METTLER TOLEDO INTERNATIONAL INC/ - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements.

Local currency changes 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.

Overview We operate a global business, with sales that are diversified by geographic region, product range and customer. We hold leading positions worldwide in many of our markets and attribute this leadership to several factors, including the strength of our brand name and reputation, our comprehensive offering of innovative instruments and solutions, and the breadth and quality of our global sales and service network.

During 2012 the global environment has deteriorated, especially in Europe. Net sales in U.S. dollars increased by 1% in 2012 and increased by 17% in 2011.

Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 4% in 2012 and 13% in 2011. We expect our local currency organic sales growth in 2013 will continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions. Given economic uncertainty, it is difficult to predict the extent to which our results may be adversely affected. However, we expect to continue to benefit from our strong global leadership positions, diversified customer base, robust product offering, investment in emerging markets and the impact of our global sales and marketing programs. Examples include identifying and investing in growth opportunities, improving our lead generation and lead nurturing processes, further penetrating our market segments and more effectively pricing our products and services.

With respect to our end-user markets, we experienced increased results during 2012 versus the prior year in our laboratory-related end-user markets, such as pharmaceutical and biotech customers as well as the laboratories of chemical companies and food and beverage companies. Demand from these markets increased during 2012, particularly in emerging markets. However, demand from these markets was 27-------------------------------------------------------------------------------- Table of Contents partially offset by reduced demand from universities and government-funded research institutions in developed markets, as well as difficult economic conditions in Europe. We expect net sales growth of our laboratory-related products (particularly in Europe) to continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions. It is currently difficult to predict the extent to which our results may be adversely affected.

Our industrial markets, especially core-industrial products, were adversely impacted in 2012 by deterioration in global economic conditions, especially in Europe. Our industrial markets were also impacted by lower sales growth in China as compared to recent years. Emerging market economies have historically been an important source of growth based upon the expansion of their domestic economies, as well as increased exports as companies have moved production to low-cost countries. We expect net sales growth of our industrial related products (particularly in Europe and China) to continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions. It is currently difficult to predict the extent to which our results may be adversely affected. Our industrial products are especially sensitive to changes in economic growth.

Our food retailing markets experienced a decline during 2012, related to decreases in Europe and Asia/Rest of World. The net sales declines were primarily related to reduced project activity as well as unfavorable economic conditions. Traditionally the spending levels in this sector have experienced more volatility than our other customer sectors due to the timing of customer project activity or new regulation. Similar to our industrial business, emerging markets have also historically provided growth as the expansion of local emerging market economies creates a significant number of new retail stores each year.

In 2013, we expect to continue to pursue the overall business growth strategies which we have followed in recent years: Gaining Market Share. Our global sales and marketing initiative, "Spinnaker," continues to be an important growth strategy. We aim to gain market share by implementing sophisticated sales and marketing programs and leveraging our extensive customer databases. While this initiative is broad-based, efforts to improve these processes include increased segment marketing and leads generation and nurturing activities, the implementation of more effective pricing and value-based selling strategies and processes, improved sales force training and effectiveness, cross-selling, and other sales and marketing topics. Our comprehensive service offerings also help us further penetrate developed markets. We estimate that we have the largest installed base of weighing instruments in the world. In addition to traditional repair and maintenance, our service offerings continue to expand into value-added services for a range of market needs, including regulatory compliance.

Expanding Emerging Markets. Emerging markets, comprising Asia (excluding Japan), Eastern Europe, Latin America, the Middle East and Africa, account for approximately 36% of our total net sales. We have a two-pronged strategy in emerging markets: first, to capitalize on growth opportunities in these markets and second, to leverage our low-cost manufacturing operations in China. We have over a 25-year track record in China, and our sales in Asia have grown more than 20% on a compound annual growth basis in local currency since 1999. We have broadened our product offering to the Asian markets and are benefiting as multinational customers shift production to China. We are pleased with our accomplishments in China and in recent years have expanded our territory coverage into second tier cities with new branch offices, additional dealers and more service professionals. India has also been a source of emerging market sales growth in past years due to increased life science research activities.

Local currency sales increased in emerging markets by 9% during 2012 versus the prior year. Sales increases were experienced throughout most markets, however growth in China was less than recent years. We anticipate sales in 2013 will continue to increase as compared to 2012, absent a further deterioration in global economic conditions. However, we expect local currency sales growth will be less than growth rates experienced in 28-------------------------------------------------------------------------------- Table of Contents 2011. To reduce costs, we also continue to shift more of our manufacturing to China where our four facilities manufacture for the local markets as well as for export.

Extending Our Technology Lead. We continue to focus on product innovation. In the last three years, we spent approximately 5% of net sales on research and development. We seek to drive shorter product life cycles, as well as improve our product offerings and their capabilities with additional integrated technologies and software. In addition, we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base.

Maintaining Cost Leadership. We continue to strive to improve our margins by optimizing our cost structure. For example, we significantly reduced our global cost structure during 2009 in response to the global economic slowdown and took further actions during 2012 in response to the recent deterioration in the global economy. We have also focused on reallocating resources and better aligning our cost structure to support higher growth areas and opportunities for margin improvement. As previously mentioned, shifting production to China has also been an important component of our cost savings initiatives. We have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs. Our cost leadership initiatives are also focused on continuously improving our invested capital efficiency, such as reducing our working capital levels and ensuring appropriate returns on our expenditures.

Pursuing Strategic Acquisitions. We seek to pursue acquisitions that may leverage our global sales and service network, respected brand, extensive distribution channels and technological leadership. We have identified life sciences, product inspection and process analytics as three key areas for acquisitions. We also continue to pursue "bolt-on" acquisitions. For example, during 2011 we acquired an x-ray inspection solutions business in the United States and a vision inspection solutions business in Germany, both of which have been integrated into our end-of-line product inspection systems offering. During 2010 we acquired our pipette distributor in the United Kingdom.

Results of Operations - Consolidated Net sales Net sales were $2,341.5 million for the year ended December 31, 2012, compared to $2,309.3 million in 2011 and $1,968.2 million in 2010. This represents increases in 2012 and 2011 of 1% and 17% in U.S. dollars and 4% and 13% in local currencies, respectively.

In 2012, our net sales by geographic destination increased in U.S. dollars by 4% in the Americas and 11% in Asia/Rest of World and decreased by 8% in Europe. In local currencies, our net sales by geographic destination increased in 2012 by 5% in the Americas and 10% in Asia/Rest of World, while net sales in Europe decreased 2%. A discussion of sales by operating segment is included below.

Acquisitions/divestitures, net contributed approximately 1% in America and 2% in Europe to net sales growth during 2012. Net sales in local currencies during December 31, 2011, increased 9% in the Americas, 11% in Europe and 20% in Asia/Rest of World. As previously mentioned, the global environment has deteriorated, especially in Europe. We expect our local currency organic sales growth in 2013 will continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions.

Given economic uncertainty, it is difficult to predict the extent to which our results may be adversely affected.

As described in Note 18 to our audited consolidated financial statements, our net sales comprise product sales of precision instruments and related services.

Service revenues are primarily derived from repair and other services, including regulatory compliance qualification, calibration, certification, preventative maintenance and spare parts.

29-------------------------------------------------------------------------------- Table of Contents Net sales of products increased by 1% and 20% in 2012 and 2011, respectively in U.S. dollars and by 4% and 15%, respectively in local currencies. Service revenue (including spare parts) increased in 2012 and 2011 by 1% and 9%, respectively in U. S. dollars, respectively, and 5% in both periods in local currencies.

Net sales of our laboratory-related products, which represented approximately 46% of our total net sales in 2012, increased by 2% in U.S. dollars and 5% in local currencies during 2012. This compares to strong local currency net sales growth of 9% in 2011. We experienced modest sales growth in most laboratory-related products with solid growth in process analytics and analytical instruments. Sales growth in 2012 benefited from favorable price realization as well as volume increases, particularly in Asia/Rest of World. We expect net sales growth of our laboratory-related products (particularly in Europe) to continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions. It is currently difficult to predict the extent to which our results may be adversely affected.

Net sales of our industrial-related products, which represented approximately 45% of our total net sales in 2012, increased by 2% in U.S. dollars and 4% in local currencies during 2012. This compares to strong local currency net sales growth of 19% in 2011. Acquisitions contributed approximately 1% to our industrial-related net sales growth during 2012. Our industrial-related products experienced strong organic sales growth in product inspection products related to increased volume and favorable price realization, offset in part by a decline in our European core-industrial business related to decreased sales volume which is related to difficult prior period comparisons and unfavorable economic conditions in Europe. We also experienced reduced industrial-related sales growth in Asia/Rest of World in 2012, which is primarily related to reduced growth in China. We expect net sales of our industrial-related products (particularly in Europe and China) to continue to be less than growth rates experienced in 2011, and net sales may decline in future quarters depending on economic conditions. It is currently difficult to predict the extent to which our results may be adversely affected.

Net sales in our food retailing products, which represented approximately 9% of our total net sales in 2012, decreased by 7% in U.S. dollars and 4% in local currencies during 2012. We experienced local currency net sales declines in Europe and Asia/Rest of World during 2012. The net sales declines were primarily related to reduced project activity as well as unfavorable economic conditions.

Local currency net sales growth was strong in the Americas related to incremental project activity and an easier prior period comparison. We expect net sales in our food retailing products may continue to decline in future quarters. It is currently difficult to predict the extent to which our results may be adversely affected.

Gross profit Gross profit as a percentage of net sales was 53.0% for 2012, compared to 52.8% for 2011 and 52.7% for 2010.

Gross profit as a percentage of net sales for products was 56.2% for 2012, compared to 56.3% for 2011 and 56.5% for 2010. Gross profit as a percentage of net sales for services (including spare parts) was 40.9% for 2012, compared to 39.4% for 2011 and 39.5% for 2010.

The increase in gross profit as a percentage of net sales for 2012 was primarily due to improved price realization, reduced material costs, and favorable currency translation fluctuations. These results were partly offset by unfavorable geographic mix and increased investments in our field service organization.

30-------------------------------------------------------------------------------- Table of Contents Research and development and selling, general and administrative expenses Research and development expenses as a percentage of net sales were 4.8% for 2012, 5.0% for 2011 and 4.9% for 2010. Research and development expenses in U.S.

Dollars decreased by 3% in 2012 and increased 20% in 2011, and in local currencies were flat in 2012 and increased 9% in 2011. Our research and development spending levels reflect changes in part due to the timing of project launch activity.

Selling, general and administrative expenses as a percentage of net sales decreased to 29.2% for 2012, compared to 30.5% for 2011 and 29.9% for 2010.

Selling, general and administrative expenses in U.S. dollars decreased by 3% in 2012 and increased 20% in 2011, and in local currencies were flat in 2012 and increased by 13% in 2011. The amount in 2012 reflects increased sales and marketing investments (especially in emerging markets), offset by lower cash incentives and savings from our cost reduction programs.

Restructuring charges During 2012, we initiated additional cost reduction measures in response to global economic conditions. For the year ending December 31, 2012, we have incurred $16.7 million of restructuring expenses which primarily comprise severance costs. See Note 15 to our audited consolidated financial statements for a summary of restructuring activity during 2012.

Other charges (income), net Other charges (income), net consisted of net charges of $1.1 million in 2012, compared to net charges of $2.4 million and $4.2 million in 2011 and 2010, respectively. Other charges (income), net consists primarily of interest income, (gains) losses from foreign currency transactions and other items. Other charges (income), net in 2010 also includes a $4.4 million ($3.8 million after-tax) charge associated with the sale of our retail software business for in-store item and inventory management solutions. This amount was partially offset by a benefit from unrealized contingent consideration from a previous acquisition totaling $1.2 million ($1.2 million after-tax).

Interest expense and taxes Interest expense was $22.8 million for 2012, compared to $23.2 million for 2011 and $20.1 million for 2010. The decrease in interest expense for 2012 is primarily resulting from a decrease in average borrowings partially offset by an increase in rates for the period. The 2011 amount reflects additional borrowings in the fourth quarter 2010, in order to facilitate foreign earnings repatriation.

During 2011 and 2010 we recorded discrete tax items resulting in net tax benefits of $3.8 million, and $5.2 million primarily related to the favorable resolution of certain prior year tax matters.

Our annual effective tax rate was 24%, 23% and 25% for 2012, 2011 and 2010, respectively. The previously described discrete tax items had the effect of lowering our annual effective tax rate by 1% in both 2011 and 2010. Our consolidated income tax rate is lower than the U.S. statutory rate primarily because of benefits from lower-taxed non-U.S. operations. The most significant of these lower-taxed operations are in Switzerland and China.

Results of Operations - by Operating Segment The following is a discussion of the financial results of our operating segments. We currently have five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations and Other. A more detailed description of these segments is outlined in Note 18 to our audited consolidated financial statements.

31-------------------------------------------------------------------------------- Table of Contents U.S. Operations (amounts in thousands) Increase Increase (Decrease) in (Decrease) in % % 2011 2012 2011 2010 2012 vs. 2011 vs. 2010 Net sales $ 778,120 $ 745,258 $ 679,656 4% 10% Net sales to external customers $ 699,361 $ 665,245 $ 618,809 5% 8% Segment profit $ 138,894 $ 121,398 $ 121,013 14% 0% The increase in total net sales and net sales to external customers during 2012 includes strong growth in process analytics and product inspection due to increased sales volume and favorable price realization. Net sales and net sales to external customers in food retailing products also experienced strong growth during 2012 due to increased project activity.

Segment profit increased by $17.5 million in our U.S. Operations segment during 2012, compared to an increase of $0.4 million during 2011. Segment profit in 2012 includes increased sales volume, favorable price realization, higher inter-segment income, improved productivity, and lower cash incentive expense.

Swiss Operations (amounts in thousands) Increase Increase (Decrease) in (Decrease) in %(1) 2012 vs. %(1) 2011 vs.

2012 2011 2010 2011 2010 Net sales $ 530,847 $ 555,308 $ 456,491 (4)% 22% Net sales to external customers $ 124,362 $ 143,520 $ 113,488 (13)% 26% Segment profit $ 133,691 $ 113,997 $ 96,568 17% 18% _______________________________________ (1) Represents U.S. dollar growth for net sales and segment profit.

Total net sales in U.S. dollars decreased by 4% in 2012 and increased by 22% in 2011, and in local currencies increased by 1% in 2012 and by 4% in 2011. Net sales to external customers in U.S. dollars decreased by 13% in 2012 and increased by 26% in 2011, and in local currencies decreased by 8% in 2012 and increased by 8% in 2011. The decrease in local currency net sales to external customers in 2012 is primarily related to volume decreases across most product categories, especially food retailing, industrial, and third-party export business. Our Swiss Operations continue to face unfavorable economic conditions and we expect our local currency sales to external customers will be adversely impacted during the first half of 2013.

Segment profit increased by $19.7 million in our Swiss Operations segment during 2012, compared to a, increase of $17.4 million during 2011. The increase in segment profit during 2012 is primarily due to increased inter-segment sales in local currency, benefits from our cost reduction activities, and lower cash incentive expense. Segment profit also benefited from favorable currency translation fluctuations during 2012.

Western European Operations (amounts in thousands) Increase Increase (Decrease) in (Decrease) in %(1) 2012 vs. %(1) 2011 vs.

2012 2011 2010 2011 2010 Net sales $ 746,313 $ 799,933 $ 692,255 (7)% 16% Net sales to external customers $ 644,361 $ 692,348 $ 600,933 (7)% 15% Segment profit $ 95,523 $ 99,969 $ 85,120 (4)% 17% _______________________________________ (1) Represents U.S. dollar growth for net sales and segment profit.

32-------------------------------------------------------------------------------- Table of Contents Total net sales in U.S. dollars decreased by 7% in 2012 and increased by 16% in 2011, and in local currencies decreased by 1% in 2012 and increased by 10% in 2011. Net sales to external customers in U.S. dollars decreased by 7% in 2012 and increased by 15% in 2011, and in local currencies decreased by 1% in 2012 and by increased 9% in 2011. Net sales in our Western European Operations benefited approximately 1% from acquisitions during 2012. Total net sales and net sales to external customers for 2012 includes sales volume declines in most product categories, especially food retailing and core-industrial products. Our Western European Operations continue to face unfavorable economic conditions and we expect local currency sales to external customers will be adversely impacted during the first half of 2013.

Segment profit decreased by $4.4 million in our Western European Operations segment during 2012, compared to an increase of $14.8 million in 2011. The decrease in segment profit in 2012 resulted primarily from a decrease in local currency sales volume and unfavorable currency translation fluctuations, partially offset by improved price realization and initial benefits from our cost reduction activities.

Chinese Operations (amounts in thousands) Increase Increase (Decrease) in (Decrease) in %(1) 2012 vs. %(1) 2011 vs.

2012 2011 2010 2011 2010 Net sales $ 555,924 $ 515,142 $ 404,543 8% 27% Net sales to external customers $ 432,255 $ 388,592 $ 298,637 11% 30% Segment profit $ 125,217 $ 120,857 $ 92,969 4% 30% _______________________________________ (1) Represents U.S. dollar growth for net sales and segment profit.

Total net sales in U.S. dollars increased by 8% in 2012 and 27% in 2011, and in local currencies increased by 6% in 2012 and 22% in 2011. Net sales to external customers in U.S. dollars increased by 11% and 30% in 2012 and 2011, respectively and in local currencies increased by 9% in 2012 and 25% in 2011.

The local currency increase in total net sales and net sales to external customers in 2012 includes particularly strong growth in laboratory-related products, modest growth in industrial-related products and a decline in food retailing. We expect local currency sales growth to external customers in 2013 will continue to be less than growth rates experienced in 2011.

Segment profit increased by $4.4 million in our Chinese Operations segment during 2012, compared to an increase of $27.9 million in 2011. The increase in segment profit in 2012 includes increased sales volume and favorable price realization, partially offset by increased inter-segment expenses.

Other (amounts in thousands) Increase Increase (Decrease) in (Decrease) in %(1) 2012 vs. %(1) 2011 vs.

2012 2011 2010 2011 2010 Net sales $ 447,727 $ 425,971 $ 340,649 5% 25% Net sales to external customers $ 441,189 $ 419,623 $ 336,311 5% 25% Segment profit $ 48,857 $ 50,045 $ 35,166 (2)% 42% _______________________________________ (1) Represents U.S. dollar growth for net sales and segment profit.

Total net sales and net sales to external customers in U.S. dollars increased by 5% in 2012 and by 25% in 2011, and in local currencies increased by 8% in 2012 and 19% in 2011. The increase in total net sales and net sales to external customers reflects solid sales growth across most product categories, 33-------------------------------------------------------------------------------- Table of Contents especially laboratory-related products, related to increased sales volume and favorable price realization. Geographically, we also experienced particularly strong growth in Other Asia Pacific.

Segment profit decreased by $1.2 million in our Other segment during 2012, compared to a increase of $14.9 million during 2011. The decrease in segment profit during 2012 relates primarily to increased costs from other segments and investments in sales and marketing, partially offset by an increase in sales volume.

Liquidity and Capital Resources Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing. Currently, our financing requirements are primarily driven by working capital requirements, capital expenditures, share repurchases and acquisitions. As previously mentioned, global economic conditions deteriorated during 2012. Our ability to generate cash flows may be reduced by a prolonged global economic slowdown.

Cash provided by operating activities totaled $327.7 million in 2012, compared to $280.9 million in 2011 and $268.3 million in 2010. The increase in 2012 resulted principally from increased net earnings and working capital benefits related to decreased inventory levels and the timing of accounts receivable, partially offset by the timing of payables. The increase in 2011 resulted principally from increased net earnings, partially offset by increased incentive payments of approximately $39 million related to previous year performance-related compensation incentives, as well as increased working capital associated with the increased sales volume and higher tax payments. We also made $1.0 million and $5.0 million of voluntary incremental pension contributions in 2012 and 2010, respectively.

Capital expenditures are made primarily for investments in information systems and technology, machinery, equipment and the purchase and expansion of facilities. Our capital expenditures totaled $95.6 million in 2012, $98.5 million in 2011 and $73.9 million in 2010. Our capital expenditures in 2012 included approximately $47.9 million of investments directly related to our Blue Ocean multi-year program of information technology investment compared with $55.7 million in 2011 and $30.6 million in 2010.

Cash flows used in financing activities during 2012 included proceeds of $50 million from the issuance of our 3.67% Senior Notes and payments of $0.4 million of debt issuance costs. As further described below, in accordance with our share repurchase plan, we repurchased 1,637,827 shares and 1,285,827 shares in the amount of $278.7 million and $204.6 million during 2012 and 2011, respectively.

Cash flows used in financing activities during 2010 also included the repayment of our $75 million 4.85% Senior Notes which matured on November 15, 2010. The repayment was funded from additional borrowings under our credit facility.

We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness.

In August 2011, we acquired a leader in vision inspection technology for end-of-line product systems located in Germany that has been integrated into our end-of-line product inspection product offering for an aggregate purchase price of $19.4 million. We paid an additional cash consideration of $0.3 million during 2012 related to an earn-out period. We also paid additional contingent cash consideration of $7.8 million in 2011 related to an earn-out associated with an acquisition in 2009. These additional cash consideration payments are included in cash flows from financing activities in the consolidated statement of cash flows. During the first quarter 2011, we completed acquisitions totaling $15.4 million, of which $12.0 million related to an x-ray inspection solutions business that has been integrated into our product inspection product offering.

34-------------------------------------------------------------------------------- Table of Contents We plan to repatriate earnings from China, Switzerland, the United Kingdom and certain other countries in future years and expect the only additional cost associated with the repatriation of such foreign earnings will be withholding taxes. All other undistributed earnings are considered to be permanently reinvested. As of December 31, 2012, we had an immaterial amount of cash and cash equivalents in foreign subsidiaries where undistributed earnings are considered permanently reinvested. Accordingly, we believe the tax impact associated with repatriating our undistributed foreign earnings will not have a material effect on our liquidity.

6.30% Senior Notes In June 2009, we entered into an agreement to issue and sell in a private placement, six-year Senior Notes with an aggregate principal amount of $100 million and a fixed interest obligation of 6.3% ("6.30% Senior Notes") under a Note Purchase Agreement among the Company and accredited institutional investors (the "Agreement"). The 6.30% Senior Notes are senior unsecured obligations of the Company.

The 6.30% Senior Notes mature on June 25, 2015. Interest is payable semi-annually in June and December. We may at any time prepay the 6.30% Senior Notes, in whole or in part (but in an amount not less than 10% of the original aggregate principal amount), at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, plus a "make-whole" prepayment premium. In the event of a change in control of the Company (as defined in the Agreement), we may be required to offer to prepay the 6.30% Senior Notes in whole at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

The Agreement contains customary affirmative and negative covenants for agreements of this type including, among others, limitations on the Company and its subsidiaries with respect to incurrence of liens and priority indebtedness, disposition of assets, mergers, and transactions with affiliates. The Agreement also requires us to maintain a consolidated interest coverage ratio of not less than 3.5 to 1.0 and a consolidated leverage ratio of not more than 3.5 to 1.0.

The agreement contains customary events of default with customary grace periods, as applicable. We were in compliance with these covenants at December 31, 2012.

Issuance costs approximating $0.7 million will be amortized to interest expense over the six-year term of the 6.30% Senior Notes.

3.67% Senior Notes In October 2012, we entered into an agreement to issue and sell in a private placement, ten-year Senior Notes with an aggregate principal amount of $50 million and a fixed interest obligation of 3.67% ("3.67% Senior Notes") under a Note Purchase Agreement among the Company and accredited institutional investors (the "Agreement"). The 3.67% Senior Notes are senior unsecured obligations of the Company.

The 3.67% Senior Notes mature on December 17, 2022. Interest is payable semi-annually in June and December. We may at any time prepay the 3.67% Senior Notes, in whole or in part (but in an amount not less than 10% of the original aggregate principal amount), at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, plus a "make-whole" prepayment premium. In the event of a change in control of the Company (as defined in the Agreement), we may be required to offer to prepay the 3.67% Senior Notes in whole at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

The Agreement contains customary affirmative and negative covenants for agreements of this type including, among others, limitations on the Company and its subsidiaries with respect to incurrence of 35-------------------------------------------------------------------------------- Table of Contents liens and priority indebtedness, disposition of assets, mergers, and transactions with affiliates. The Agreement also requires us to maintain a consolidated interest coverage ratio of not less than 3.5 to 1.0 and a consolidated leverage ratio of not more than 3.5 to 1.0. The agreement contains customary events of default with customary grace periods, as applicable. We were in compliance with these covenants at December 31, 2012.

Issuance costs approximating $0.4 million will be amortized to interest expense over the ten-year term of the 3.67% Senior Notes.

Tender Offer & Repayment of 4.85% Senior Notes In November 2003, we issued $150 million of 4.85% unsecured Senior notes due November 15, 2010 ("4.85% Senior Notes"). On May 6, 2009, we commenced a cash tender offer to purchase any and all of our outstanding 4.85% Senior Notes due November 15, 2010. The tender offer, which expired May 12, 2009, resulted in the repurchase of $75 million of the principal balance of the 4.85% Senior Notes. At maturity, on November 15, 2010, we repaid the remaining $75 million outstanding principal balance of our 4.85% Senior Notes. The repayment was funded from additional borrowings under our credit facility.

Credit Agreement On December 20, 2011, we entered into an $880 million Credit Agreement (the "Credit Agreement"), which replaced our $950 million Amended and Restated Credit Agreement (the "Prior Credit Agreement"). The Credit Agreement is provided by a group of financial institutions and has a maturity date of December 20, 2016. It is a revolving credit facility and is not subject to any scheduled principal payments prior to maturity. The obligations under the Credit Agreement are unsecured.

Borrowings under the Credit Agreement bear interest at current market rates plus a margin based on our senior consolidated leverage ratio, which was, as of December 31, 2012, set at LIBOR plus .0085 basis points. We must also pay facility fees that are tied to our leverage ratio. The Credit Agreement contains covenants, with which we were in compliance as of December 31, 2012, including maintaining a consolidated interest coverage ratio of not less than 3.5 to 1.0 and a consolidated leverage ratio of not more than 3.25 to 1.0. The Credit Agreement also places certain limitations on us, including limiting our ability to incur liens or indebtedness at a subsidiary level. In addition, the Credit Agreement has several events of default. We incurred approximately $0.3 million of debt extinguishment costs during 2011 related to the Prior Credit Agreement.

We capitalized $3.1 million in financing fees during 2011 associated with the Credit Agreement which will be amortized to interest expense through 2016. As of December 31, 2012, approximately $677.9 million was available under the facility.

Our short-term borrowings and long-term debt consisted of the following at December 31, 2012: Other Principal U.S. Dollar Trading Currencies Total 6.30% $100 million Senior Notes $ 100,000 $ - $ 100,000 3.67% $50 million Senior Notes 50,000 - 50,000 $880 million Credit Agreement 182,806 14,325 197,131 Other local arrangements - 41,600 41,600 Total debt 332,806 55,925 388,731 Less: current portion - (41,600 ) (41,600 ) Total long-term debt $ 332,806 $ 14,325 $ 347,131 36-------------------------------------------------------------------------------- Table of Contents Changes in exchange rates between the currencies in which we generate cash flow and the currencies in which our borrowings are denominated affect our liquidity.

In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates.

At December 31, 2012, we were in compliance with all covenants set forth in our 6.30% Senior Notes, 3.67% Senior Notes, and Credit Agreement. In addition, we do not have any downgrade triggers relating to ratings from rating agencies that would accelerate the maturity dates of our debt.

We currently believe that cash flows from operating activities, together with liquidity available under our Credit Agreement and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements for at least the foreseeable future.

Contractual Obligations The following summarizes certain of our contractual obligations at December 31, 2012 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We do not have significant outstanding letters of credit or other financial commitments.

Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years After 5 Years Short and long-term debt $ 388,731 $ 41,600 $ 100,000 $ 197,131 $ 50,000 Interest on debt 59,944 14,827 26,899 9,043 9,175 Non-cancelable operating leases 102,710 33,248 43,372 17,987 8,103 Pension and post-retirement funding(1) 23,570 23,570 - - - Purchase obligations 93,959 83,831 7,756 2,372 - Total(1) $668,914 $197,076 $178,027 $226,533 $67,278 _______________________________________ (1) In addition to the above table, we also have liabilities for pension and post-retirement funding and income taxes. However, we cannot determine the timing or the amounts for periods beyond 2012 for income taxes and beyond 2013 for pension and post-retirement funding.

We have purchase commitments for materials, supplies, services and fixed assets in the normal course of business. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions. We do not expect potential payments under these provisions to materially affect results of operations or financial condition. This conclusion is based upon reasonably likely outcomes derived by reference to historical experience and current business plans.

Share Repurchase Program We have a $2.25 billion share repurchase program. We expect that the new authorization will be utilized over the next several years. As of December 31, 2012, there were $437 million of remaining common shares authorized to be repurchased under the program. The share repurchases are expected to be funded from existing 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. We have purchased 20.1 million shares since the inception of the program through December 31, 2012.

During the years ended December 31, 2012 and 2011, we spent $278.7 million and $204.6 million on the repurchase of 1,637,827 shares and 1,285,827 shares at an average price per share of $170.13 and $159.08, respectively. We reissued 457,732 and 450,613 shares held in treasury for the exercise of stock options and restricted stock units during 2012 and 2011, respectively.

37-------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements Currently, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material.

Effect of Currency on Results of Operations Currency fluctuations affect our operating profits.

Because we conduct operations in many countries, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our total operating expenses than Swiss franc-denominated sales represent of our total net sales. In part, this is because most of our manufacturing and product development costs in Switzerland relate to products that are sold outside Switzerland. In addition, we have a number of corporate functions located in Switzerland. Therefore, if the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the euro, other major European currencies, the Chinese yuan and the Japanese yen), our operating profit is reduced. We also have significantly more sales in euro than we have expenses. Therefore, when the euro weakens against the U.S. dollar and the Swiss franc, it also decreases our operating profits. Accordingly, the Swiss franc exchange rate to the euro is an important cross-rate that we monitor. During the third quarter of 2011, the Swiss National Bank established a floor of 1.20 relating to the Swiss franc exchange rate to the euro. The duration for which the Swiss National Bank will maintain this exchange rate floor of 1.20 is currently unknown. Beginning in the third quarter of 2012, we entered into foreign currency forward contracts, as described in Note 5 of our consolidated financial statements, which reduce our exposure to a strengthening of the Swiss franc versus the euro. These forward contracts currently continue until January 2014. We estimate, absent these forward contracts, that a 1% strengthening of the Swiss franc against the euro would result in a decrease in our earnings before tax of approximately $0.8 million to $1.2 million on an annual basis. The previously described foreign currency forward contracts reduce this exposure by approximately 75%. We also estimate a 1% strengthening of the Swiss franc against the U.S. dollar would result in a decrease in our earnings before tax of $0.7 million to $0.9 million on an annual basis. In addition to the Swiss franc and major European currencies, we also conduct business in many geographies throughout the world, including Asia Pacific, the United Kingdom, Eastern Europe, Latin America and Canada. Fluctuations in these currency exchange rates against the U.S. dollar can also affect our operating results. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. Based on our outstanding debt at December 31, 2012, we estimate that a 10% weakening of the U.S. dollar against the currencies in which our debt is denominated would result in an increase of approximately $6.2 million in the reported U.S. dollar value of the debt.

Taxes We are subject to taxation in many jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions, earnings repatriations between jurisdictions and changes in law. Generally, the tax liability for each taxpayer within the group is determined either (i) on a non-consolidated/non-combined basis or (ii) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities.

38-------------------------------------------------------------------------------- Table of Contents Environmental Matters We are subject to environmental laws and regulations in the jurisdictions in which we operate. We own or lease a number of properties and manufacturing facilities around the world. Like many of our competitors, we have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations.

We are currently involved in, or have potential liability with respect to, the remediation of past contamination in certain of our facilities. A former subsidiary of Mettler-Toledo, LLC ("MT") known as Hi-Speed Checkweigher Co., Inc. ("Hi-Speed") was one of two private parties ordered by the New Jersey Department of Environmental Protection ("NJDEP"), in an administrative consent order ("ACO") signed on June 13, 1988, to investigate and remediate certain ground water contamination at certain property in Landing, New Jersey. After the other party ordered under this ACO failed to fulfill its obligations, Hi-Speed became solely responsible for compliance with the ACO. Residual ground water contamination at this site is now within a Classification Exception Area ("CEA") which NJDEP has approved and within which MT oversees monitoring of the decay of contaminants of concern. A concurrent Well Restriction Area also exists for the site. The NJDEP does not view these vehicles as remedial measures, but rather as "institutional controls" that must be adequately maintained and periodically evaluated. NJDEP has informally told MT to expect a claim for natural resource damages ("NRD") regarding this site but has not yet made such a claim. In 2010, testing of indoor air at certain buildings within the site led to the installation of a vapor intrusion mitigation system at one building. We estimate that the costs of compliance associated with the site over the next several years will approximate $0.5 million.

In addition, certain of our present and former facilities have or had been in operation for many decades and, over such time, some of these facilities may have used substances or generated and disposed of wastes which are or may be considered hazardous. It is possible that these sites, as well as disposal sites owned by third parties to which we have sent wastes, may in the future be identified and become the subject of remediation. Accordingly, although we believe that we are in substantial compliance with applicable environmental requirements and, to date, we have not incurred material expenditures in connection with environmental matters, it is possible that we could become subject to additional environmental liabilities in the future that could have a material adverse effect on our financial condition, results of operations or cash flows.

Inflation Inflation can affect the costs of goods and services that we use, including raw materials to manufacture our products. The competitive environment in which we operate limits somewhat our ability to recover higher costs through increased selling prices.

Moreover, there may be differences in inflation rates between countries in which we incur the major portion of our costs and other countries in which we sell products, which may limit our ability to recover increased costs. We remain committed to operations in China and Eastern Europe, which have experienced inflationary conditions. To date, inflationary conditions have not had a material effect on our operating results. However, as our presence in China and Eastern Europe increases, these inflationary conditions could have a greater impact on our operating results.

Quantitative and Qualitative Disclosures about Market Risk We have only limited involvement with derivative financial instruments and do not use them for trading purposes.

We have entered into foreign currency forward contracts to economically hedge short-term intercompany balances with our international businesses on a monthly basis and to hedge certain 39-------------------------------------------------------------------------------- Table of Contents forecasted intercompany sales. Such contracts limit our exposure to both favorable and unfavorable currency fluctuations. The net fair value of these contracts was a $0.2 million net gain at December 31, 2012. A sensitivity analysis to changes on these foreign currency-denominated contracts indicates that if the primary currency (primarily U.S. dollar, Swiss franc and the euro) declined by 10%, the fair value of these instruments would decrease by $4.6 million at December 31, 2012. Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position. The sensitivity analysis assumes a parallel shift in foreign currency exchange rates. The assumption that exchange rates change in parallel fashion may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency. We also have other currency risks as described under "Effect of Currency on Results of Operations." We have entered into certain interest rate swap agreements. These contracts are more fully described in Note 5 to our audited consolidated financial statements.

The fair value of these contracts was a loss of $8.2 million at December 31, 2012. Based on our agreements outstanding at December 31, 2012, a 100-basis-point increase in interest rates would result in an increase in the net aggregate market value of these instruments of $3.2 million. Conversely, a 100-basis-point decrease in interest rates would result in a $2.7 million decrease in the net aggregate market value of these instruments at December 31, 2012. Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled.

Critical Accounting Policies Management's discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to pensions and other post-retirement benefits, trade accounts receivable, inventories, intangible assets, income taxes, revenue and warranty costs. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our audited consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note 2 to our audited consolidated financial statements.

Employee benefit plans The net periodic pension cost for 2012 and projected benefit obligation as of December 31, 2012 was $7.2 million and $156.8 million, respectively, for our U.S. pension plan and $4.3 million and $798.7 million, respectively, for our international pension plans. The net periodic post-retirement cost for 2012 and expected post-retirement benefit obligation as of December 31, 2012 for our U.S. post-retirement medical benefit plan was $0.1 million and $11.3 million, respectively.

Pension and post-retirement benefit plan expense and obligations are developed from assumptions utilized in actuarial valuations. The most significant of these assumptions include the discount rate and expected return on plan assets. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and deferred over future periods. While management believes the 40-------------------------------------------------------------------------------- Table of Contents assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our plan obligations and future expense.

The expected rates of return on the various defined benefit pension plans' assets are based on the asset allocation of each plan and the long-term projected return of those assets, which represent a diversified mix of U.S. and international corporate equities and government and corporate debt securities.

In 2002, we froze our U.S. defined benefit pension plan and discontinued our retiree medical program for certain current and all future employees.

Consequently, no significant future service costs will be incurred on these plans. For 2012, the weighted average return on assets assumption was 7.8% for the U.S. plan and 4.9% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately $6.3 million after tax.

The discount rates for defined benefit and post-retirement plans are set by benchmarking against high-quality corporate bonds. For 2012, the average discount rate assumption was 3.8% for the U.S. plan and 2.5% for the international plans, representing a weighted average of local rates in countries where such plans exist. A decrease in the discount rate of 1% would impact annual benefit plan expense by approximately $1.5 million after tax.

We made voluntary incremental funding payments of $1.0 million and $5.0 million in 2012 and 2010, respectively, to increase the funded status of our pension plans. In the future, we may make additional mandatory or discretionary contributions to our plan or we could be required to make additional cash funding payments.

Equity-based compensation We also have an equity incentive plan that provides for the grant of stock options, restricted stock, restricted stock units and other equity-based awards which are accounted for and recognized in the consolidated statement of operations based on the grant-date fair value of the award. This methodology yields an estimate of fair value based in part on a number of management estimates, the most significant of which include future volatility and estimated option lives. Changes in these assumptions could significantly impact the estimated fair value of stock options.

Trade accounts receivable As of December 31, 2012, trade accounts receivable were $437.4 million, net of a $14.1 million allowance for doubtful accounts.

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

Inventories As of December 31, 2012, inventories were $198.9 million.

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

41-------------------------------------------------------------------------------- Table of Contents Goodwill and other intangible assets As of December 31, 2012, our consolidated balance sheet included goodwill of $452.4 million and other intangible assets of $117.6 million.

Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements.

In accordance with U.S. GAAP, our goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation for goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.

If we are unable to conclude that the goodwill asset is not impaired after considering the totality of events and circumstances during our qualitative assessment, we perform the first step of the two-step impairment test by estimating the fair value of the goodwill asset and comparing the fair value to the carrying amount of the goodwill asset. If the carrying amount of the goodwill asset exceeds its fair value, then we perform the second step of the impairment test to measure the amount of the impairment loss, if any.

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

Both the qualitative and quantitative evaluations consider operating results, business plans, economic conditions and market data, among other factors. There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses. Our assessments to date have indicated that there has been no impairment of these assets.

Should any of these estimates or assumptions change, or should we incur lower than expected operating performance or cash flows, including from a prolonged economic slowdown, we may experience a triggering event that requires a new fair value assessment for our reporting units, possibly prior to the required annual assessment. These types of events and resulting analysis could result in impairment charges for goodwill and other indefinite-lived intangible assets if the fair value estimate declines below the carrying value.

Our amortization expense related to intangible assets with finite lives may materially change should our estimates of their useful lives change.

Income taxes Income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management's assessment of estimated future taxes to be paid on items in the consolidated financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income or equity in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

42-------------------------------------------------------------------------------- Table of Contents We plan to repatriate earnings from China, Switzerland, Germany, the United Kingdom and certain other countries in future years and expect the only additional cost associated with the repatriation of such earnings outside the United States will be withholding taxes. All other undistributed earnings are considered permanently reinvested.

The significant assumptions and estimates described in the preceding paragraphs are important contributors to our ultimate effective tax rate for each year in addition to our income mix from geographical regions. If any of our assumptions or estimates were to change, or should our income mix from our geographical regions change, our effective tax rate could be materially affected. Based on earnings before taxes of $382.6 million for the year ended December 31, 2012, each increase of $3.9 million in tax expense would increase our effective tax rate by 1%.

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 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 We generally offer one-year warranties on most of our products. Product warranties are recorded at the time revenue is recognized. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service costs incurred in 43-------------------------------------------------------------------------------- Table of Contents correcting a product failure. If we experience claims or significant cost changes in material, freight and vendor charges, our cost of goods sold could be affected.

New Accounting Pronouncements See Note 2 to the audited consolidated financial statements.

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