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 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, 2016.2017.

All intercompany transactions and balances have been eliminated.

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 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.

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".

The Company recognized amortization expense associated with the above intangible assets of $2.5$3.5 million and $1.7$2.5 million for the three months ended June 30, 20172018 and 2016,2017, respectively and $5.0$7.1 million and $3.5$5.0 million for the six months ended June 30, 20172018 and 2016,2017, respectively. The annual aggregate amortization expense based on the current balance of other intangible assets is estimated at $9.9 million for 2017, $9.7$14.0 million for 2018, $9.2$13.4 million for 2019, $8.9$13.1 million for 2020, $8.3$12.5 million for 2021, and $7.3$12.0 million for 2022.2022 and $11.8 million for 2023. Purchased intangible amortization was $2.3$3.3 million, $1.5$2.5 million after tax, and $1.5$2.3 million, $1.0$1.5 million after tax, for the three months ended June 30, 2018 and 2017, respectively and 2016, respectively$6.7 million, $5.0 million after tax, and $4.6 million, $3.0 million after tax, and $3.2 million, $2.1 million after tax, for the six months ended June 30, 20172018 and 2016,2017, respectively.

In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $7.7$8.4 million and $6.9$7.7 million for the three months ended June 30, 20172018 and 2016,2017, respectively and $15.2$16.5 million and $13.4$15.2 million for the six months ended June 30, 20172018 and 2016,2017, respectively.

Product revenue is recognized from contracts with customers when a customer has obtained control of a product. The Company considers control to have transferred upon shipping terms. To the extent 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 when titleon these distributor arrangements upon transfer of control to a product has transferredthe distributor. Contracts do not contain variable pricing arrangements that are retrospective, except for rebate programs. Rebates are estimated based on expected sales volumes 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,offset against revenue at the Company deferstime such revenue recognition until delivery has occurred.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. ShippingThe provisions for estimated returns and handling costs chargedrebates are immaterial to customersthe consolidated financial statements.

Certain of the Company’s arrangements include separate performance obligations, primarily related to installation. Such performance obligations are included in total net salesaccounted for separately when the deliverables have stand-alone value and the associated expensesatisfaction of the undelivered performance obligations is recordedprobable and within the Company's control. The allocation of revenue between the performance obligations is based on the observable standalone selling prices at the time of the sale in costaccordance with a number of sales for all periods presented. Other thanfactors including service technician billing rates, time to install and geographic location.

Software is generally not considered a distinct performance obligation with the exception of a few small software applications, theapplications. The Company does not sell software products without the related hardware instrument as the software is embedded in the instrument.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. To the extent the Company’s solutions have a post-shipment obligation, revenue is deferred until the obligation has been completed. The Company defers product revenue where installation is required, unless such installation is deemed perfunctory. The Company also sometimes enters into certain arrangements that require the separate delivery of multiple goods and/or services. These deliverables are accounted for separately if the deliverables have 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.

Service revenue not under contract is recognized upon the completion of the service performed. SpareRevenue from spare parts sold on a stand-alone basis areis recognized upon title and risk of loss transferwhen control is transferred to the customer, which is generally at the time of shipment. Revenuesshipment or delivery. Revenue from service contracts areis recognized ratably over the contract period.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. Service contracts are separately priced and payment is typically received from the customer at the beginning

The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized. While the Company engages in extensive product quality

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.

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 $3.9 million and $7.8$8.2 million of share-based compensation expense for the three and six months ended June 30, 2017,2018, respectively, compared to $3.6$3.9 million and $7.2$7.8 million for the corresponding periods in 2016.2017.

InOn January 2017,1, 2018 the Company adopted ASU 2016-09, to ASC 718 "Compensation - Stock Compensation." The primary impact of adoption was the recognition of excess tax benefits from stock option exercises within the provision for taxes rather than within shareholder's equity, and a change in the determination of diluted earnings per common share. The Company adopted the guidance on a prospective basis, and expects its estimated annual tax rate will be reduced by 2% in 2017. The adoption of this guidance also reduced the Company's income tax rate by approximately 4% and 5% for the three and six months ending June 30, 2017. In addition, the Company recognized additional deferred tax assets of $1.5 million as a cumulative adjustment within shareholder's equity. The Company also classified on a retrospective basis the excess tax benefits from stock option exercises of $11.2 million as operating activities in the prior period Statements of Cash Flows. For additional disclosure, see Note 5 to the interim consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 to ASC 842 "Leases." The accounting guidance primarily requires lessees to recognize most leases on their balance sheet as a right to use asset and a lease liability, with the exception of short term leases. A lessee will continue to recognize lease expense on a straight-line basis for leases classified as operating leases. The guidance becomes effective for fiscal years beginning after December 15, 20182018. The Company's primary leasing arrangements are related to leased facilities and must be applied on a retrospective basis with early adoption permitted.vehicle fleet leases. The Company is currently evaluating the impact of this guidance.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income". The accounting update provided entities with guidance on how to reclassify certain stranded tax effects from accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act, which was a tax bill enacted by the U.S. government in December 2017. The new guidance is effective for the year beginning January 1, 2019 and the Company is still evaluating the impact on the financial statements.

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 does 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 June 30, 2018.

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 6,7, 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 45 to the interim consolidated financial statements.

In June 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 matures in June 2019.

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 $50 million of borrowings under the Company’s credit facility to a fixed obligation of 2.52%. The swap began in October 2015 and matures in October 2020.

The Company's cash flow hedges are recorded gross at fair value in the consolidated balance sheet at June 30, 20172018 and December 31, 2016,2017, respectively, and disclosed in Note 45 to the consolidated financial statements. Amounts reclassified into other comprehensive income and the effective portions of the cash flow hedges are further disclosed in Note 89 to the consolidated financial statements. A derivative gain of $1.3$3.1 million based upon interest rates and foreign currency rates at June 30, 2017,2018, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through June 30, 2017,2018, no hedge ineffectiveness has occurred in relation to the cash flow hedges.

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 June 30, 20172018 and June 30, 2016,December 31, 2017, respectively, and disclosed in Note 4.5. The Company recognized in other charges (income), a net gainloss of $0.1$1.5 million and a net lossgain of $1.7$0.1 million during the three months ended June 30, 20172018 and 2016,2017, respectively, and a net gain of $1.9$4.2 million and a net loss of $0.6$1.9 million during the six months ended June 30, 20172018 and 2016,2017, respectively. The gains and losses are primarily offset by the underlying transaction gains and losses on the related intercompany balances. At June 30, 20172018 and December 31, 2016,2017, these contracts had a notional value of $343.0$407.1 million and $353.0$394.8 million, respectively.    

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

The Company has a share repurchase program of which there was $733.5$345.9 million of remaining common shares remaining to be repurchased under the program as of June 30, 2017.2018. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity and other factors.

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 six month periods ended June 30, relating to outstanding stock options and restricted stock units:

The determinationOutstanding options and restricted stock units to purchase or receive 56,419 shares of the common share equivalentsstock for the three and six monthsmonth period ended June 30, 2017 includes2018 have been excluded from the effectcalculation of the adoptiondiluted weighted average number of guidance ASU 2016-09common and common equivalent shares as described in Note 2.such options and restricted stock units would be anti-dilutive. For the three months ended June 30, 2017, there were no anti-dilutive outstanding options or restricted stock units. Outstanding optionsOptions and restricted stock units to purchase or receive 84,392 shares of common stock for the three month periods ended June 30, 2016,56,380 and options and restricted stock units to purchase or receive 75,182 and 108,361 for the six month periodsperiod ended June 30, 20172018 and 2016,2017, 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.