10-Q
Table of Contents

 

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

Form 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015, OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________
Commission File Number: 1-13595
Mettler-Toledo International Inc.
_______________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)

Delaware
 
13-3668641
(State or other jurisdiction of
 
(I.R.S Employer Identification No.)
incorporation or organization)
 
 
1900 Polaris Parkway
Columbus, Ohio 43240
and
Im Langacher, P.O. Box MT-100
CH 8606 Greifensee, Switzerland
_________________________________________________________
 (Address of principal executive offices)
(Zip Code)

1-614-438-4511 and +41-44-944-22-11
________________________________________________________________________________
(Registrant's telephone number, including area code)

not applicable
______________________________________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X   No ___

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   X   No ___             
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer.  X  Accelerated filer __ Non-accelerated filer __ (Do not check if a smaller reporting company)Smaller reporting company __     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No  X 

The Registrant had 27,356,838 shares of Common Stock outstanding at September 30, 2015.
 




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

 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Interim Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014
 
 
 
 
Interim Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2015 and the twelve months ended December 31, 2014
 
 
 
 
Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended September 30, 2015 and 2014
(In thousands, except share data)
(unaudited)

 
September 30,
2015
 
September 30,
2014
Net sales
 
 
 
Products
$
469,548

 
$
488,829

Service
134,606

 
140,271

Total net sales
604,154

 
629,100

Cost of sales
 
 
 
Products
188,673

 
206,227

Service
75,952

 
79,322

Gross profit
339,529

 
343,551

Research and development
29,711

 
30,352

Selling, general and administrative
175,546

 
186,499

Amortization
7,767

 
7,198

Interest expense
7,029

 
5,991

Restructuring charges
2,561

 
1,050

Other charges (income), net
(8
)
 
625

Earnings before taxes
116,923

 
111,836

Provision for taxes
28,062

 
26,840

Net earnings
$
88,861

 
$
84,996

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
3.23

 
$
2.96

Weighted average number of common shares
27,547,734

 
28,732,152

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
3.16

 
$
2.89

Weighted average number of common and common equivalent shares
28,113,287

 
29,408,614

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
48,248

 
$
44,540



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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine months ended September 30, 2015 and 2014
(In thousands, except share data)
(unaudited)

 
September 30,
2015
 
September 30,
2014
Net sales
 
 
 
Products
$
1,332,154

 
$
1,379,655

Service
389,758

 
408,900

Total net sales
1,721,912

 
1,788,555

Cost of sales
 
 
 
Products
536,466

 
586,883

Service
224,200

 
237,304

Gross profit
961,246

 
964,368

Research and development
87,966

 
91,974

Selling, general and administrative
523,392

 
541,793

Amortization
22,929

 
21,575

Interest expense
20,696

 
17,613

Restructuring charges
5,188

 
4,447

Other charges (income), net
(858
)
 
1,348

Earnings before taxes
301,933

 
285,618

Provision for taxes
72,464

 
68,549

Net earnings
$
229,469

 
$
217,069

 
 
 
 
Basic earnings per common share:
 
 
 
Net earnings
$
8.24

 
$
7.47

Weighted average number of common shares
27,833,541

 
29,056,663

 
 
 
 
Diluted earnings per common share:
 
 
 
Net earnings
$
8.07

 
$
7.30

Weighted average number of common and common equivalent shares
28,443,478

 
29,747,321

 
 
 
 
Comprehensive income, net of tax (Note 9)
$
204,380

 
$
176,076



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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 2015 and December 31, 2014
(In thousands, except share data)
(unaudited)

 
September 30,
2015
 
December 31,
2014
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
123,299

 
$
85,263

Trade accounts receivable, less allowances of $15,704 at September 30, 2015
 
 
 
and $15,961 at December 31, 2014
390,540

 
435,648

Inventories
225,542

 
204,531

Current deferred tax assets, net
62,754

 
62,341

Other current assets and prepaid expenses
66,180

 
61,647

Total current assets
868,315

 
849,430

Property, plant and equipment, net
513,568

 
511,462

Goodwill
448,342

 
444,085

Other intangible assets, net
114,355

 
112,784

Non-current deferred tax assets, net
27,206

 
30,273

Other non-current assets
81,760

 
61,076

Total assets
$
2,053,546

 
$
2,009,110

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Trade accounts payable
$
136,565

 
$
145,896

Accrued and other liabilities
126,684

 
120,530

Accrued compensation and related items
120,843

 
136,107

Deferred revenue and customer prepayments
88,547

 
82,219

Taxes payable
76,255

 
59,297

Current deferred tax liabilities
23,460

 
18,677

Short-term borrowings and current maturities of long-term debt
21,061

 
116,164

Total current liabilities
593,415

 
678,890

Long-term debt
601,731

 
335,790

Non-current deferred tax liabilities
63,883

 
56,727

Other non-current liabilities
208,165

 
218,108

Total liabilities
1,467,194

 
1,289,515

Commitments and contingencies (Note 15)


 


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 27,356,838 and
 
 
 
28,243,007 shares at September 30, 2015 and December 31, 2014, respectively
448

 
448

Additional paid-in capital
682,184

 
670,418

Treasury stock at cost (17,429,173 shares at September 30, 2015 and 16,543,004 shares at December 31, 2014)
(2,434,460
)
 
(2,095,656
)
Retained earnings
2,576,218

 
2,357,334

Accumulated other comprehensive income (loss)
(238,038
)
 
(212,949
)
Total shareholders’ equity
586,352

 
719,595

Total liabilities and shareholders’ equity
$
2,053,546

 
$
2,009,110



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

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METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2015 and twelve months ended December 31, 2014
(In thousands, except share data)
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Common Stock
 
 
Treasury Stock
 
Retained Earnings
 
 
 
 
Shares
 
Amount
 
 
 
 
 
Total
Balance at December 31, 2013
29,487,075

 
$
448

 
$
653,250

 
$
(1,721,030
)
 
$
2,037,420

 
$
(35,036
)
 
$
935,052

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
373,431

 

 

 
39,374

 
(18,327
)
 

 
21,047

Repurchases of common stock
(1,617,499
)
 

 

 
(414,000
)
 

 

 
(414,000
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
3,557

 

 

 

 
3,557

Share-based compensation

 

 
13,611

 

 

 

 
13,611

Net earnings

 

 

 

 
338,241

 

 
338,241

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax

 

 

 

 

 
(177,913
)
 
(177,913
)
Balance at December 31, 2014
28,243,007

 
$
448

 
$
670,418

 
$
(2,095,656
)
 
$
2,357,334

 
$
(212,949
)
 
$
719,595

Exercise of stock options and restricted
 
 
 
 
 
 
 
 
 
 
 
 
 
stock units
281,627

 

 

 
32,419

 
(10,585
)
 

 
21,834

Repurchases of common stock
(1,167,796
)
 

 

 
(371,223
)
 

 

 
(371,223
)
Tax benefit resulting from exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
certain employee stock options

 

 
1,418

 

 

 

 
1,418

Share-based compensation

 

 
10,348

 

 

 

 
10,348

Net earnings

 

 

 

 
229,469

 

 
229,469

Other comprehensive income (loss),
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax (Note 9)

 

 

 

 

 
(25,089
)
 
(25,089
)
Balance at September 30, 2015
27,356,838

 
$
448

 
$
682,184

 
$
(2,434,460
)
 
$
2,576,218

 
$
(238,038
)
 
$
586,352

 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

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Table of Contents

METTLER-TOLEDO INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2015 and 2014
(In thousands)
(unaudited)

 
September 30,
2015
 
September 30,
2014
Cash flows from operating activities:
 
 
 
Net earnings
$
229,469

 
$
217,069

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
24,978

 
25,469

Amortization
22,929

 
21,575

Deferred tax benefit
(3,245
)
 
(6,102
)
Excess tax benefits from share-based payment arrangements
(1,418
)
 
(10,459
)
Share-based compensation
10,348

 
9,784

Other
165

 
99

Increase (decrease) in cash resulting from changes in:
 
 
 
Trade accounts receivable, net
26,123

 
43,313

Inventories
(27,014
)
 
(18,024
)
Other current assets
402

 
9,714

Trade accounts payable
(5,355
)
 
(13,180
)
Taxes payable
17,449

 
(9,391
)
Accruals and other
(5,005
)
 
8,371

Net cash provided by operating activities
289,826

 
278,238

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
281

 
433

Purchase of property, plant and equipment
(56,756
)
 
(61,408
)
Acquisitions
(10,969
)
 
(3,385
)
Net hedging settlements on intercompany loans
(5,563
)
 
182

Net cash used in investing activities
(73,007
)
 
(64,178
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
550,002

 
512,977

Repayments of borrowings
(374,891
)
 
(438,529
)
Proceeds from stock option exercises
21,834

 
14,045

Repurchases of common stock
(371,223
)
 
(296,476
)
Excess tax benefits from share-based payment arrangements
1,418

 
10,459

Debt issuance costs
(432
)
 
(941
)
Acquisition contingent consideration paid
(572
)
 

Net cash used in financing activities
(173,864
)
 
(198,465
)
Effect of exchange rate changes on cash and cash equivalents
(4,919
)
 
(1,158
)
Net increase (decrease) in cash and cash equivalents
38,036

 
14,437

Cash and cash equivalents:
 
 
 
Beginning of period
85,263

 
111,874

End of period
$
123,299

 
$
126,311



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

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited
(In thousands, except share data, unless otherwise stated)


1.
BASIS OF PRESENTATION
Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company") is a leading global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. The Company also manufactures several related analytical instruments and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging and provides solutions for use in certain process analytics applications. The Company's primary manufacturing facilities are located in China, Germany, Switzerland, the United Kingdom and the United States. The Company's principal executive offices are located in Columbus, Ohio and Greifensee, Switzerland.
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all entities in which the Company has control, which are its wholly-owned subsidiaries. The interim consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
The accompanying interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. A discussion of the Company’s critical accounting policies is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
All intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses in its existing trade accounts receivable. The Company determines the allowance based upon a review of both specific accounts for collection and the age of the accounts receivable portfolio.

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Inventories
Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated net realizable value is based on assumptions for future demand and related pricing. Adjustments to the cost basis of the Company’s inventory are made for excess and obsolete items based on usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.
Inventories consisted of the following:
 
September 30,
2015
 
December 31,
2014
Raw materials and parts
$
101,655

 
$
97,969

Work-in-progress
42,184

 
34,973

Finished goods
81,703

 
71,589

 
$
225,542

 
$
204,531

Goodwill and Other Intangible Assets
Goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
Other intangible assets include indefinite-lived assets and assets subject to amortization. Where applicable, amortization is charged on a straight-line basis over the expected period of benefit. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company assesses the initial acquisition of intangible assets in accordance with the provisions of ASC 805 "Business Combinations" and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible - Goodwill and Other" and ASC 360 "Property, Plant and Equipment".
Other intangible assets consisted of the following:
 
September 30, 2015
 
December 31, 2014
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
 
Gross
Amount
 
Accumulated
Amortization
 
Intangibles, Net
Customer relationships
$
98,211

 
$
(29,836
)
 
$
68,375

 
$
98,325

 
$
(28,159
)
 
$
70,166

Proven technology and patents
50,349

 
(31,957
)
 
18,392

 
45,588

 
(30,761
)
 
14,827

Tradename (finite life)
4,215

 
(2,250
)
 
1,965

 
4,140

 
(1,786
)
 
2,354

Tradename (indefinite life)
24,805

 

 
24,805

 
24,947

 

 
24,947

Other
2,109

 
(1,291
)
 
818

 
1,573

 
(1,083
)
 
490

 
$
179,689

 
$
(65,334
)
 
$
114,355

 
$
174,573

 
$
(61,789
)
 
$
112,784


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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The Company recognized amortization expense associated with the above intangible assets of $1.5 million and $1.6 million for the three months ended September 30, 2015 and 2014, respectively and $4.7 million and $4.8 million for the nine months ended September 30, 2015 and 2014, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $6.2 million for 2015, $6.1 million for 2016, $5.7 million for 2017, $5.5 million for 2018, $5.2 million for 2019 and $4.9 million for 2020. Purchased intangible amortization was $1.3 million, $0.9 million after tax, and $1.5 million, $1.0 million after tax, for the three months ended September 30, 2015 and 2014, respectively and $4.2 million, $2.9 million after tax, and $4.2 million, $2.8 million after tax, for the nine months ended September 30, 2015 and 2014, respectively.
In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $6.2 million and $5.5 million for the three months ended September 30, 2015 and 2014, respectively and $18.1 million and $16.7 million for the nine months ended September 30, 2015 and 2014, respectively.
Revenue Recognition
Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and, accordingly, title and risk of loss transfers upon shipment. In countries where title cannot legally transfer before delivery, the Company defers revenue recognition until delivery has occurred. The Company generally maintains the right to accept or reject a product return in its terms and conditions and also maintains appropriate accruals for outstanding credits. Shipping and handling costs charged to customers are included in total net sales and the associated expense is recorded in cost of sales for all periods presented. Other than a few small software applications, the Company does not sell software products without the related hardware instrument as the software is embedded in the instrument. The Company’s products typically require no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. To the extent the Company’s solutions have a post-shipment obligation, such as customer acceptance, revenue is deferred until the obligation has been completed. The Company defers product revenue where installation is required, unless such installation is deemed perfunctory. The Company also sometimes enters into certain arrangements that require the separate delivery of multiple goods and/or services. These deliverables are accounted for separately if the deliverables have standalone value and the performance of undelivered items is probable and within the Company's control. The allocation of revenue between the separate deliverables is typically based on the relative selling price at the time of the sale in accordance with a number of factors including service technician billing rates, time to install and geographic location.
Further, certain products are also sold through indirect distribution channels whereby the distributor assumes any further obligations to the customer upon title transfer. Revenue is recognized on these products upon transfer of title and risk of loss to its distributors. Distributor discounts are offset against revenue at the time such revenue is recognized.
Service revenue not under contract is recognized upon the completion of the service performed. Spare parts sold on a stand-alone basis are recognized upon title and risk of loss transfer which is generally at the time of shipment. Revenues from service contracts are recognized ratably over the contract period. These contracts represent an obligation to perform repair and other services including regulatory compliance qualification, calibration, certification and preventative maintenance on a customer’s pre-defined equipment over the contract period. Service contracts are separately priced and payment is typically received from the customer at the beginning of the contract period.
Warranty
The Company generally offers one-year warranties on most of its products. Estimated product warranties are recorded at the time revenue is recognized. While the Company engages in extensive

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

product quality programs and processes, its warranty obligations are affected by product failure rates, material usage and service costs incurred in correcting a product failure.
Employee Termination Benefits
In situations where contractual termination benefits exist, the Company records accruals for employee termination benefits when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. All other employee termination arrangements are recognized and measured at their fair value at the communication date unless the employee is required to render additional service beyond the legal notification period, in which case the liability is recognized ratably over the future service period.
Share-Based Compensation
The Company recognizes share-based compensation expense within selling, general and administrative in the consolidated statements of operations and other comprehensive income with a corresponding offset to additional paid-in capital in the consolidated balance sheet. The Company recorded $3.4 million and $10.3 million of share-based compensation expense for the three and nine months ended September 30, 2015, respectively, compared to $3.3 million and $9.8 million for the corresponding periods in 2014.
Research and Development
Research and development costs primarily consist of salaries, consulting and other costs. The Company expenses these costs as incurred.

3.
ACQUISITIONS
In September 2015, the Company consummated acquisitions totaling $16.6 million, including the acquisition of a real-time monitoring water purity technology for an estimated aggregate purchase price of $14.7 million that will be integrated into the Company's process analytics product offering. The Company may be required to pay additional cash consideration related to an earn-out period. Goodwill recorded in connection with the acquisition totaled $8.7 million, which is included in the Company's U.S. Operations segment. The Company also recorded $6.8 million of identified intangibles primarily pertaining to technology in connection with the acquisitions, which will be amortized on a straight-line basis over 10 years.
4.     FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. As also mentioned in Note 7, the Company has designated its euro denominated debt as a hedge of a portion of its net investment in euro-denominated foreign operations. For additional disclosures on the fair value of financial instruments, see Note 5.
Cash Flow Hedges
In July 2012, the Company began entering into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based business. The notional amount of foreign currency forward contracts outstanding at September 30,

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METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

2015 were $29.9 million (Euro 26.7 million) for contracts that mature in 2015 and $74.5 million (Euro 66.5 million) for contracts that mature in 2016. The notional amount of foreign currency forward contracts outstanding at December 31, 2014 was $87.0 million (Euro 72.0 million) for contracts that mature in 2015. The amount recognized in other comprehensive income (loss) during the three months period ended September 30, 2015 and 2014 was a loss of $6.1 million and a gain of $0.5 million, respectively. The amount recognized in other comprehensive income (loss) during the nine months period ended September 30, 2015 and 2014 was a gain of $18.1 million and $0.9 million, respectively.
The Company has an interest rate swap agreement designated as a cash flow hedge. The agreement is a swap which has the effect of changing the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company’s credit facility to a fixed obligation of 3.24%. The swap began in October 2010 and matures in October 2015.
In June 2013, the Company entered into a forward-starting interest rate swap agreement, designated as a cash flow hedge. The agreement will change the floating rate LIBOR-based interest payments associated with $50 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.52% beginning in October 2015 and matures in October 2020.
In March 2015, the Company entered into a forward-starting interest rate swap agreement. The agreement will change the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.25% beginning in February 2017 and matures in February 2022.
The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at September 30, 2015 and December 31, 2014, respectively, and disclosed in Note 5. Amounts reclassified into other comprehensive income and the effective portions of the cash flow hedges are further disclosed in Note 9. A derivative gain of $5.0 million based upon interest rates and foreign currency rates at September 30, 2015, is expected to be reclassified from other comprehensive income (loss) to earnings in the next 12 months. Through September 30, 2015, no hedge ineffectiveness has occurred in relation to the cash flow hedges.
Other Derivatives
The Company enters into foreign currency forward contracts in order to economically hedge short-term trade and non-trade intercompany balances largely denominated in Swiss franc, other major European currencies, and the Chinese Renminbi with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts are recorded at fair value in the consolidated balance sheet at September 30, 2015 and December 31, 2014, respectively, and disclosed in Note 5. The Company recognized in other charges (income), a net gain of $4.7 million and a net loss of $2.0 million during the three months ended September 30, 2015 and 2014, respectively, and a net loss of $4.8 million and $3.0 million during the nine months ended September 30, 2015 and 2014, respectively. The gains and losses are primarily offset by the underlying transaction gains on the related intercompany balances. At September 30, 2015 and December 31, 2014, these contracts had a notional value of $335.5 million and $325.4 million, respectively.    
5.    FAIR VALUE MEASUREMENTS
At September 30, 2015 and December 31, 2014, the Company had derivative assets totaling $10.1 million and $2.2 million, respectively, and derivative liabilities totaling $6.5 million and $5.6 million, respectively. The fair values of the interest rate swap agreements, foreign currency forward contracts designated as cash flow hedges and foreign currency forward contracts that economically hedge short-term intercompany balances are estimated based upon inputs from current valuation information obtained from dealer quotes and priced with observable market assumptions and appropriate valuation adjustments

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

for credit risk. The Company has evaluated the valuation methodologies used to develop the fair values by dealers in order to determine whether such valuations are representative of an exit price in the Company’s principal market. In addition, the Company uses an internally developed model to perform testing on the valuations received from brokers. The Company has also considered both its own credit risk and counterparty credit risk in determining fair value and determined these adjustments were insignificant at September 30, 2015 and December 31, 2014.
At September 30, 2015 and December 31, 2014, the Company had $17.3 million and $14.2 million of cash equivalents, respectively, the fair value of which is determined through quoted and corroborated prices in active markets. The fair value of cash equivalents approximates cost.
The fair value of the Company's fixed interest rate debt was estimated using Level 2 inputs, primarily discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The carrying value of the Company's debt exceeds the fair value by approximately $6.9 million as of September 30, 2015. The fair value of the Company's debt exceeds the carrying value by approximately $17.8 million as of December 31, 2014, respectively.
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement consists of observable and unobservable inputs that reflect the assumptions that a market participant would use in pricing an asset or liability.

A fair value hierarchy has been established that categorizes these inputs into three levels:
Level 1:
Quoted prices in active markets for identical assets and liabilities
Level 2:
Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3:
Unobservable inputs
The following table presents for each of these hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014:
 
 
September 30, 2015
 
December 31, 2014
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
17,326

 
$

 
$
17,326

 
$

 
$
14,188

 
$

 
$
14,188

 
$

Foreign currency forwards contracts designed as cash flow hedges
 
9,182

 

 
9,182

 

 
567

 

 
567

 

Foreign currency forward contracts not designated as hedging instruments
 
880

 

 
880

 

 
1,611

 

 
1,611

 

Total
 
$
27,388

 
$

 
$
27,388

 
$

 
$
16,366

 
$

 
$
16,366

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
5,746

 
$

 
$
5,746

 
$

 
$
3,768

 
$

 
$
3,768

 
$

Foreign currency forward contracts not designated as hedging instruments
 
782

 

 
782

 

 
1,799

 

 
1,799

 

Total
 
$
6,528

 
$

 
$
6,528

 
$

 
$
5,567

 
$

 
$
5,567

 
$




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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

6.    INCOME TAXES
The provision for taxes is based upon using the Company's projected annual effective tax rate of 24% for both the three and nine month periods ended September 30, 2015 and 2014.

7.    DEBT
Debt consisted of the following at September 30, 2015:
 
September 30, 2015
 
U.S. Dollar
 
Other Principal Trading Currencies
 
Total
3.67% $50 million Senior Notes due December 17, 2022
50,000

 

 
50,000

4.10% $50 million Senior Notes due September 19, 2023
50,000

 

 
50,000

3.84% $125 million Senior Notes due September 19, 2024
125,000

 

 
125,000

4.24% $125 million Senior Notes due June 25, 2025
125,000

 

 
125,000

1.47% EUR 125m Senior Notes due July 17, 2030

 
139,962

 
139,962

$800 million Credit Agreement, interest at LIBOR plus 75 basis points
100,000

 
11,769

 
111,769

Other local arrangements
283

 
20,778

 
21,061

Total debt
450,283

 
172,509

 
622,792

Less: current portion
(283
)
 
(20,778
)
 
(21,061
)
Total long-term debt
$
450,000

 
$
151,731

 
$
601,731

As of September 30, 2015, the Company had $683.4 million of availability remaining under its Credit Agreement. The Company was in compliance with its covenants at September 30, 2015.

1.47% Euro Senior Notes
The Company has designated the 1.47% Euro Senior Notes as a hedge of a portion of its net investment in euro-denominated foreign subsidiaries to reduce foreign currency risk associated with the net investment in these operations. Changes in the carrying value of this debt resulting from fluctuations in the euro to U.S. dollar exchange rate are recorded as foreign currency translation adjustments within other comprehensive income (loss). The unrealized gain recorded in other comprehensive income (loss) related to this net investment hedge was $0.3 million for the periods ended September 30, 2015.

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

8.    SHARE REPURCHASE PROGRAM AND TREASURY STOCK
As of September 30, 2015, the Company had $107.2 million of remaining availability under the Company's share repurchase program. In November 2015, the Company's Board of Directors authorized an additional $1.5 billion to the share repurchase program. The share repurchases are expected to be

- 14 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.
The Company has purchased 24.2 million shares since the inception of the program through September 30, 2015. During the nine months ended September 30, 2015 and 2014, the Company spent $371.2 million and $296.5 million on the repurchase of 1,167,796 shares and 1,186,215 shares at an average price per share of $317.86 and $249.91, respectively. The Company also reissued 281,627 shares and 246,551 shares held in treasury for the exercise of stock options and restricted stock units during the nine months ended September 30, 2015 and 2014, respectively.

9.    ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in accumulated other comprehensive income by component for the nine months ended September 30, 2015 and 2014:
 
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, 2014
$
(4,960
)
 
$
(1,944
)
 
$
(206,045
)
 
$
(212,949
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedging arrangements

 
13,547

 

 
13,547

Foreign currency translation adjustment
(40,823
)
 
(1,832
)
 
3,146

 
(39,509
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
(6,082
)
 
6,955

 
873

Net change in other comprehensive income (loss), net of tax
(40,823
)
 
5,633

 
10,101

 
(25,089
)
Balance at September 30, 2015
$
(45,783
)
 
$
3,689

 
$
(195,944
)
 
$
(238,038
)
 
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, 2013
$
77,915

 
$
(2,433
)
 
$
(110,518
)
 
$
(35,036
)
Other comprehensive income (loss), net of tax:

 

 

 

Unrealized gains (losses) on cash flow hedging arrangements

 
(445
)
 

 
(445
)
Foreign currency translation adjustment
(47,483
)
 
30

 
4,644

 
(42,809
)
Amounts recognized from accumulated other comprehensive income (loss), net of tax

 
1,075

 
1,186

 
2,261

Net change in other comprehensive income (loss), net of tax
(47,483
)
 
660

 
5,830

 
(40,993
)
Balance at September 30, 2014
$
30,432

 
$
(1,773
)
 
$
(104,688
)
 
$
(76,029
)


- 15 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

The following table presents amounts recognized from accumulated other comprehensive income (loss) for the three and nine month periods ended September 30:
 
 
Three months ended September 30,
 
 
 
 
2015
 
2014
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
777

 
$
787

 
Interest expense
Foreign currency forward contracts
 
(2,816
)
 
(247
)
 
Cost of sales - products
Total before taxes
 
(2,039
)
 
540

 
 
Provision for taxes
 
(278
)
 
253

 
Provision for taxes
Total, net of taxes
 
$
(1,761
)
 
$
287

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, plan amendments and prior service cost, before taxes
 
$
2,675

 
$
719

 
(a)
Provision for taxes
 
761

 
313

 
Provision for taxes
Total, net of taxes
 
$
1,914

 
$
406

 
 
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 11 for additional details for the three and nine months ended September 30, 2015 and 2014.
 
 
Nine months ended September 30,
 
 
 
 
2015
 
2014
 
Location of Amounts Recognized in Earnings
Effective portion of (gains) / losses on cash flow hedging arrangements:
 
 
 
 
 
 
Interest rate swap agreements
 
$
2,312

 
$
2,333

 
Interest expense
Foreign currency forward contracts
 
(9,439
)
 
(453
)
 
Cost of sales - products
Total before taxes
 
(7,127
)
 
1,880

 
 
Provision for taxes
 
(1,045
)
 
805

 
Provision for taxes
Total, net of taxes
 
$
(6,082
)
 
$
1,075

 
 
 
 
 
 
 
 
 
Recognition of defined benefit pension and post-retirement items:
 
 
 
 
 
 
Recognition of actuarial losses, plan amendments and prior service cost, before taxes
 
$
9,545

 
$
2,131

 
(a)
Provision for taxes
 
2,590

 
945

 
Provision for taxes
Total, net of taxes
 
$
6,955

 
$
1,186

 
 
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and post-retirement cost. See Note 11 for additional details for the three and nine months ended September 30, 2015 and 2014.

- 16 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Comprehensive income (loss), net of tax consisted of the following as of September 30:
 
Three Months Ended
 
Nine Months Ended
 
2015
 
2014
 
2015
 
2014
Net earnings
$
88,861

 
$
84,996

 
$
229,469

 
$
217,069

Other comprehensive income (loss), net of tax
(40,613
)
 
(40,456
)
 
(25,089
)
 
(40,993
)
Comprehensive income, net of tax
$
48,248

 
$
44,540

 
$
204,380

 
$
176,076

10.    EARNINGS PER COMMON SHARE
In accordance with the treasury stock method, the Company has included the following common equivalent shares in the calculation of diluted weighted average number of common shares outstanding for the three and nine month periods ended September 30, solely relating to outstanding stock options and restricted stock units:
 
2015
 
2014
Three months ended
565,553

 
676,462

Nine months ended
609,937

 
690,658

Outstanding options and restricted stock units to purchase or receive 95,832 and 105,570 shares of common stock for the three month periods ended September 30, 2015 and 2014, respectively, and options and restricted stock units to purchase or receive 95,884 and 135,858 for the nine month periods ended September 30, 2015 and 2014, respectively, have been excluded from the calculation of diluted weighted average of common and common equivalent shares as such options and restricted stock units would be anti-dilutive.

11.    NET PERIODIC BENEFIT COST
Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the three months ended September 30:
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost, net
$
211

 
$
223

 
$
4,772

 
$
3,856

 
$

 
$
43

 
$
4,983

 
$
4,122

Interest cost on projected benefit obligations
1,607

 
1,599

 
3,554

 
5,380

 
35

 
60

 
5,196

 
7,039

Expected return on plan assets
(2,395
)
 
(2,137
)
 
(9,228
)
 
(9,372
)
 

 

 
(11,623
)
 
(11,509
)
Recognition of prior service cost

 

 
(1,675
)
 
(1,009
)
 
(469
)
 
(195
)
 
(2,144
)
 
(1,204
)
Recognition of actuarial losses/(gains)
1,906

 
1,200

 
3,756

 
1,082

 
(843
)
 
(359
)
 
4,819

 
1,923

Net periodic pension cost/(credit)
$
1,329

 
$
885

 
$
1,179

 
$
(63
)
 
$
(1,277
)
 
$
(451
)
 
$
1,231

 
$
371



- 17 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

Net periodic pension cost for the Company’s defined benefit pension plans and U.S. post-retirement medical plan includes the following components for the nine months ended September 30:

 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other U.S. Post-retirement Benefits
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost, net
$
628

 
$
669

 
$
14,228

 
$
11,741

 
$

 
$
129

 
$
14,856

 
$
12,539

Interest cost on projected benefit obligations
4,823

 
4,797

 
10,623

 
16,383

 
104

 
180

 
15,550

 
21,360

Expected return on plan assets
(7,183
)
 
(6,411
)
 
(27,867
)
 
(28,512
)
 

 

 
(35,050
)
 
(34,923
)
Recognition of prior service cost

 

 
(3,632
)
 
(3,079
)
 
(1,408
)
 
(585
)
 
(5,040
)
 
(3,664
)
Recognition of actuarial losses/(gains)
5,720

 
3,600

 
11,393

 
3,272

 
(2,528
)
 
(1,077
)
 
14,585

 
5,795

Net periodic pension cost/(credit)
$
3,988

 
$
2,655

 
$
4,745

 
$
(195
)
 
$
(3,832
)
 
$
(1,353
)
 
$
4,901

 
$
1,107


As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, the Company expects to make employer contributions of approximately $19.6 million to its non-U.S. pension plans and employer contributions of approximately $0.7 million to its U.S. post-retirement medical plan during the year ended December 31, 2015. These estimates may change based upon several factors, including fluctuations in currency exchange rates, actual returns on plan assets and changes in legal requirements.

12.    RESTRUCTURING CHARGES
For the three and nine months ended September 30, 2015, the Company has incurred $2.6 million and $5.2 million, respectively of restructuring expenses which primarily comprised of employee-related costs. Liabilities related to restructuring activities are included in accrued and other liabilities in the consolidated balance sheet.
A rollforward of the Company’s accrual for restructuring activities for the nine months ended September 30, 2015 is as follows:
 
 
Total
Balance at December 31, 2014
 
$
8,436

Restructuring charges
 
5,188

Cash payments and utilization
 
(3,602
)
Impact of foreign currency
 
(574
)
Balance at September 30, 2015
 
$
9,448


13.    OTHER CHARGES (INCOME), NET
Other charges (income), net consists primarily of interest income, (gains) losses from foreign currency transactions and hedging activity, and other items.



- 18 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

14.    SEGMENT REPORTING
As disclosed in Note 16 to the Company's consolidated financial statements for the year ended December 31, 2014, the Company has determined there are five reportable segments:  U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other.
The Company evaluates segment performance based on Segment Profit (gross profit less research and development and selling, general and administrative expenses, before amortization, interest expense, restructuring charges, other charges (income), net and taxes).
The following tables show the operations of the Company’s operating segments:
 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2015
September 30, 2015
Customers
 
Segments
 
Sales
 
Profit
 
Goodwill
U.S. Operations
$
217,713

 
$
21,221

 
$
238,934

 
$
40,529

 
$
317,525

Swiss Operations
32,867

 
107,196

 
140,063

 
39,772

 
22,130

Western European Operations
150,523

 
32,495

 
183,018

 
26,789

 
94,659

Chinese Operations
96,716

 
49,499

 
146,215

 
41,665

 
709

Other (a)
106,335

 
2,014

 
108,349

 
13,400

 
13,319

Eliminations and Corporate (b)

 
(212,425
)
 
(212,425
)
 
(27,883
)
 

Total
$
604,154

 
$

 
$
604,154

 
$
134,272

 
$
448,342


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2015
Customers
 
Segments
 
Sales
 
Profit
 
 
U.S. Operations
$
599,283

 
$
62,353

 
$
661,636

 
$
101,719

 
 
Swiss Operations
97,325

 
308,998

 
406,323

 
109,996

 
 
Western European Operations
442,742

 
87,395

 
530,137

 
70,476

 
 
Chinese Operations
274,178

 
138,253

 
412,431

 
111,080

 
 
Other (a)
308,384

 
4,959

 
313,343

 
32,372

 
 
Eliminations and Corporate (b)

 
(601,958
)
 
(601,958
)
 
(75,755
)
 
 
Total
$
1,721,912

 
$

 
$
1,721,912

 
$
349,888

 
 

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.

- 19 -

Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

 
Net Sales to
 
Net Sales to
 
 
 
 
 
As of September 30,
For the three months ended
External
 
Other
 
Total Net
 
Segment
 
2014
September 30, 2014
Customers
 
Segments
 
Sales
 
Profit (c)
 
Goodwill
U.S. Operations
$
196,241

 
$
20,058

 
$
216,299

 
$
30,695

 
$
308,112

Swiss Operations
35,375

 
112,544

 
147,919

 
35,924

 
22,748

Western European Operations
174,089

 
32,076

 
206,165

 
29,612

 
103,844

Chinese Operations
107,907

 
41,416

 
149,323

 
43,472

 
741

Other (a)
115,488

 
1,864

 
117,352

 
13,148

 
14,094

Eliminations and Corporate (b)

 
(207,958
)
 
(207,958
)
 
(26,151
)
 

Total
$
629,100

 
$

 
$
629,100

 
$
126,700

 
$
449,539


 
Net Sales to
 
Net Sales to
 
 
 
 
 
 
For the nine months ended
External
 
Other
 
Total Net
 
Segment
 
 
September 30, 2014
Customers
 
Segments
 
Sales
 
Profit (c)
 
 
U.S. Operations
$
553,590

 
$
61,969

 
$
615,559

 
$
84,715

 
 
Swiss Operations
102,522

 
328,932

 
431,454

 
100,069

 
 
Western European Operations
504,172

 
88,950

 
593,122

 
74,173

 
 
Chinese Operations
299,450

 
114,358

 
413,808

 
113,756

 
 
Other (a)
328,821

 
4,946

 
333,767

 
33,236

 
 
Eliminations and Corporate (b)

 
(599,155
)
 
(599,155
)
 
(75,348
)
 
 
Total
$
1,788,555

 
$

 
$
1,788,555

 
$
330,601

 
 

(a)
Other includes reporting units in Eastern Europe, Latin America, Southeast Asia and other countries.
(b)
Eliminations and Corporate includes the elimination of inter-segment transactions and certain corporate expenses and intercompany investments, which are not included in the Company’s operating segments.
(c)
2014 Segment profit between the U.S., Swiss, and Chinese Operations has been reclassified to conform to the current period.
A reconciliation of earnings before taxes to segment profit for the three and nine month periods ended September 30 follows:

 
Three Months Ended
 
Nine Months Ended
 
2015
 
2014
 
2015
 
2014
Earnings before taxes
$
116,923

 
$
111,836

 
$
301,933

 
$
285,618

Amortization
7,767

 
7,198

 
22,929

 
21,575

Interest expense
7,029

 
5,991

 
20,696

 
17,613

Restructuring charges
2,561

 
1,050

 
5,188

 
4,447

Other charges (income), net
(8
)
 
625

 
(858
)
 
1,348

Segment profit
$
134,272

 
$
126,700

 
$
349,888

 
$
330,601


During the three months ended September 30, 2015, restructuring charges of $2.6 million were recognized, of which $0.6 million, $1.9 million, and $0.1 million related to the Company’s Swiss, Western European, and Chinese Operations, respectively. Restructuring charges of $1.1 million were recognized during the three months ended September 30, 2014, of which $0.1 million, $0.4 million, $0.1 million, and $0.5 million related to the Company’s U.S., Western European, Chinese Operations, and Other Operations

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Table of Contents
METTLER-TOLEDO INTERNATIONAL INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2015 – Unaudited (Continued)
(In thousands, except share data, unless otherwise stated)

respectively. Restructuring charges of $5.2 million were recognized during the nine months ended September 30, 2015, of which $0.1 million, $1.7 million, $2.4 million, $0.4 million, and $0.6 million related to the Company’s U.S., Swiss, Western European, Chinese, and Other Operations, respectively. Restructuring charges of $4.4 million were recognized during the nine months ended September 30, 2014, of which $1.7 million, $0.6 million, $1.0 million, $0.4 million and $0.7 million related to the Company’s U.S., Swiss, Western European, Chinese and Other Operations, respectively.

15.    CONTINGENCIES
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, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.
General
Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
Changes in local currency exclude the effect of currency exchange rate fluctuations. Local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates. We believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We present non-GAAP financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results.
Results of Operations – Consolidated
The following tables set forth certain items from our interim consolidated statements of operations for the three and nine month periods ended September 30, 2015 and 2014 (amounts in thousands).
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
 
(unaudited)
 
%
Net sales
$
604,154

 
100.0

 
$
629,100

 
100.0
 
$
1,721,912

 
100.0

 
$
1,788,555

 
100.0
Cost of sales
264,625

 
43.8

 
285,549

 
45.4
 
760,666

 
44.2

 
824,187

 
46.1
Gross profit
339,529

 
56.2

 
343,551

 
54.6
 
961,246

 
55.8

 
964,368

 
53.9
Research and development
29,711

 
4.9

 
30,352

 
4.8
 
87,966

 
5.1

 
91,974

 
5.1
Selling, general and administrative
175,546

 
29.1

 
186,499

 
29.6
 
523,392

 
30.4

 
541,793

 
30.3
Amortization
7,767

 
1.3

 
7,198

 
1.1
 
22,929

 
1.3

 
21,575

 
1.2
Interest expense
7,029

 
1.1

 
5,991

 
1.0
 
20,696

 
1.2

 
17,613

 
1.0
Restructuring charges
2,561

 
0.4

 
1,050

 
0.2
 
5,188

 
0.3

 
4,447

 
0.2
Other charges (income), net
(8
)
 

 
625

 
0.1
 
(858
)
 

 
1,348

 
0.1
Earnings before taxes
116,923

 
19.4

 
111,836

 
17.8
 
301,933

 
17.5

 
285,618

 
16.0
Provision for taxes
28,062

 
4.7

 
26,840

 
4.3
 
72,464

 
4.2

 
68,549

 
3.9
Net earnings
$
88,861

 
14.7

 
$
84,996

 
13.5
 
$
229,469

 
13.3

 
$
217,069

 
12.1

Net sales
Net sales were $604.2 million and $629.1 million for the three months ended September 30, 2015 and 2014, respectively, and $1.722 billion and $1.789 billion for the nine months ended September 30, 2015 and 2014. This represents a decrease of 4% in U.S. dollars for both the three and nine months ended September 30, 2015. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 3% and 4% for the three and nine months ended September 30, 2015, as compared to prior year comparable periods. Currency exchange rate fluctuations negatively impacted net sales as most of our non-U.S. dollar trading currencies, especially the euro, have weakened against the U.S. dollar. While market conditions remain stable in most parts of the world, we see unfavorable market conditions in China, Russia and Brazil, where customer investments have slowed due to a variety of economic factors. We remain cautious about

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our sales outlook as the timing of a market stabilization or recovery in these three countries remains uncertain.
Net sales by geographic destination for the three and nine months ended September 30, 2015 in U.S. dollars increased in the Americas 8% and 6%, in Europe decreased 13% for both periods, and in Asia/Rest of World decreased 8% and 4%, respectively. Our net sales by geographic destination for the three and nine months ended September 30, 2015 in local currencies increased in the Americas 10% and 7%, in Europe 1% and 3%, and in Asia/Rest of World decreased 1% and increased 1%, respectively. Net sales were impacted by significant sales declines in China, Russia and Brazil. A discussion of sales by operating segment is included below.
As described in Note 16 to our consolidated financial statements for the year ended December 31, 2014, our net sales comprise product sales of precision instruments and related services. Service revenues are primarily derived from repair and other services, including regulatory compliance qualification, calibration, certification, preventative maintenance and spare parts.
Net sales of products decreased 4% in U.S. dollars and increased 3% in local currencies for the three months ended September 30, 2015 and decreased 3% in U.S. dollars and increased 4% local currencies for the nine months ended September 30, 2015, compared to the corresponding periods in 2014. Service revenue (including spare parts) decreased by 4% in U.S. dollars and increased 5% in local currencies for the three months ended September 30, 2015 and decreased 5% in U.S. dollars and increased 4% in local currencies for the nine months ended September 30, 2015, compared to the corresponding periods in 2014.
Net sales of our laboratory-related products, which represented approximately 48% of our total net sales decreased 1% in U.S. dollars and increased 7% in local currencies for both the three and nine months ended September 30, 2015. The local currency increase in net sales of our laboratory-related products for the three and nine months ended September 30, 2015 was driven by strong volume and favorable price realization in most product categories, including strong growth in pipettes, and laboratory balances for the three month period. These results were offset in part by significant sales volume declines in Brazil and Russia.
Net sales of our industrial-related products, which represented approximately 43% of our total net sales decreased 8% in U.S. dollars and 1% in local currencies for the three months ended September 30, 2015, and decreased 7% in U.S. dollars and were flat in local currencies for the nine months ended September 30, 2015, compared to the corresponding prior year periods. The decrease in local currency net sales of our industrial-related products for the three and nine months ended September 30, 2015 includes significant sales volume declines of industrial-related products in China, Russia and Brazil offset in part by strong growth in the United States primarily due to increased volume.
Net sales in our food retailing products, which represented approximately 9% of our total net sales, were flat in U.S. dollars and increased 7% in local currencies for the three months ended September 30, 2015, and decreased 2% in U.S. dollars and increased 6% in local currencies for the nine months ended September 30, 2015, compared to the corresponding prior year periods. The increase in net sales in local currencies of our food retailing products for the three months ended September 30, 2015 is driven by strong project activity in the Americas offset in part by reduced net sales in Europe.
Gross profit
Gross profit as a percentage of net sales was 56.2% and 54.6% for the three months ended September 30, 2015 and 2014, respectively, and 55.8% and 53.9% for the nine months ended September 30, 2015 and 2014, respectively.

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Gross profit as a percentage of net sales for products was 59.8% and 57.8% for the three months ended September 30, 2015 and 2014, respectively, and 59.7% and 57.5% for the nine months ended September 30, 2015 and 2014, respectively.
Gross profit as a percentage of net sales for services (including spare parts) was 43.6% and