Company Quick10K Filing
Waters
Price222.53 EPS6
Shares70 P/E40
MCap15,473 P/FCF34
Net Debt851 EBIT513
TEV16,324 TEV/EBIT32
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-09-26 Filed 2020-10-28
10-Q 2020-06-27 Filed 2020-07-29
10-Q 2020-03-28 Filed 2020-04-29
10-K 2019-12-31 Filed 2020-02-25
10-Q 2019-09-28 Filed 2019-10-30
10-Q 2019-06-29 Filed 2019-07-31
10-Q 2019-03-30 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-26
10-Q 2018-09-29 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-07-01 Filed 2017-08-04
10-Q 2017-04-01 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-10-01 Filed 2016-11-04
10-Q 2016-07-02 Filed 2016-08-05
10-Q 2016-04-02 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-10-03 Filed 2015-11-06
10-Q 2015-07-04 Filed 2015-08-07
10-Q 2015-04-04 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-27 Filed 2014-10-31
10-Q 2014-06-28 Filed 2014-08-01
10-Q 2014-03-29 Filed 2014-05-02
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-28 Filed 2013-11-01
10-Q 2013-06-29 Filed 2013-08-01
10-Q 2013-03-30 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-02-26
10-Q 2012-09-29 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-10-01 Filed 2011-11-04
10-Q 2011-07-02 Filed 2011-08-05
10-Q 2011-04-02 Filed 2011-05-06
10-Q 2010-10-02 Filed 2010-11-05
10-Q 2010-07-03 Filed 2010-08-06
10-Q 2010-04-03 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-10-27
8-K 2020-10-08
8-K 2020-08-17
8-K 2020-07-28
8-K 2020-07-14
8-K 2020-06-17
8-K 2020-05-12
8-K 2020-04-28
8-K 2020-02-17
8-K 2020-02-04
8-K 2019-10-29
8-K 2019-09-12
8-K 2019-07-30
8-K 2019-05-14
8-K 2019-04-23
8-K 2019-01-23
8-K 2018-10-23
8-K 2018-09-01
8-K 2018-07-24
8-K 2018-05-09
8-K 2018-05-09
8-K 2018-04-24
8-K 2018-01-23

WAT 10Q Quarterly Report

Item 1:
Item 2:
Item 3:
Item 4:
Part Ii:
Item 1:
Item 1A:
Item 2:
Item 6:
EX-31.1 d11143dex311.htm
EX-31.2 d11143dex312.htm
EX-32.1 d11143dex321.htm
EX-32.2 d11143dex322.htm

Waters Earnings 2020-09-26

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
0.80.60.50.30.20.02012201420172020
Rev, G Profit, Net Income
0.90.50.1-0.3-0.7-1.12012201420172020
Ops, Inv, Fin

10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2020
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                
.
Commission File Number:
01-14010
 
 
Waters Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
13-3668640
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
34 Maple Street
Milford, Massachusetts 01757
(Address, including zip code, of principal executive offices)
(508478-2000
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.01 per share
 
WAT
 
New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Act).    Yes  ☐    No  
Indicate the number of shares outstanding of the registrant’s common stock as of October 23, 2020: 62,047,666
 
 
 

WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
10-Q
INDEX
 
PART I
 
FINANCIAL INFORMATION
  
 
Page
 
 
 
 
 
 
  
 
 
 
 
 
Item 1.
 
  
     
 
 
 
 
  
 
3
 
 
 
 
 
  
 
4
 
 
 
 
 
  
 
5
 
 
 
 
 
  
 
6
 
 
 
 
 
  
 
7
 
 
 
 
 
  
 
8
 
 
 
 
 
  
 
9
 
 
 
 
 
  
 
10
 
 
 
Item 2.
 
  
 
30
 
 
 
Item 3.
 
  
 
42
 
 
 
Item 4.
 
  
 
42
 
     
PART II
 
OTHER INFORMATION
  
     
 
 
Item 1.
 
  
 
43
 
 
 
Item 1A.
 
  
 
43
 
 
 
Item 2.
 
  
 
44
 
 
 
Item 6.
 
  
 
45
 
 
 
 
 
  
 
46
 
Item 1:
 Financial Statements
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
    
September 26, 2020
   
December 31, 2019
 
    
(In thousands,
 
except per share data)
 
ASSETS
  
Current assets:
    
Cash and cash equivalents
   $ 374,934     $ 335,715  
Investments
     22,136       1,429  
Accounts receivable, net
     494,432       587,734  
Inventories
     326,946       320,551  
Other current assets
     73,225       67,062  
  
 
 
   
 
 
 
Total current assets
     1,291,673       1,312,491  
Property, plant and equipment, net
     469,721       417,342  
Intangible assets, net
     255,168       240,203  
Goodwill
     431,078       356,128  
Operating lease assets
     86,757       93,358  
Other assets
     144,889       137,533  
  
 
 
   
 
 
 
Total assets
   $ 2,679,286     $ 2,557,055  
  
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
        
Current liabilities:
    
Notes payable and debt
   $ 150,000     $ 100,366  
Accounts payable
     60,357       49,001  
Accrued employee compensation
     46,015       43,467  
Deferred revenue and customer advances
     211,348       176,360  
Current operating lease liabilities
     26,745       27,125  
Accrued income taxes
     60,444       45,967  
Accrued warranty
     10,261       11,964  
Other current liabilities
     157,018       137,084  
  
 
 
   
 
 
 
Total current liabilities
     722,188       591,334  
Long-term liabilities:
    
Long-term debt
     1,421,337       1,580,797  
Long-term portion of retirement benefits
     65,003       59,159  
Long-term income tax liabilities
     356,953       394,562  
Long-term operating lease liabilities
     62,471       66,881  
Other long-term liabilities
     92,915       80,603  
  
 
 
   
 
 
 
Total long-term liabilities
     1,998,679       2,182,002  
  
 
 
   
 
 
 
Total liabilities
     2,720,867       2,773,336  
Commitments and contingencies (Notes 7, 8 and 12)
       
Stockholders’ deficit:
    
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at September 26, 2020 and December 31, 2019
     —         —    
Common stock, par value $0.01 per share, 400,000 shares authorized, 161,381 and 161,030 shares issued, 62,024 and 62,587 shares outstanding at September 26, 2020 and December 31, 2019, respectively
     1,614       1,610  
Additional
paid-in
capital
     1,982,731       1,926,753  
Retained earnings
     6,889,678       6,587,403  
Treasury stock, at cost, 99,357 and 98,443 shares at September 26, 2020 and December 31, 2019, respectively
     (8,788,928     (8,612,576
Accumulated other comprehensive loss
     (126,676     (119,471
  
 
 
   
 
 
 
Total stockholders’ deficit
     (41,581     (216,281
  
 
 
   
 
 
 
Total liabilities and stockholders’ deficit
   $ 2,679,286     $ 2,557,055  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
3

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    
Three Months Ended
 
    
September 26, 2020
   
September 28, 2019
 
    
(In thousands, except per share data)
 
Revenues:
    
Product sales
   $ 376,239     $ 370,573  
Service sales
     217,545       206,705  
  
 
 
   
 
 
 
Total net sales
     593,784       577,278  
Costs and operating expenses:
    
Cost of product sales
     166,330       149,793  
Cost of service sales
     96,012       91,262  
Selling and administrative expenses
     135,430       126,036  
Research and development expenses
     34,971       34,333  
Purchased intangibles amortization
     2,657       2,619  
  
 
 
   
 
 
 
Total costs and operating expenses
     435,400       404,043  
  
 
 
   
 
 
 
Operating income
     158,384       173,235  
Other expense
     (1,039     (496
Interest expense
     (10,915     (11,456
Interest income
     4,007       3,455  
  
 
 
   
 
 
 
Income before income taxes
     150,437       164,738  
Provision for income taxes
     23,668       26,605  
  
 
 
   
 
 
 
Net income
   $ 126,769     $ 138,133  
  
 
 
   
 
 
 
Net income per basic common share
   $ 2.04     $ 2.09  
Weighted-average number of basic common shares
     62,002       66,226  
Net income per diluted common share
   $ 2.03     $ 2.07  
Weighted-average number of diluted common shares and equivalents
     62,303       66,768  
The accompanying notes are an integral part of the interim consolidated financial statements.
 
4

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    
Nine Months Ended
 
    
September 26, 2020
   
September 28, 2019
 
    
(In thousands, except per share data)
 
Revenues:
    
Product sales
   $ 965,342     $ 1,078,341  
Service sales
     613,365       611,961  
  
 
 
   
 
 
 
Total net sales
     1,578,707       1,690,302  
Costs and operating expenses:
    
Cost of product sales
     420,971       439,158  
Cost of service sales
     265,149       272,474  
Selling and administrative expenses
     400,614       393,583  
Research and development expenses
     101,115       105,883  
Purchased intangibles amortization
     7,900       7,164  
Litigation provision
     1,180       —    
Total costs and operating expenses
     1,196,929       1,218,262  
  
 
 
   
 
 
 
Operating income
     381,778       472,040  
Other expense
     (2,149     (1,363
Interest expense
     (38,012     (34,467
Interest income
     12,046       17,641  
  
 
 
   
 
 
 
Income before income taxes
     353,663       453,851  
Provision for income taxes
     50,403       62,322  
Net income
   $ 303,260     $ 391,529  
  
 
 
   
 
 
 
Net income per basic common share
   $ 4.89     $ 5.68  
Weighted-average number of basic common shares
     62,057       68,952  
Net income per diluted common share
   $ 4.86     $ 5.63  
Weighted-average number of diluted common shares and equivalents
     62,371       69,533  
The accompanying notes are an integral part of the interim consolidated financial statements.
 
5

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
    
Three Months Ended
   
Nine Months Ended
 
    
September 26,
2020
   
September 28,
2019
   
September 26,
2020
   
September 28,
2019
 
    
(In thousands)
   
(In thousands)
 
Net income
   $ 126,769     $ 138,133     $ 303,260     $ 391,529  
Other comprehensive income (loss):
        
Foreign currency translation
     601       (4,894     (7,156     (4,403
Unrealized (losses) gains on investments before income taxes
     —         (8     —         3,046  
Income tax benefit (expense)
     —         2       —         (702
  
 
 
   
 
 
   
 
 
   
 
 
 
Unrealized (losses) gains on investments, net of tax
     —         (6     —         2,344  
Retirement liability adjustment before reclassifications
     (654     267       (880     165  
Amounts reclassified to other income
     352       88       1,028       271  
  
 
 
   
 
 
   
 
 
   
 
 
 
Retirement liability adjustment before income taxes
     (302     355       148       436  
Income tax (expense) benefit
     (85     60       (197     13  
  
 
 
   
 
 
   
 
 
   
 
 
 
Retirement liability adjustment, net of tax
     (387     415       (49     449  
Other comprehensive income (loss)
     214       (4,485     (7,205     (1,610
  
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income
   $ 126,983     $ 133,648     $ 296,055     $ 389,919  
  
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
6

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
    
Nine Months Ended
 
    
September 26, 2020
   
September 28, 2019
 
Cash flows from operating activities:
  
(In thousands)
 
Net income
   $ 303,260     $ 391,529  
Adjustments to reconcile net income to net cash provided by operating activities:
    
Stock-based compensation
     27,715       28,917  
Deferred income taxes
     1,089       1,817  
Depreciation
     49,407       42,168  
Amortization of intangibles
     41,684       38,151  
Change in operating assets and liabilities:
    
Decrease in accounts receivable
     96,955       57,897  
Increase in inventories
     (8,139     (83,973
Increase in other current assets
     (16,776     (6,259
Increase in other assets
     (2,612     (9,302
Increase (decrease) in accounts payable and other current liabilities
     46,721       (493
Increase in deferred revenue and customer advances
     32,053       34,926  
Effect of the 2017 Tax Cuts & Jobs Act
     —         (3,229
Decrease in other liabilities
     (48,332     (40,957
  
 
 
   
 
 
 
Net cash provided by operating activities
     523,025       451,192  
Cash flows from investing activities:
    
Additions to property, plant, equipment and software capitalization
     (125,340     (110,205
Business acquisitions, net of cash acquired
     (76,664     —    
Investment in unaffiliated companies
     (3,850     (7,250
Purchases of investments
     (22,458     (35,523
Maturities and sales of investments
     1,751       978,419  
  
 
 
   
 
 
 
Net cash (used in) provided by investing activities
     (226,561     825,441  
Cash flows from financing activities:
    
Proceeds from debt issuances
     315,000       600,362  
Payments on debt
     (425,366     (390,482
Payments of debt issuance costs
     —         (2,932
Proceeds from stock plans
     28,421       34,311  
Purchases of treasury shares
     (196,353     (1,909,700
Proceeds from derivative contracts
     10,330       6,900  
  
 
 
   
 
 
 
Net cash used in financing activities
     (267,968     (1,661,541
Effect of exchange rate changes on cash and cash equivalents
     10,723       (6,723
  
 
 
   
 
 
 
Increase (decrease) in cash and cash equivalents
     39,219       (391,631
Cash and cash equivalents at beginning of period
     335,715       796,280  
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 374,934     $ 404,649  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
7

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited, in thousands)
 
    
Number
of
Common
Shares
    
Common
Stock
    
Additional
Paid-In

Capital
    
Retained
Earnings
    
Treasury
Stock
   
Accumulated
Other
Comprehensive
Loss
   
Total
Stockholders’
Equity
 
Balance June 29,
 
2019
     160,841      $ 1,608      $ 1,883,958      $ 6,248,601      $ (7,462,826   $ (115,096   $ 556,245  
Net income
     —          —          —          138,133        —         —         138,133  
Other comprehensive loss
     —          —          —          —          —         (4,485     (4,485
Issuance of common stock for employees:
                  
Employee Stock Purchase Plan
     8        —          1,803        —          —         —         1,803  
Stock options exercised
     19        —          2,378        —          —         —         2,378  
Treasury stock
     —          —          —          —          (588,207     —         (588,207
Stock-based compensation
     1        1        9,632        —          —         —         9,633  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance September 28, 2019
     160,869      $ 1,609      $ 1,897,771      $ 6,386,734      $ (8,051,033   $ (119,581   $ 115,500  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
    
Number
of
Common
Shares
    
Common
Stock
    
Additional
Paid-In

Capital
    
Retained
Earnings
    
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders’
Deficit
 
Balance June 27,
 
2020
     161,273      $ 1,613      $ 1,959,498      $ 6,762,909      $ (8,788,872   $ (126,890   $ (191,742
Net income
     —          —          —          126,769        —         —         126,769  
Other comprehensive income
     —          —          —          —          —         214       214  
Issuance of common stock for employees:
                  
Employee Stock Purchase Plan
     10        —          1,641        —          —         —         1,641  
Stock options exercised
     97        1        12,040        —          —         —         12,041  
Treasury stock
     —          —          —          —          (56     —         (56
Stock-based compensation
     1           9,552        —          —         —         9,552  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance September 26, 2020
     161,381      $ 1,614      $ 1,982,731      $ 6,889,678      $ (8,788,928   $ (126,676   $ (41,581
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
8

WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited, in thousands)
 
    
Number
of
Common
Shares
    
Common
Stock
    
Additional
Paid-In

Capital
    
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Loss
   
Total
Stockholders’
Equity
 
Balance December 31, 2018
     160,472      $ 1,605      $ 1,834,741      $ 5,995,205     $ (6,146,322   $ (117,971   $ 1,567,258  
Net income
     —          —          —          391,529       —         —         391,529  
Other comprehensive loss
     —          —          —          —         —         (1,610     (1,610
Issuance of common stock for employees:
                 
Employee Stock Purchase Plan
     33        —          5,971        —         —         —         5,971  
Stock options exercised
     256        3        28,475        —         —         —         28,478  
Treasury stock
     —          —          —          —         (1,904,711     —         (1,904,711
Stock-based compensation
     108        1        28,584        —         —         —         28,585  
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance September 28, 2019
     160,869      $ 1,609      $ 1,897,771      $ 6,386,734     $ (8,051,033   $ (119,581   $ 115,500  
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
    
Number
of
Common
Shares
    
Common
Stock
    
Additional
Paid-In

Capital
    
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Loss
   
Total
Stockholders’
Deficit
 
Balance December 31, 2019
     161,030      $ 1,610      $ 1,926,753      $ 6,587,403     $ (8,612,576   $ (119,471   $ (216,281
Net income
     —          —          —          303,260       —         —         303,260  
Adoption of new accounting pronouncement
     —          —          —          (985     —         —         (985
Other comprehensive loss
     —          —          —          —         —         (7,205     (7,205
Issuance of common stock for employees:
                 
Employee Stock Purchase Plan
     31           5,593        —         —         —         5,593  
Stock options exercised
     184        2        22,944        —         —         —         22,946  
Treasury stock
     —          —          —          —         (176,352     —         (176,352
Stock-based compensation
     136        2        27,441        —         —         —         27,443  
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance September 26, 2020
     161,381      $ 1,614      $ 1,982,731      $ 6,889,678     $ (8,788,928   $ (126,676   $ (41,581
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
9

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of Presentation and Summary of Significant Accounting Policies
Waters Corporation (the “Company,” “we,” “our,” or “us”) is a specialty measurement company that operates with a fundamental underlying purpose to advance the science that enables our customers to enhance human health and well-being. The Company has pioneered analytical workflow solutions involving liquid chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for more than 60 years. The Company primarily designs, manufactures, sells and services high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC
TM
” and, together with HPLC, referred to as “LC”) and mass spectrometry (“MS”) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together
(“LC-MS”)
and sold as integrated instrument systems using common software platforms. LC is a standard technique and is utilized in a broad range of industries to detect, identify, monitor and measure the chemical, physical and biological composition of materials, and to purify a full range of compounds. MS technology, principally in conjunction with chromatography, is employed in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as “proteomics”), nutritional safety analysis and environmental testing.
LC-MS
instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. In addition, the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments through its TA
TM
product line. These instruments are used in predicting the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of advanced software-based products that interface with the Company’s instruments, as well as other manufacturers’ instruments.
The Company’s interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may have more or less than thirteen complete weeks. The Company’s third fiscal quarters for 2020 and 2019 ended on September 26, 2020 and September 28, 2019, respectively.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form
10-Q
and do not include all of the information and footnote disclosures required for annual financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, which are wholly owned. All inter-company balances and transactions have been eliminated.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates under different assumptions or conditions.
It is management’s opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 25, 2020.
Risks and Uncertainties
The Company is subject to risks common to companies in the analytical instrument industry, including, but not limited to, global economic and financial market conditions, fluctuations in foreign currency exchange rates, fluctuations in customer demand, development by its competitors of new technological innovations, costs of developing new technologies, levels of debt and debt service requirements, risk of disruption, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration and similar foreign regulatory authorities and agencies.
Both the Company’s domestic and international operations have been and continue to be adversely affected by the ongoing global pandemic of a novel strain of coronavirus
(“COVID-19”)
and the resulting volatility and uncertainty it has caused in the U.S. and international markets. In March 2020, the World Health Organization declared
COVID-19
a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, President
 
10

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Trump announced a National Emergency relating to the disease. Since then,
COVID-19
has continued to spread throughout the U.S. and globally. The
COVID-19
pandemic has caused significant volatility and uncertainty in U.S. and international markets, which has disrupted and is expected to continue to disrupt the Company’s business and could result in a prolonged economic downturn.
 
It is unclear whether increases in the number of infections will continue and amplify as certain areas of the economy are
re-opened
and restrictions are eased, or whether so called “second waves” of
COVID-19
infections will be experienced in the U.S. and globally. The Company operates in over 35 countries, including those in the regions most impacted by the
COVID-19
pandemic.
In the nine months ended September 26, 2020 as compared to the nine months ended September 28, 2019, the Company experienced a decline in net sales of 7% due in large part to the
COVID-19
pandemic and related economic uncertainty; however, through the date of the issuance of these financial statements, the Company’s consolidated financial position, results of operations and cash flows have not been materially impacted and, thus, the Company concluded that no
interim
goodwill or long-lived asset impairment analyses were required. Further, there have been no violations of debt covenants. Any prolonged material disruption to the Company’s employees, suppliers, manufacturing, or customers could result in a material impact to its consolidated financial position, results of operations or cash flows in the future.
Translation of Foreign Currencies
The functional currency of each of the Company’s foreign operating subsidiaries is the local currency of its country of domicile, except for the Company’s subsidiaries in Hong Kong, Singapore and the Cayman Islands, where the underlying transactional cash flows are denominated in currencies other than the respective local currency of domicile. The functional currency of the Hong Kong, Singapore and Cayman Islands subsidiaries is the U.S. dollar, based on the respective entity’s cash flows.
For most of the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive income in the consolidated balance sheets.
Cash, Cash Equivalents and Investments
Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, while investments with longer maturities are classified as investments. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of September 26, 2020 and December 31, 2019, $359 million out of $397 million and $249 million out of $337 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $262 million out of $397 million and $176 million out of $337 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at September 26, 2020 and December 31, 2019, respectively.
Accounts Receivable and Allowance for Credit Losses
The Company adopted new accounting guidance regarding the accounting for credit losses as of January 1, 2020 using a modified retrospective transition approach that was applied to the trade receivable balance as of January 1, 2020. This new accounting guidance required the Company to move from an incurred loss model to a current expected credit loss (“CECL”) model. Upon adoption, the Company recorded a net decrease of approximately $1 million to the Company’s stockholders’ deficit as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s balance sheets, results of operations or cash flows.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has very limited use of rebates and other cash considerations payable to customers and, as a result, the transaction price determination does not have any material variable consideration. The Company does not consider there to be significant concentrations of credit risk with respect to trade receivables due to the short-term nature of the balances, the Company having a large and diverse customer base, and the Company having a strong historical experience of collecting
 
11

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
receivables with minimal defaults. As a result, credit risk is considered low across territories and trade receivables are considered to be a single class of financial asset. The allowance for credit losses is based on a number of factors and is calculated by applying a historical loss rate to trade receivable aging balances to estimate a general reserve balance along with an additional adjustment for any specific receivables with known or anticipated issues affecting the likelihood of recovery. Past due balances with a probability of default based on historical data as well as relevant available forward-looking information are included in the specific adjustment. The historical loss rate is reviewed on at least an annual basis and the allowance for credit losses is reviewed quarterly for any required adjustments. The Company does not have any off-balance sheet credit exposure related to its customers.
Trade receivables related to instrument sales are collateralized by the instrument that is sold. If there is a risk of default related to a receivable that is collateralized, then the fair value of the collateral is calculated and adjusted for the cost to
re-possess,
refurbish and
re-sell
the instrument. This adjusted fair value is compared to the receivable balance and the difference would be recorded as the expected credit loss.
Any recovery of amounts that were written off prior to adoption of the new CECL standard that are received after adoption are recorded in income in the period in which they are received.
The following is a summary of the activity of the Company’s allowance for doubtful accounts for the
 
nine months ended September 26, 2020 and September 28, 2019 (in thousands). The September 26, 2020 balance is calculated using the CECL method and the September 28, 2019 balance is calculated using the incurred loss method under legacy GAAP:
 
    
Balance at
Beginning
of Period
    
Impact of
CECL
Adoption
    
Additions
    
Deduction
   
Balance at
End of
Period
 
Allowance for Doubtful Accounts
             
September 26, 2020
   $ 9,560      $ 985      $ 7,826      $ (5,784   $ 12,587  
September 28, 2019
   $ 7,663      $ —        $ 6,014      $ (5,461   $ 8,216  
Other Investments
During the nine months ended September 26, 2020 and September 28, 2019, the Company made investments in unaffiliated companies of $4 million and $7 million, respectively.
During the nine months ended September 26, 2020, the Company recorded an unrealized loss on an equity security still held at the reporting date of approximately $1 million within other expense on the income statement. This unrealized loss was recorded as a downward price adjustment to the carrying value of the investment due to an observable price change of a similar security issued during the current period.
Fair Value Measurements
In accordance with the accounting standards for fair value measurements and disclosures, certain of the Company’s assets and liabilities are measured at fair value on a recurring basis as of September 26, 2020 and December 31, 2019. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
12

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at September 26, 2020 (in thousands):
 
    
Total at
September 26,
2020
    
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
           
Time deposits
   $ 22,136      $ —        $ 22,136      $ —    
Waters 401(k) Restoration Plan assets
     34,466        34,466        —          —    
Foreign currency exchange contracts
     832        —          832        —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 57,434      $ 34,466      $ 22,968      $ —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
           
Contingent consideration
   $ 2,903      $ —        $ —        $ 2,903  
Foreign currency exchange contracts
     390        —          390        —    
Interest rate cross-currency swap agreements
     15,190        —          15,190        —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 18,483      $ —        $ 15,580      $ 2,903  
  
 
 
    
 
 
    
 
 
    
 
 
 
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 (in thousands):
 
    
Total at
December 31,
2019
    
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
           
Time deposits
   $ 1,642      $ —        $ 1,642      $ —    
Waters 401(k) Restoration Plan assets
     30,158        30,158        —          —    
Foreign currency exchange contracts
     16        —          16        —    
Interest rate cross-currency swap agreements
     4,485           4,485     
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 36,301      $ 30,158      $ 6,143      $ —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
           
Contingent consideration
   $ 2,557      $ —        $ —        $ 2,557  
Foreign currency exchange contracts
     1,028        —          1,028        —    
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 3,585      $ —        $ 1,028      $ 2,557  
  
 
 
    
 
 
    
 
 
    
 
 
 
Fair Value of 401(k) Restoration Plan Assets
The 401(k) Restoration Plan is a nonqualified defined contribution plan and the assets were held in registered mutual funds and have been classified as Level 1. The fair values of the assets in the plan are determined through market and observable sources from daily quoted prices on nationally recognized securities exchanges.
 
13

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
Fair Value of Cash Equivalents, Investments, Foreign Currency Exchange Contracts and Interest Rate Cross-Currency Swap Agreements
The fair values of the Company’s cash equivalents, investments and foreign currency exchange contracts are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.
Fair Value of Contingent Consideration
The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the July 2014 acquisition of Medimass Research, Development and Service Kft. and is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including the estimated future results and a discount rate that reflects both the likelihood of achieving the estimated future results and the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Although there is no contractual limit, the fair value of future contingent consideration payments was estimated to be $3 million at both September 26, 2020 and December 31, 2019, based on the Company’s best estimate, as the earnout is based on future sales of certain products, some of which are currently in development, through 2034.
Fair Value of Other Financial Instruments
The Company’s accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s fixed interest rate debt was $910 million and $1.0 billion at September 26, 2020 and December 31, 2019, respectively. The fair value of the Company’s fixed interest rate debt was estimated using discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The fair value of the Company’s fixed interest rate debt was estimated to be $938 million and $1.0 billion at September 26, 2020 and December 31, 2019, respectively, using Level 2 inputs.
Derivative Transactions
The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates its
non-U.S.
dollar foreign subsidiaries’ financial statements into U.S. dollars and when any of the Company’s subsidiaries purchase or sell products or services in a currency other than its own currency.
The Company’s principal strategies in managing exposures to changes in foreign currency exchange rates are to (1) naturally hedge the foreign-currency-denominated liabilities on the Company’s balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in foreign currency exchange rates are typically offset by corresponding changes in assets and (2) mitigate foreign exchange risk exposure of international operations by hedging the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. The Company presents the derivative transactions in financing activities in the statement of cash flows.
Foreign Currency Exchange Contracts
The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. The Company periodically aggregates its net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real.
 
14

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
Interest Rate Cross-Currency Swap Agreements
As of September 26, 2020, the Company had entered into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $560 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated comprehensive income in stockholders’ (deficit) equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.
The Company’s foreign currency exchange contracts and interest rate cross-currency swap agreements included in the consolidated balance sheets are classified as follows (in thousands):
 
    
September 26, 2020
    
December 31, 2019
 
    
Notional
Value
    
Fair
Value
    
Notional
Value
    
Fair
Value
 
Foreign currency exchange contracts:
           
Other current assets
   $ 57,380      $ 832      $ 119,576      $ 16  
Other current liabilities
   $ 65,536      $ 390      $ 29,495      $