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.

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 underlying 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.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"“Business Combinations” and the continued accounting for previously recognized intangible assets and goodwill in accordance with the provisions of ASC 350 "Intangible -“Intangibles – Goodwill and Other"Other” and ASC 360 "Property,“Property, Plant and Equipment".Equipment.”

In addition to the above amortization, the Company recorded amortization expense associated with capitalized software of $7.7$8.1 million and $6.8$7.5 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively and $22.9 million and $20.2 million for the nine months ended September 30, 2017 and 2016, 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 shipment or delivery. 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 of the contract period.

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 programs and processes, its warranty obligation is affected by product failure rates, material usage and service costs incurred in correcting a product failure.

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 $4.0$4.4 million and $11.8$3.8 million of share-based compensation expense for the three and nine months ended September 30,March 31, 2018 and 2017, respectively, compared to $3.6 million and $10.9 million for the corresponding periods in 2016.respectively.

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 increased the Company's income tax rate by approximately 1% for the three months ending September 30, 2017 and reduced the Company's income tax rate by approximately 3% for the nine months ending September 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 $17.2 million as operating activities in the prior period Statements of Cash Flows. For additional disclosure, see Note 6 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, 2018 and must be applied on a retrospective basis with early adoption permitted.2018. The Company is currently evaluating the impact of this guidance on the financial statements and the timing of adoption.

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 pay additionalretained earnings as of January 1, 2018. There was no impact to our consolidated statements of operations, balance sheet, or statement of cash consideration upflows as of and for the period ended March 31, 2018.

The Company's global revenue mix by product category is laboratory (52% of sales), industrial (40% of sales) and retail (8% 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 is largely comprised of laboratory products while the Company's Chinese Operations has a maximum amountslightly higher percentage of $65industrial products. A summary of the Company’s revenue by product category for the three months ended March 31, 2018 is as follows:

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 the Company does not have right to receive payment. Unbilled revenue as of March 31, 2018 was $16.0 million based upon earnings thresholdsand is included within accounts receivable. Deferred revenue and customer prepayments are recorded when cash payments are received or due in 2018advance 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 2019. customer prepayments during the period are as follows:

The fairCompany generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general, and administrative expenses. The Company has not disclosed the value of the contingent consideration obligationunsatisfied performance obligations other than customer pre-payments and deferred revenue above as most contracts have an expected length of $30.7 million relating to the Biotix acquisition was determined using a Monte Carlo simulation based on the Company's forecast of future results. Goodwill recorded in connection with the acquisition totaled $51.3 million, which is included in the Company's U.S. Operations segment. The fair value of the contingent consideration was determined using a Monte Carlo simulation. Identified intangible finite life assets acquired include customer relationships of $49.5 million, technologyone year or less 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 5amounts greater than one year to 18 years and the annual aggregate amortization expense is estimated at $3.7 million. Net tangible assets acquired were $19.2 million and recorded at fair value in the consolidated financial statements.

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, also see Note 5 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 paymentpayments to a fixed Swiss franc income of 0.01%. The swap began in June 2017 and matures in June 2019.

In 2015, 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 $100 million in borrowings under the Company's credit agreement to a fixed obligation of 2.25%. The swap began in February 2017 and matures in February 2022.

In 2013, the Company hasentered 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 ofin 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 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���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, 2017March 31, 2018 and December 31, 2016, respectively, and2017 as disclosed in Note 5. The Company recognized in other charges (income), a net gain of $4.5$5.7 million and $1.7 million during the three months ended September 30, 2017. The amount recognized in other charges (income) duringMarch 31, 2018 and 2017, respectively, which offset the three months ended September 30, 2016 was insignificant to the consolidated financial statements. The Company recognized in other charges (income), a net gain of $6.3 million and a net loss of $0.7 million during the nine months ended September 30, 2017 and 2016, respectively. The gains and losses are primarily offset by the underlyingrelated transaction gains and losses on the related intercompany balances.(losses) associated with these contracts. At September 30, 2017March 31, 2018 and December 31, 2016,2017, these contracts had a notional value of $358.9$448.1 million and $353.0$394.8 million, respectively.    

The fair value of the contingent consideration obligation of $30.7$30.9 million relating to the Biotix acquisition was determined using a Monte Carlo simulationas of March 31, 2018 is based on the Company's forecast of future results. The fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement.

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:

The Company has a share repurchase program of which there was $648.4$464.7 million common shares remaining to be repurchased under the program as of September 30, 2017.March 31, 2018. The share repurchases are expected to be funded from cash balances, borrowings and cash generated from operating activities.activities, borrowings and existing cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchasesrepurchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.