METTLER TOLEDO INTERNATIONAL INC/ (MTD) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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 decreased 3% in 2023 and increased 5% in 2022. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales decreased 3% in 2023 and increased 11% in 2022. 2023 was a challenging year after very strong sales growth during the previous two years. Net sales in 2023 were also impacted by shipping delays of approximately $58 million with a new external European logistics service provider, which we expect to largely recover in the first quarter of 2024. We estimate local currency net sales decreased approximately 1% in 2023 excluding the impact of the delayed shipments. Market demand declined in our core segments, especially pharma/biopharmaceutical, with a significant drop-off in China during the second half of the year. While market demand declined, 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.
In addition to reduced market demand during 2023, we also continued to experience global inflation, 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 ability to mitigate these challenges. In particular, our pricing program and productivity and cost savings initiatives helped offset inflationary pressures and volume declines. 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 market leading solutions and ability to leverage our innovative portfolio have also allowed us to quickly capitalize on our customers demand for automation and digitalization solutions. This is also true for faster growing segments such as lithium-ion batteries, semiconductors and advanced new materials. We are well positioned, and have continued to make investments to further strengthen our portfolio and capture future growth opportunities. Our Service business also delivered very strong results in 2023 as we have been able to support our customers’ ability to maintain uptime, improve productivity, and comply with regulatory requirements.
As we enter 2024, we expect to continue to benefit from market trends towards automation and digitalization, as well as customer investments in on/near-shoring activities. However, many of our end markets, including pharma/biopharmaceutical, food, and chemical are challenged after years of very strong growth. In addition, 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, and ongoing developments in Ukraine, the Israel-Hamas war, and increasing geopolitical tensions. Accordingly, we expect demand for our products to be reduced during the first half of 2024 which also reflects difficult prior period comparisons after strong results in both 2023 and 2022, particularly in our laboratory business and in China. Market conditions also may change quickly.
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Our laboratory sales experienced a significant decline in 2023, particularly from life sciences and biotech customers after two years of very strong growth. We expect difficult market conditions during the first half of 2024, but believe we will benefit from favorable biopharma market trends in the future. 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 were down slightly in 2023 related to core-industrial which included weak market conditions in China. We expect reduced market demand, especially in China, during the first half of 2024. Our core industrial-related products are also especially sensitive to changes in economic growth. However, 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 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 also be a source of long-term 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 inflation and many of these customers reduced investments during 2023.
Our food retailing sales increased significantly during 2023 primarily due to strong project activity, especially in the Americas. 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 2024, 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 resources to pursue under-penetrated 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.
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Faster-Growing Markets. Emerging markets, comprising Asia (excluding Japan), Eastern Europe, Latin America, the Middle East, and Africa, account for approximately 35% 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 12% 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 5% decrease in emerging market local currency sales by destination during 2023, which included a 10% local currency sales decline in China. Following particularly strong growth in 2022 and 2021, market conditions in China declined significantly during the second half of 2023, especially in our laboratory business, and we expect reduced sales during the first half of 2024. Going forward, we continue to redeploy resources and sales and marketing efforts to 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 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 pursue growth in under-penetrated emerging markets. However, emerging market sales can be volatile as we experienced in China during 2023. 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 batteries, 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. 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 have implemented productivity and cost savings initiatives to mitigate our reduced 2023 volume, while also focusing on reallocating resources to better align 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
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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 also paid an additional $10.0 million per year related to an earn-out provision in the agreement both in 2022 and 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 have paid additional consideration of EUR 2.0 million in 2023 and EUR 0.6 million in 2022.
Results of Operations — Consolidated
Net sales
Net sales were $3.8 billion for the year ended December 31, 2023, compared to $3.9 billion in 2022 and $3.7 billion in 2021. This represents a decrease of 3% in 2023 and an increase of 5% in 2022 in U.S. dollars and a decrease of 3% in 2023 and an increase of 11% in 2022 in local currencies. In 2023, we experienced reduced market demand, particularly in China and our laboratory business. Net sales in 2023 were also impacted by shipping delays of approximately $58 million with a new external European logistics service provider, which we expect to largely recover in the first quarter of 2024. We estimate local currency net sales decreased approximately 1% in 2023 excluding the impact of the delayed shipments. 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 continues to be uncertainty in our end-markets and the economic environment, including the risk of recession in some countries, and market conditions may change quickly.
In 2023, our net sales by geographic destination decreased in U.S. dollars compared to 2022 by 1% in the Americas, 9% in Asia/Rest of World, and were flat in Europe. In local currencies, our net sales by geographic destination decreased in 2023 by 1% in the Americas, 2% in Europe, and 5% in Asia/Rest of World, with a 10% decline in China. 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 decreased 7% in U.S. dollars and 6% in local currencies during 2023 and increased 5% in U.S. dollars and 10% in local currencies in 2022. Service revenue (including spare parts) increased 10% in both U.S. dollars and local currencies in 2023 and increased 6% in U.S. dollars and 12% in local currencies in 2022.
Net sales of our laboratory products and services, which represented approximately 55% of our total net sales in 2023, decreased 7% in both U.S. dollars and local currencies during 2023. The local currency decrease in net sales of our laboratory-related products during 2023 includes a decline in most product categories related to reduced market demand after two years of particularly strong growth.
Net sales of our industrial products and services, which represented approximately 39% of our total net sales in 2023, decreased 1% in both U.S. dollars and local currencies during 2023. The local currency decrease in net sales of our industrial-related products during 2023 includes a decline in most product categories with weak market conditions in China.
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Net sales of our food retailing products and services, which represented approximately 6% of our total net sales in 2023, increased 28% in U.S. dollars and 27% in local currencies during 2023. The local currency increase in net sales of our food retailing products during 2023 includes strong project activity, especially in the Americas.
Gross profit
Gross profit as a percentage of net sales was 59.2% for 2023, 58.9% for 2022 and 58.4% for 2021.
Gross profit as a percentage of net sales for products was 60.6% for 2023, compared to 60.6% for 2022, and 60.1% for 2021. Gross profit as a percentage of net sales for services (including spare parts) was 54.3% for 2023, compared to 52.0% for 2022 and 51.8% for 2021.
The gross profit as a percentage of net sales for 2023 primarily reflects favorable price realization that benefits from our innovative product portfolio, and results from our cost savings initiatives, partially offset by lower sales volume, unfavorable mix, and foreign currency.
Research and development and selling, general, and administrative expenses
Research and development expenses as a percentage of net sales were 4.9% for 2023, 4.5% for 2022, and 4.6% for 2021. Research and development expenses in U.S. dollars increased 5% in 2023 and 4% in 2022, and in local currencies increased 3% in 2023 and 9% in 2022. The increase during 2023 relates to increased project activity.
Selling, general, and administrative expenses as a percentage of net sales were 23.9% for 2023, compared to 23.9% for 2022 and 25.4% for 2021. Selling, general, and administrative expenses decreased 4% in both U.S. dollars and local currencies in 2023 and decreased 1% in U.S. dollars and increased 4% in local currencies in 2022. The decrease during 2023 primarily includes benefits from our cost savings initiatives and reduced variable compensation.
Amortization expense
Amortization expense was $72.2 million in 2023, compared to $66.2 million and $63.1 million in 2022 and 2021, respectively. The increase in amortization expense during 2023 relates to our investments in information technology, primarily from our Blue Ocean program.
Restructuring charges
During the past few years, we initiated various cost reduction measures. Restructuring charges were $32.7 million in 2023, compared to $9.6 million and $5.2 million in 2022 and 2021, respectively. Restructuring expenses are primarily comprised of employee-related costs.
Other charges (income), net
Other charges (income), net consisted of net income of $4.1 million, $9.3 million, and $3.1 million in 2023, 2022, and 2021, 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 $7.6 million, $16.9 million, and $11.4 million in 2023, 2022, and 2021, respectively. Other charges (income), net also includes acquisition costs, for which there was $0.9 million for the year ended December 31, 2022. For the year ended December 31, 2021, $3.4 million of acquisition costs, as well as a $6.8 million charge to increase the PendoTECH acquisition contingent consideration and related obligations to the sellers, were included in other charges (income), net.
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Interest expense and taxes
Interest expense was $77.4 million for 2023, compared to $55.4 million for 2022 and $43.2 million for 2021. The increase in interest expense is primarily related to higher variable interest rates and increased debt.
Our reported tax rate was 19% during 2023, compared to 18.5% and 19% during 2022 and 2021, 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)
| 2023 | 2022 | 2021 | Increase (Decrease) in % 2023 vs. 2022 | Increase (Decrease) in % 2022 vs. 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 1,541,111 | $ | 1,601,344 | $ | 1,443,970 | (4)% | 11% | |||||||
| Net sales to external customers | $ | 1,403,919 | $ | 1,444,460 | $ | 1,287,983 | (3)% | 12% | |||||||
| Segment profit | $ | 365,052 | $ | 357,802 | $ | 302,177 | 2% | 18% |
Total net sales decreased 4% in 2023 and increased 11% in 2022 and net sales to external customers decreased 3% in 2023 and increased 12% in 2022. The decrease during 2023 is driven by a decline in laboratory-related and industrial-related products, offset in part by very strong project activity in food retailing.
Segment profit increased $7.3 million in our U.S. Operations segment during 2023, compared to an increase of $55.6 million during 2022. The segment profit increase in 2023 is driven by our margin expansion and cost saving initiatives, offset in part by a decline in net sales volume.
Swiss Operations (amounts in thousands)
| 2023 | 2022 | 2021 | Increase (Decrease) in % (1) 2023 vs. 2022 | Increase (Decrease) in % (1) 2022 vs. 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 949,793 | $ | 1,016,070 | $ | 997,634 | (7)% | 2% | |||||||
| Net sales to external customers | $ | 188,679 | $ | 176,119 | $ | 171,633 | 7% | 3% | |||||||
| Segment profit | $ | 281,481 | $ | 309,844 | $ | 301,142 | (9)% | 3% |
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars decreased 7% in 2023 and increased 2% in 2022, and in local currencies decreased 12% in 2023 and increased 6% in 2022. Net sales to external customers in U.S. dollars increased 7% in 2023 and increased 3% in 2022, and in local currencies increased 3% in 2023 and increased 6% in 2022. Local currency net sales to external customers during 2023 includes particularly strong growth in food retailing and industrial-related products, offset in part by a decline in laboratory-related products.
Segment profit decreased $28.4 million in our Swiss Operations segment during 2023, compared to an increase of $8.7 million during 2022. The segment profit decrease in 2023 includes lower net sales volume to intercompany segments and unfavorable foreign currency translation, offset in part by cost savings initiatives.
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Western European Operations (amounts in thousands)
| 2023 | 2022 | 2021 | Increase (Decrease) in % (1) 2023 vs. 2022 | Increase (Decrease) in % (1) 2022 vs. 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 981,870 | $ | 996,831 | $ | 1,041,308 | (2)% | (4)% | |||||||
| Net sales to external customers | $ | 792,907 | $ | 799,931 | $ | 829,761 | (1)% | (4)% | |||||||
| Segment profit | $ | 178,673 | $ | 174,352 | $ | 172,265 | 2% | 1% |
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars decreased 2% in 2023 and 4% in 2022, and in local currencies decreased 3% in 2023 and increased 8% in 2022. Net sales to external customers in U.S. dollars decreased 1% in 2023 and 4% in 2022, and in local currencies decreased 3% in 2023 and increased 9% in 2022. Local currency net sales to external customers during 2023 includes a decline in most product categories, especially food retailing.
Segment profit increased $4.3 million in our Western European Operations segment during 2023, compared to an increase of $2.1 million in 2022. The segment profit increase in 2023 is primarily due to the benefits from our margin expansion initiatives and cost savings initiatives and favorable currency translation.
Chinese Operations (amounts in thousands)
| 2023 | 2022 | 2021 | Increase (Decrease) in % (1) 2023 vs. 2022 | Increase (Decrease) in % (1) 2022 vs. 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 996,845 | $ | 1,149,690 | $ | 1,063,430 | (13)% | 8% | |||||||
| Net sales to external customers | $ | 718,818 | $ | 841,526 | $ | 771,651 | (15)% | 9% | |||||||
| Segment profit | $ | 367,094 | $ | 424,162 | $ | 369,835 | (13)% | 15% |
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars decreased 13% in 2023 and increased 8% in 2022, and in local currencies decreased 9% in 2023 and increased 13% in 2022. Net sales by origin to external customers in U.S. dollars decreased 15% in 2023 and increased 9% in 2022, and in local currencies decreased 11% in 2023 and increased 13% in 2022. The decrease in local currency net sales to external customers during 2023 reflects a significant decline in market demand during the second half of 2023, especially in laboratory products following very strong growth in the previous two years. Market demand in China has significantly deteriorated, and we expect reduced sales during the first half of 2024 as compared to 2023. Uncertainties have increased, and market conditions may change quickly.
Segment profit decreased $57.1 million in our Chinese Operations segment during 2023, compared to an increase of $54.3 million in 2022. The decrease in segment profit during 2023 primarily reflects lower sales volume and unfavorable currency translation, offset partially by benefits from our margin expansion and cost savings initiatives.
Other (amounts in thousands)
| 2023 | 2022 | 2021 | Increase (Decrease) in % (1) 2023 vs. 2022 | Increase (Decrease) in % (1) 2022 vs. 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 704,586 | $ | 661,632 | $ | 661,682 | 6% | —% | |||||||
| Net sales to external customers | $ | 683,986 | $ | 657,673 | $ | 656,902 | 4% | —% | |||||||
| Segment profit | $ | 106,238 | $ | 90,322 | $ | 100,028 | 18% | (10)% |
(1)Represents U.S. dollar growth.
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Other includes reporting units in Southeast Asia, Latin America, Eastern Europe, and other countries. Total net sales in U.S. dollars increased 6% in 2023 and were flat in 2022, and in local currencies increased 7% in 2023 and 8% in 2022. Net sales to external customers in U.S. dollars increased 4% in 2023 and were flat in 2022, and in local currencies increased 5% in 2023 and 8% in 2022. The increase in local currency growth in net sales to external customers during 2023 includes solid growth in most product categories.
Segment profit increased $15.9 million in our Other segment during 2023, compared to a decrease of $9.7 million during 2022. The increase in segment profit during 2023 primarily relates to increased sales volume and 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 $965.9 million in 2023, compared to $859.1 million in 2022 and $908.8 million in 2021. The increase in 2023 is primarily related to favorable working capital, the timing of tax payments, and lower cash incentive payments of $20 million.
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 $105.3 million in 2023, $121.2 million in 2022, and $107.6 million in 2021. Capital expenditures in 2024 are expected to be relatively consistent with 2023 subject to business and economic conditions.
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, 2023, we have received the maximum allowable funding of $35.8 million related to the agreement, which offset associated capital expenditures.
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 $20.0 million was paid reflecting $10.0 million payments in both 2023 and 2022. 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 paid additional consideration of EUR 2.6 million. For additional information related to these acquisitions, refer to Note 4 to the consolidated financial statements.
In 2023, 2022, and 2021, we also incurred additional acquisition payments totaling $5.8 million, $38.0 million, and $8.3 million, respectively.
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Cash flows used in financing activities during 2023 primarily comprised share repurchases. In accordance with our share repurchase program, we spent $900.0 million in 2023 and $1.1 billion and $1.0 billion in 2022 and 2021, respectively, on the repurchase of 691,913 shares, 838,010 shares, and 739,486 shares, respectively. Our share repurchase program does not obligate us to acquire any specific number of shares; however, in 2024, we intend to spend approximately $850.0 million on the repurchase of shares, subject to business and economic conditions.
The Inflation Reduction Act (IRA) was enacted in August, 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. The financial impact of the IRA is 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.
Senior Notes and Credit Facility Agreement
Our short-term borrowings and long-term debt consisted of the following at December 31, 2023:
| U.S. Dollar | Other Principal Trading Currencies | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 3.84% $125 million 10-year Senior Notes due September 19, 2024 | 125,000 | — | 125,000 | |||||||
| 4.24% $125 million 10-year Senior Notes due June 25, 2025 | 125,000 | — | 125,000 | |||||||
| 3.91% $75 million 10-year Senior Notes due June 25, 2029 | 75,000 | — | 75,000 | |||||||
| 5.45% $150 million 10-year Senior Notes due March 1, 2033 | 150,000 | — | 150,000 | |||||||
| 2.83% $125 million 12-year Senior Notes due July 22, 2033 | 125,000 | — | 125,000 | |||||||
| 3.19% $50 million 15-year Senior Notes due January 24, 2035 | 50,000 | — | 50,000 | |||||||
| 2.81% $150 million 15-year Senior Notes due March 17, 2037 | 150,000 | — | 150,000 | |||||||
| 2.91% $150 million 15-year Senior Notes due September 1, 2037 | 150,000 | — | 150,000 | |||||||
| 1.47% EUR 125 million 15-year Senior Notes due June 17, 2030 | — | 137,966 | 137,966 | |||||||
| 1.30% EUR 135 million 15-year Senior Notes due November 6, 2034 | — | 149,003 | 149,003 | |||||||
| 1.06% EUR 125 million 15-year Senior Notes due March 19, 2036 | — | 137,966 | 137,966 | |||||||
| Senior Notes debt issuance costs, net | (2,663) | (1,356) | (4,019) | |||||||
| Total Senior Notes | 947,337 | 423,579 | 1,370,916 | |||||||
| $1.25 billion Credit Agreement, interest at benchmark plus 87.5 basis points(1)(2) | 373,196 | 265,249 | 638,445 | |||||||
| Other local arrangements | 5,225 | 66,253 | 71,478 | |||||||
| Total debt | 1,325,758 | 755,081 | 2,080,839 | |||||||
| Less: current portion | (126,258) | (65,961) | (192,219) | |||||||
| Total long-term debt | $ | 1,199,500 | $ | 689,120 | $ | 1,888,620 |
(1) See Note 6 and Note 7 for additional disclosures on the financial instruments associated with the Credit Agreement.
(2) The benchmark interest rate is determined by the borrowing currency. The benchmark rates by borrowing currency are as follows: SOFR for U.S. dollars (plus a 10 basis points spread adjustment), SARON for Swiss franc, EURIBOR for euro and SONIA for Great British pounds.
As of December 31, 2023, approximately $606.4 million of additional borrowings were available under our Credit Agreement and we maintained $69.8 million of cash and cash equivalents. At December 31, 2023, the interest payments associated with 78% of the Company’s debt are fixed
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obligations. We expect to make interest payments of approximately $85.0 million during 2024 associated with our debt outstanding as of December 31, 2023.
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, 2023.
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 issued $150 million with a fixed interest rate of 5.45% in March 2023, which will mature in March 2033. We used 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 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 2023.
Share Repurchase Program
The Company has $2.6 billion of remaining availability under its share repurchase program as of December 31, 2023. 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 31.7 million common shares since the inception of the program in 2004 through December 31, 2023, at a total cost of $8.9 billion and average price per share of $281.95. During the years ended December 31, 2023 and 2022, we spent $900.0 million and $1.1 billion on the repurchase of 691,913 shares and 838,010 shares at an average price per share of $1,300.72 and $1,312.61, respectively. We reissued 79,076 shares and 133,916 shares held in treasury for the exercise of stock options and restricted stock units during 2023 and 2022, respectively. In addition, we incurred $8.1 million of excise
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tax during the year ended December 31, 2023 related to the Inflation Reduction Act which is reflected as a reduction in shareholders' equity in our consolidated financial statements.
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 $2.0 million to $2.3 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 $3.2 million to $3.5 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. Based on our outstanding debt at December 31, 2023, 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 $39.8 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. We estimate that the costs of compliance associated with the site over the next several years will approximate a total of $0.1 million.
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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 moderated during 2023, after rising sharply 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 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 22 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.