow Hedges:
Interest rate swap agreements	—		545		Other non-current assets
Cross currency swap agreements	—		1,154		Other current assets and prepaid expenses
Total derivative assets	$	1,568	$	3,233

Foreign currency forward contracts not designated as hedging instruments	$	2,392	$	1,059	Accrued and other liabilities
Cash Flow Hedges:
Interest rate swap agreements	371		—		Accrued and other liabilities
Interest rate swap agreements	1,548		27		Other non-current liabilities
Cross currency swap agreements	4,706		—		Other non-current liabilities
Total derivative liabilities	$	9,017	$	1,086

The Company had $8.2 million and $9.0 million of Level 2 cash equivalents at December 31, 2019 and 2018, respectively, the fair value of which is determined through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.

The fair value of the Company's debt exceeds the carrying value by approximately $24.4 million as of December 31, 2019. The fair value of the Company's fixed interest rate debt was estimated using Level 2 inputs and primarily discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company.

8. PROPERTY, PLANT, AND EQUIPMENT, NET

Property, plant, and equipment, net consisted of the following at December 31:



	2019			2018
Land	$	58,047		$	58,072
Building and leasehold improvements	326,743			317,636
Machinery and equipment	413,411			386,504
Computer software	514,400			470,976
Property, plant, and equipment, gross	1,312,601			1,233,188
Less accumulated depreciation and amortization	(563,944		)	(515,662		)
Property, plant, and equipment, net	$	748,657		$	717,526

F-21

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows the changes in the carrying amount of goodwill for the years ended December 31:



	2019		2018
Balance at beginning of year	$	534,780	$	539,838
Goodwill acquired	—		558
Foreign currency translation	1,199		(5,616		)
Balance at year end	$	535,979	$	534,780

Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis in the fourth quarter. The Company completed its impairment review and determined that there had been no impairment of these assets through December 31, 2019. The Company identified no triggering events or other circumstances which indicated the carrying amount of goodwill or intangible assets may not be recoverable.

The components of other intangible assets as of December 31 are as follows:



	2019							2018
	Gross Amount		Accumulated Amortization			Intangibles, Net		Gross Amount		Accumulated Amortization			Intangibles, Net
Customer relationships	$	197,764	$	(58,851	)	$	138,913	$	197,942	$	(49,887	)	$	148,055
Proven technology and patents	75,170		(46,532		)	28,638		73,880		(42,750		)	31,130
Tradenames (finite life)	4,594		(3,124		)	1,470		4,504		(2,874		)	1,630
Tradenames (indefinite life)	35,474		—			35,474		35,500		—			35,500
Other	5,462		(3,715		)	1,747		3,684		(2,691		)	993
	$	318,464	$	(112,222	)	$	206,242	$	315,510	$	(98,202	)	$	217,308

The Company recognized amortization expense associated with the above intangible assets of $15.1 million, $14.3 million, and $11.5 million for the years ended December 31, 2019, 2018, and 2017, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $15.5 million for 2020, $14.3 million for 2021, $12.8 million for 2022, $13.5 million for 2023, and $11.8 million for 2024. The finite-lived intangible assets are amortized on a straight-line basis over periods ranging from 3 to 45 years. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. Purchased intangibles amortization was $14.3 million, $10.8 million after tax, $13.3 million, $10.0 million after tax, and $10.9 million, $7.1 million after tax, for the years ended December 31, 2019, 2018, and 2017, respectively.

In addition to the above amortization, the Company recorded amortization expense associated with capitalized software, which is included in Property, Plant and Equipment in Note 8, of $34.4 million, $33.0 million, and $31.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

F-22

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

10. DEBT

Debt consisted of the following at December 31:



	2019			2018
3.67% $50 million ten-year Senior Notes due December 17, 2022	$	50,000		$	50,000
4.10% $50 million ten-year Senior Notes due September 19, 2023	50,000			50,000
3.84% $125 million ten-year Senior Notes due September 19, 2024	125,000			125,000
4.24% $125 million ten-year Senior Notes due June 25, 2025	125,000			125,000
3.91% $75 million ten-year Senior Notes due June 25, 2029	75,000			—
1.47% EUR 125 million fifteen-year Senior Notes due June 17, 2030	140,197			143,053
1.30% EUR 135 million fifteen-year Senior Notes due November 6, 2034	151,413			—
Senior Notes debt issuance costs, net	(2,259		)	(1,234		)
Total Senior Notes	714,351			491,819
$1.1 billion Credit Agreement, interest at LIBOR plus 87.5 basis points(1)	520,999			493,202
Other local arrangements	55,868			49,670
Total debt	1,291,218			1,034,691
Less: current portion	(55,868		)	(49,670		)
Total long-term debt	$	1,235,350		$	985,021

(1) See Note 6 and Note 7 for additional disclosures on the financial instruments associated with the Credit Agreement.

The Company's weighted average interest rate was 3.3% for the years ended December 31, 2019 and 2018.

Senior Notes

The Senior Notes listed above are senior unsecured obligations of the Company and interest is payable semi-annually. The Company may at any time prepay the Senior Notes, in whole or in part, at a price equal to: 100% of the principal amount thereof; plus accrued and unpaid interests; and in some instances a “make whole” prepayment premium. The Euro Senior Notes, if prepaid, may also include a swap related currency loss. The Senior Notes each contain customary affirmative and negative covenants including, among others, limitations on the Company and its subsidiaries with respect to incurrence of liens and priority indebtedness, disposition of assets, mergers, and transactions with affiliates. The agreements also require the Company to maintain a consolidated interest coverage ratio of not less than 3.5 to 1.0 and a consolidated leverage ratio of not more than 3.5 to 1.0. The Senior Notes also contain customary events of default with customary grace periods, as applicable. The Company was in compliance with its covenants at December 31, 2019.

Total issuance costs of approximately $3.4 million have been incurred by the Company related to the Senior Notes mentioned above and are being amortized to interest expense over the various term.

The Company has designated the EUR 125 million 1.47% Euro Senior Notes and the EUR 135 million 1.30% Euro Senior Notes as a hedge of a portion of its net investment in a euro denominated foreign subsidiary to reduce foreign currency 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). The Company recorded in other comprehensive income (loss) related to this net investment hedge an unrealized gain of $1.3 million and $6.7 million for the years ended December 31, 2019 and 2018, and an unrealized loss of

F-23

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

$18.2 million for the year ended December 31, 2017, respectively. The Company has a loss of $1.5 million recorded in accumulated other comprehensive income (loss) as of December 31, 2019.

On January 24, 2020, the Company issued $50 million fifteen-year Senior Notes with a fixed interest rate of 3.19%, which will mature January 24, 2035. The terms of the Senior Notes are consistent with the previous Senior Notes as described above. The Company used the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.

Credit Agreement

The Company has a $1.1 billion Credit Agreement (the “Credit Agreement”), which has $572.3 million of availability remaining as of December 31, 2019. The Credit Agreement is provided by a group of financial institutions 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 the Company’s consolidated leverage ratio, which was set at LIBOR plus 87.5 basis points as of June 15, 2018. The Company must also pay facility fees that are tied to its leverage ratio. The Company is required to maintain a ratio of funded debt to consolidated EBITDA of 3.5 to 1.0 or less and an interest coverage ratio of 3.5 to 1.0 or greater. The Credit Agreement also places certain limitations on the Company, including limiting the ability to incur liens or indebtedness at a subsidiary level. In addition, the Credit Agreement has several events of default. The Company was in compliance with its covenants as of December 31, 2019. The Company capitalized $2.0 million in financing fees in other long-term assets during 2018 associated with the Credit Agreement which will be amortized to interest expense through 2023.

Other Local Arrangements

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

11. SHAREHOLDERS’ EQUITY

Common Stock

The number of authorized shares of the Company’s common stock is 125,000,000 shares with a par value of $0.01 per share. Holders of the Company’s common stock are entitled to one vote per share. At December 31, 2019, 2,954,812 shares of the Company’s common stock were reserved for issuance pursuant to the Company’s stock option plans.

F-24

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Preferred Stock

The Board of Directors, without further shareholder authorization, is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.01 per share in one or more series and to determine and fix the rights, preferences, and privileges of each series, including dividend rights and preferences over dividends on the common stock and one or more series of the preferred stock, conversion rights, voting rights (in addition to those provided by law), redemption rights, and the terms of any sinking fund therefore, and rights upon liquidation, dissolution, or winding up, including preferences over the common stock and one or more series of the preferred stock. The issuance of shares of preferred stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring, or preventing a change in control of the Company or an unsolicited acquisition proposal.

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 $1.3 billion of remaining availability as of December 31, 2019. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.

The Company has purchased 28.6 million common shares since the inception of the program in 2004 through December 31, 2019, at a total cost of $5.2 billion. During the years ended December 31, 2019, 2018 and 2017 the Company spent $775 million, $475 million and $400 million on the repurchase of 1,094,648 shares, 802,809 shares and 749,254 shares at an average price per share of $707.97, $591.65, and $533.84 respectively. The Company reissued 298,002 shares, 183,379 shares and 270,413 shares held in treasury for the exercise of stock options and restricted stock units during 2019, 2018 and 2017 respectively.

F-25

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income by component for the period ended December 31, 2019, 2018 and 2017:



	Currency Translation Adjustment, Net of Tax			Net Unrealized Gain (Loss) on Cash Flow Hedging Arrangements, Net of Tax			Pension and Post-Retirement Benefit Related Items, Net of Tax			Total
Balance at December 31, 2016	$	(115,322	)	$	(2,232	)	$	(237,444	)	$	(354,998	)
Other comprehensive income (loss), net of tax:
Net unrealized actuarial gains (loss), prior service costs, and plan amendments	—			—			1,678			1,678
Net unrealized gains (loss) on cash flow hedging arrangements	—			1,424			—			1,424
Foreign currency translation adjustment	83,982						(12,092		)	71,890
Amounts recognized from accumulated other comprehensive income (loss), net of tax				(273		)	14,873			14,600
Net change in other comprehensive income (loss), net of tax	83,982			1,151			4,459			89,592
Balance at December 31, 2017	$	(31,340	)	$	(1,081	)	$	(232,985	)	$	(265,406	)
Other comprehensive income (loss), net of tax:
Net unrealized actuarial gains (loss), prior service costs, and plan amendments	—			—			(24,106		)	(24,106		)
Net unrealized gains (loss) on cash flow hedging arrangements	—			(658		)	—			(658		)
Foreign currency translation adjustment	(32,573		)	—			3,522			(29,051		)
Amounts recognized from accumulated other comprehensive income (loss), net of tax	—			2,441			14,366			16,807
Net change in other comprehensive income (loss), net of tax	(32,573		)	1,783			(6,218		)	(37,008		)
Balance at December 31, 2018	$	(63,913	)	$	702		$	(239,203	)	$	(302,414	)
Other comprehensive income (loss), net of tax:
Net unrealized actuarial gains (loss), prior service costs, and plan amendments	—			—			(32,269		)	(32,269		)
Net unrealized gains (loss) on cash flow hedging arrangements	—			(1,063		)	—			(1,063		)
Foreign currency translation adjustment	2,898			—			(2,108		)	790
Amounts recognized from accumulated other comprehensive income (loss), net of tax	—			(861		)	12,144			11,283
Net change in other comprehensive income (loss), net of tax	2,898			(1,924		)	(22,233		)	(21,259		)
Balance at December 31, 2019	$	(61,015	)	$	(1,222	)	$	(261,436	)	$	(323,673	)

F-26

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The following table presents amounts recognized from accumulated other comprehensive income (loss) during the years ended December 31, 2019, 2018 and 2017:



	2019			2018		2017			Location of Amounts Recognized in Earnings
Effective portion of losses (gains) on cash flow hedging arrangements:
Interest rate swap agreements	$	109		$	539	$	1,679		Interest expense
Cross currency swap	(1,022		)	2,212		(1,416		)	(a)
Total before taxes	(913		)	2,751		263
Provision for taxes	(52		)	310		536			Provision for taxes
Total, net of taxes	$	(861	)	$	2,441	$	(273	)

Recognition of defined benefit pension and post-retirement items:
Recognition of actuarial losses, plan amendments, prior service cost, and settlement charge before taxes	$	15,467		$	18,756	$	20,137		(b)
Provision for taxes	3,323			4,390		5,264			Provision for taxes
Total, net of taxes	$	12,144		$	14,366	$	14,873


(a)	The cross currency swap reflects an unrealized loss of $3.6 million and $0.8 million and an unrealized gain of $0.2 million recorded in other charges (income) during the years ended December 31, 2019, 2018 and 2017, respectively, that was offset by the underlying unrealized gain and loss on the hedged debt. The cross currency swap also reflects a realized gain of $4.6 million, $3.0 million and $1.2 million recorded in interest expense during the years ended December 31, 2019, 2018 and 2017, respectively.

(a)

The cross currency swap reflects an unrealized loss of $3.6 million and $0.8 million and an unrealized gain of $0.2 million recorded in other charges (income) during the years ended December 31, 2019, 2018 and 2017, respectively, that was offset by the underlying unrealized gain and loss on the hedged debt. The cross currency swap also reflects a realized gain of $4.6 million, $3.0 million and $1.2 million recorded in interest expense during the years ended December 31, 2019, 2018 and 2017, respectively.


(b)	These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 13 for additional details.

12. EQUITY INCENTIVE PLAN

The Company’s equity incentive plan provides employees and directors of the Company additional incentives to join and/or remain in the service of the Company as well as to maintain and enhance the long-term performance and profitability of the Company. The Company’s 2013 equity incentive plan was approved by shareholders on May 2, 2013 and provides that 2 million shares of common stock, plus any shares that remained available for grant under the Company's prior equity incentive plan as well as options outstanding that terminate without being exercised, may be the subject of awards. The plan provides for the grant of options, restricted stock units, and other equity-based awards. The exercise price of options granted shall not be less than the fair market value of the common stock on the date of the award. Options primarily vest equally over a five-year period from the date of grant and have a maximum term of up to ten years and six months. Restricted units primarily vest equally over a five-year period from the date of grant. Performance share units generally vest after a three-year period from the date of the grant based upon satisfaction of the performance condition. The compensation committee of the Board of Directors has generally granted restricted share units to participating managers and non-qualified stock options and performance share units to executive officers.

All share-based compensation arrangements granted to employees, including stock option grants, are recognized in the consolidated statement of operations based on the grant-date fair value of the award over the period during which an employee is required to provide service in exchange for the award. Share-based compensation expense is recorded within selling, general, and administrative in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet.

F-27

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The fair values of stock options granted were calculated using the Black-Scholes pricing model. The aggregate intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The following table summarizes all stock option activity from December 31, 2018 through December 31, 2019:



	Number of Options		Weighted Average Exercise Price	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2018	847,830		$260.88	$264.0
Granted	42,676		720.81
Exercised	(280,383	)	169.70
Forfeited	(1,408	)	661.92
Outstanding at December 31, 2019	608,715		334.20	279.5
Options exercisable at December 31, 2019	458,803		$259.02	$245.1

The following table details the weighted average remaining contractual life of options outstanding at December 31, 2019 by range of exercise prices:



Number of Options Outstanding	Weighted Average Exercise Price	Remaining Contractual Life of Options Outstanding	Options Exercisable

184,729	$158.97	2.3	184,729
145,927	$254.61	4.4	145,927
153,226	$354.45	6.3	100,952
124,833	$661.68	8.9	27,195
608,715		5.2	458,803

As of the date granted, the weighted average grant-date fair value of the options granted during the years ended December 31, 2019, 2018, and 2017 was $196.4, $189.78, and $206.56, respectively.

Such weighted average grant-date fair value was determined using the following assumptions:



	2019		2018		2017
Risk-free interest rate	1.74	%	3.09	%	2.00	%
Expected life in years	6.0		5.9		5.8
Expected volatility	24	%	26	%	28	%
Expected dividend yield	—		—		—

The total intrinsic value of options exercised during the years ended December 31, 2019, 2018, and 2017 was approximately $146.6 million, $74.3 million, and $105.6 million, respectively.

The compensation expense for options recognized during the years ended December 31, 2019, 2018 and 2017 was $8.0 million, $8.4 million, and $8.9 million, respectively.

During the fourth quarter of 2016, the Company granted 12,678 performance-based options, with a grant-date fair value of $1.5 million. Compensation expense is recognized over the five-year vesting provisions based upon the probability of the performance condition being met.

F-28

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The following table summarizes all restricted stock unit and performance share unit activity from December 31, 2018 through December 31, 2019:



	Number of Restricted Stock Units		Aggregate Intrinsic Value (in millions)	Number of Performance Share Units		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2018	49,252		$27.8	12,814		$7.2
Granted	11,750			4,505
Vested	(16,948	)		—
Forfeited	(3,069	)		(136	)
Outstanding at December 31, 2019	40,985		$32.5	17,183		$13.6

The weighted average grant-date fair value of the restricted stock units granted during years ended 2019, 2018, and 2017 was $720.81, $595.31. and $671.60 per unit, respectively, which primarily vest ratably over a five-year period. The total fair value of the restricted stock units on the date of grant was $8.9 million for 2019, $9.6 million for 2018 and $8.7 million for 2017 and will be recorded as compensation expense on a straight-line basis over the vesting period. The total fair value of restricted stock units vested during the years ended December 31, 2019, 2018, and 2017 was approximately $7.0 million, $7.2 million, and $6.8 million, respectively. Approximately $7.1 million, $6.8 million and $6.5 million of compensation expense was recognized during the years ended December 31, 2019, 2018 and 2017 respectively.

The Company granted performance share units with a market condition during 2019, 2018, and 2017, respectively. Grantees of performance share units will be eligible to receive shares of the Company's common stock depending upon the Company's total shareholder return relative to the performance of companies in the S&P 500 Healthcare and S&P 500 Industrials over a three-year period. The awards actually earned will range from zero to 200% of the targeted number of performance share units for the three-year performance period and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. During 2019 the market conditions for the 2016 performance share units were met and will vest in the first quarter 2020 with a payout of 146%. Performance share unit awards were valued using a Monte Carlo simulation based on the following assumptions:



	2019		2018		2017
Risk-free interest rate	1.69	%	3.03	%	1.73	%
Expected life in years	3		3		3
Expected volatility	24	%	26	%	28	%
Expected dividend yield	—		—		—

As of the date granted, the fair value of the performance share units granted was $803.26 for 2019, $733.35 for 2018, and $844.39 for 2017, respectively. The total fair value of the performance share units on the date of the grant was $3.6 million for both 2019 and 2018, and $3.0 million for 2017 and will be recorded as compensation expense on a straight-line basis over the three-year performance period.

At December 31, 2019, a total of 2,104,875 shares of common stock were available for grant in the form of stock options, restricted stock units, or performance share units.

As of December 31, 2019, the unrecorded deferred share-based compensation balance related to stock options, restricted stock units, and performance share units was $52.1 million and will be recognized using a straight-line method over an estimated weighted average amortization period of 2.3 years.

F-29

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

13. BENEFIT PLANS

The Company maintains a number of retirement and other post-retirement employee benefit plans.

Certain subsidiaries sponsor defined contribution plans. Benefits are determined and funded annually based upon the terms of the plans. Amounts recognized as cost under these plans amounted to $18.8 million, $18.9 million, and $17.2 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Certain subsidiaries sponsor defined benefit plans. Benefits are provided to employees primarily based upon years of service and employees’ compensation for certain periods during the last years of employment. Prior to 2002, the Company’s U.S. operations also provided post-retirement medical benefits to their employees. Contributions for medical benefits are related to employee years of service.

The following tables set forth the change in benefit obligation, the change in plan assets, the funded status, and amounts recognized in the consolidated financial statements for the Company’s defined benefit plans and post-retirement plan at December 31, 2019 and 2018:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Benefits						Total
	2019			2018			2019			2018			2019			2018			2019			2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	130,202		$	142,571		$	864,095		$	918,478		$	2,186		$	2,673		$	996,483		$	1,063,722
Service cost, gross	1,063			1,090			30,665			30,721			—			—			31,728			31,811
Interest cost	4,585			4,242			10,192			8,630			64			66			14,841			12,938
Actuarial losses (gains)	14,449			(10,019		)	84,262			(40,469		)	(129		)	(167		)	98,582			(50,655		)
Plan amendments and other	—			—			—			974			(576		)	(8		)	(576		)	966
Benefits paid	(7,849		)	(7,682		)	(38,181		)	(36,379		)	(250		)	(378		)	(46,280		)	(44,439		)
Impact of foreign currency	—			—			10,230			(17,860		)	—			—			10,230			(17,860		)
Benefit obligation at end of year	$	142,450		$	130,202		$	961,263		$	864,095		$	1,295		$	2,186		$	1,105,008		$	996,483
Change in plan assets:
Fair value of plan assets at beginning of year	$	95,541		$	111,567		$	767,410		$	808,215		$	—		$	—		$	862,951		$	919,782
Actual return on plan assets	15,037			(8,419		)	76,732			(34,102		)	—			—			91,769			(42,521		)
Employer contributions	83			75			25,323			26,032			250			227			25,656			26,334
Plan participants’ contributions	—			—			15,130			15,176			—			151			15,130			15,327
Benefits paid	(7,849		)	(7,682		)	(38,181		)	(36,379		)	(250		)	(378		)	(46,280		)	(44,439		)
Impact of foreign currency and other	—			—			15,548			(11,532		)	—			—			15,548			(11,532		)
Fair value of plan assets at end of year	$	102,812		$	95,541		$	861,962		$	767,410		$	—		$	—		$	964,774		$	862,951
Funded status	$	(39,638	)	$	(34,661	)	$	(99,301	)	$	(96,685	)	$	(1,295	)	$	(2,186	)	$	(140,234	)	$	(133,532	)

F-30

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

Amounts recognized in the consolidated balance sheets consist of:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Benefits						Total
	2019			2018			2019			2018			2019			2018			2019			2018
Other non-current assets	$	—		$	—		$	44,536		$	46,014		$	—		$	—		$	44,536		$	46,014
Accrued and other liabilities	(126		)	(110		)	(5,023		)	(4,884		)	(239		)	(431		)	(5,388		)	(5,425		)
Pension and other post-retirement liabilities	(39,512		)	(34,551		)	(138,813		)	(137,815		)	(1,057		)	(1,755		)	(179,382		)	(174,121		)
Accumulated other comprehensive loss (income)	64,269			61,344			286,370			260,820			(924		)	(910		)	349,715			321,254
Total	$	24,631		$	26,683		$	187,070		$	164,135		$	(2,220	)	$	(3,096	)	$	209,481		$	187,722

The following amounts have been recognized in accumulated other comprehensive income (loss), before taxes, at December 31, 2019 and have not yet been recognized as a component of net periodic pension cost:



	U.S. Pension Benefits		Non-U.S. Pension Benefits			Other Benefits			Total			Total, After Tax
Plan amendments and prior service cost	$	—	$	(15,925	)	$	(576	)	$	(16,501	)	$	(13,041	)
Actuarial losses (gains)	64,269		302,295			(348		)	366,216			283,444
Total	$	64,269	$	286,370		$	(924	)	$	349,715		$	270,403

The following changes in plan assets and benefit obligations were recognized in other comprehensive income (loss), before taxes, for the year ended December 31, 2019:



	U.S. Pension Benefits			Non-U.S. Pension Benefits			Other Benefits			Total			Total, After Tax
Net actuarial losses (gains)	$	5,299		$	36,692		$	(129	)	$	41,862		$	32,699
Plan amendment	—			—			(576		)	(576		)	(430		)
Amortization of:
Actuarial (losses) gains	(2,374		)	(20,505		)	691			(22,188		)	(17,594		)
Plan amendments and prior service cost	—			6,721			—			6,721			5,450
Impact of foreign currency	—			2,642			—			2,642			2,108
Total	$	2,925		$	25,550		$	(14	)	$	28,461		$	22,233

The accumulated benefit obligations at December 31, 2019 and 2018 were $142.5 million and $130.2 million, respectively, for the U.S. defined benefit pension plan and $812.0 million and $731.4 million, respectively, for all non-U.S. plans. Certain of the plans included within non-U.S. pension benefits have accumulated benefit obligations which exceed the fair value of plan assets. The projected benefit obligation, the accumulated benefit obligation, and fair value of assets of these plans as of December 31, 2019 were $195.3 million, $184.4 million, and $51.5 million, respectively.

F-31

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The assumed discount rates and rates of increase in future compensation levels used in calculating the projected benefit obligations vary according to the economic conditions of the country in which the retirement plans are situated. The weighted average rates used for the purposes of the Company’s plans are as follows:



	U.S.				Non-U.S.
	2019		2018		2019		2018
Discount rate	3.03	%	4.11	%	0.51	%	1.22	%
Compensation increase rate	n/a		n/a		0.86	%	0.87	%
Expected long-term rate of return on plan assets	6.25	%	6.50	%	3.76	%	3.84	%

The assumed discount rates, rates of increase in future compensation levels, and the long-term rate of return used in calculating the net periodic pension cost vary according to the economic conditions of the country in which the retirement plans are situated. The weighted average rates used for the purposes of the Company’s plans are as follows:



	U.S.						Non-U.S.
	2019		2018		2017		2019		2018		2017
Discount rate	4.11	%	3.49	%	3.97	%	1.22	%	0.97	%	0.98	%
Compensation increase rate	n/a		n/a		n/a		0.87	%	0.87	%	0.85	%
Expected long-term rate of return on plan assets	6.50	%	6.50	%	6.75	%	3.84	%	3.86	%	4.09	%

Net periodic pension cost and net periodic post-retirement benefit for the defined benefit plans and U.S. post-retirement plan include the following components for the years ended December 31:



	U.S.												Non-U.S.												Other Benefits												Total
2019				2018				2017				2019				2018				2017				2019				2018				2017				2019				2018				2017
Service cost, net	$	1,063			$	1,090			$	565			$	15,534			$	15,545			$	16,341			$	—			$	—			$	—			$	16,597			$	16,635			$	16,906
Interest cost on projected benefit obligations	4,585				4,242				4,374				10,192				8,630				8,511				64				66				70				14,841				12,938				12,955
Expected return on plan assets	(5,887		)		(6,929		)		(6,737		)		(29,162		)		(31,005		)		(30,349		)		—				—				—				(35,049		)		(37,934		)		(37,086		)
Recognition of actuarial losses/(gains) and prior service costs	2,374				5,804				6,556				13,784				14,575				16,247				(691		)		(1,623		)		(2,674		)		15,467				18,756				20,129
Net periodic pension cost / (benefit)	$	2,135			$	4,207			$	4,758			$	10,348			$	7,745			$	10,750			$	(627	)		$	(1,557	)		$	(2,604	)		$	11,856			$	10,395			$	12,904

The amounts remaining in accumulated other comprehensive income (loss) that are expected to be recognized as a component of net periodic pension cost during 2020 are as follows:



	U.S. Pension Benefits		Non-U.S. Pension Benefits			Other Benefits			Total
Plan amendments and prior service costs	$	—	$	(6,904	)	$	(75	)	$	(6,979	)
Actuarial losses (gains)	2,578		22,694			(28		)	25,244
Total	$	2,578	$	15,790		$	(103	)	$	18,265

The projected post-retirement benefit obligation was principally determined using discount rates of 2.54% in 2019 and 2.65% in 2018. Net periodic post-retirement benefit cost was principally determined using discount rates of 3.75% in 2019, 3.15% in 2018, and 3.41% in 2017. The health care cost trend rate was 6.2% in 2019, 6.4% in 2018, and 7.0% in 2017, decreasing to 4.50% in 2027. A one-percentage-point change in health care cost trend rates would have an immaterial impact on total service and interest cost components and the post-retirement benefit obligation.

F-32

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The Company’s overall asset investment strategy is to achieve long-term growth while minimizing volatility by widely diversifying among asset types and strategies. Target asset allocations and investment return criteria are established by the pension committee or designated officers of each plan. Target asset allocation ranges for the U.S. pension plan include 40-60% in equity securities, 13-33% in fixed income securities, and 15-25% in other types of investments. International plan assets relate primarily to the Company’s Swiss plan with target allocations of 24-45% in equities, 35-55% in fixed income securities, and 15-25% in other types of investments. Actual results are monitored against targets and the trustees are required to report to the members of each plan, including an analysis of investment performance on an annual basis at a minimum. Day-to-day asset management is typically performed by third-party asset managers, reporting to the pension committees or designated officers.

The long-term rate of return on plan asset assumptions used to determine pension expense under U.S. GAAP is generally based on estimated future returns for the target investment mix determined by the trustees as well as historical investment performance.

The following table presents the fair value measurement of the Company’s plan assets by hierarchy level:



	December 31, 2019								December 31, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Observable Inputs for Identical Assets (Level 2)		Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Observable Inputs for Identical Assets (Level 2)		Unobservable Inputs (Level 3)		Total
Asset Category:
Cash and Cash Equivalents	$	104,144	$	—	$	—	$	104,144	$	111,484	$	—	$	—	$	111,484
Equity Securities:
Mettler-Toledo Stock	2,620		—		—		2,620		2,436		—		—		2,436
Equity Mutual Funds:
U.S.(1)	7,245		29,885		—		37,130		4,989		22,569		—		27,558
International(2)	62,569		53,188		—		115,757		68,544		45,892		—		114,436
Emerging Markets(3)	110,972		822		—		111,794		95,146		692		—		95,838
Fixed Income Securities:
Corporate/Government Bonds(4)	84,020		—		—		84,020		71,644		—		—		71,644
Fixed Income Mutual Funds:
Insurance Contracts(5)	—		37,459		1,486		38,945		—		22,852		1,461		24,313
Core Bond(6)	116,629		61,960		—		178,589		95,493		54,448		—		149,941
Real Asset Mutual Funds:
Real Estate(7)	95,580		14,185		—		109,765		83,879		13,838		—		97,717
Commodities(8)	47,697		—		—		47,697		40,267		—		—		40,267
Other Types of Investments:
Debt Securities (9)	39,275		—		—		39,275		38,616		—		—		38,616
Global Allocation Funds(10)	12,269		—		—		12,269		11,195		10,562		—		21,757
Insurance Linked Securities(11)	18,434		—		—		18,434		18,664		—		—		18,664
Total assets in fair value hierarchy	$	701,454	$	197,499	$	1,486	$	900,439	$	642,357	$	170,853	$	1,461	$	814,671
Investments measured at net asset value:
International(2)							3,288								2,792
Emerging Markets (3)							6,650								4,889
Multi-Strategy Fund of Hedge Funds (12)							54,397								40,599
Total pension assets at fair value							$	964,774							$	862,951

F-33

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)


(1)	Represents primarily large capitalization equity mutual funds tracking the S&P 500 Index.


(2)	Represents all capitalization core and value equity mutual funds located primarily in Switzerland, the United Kingdom, and Canada.


(3)	Represents core and growth mutual funds and funds of mutual funds invested in emerging markets primarily in Eastern Europe, Latin America, and Asia.


(4)	Represents investments in high-grade corporate and government bonds located in Switzerland and the European Union.


(5)	Represents fixed and variable rate annuity contracts provided by insurance companies.


(6)	Represents fixed income mutual funds invested in the U.S., the United Kingdom, Switzerland, and European government bonds, high-grade corporate bonds, mortgage-backed securities, and collateralized mortgage obligations.


(7)	Represents mutual funds invested in real estate located primarily in Switzerland.


(8)	Represents commodity funds invested across a broad range of sectors.


(9)	Represents a loan to a wholly owned subsidiary of the Company. See Note 10 for additional disclosure.


(10)	Represents mutual funds invested globally in both equities and fixed income securities.


(11)	Represents a broadly diversified portfolio of assets that carry exposure to insurance risks, particularly insurance linked securities.

(12)

Represents investments in underlying globally diversified hedge funds. Investments that are measured using the net asset value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The amounts presented above are intended to permit reconciliation of the fair value hierarchy to the fair value of total plan assets in order to determine the amounts included in the consolidated balance sheet.

The fair value of the Company’s stock and corporate and government bonds are valued at the year-end closing price as reported on the securities exchange on which they are traded. Mutual funds are valued at the exchange-listed year-end closing price or at the net asset value of shares held by the fund at the end of the year. Insurance contracts are valued by discounting the related cash flows using a current year-end market rate or at cash surrender value, which is presumed to equal fair value. Funds of hedge funds are valued at the net asset value of shares held by the fund at the end of the year.

The following table presents a roll-forward of activity for the years ended December 31, 2019 and 2018 for Level 3 asset categories:



	Insurance Contracts
Balance at December 31, 2017	$	1,514
Actual return on plan assets related to assets held at end of year	14
Sales	(85		)
Purchases	82
Impact of foreign currency	(64		)
Balance at December 31, 2018	$	1,461
Actual return on plan assets related to assets held at end of year	14
Sales	(54		)
Purchases	83
Impact of foreign currency	(18		)
Balance at December 31, 2019	$	1,486

There were no transfers between any asset levels during the years ended December 31, 2019 and 2018.

F-34

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:



	U.S. Pension Benefits		Non-U.S. Pension Benefits		Other Benefits Net of Subsidy		Total
2020	$	8,247	$	44,024	$	239	$	52,510
2021	8,427		45,587		191		54,205
2022	8,549		44,554		146		53,249
2023	8,700		45,206		120		54,026
2024	8,776		46,141		106		55,023
2025-2029	43,317		224,446		371		268,134

In 2020, the Company expects to make employer pension contributions of approximately $25.6 million to its non-U.S. pension plan and employer contributions of approximately $0.2 million to its U.S. post-retirement medical plan.

14. TAXES

The sources of the Company’s earnings before taxes were as follows for the years ended December 31:



	2019		2018		2017
United States	$	102,262	$	60,043	$	45,105
Non-United States	579,132		591,815		529,117
Earnings before taxes	$	681,394	$	651,858	$	574,222

The provision for taxes consist of:



	Current			Deferred			Total
Year ended December 31, 2019:
United States federal	$	3,033		$	(2,622	)	$	411
United States state and local	(996		)	(1,950		)	(2,946		)
Non-United States	122,878			(58		)	122,820
Total	$	124,915		$	(4,630	)	$	120,285
Year ended December 31, 2018:
United States federal	$	3,422		$	(4,699	)	$	(1,277	)
United States state and local	5,073			(161		)	4,912
Non-United States	128,450			7,162			135,612
Total	$	136,945		$	2,302		$	139,247
Year ended December 31, 2017:
United States federal	$	55,660		$	10,173		$	65,833
United States state and local	361			3,471			3,832
Non-United States	144,974			(16,389		)	128,585
Total	$	200,995		$	(2,745	)	$	198,250

F-35

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The provision for tax expense differed from the amounts computed by applying the United States federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 to earnings before taxes as a result of the following:



	2019			2018			2017
Expected tax	$	143,092		$	136,890		$	200,978
United States state and local income taxes, net of federal income tax benefit	499			2,787			376
Net effect of Swiss tax reform (see below)	(15,833		)	—			—
Net effect of U.S. tax reform (see below)	—			3,597			71,982
Non-United States income taxes at other than U.S. federal rate	18,546			12,710			(43,691		)
Excess tax benefits from stock option exercises	(28,279		)	(13,836		)	(35,171		)
Effect of Biotix contingent consideration settlement	—			(4,394		)	—
Other, net	2,260			1,493			3,776
Total provision for taxes	$	120,285		$	139,247		$	198,250

The Company's reported effective tax rate was 17.7% in 2019, 21.4% in 2018, and 34.5% in 2017.

As discussed below, the provision for income taxes included a net benefit of $15.8 million in 2019 related to Swiss tax reform, and charges of $3.6 million in 2018 and $72 million in 2017 related to the Tax Cuts and Jobs Act (the "Act"), which had the effect of reducing the Company's effective tax rate by 2.3% in 2019, and increased the Company's effective rate by 0.6% and 12.5% in 2018 and 2017, respectively. The 2018 effective tax rate also included a benefit of 0.7% associated with the one-time gain related to the settlement of the Biotix contingent consideration.

In May 2019, a public referendum was held in Switzerland that approved Swiss federal tax reform proposals previously approved by Swiss Parliament. Additional changes in Swiss cantonal law, changes were enacted in October 2019 (collectively "Swiss Tax Reform"). The changes in Swiss federal tax had an immaterial effect on our financial statements. As a result of the enactment of the cantonal law the Company recognized a deferred tax asset of $48.1 million less a valuation allowance of $31.9 million in the fourth quarter of 2019. The amount primarily related to deferred benefits associated with an allowed step-up of intangible assets for tax purposes. The rate impact of Swiss Tax Reform is effective January 1, 2020 and is not expected to have a material impact on the Company's consolidated effective tax rate.

On December 22, 2017, the Act significantly revised U.S. corporate income tax law. The Act included, 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 included 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 Company recorded charges of $3.6 million in 2018 and $72 million in 2017 relating to the Act. Of these amounts, $62 million is expected to be payable over a period of up to eight years of which $46 million is included as a component of other non-current liabilities, $8 million is included in deferred tax liabilities, $4 million is included in taxes payable, and approximately $8 million has been paid. The components of the Company's charges included:

F-36

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

•

Cash charges of $62 million for un-repatriated foreign earnings due to the estimated Transition Tax of $54 million, and $8 million of foreign withholding taxes, and U.S. federal, state, and local taxes related to the reassessment of planned repatriation of certain foreign earnings that were previously determined to be permanently reinvested. All other undistributed earnings were considered permanently reinvested.


•	A non-cash charge of $13 million primarily related to changes in the treatment of certain deferred tax items and other non-cash items. The effect of remeasuring the U.S. net deferred tax balances resulting from the reduction of the U.S. income tax rate from 35% to 21% was immaterial.

The Company's accounting for the above items was based upon reasonable estimates of the tax effects of the Act, and its evaluation of regulatory guidance. During the fourth quarter of 2018, additional regulatory guidance was issued which clarified, among other things, the definition of cash equivalents used in the computation of the transition tax. As a result, the Company recorded a charge of $3.6 million during the year ended December 31, 2018 that primarily related to an increase in the Transition Tax obligation. The increased Transition Tax is payable over a period of eight years beginning in 2018.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below at December 31:



	2019			2018
Deferred tax assets:
Inventory	$	15,756		$	15,078
Lease liability, accrued and other liabilities	85,590			65,879
Accrued post-retirement benefit and pension costs	53,078			50,496
Net operating loss and tax credit carryforwards	30,647			30,696
Swiss tax reform intangible assets	48,062			—
Other	11,918			17,397
Total deferred tax assets	245,051			179,546
Less valuation allowance	(50,853		)	(15,084		)
Total deferred tax assets less valuation allowance	194,198			164,462
Deferred tax liabilities:
Inventory	5,952			4,890
Lease right-of-use assets and other assets	27,268			—
Property, plant, and equipment	51,298			47,451
Acquired intangibles amortization	63,451			66,386
Prepaid post-retirement benefit and pension costs	28,542			31,473
International earnings	24,137			18,680
Unrealized currency gains	1,839			9,334
Total deferred tax liabilities	202,487			178,214
Net deferred tax (liability) asset	$	(8,289	)	$	(13,752	)

The Company continues to record valuation allowances related to certain of its deferred income tax assets due to the uncertainty of the ultimate realization of future benefits from such assets. The potential decrease or increase of the valuation allowance in the near term is dependent on the future ability of the Company to realize the deferred tax assets that are affected by the future profitability of operations in the respective/relevant jurisdictions.

F-37

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2019			2018
Unrecognized tax benefits at beginning of year	$	25,676		$	24,090
Increases related to current tax positions	6,215			7,638
Decreases related to prior year tax positions	(116		)	(605		)
Decreases relating to taxing authority settlements	—			(4,454		)
Decreases resulting from a lapse of the applicable statute of limitations	(1,748		)	(505		)
Other, net	(93		)	(488		)
Unrecognized tax benefits at end of year	$	29,934		$	25,676

Included in the balance of unrecognized tax benefits at December 31, 2019 and 2018 were $29.9 million and $25.7 million, respectively, of tax benefits that if recognized would reduce the Company’s effective tax rate. The Company recognizes accrued amounts of interest and penalties related to its uncertain tax positions as part of its income tax expense within its consolidated statement of operations. The amount of accrued interest and penalties included within other non-current liabilities within the Company’s consolidated balance sheet as of December 31, 2019 and 2018 was $4.5 million and $3.7 million, respectively.

The Company believes that it is reasonably possible that the unrecognized tax benefit balance could change over the next twelve months, primarily related to potential disputes raised by the taxing authorities over income and expense recognition. The Company does not expect a change would have a material impact on its financial position, results of operations, or cash flows.

The Company plans to repatriate earnings from China, Switzerland, Germany, the United Kingdom, and certain other countries in future years and believes that there will be no additional tax costs associated with the repatriation of such foreign earnings other than non-U.S. withholding taxes, certain state taxes, and U.S. taxes on currency gains, if any, for which a deferred tax liability has been recognized. All other undistributed earnings and any additional outside basis difference inherent in these entities and the contributed capital of our foreign subsidiaries are considered to be permanently reinvested on which no U.S. deferred income taxes or foreign withholding taxes have been provided. It is not practicable to estimate the amount of deferred tax liability related to these undistributed earnings and additional outside basis differences in these entities due to the complexity of the calculation and the uncertainty regarding assumptions necessary to compute the tax.

As of December 31, 2019, the major jurisdictions for which the Company is subject to examinations are: Germany for years after 2014; the United States after 2015; France after 2017; Switzerland after 2016; the United Kingdom after 2016; and China after 2017. Additionally, the Company is currently under examination in various taxing jurisdictions in which it conducts business operations. While the Company has not yet received any material assessments from these taxing authorities, the Company believes that adequate amounts of taxes and related interest and penalties have been provided for any adverse adjustments as a result of these examinations and that the ultimate outcome of these examinations will not result in a material impact on the Company’s consolidated results of operations or financial position.

15. RESTRUCTURING CHARGES

During the past several years, we have initiated various cost reduction measures. For the years ended December 31, 2019, 2018, and 2017 we have incurred $15.8 million, $18.4 million and $12.8 million, respectively, of restructuring expenses which primarily comprise employee related costs. Liabilities

F-38

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.

A roll-forward of the Company’s accrual for restructuring activities for the years ended December 31, 2019 and 2018 is as follows:



	Total
Balance at December 31, 2017	$	10,620
Restructuring charges	18,420
Cash payments / utilization	(20,820		)
Impact of foreign currency	(248		)
Balance at December 31, 2018	$	7,972
Restructuring charges	15,760
Cash payments / utilization	(16,483		)
Impact of foreign currency	(548		)
Balance at December 31, 2019	$	6,701

16. OTHER CHARGES (INCOME), NET

Other charges (income), net consisted of net other income of $6.2 million, $21.8 million, and $9.9 million in 2019, 2018, and 2017, 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 $4.8 million, $6.2 million, and $4.0 million in 2019, 2018, and 2017, 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 of acquisition costs during 2017. 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.

F-39

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

17. LEASES

The Company adopted ASC 842 - Leases with an effective date of January 1, 2019. The operating lease right-of-use asset recognized upon adoption was $92.7 million, and the lease liability was $93.5 million. The Company elected the practical expedients package under ASC 842, and accordingly did not reassess any previously expired or existing arrangements, and related classification under ASC 840 - Leases.

The Company's operating leases primarily comprise real estate and vehicles. Real estate leases are largely related to sales and marketing, service, and administrative offices, while vehicle leases are primarily related to the Company's field sales and service organization. The consolidated balance sheet included the following balances as of December 31:



	2019		Balance Sheet Location
Right-of-use assets, net	$	87,317	Other non-current assets

Current lease liability	$	27,584	Accrued and other liabilities
Non-current lease liability	60,937		Other non-current liabilities
Total operating lease liability	$	88,521

As of December 31, 2019, the Company has entered into additional real estate operating leases of $23.3 million that are expected to commence in 2020.

For the twelve months ended December 31, 2019, the Company had the following recorded in selling, general, and administrative associated with leasing arrangements:



	2019
Operating lease expense	$	33,666
Variable lease expense	4,337
Short-term lease expense	1,187
Total lease expense	$	39,190

Weighted average remaining lease term	6.4 years
Weighted average discount rate	2.9		%

Rent expense for operating leases under ASC 840 - Leases was $38.9 million and $36.9 million for the years ended December 31, 2018 and 2017, respectively.

Accruals and other on the consolidated statement of cash flows includes the amortization of the lease right-of-use asset of $31.1 million, offset by a change in the lease liability of $30.1 million for the year ended December 31, 2019. Lease payments within operating activities were $33.5 million for the year ended December 31, 2019. The Company also had non-cash lease right-of-use assets in exchange for lease liabilities of $25.7 million for the year ended December 31, 2019.

F-40

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The following is a maturity analysis of the annual undiscounted cash flows for the annual periods ended December 31:



2020	$	29,685
2021	21,211
2022	13,059
2023	8,241
2024	4,449
Thereafter	21,672
Total lease payments	98,317
Less imputed interest	(9,796		)
Total operating lease liability	$	88,521

The following is the future minimum lease payments under non-cancellable leases as of December 31, 2018:



2019	$	32,113
2020	23,771
2021	16,986
2022	9,855
2023	7,435
Thereafter	5,081
Total lease payments	$	95,241

18. COMMITMENTS AND CONTINGENCIES

Legal

The Company is party to various legal proceedings, including certain environmental matters, incidental to the normal course of business. Management does not expect that any of such proceedings will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

19. SEGMENT REPORTING

The Company has five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations, and Other. U.S. Operations represent certain of the Company’s marketing and producing organizations located in the United States. Western European Operations include the Company’s marketing and producing organizations in Western Europe, excluding operations located in Switzerland. Swiss Operations include marketing and producing organizations located in Switzerland as well as extensive R&D operations that are responsible for the development, production, and marketing of precision instruments, including weighing, analytical, and measurement technologies for use in a variety of laboratory and industrial applications. Chinese Operations represent the Company’s marketing and producing organizations located in China. The Company’s market organizations are geographically focused and are responsible for all aspects of the Company’s sales and service. Operations that exist outside these reportable segments are included in Other.

F-41

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on segment profit for segment reporting (gross profit less research and development and selling, general, and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net, and taxes). Inter-segment sales and transfers are priced to reflect consideration of market conditions and the regulations of the countries in which the transferring entities are located.

The following tables show the operations of the Company’s reportable segments:



For the Year Ended December 31, 2019	Net Sales to External Customers		Net Sales to Other Segments			Total Net Sales			Segment Profit			Depreciation		Total Assets(c)			Purchase of Property, Plant, and Equipment			Goodwill

U.S. Operations	$	1,057,115	$	114,794		$	1,171,909		$	210,133		$	10,684	$	2,363,725		$	(15,607	)	$	410,022
Swiss Operations	139,499		657,678			797,177			233,292			6,069		1,648,065			(5,820		)	22,369
Western European Operations	700,741		175,759			876,500			123,845			4,450		1,150,214			(11,267		)	87,980
Chinese Operations	544,716		224,517			769,233			266,522			8,045		694,903			(10,252		)	633
Other(a)	566,581		5,890			572,471			71,483			3,395		358,281			(4,936		)	14,975
Eliminations and Corporate(b)	—		(1,178,638		)	(1,178,638		)	(127,197		)	6,348		(3,425,867		)	(49,459		)	—
Total	$	3,008,652	$	—		$	3,008,652		$	778,078		$	38,991	$	2,789,321		$	(97,341	)	$	535,979



For the Year Ended December 31, 2018	Net Sales to External Customers		Net Sales to Other Segments			Total Net Sales			Segment Profit			Depreciation		Total Assets			Purchase of Property, Plant, and Equipment			Goodwill

U.S. Operations	$	1,007,798	$	104,458		$	1,112,256		$	161,615		$	10,425	$	2,113,268		$	(27,896	)	$	410,021
Swiss Operations	134,064		628,529			762,593			202,027			5,835		1,471,625			(1,123		)	21,994
Western European Operations	718,788		176,995			895,783			122,574			4,173		983,809			(16,879		)	87,242
Chinese Operations	525,109		242,452			767,561			270,668			7,869		1,237,248			(13,248		)	644
Other(a)	549,827		6,543			556,370			78,317			3,774		319,070			(8,342		)	14,879
Eliminations and Corporate(b)	—		(1,158,977		)	(1,158,977		)	(104,696		)	5,091		(3,506,173		)	(75,238		)	—
Total	$	2,935,586	$	—		$	2,935,586		$	730,505		$	37,167	$	2,618,847		$	(142,726	)	$	534,780



For the Year Ended December 31, 2017	Net Sales to External Customers		Net Sales to Other Segments			Total Net Sales			Segment Profit			Depreciation		Total Assets			Purchase of Property, Plant, and Equipment			Goodwill

U.S. Operations	$	944,825	$	99,117		$	1,043,942		$	177,705		$	7,659	$	1,937,688		$	(38,969	)	$	409,520
Swiss Operations	133,925		563,083			697,008			174,447			5,551		1,374,150			(19,589		)	22,171
Western European Operations	673,776		170,820			844,596			123,841			4,052		1,805,294			(7,094		)	91,927
Chinese Operations	452,617		232,882			685,499			231,860			7,168		1,068,811			(13,246		)	690
Other(a)	519,910		7,934			527,844			72,681			3,474		310,667			(4,131		)	15,530
Eliminations and Corporate(b)	—		(1,073,836		)	(1,073,836		)	(127,952		)	5,554		(3,946,805		)	(44,397		)	—
Total	$	2,725,053	$	—		$	2,725,053		$	652,582		$	33,458	$	2,549,805		$	(127,426	)	$	539,838


(a)	Other includes reporting units in Southeast Asia, Latin America, Eastern Europe, and other countries.


(b)	Eliminations and Corporate includes the elimination of inter-segment transactions as well as certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.


(c)	The lease right-of-use asset, net increased total assets as of December 31, 2019 for U.S. Operations by $38.3 million, Swiss Operations by $1.3 million, Western European Operations by $20.1 million, Chinese Operations by $3.0 million, Other by $22.7 million, and Corporate by $1.9 million.

F-42

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

A reconciliation of earnings before taxes to segment profit follows:



	2019			2018			2017
Earnings before taxes	$	681,394		$	651,858		$	574,222
Amortization	49,690			47,524			42,671
Interest expense	37,411			34,511			32,785
Restructuring charges	15,760			18,420			12,772
Other charges (income), net	(6,177		)	(21,808		)	(9,868		)
Segment profit	$	778,078		$	730,505		$	652,582

During 2019, restructuring charges of $15.8 million were recognized, of which $4.2 million, $3.4 million, $6.9 million, $0.5 million, and $0.8 million relate to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $18.4 million were recognized in 2018, of which $11.0 million, $4.0 million, $2.8 million, $0.3 million, and $0.3 million relate to the Company's U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $12.8 million were recognized in 2017, of which $6.2 million, $1.8 million, $3.0 million, $0.8 million and $1.0 million related to the Company's U.S., Swiss, Western European, Chinese, and Other Operations, respectively.

The Company sells precision instruments, including weighing instruments and certain analytical and measurement technologies, and related services to a variety of customers and industries. None of these end-customers account for more than 1% of net sales. Service revenues are primarily derived from repair and other services including regulatory compliance qualification, calibration, certification, and preventative maintenance, and spare parts. A breakdown of the Company's sales by product category for the years ended December 31 follows:



	2019		2018		2017
Laboratory	$	1,578,625	$	1,504,600	$	1,358,493
Industrial	1,233,970		1,211,362		1,158,335
Retail	196,057		219,624		208,225
Total net sales	$	3,008,652	$	2,935,586	$	2,725,053

F-43

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

In certain circumstances, our reporting units sell directly into other geographies. A breakdown of net sales to external customers by geographic customer destination and property, plant, and equipment by geographic destination for the years ended December 31 follows:



	Net Sales						Property, Plant, and Equipment, Net
	2019		2018		2017		2019		2018
United States	$	984,524	$	933,419	$	888,241	$	200,497	$	234,395
Other Americas	181,323		172,537		162,672		3,828		2,946
Total Americas	1,165,847		1,105,956		1,050,913		204,325		237,341
Germany	195,790		205,296		192,126		48,401		48,030
France	130,387		141,513		130,427		8,849		7,810
United Kingdom	66,855		70,378		64,361		26,502		17,347
Switzerland	65,202		65,377		63,090		295,029		293,388
Other Europe	433,858		426,209		399,923		59,179		12,791
Total Europe	892,092		908,773		849,927		437,960		379,366
China	527,076		506,360		439,373		85,817		87,643
Rest of World	423,637		414,497		384,840		20,555		13,176
Total Asia/Rest of World	950,713		920,857		824,213		106,372		100,819
Total	$	3,008,652	$	2,935,586	$	2,725,053	$	748,657	$	717,526

F-44

METTLER-TOLEDO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share data, unless otherwise stated)

20. QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for the years ended December 31, 2019 and 2018 are as follows:



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2019
Net sales	$	679,452	$	731,366	$	753,866	$	843,968
Gross profit	$	388,319	$	419,538	$	435,056	$	498,298
Net earnings(a)	$	111,805	$	127,160	$	129,395	$	192,749
Basic earnings per common share:
Net earnings	$	4.50	$	5.15	$	5.28	$	7.95
Weighted average number of common shares	24,851,340		24,698,032		24,487,268		24,241,383
Diluted earnings per common share:
Net earnings	$	4.42	$	5.06	$	5.20	$	7.84
Weighted average number of common and common equivalent shares	25,310,525		25,118,352		24,880,179		24,599,702
Market price per share:
High	$	729.72	$	840.00	$	872.45	$	793.31
Low	$	513.56	$	701.80	$	642.84	$	658.61

2018
Net sales	$	660,821	$	721,996	$	734,846	$	817,923
Gross profit	$	374,933	$	412,625	$	419,254	$	477,566
Net earnings(a)	$	93,304	$	111,468	$	126,653	$	181,186
Basic earnings per common share:
Net earnings	$	3.66	$	4.41	$	5.04	$	7.25
Weighted average number of common shares	25,468,323		25,299,414		25,126,061		24,975,303
Diluted earnings per common share:
Net earnings	$	3.58	$	4.31	$	4.93	$	7.11
Weighted average number of common and common equivalent shares	26,095,647		25,867,383		25,683,365		25,490,270
Market price per share:
High	$	692.30	$	595.14	$	617.94	$	645.33
Low	$	566.87	$	546.43	$	559.44	$	524.03

(a) Net earnings includes a non-cash deferred net benefit of $15.8 million for the three months ended December 31, 2019 related to the enactment of Swiss tax reform and a charge of $3.6 million for the three months ended December 31, 2018 for the enactment of the U.S. Tax Cuts and Job Act. Net earnings for the three months ended December 31, 2018 also includes a one-time gain of $18.7 million relating to the Biotix acquisition contingent consideration and a one-time legal charge of $3 million.

F-45

Table of Contents

Schedule II — Valuation and Qualifying Accounts (in thousands)



Column A	Column B			Column C				Column D		Column E
				Additions
				(1)		(2)
	Balance at the Beginning of Period			Charged to Costs and Expenses		Charged to Other Accounts				Balance at End of Period
Description			-Deductions-
						Note (A)		Note (B)
Deferred tax valuation allowance:
Year ended December 31, 2019	$	15,084		$	36,658	$	—	$	889	$	50,853
Year ended December 31, 2018	$	12,857		$	—	$	3,023	$	796	$	15,084
Year ended December 31, 2017	$	10,730		$	9,513	$	72,170	$	79,556	$	12,857

Note (A)

For deferred tax valuation allowance amounts in 2018 and 2017 relate primarily to changes in foreign tax credit carryforwards.

Note (B)

For deferred tax valuation allowance, the amount in 2017 primarily includes certain excess tax benefits resulting from the adoption of ASU 2016-09, offset by the effects of the 2017 Tax Act. The amounts in 2019, 2018 and 2017 also include decreases in foreign tax credit and R&D credit carryforwards.

S- 1

Previous: Item 15. Exhibits and Financial Statement Schedules