# METTLER TOLEDO INTERNATIONAL INC/ (MTD) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from METTLER TOLEDO INTERNATIONAL INC/'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1037646/000103764623000005/mtd-20221231.htm
Accession: 0001037646-23-000005
Filing date: 2023-02-10
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MTD/
All MD&A years: /company/MTD/mda/
Previous year: /company/MTD/mda/fy2021/ (FY 2021)
Next year: /company/MTD/mda/fy2023/ (FY 2023)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements.

Changes in local currencies 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.

We also include in the discussion below disclosures of immaterial qualitative factors that are not quantified. Although the impact of such factors is not considered material, we believe these disclosures can be useful in evaluating our operating results.

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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, our Spinnaker sales and marketing program, and the breadth and quality of our global sales and service network.

Net sales in U.S. dollars increased 5% in 2022 and 21% in 2021. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 11% in 2022 and 18% in 2021. In 2022, we experienced strong growth in most businesses with favorable market conditions and excellent execution. Growth in China and the Americas was particularly strong. We continue to benefit from our strong global leadership positions, diversified customer base, innovative product offering, investment in emerging markets, significant installed base, and the impact of our sophisticated global sales and marketing programs. Examples of these programs include identifying and investing in growth and market penetration opportunities, more effectively pricing our products and services, increasing our sales force effectiveness through improved guidance and redirecting resources to our most promising growth opportunities, increasing the use of digital tools, and continuing to optimize our lead generation and lead nurturing processes.

During 2022, we faced significant external challenges, such as global inflation, supply chain disruptions, the war in Ukraine, COVID-19 lockdowns in China, unfavorable foreign currency and increased interest rates. Our team’s resilience and agility to quickly react to adapt to the changing environment were critical to our success. Our supply chain also was a competitive advantage, while our productivity and pricing programs helped offset significant inflationary pressures. Over the past few years, we also accelerated our ability to use advanced analytics to identify and pursue growth opportunities, while increasing the effectiveness of our digital tools to support our global sales organization. We also have continued to increase engagement with our customers with our Go-to-Market and digital approaches. Our Service business also delivered very strong results in 2022 as we have been able to support our customers’ ability to maintain uptime, improve productivity and comply with regulatory requirements.

As we enter 2023, we expect to continue to benefit from market trends towards automation and digitalization, as well as customer investments in on/near-shoring activities. However, market conditions and challenges remain uncertain relating to the macro environment and global economy, including the impacts of tighter monetary policies and related increase in interest rates to combat inflation, ongoing developments related to Ukraine, and COVID-19 (particularly in China). We also will face difficult prior period comparisons in 2023 due to strong results in both 2022 and 2021. Furthermore, inflationary cost increases and challenges in the global supply chain may continue, and market conditions may change quickly.

Our laboratory sales experienced excellent growth in 2022, particularly from life sciences and biotech customers. We expect to continue to benefit from favorable biopharma market trends. We also believe we will continue to benefit from increased customer demand for automation, digitalization, and safety; new facility investments; and continued focus on regulatory compliance including data integrity requirements. Overall, we believe we are well positioned to continue to capture growth and gain market share in our laboratory business.

Our industrial sales experienced strong growth in 2022 in both core industrial and product inspection. Core industrial experienced particularly strong growth, especially in China and the U.S. We continue to benefit from our strong product offering and focus on the more attractive, faster-growing segments of the market and strong execution of our growth initiatives in each region. We also continue to benefit from

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market trends in automation and digitalization and also expect to benefit from customer on/near-shoring activities in the future. China and emerging market economies have historically been an important source of growth based upon the expansion of their domestic economies, and we expect this to be a source of future growth. Our core industrial-related products are also especially sensitive to changes in economic growth. We expect our product inspection end-market to also benefit from our customers’ focus on brand protection, food safety, and productivity. However, product inspection customers in the packaged food industry have been negatively impacted by the war in Ukraine and the COVID-19 situation in China.

Our food retailing sales increased modestly during 2022 primarily due to improved project activity in the United States and Europe, while we experienced weaker market conditions in China. Traditionally, the spending levels in this sector have experienced more volatility than our other end-markets due to the timing of customer project activity and new regulations.

In 2023, we will continue to pursue the overall business growth strategies which we have followed in recent years:

Gaining Market Share. Innovation is essential to gaining market share and is fundamental in all aspects of our business including sales and marketing and technology leadership. 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, leveraging our extensive customer databases, product offering and installed base. While this initiative is broad-based, efforts to improve these processes include the use of advanced data analytics to identify, prioritize, and pursue growth opportunities; the implementation of more effective pricing related to value-based selling strategies and processes; improved sales force guidance, training and effectiveness; cross-selling; increased segment marketing; and leads generation and nurturing activities. We also have added field sales and service resources to pursue underpenetrated market opportunities, and continue to adapt our Go-to-Market approaches with additional inside and telesales resources, while also increasing digital customer interaction. We continue to benefit from digitalization tools to gain efficiencies and increase the effectiveness of our field sales force. In addition, our comprehensive service offerings, and our initiatives to globalize and harmonize these offerings, help us further penetrate developed markets.

We estimate that we have the largest installed base of weighing instruments in the world, and we continue to leverage advanced data analytics and invest in sales and marketing activities to increase the proportion of our installed base that is under service contract, or sell new products that replace old products in our installed base. 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. We have also made adjustments to our service model to incorporate remote service, depot drop-off/pickup, and other approaches.

Faster Growing Markets. Emerging markets, comprising Asia (excluding Japan), Eastern Europe, Latin America, the Middle East, and Africa, account for approximately 37% of our total net sales. We have a two-pronged strategy in emerging markets: first, to capitalize on long-term growth opportunities in these markets, and second, to leverage our low-cost manufacturing operations in China. We have a 35-year track record in China, and our sales in Asia have grown more than 13% on a compound annual growth basis in local currencies since 1999. Over the years, we also have broadened our product offering to the Asian markets. India has also been a source of emerging market sales growth in past years due to increased life science research activities. Overall, versus the prior year, we experienced a 12% increase in emerging market local currency sales by destination during 2022, which included 14% local currency sales growth in China. Within China, we continue to redeploy resources and sales and marketing efforts to the faster-growing segments of pharma, food manufacturing, chemical, and new energy. We believe the long-term growth of these segments will be favorably impacted by the Chinese government’s emphasis on

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science, high-value industries, product quality, and food safety. We expect our laboratory and product inspection businesses will particularly benefit from our focus on these segments. We also continue to invest and add sales and marketing resources to pursue growth in under-penetrated emerging markets. However, emerging market sales can be volatile. In particular, China has historically been volatile and market conditions may change unfavorably due to various factors. In addition to China and emerging markets, we also pursue other faster growth vertical markets. While rather small, these markets present outsized growth potential. Segments include lithium ion battery, semiconductors, advanced materials and plant-based food. The components of these faster growing segments will change as various markets develop and we will continue to leverage the breadth and scope of our product offering as new opportunities emerge.

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 improve our product offerings and their capabilities with additional integrated technologies and software, which we believe supports our pricing differentiation and accelerates product replacement cycles. In addition, we aim to create value for our customers by having thorough knowledge of their processes via our significant installed product base.

Expanding Our Margins. During 2022, we experienced increased inflation in our cost structure, particularly regarding costs for product materials and transportation and logistics. However, despite these challenges to our cost structure, we continue to strive to improve our margins by enhancing our value proposition via innovation, more effectively pricing our products and services, optimizing our cost structure, and improving our mix in higher-margin businesses such as service. For example, sophisticated data analytic tools provide us new insights to further refine our price strategies and processes. We also focus on reallocating resources and better aligning our cost structure to support our investments in market penetration initiatives, higher-growth/profitable areas, and opportunities for margin improvement.

We also have implemented global procurement and supply chain management programs over the last several years aimed at lowering costs, and have increased our focus on these programs with our SternDrive initiative. SternDrive is our global operational excellence program for continuous improvement efforts within our supply chain, manufacturing, and back-office operations. Blue Ocean is also an important enabler of our various margin expansion initiatives. Our move to standardized business processes, systems, and data structures throughout our global organization provides greater data transparency and faster access to real-time data. Our cost leadership and productivity initiatives are also focused on continuously improving our invested capital efficiency, such as reducing our working capital levels, improving our order to cash cycle, and ensuring appropriate returns on our expenditures.

Pursuing Strategic Acquisitions. We seek to pursue "bolt-on" acquisitions that may leverage our global sales and service network, respected brand, extensive distribution channels, and technological leadership. We have identified life sciences and process analytics as key areas for acquisitions. For example, in 2021, we acquired all the membership interests of Mayfair Technology, LLC (PendoTECH), a manufacturer and distributor of single-use sensors, transmitters, control systems, and software for measuring, monitoring, and data collection primarily in bioprocess applications. PendoTECH serves biopharmaceutical manufacturers and life science laboratories and is located in the United States. The initial cash payment was $185.0 million and we made other post-closing payments of $7.4 million. We have paid an additional $10.0 million related to an earn-out provision in the agreement during 2022 and expect to pay additional consideration of $10.0 million in 2023. In 2021, we also acquired Scale-up Systems Inc., a leading software provider for scale-up and reaction modeling serving the biopharma and chemical markets. The initial cash payment was $20.2 million and we may be required to pay additional consideration up to EUR 3.0 million.

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COVID-19

The coronavirus pandemic (COVID-19) has spread globally in all countries where we conduct business. The COVID-19 pandemic continues to evolve and has led to the implementation of various responses, including government-imposed quarantines, stay-at-home orders and lockdowns, travel restrictions, vaccination and testing requirements, and other public health safety measures. The emergence of COVID-19 variants and subvariants has presented particular challenges to the global economy given the high level of transmissibility, which can cause many people to be affected at the same time or over a short period of time. For example, China recently eased its “zero COVID” policies related to previous lockdowns as part of the government's response to the COVID-19 pandemic. As a result China has experienced a significant increase in COVID-19 cases which may have negative implications on our business and supply chain, as well as the Chinese and global economies.

COVID-19 presents several risks to our business as further described on page 14 in the Risk Factors section of this Form 10-K. Uncertainties related to COVID-19 and the resulting impact to the global economy continue in most regions of the world, and market conditions can change quickly. The longer-term effects on our business will be influenced by the global economy and any economic implications in different regions of the world.

Ongoing Developments Related to Ukraine

We continue to monitor the ongoing developments related to Ukraine, as well as the status of all applicable sanctions. We have remained in close contact with our employees in Ukraine and have provided financial assistance and supplies to them. We suspended all shipments to Russia since the beginning of the invasion in February 2022. For historical reference, in 2021, approximately 1% of our net sales were in Russia and Ukraine, and we had an immaterial amount of assets and liabilities in both countries as of December 31, 2022 and 2021. We also do not have manufacturing in Russia or Ukraine.

The ongoing developments related to Ukraine present several risks to our business as further described on page 15 in the Risk Factors section of this Form 10-K. While it is difficult to estimate the impact of the ongoing invasion on the global economy, including increased inflation, higher energy and transportation costs and potential energy shortages, the invasion of Ukraine could adversely impact our financial results and presents several risks to our business.

Results of Operations — Consolidated

Net sales

Net sales were $3.9 billion for the year ended December 31, 2022, compared to $3.7 billion in 2021 and $3.1 billion in 2020. This represents an increase of 5% in 2022 and 21% in 2021 in U.S. dollars and an increase of 11% in 2022 and 18% in 2021 in local currencies. In 2022, we experienced strong growth in most businesses and regions with particularly strong growth in China and the Americas. We continue to benefit from the execution of our global sales and marketing programs, our innovative product portfolio, and investments in our field organization, particularly surrounding digital tools and techniques. However, there is uncertainty in the economic environment, including the risk of recession in some countries. Uncertainties and challenges also continue relating to ongoing developments related to Ukraine, COVID-19 (particularly in China), inflation, and supply chain challenges, and market conditions may change quickly.

In 2022, our net sales by geographic destination increased in U.S. dollars compared to 2021 by 11% in the Americas and 7% in Asia/Rest of World and decreased 5% in Europe. In local currencies, our net sales by geographic destination increased in 2022 by 12% in the Americas, 6% in Europe, and 13% in Asia/Rest of World, with 14% growth in China. Suspending shipments in Russia reduced our local

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currency sales in Europe by approximately 3% in 2022. The PendoTECH acquisition contributed approximately 1% to net sales in the Americas during 2022. A discussion of sales by operating segment is included below.

As described in Note 3 to our 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.

Net sales of products increased 5% in U.S. dollars and 10% in local currencies during 2022 and increased 23% in U.S. dollars and 20% in local currencies in 2021. Service revenue (including spare parts) increased 6% in U.S. dollars and 12% in local currencies in 2022 and increased 11% in U.S. dollars and 8% in local currencies in 2021.

Net sales of our laboratory products and services, which represented approximately 57% of our total net sales in 2022, increased 7% in U.S. dollars and 12% in local currencies during 2022. The local currency increase in net sales of our laboratory-related products during 2022 includes very strong growth in most product categories. Net sales of our laboratory products also benefited approximately 1% from the PendoTECH acquisition.

Net sales of our industrial products and services, which represented approximately 38% of our total net sales in 2022, increased 4% in U.S. dollars and 9% in local currencies during 2022. The local currency increase in net sales of our industrial-related products during 2022 includes strong growth in most product categories, especially in core industrial.

Net sales of our food retailing products and services, which represented approximately 5% of our total net sales in 2022, decreased 5% in U.S. dollars and increased 1% in local currencies during 2022. The local currency increase includes improved project activity in the Americas, offset in part by weak market conditions in China.

Gross profit

Gross profit as a percentage of net sales was 58.9% for 2022 and 58.4% for both 2021 and 2020.

Gross profit as a percentage of net sales for products was 60.6% for 2022, compared to 60.1% for 2021 and 60.3% for 2020. Gross profit as a percentage of net sales for services (including spare parts) was 52.0% for 2022, compared to 51.8% for 2021 and 51.6% for 2020.

The gross profit as a percentage of net sales for 2022 primarily reflects increased sales volume and favorable price realization, offset by higher material costs.

Research and development and selling, general, and administrative expenses

Research and development expenses as a percentage of net sales were 4.5% for 2022, 4.6% for 2021, and 4.5% for 2020. Research and development expenses in U.S. dollars increased 4% in 2022 and 21% in 2021, and in local currencies increased 9% in 2022 and 17% in 2021. The increase during 2022 primarily relates to increased project activity.

Selling, general, and administrative expenses as a percentage of net sales were 23.9% for 2022, compared to 25.4% for 2021 and 26.6% for 2020. Selling, general, and administrative expenses decreased 1% in U.S. dollars and increased 4% in local currencies in 2022 and increased 15% in U.S. dollars and 12% in local currencies in 2021. The increase during 2022 primarily includes increased sales and marketing investments partially offset by lower cash incentive expense.

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Amortization expense

Amortization expense was $66.2 million in 2022, compared to $63.1 million and $56.7 million in 2021 and 2020, respectively. The increase in amortization expense during 2022 is primarily related to purchased intangibles amortization.

Restructuring charges

During the past few years, we initiated various cost reduction measures. Restructuring charges were $9.6 million in 2022, compared to $5.2 million and $10.5 million in 2021 and 2020, respectively. Restructuring expenses are primarily comprised of employee-related costs.

Other charges (income), net

Other charges (income), net consisted of net income of $9.3 million, $3.1 million, and $13.8 million in 2022, 2021, and 2020, respectively. Other charges (income), net includes non-service pension costs (benefits), net (gains) losses from foreign currency transactions and hedging activities, interest income, and other items. Non-service pension benefits were $16.9 million, $11.4 million, and $12.2 million in 2022, 2021, and 2020, respectively. Other charges (income), net also includes $0.9 million and $3.4 million of acquisition costs for the years ended December 31, 2022 and 2021, respectively, as well as a $6.8 million charge to increase the PendoTECH acquisition contingent consideration and related obligations to the sellers for 2021.

Interest expense and taxes

Interest expense was $55.4 million for 2022, compared to $43.2 million for 2021 and $38.6 million for 2020.

Our reported tax rate was 18.5% during 2022, compared to 19.0% and 19.5% during 2021 and 2020, respectively.

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 consolidated financial statements.

U.S. Operations (amounts in thousands)

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020","","Increase (Decrease) in % 2022 vs. 2021","","Increase (Decrease) in % 2021 vs. 2020"],["Net sales","$","1,601,344","","","$","1,443,970","","","$","1,194,169","","","11%","","21%"],["Net sales to external customers","$","1,444,460","","","$","1,287,983","","","$","1,072,319","","","12%","","20%"],["Segment profit","$","357,802","","","$","302,177","","","$","244,940","","","18%","","23%"]]
[[/GREPCENT_TABLE]]

Total net sales increased 11% in 2022 and 21% in 2021 and net sales to external customers increased 12% in 2022 and 20% in 2021. The increase during 2022 is driven by strong growth in most product categories. Net sales to external customers in our U.S. Operations also benefited approximately 1% from the PendoTECH acquisition.

Segment profit increased $55.6 million in our U.S. Operations segment during 2022, compared to an increase of $57.2 million during 2021. The segment profit increase in 2022 includes higher net sales volume and benefits from our margin expansion initiatives, offset in part by higher material costs.

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Swiss Operations (amounts in thousands)

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020","","Increase (Decrease) in % (1) 2022 vs. 2021","","Increase (Decrease) in % (1) 2021 vs. 2020"],["Net sales","$","1,016,070","","","$","997,634","","","$","823,760","","","2%","","21%"],["Net sales to external customers","$","176,119","","","$","171,633","","","$","143,923","","","3%","","19%"],["Segment profit","$","309,844","","","$","301,142","","","$","245,465","","","3%","","23%"]]
[[/GREPCENT_TABLE]]

(1)Represents U.S. dollar growth.

Total net sales in U.S. dollars increased 2% in 2022 and 21% in 2021, and in local currencies increased 6% in 2022 and increased 19% in 2021. Net sales to external customers in U.S. dollars increased 3% in 2022 and increased 19% in 2021, and in local currencies increased 6% in 2022 and increased 17% in 2021. Local currency net sales to external customers during 2022 includes strong growth in laboratory products.

Segment profit increased $8.7 million in our Swiss Operations segment during 2022, compared to an increase of $55.7 million during 2021. The segment profit increase in 2022 includes higher net sales volume and benefits from our margin expansion initiatives, offset in part by unfavorable foreign currency translation and higher material costs.

Western European Operations (amounts in thousands)

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020","","Increase (Decrease) in % (1) 2022 vs. 2021","","Increase (Decrease) in % (1) 2021 vs. 2020"],["Net sales","$","996,831","","","$","1,041,308","","","$","889,891","","","(4)%","","17%"],["Net sales to external customers","$","799,931","","","$","829,761","","","$","716,715","","","(4)%","","16%"],["Segment profit","$","174,352","","","$","172,265","","","$","147,562","","","1%","","17%"]]
[[/GREPCENT_TABLE]]

(1)Represents U.S. dollar growth.

Total net sales in U.S. dollars decreased 4% in 2022 and increased 17% in 2021, and in local currencies increased 8% in 2022 and 12% in 2021. Net sales to external customers in U.S. dollars decreased 4% in 2022 and increased 16% in 2021, and in local currencies increased 9% in 2022 and 12% in 2021. Local currency net sales to external customers during 2022 includes solid growth in most product categories, especially laboratory and core-industrial products.

Segment profit increased $2.1 million in our Western European Operations segment during 2022, compared to an increase of $24.7 million in 2021. The segment profit increase in 2022 is primarily due to higher sales volume and benefits from our margin expansion initiatives, offset in part by unfavorable currency translation and higher material costs.

Chinese Operations (amounts in thousands)

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020","","Increase (Decrease) in % (1) 2022 vs. 2021","","Increase (Decrease) in % (1) 2021 vs. 2020"],["Net sales","$","1,149,690","","","$","1,063,430","","","$","792,345","","","8%","","34%"],["Net sales to external customers","$","841,526","","","$","771,651","","","$","578,610","","","9%","","33%"],["Segment profit","$","424,162","","","$","369,835","","","$","270,497","","","15%","","37%"]]
[[/GREPCENT_TABLE]]

(1)Represents U.S. dollar growth.

Total net sales in U.S. dollars increased 8% in 2022 and increased 34% in 2021, and in local currencies increased 13% in 2022 and 26% in 2021. Net sales by origin to external customers in U.S. dollars increased 9% in 2022 and 33% in 2021, and in local currencies increased 13% in 2022 and

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25% in 2021. The increase in net sales to external customers during 2022 includes very strong growth in laboratory and core-industrial products, offset in part by a decline in food retailing. However, uncertainties exist, especially relating to COVID-19 outbreaks and the related impact on the economy, and market conditions may change quickly.

Segment profit increased $54.3 million in our Chinese Operations segment during 2022, compared to an increase of $99.3 million in 2021. The increase in segment profit during 2022 primarily reflects increased sales volume and benefits from our margin expansion initiatives, offset in part by unfavorable currency translation and higher material costs.

Other (amounts in thousands)

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020","","Increase (Decrease) in % (1) 2022 vs. 2021","","Increase (Decrease) in % (1) 2021 vs. 2020"],["Net sales","$","661,632","","","$","661,682","","","$","578,210","","","\u2014%","","14%"],["Net sales to external customers","$","657,673","","","$","656,902","","","$","573,610","","","\u2014%","","15%"],["Segment profit","$","90,322","","","$","100,028","","","$","77,910","","","(10)%","","28%"]]
[[/GREPCENT_TABLE]]

(1)Represents U.S. dollar growth.

Other includes reporting units in Southeast Asia, Latin America, Eastern Europe, and other countries. Net sales to external customers in U.S. dollars were flat in 2022 and increased 14% in 2021, and in local currencies increased 8% in 2022 and 12% in 2021. The increase in local currency growth in net sales to external customers during 2022 includes particularly strong growth in laboratory products.

Segment profit decreased $9.7 million in our Other segment during 2022, compared to an increase of $22.1 million during 2021. The decrease in segment profit during 2022 primarily relate to unfavorable foreign currency translation, offset by increased sales volume and benefits from our margin expansion initiatives.

Liquidity, Capital Resources, and Future Cash Requirements

Liquidity is our ability to generate sufficient cash to meet our obligations and commitments. Sources of liquidity include cash flows from operating activities, available borrowings under our Credit Agreement, the ability to obtain appropriate financing, and our cash and cash equivalent balances. Currently, our financing requirements are primarily driven by working capital requirements, capital expenditures, share repurchases, and acquisitions. Global market conditions can be uncertain, and our ability to generate cash flows could be reduced by a deterioration in global markets.

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

Cash provided by operating activities totaled $859.1 million in 2022, compared to $908.8 million in 2021 and $724.7 million in 2020. The decrease in 2022 is primarily due to higher cash incentive payments related to our strong prior year performance and increased inventory levels to mitigate supply chain challenges.

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 $121.2 million in 2022, $107.6 million in 2021, and $92.5 million in 2020. Capital expenditures in 2023 are expected to be approximately $15 million higher than 2022 subject to business and economic conditions.

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In September 2021, the Company entered into an agreement with the U.S. Department of Defense to increase domestic production capacity of pipette tips and enhance manufacturing automation and logistics. As of December 31, 2022, we have obtained $29.7 million of the $35.8 million of total funding to be received through 2023, which will offset associated capital expenditures. During the period ended December 31, 2022, we incurred approximately $28.1 million of capital expenditures relating to this funding agreement.

We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness. In March 2021, we acquired all the membership interests of Mayfair Technology, LLC (PendoTECH), a manufacturer and distributor of single-use sensors, transmitters, control systems, and software for measuring, monitoring, and data collection primarily in bioprocess applications. PendoTECH serves biopharmaceutical manufacturers and life science laboratories and is located in the United States. The initial cash payment was $185.0 million and we made other post-closing payments of $7.4 million. Additional consideration of $10.0 million was paid in 2022, and we expect to pay additional consideration of $10.0 million in 2023. In October 2021, the Company acquired Scale-up Systems Inc., a leading software provider for scale-up and reaction modeling serving the biopharma and chemical markets. The initial cash payment was $20.2 million and the Company may be required to pay additional amounts up to EUR 3.0 million. For additional information related to these acquisitions, refer to Note 4 to the consolidated financial statements.

In 2022, 2021, and 2020, we also incurred additional acquisition payments totaling $38.0 million, $8.3 million, and $6.2 million, respectively.

Cash flows used in financing activities during 2022 primarily comprised share repurchases. In accordance with our share repurchase program, we spent $1.1 billion in 2022 and $1.0 billion and $775.0 million in 2021 and 2020, respectively on the repurchase of 838,010 shares, 739,486 shares, and 815,652 shares, respectively. Our share repurchase program does not obligate us to acquire any specific number of shares; however, in 2023, we intend to spend a similar amount on the repurchase of shares as we spent in 2022, subject to business and economic conditions.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on net share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. We expect the financial impact of the IRA to be immaterial to our financial statements.

We plan to continue 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 foreign earnings will be withholding taxes. All other undistributed earnings are considered to be permanently reinvested. We believe the ongoing tax impact associated with repatriating our undistributed foreign earnings will not have a material effect on our liquidity.

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Senior Notes and Credit Facility Agreement

Our short-term borrowings and long-term debt consisted of the following at December 31, 2022:

[[GREPCENT_TABLE]]
[["","U.S. Dollar","","Other Principal Trading Currencies","","Total"],["4.10% $50 million 10-year Senior Notes due September 19, 2023","50,000","","","\u2014","","","50,000"],["3.84% $125 million 10-year Senior Notes due September 19, 2024","125,000","","","\u2014","","","125,000"],["4.24% $125 million 10-year Senior Notes due June 25, 2025","125,000","","","\u2014","","","125,000"],["3.91% $75 million 10-year Senior Notes due June 25, 2029","75,000","","","\u2014","","","75,000"],["2.83% $125 million 12-year Senior Notes due July 22, 2033","125,000","","","\u2014","","","125,000"],["3.19% $50 million 15-year Senior Notes due January 24, 2035","50,000","","","\u2014","","","50,000"],["2.81% $150 million 15-year Senior Notes due March 17, 2037","150,000","","","\u2014","","","150,000"],["2.91% $150 million 15-year Senior Notes due September 1, 2037","150,000","","","\u2014","","","150,000"],["1.47% EUR 125 million 15-year Senior Notes due June 17, 2030","\u2014","","","133,794","","","133,794"],["1.30% EUR 135 million 15-year Senior Notes due November 6, 2034","\u2014","","","144,497","","","144,497"],["1.06% EUR 125 million 15-year Senior Notes due March 19, 2036","\u2014","","","133,794","","","133,794"],["Senior Notes debt issuance costs, net","(3,033)","","","(1,488)","","","(4,521)"],["Total Senior Notes","846,967","","","410,597","","","1,257,564"],["$1.25 billion Credit Agreement, interest at LIBOR plus 87.5 basis points(1)","507,679","","","189,532","","","697,211"],["Other local arrangements","3,891","","","55,868","","","59,759"],["Total debt","1,358,537","","","655,997","","","2,014,534"],["Less: current portion","(50,436)","","","(55,618)","","","(106,054)"],["Total long-term debt","$","1,308,101","","","$","600,379","","","$","1,908,480"]]
[[/GREPCENT_TABLE]]

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

As of December 31, 2022, approximately $547.0 million of additional borrowings were available under our Credit Agreement and we maintained $96.0 million of cash and cash equivalents. At December 31, 2022, the interest payments associated with 73% of the Company’s debt are fixed obligations. We expect to make interest payments of approximately $75.0 million during 2023 associated with our debt outstanding as of December 31, 2022.

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. Further, we do not have any downgrade triggers from rating agencies that would accelerate the maturity dates of our debt. We were in compliance with our debt covenants as of December 31, 2022.

Senior Notes

The Senior Notes listed above are senior unsecured obligations and interest is payable semi-annually. The Senior Notes each contain customary affirmative and negative covenants as further described in Note 10 to our consolidated financial statements.

In December 2022, we entered into an agreement to issue and sell $150 million 10-year Senior Notes in a private placement. We will issue $150 million with a fixed interest rate of 5.45% in March 2023, which will mature in March 2033. We will use the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.

In December 2021, we entered into an agreement to issue and sell $300 million 15-year Senior Notes in a private placement. We issued $150 million with a fixed interest rate of 2.81% (2.81% Senior Notes) in March 2022, which will mature in March 2037, and we issued $150 million with a fixed interest rate of

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2.91% (2.91% Senior Notes) in September 2022, which will mature in September 2037. We used the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.

Credit Agreement

On June 25, 2021, we entered into a $1.25 billion Credit Agreement (the Credit Agreement), which amended our $1.1 billion Amended and Restated Credit Agreement (the Prior Credit Agreement), which is further described in Note 10 to our consolidated financial statements.

Other Local Arrangements

In April 2018, two of our non-U.S. pension plans issued loans totaling $39.6 million (Swiss franc 38 million) to a wholly-owned subsidiary of the Company. The loans have the same terms and conditions, which include an interest rate of SARON plus 87.5 basis points. The loans were renewed for one year in April 2022.

Share Repurchase Program

In November 2022, the Company’s Board of Directors authorized an additional $2.5 billion to the share repurchase program which has $3.5 billion of remaining availability as of December 31, 2022. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.

We have purchased 31.0 million common shares since the inception of the program in 2004 through December 31, 2022, at a total cost of $8.0 billion. During the years ended December 31, 2022 and 2021, we spent $1.1 billion and $1.0 billion on the repurchase of 838,010 shares and 739,486 shares at an average price per share of $1,312.61 and $1,352.27, respectively. We reissued 133,916 shares and 110,748 shares held in treasury for the exercise of stock options and restricted stock units during 2022 and 2021, respectively.

Effect of Currency on Results of Operations

Our earnings are affected by changing exchange rates. We are particularly sensitive to changes in the exchange rates between the Swiss franc, euro, Chinese renminbi, and U.S. dollar. We have more Swiss franc expenses than we do Swiss franc sales because we develop and manufacture products in Switzerland that we sell globally and have a number of corporate functions located in Switzerland. When the Swiss franc strengthens against our other trading currencies, particularly the U.S. dollar and euro, our earnings go down. We also have significantly more sales in the euro than we do expenses. When the euro weakens against the U.S. dollar and Swiss franc, our earnings also go down. We estimate a 1% strengthening of the Swiss franc against the euro would reduce our earnings before tax by approximately $1.8 million to $2.0 million annually.

We also conduct business 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. The most significant of these currency exposures is the Chinese renminbi. The impact on our earnings before tax of the Chinese renminbi weakening 1% against the U.S. dollar is a reduction of approximately $3.7 million to $4.2 million annually.

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, the Swiss franc, and euro.

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Based on our outstanding debt at December 31, 2022, we estimate that a 5% weakening of the U.S. dollar against the currencies in which our debt is denominated would result in an increase of $35 million in the reported U.S. dollar value of our 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 changes in law, 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, and earnings repatriations between jurisdictions. Generally, the tax liability for each taxpayer within the Mettler-Toledo International Inc. group of companies 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.

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 known as Hi-Speed Checkweigher Co., Inc. was one of two private parties ordered by the New Jersey Department of Environmental Protection, in an administrative consent order signed on June 13, 1988, to investigate and remediate certain ground water contamination at a property in Landing, New Jersey. After the other party under this order failed to fulfill its obligations, Hi-Speed became solely responsible for compliance with the order. Residual ground water contamination at this site is now within a Classification Exception Area which the Department of Environmental Protection has approved and within which the Company oversees monitoring of the decay of contaminants of concern. A concurrent Well Restriction Area also exists for the site. The Department of Environmental Protection does not view these vehicles as remedial measures, but rather as “institutional controls” that must be adequately maintained and periodically evaluated. We estimate that the costs of compliance associated with the site over the next several years will approximate a total of $0.4 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. 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

Global inflation significantly increased in 2022 and 2021 related to the COVID-19 economic recovery and associated disruptions in global demand, supply chains/logistics, and labor markets, as well as the war in Ukraine and related significant increase in energy costs. Inflation can affect the costs of goods and services that we use, including raw materials to manufacture our products, as well as transportation and logistical costs and other external costs and services. Inflation can also affect labor

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costs which are a significant element of our overall cost structure. Inflation can also lead to increased interest rates as country monetary policies combat inflation. This can result in reduced economic growth and recessionary conditions, as well as higher borrowing costs. Inflation presents several risks to our business as further described on page 21 in the Risk Factors section of this Form 10-K, and these inflationary conditions could have a greater impact on our operating results in future years.