WATERS CORP /DE/ [WAT] Filings

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q 1 d862492d10q.htm 10-Q 10-Q

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 28, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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)

(

508)

478-2000

(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.

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 25

, 2024: 59,376,174

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of September 28, 2024 and December 31, 2023		3
	Consolidated Statements of Operations (unaudited) for the three months ended September 28, 2024 and September 30, 2023		4
	Consolidated Statements of Operations (unaudited) for the nine months ended September 28, 2024 and September 30, 2023		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 28, 2024 and September 30, 2023		6
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 28, 2024 and September 30, 2023		7
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended September 28, 2024 and September 30, 2023		8
	Consolidated Statements of Stockholders’ Equity (unaudited) for the nine months ended September 28, 2024 and September 30, 2023		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		36

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 5.	Other Information		38
Item 6.	Exhibits		39
	Signature		40

Item 1: Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 28, 2024			December 31, 2023
ASSETS	(In thousands, except per share data)
Current assets:
Cash and cash equivalents	$	330,514		$	395,076
Investments		944			898
Accounts receivable, net		669,534			702,168
Inventories		518,994			516,236
Other current assets		127,738			138,489

Total current assets		1,647,724			1,752,867
Property, plant and equipment, net		642,627			639,073
Intangible assets, net		591,883			629,187
Goodwill		1,306,593			1,305,446
Operating lease assets		76,642			84,591
Other assets		246,151			215,690

Total assets	$	4,511,620		$	4,626,854

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	—		$	50,000
Accounts payable		94,596			84,705
Accrued employee compensation		79,356			69,391
Deferred revenue and customer advances		294,884			256,675
Current operating lease liabilities		25,346			27,825
Accrued income taxes		150,242			120,257
Accrued warranty		10,491			12,050
Other current liabilities		161,125			168,677

Total current liabilities		816,040			789,580
Long-term liabilities:
Long-term debt		1,826,248			2,305,513
Long-term portion of retirement benefits		51,007			47,559
Long-term income tax liabilities		17,819			137,123
Long-term operating lease liabilities		53,234			58,926
Other long-term liabilities		144,173			137,812

Total long-term liabilities		2,092,481			2,686,933

Total liabilities		2,908,521			3,476,513
Commitments and contingencies (Notes 6, 7 and 9)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, no ne issued at September 28, 2024 and December 31, 2023		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,940 and 162,709 shares issued, 59,367 and 59,176 shares outstanding at September 28, 2024 and December 31, 2023, respectively		1,629			1,627
Additional paid-in capital		2,324,225			2,266,265
Retained earnings		9,557,257			9,150,821
Treasury stock, at cost, 103,573 and 103,533 shares at September 28, 2024 and December 31, 2023, respectively		(10,147,727	)		(10,134,252	)
Accumulated other comprehensive loss		(132,285	)		(134,120	)

Total stockholders’ equity		1,603,099			1,150,341

Total liabilities and stockholders’ equity	$	4,511,620		$	4,626,854

The accompanying notes are an integral part of the interim consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended
	September 28, 2024			September 30, 2023
	(In thousands, except per share data)
Revenues:
Product sales	$	462,011		$	448,081
Service sales		278,294			263,611

Total net sales		740,305			711,692
Costs and operating expenses:
Cost of product sales		193,378			184,332
Cost of service sales		108,277			107,075
Selling and administrative expenses		169,097			186,748
Research and development expenses		45,336			41,995
Purchased intangibles amortization		11,759			12,116
Litigation provision		1,326			—

Total costs and operating expenses		529,173			532,266

Operating income		211,132			179,426
Other (expense) income, net		(338	)		328
Interest expense		(21,435	)		(30,442	)
Interest income		4,258			3,883

Income before income taxes		193,617			153,195
Provision for income taxes		32,114			18,643

Net income	$	161,503		$	134,552

Net income per basic common share	$	2.72		$	2.28
Weighted-average number of basic common shares		59,367			59,093
Net income per diluted common share	$	2.71		$	2.27
Weighted-average number of diluted common shares and equivalents		59,504			59,255

The accompanying notes are an integral part of the interim consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Nine Months Ended
	September 28, 2024			September 30, 2023
	(In thousands, except per share data)
Revenues:
Product sales	$	1,273,306		$	1,362,464
Service sales		812,367			774,478

Total net sales		2,085,673			2,136,942
Costs and operating expenses:
Cost of product sales		522,396			559,040
Cost of service sales		329,289			317,823
Selling and administrative expenses		516,880			555,657
Research and development expenses		136,113			130,559
Purchased intangibles amortization		35,337			20,410
Litigation provision		11,568			—

Total costs and operating expenses		1,551,583			1,583,489

Operating income		534,090			553,453
Other income, net		1,619			1,364
Interest expense		(70,681	)		(68,158	)
Interest income		12,857			11,984

Income before income taxes		477,885			498,643
Provision for income taxes		71,449			72,614

Net income	$	406,436		$	426,029

Net income per basic common share	$	6.85		$	7.21
Weighted-average number of basic common shares		59,314			59,061
Net income per diluted common share	$	6.83		$	7.19
Weighted-average number of diluted common shares and equivalents		59,471			59,262

The accompanying notes are an integral part of the interim consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
	(In thousands)						(In thousands)
Net income	$	161,503		$	134,552		$	406,436		$	426,029
Other comprehensive income (loss):
Foreign currency translation		18,668			(17,676	)		2,453			(4,909	)
Unrealized (losses) gains on derivative instruments before reclassifications		(3,025	)		603			209			603
Amounts reclassified to interest income		(366	)		(93	)		(940	)		(93	)

Unrealized (losses) gains on derivative instruments before income taxes		(3,391	)		510			(731	)		510
Income tax benefit (expense)		814			(122	)		176			(122	)

Unrealized (losses) gains on derivative instruments, net of tax		(2,577	)		388			(555	)		388
Retirement liability adjustment before reclassifications		(211	)		(200	)		(60	)		(29	)
Amounts reclassified to other income, net		(10	)		(75	)		(68	)		(242	)

Retirement liability adjustment before income taxes		(221	)		(275	)		(128	)		(271	)
Income tax benefit		47			66			65			67

Retirement liability adjustment, net of tax		(174	)		(209	)		(63	)		(204	)
Other comprehensive income (loss)		15,917			(17,497	)		1,835			(4,725	)

Comprehensive income	$	177,420		$	117,055		$	408,271		$	421,304

The accompanying notes are an integral part of the interim consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 28, 2024			September 30, 2023
	(In thousands)
Cash flows from operating activities:
Net income	$	406,436		$	426,029
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		32,993			32,224
Deferred income taxes		(1,967	)		267
Depreciation		64,680			62,235
Amortization of intangibles		78,570			55,610
Realized gain on sale of investment		—			(651	)
Change in operating assets and liabilities:
Decrease in accounts receivable		27,457			100,327
Increase in inventories		(2,032	)		(81,415	)
Decrease (increase) in other current assets		1,279			(24,066	)
Increase in other assets		(18,416	)		(23,432	)
Increase (decrease) in accounts payable and other current liabilities		36,485			(130,065	)
Increase in deferred revenue and customer advances		37,972			38,959
Decrease in other liabilities		(141,473	)		(83,335	)

Net cash provided by operating activities		521,984			372,687
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(90,377	)		(119,044	)
Business acquisitions, net of cash acquired		—			(1,285,907	)
(Investments in) proceeds from unaffiliated companies		(1,489	)		651
Purchases of investments		(2,796	)		(1,791	)
Maturities and sales of investments		2,752			1,770

Net cash used in investing activities		(91,910	)		(1,404,321	)
Cash flows from financing activities:
Proceeds from debt issuances		170,000			1,450,041
Payments on debt		(700,000	)		(520,040	)
Payments of debt issuance costs		—			(400	)
Proceeds from stock plans		25,073			18,092
Purchases of treasury shares		(13,475	)		(70,433	)
Proceeds from derivative contracts		15,305			8,178

Net cash (used in) provided by financing activities		(503,097	)		885,438
Effect of exchange rate changes on cash and cash equivalents		8,461			2,081

Decrease in cash and cash equivalents		(64,562	)		(144,115	)
Cash and cash equivalents at beginning of period		395,076			480,529

Cash and cash equivalents at end of period	$	330,514		$	336,414

The accompanying notes are an integral part of the interim consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(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 July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229
Net income		—		—		—		134,552		—			—			134,552
Other comprehensive loss		—		—		—		—		—			(17,497	)		(17,497	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		10		—		2,758		—		—			—			2,758
Stock options exercised		35		—		5,084		—		—			—			5,084
Treasury stock		—		—		—		—		(692	)		—			(692	)
Stock-based compensation		28		1		10,087		—		—			—			10,088

Balance September 30, 2023		162,649	$	1,627	$	2,249,984	$	8,934,616	$	(10,134,408	)	$	(146,297	)	$	905,522


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity

Balance June 29, 2024		162,926	$	1,629	$	2,310,372	$	9,395,754	$	(10,147,586	)	$	(148,202	)	$	1,411,967
Net income		—		—		—		161,503		—			—			161,503
Other comprehensive income		—		—		—		—		—			15,917			15,917
Issuance of common stock for employees:
Employee Stock Purchase Plan		9		—		2,551		—		—			—			2,551
Stock options exercised		4		—		736		—		—			—			736
Treasury stock		—		—		—		—		(141	)		—			(141	)
Stock-based compensation		1		—		10,566		—		—			—			10,566

Balance September 28, 2024		162,940	$	1,629	$	2,324,225	$	9,557,257	$	(10,147,727	)	$	(132,285	)	$	1,603,099

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY

(unaudited, in

thousand


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity

Balance December 31, 2022		162,425	$	1,624	$	2,199,824	$	8,508,587	$	(10,063,975	)	$	(141,572	)	$	504,488
Net income		—		—		—		426,029		—			—			426,029
Other comprehensive loss		—		—		—		—		—			(4,725	)		(4,725	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		31		—		8,691		—		—			—			8,691
Stock options exercised		51		1		8,369		—		—			—			8,370
Treasury stock		—		—		—		—		(70,433	)		—			(70,433	)
Stock-based compensation		142		2		33,100		—		—			—			33,102

Balance September 30, 2023		162,649	$	1,627	$	2,249,984	$	8,934,616	$	(10,134,408	)	$	(146,297	)	$	905,522


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity

Balance December 31, 2023		162,709	$	1,627	$	2,266,265	$	9,150,821	$	(10,134,252	)	$	(134,120	)	$	1,150,341
Net income		—		—		—		406,436		—			—			406,436
Other comprehensive income		—		—		—		—		—			1,835			1,835
Issuance of common stock for employees:
Employee Stock Purchase Plan		27		—		7,341		—		—			—			7,341
Stock options exercised		87		1		18,347		—		—			—			18,348
Treasury stock		—		—		—		—		(13,475	)		—			(13,475	)
Stock-based compensation		117		1		32,272		—		—			—			32,273

Balance September 28, 2024		162,940	$	1,629	$	2,324,225	$	9,557,257	$	(10,147,727	)	$	(132,285	)	$	1,603,099

The accompanying notes are an integral part of the consolidated financial statements.

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”), a global leader in analytical instruments and software, has pioneered innovations in chromatography, mass spectrometry and thermal analysis serving life, materials and food sciences for more than 65 years. The Company primarily designs, manufactures, sells and services high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLC” 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 Instruments 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.

On May 16, 2023, the Company completed the acquisition of Wyatt Technology, LLC and its three operating subsidiaries, Wyatt Technology Europe GmbH, Wyatt Technology France and Wyatt Technology UK Ltd. (collectively, “Wyatt”), for a total purchase price of $1.3 billion in cash. Wyatt is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The acquisition expanded Waters’ portfolio and increased exposure to large molecule applications. The Company financed this transaction with a combination of cash on its balance sheet and borrowings under its Credit Facility (as defined below). The Company’s financial results for the three and nine months ended September 28, 2024 include the financial results of Wyatt. The Company’s financial results for the three and nine months ended September 30, 2023 only include

four-and-a-half

months of the financial results of Wyatt as the closing of the acquisition occurred during the second quarter of 2023. On an unaudited pro forma basis, as if the Wyatt acquisition had occurred at the beginning of fiscal year 2023, our consolidated net sales would have been $2.2 billion for the nine months ended September 30, 2023. The difference between the net income calculated on a pro forma basis and actual net income was insignificant primarily due to purchased intangibles amortization expense and interest expense related to our acquisition of Wyatt.

In addition, the Company has completed the purchase price allocation for the Wyatt acquisition and there were no material changes as compared to the Company’s preliminary purchase price allocation for the Wyatt acquisition.

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 2024 and 2023 ended on September 28, 2024 and September 30, 2023, respectively.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions in 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, all of 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, 2023, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2024.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

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 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 loss 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 28, 2024 and December 31, 2023, $287 million out of $331 million and $321 million out of $396 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $234 million out of $331 million and $233 million out of $396 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at September 28, 2024 and December 31, 2023, respectively.

Accounts Receivable and Allowance for Credit Losses

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 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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The following is a summary of the activity of the Company’s allowance for credit losses for the nine months ended September 28, 2024 and September 30, 2023 (in thousands):


	Balance at Beginning of Period		Additions		Deductions and Other			Balance at End of Period
Allowance for Credit Losses
September 28, 2024	$	19,335	$	4,109	$	(7,451	)	$	15,993
September 30, 2023	$	14,311	$	3,727	$	(3,434	)	$	14,604

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 28, 2024 and December 31, 2023. 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.

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at September 28, 2024 (in thousands):


	Total at September 28, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Time deposits	$	944	$	—	$	944	$	—
Waters 401(k) Restoration Plan assets		30,711		30,711		—		—
Foreign currency exchange contracts		93		—		93		—

Total	$	31,748	$	30,711	$	1,037	$	—

Liabilities:
Foreign currency exchange contracts	$	60	$	—	$	60	$	—
Interest rate cross-currency swap agreements		22,764		—		22,764		—
Interest rate swap cash flow hedge		3,705		—		3,705		—

Total	$	26,529	$	—	$	26,529	$	—

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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 December 31, 2023 (in thousands):


	Total at December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Time deposits	$	898	$	—	$	898	$	—
Waters 401(k) Restoration Plan assets		28,995		28,995		—		—
Foreign currency exchange contracts		183		—		183		—
Interest rate cross-currency swap agreements		4,835		—		4,835		—

Total	$	34,911	$	28,995	$	5,916	$	—

Liabilities:
Foreign currency exchange contracts		207		—		207		—
Interest rate cross-currency swap agreements		13,384		—		13,384		—
Interest rate swap cash flow hedge		2,974		—		2,974		—

Total	$	16,565	$	—	$	16,565	$	—

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.

Fair Value of Cash Equivalents, Investments, Foreign Currency Exchange Contracts, Interest Rate Cross-Currency Swap Agreements and Interest Rate Swap Cash Flow Hedges

The fair values of the Company’s cash equivalents, investments, foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap cash flow hedges 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 Other Financial Instruments

The Company’s accounts receivable and accounts payable are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s variable interest rate debt approximates fair value due to the variable nature of the interest rate. The carrying value of the Company’s fixed interest rate debt was $1.3 billion at both September 28, 2024 and December 31, 2023. 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 $1.2

billion at both September 28, 2024 and December 31, 2023 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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

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 and

yen-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.

Cash Flow Hedges

The Company’s Credit Facility is a variable borrowing and has interest payments based on a contractually specified interest rate index. The contractually specified index on the Credit Facility is the

3-month

Term SOFR. The variable rate interest payments create interest risk for the Company as interest payments will fluctuate based on changes in the contractually specified interest rate index over the life of the Credit Facility. In order to reduce interest rate risk, the Company has entered in interest rate swaps with an aggregate notional value of $

150

million to effectively

lock-in

the forecasted interest payments on the variable rate borrowing over its term. The interest rate swaps represent cash flow hedges and are assessed for hedge effectiveness each reporting period. When the hedge relationship is highly effective at achieving offsetting changes in cash flows, the Company will record the entire change in fair value of the interest rate swaps in accumulated other comprehensive loss. The amount in accumulated other comprehensive loss is reclassified to income in the period that the underlying transaction impacts consolidated income. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be

de-designated

and amounts accumulated in other comprehensive loss will be reclassified to income in the current period. Interest settlements due to benchmark interest rate changes are recorded in interest income or interest expense. For the nine months ended September 28, 2024, the Company did not have any cash flow hedges that were deemed ineffective.

Interest Rate Cross-Currency Swap Agreements

As of September 28, 2024, the Company had entered into interest rate cross-currency swap derivative agreements with durations up to three years with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and

yen-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 other comprehensive loss in stockholders’ 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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The Company’s foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap agreements designated as cash flow hedges are included in the consolidated balance sheets are classified as follows (in thousands):


	September 28, 2024					December 31, 2023
	Notional Value		Fair Value			Notional Value		Fair Value
Foreign currency exchange contracts:
Other current assets	$	16,000	$	93		$	24,155	$	183
Other current liabilities	$	23,918	$	60		$	16,000	$	207
Interest rate cross-currency swap agreements:
Other assets	$	—	$	—		$	220,000	$	4,835
Other liabilities	$	625,000	$	22,764		$	405,000	$	13,384
Accumulated other comprehensive loss			$	(14,750	)			$	(7,975	)
Interest rate swap cash flow hedges:
Other liabilities	$	150,000	$	3,705		$	100,000	$	2,974
Accumulated other comprehensive loss			$	(3,705	)			$	(2,974	)

The following is a summary of

the

activity included in the consolidated statements of operations and statements of comprehensive income related

the

foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap agreements designated as cash flow hedges (in thousands):


	Financial Statement Classification		Three Months Ended						Nine Months Ended
	Financial Statement Classification		September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Foreign currency exchange contracts:
Realized (losses) gains on closed contracts		Cost of sales	$	(138	)	$	(755	)	$	914		$	(50	)
Unrealized (losses) gains on open contracts		Cost of sales		(26	)		168			39			(123	)

Cumulative net pre-tax (losses) gains		Cost of sales	$	(164	)	$	(587	)	$	953		$	(173	)

Interest rate cross-currency swap agreements:
Interest earned		Interest income	$	2,486		$	2,720		$	7,613		$	8,048
Unrealized (losses) gains on open contracts		Other comprehensive income	$	(28,339	)	$	18,936		$	(6,775	)	$	10,280
Interest rate swap cash flow hedges:
Interest earned		Interest income	$	366		$	93		$	940		$	93
Unrealized (losses) gains on open contracts		Other comprehensive income	$	(3,391	)	$	510		$	(731	)	$	510

Stockholders’ Equity

In December 2023, the Company’s Board of Directors authorized the extension of its existing share repurchase program through January 21, 2025. The Company’s remaining authorization is $1.0 billion. During the nine months ended September 30, 2023, the Company repurchased 0.2 million shares of the Company’s outstanding common stock at a cost of $58 million under the Company’s share repurchase program. The Company did not make any open market share repurchases in 2024. In addition, the Company repurchased $13 million and $12 million of common stock related to the vesting of restricted stock units during the nine months ended September 28, 2024 and September 30, 2023, respectively.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

Product Warranty Costs

The Company accrues estimated product warranty costs at the time of sale, which are included in cost of sales in the consolidated statements of operations. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. The amount of the accrued warranty liability is based on historical information, such as past experience, product failure rates, number of units repaired and estimated costs of material and labor. The liability is reviewed for reasonableness at least quarterly.

The following is a summary of the activity of the Company’s accrued warranty liability for the nine months ended September 28, 2024 and September 30, 2023 (in thousands):


	Balance at Beginning of Period		Accruals for Warranties		Settlements Made			Balance at End of Period
Accrued warranty liability:
September 28, 2024	$	12,050	$	3,812	$	(5,371	)	$	10,491
September 30, 2023	$	11,949	$	4,813	$	(5,642	)	$	11,120

Restructuring

In March 2024, the Company had a reduction in workforce that impacted approximately 2

% of the Company’s employees, primarily in China, where there had been a significant decline in sales as a result of lower customer demand. As a result, the Company incurred approximately $

8 million of severance-related costs. During the nine months ended September 28, 2024, the Company paid $13

million of severance-related costs in connection with the workforce reductions that occurred in March 2024 and July 2023. The accrued restructuring expense was approximately $

2 million at September 28, 2024 and $8 million at December 31, 2023 and included in other current liabilities on the consolidated balance sheets.

2 Revenue Recognition

The Company’s deferred revenue liabilities in the consolidated balance sheets consist of the obligation on instrument service contracts and customer payments received in advance, prior to transfer of control of the instrument. The Company records deferred revenue primarily related to its service contracts, where consideration is billable at the beginning of the service period.

The following is a summary of the activity of the Company’s deferred revenue and customer advances for the nine months ended September 28, 2024 and September 30, 2023 (in thousands):


	September 28, 2024			September 30, 2023
Balance at the beginning of the period	$	323,516		$	285,175
Recognition of revenue included in balance at beginning of the period		(242,302	)		(222,001	)
Revenue deferred during the period, net of revenue recognized		276,515			276,277

Balance at the end of the period	$	357,729		$	339,451

The Company classified $63 million and $67 million of deferred revenue and customer advances in other long-term liabilities at September 28, 2024 and December 31, 2023, respectively.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The amount of deferred revenue and customer advances equals the transaction price allocated to unfulfilled performance obligations for the period presented. Such amounts are expected to be recognized in the future as follows (in thousands):


	September 28, 2024

Deferred revenue and customer advances expected to be recognized in:
One year or less	$	294,884
13-24 months		38,785
25 months and beyond		24,060

Total	$	357,729

3 Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets consist of time deposits that mature in one year or less with an amortized cost and a fair value of $0.9 million at both September 28, 2024 and December 31, 2023.

4 Inventories

Inventories are classified as

follows

(in thousands):


	September 28, 2024		December 31, 2023
Raw materials	$	241,378	$	233,952
Work in progress		23,555		20,198
Finished goods		254,061		262,086

Total inventories	$	518,994	$	516,236

5 Goodwill and Other Intangibles

The carrying amount of goodwill was $1.3 billion at both September 28, 2024 and December

2023

The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (dollars in thousands):


	September 28, 2024							December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period			Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period
Capitalized software	$	695,610	$	531,662		5	years	$	660,273	$	495,317		5	years
Purchased intangibles		614,768		232,928		10	years		614,357		197,154		10	years
Trademarks		9,680		—		—			9,680		—		—
Licenses		15,430		9,832		7	years		14,798		8,429		7	years
Patents and other intangibles		118,128		87,311		8	years		111,962		80,983		8	years

Total	$	1,453,616	$	861,733		7	years	$	1,411,070	$	781,883		7	years

The Company capitalized intangible assets in the amounts of $11 million and $10 million in the three months ended September 28, 2024 and September 30, 2023, respectively, and $31 million and $455 million

in the nine months ended September 28, 2024 and Sep

tember

30, 2023, respectively. The increase in intangible assets in the nine months ended September 30, 2023 was a result of the Wyatt

acquisition.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The

gross carrying value of intangible assets and accumulated amortization for intangible assets increased by $11 million and $2 million, respectively, in the nine months ended September 28, 2024 due to the effects of foreign currency translation.

Amortization

expense for intangible assets was $28 million and $26

million for the three months ended September 28, 2024 and September 30, 2023, respectively. Amortization expense for intangible assets was

$79 million and $56 million for the nine months ended September 28, 2024 and September 30, 2023, respectively. Amortization expense for intangible assets is estimated to be $107 million per year for each of the next five years.

6 Debt

On July 12, 2024 the Company entered into a private Master Note Facility Agreement (the “Shelf Agreement”) pursuant to which the Company may, at its option, authorize the issuance and sale of senior promissory notes (the “Shelf Notes”) up to an aggregate principal amount of $200 million. The purchase of any Shelf Notes is in the sole discretion of NYL Investors LLC. Any Shelf Notes sold or issued pursuant to the Shelf Agreement will mature no more than 15 years after the issuance date and will bear interest on the unpaid balance from the issuance date at the rates specified in the

Shelf

Agreement.

The Company has a

five-year

, $2.0 billion revolving credit facility (the “Credit Facility”) that matures in September 2026. As of September 28, 2024 and December 31, 2023, the Credit Facility had a total of $0.6 billion and $1.1 billion outstanding, respectively.

The interest rates applicable under the Credit Facility are, at the Company’s option, equal to either the alternate base rate (which is a rate per annum equal to the greatest of (1) the prime rate in effect on such day, (2) the Federal Reserve Bank of New York Rate on such day plus 1⁄2 of 1% per annum and (3) the adjusted Term SOFR rate for a one-month interest period as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day), plus 1% annum) or the applicable 1, 3 or 6 month adjusted Term SOFR or EURIBO rate for euro-denominated loans, in each case, plus an interest rate margin based upon the Company’s leverage ratio, which can range between 0 and 12.5 basis points for alternate base rate loans and between 80 and 112.5 basis points for Term SOFR or EURIBO rate loans. The facility fee on the Credit Facility ranges between 7.5 and 25 basis points per annum, based on the leverage ratio, of the amount of the revolving facility commitments and the outstanding term loan. The Credit Facility requires that the Company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, the Credit Facility includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.

As of both September 28, 2024 and December 31, 2023, the Company had a total of $

1.3

billion of outstanding senior unsecured notes. Interest on the fixed rate senior unsecured notes is payable semi-annually each year. Interest on the floating rate senior unsecured notes is payable quarterly. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding. In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The Company had the following outstanding debt at September 28, 2024 and December 31, 2023 (in thousands):


	September 28, 2024		December 31, 2023
Senior unsecured notes - Series G - 3.92 %, due June 2024		—		50,000

Total notes payable and debt, current		—		50,000
Senior unsecured notes - Series K - 3.44 %, due May 2026		160,000		160,000
Senior unsecured notes - Series L - 3.31 %, due September 2026		200,000		200,000
Senior unsecured notes - Series M - 3.53 %, due September 2029		300,000		300,000
Senior unsecured notes - Series N - 1.68 %, due March 2026		100,000		100,000