filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. 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 in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.
General
Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Changes in local currency 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.
Results of Operations – Consolidated
The following tables set forth certain items from our interim consolidated statements of operations for the three and nine month periods ended September 30, 2023 and 2022 (amounts in thousands).
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | % | (unaudited) | % | (unaudited) | % | (unaudited) | % | ||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 942,462 | 100.0 | $ | 985,846 | 100.0 | $ | 2,853,317 | 100.0 | $ | 2,862,024 | 100.0 | |||||||||||||||||||||||||||||||||||
| Cost of sales | 382,923 | 40.6 | 401,190 | 40.7 | 1,163,669 | 40.8 | 1,186,122 | 41.4 | |||||||||||||||||||||||||||||||||||||||
| Gross profit | 559,539 | 59.4 | 584,656 | 59.3 | 1,689,648 | 59.2 | 1,675,902 | 58.6 | |||||||||||||||||||||||||||||||||||||||
| Research and development | 46,127 | 4.9 | 44,129 | 4.5 | 138,849 | 4.9 | 131,180 | 4.6 | |||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 217,447 | 23.1 | 233,357 | 23.7 | 680,679 | 23.9 | 710,875 | 24.8 | |||||||||||||||||||||||||||||||||||||||
| Amortization | 18,314 | 1.9 | 16,728 | 1.7 | 54,135 | 1.9 | 49,697 | 1.7 | |||||||||||||||||||||||||||||||||||||||
| Interest expense | 20,278 | 2.2 | 14,484 | 1.5 | 57,711 | 2.0 | 38,587 | 1.3 | |||||||||||||||||||||||||||||||||||||||
| Restructuring charges | 7,385 | 0.8 | 2,022 | 0.2 | 19,680 | 0.7 | 7,803 | 0.3 | |||||||||||||||||||||||||||||||||||||||
| Other charges (income), net | (1,171) | (0.1) | (1,949) | (0.3) | (2,578) | (0.2) | (7,818) | (0.2) | |||||||||||||||||||||||||||||||||||||||
| Earnings before taxes | 251,159 | 26.6 | 275,885 | 28.0 | 741,172 | 26.0 | 745,578 | 26.1 | |||||||||||||||||||||||||||||||||||||||
| Provision for taxes | 49,528 | 5.2 | 55,288 | 5.6 | 137,188 | 4.8 | 138,910 | 4.9 | |||||||||||||||||||||||||||||||||||||||
| Net earnings | $ | 201,631 | 21.4 | $ | 220,597 | 22.4 | $ | 603,984 | 21.2 | $ | 606,668 | 21.2 |
Net sales
Net sales were $942.5 million and $985.8 million for the three months ended September 30, 2023, and 2022, respectively, and $2.9 billion for both the nine months ended September 30, 2023 and 2022. Sales in U.S. dollars decreased 4% for the three month period and were flat for the nine month period ended September 30, 2023. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales decreased 5% for the three month period and increased 1% for the nine month period ended September 30, 2023. Our net sales decline during the three
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months ended September 30, 2023 reflected reduced demand in most product categories, including a very sharp decline in China and weaker conditions in life sciences, following very strong growth in the past couple years. We continue to benefit from the execution of our global sales and marketing programs, our innovative product portfolio, and investments in our field organization, particularly surrounding digital tools and techniques. However, there is increased uncertainty in the economic environment and our end markets, including the risk of recession in many countries, and market conditions may change quickly. In particular, market demand in China has significantly deteriorated and we expect reduced sales during the remainder of 2023 as compared to the prior year. The ongoing developments related to Ukraine, and inflation, also present several risks to our business as further described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. The recent escalation of the Israeli-Palestinian conflict has led to further turmoil in the geopolitical environment, and has increased global economic uncertainty. These developments could adversely impact our financial results and could have a greater impact on our operating results in future periods.
Net sales by geographic destination for the three months ended September 30, 2023 in U.S. dollars increased 12% in Europe, decreased 3% in the Americas, and decreased 17% in Asia/Rest of World. In local currencies, our net sales by geographic destination increased 4% in Europe, decreased 3% in the Americas, and decreased 14% in Asia/Rest of World. Our net sales by geographic destination for the nine months ended September 30, 2023 in U.S. dollars increased 1% in the Americas, 5% in Europe, and decreased 6% in Asia/Rest of World. Net sales by geographic destination for the nine months ended September 30, 2023 in local currencies increased 1% in the Americas and 4% in Europe, and decreased 1% in Asia/Rest of World. Net sales in Asia/Rest of World in local currency includes a decrease of 25% and 6% in China during the three and nine months ended September 30, 2023, respectively. A discussion of sales by operating segment is included below.
As described in Note 18 to our consolidated financial statements for the year ended December 31, 2022, 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 8% in U.S. dollars and local currencies for the three months ended September 30, 2023 and decreased 3% in U.S. dollars and 2% in local currencies for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. Service revenue (including spare parts) increased 9% in U.S. dollars and 6% in local currencies for the three months ended September 30, 2023 and increased 11% in U.S. dollars and local currencies for the nine months ended September 30, 2023, compared to the corresponding periods in 2022.
Net sales of our laboratory-related products and services, which represented approximately 55% of our total net sales, decreased 8% in U.S. dollars and 9% in local currencies for the three months ended September 30, 2023, and decreased 4% in U.S. dollars and 3% in local currencies for the nine months ended September 30, 2023. The local currency decrease in net sales of our laboratory-related products for the three and nine months ended September 30, 2023 reflects a decline in most product categories with a significant sales decline in China and reduced demand in life science markets.
Net sales of our industrial-related products and services, which represented approximately 39% of our total net sales, decreased 5% in U.S. dollars and 6% in local currencies for the three months ended September 30, 2023, and increased 1% in U.S. dollars and 2% in local currencies for the nine months ended September 30, 2023. The local currency decrease in net sales of our industrial-related products for the three months ended September 30, 2023 includes a decline in core-industrial products against particularly strong growth in the previous year, offset in part by modest growth in product inspection.
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Net sales in our food retailing products and services, which represented approximately 6% of our total net sales, increased 53% in U.S. dollars and 49% local currencies for the three months ended September 30, 2023, and increased 34% in U.S. dollars and 33% in local currencies for the nine months ended September 30, 2023. The local currency increase in food retailing products for the three and nine months ended September 30, 2023 includes very strong project activity, especially in the Americas.
Gross profit
Gross profit as a percentage of net sales was 59.4% and 59.3% for the three months ended September 30, 2023 and 2022, respectively, and 59.2% and 58.6% for the nine months ended September 30, 2023 and 2022, respectively.
Gross profit as a percentage of net sales for products was 61.2% and 61.1% for the three months ended September 30, 2023 and 2022, respectively, and 60.7% and 60.3% for the nine months ended September 30, 2023 and 2022, respectively.
Gross profit as a percentage of net sales for services (including spare parts) was 53.5% and 52.5% for the three months ended September 30, 2023 and 2022, respectively, and 54.2% and 52.0% for the nine months ended September 30, 2023 and 2022, respectively.
The increase in gross profit as a percentage of net sales for the three and nine months ended September 30, 2023 primarily reflects favorable price realization, offset in part by reduced volume, higher costs, business mix and foreign currency translation.
Research and development and selling, general and administrative expenses
Research and development expenses as a percentage of net sales was 4.9% and 4.5% for the three months ended September 30, 2023 and 2022, respectively, and was 4.9% and 4.6% for the nine months ended September 30, 2023 and 2022, respectively. Research and development expenses increased 5% in U.S. dollars and 1% in local currencies for the three months ended September 30, 2023, and increased 6% in U.S. dollars and 5% in local currencies for the nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022 and includes increased project activity.
Selling, general and administrative expenses as a percentage of net sales were 23.1% and 23.7% for the three months ended September 30, 2023 and 2022, respectively, and were 23.9% and 24.8% for the nine months ended September 30, 2023 and 2022, respectively. Selling, general and administrative expenses decreased 7% in U.S. dollars and 9% in local currencies for the three months ended September 30, 2023, and decreased 4% in U.S. dollars and local currencies for the nine months ended September 30, 2023. The local currency decrease includes reduced variable compensation and benefits from our cost savings initiatives.
Amortization, interest expense, restructuring charges, other charges (income), net and taxes
Amortization expense was $18.3 million and $16.7 million for the three months ended September 30, 2023 and 2022, respectively, and $54.1 million and $49.7 million for the nine months ended September 30, 2023 and 2022, respectively.
Interest expense was $20.3 million and $14.5 million for the three months ended September 30, 2023 and 2022, respectively, and $57.7 million and $38.6 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in interest expense is primarily related to higher variable interest rates.
Restructuring charges were $7.4 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively, and $19.7 million and $7.8 million for the nine months ended September 30, 2023 and 2022, respectively. Restructuring expenses are primarily comprised of employee-related costs.
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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 $1.9 million and $4.2 million for the three months ended September 30, 2023 and 2022, respectively, and $5.6 million and $12.7 million and for the nine months ended September 30, 2023 and 2022, respectively.
Our reported tax rate was 19.7% and 20.0% during the three months ended September 30, 2023 and 2022, respectively, and 18.5% and 18.6% during the nine months ended September 30, 2023 and 2022, respectively. The provision for taxes is based upon using our projected annual effective tax rate of 19.0% before non-recurring discrete tax items for the periods ended September 30, 2023 and 2022. The difference between our projected annual effective tax rate and the reported tax rate is related to the timing of excess tax benefits associated with stock option exercises.
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 for the year ended December 31, 2022.
U.S. Operations (amounts in thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % | 2023 | 2022 | % | ||||||||||||||||||||||||||||||
| Total net sales | $ | 388,011 | $ | 408,841 | (5)% | $ | 1,151,517 | $ | 1,175,695 | (2)% | |||||||||||||||||||||||||
| Net sales to external customers | $ | 353,758 | $ | 373,764 | (5)% | $ | 1,050,274 | $ | 1,060,730 | (1)% | |||||||||||||||||||||||||
| Segment profit | $ | 90,604 | $ | 93,823 | (3)% | $ | 276,605 | $ | 261,805 | 6% |
Total net sales decreased 5% and 2% for the three months and nine months ended September 30, 2023, respectively, compared with the corresponding periods in 2022. Net sales to external customers decreased 5% and 1% for the three and nine months ended September 30, 2023, respectively, compared with the corresponding periods in 2022. Total net sales to external customers for the three and nine months ended September 30, 2023 reflect a decline in laboratory-related and industrial-related products offset in part by very strong project activity in food retailing.
Segment profit decreased $3.2 million for the three month period and increased $14.8 million for the nine month period ended September 30, 2023, compared to the corresponding periods in 2022. Segment profit during the three months ended September 30, 2023 was impacted by a decline in net sales, offset in part by benefits from our margin expansion and cost savings initiatives.
Swiss Operations (amounts in thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | %1) | 2023 | 2022 | %1) | ||||||||||||||||||||||||||||||
| Total net sales | $ | 247,200 | $ | 248,321 | —% | $ | 723,579 | $ | 737,936 | (2)% | |||||||||||||||||||||||||
| Net sales to external customers | $ | 50,233 | $ | 40,972 | 23% | $ | 143,405 | $ | 126,304 | 14% | |||||||||||||||||||||||||
| Segment profit | $ | 64,387 | $ | 77,457 | (17)% | $ | 207,723 | $ | 220,791 | (6)% |
1)Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales were flat in U.S. dollars and decreased 8% in local currency for the three months ended September 30, 2023, and decreased 2% in U.S. dollars and 7% in local currency for the nine months ended September 30, 2023, respectively, compared to the corresponding periods in
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- Net sales to external customers increased 23% in U.S. dollars and 16% in local currency for the three months ended September 30, 2023 and increased 14% in U.S. dollars and 10% in local currency for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. The increase in local currency net sales to external customers for the three and nine months ended September 30, 2023 includes particularly strong growth in food retailing, as well as industrial-related products, offset in part by a decline in laboratory-related products.
Segment profit decreased $13.1 million for the three and nine months ended September 30, 2023, compared to the corresponding periods in 2022. Segment profit during the three and nine months ended September 30, 2023 includes lower net sales volume to intercompany segments and unfavorable foreign currency translation, offset in part by cost savings initiatives.
Western European Operations (amounts in thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | %1) | 2023 | 2022 | %1) | ||||||||||||||||||||||||||||||
| Total net sales | $ | 246,399 | $ | 230,445 | 7% | $ | 730,540 | $ | 711,195 | 3% | |||||||||||||||||||||||||
| Net sales to external customers | $ | 198,520 | $ | 180,959 | 10% | $ | 590,019 | $ | 564,108 | 5% | |||||||||||||||||||||||||
| Segment profit | $ | 46,345 | $ | 38,950 | 19% | $ | 129,615 | $ | 112,963 | 15% |
1)Represents U.S. dollar growth (decline) for net sales and segment profit.
Total net sales increased 7% in U.S. dollars and were flat in local currencies for the three months ended September 30, 2023 and increased 3% in U.S. dollars and 2% in local currencies for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. Net sales to external customers increased 10% in U.S. dollars and 2% in local currencies for the three months ended September 30, 2023, and increased 5% in U.S. dollars and 4% in local currencies for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. Local currency net sales to external customers for the three and nine months ended September 30, 2023 includes growth in most product categories, offset in part by a decline in food retailing.
Segment profit increased $7.4 million and $16.7 million for the three and nine month periods ended September 30, 2023, respectively, compared to the corresponding periods in 2022. Segment profit increased during the three and nine months ended September 30, 2023 and includes benefits from our margin expansion and cost savings initiatives and favorable foreign currency translation.
Chinese Operations (amounts in thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | %1) | 2023 | 2022 | %1) | ||||||||||||||||||||||||||||||
| Total net sales | $ | 232,404 | $ | 309,007 | (25)% | $ | 767,572 | $ | 877,084 | (12)% | |||||||||||||||||||||||||
| Net sales to external customers | $ | 162,012 | $ | 229,722 | (29)% | $ | 569,449 | $ | 642,237 | (11)% | |||||||||||||||||||||||||
| Segment profit | $ | 83,865 | $ | 123,345 | (32)% | $ | 284,828 | $ | 313,769 | (9)% |
1)Represents U.S. dollar growth for net sales and segment profit.
Total net sales decreased 25% in U.S. dollars and 20% in local currency for the three months ended September 30, 2023 and decreased 12% in U.S. dollars and 7% in local currency for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. Net sales to external customers decreased 29% in U.S. dollars and 25% in local currency by origin for the three months ended September 30, 2023 and decreased 11% in U.S. dollars and 6% in local currency during the nine months ended September 30, 2023, compared to the corresponding periods in 2022. The decrease in local currency net sales to external customers during the three months ended September 30, 2023 reflects a significant decline in market demand, especially in laboratory and core-industrial products following very strong growth in the past couple of years. Market
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demand in China has significantly deteriorated and we expect reduced sales during the remainder of 2023 as compared to the prior year. Uncertainties have increased and market conditions may change quickly.
Segment profit decreased $39.5 million and $28.9 million for the three and nine month periods ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The decrease in segment profit for the three and nine months ended September 30, 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)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | %1) | 2023 | 2022 | %1) | ||||||||||||||||||||||||||||||
| Total net sales | $ | 180,616 | $ | 161,134 | 12% | $ | 517,406 | $ | 471,022 | 10% | |||||||||||||||||||||||||
| Net sales to external customers | $ | 177,939 | $ | 160,429 | 11% | $ | 500,170 | $ | 468,645 | 7% | |||||||||||||||||||||||||
| Segment profit | $ | 30,007 | $ | 20,603 | 46% | $ | 78,690 | $ | 63,298 | 24% |
1)Represents U.S. dollar growth for net sales and segment profit.
Total net sales increased 12% in U.S. dollars and 11% in local currency for the three months ended September 30, 2023 and increased 10% in U.S. dollars and 11% in local currency for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. Net sales to external customers increased 11% in U.S. dollars and 9% in local currencies for the three months ended September 30, 2023 and increased 7% in U.S. dollars and 8% in local currencies for the nine months ended September 30, 2023, compared to the corresponding periods in 2022. The increase in net sales to external customers for the three and nine months ended September 30, 2023 includes solid growth in most product categories.
Segment profit increased $9.4 million and $15.4 million for the three and nine months ended September 30, 2023, respectively, compared to the corresponding periods in 2022. The increase in segment profit for the three and nine months ended September 30, 2023 is primarily related to increased sales volume and our margin expansion initiatives. Segment profit for the nine months ended September 30, 2023 was also particularly impacted by unfavorable foreign currency translation.
Liquidity and Capital Resources
Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes available borrowings under our Credit Agreement, the ability to obtain appropriate financing and our cash and cash equivalent balances. Currently, our liquidity needs 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 flow 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 $684.4 million during the nine months ended September 30, 2023, compared to $555.4 million in the corresponding period in 2022. The increase for the nine months ended September 30, 2023 is primarily related to favorable working capital 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
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expenditures totaled $72.9 million for the nine months ended September 30, 2023 compared to $89.2 million in the corresponding period in 2022.
In September 2021, we 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 September 30, 2023, we have obtained $32.3 million of the $35.8 million of total funding to be received through the remainder of 2023, which will offset associated capital expenditures. During the nine months ended September 30, 2023 we incurred approximately $7.7 million of capital expenditures relating to this funding agreement.
We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness. During the nine months ended September 30, 2023, $10.0 million of contingent consideration was paid relating to the PendoTECH acquisition of which $5.6 million is included in financing activities for the amount accrued at the acquisition date and $4.4 million is included in operating activities for the amount not accrued at the acquisition date on the Consolidated Statement of Cash Flows in accordance with U.S. GAAP.
Cash flows used in financing activities are primarily comprised of share repurchases. In accordance with our share repurchase program, we spent $724.0 million and $825.0 million on the repurchase of 526,019 shares and 629,380 shares, during the nine months ended September 30, 2023 and 2022, respectively.
The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on net share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. We expect the financial impact of the IRA to be immaterial to our financial statements.
Senior Notes and Credit Facility Agreement
Our debt consisted of the following at September 30, 2023:
| U.S. Dollar | Other Principal Trading Currencies | Total | |||||||||||||||
| 3.84% $125 million ten-year Senior Notes due September 19, 2024 | $ | 125,000 | $ | — | $ | 125,000 | |||||||||||
| 4.24% $125 million ten-year Senior Notes due June 25, 2025 | 125,000 | — | 125,000 | ||||||||||||||
| 3.91% $75 million ten-year Senior Notes due June 25, 2029 | 75,000 | — | 75,000 | ||||||||||||||
| 5.45% $150 million ten-year Senior Notes due March 1, 2033 | 150,000 | — | 150,000 | ||||||||||||||
| 2.83% $125 million twelve-year Senior Notes due July 22, 2033 | 125,000 | — | 125,000 | ||||||||||||||
| 3.19% $50 million fifteen-year Senior Notes due January 24, 2035 | 50,000 | — | 50,000 | ||||||||||||||
| 2.81% $150 million fifteen-year Senior Note due March 17, 2037 | 150,000 | — | 150,000 | ||||||||||||||
| 2.91% $150 million fifteen-year Senior Note due September 1, 2037 | 150,000 | — | 150,000 | ||||||||||||||
| 1.47% Euro 125 million fifteen-year Senior Notes due June 17, 2030 | — | 131,704 | 131,704 | ||||||||||||||
| 1.30% Euro 135 million fifteen-year Senior Notes due November 6, 2034 | — | 142,241 | 142,241 | ||||||||||||||
| 1.06% Euro 125 million fifteen-year Senior Notes due March 19, 2036 | — | 131,704 | 131,704 | ||||||||||||||
| Debt issuance costs, net | (2,753) | (1,389) | (4,142) | ||||||||||||||
| Total Senior Notes | 947,247 | 404,260 | 1,351,507 | ||||||||||||||
| $1.25 billion Credit Agreement, interest at benchmark plus 87.5 basis points (a) | 509,253 | 190,303 | 699,556 | ||||||||||||||
| Other local arrangements | 5,803 | 51,618 | 57,421 | ||||||||||||||
| Total debt | 1,462,303 | 646,181 | 2,108,484 | ||||||||||||||
| Less: current portion | (127,663) | (51,420) | (179,083) | ||||||||||||||
| Total long-term debt | $ | 1,334,640 | $ | 594,761 | $ | 1,929,401 |
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(a) 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 September 30, 2023, approximately $545.2 million of additional borrowings was available under our Credit Agreement, and we maintained $69.7 million of cash and cash equivalents.
In May 2023 we amended our Credit Agreement to replace all references of LIBOR to SOFR and other non-U.S. dollar references as the interest rate benchmark.
Changes in exchange rates between the currencies in which we generate cash flows 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 relating to ratings from rating agencies that would accelerate the maturity dates of our debt. We were in compliance with our debt covenants as of September 30, 2023.
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% (5.45% Senior Notes) in March 2023. The 5.45% Senior Notes are senior unsecured obligations of the Company. The 5.45% Senior Notes mature in March 2033. The terms of the 5.45% Senior Notes are consistent with the previous Senior Notes as described in the Company's Annual Report on Form 10-K. We used the proceeds from the sale of the 5.45% Senior 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 an additional $150 million with a fixed interest rate of 2.91% (2.91% Senior Notes) in September 2022, which will mature in September 2037. We will use the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.
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
We have $2.7 billion of remaining availability for our share repurchase program as of September 30, 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 31.5 million shares since the inception of the program in 2004 through September 30, 2023. During the nine months ended September 30, 2023 and 2022, we spent $724.0 million and $825.0 million on the repurchase of 526,019 and 629,380 shares at an average price per share of $1,388.54 and $1,310.79, respectively. We also reissued 70,812 shares and 80,466 shares held in treasury upon the exercise of stock options and vesting of restricted stock units during the nine months ended September 30, 2023 and 2022, respectively.
Effect of Currency on Results of Operations
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Our earnings are affected by changes in exchange rates. We are most 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 decrease. 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 decrease. 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 in many geographies throughout the world, including Asia Pacific, the United Kingdom, Eastern Europe, Latin America, and Canada. Fluctuations in these currency exchange rates against the U.S. dollar can also affect our operating results. 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 $3.3 million to $3.6 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 the euro. Based on our outstanding debt at September 30, 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 approximately $34.1 million in the reported U.S. dollar value of our debt.
Forward-Looking Statements Disclaimer
You should not rely on forward-looking statements to predict our actual results. Our actual results or performance may be materially different than reflected in forward-looking statements because of various risks and uncertainties, including statements about expected revenue growth, inflation, ongoing developments related to Ukraine and the Israeli-Palestinian conflict*. You can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” or “continue.”*
We make forward-looking statements about future events or our future financial performance, including earnings and sales growth, earnings per share, strategic plans and contingency plans, growth opportunities or economic downturns, our ability to respond to changes in market conditions, planned research and development efforts and product introductions, adequacy of facilities, access to and the costs of raw materials, shipping and supplier costs, gross margins, customer demand, our competitive position, pricing, capital expenditures, cash flow, tax-related matters, the impact of foreign currencies, compliance with laws, effects of acquisitions, and the impact of inflation, ongoing developments related to Ukraine and the Israeli-Palestinian conflict on our business.
Our forward-looking statements may not be accurate or complete, and we do not intend to update or revise them in light of actual results. New risks also periodically arise. Please consider the risks and factors that could cause our results to differ materially from what is described in our forward-looking statements, including inflation, the ongoing developments related to Ukraine, and the Israeli-Palestinian conflict*. See in particular “Factors Affecting Our Future Operating Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 and other reports filed with the SEC from time to time.*
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