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 21% in 2021 and 3% in 2020. Excluding the
effect of currency exchange rate fluctuations, or in local currencies, net sales
increased 18% in 2021 and 2% in 2020. In 2021, we experienced broad-based growth
with robust customer demand in most businesses and regions as global economies
recovered from COVID-19. We also benefited from excellent execution of our sales
and marketing programs and effectively navigated supply chain challenges to meet
heightened customer demand. Growth in China 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
digitalization tools, and continuing to optimize our lead generation and lead
nurturing processes.
During the past two years, we 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 have also
successfully adapted to remote and hybrid work environments and increased
engagement with our customers with our Go-to-Market and digital approaches.
While global market conditions are currently favorable, challenges remain in the
global supply chain and we will face difficult prior period comparisons in 2022
due to strong results in 2021. Uncertainties and challenges relating to COVID-19
also continue, including new variants (such as Omicron), lockdowns, logistical
and inflationary challenges, and the potential impact on global economies, and
market conditions may change quickly.
Our laboratory sales experienced excellent growth in 2021, particularly from
life sciences and biotech customers, while other end-markets such as the
chemical industry experienced a strong recovery. We also continue to support
COVID-19 testing, development, treatment, and vaccine production activities in
biopharma. We expect to continue to benefit from favorable biopharma market
trends. We also believe we will 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 2021 in both core industrial
and product inspection. Core industrial experienced particularly strong growth,
especially in China and the Americas . 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.
Emerging market economies, especially China , have historically been an important
source of growth based upon the expansion of their domestic economies, and we
expect this to be a continued source of future growth. Our core
industrial-related products are also especially sensitive to changes in economic
growth. Our product inspection business experienced improved customer demand
during 2021 after being negatively impacted by COVID-19 in 2020. We
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expect our product inspection end-market to also benefit from our customers'
focus on brand protection, food safety, and productivity.
Our food retailing sales decreased during 2021 primarily due to weak market
dynamics, the timing of project activity, and the negative impact of component
shortages. 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 2022, 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, and leveraging our product offering to larger
customers through key account management. 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 and 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
have also added field sales and service resources to pursue underpenetrated
market opportunities and will make additional investments to front-end resources
in 2022. We also 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 to ensure the safety of our technicians and customers.
Expanding Emerging Markets. Emerging markets, comprising Asia (excluding Japan ),
Eastern Europe , Latin America , the Middle East , and Africa , account for
approximately 36% of our total net sales. We have a two-pronged strategy in
emerging markets: first, to capitalize on long-term growth opportunities in
these markets, and second, to leverage our low-cost manufacturing operations in
China . We have nearly 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 have also 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 20% increase in emerging market local currency
sales by destination during 2021, which included 25% 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 environment. 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 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.
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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 2021, we experienced increased inflation in our
cost structure, particularly regarding material product costs and transportation
and logistics, and we expect our cost structure to further increase in 2022 due
to these inflationary dynamics. However, despite these challenges to our cost
structure, we continue to strive to improve our margins by 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 have also initiated various cost reduction programs over the past few years,
including temporary cost containment measures during 2020 in response to
COVID-19. We have also implemented global procurement and supply chain
management programs over the last several years aimed at lowering supply 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, process analytics, and product inspection as three key areas for
acquisitions. For example, 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 . We may be required to
pay additional consideration of up to $20.0 million . In October 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 amounts up to
EUR 3.0 million .
COVID-19
Since late 2019, the coronavirus pandemic (COVID-19) has spread globally in all
countries where we conduct business. The COVID-19 pandemic is evolving 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. These
restrictions continue to change as COVID-19 evolves, variants are discovered,
and vaccinations are distributed in each country and region. The emergence of
the Omicron variant of COVID-19 in late 2021 has presented particular challenges
to the global economy given its high level of transmissibility, which
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can cause many people to be affected at the same time or over a short period of
time, leading to potential disruptions to our business and supply chain.
The health and safety of our employees and business partners have been our
highest priority throughout the COVID-19 pandemic, and we have implemented
several preventative and protective measures. We also have continued to support
our customers with their essential businesses, such as life sciences, food
manufacturing, chemicals (e.g., sanitizers, disinfectants, soaps, etc.), food
retail, and transportation and logistics.
Our production and logistics facilities are currently operational, and our
office-based employees continue to adhere to any applicable jurisdictional
stay-at-home orders. Our supply chain is currently facing wide-ranging global
challenges, although we have been able to meet delivery requirements of our
customers with some interruption. We continue to closely monitor risks
associated with our supply chain, including the availability of certain
components, material shortages, supplier delays, potential transportation
delays, and higher transportation and material costs, which could significantly
adversely affect sales and/or profitability in future quarters. We also continue
to leverage our digital and remote sales capabilities, and our service
organization continues to provide on-site and remote customer support to
facilitate uptime, productivity, and regulatory compliance.
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.
Results of Operations - Consolidated
Net sales
Net sales were $3.7 billion for the year ended December 31, 2021 , compared to
$3.1 billion in 2020 and $3.0 billion in 2019. This represents an increase of
21% in 2021 and 3% in 2020 in U.S. dollars and an increase of 18% in 2021 and 2%
in 2020 in local currencies. The PendoTECH acquisition contributed 1% to our net
sales in 2021. In 2021, we experienced broad-based growth with robust customer
demand in most businesses and regions, with particularly strong growth in China .
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,
uncertainties and challenges relating to COVID-19 continue, including new
variants (such as Omicron), lockdowns, supply chain and inflationary challenges,
and the potential impact on global economies, and market conditions may change
quickly.
In 2021, our net sales by geographic destination increased in U.S. dollars
compared to 2020 by 20% in the Americas , 15% in Europe , and 26% in Asia /Rest of
World. In local currencies, our net sales by geographic destination increased in
2021 by 20% in the Americas , 12% in Europe , and 21% in Asia /Rest of World, with
25% growth in China . The PendoTECH acquisition contributed approximately 2% to
net sales in the Americas and 1% to net sales in Europe during 2021. 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.
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Net sales of products increased 23% in U.S. dollars and 20% in local currencies
during 2021 and increased 2% in both U.S. dollars and in local currencies in
2020. The PendoTECH acquisition contributed approximately 1% to our net sales of
products during 2021. Service revenue (including spare parts) increased 11% in
U.S. dollars and 8% in local currencies in 2021 and increased 3% in U.S. dollars
and 2% in local currencies in 2020.
Net sales of our laboratory products and services, which represented
approximately 56% of our total net sales in 2021, increased 25% in U.S. dollars
and 22% in local currencies during 2021. The local currency increase in net
sales of our laboratory-related products during 2021 includes very strong growth
in most product categories, especially in pipettes and process analytics. Net
sales of our laboratory products also benefited approximately 2% from the
PendoTECH acquisition.
Net sales of our industrial products and services, which represented
approximately 39% of our total net sales in 2021, increased 18% in U.S. dollars
and 15% in local currencies during 2021. The local currency increase in net
sales of our industrial-related products during 2021 includes strong growth in
most product categories, with particularly strong growth in core industrial,
especially in China and the Americas .
Net sales of our food retailing products and services, which represented
approximately 5% of our total net sales in 2021, decreased 3% in U.S. dollars
and 6% in local currencies during 2021. The decline in food retailing is
primarily due to weak market dynamics, the timing of project activity, and the
negative impact of component shortages.
Gross profit
Gross profit as a percentage of net sales was 58.4% for both 2021 and 2020 and
57.9% for 2019.
Gross profit as a percentage of net sales for products was 60.1% for 2021,
compared to 60.3% for 2020 and 60.4% for 2019. Gross profit as a percentage of
net sales for services (including spare parts) was 51.8% for 2021, compared to
51.6% for 2020 and 49.0% for 2019.
The gross profit as a percentage of net sales for 2021 reflects increased sales
volume and favorable price realization, offset by higher material and
transportation costs in 2021 and temporary cost savings in 2020.
Research and development and selling, general, and administrative expenses
Research and development expenses as a percentage of net sales were 4.6% for
2021, 4.5% for 2020, and 4.8% for 2019. Research and development expenses in
U.S. dollars increased 21% in 2021 and decreased 3% in 2020, and in local
currencies increased 17% in 2021 and decreased 5% in 2020. The increase during
2021 primarily relates to increased project activity and temporary savings in
the prior year.
Selling, general, and administrative expenses as a percentage of net sales were
25.4% for 2021, compared to 26.6% for 2020 and 27.2% for 2019. Selling, general,
and administrative expenses increased 15% in U.S. dollars and increased 12% in
local currencies in 2021 and were flat in U.S. dollars and decreased 1% in local
currencies in 2020. The increase during 2021 primarily includes higher cash
incentive expense, temporary savings in the prior year, and increased sales and
marketing investments.
Amortization expense
Amortization expense was $63.1 million in 2021, compared to $56.7 million and
$49.7 million in 2020 and 2019, respectively. The increase in amortization
expense primarily includes intangible assets related to the PendoTECH
acquisition, as well as our investments in information technology, including our
Blue Ocean program.
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Restructuring charges
During the past few years, we initiated various cost reduction measures.
Restructuring charges were $5.2 million in 2021, compared to $10.5 million and
$15.8 million in 2020 and 2019, respectively. Restructuring expenses are
primarily comprised of employee-related costs.
Other charges (income), net
Other charges (income), net consisted of net income of $3.1 million , $13.8
million , and $6.2 million in 2021, 2020, and 2019, 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 $11.4 million , $12.2 million , and
$4.8 million in 2021, 2020, and 2019, respectively. Other charges (income), net
also includes $3.4 million of acquisition costs for the year ended December 31,
2021 , as well as a $6.8 million charge to increase the PendoTECH acquisition
contingent consideration and related obligations to the sellers.
Interest expense and taxes
Interest expense was $43.2 million for 2021, compared to $38.6 million for 2020
and $37.4 million for 2019.
Our reported tax rate was 19% during 2021, compared to 19.5% and 17.7% during
2020 and 2019, respectively. The 2019 reported tax rate includes a net benefit
of $15.8 million associated with Swiss tax reform described below.
In May 2019 , a public referendum was held in Switzerland that approved Swiss
federal tax reform proposals previously approved by the Swiss Parliament .
Additional changes in Swiss cantonal law were enacted in October 2019 . The
changes in Swiss federal tax had an immaterial effect on our financial
statements. We recognized a discrete non-cash net deferred tax benefit of $15.8
million as a result of the enactment of the cantonal law in the fourth quarter
of 2019. A further description of Swiss tax reform is in Note 14 to our
consolidated financial statements.
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)
Increase Increase
(Decrease) in % (Decrease) in %
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net sales $ 1,443,970 $ 1,194,169 $ 1,171,909 21% 2%
Net sales to external
customers $ 1,287,983 $ 1,072,319 $ 1,057,115 20% 1%
Segment profit $ 302,177 $ 244,940 $ 210,133 23% 17%
Total net sales increased 21% in 2021 and 2% in 2020 and net sales to external
customers increased 20% in 2021 and 1% in 2020. The increase during 2021 is
driven by very strong growth in most product categories, especially laboratory
and core industrial. These results were partially offset by a significant
decline in food retailing that was impacted by weak market dynamics, the timing
of customer project
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activity, and component shortages. Net sales to external customers in our U.S.
Operations also benefited approximately 3% from the PendoTECH acquisition.
Segment profit increased $57.2 million in our U.S. Operations segment during
2021, compared to an increase of $34.8 million during 2020. The segment profit
increase in 2021 includes higher sales volume and benefits from our margin
expansion initiatives, offset in part by higher transportation and material
costs and temporary cost savings in the prior year.
Swiss Operations (amounts in thousands)
Increase Increase
(Decrease) in % (1) (Decrease) in % (1)
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net sales $ 997,634 $ 823,760 $ 797,177 21% 3%
Net sales to external
customers $ 171,633 $ 143,923 $ 139,499 19% 3%
Segment profit $ 301,142 $ 245,465 $ 233,292 23% 5%
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars increased 21% in 2021 and 3% in 2020, and in
local currencies increased 19% in 2021 and decreased 2% in 2020. Net sales to
external customers in U.S. dollars increased 19% in 2021 and increased 3% in
2020, and in local currencies increased 17% in 2021 and decreased 1% in 2020.
Local currency net sales to external customers during 2021 includes strong
growth in most product categories.
Segment profit increased $55.7 million in our Swiss Operations segment during
2021, compared to an increase of $12.2 million during 2020. The segment profit
increase in 2021 includes higher sales volume, benefits from our productivity
initiatives, and favorable foreign currency translation, offset in part by
higher transportation and material costs and temporary cost savings in the prior
year.
Western European Operations (amounts in thousands)
Increase Increase
(Decrease) in % (1) (Decrease) in % (1)
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net sales $ 1,041,308 $ 889,891 $ 876,500 17% 2%
Net sales to external
customers $ 829,761 $ 716,715 $ 700,741 16% 2%
Segment profit $ 172,265 $ 147,562 $ 123,845 17% 19%
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars increased 17% in 2021 and 2% in 2020, and in
local currencies increased 12% in 2021 and decreased 1% in 2020. Net sales to
external customers in U.S. dollars increased 16% in 2021 and increased 2% in
2020, and in local currencies increased 12% in 2021 and were flat in 2020. Local
currency net sales to external customers during 2021 includes strong growth in
most product categories, especially in laboratory-related products.
Segment profit increased $24.7 million in our Western European Operations
segment during 2021, compared to an increase of $23.7 million in 2020. The
segment profit increase in 2021 is primarily due to higher sales volume,
benefits from our margin expansion initiatives, and favorable currency
translation, offset in part by higher transportation and material costs and
temporary cost savings in the prior year.
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Chinese Operations (amounts in thousands)
Increase Increase
(Decrease) in % (1) (Decrease) in % (1)
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net sales $ 1,063,430 $ 792,345 $ 769,233 34% 3%
Net sales to external
customers $ 771,651 $ 578,610 $ 544,716 33% 6%
Segment profit $ 369,835 $ 270,497 $ 266,522 37% 1%
(1)Represents U.S. dollar growth.
Total net sales in U.S. dollars increased 34% in 2021 and increased 3% in 2020,
and in local currencies increased 26% in 2021 and 3% in 2020. Net sales by
origin to external customers in U.S. dollars increased 33% in 2021 and 6% in
2020, and in local currencies increased 25% in 2021 and 6% in 2020. The increase
in net sales to external customers during 2021 reflects particularly strong
growth in both laboratory and industrial products. However, market conditions
may change quickly and we will face difficult prior period comparisons in 2022.
Segment profit increased $99.3 million in our Chinese Operations segment during
2021, compared to an increase of $4.0 million in 2020. The increase in segment
profit during 2021 primarily reflects increased sales volume, benefits from our
margin expansion initiatives, and favorable foreign currency translation, offset
in part by higher transportation and material costs and temporary cost savings
in the prior year.
Other (amounts in thousands)
Increase Increase
(Decrease) in % (1) (Decrease) in % (1)
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net sales $ 661,682 $ 578,210 $ 572,471 14% 1%
Net sales to external
customers $ 656,902 $ 573,610 $ 566,581 15% 1%
Segment profit $ 100,028 $ 77,910 $ 71,483 28% 9%
(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 increased
14% in 2021 and 1% in 2020, and in local currencies increased 12% in 2021 and 2%
in 2020. The increase in local currency growth in net sales to external
customers during 2021 includes strong growth in most product categories.
Segment profit increased $22.1 million in our Other segment during 2021,
compared to an increase of $6.4 million during 2020. The increase in segment
profit during 2021 primarily relates to increased sales volume and favorable
foreign currency translation.
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.
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Cash provided by operating activities totaled $908.8 million in 2021, compared
to $724.7 million in 2020 and $603.5 million in 2019. The increase in 2021 is
primarily due to higher net earnings.
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 $107.6 million in 2021, $92.5
million in 2020, and $97.3 million in 2019. Capital expenditures are expected to
increase in 2022 similarly as we experienced in 2021, 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. The Company will receive
funding of $35.8 million over the next two years, which will offset future
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 . We may be required to pay additional consideration of up to $20.0
million . 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 2021, 2020, and 2019, we also incurred additional acquisition payments
totaling $8.3 million , $6.2 million , and $2.0 million , respectively.
Cash flows used in financing activities during 2021 primarily comprised share
repurchases. In accordance with our share repurchase program, we spent
$1.0 billion in 2021 and $775 million in both 2020 and 2019 on the repurchase of
739,486 shares, 815,652 shares, and 1,094,648 shares, respectively. Our share
repurchase program does not obligate us to acquire any specific number of
shares; however, in 2022, we intend to spend a similar amount on the repurchase
of shares as we spent in 2021, subject to business and economic conditions.
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, 2021 :
Other Principal
U.S. Dollar Trading Currencies Total
3.67%
$ 50,000 $ -$ 50,000
4.10%
50,000 - 50,000
3.84%
125,000 - 125,000
4.24%
125,000 - 125,000
3.91%
75,000 - 75,000
2.83%
125,000 - 125,000
3.19%
50,000 - 50,000
1.47%
- 141,789 141,789 1.30%EUR 135 million 15-year Senior Notes due November 6, 2034 - 153,132 153,132
1.06%
- 141,789 141,789 Senior Notes debt issuance costs, net (2,546) (1,569) (4,115) Total Senior Notes 597,454 435,141 1,032,595$1.25 billion Credit Agreement, interest at LIBOR plus 87.5 basis points(1) 429,815 165,226 595,041 Other local arrangements 4,794 49,512 54,306 Total debt 1,032,063 649,879 1,681,942 Less: current portion (51,755) (49,379) (101,134) Total long-term debt$ 980,308 $ 600,500$ 1,580,808 (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 ofDecember 31, 2021 , approximately$649.0 million of additional borrowings were available under our Credit Agreement and we maintained$98.6 million of cash and cash equivalents. We expect to make interest payments of approximately$50 million during 2022 associated with our debt outstanding as ofDecember 31, 2021 . 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 ofDecember 31, 2021 . 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. InDecember 2021 , we entered into an agreement to issue and sell$300 million 15-year Senior Notes in a private placement. We will issue$150 million with a fixed interest rate of 2.81% (2.81% Senior Notes) inMarch 2022 , which will mature inMarch 2037 , and we will issue$150 million with a fixed interest rate of 2.91% (2.91% Senior Notes) inSeptember 2022 , which will mature inSeptember 2037 . We will use the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes. InMay 2021 , we entered into an agreement to issue and sell$125 million 12-year Senior Notes with a fixed interest rate of 2.83%. The Senior Notes were issued inJuly 2021 and will mature inJuly 2033 . 41 -------------------------------------------------------------------------------- Table of Contents We used the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes. Credit Agreement OnJune 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 InApril 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 Swiss franc LIBOR plus 87.5 basis points. The loans were renewed for one year inApril 2021 . Share Repurchase Program InNovember 2020 , the Company's Board of Directors authorized an additional$2.5 billion to the share repurchase program which has$2.1 billion of remaining availability as ofDecember 31, 2021 . 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 30.2 million common shares since the inception of the program in 2004 throughDecember 31, 2021 , at a total cost of$6.9 billion . During the years endedDecember 31, 2021 and 2020, we spent$1.0 billion and$775.0 million on the repurchase of 739,486 shares and 815,652 shares at an average price per share of$1,352.27 and$950.14 , respectively. We reissued 110,748 shares and 162,176 shares held in treasury for the exercise of stock options and restricted stock units during 2021 and 2020, 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, andU.S. dollar. We have more Swiss franc expenses than we do Swiss franc sales because we develop and manufacture products inSwitzerland that we sell globally and have a number of corporate functions located inSwitzerland . When the Swiss franc strengthens against our other trading currencies, particularly theU.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 theU.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$1.9 million to$2.1 million annually. We also conduct business throughout the world, includingAsia Pacific , theUnited Kingdom ,Eastern Europe ,Latin America , andCanada . Fluctuations in these currency exchange rates against theU.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 theU.S. dollar is a reduction of approximately$2.9 million to$3.1 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 theU.S. dollar, the Swiss franc, and euro. Based on our outstanding debt atDecember 31, 2021 , we estimate that a 5% weakening of theU.S. dollar 42 -------------------------------------------------------------------------------- Table of Contents against the currencies in which our debt is denominated would result in an increase of$34.3 million in the reportedU.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 theMettler-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 ofMettler-Toledo, LLC known asHi-Speed Checkweigher Co., Inc. was one of two private parties ordered by theNew Jersey Department of Environmental Protection , in an administrative consent order signed onJune 13, 1988 , to investigate and remediate certain ground water contamination at a property inLanding, 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 theDepartment 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 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. The competitive environment in which we operate limits somewhat our ability to recover higher costs through increased selling prices. Global inflation significantly increased during 2021 related to the COVID-19 economic recovery and associated disruptions in global demand, logistics, and labor markets. These inflationary conditions could have a greater impact on our operating results in future years. 43 -------------------------------------------------------------------------------- Table of Contents Moreover, there may be differences in inflation rates between countries in which we incur the major portion of our costs and other countries in which we sell products, which may limit our ability to recover increased costs. We remain committed to operations inChina ,Eastern Europe ,India , andBrazil , which have experienced inflationary conditions. To date, these inflationary conditions have not had a material effect on our operating results. However, as our presence inChina ,Eastern Europe ,India , andBrazil increases, these inflationary conditions could have a greater impact on our operating results. Quantitative and Qualitative Disclosures about Market Risk We have only limited involvement with derivative financial instruments and do not use them for trading purposes. We have entered into certain interest rate swap agreements. These contracts are more fully described in Note 6 to our consolidated financial statements. The fair value of these contracts was a net liability of$0.4 million atDecember 31, 2021 . Based on our agreements outstanding atDecember 31, 2021 , a 100-basis-point change in interest rates would result in a change in the net aggregate market value of these instruments of approximately$0.2 million . Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled. We have entered into certain cross currency swap agreements. The fair value of these contracts was a net liability of$3.4 million atDecember 31, 2021 . Based on our agreements outstanding atDecember 31, 2021 , a 100-basis-point change in interest rates and foreign currency exchange rates would result in a change in the net aggregate market value of these instruments by approximately$4.2 million . Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled. Critical Accounting Estimates Management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, income taxes, inventories, goodwill and intangibles, leases, and pensions and other post-retirement benefits. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note 2 to our consolidated financial statements. 44 -------------------------------------------------------------------------------- Table of Contents Income taxes Income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's assessment of estimated future taxes to be paid on items in the consolidated financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance of$51.1 million as ofDecember 31, 2021 is based on management's estimates of future taxable income and application of relevant income tax law. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the valuation allowance would increase income or equity in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the valuation allowance in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made. We plan to repatriate earnings from China,Switzerland ,Germany , theUnited Kingdom , and certain other countries in future years and expect the additional tax costs associated with the repatriation of such earnings will be non-U.S. withholding taxes, certain state taxes, andU.S. taxes on currency gains, if any. All other undistributed earnings are considered permanently reinvested. The significant assumptions and estimates described in the preceding paragraphs are important contributors to our ultimate effective tax rate for each year in addition to our income mix from geographical regions. If any of our assumptions or estimates were to change, or should our income mix from our geographical regions change, our effective tax rate could be materially affected. Based on earnings before taxes of$949.4 million for the year endedDecember 31, 2021 , each increase of$9.5 million in tax expense would increase our effective tax rate by 1%. Employee benefit plans The net periodic pension cost for 2021 and projected benefit obligation as ofDecember 31, 2021 were$0.6 million and$141.9 million , respectively, for ourU.S. pension plan. The net periodic cost for 2021 and projected benefit obligation as ofDecember 31, 2021 were$9.1 million and$1.0 billion , respectively, for our international pension plans. The net periodic post-retirement benefit for 2021 and expected post-retirement benefit obligation as ofDecember 31, 2021 for ourU.S. post-retirement medical benefit plan were$0.1 million and$0.9 million , respectively. Pension and post-retirement benefit plan expense and obligations are developed from assumptions utilized in actuarial valuations. The most significant of these assumptions include the discount rate and expected return on plan assets. In accordance withU.S. GAAP, actual results that differ from the assumptions are accumulated and deferred over future periods. While management believes the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our plan obligations and future expense. The expected rates of return on the various defined benefit pension plans' assets are based on the asset allocation of each plan and the long-term projected return of those assets, which represent a diversified mix ofU.S. and international corporate equities and government and corporate debt securities. In 2002, we froze ourU.S. defined benefit pension plan and discontinued our retiree medical program for certain current and all future employees. Consequently, no significant future service costs will be incurred on these plans. For 2021, the weighted average return on assets assumption was 5.75% for theU.S. plan and 3.78% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately$9.0 million after tax. The discount rates for defined benefit and post-retirement plans are set by benchmarking against high-quality corporate bonds. For 2021, the weighted average discount rate assumption was 2.6% for theU.S. plan and 0.4% for the international plans, representing a weighted average of local rates in countries 45 -------------------------------------------------------------------------------- Table of Contents where such plans exist. A change in the discount rate of 1% would impact annual benefit plan expense by approximately$11.7 million after tax.Goodwill and other intangible assets As ofDecember 31, 2021 , our consolidated balance sheet included goodwill of$648.6 million and other intangible assets of$307.5 million . Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. In accordance withU.S. GAAP, our goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluations of goodwill and indefinite-lived intangible assets are generally based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If we are unable to conclude whether the goodwill or indefinite-lived intangible asset is not impaired after considering the totality of events and circumstances during our qualitative assessment, we perform a quantitative impairment test by estimating the fair value of the respective reporting unit or indefinite-lived intangible asset and comparing the fair value to the carrying amount of the goodwill asset. If the carrying amount of the reporting unit or indefinite-lived intangible asset exceeds its fair value, an impairment charge equal to the difference is recognized. Both the qualitative and quantitative evaluations consider operating results, business plans, economic conditions, and market data, among other factors. There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses. Our assessments to date have indicated that there has been no impairment of these assets. Should any of these estimates or assumptions change, or should we incur lower than expected operating performance or cash flows, including from a prolonged economic slowdown, we may experience a triggering event that requires a new fair value assessment for our reporting units, possibly prior to the required annual assessment. These types of events and resulting analysis could result in impairment charges for goodwill and other indefinite-lived intangible assets if the fair value estimate declines below the carrying value. Our amortization expense related to intangible assets with finite lives may materially change should our estimates of their useful lives change. New Accounting Pronouncements See Note 2 to the consolidated financial statements. Item 7A.Quantitative and Qualitative Disclosures about Market Risk Discussion of this item is included in Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8.Financial Statements and Supplementary Data The financial statements required by this item are set forth starting on page F-1 and the related financial schedule is set forth on page S-1. 46
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