10-Q 1 d798210d10q.htm 10-Q 10-Q
Table of Contents
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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 March 30, 2024
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
May 3
, 2024: 59,319,699
 
 
 


Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

PART I   FINANCIAL INFORMATION    Page  

Item 1.

  Financial Statements   
 

Consolidated Balance Sheets (unaudited) as of March 30, 2024 and December 31, 2023

     3  
 

Consolidated Statements of Operations (unaudited) for the three months ended March 30, 2024 and April 1, 2023

     4  
 

Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 30, 2024 and April 1, 2023

     5  
 

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 30, 2024 and April 1, 2023

     6  
 

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 30, 2024 and April 1, 2023

     7  
 

Condensed Notes to Consolidated Financial Statements (unaudited)

     8  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      23  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      31  

Item 4.

  Controls and Procedures      32  

PART II

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      32  

Item 1A.

  Risk Factors      32  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      32  

Item 5.

  Other Information      33  

Item 6.

  Exhibits      34  
  Signature      35  


Table of Contents
Item 1: Financial Statements
WATERS CORPORATION AND
SU
BSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 

 
  
March 30, 2024
 
 
December 31, 2023
 
 
  
 
 
 
 
 
 
  
(In thousands, except per share data)
 
ASSETS
  
Current assets:
    
Cash and cash equivalents
   $ 337,290     $ 395,076  
Investments
     923       898  
Accounts receivable, net
     626,329       702,168  
Inventories
     538,634       516,236  
Other current assets
     139,782       138,489  
  
 
 
   
 
 
 
Total current assets
     1,642,958       1,752,867  
Property, plant and equipment, net
     633,594       639,073  
Intangible assets, net
     611,147       629,187  
Goodwill
     1,297,826       1,305,446  
Operating lease assets
     81,065       84,591  
Other assets
     242,374       215,690  
  
 
 
   
 
 
 
Total assets
   $ 4,508,964     $ 4,626,854  
  
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
Current liabilities:
    
Notes payable and debt
   $ 50,000     $ 50,000  
Accounts payable
     86,219       84,705  
Accrued employee compensation
     65,098       69,391  
Deferred revenue and customer advances
     336,718       256,675  
Current operating lease liabilities
     26,879       27,825  
Accrued income taxes
     120,520       120,257  
Accrued warranty
     10,853       12,050  
Other current liabilities
     152,172       168,677  
  
 
 
   
 
 
 
Total current liabilities
     848,459       789,580  
Long-term liabilities:
    
Long-term debt
     2,005,761       2,305,513  
Long-term portion of retirement benefits
     48,977       47,559  
Long-term income tax liabilities
     137,439       137,123  
Long-term operating lease liabilities
     55,927       58,926  
Other long-term liabilities
     155,876       137,812  
  
 
 
   
 
 
 
Total long-term liabilities
     2,403,980       2,686,933  
  
 
 
   
 
 
 
Total liabilities
     3,252,439       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, none issued at March 30, 2024 and December 31, 2023
            
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,882 and 162,709 shares issued, 59,310 and 59,176 shares outstanding at March 30, 2024 and December 31, 2023, respectively
     1,629       1,627  
Additional
paid-in
capital
     2,291,103       2,266,265  
Retained earnings
     9,253,017       9,150,821  
Treasury stock, at cost, 103,572 and 103,533 shares at March 30, 2024 and December 31, 2023, respectively
     (10,147,341     (10,134,252
Accumulated other comprehensive loss
     (141,883     (134,120
  
 
 
   
 
 
 
Total stockholders’ equity
     1,256,525       1,150,341  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 4,508,964     $ 4,626,854  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
3

WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
  
Three Months Ended
 
 
  
March 30, 2024
 
 
April 1, 2023
 
 
  
 
 
 
 
 
 
  
(In thousands, except per share data)
 
Revenues:
    
Product sales
   $ 376,151     $ 436,457  
Service sales
     260,688       248,217  
  
 
 
   
 
 
 
Total net sales
     636,839       684,674  
Costs and operating expenses:
    
Cost of product sales
     153,182       180,354  
Cost of service sales
     108,604       104,026  
Selling and administrative expenses
     174,536       181,956  
Research and development expenses
     44,595       42,691  
Purchased intangibles amortization
     11,834       1,479  
Litigation provision
     10,242        
  
 
 
   
 
 
 
Total costs and operating expenses
     502,993       510,506  
  
 
 
   
 
 
 
Operating income
     133,846       174,168  
Other income, net
     2,259       1,388  
Interest expense
     (25,520     (14,444
Interest income
     4,271       4,061  
  
 
 
   
 
 
 
Income before income taxes
     114,856       165,173  
Provision for income taxes
     12,660       24,250  
  
 
 
   
 
 
 
Net income
   $ 102,196     $ 140,923  
  
 
 
   
 
 
 
Net income per basic common share
   $ 1.73     $ 2.39  
Weighted-average number of basic common shares
     59,232       59,023  
Net income per diluted common share
   $ 1.72     $ 2.38  
Weighted-average number of diluted common shares and equivalents
     59,431       59,317  
The accompanying notes are an integral part of the interim consolidated financial statements.
 
4

WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
    
Three Months Ended
 
    
March 30, 2024
   
April 1, 2023
 
    
(In thousands)
 
Net income
   $ 102,196     $ 140,923  
Other comprehensive (loss) income:
    
Foreign currency translation
     (9,540     8,783  
Unrealized gains on derivative instruments before reclassifications
     2,405        
Amounts reclassified to interest income
     (297      
  
 
 
   
 
 
 
Unrealized gains on derivative instruments before income taxes
     2,108        
Income tax expense
     (506      
  
 
 
   
 
 
 
Unrealized gains on derivative instruments, net of tax
     1,602        
Retirement liability adjustment before reclassifications
     332       80  
Amounts reclassified to other income
     (117     (83
  
 
 
   
 
 
 
Retirement liability adjustment before income taxes
     215       (3
Income tax expense
     (40     (4
  
 
 
   
 
 
 
Retirement liability adjustment, net of tax
     175       (7
Other comprehensive (loss) income
     (7,763     8,776  
  
 
 
   
 
 
 
Comprehensive income
   $ 94,433     $ 149,699  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the
interim
consolidated financial statements.
 
5

WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
    
Three Months Ended
 
    
March 30, 2024
   
April 1, 2023
 
Cash flows from operating activities:
  
(In thousands)

Net income
   $ 102,196     $ 140,923  
Adjustments to reconcile net income to net cash provided by operating activities:
    
Stock-based compensation
     10,913       12,805  
Deferred income taxes
     4,453       (5,078
Depreciation
     22,129       19,411  
Amortization of intangibles
     26,385       11,743  
Change in operating assets and liabilities:
    
Decrease in accounts receivable
     62,592       44,047  
Increase in inventories
     (28,309     (42,621
Increase in other current assets
     (4,707     (2,123
D
ecrease in other assets
     7,369       6,662  
Decrease in accounts payable and other current liabilities
     (18,418 )     (71,257
Increase in deferred revenue and customer advances
     85,901       77,206  
(Decrease)
 
i
ncrease in other liabilities
     (7,634 )     5,033  
  
 
 
   
 
 
 
Net cash provided by operating activities
     262,870       196,751  
Cash flows from investing activities:
    
Additions to property, plant, equipment and software capitalization
     (28,655     (34,390
Investments in unaffiliated companies
     (1,064      
Purchases of investments
     (923     (893
Maturities and sales of investments
     898       877  
  
 
 
   
 
 
 
Net cash used in investing activities
     (29,744     (34,406
Cash flows from financing activities:
    
Proceeds from debt issuances
           50,040  
Payments on debt
     (300,000     (145,000
Proceeds from stock plans
     13,932       2,378  
Purchases of treasury shares
     (13,089     (69,505
Proceeds from derivative contracts
     6,981       2,876  
  
 
 
   
 
 
 
Net cash used in financing activities
     (292,176     (159,211
Effect of exchange rate changes on cash and cash equivalents
    
1,264
 
 
 
2,407
 
  
 
 
   
 
 
 
(Decrease) increase in cash and cash equivalents
     (57,786     5,541  
Cash and cash equivalents at beginning of period
    
395,076
 
 
 
480,529
 
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 337,290     $ 486,070  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
6
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 December 31, 2022
  
 
162,425
 
  
$
1,624
 
  
$
2,199,824
 
  
$
8,508,587
 
  
$
(10,063,975
 
$
(141,572
 
$
504,488
 
Net income
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
140,923
 
  
 
— 
 
 
 
— 
 
 
 
140,923
 
Other comprehensive income
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
 
 
8,776
 
 
 
8,776
 
Issuance of common stock for employees:
  
  
  
  
  
 
 
Employee Stock Purchase Plan
  
 
8
 
  
 
— 
 
  
 
2,000
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
2,000
 
Stock options exercised
  
 
6
 
  
 
 
  
 
969
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
969
 
Treasury stock
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
(69,505
 
 
— 
 
 
 
(69,505
Stock-based compensation
  
 
111
 
  
 
2
 
  
 
12,170
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
12,172
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance April 1, 2023
  
 
162,550
 
  
$
1,626
 
  
$
2,214,963
 
  
$
8,649,510
 
  
$
(10,133,480
 
$
(132,796
 
$
599,823
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
    
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
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
102,196
 
  
 
— 
 
 
 
— 
 
 
 
102,196
 
Other comprehensive loss
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
 
 
(7,763
 
 
(7,763
Issuance of common stock for employees:
  
  
  
  
  
 
 
Employee Stock Purchase Plan
  
 
8
 
  
 
— 
 
  
 
1,996
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
1,996
 
Stock options exercised
  
 
51
 
  
 
1
 
  
 
12,551
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
12,552
 
Treasury stock
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
— 
 
  
 
(13,089
 
 
— 
 
 
 
(13,089
Stock-based compensation
  
 
114
 
  
 
1
 
  
 
10,291
 
  
 
— 
 
  
 
— 
 
 
 
— 
 
 
 
10,292
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance March 30, 2024
  
 
162,882
 
  
$
1,629
 
  
$
2,291,103
 
  
$
9,253,017
 
  
$
(10,147,341
 
$
(141,883
 
$
1,256,525
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
7

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 will expand Waters’ portfolio and increase 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 months ended March 30, 2024 include the financial results of Wyatt. The Company’s financial results for the three months ended April 1, 2023 do not include any of the financial results of Wyatt since the closing of the Wyatt acquisition occurred in the second fiscal quarter of 2023. 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 first fiscal quarters for 2024 and 2023 ended on March 30, 2024 and April 1, 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.
 
8

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 March 30, 2024 and December 31, 2023, $305 million out of $338 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, $239 million out of $338 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 March 30, 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.
 
9

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 three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
 
 
  
Balance at
Beginning of
Period
 
  
Additions
 
  
Deductions and
Other
 
  
Balance at End
of Period
 
Allowance for Credit Losses
           
March 30, 2024
   $ 19,335      $ 991      $ (5,461 )    $ 14,865  
April 1, 2023
   $ 14,311      $ 1,572      $ (1,028    $ 14,855  
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 March 30, 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 March 30, 2024 (in thousands):
 

 
  
Total at
March 30,
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
   $ 923      $ —       $ 923      $ —   
Waters 401(k) Restoration Plan assets
     30,791        30,791        —         —   
Interest rate cross-currency swap agreements
     7,642        —         7,642        —   
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 39,356      $ 30,791      $ 8,565      $  
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
           
Foreign currency exchange contracts
   $ 75      $ —       $ 75      $ —   
Interest rate cross-currency swap agreements
     5,510        —         5,510        —   
Interest rate swap cash flow hedge
     865        —         865        —   
  
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 6,450      $      $ 6,450      $  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
10

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 March 30, 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 March 30, 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.
 
11

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 enters into interest rate swaps that will 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 three months ended March 30, 2024, the Company did not have any cash flow hedges that were deemed ineffective.
Interest Rate Cross-Currency Swap Agreements
As of March 30, 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.
 
12

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):
                                 
 
  
March 30, 2024
 
  
December 31, 2023
 
 
  
Notional
 
  
Fair Value
 
  
Notional
 
  
Fair Value
 
Foreign currency exchange contracts:
  
     
  
     
  
     
  
     
Other current assets
   $ 5,000      $ —       $ 24,155      $ 183  
Other current liabilities
   $ 35,314      $ 75      $ 16,000      $ 207  
Interest rate cross-currency swap agreements:
           
Other assets
   $ 285,000      $ 7,642      $ 220,000      $ 4,835  
Other liabilities
   $ 340,000      $ 5,510      $ 405,000      $ 13,384  
Accumulated other comprehensive income (loss)
      $ 6,942         $ (7,975
Interest rate swap cash flow hedges:
           
Other liabilities
   $ 100,000      $ 865      $ 100,000      $ 2,974  
Accumulated other comprehensive loss
      $ (865       $ (2,974
The following is a summary of the activity included in the consolidated statements of operations and statements of comprehensive income related to 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
 
    
March 30, 2024
    
April 1, 2023
 
Foreign currency exchange contracts:
     
Realized gains on closed contracts
   Cost of sales    $ 257      $ 30  
Unrealized losses on open contracts
   Cost of sales      (51      (78
     
 
 
    
 
 
 
Cumulative net
pre-tax
gains (losses)
   Cost of sales    $ 206      $ (48
     
 
 
    
 
 
 
Interest rate cross-currency swap agreements:
     
Interest earned
   Interest income    $ 2,537      $ 2,655  
Unrealized gains (losses) on contracts, net
   Accumulated other
comprehensive loss
   $ 14,917      $ (7,256
Interest rate swap cash flow hedges:
     
Interest earned
   Interest income    $ 296      $ —   
Unrealized gains on
   Accumulated other      
open contracts
   comprehensive loss    $ 2,109      $ —   
 
13

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

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 three months ended April 1, 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 $11 million of common stock related to the vesting of restricted stock units during the three months ended March 30, 2024 and April 1, 2023, respectively.
 
14

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 three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
Balance at
Beginning
of Period
    
Accruals for
Warranties
    
Settlements
Made
    
Balance at
End of
Period
 
Accrued warranty liability:
           
March 30, 2024
   $ 12,050      $ 480      $ (1,677    $ 10,853  
April 1, 2023
   $ 11,949      $ 2,177      $ (1,815    $ 12,311  
Restructuring
In March 2024, the Company had a reduction in workforce that impacted approximately 2% of the employees, primarily in China due to the significant decline in sales resulting from lower customer demand, which resulted in the Company incurring approximately $8 million of severance-related costs. During the first quarter of 2024, the Company paid $8 
million of severance-related costs in connection with the workforce reductions that occurred in March 2024 and July 2023, with the majority of the remaining costs to be paid in the second quarter of 2024. The accrued restructuring expense was $8 million at both March 30, 2024 and December 31, 2023 and were 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 three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
March 30, 2024
    
April 1, 2023
 
Balance at the beginning of the period
   $ 323,516      $ 285,175  
Recognition of revenue included in balance at beginning of the period
     (103,996      (105,222
Revenue deferred during the period, net of revenue recognized
     187,525        193,286  
  
 
 
    
 
 
 
Balance at the end of the period
   $ 407,045      $ 373,239  
  
 
 
    
 
 
 
The Company classified $70 million and $67 million of deferred revenue and customer advances in other long-term liabilities at March 30, 2024 and December 31, 2023, respectively.
 
15

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):
 
    
March 30, 2024
 
Deferred revenue and customer advances expected to be recognized in:
  
One year or less
   $ 336,718  
13-24
months
     42,162  
25 months and beyond
     28,165  
  
 
 
 
Total
   $ 407,045  
  
 
 
 
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 March 30, 2024 and December 31, 2023.
4 Inventories
Inventories are classified as follows (in thousands):
 
    
March 30, 2024
    
December 31, 2023
 
Raw materials
   $ 241,744      $ 233,952  
Work in progress
     23,825        20,198  
Finished goods
     273,065        262,086  
  
 
 
    
 
 
 
Total inventories
   $ 538,634      $ 516,236  
  
 
 
    
 
 
 
5 Goodwill and Other Intangibles
The carrying amount of goodwill was $1.3 billion at both March 30, 2024 and December 31, 2023.
The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (dollars in thousands):

 
  
March 30, 2024
 
  
December 31, 2023
 
 
  
Gross
Carrying
Amount
 
  
Accumulated
Amortization
 
  
Weighted-
Average
Amortization
Period
 
  
Gross
Carrying
Amount
 
  
Accumulated
Amortization
 
  
Weighted-
Average
Amortization
Period
 
Capitalized software
   $ 655,433      $ 495,177        5 years      $ 660,273      $ 495,317        5
 
years
 
Purchased intangibles
     612,382        207,620        10 years        614,357        197,154        10 years  
Trademarks
     9,680        —         —         9,680        —         —   
Licenses
     14,673        8,698        7 years        14,798        8,429        7 years  
Patents and other intangibles
     113,028        82,554        8 years        111,962        80,983        8 years  
  
 
 
    
 
 
       
 
 
    
 
 
    
Total
   $ 1,405,196      $ 794,049        7 years      $ 1,411,070      $ 781,883        7 years  
  
 
 
    
 
 
       
 
 
    
 
 
    
The Company capitalized $10 million and $14 million of intangible assets in the three months ended March 30, 2024 and April 1, 2023, respectively. The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $16 million and $14 million, respectively, in the three months ended March 30, 2024 due to the effects of foreign currency translation. Amortization expense for intangible assets was $26 million and $12 million for the three months ended March 30, 2024 and April 1, 2023, respectively. Amortization expense for intangible assets is estimated to be $108 million per year for each of the next five years.
 
16

CONDENSED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
6 Debt
The Company has a five-year, $2.0 
billion revolving credit facility (the “Credit Facility”) that matures in September 2026. As of March 30, 2024 and December 31, 2023, the Credit Facility had a total
 of $0.8 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 March 30, 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.
The Company had the following outstanding debt at March 30, 2024 and December 31, 2023 (in thousands):
 
    
March 30, 2024
    
December 31, 2023
 
Senior unsecured notes - Series G -
3.92
%, due June 2024
     50,000        50,000  
  
 
 
    
 
 
 
Total notes payable and debt, current
     50,000        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  
Senior unsecured notes - Series O - 2.25%, due March 2031
     400,000        400,000  
Senior unsecured notes - Series P - 4.91%, due May 2028
     50,000        50,000  
Senior unsecured notes - Series Q - 4.91%, due May 2030
     50,000        50,000  
Credit agreement
     750,000        1,050,000  
Unamortized debt issuance costs
     (4,239      (4,487
  
 
 
    
 
 
 
Total long-term debt
     2,005,761        2,305,513  
  
 
 
    
 
 
 
Total debt
   $ 2,055,761      $ 2,355,513  
  
 
 
    
 
 
 
As of March 30, 2024 and December 31, 2023, the Company had a total amount available to borrow under the Credit Facility of $1.2 billion and $0.9 billion, respectively, after outstanding letters of credit. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were 4.42% and 4.69% at March 30, 2024 and December 31, 2023, respectively. As of March 30, 2024, the Company was in compliance with all debt
covenants.
 
17

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
The Company and its foreign subsidiaries also had available short-term lines of credit totaling $112 million and $114 million at March 30, 2024
and
December 31, 2023, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. None of the Company’s foreign subsidiaries had outstanding short-term borrowings as of March 30, 2024 or December 31, 2023.
7 Income Taxes
The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 25% and 17%, respectively, as of March 30, 2024. The Company has a Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5%
on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rate rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the three months ended March 30, 2024 and April 1, 2023 by $2 million
and $
3 
million, respectively, and increased the Company’s net income per diluted
 
share by $0.03 and $0.05, respectively.
The Company’s effective tax rate for the three months ended March 30, 2024 and April 1, 2023 was 11.0% and 14.7%, respectively. The income tax provision includes a $1 million and a $2 
million income tax benefit related to stock-based compensation for the three months ended March 30, 2024 and April 1, 2023, respectively. The remaining differences between the effective tax rates can primarily be attributed to the impact of discrete tax benefits in the current year and differences in the proportionate amounts of
pre-tax
income recognized in jurisdictions with different effective tax rates.
The Company accounts for its uncertain tax return positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions for the time value of money. The Company continues to classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.
The Company’s gross unrecognized tax benefits, excluding interest and penalties, at March 30, 2024 and April 1, 2023 were $15 million and $30 
million, respectively. With limited exceptions, the Company is no longer subject to tax audit examinations in significant jurisdictions for the years ended on or before December 31, 2018. The Company continuously monitors the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits, related net interest and penalties, and deferred tax assets and liabilities.
Effective in 2024, various foreign jurisdictions began implementing aspects of the guidance issued by the Organization for
Economic Co-operation and
Development related to the new Pillar Two system of global minimum tax rules. These changes in tax law did not have a material impact on the Company’s financial position, results of operations and cash flows for the first quarter of 2024. The Company continues to monitor the adoption of the Pillar Two rules in additional jurisdictions.
8 Litigation
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes it has meritorious arguments in its current litigation matters and believes any outcome, either individually or in the aggregate, will not be material to the Company’s financial position, results of operations or cash flows. During the three months ended March 30, 2024, the Company recorded
$10 
million of patent litigation settlement provisions and related costs. The accrued patent litigation expense is in other current liabilities in the consolidated balance sheet at March 30, 2024.
9 Other Commitments and Contingencies
The Company licenses certain technology and software from third parties in the course of ordinary business. Future minimum license fees payable under existing license agreements as of March 30, 2024 are immaterial for the years ended December 31, 2024 and thereafter.

18

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to its current products, as well as claims relating to property damage or personal injury resulting from the performance of services by the Company or its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company’s costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and management accordingly believes the estimated fair value of these agreements is immaterial.
10 Earnings Per Share
Basic and diluted EPS calculations are detailed as follows (in thousands, except per share data): 
 

 
  
Three Months Ended March 30, 2024
 
 
  
Net Income
(Numerator)
 
  
Weighted-
Average Shares
(Denominator)
 
  
Per Share
Amount
 
Net income per basic common share
   $ 102,196        59,232      $ 1.73  
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
     —         199        (0.01
  
 
 
    
 
 
    
 
 
 
Net income per diluted common share
   $ 102,196        59,431      $ 1.72  
  
 
 
    
 
 
    
 
 
 
 
 
  
Three Months Ended April 1, 2023
 
 
  
Net Income
(Numerator)
 
  
Weighted-
Average Shares
(Denominator)
 
  
Per Share
Amount
 
Net income per basic common share
   $ 140,923        59,023      $ 2.39  
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
     —         294        (0.01
  
 
 
    
 
 
    
 
 
 
Net income per diluted common share
   $ 140,923        59,317      $ 2.38  
  
 
 
    
 
 
    
 
 
 
For the three months ended March 30, 2024 and April 1, 2023, the
Company had approximately
 326,000 
and approximately
 140,000 
stock options that were antidilutive, respectively, due to having higher exercise prices than the Company’s average stock price during the applicable period. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.

19

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
11 Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are detailed as follows (in thousands):
 
 
  
Currency
Translation
 
  
Unrealized
Loss on
Retirement
Plans
 
  
Unrealized
Loss on
Derivative
Instruments
 
  
Accumulated
Other
Comprehensive
Loss
 
Balance at December 31, 2023
   $ (128,359   $ (3,501   $ (2,260   $ (134,120
Other comprehensive income (loss), net of tax
     (9,540     175       1,602       (7,763
  
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 30, 2024
   $ (137,899   $ (3,326   $ (658   $ (141,883
  
 
 
   
 
 
   
 
 
   
 
 
 
12 Business Segment Information
The Company’s business activities, for which discrete financial information is available, are regularly reviewed and evaluated by the chief operating decision maker. As a result of this evaluation, the Company determined that it has two operating segments:
Waters
TM
and TA
TM
.
The
 
Waters operating segment is primarily in the business of designing, manufacturing, selling and servicing LC and MS instruments, columns and other precision chemistry consumables that can be integrated and used along with other analytical instruments. Operations of the Wyatt business are part of the Waters operating segment. The TA operating segment is primarily in the business of designing, manufacturing, selling and servicing thermal analysis, rheometry and calorimetry instruments. The Company’s two operating segments have similar economic characteristics; product processes; products and services; types and classes of customers; methods of distribution; and regulatory environments. Because of these similarities, the two segments have been aggregated into
 
one
reporting segment for financial statement purposes.
Net sales for the Company’s products and services are as follows for the three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
Three Months Ended
 
    
March 30, 2024
    
April 1, 2023
 
Product net sales:
     
Waters instrument systems
   $ 191,259      $ 244,211  
Chemistry consumables
     134,207        133,515  
TA instrument systems
     50,685        58,731  
  
 
 
    
 
 
 
Total product sales
     376,151        436,457  
Service net sales:
     
Waters service
     236,433        224,349  
TA service
     24,255        23,868  
  
 
 
    
 
 
 
Total service sales
     260,688        248,217  
  
 
 
    
 
 
 
Total net sales
   $ 636,839      $ 684,674  
  
 
 
    
 
 
 
20

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
Three Months Ended
 
    
March 30, 2024
    
April 1, 2023
 
Net Sales:
     
Asia:
     
China
   $ 85,745      $ 116,065  
Japan
     35,547        46,494  
Asia Other
     86,267        90,522  
  
 
 
    
 
 
 
Total Asia
     207,559        253,081  
Americas:
     
United States
     202,839        202,305  
Americas Other
     38,332        44,116  
  
 
 
    
 
 
 
Total Americas
     241,171        246,421  
Europe
     188,109        185,172  
  
 
 
    
 
 
 
Total net sales
   $ 636,839      $ 684,674  
  
 
 
    
 
 
 
Net sales by customer class are as follows for the three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
Three Months Ended
 
    
March 30, 2024
    
April 1, 2023
 
Pharmaceutical
   $ 374,207      $ 384,898  
Industrial
     195,334        209,650  
Academic and government
     67,298        90,126  
  
 
 
    
 
 
 
Total net sales
   $ 636,839      $ 684,674  
  
 
 
    
 
 
 
21

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Net sales for the Company recognized at a point in time versus over time are as follows for the three months ended March 30, 2024 and April 1, 2023 (in thousands):
 
    
Three Months Ended
 
    
March 30, 2024
    
April 1, 2023
 
Net sales recognized at a point in time:
     
Instrument systems
   $ 241,944      $ 302,942  
Chemistry consumables
     134,207        133,515  
Service sales recognized at a point in time (time & materials)
     83,325        88,207  
  
 
 
    
 
 
 
Total net sales recognized at a point in time
     459,476        524,664  
Net sales recognized over time:
     
Service and software maintenance sales recognized over time (contracts)
     177,363        160,010  
  
 
 
    
 
 
 
Total net sales
   $ 636,839      $ 684,674  
  
 
 
    
 
 
 
13 Recent Accounting Standard Changes and Developments
Recently Issued Accounting Standards
There were no additions to the new accounting pronouncements not yet adopted as described in our Annual Report on Form
10-K
for the year ended December 31, 2023. Other amendments to U.S. GAAP that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements upon adoption.
 
 
22


Table of Contents

Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Company has two operating segments: WatersTM and TATM. Waters products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLCTM” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”), light scattering and field-flow fractionation instruments (Wyatt), and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.

Wyatt Acquisition

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 will expand Waters’ portfolio and increase exposure to large molecule applications. The Company financed this transaction with a combination of cash on its balance sheet and borrowings under its revolving credit facility. The Company’s financial results for the three months ended March 30, 2024 include the financial results of Wyatt. The Company’s financial results for the three months ended April 1, 2023 do not include any of the financial results of Wyatt since the closing of the Wyatt acquisition occurred in the second fiscal quarter of 2023.

 

23


Table of Contents

Financial Overview

The Company’s operating results are as follows for the three months ended March 30, 2024 and April 1, 2023 (dollars in thousands, except per share data):

 

     Three Months Ended  
     March 30, 2024     April 1, 2023     % change  

Revenues:

      

Product sales

   $ 376,151     $ 436,457       (14 %) 

Service sales

     260,688       248,217       5
  

 

 

   

 

 

   

 

 

 

Total net sales

     636,839       684,674       (7 %) 

Costs and operating expenses:

      

Cost of sales

     261,786       284,380       (8 %) 

Selling and administrative expenses

     174,536       181,956       (4 %) 

Research and development expenses

     44,595       42,691       4

Purchased intangibles amortization

     11,834       1,479       700

Litigation provision

     10,242       —        *
  

 

 

   

 

 

   

 

 

 

Operating income

     133,846       174,168       (23 %) 

Operating income as a % of sales

     21.0 %      25.4 %   

Other income, net

     2,259       1,388       *

Interest expense, net

     (21,249     (10,383     105
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     114,856       165,173       (30 %) 

Provision for income taxes

     12,660       24,250       (48 %) 
  

 

 

   

 

 

   

 

 

 

Net income

   $ 102,196     $ 140,923       (27 %) 
  

 

 

   

 

 

   

 

 

 

Net income per diluted common share

   $ 1.72     $ 2.38       (28 %) 

 

**

Percentage not meaningful

The Company’s net sales decreased 7% in the first quarter of 2024, as compared to the first quarter of 2023, with foreign currency translation decreasing total sales growth by 1%. The decrease in first quarter sales was driven by lower customer demand for our products across most major regions, except for sales in Europe, which increased 2%, and the U.S., which were flat and benefited from Wyatt sales contributions. The decline in customer demand can be attributed to our customers delaying the purchase of our instrument systems as they remained cautious with their capital spending entering 2024. The Wyatt acquisition increased sales growth by 3% for the first quarter of 2024. In addition, the Company’s first quarter of 2024 had one less calendar day than the first quarter of 2023.

Instrument system sales decreased 20% in the first quarter of 2024 primarily driven by weaker customer demand in all regions of the world. The instrument system sales decline was broad-based across all of our instrument systems but especially for our mass spectrometry instrument systems, where the decline was significantly greater. Our mass spectrometry system sales are higher priced instrument systems that are significantly impacted by the timing and level of funding our academic and government customers receive. In addition, the Wyatt acquisition increased instrument system sales growth by 5% in the first quarter of 2024. Foreign currency translation did not impact instrument system sales growth in the first quarter of 2024.

Recurring revenues (combined sales of precision chemistry consumables and services) increased 3% in the first quarter of 2024, with foreign currency translation decreasing sales growth by 1%. Service revenues increased 5% in the first quarter of 2024, with Wyatt contributing 2% to service revenue growth in the quarter. Chemistry sales increased 1% in the first quarter of 2024 and were impacted by the lower customer demand in China for our products. Excluding the impact of China, the Company’s chemistry sales increased 3% in the first quarter of 2024.

Operating income was $134 million in the first quarter of 2024, a decrease of 23% as compared to $174 million in the first quarter of 2023. The decrease in operating income was primarily due to lower sales volume and the increase in the following expenses: Wyatt acquisition-related retention expense and purchased intangible amortization, which added 10%; severance-related costs associated with a workforce reduction primarily in China, which added 5%; and litigation settlement provisions and related costs, which added 6%. These costs were partially offset by a 5% reduction in costs related to the Wyatt acquisition diligence incurred in the first quarter of 2023.

 

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The Company generated $263 million and $197 million of net cash from operating activities in the first three months of 2024 and 2023, respectively, with the $66 million increase being attributable to lower annual incentive bonus payments and an improvement in working capital in the current year. Net cash used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $29 million and $34 million in the first quarter of 2024 and 2023, respectively.

Results of Operations

Sales by Geography

Geographic sales information is presented below for the three months ended March 30, 2024 and April 1, 2023 (dollars in thousands):

 

     Three Months Ended  
     March 30, 2024      April 1, 2023      % change  

Net Sales:

        

Asia:

        

China

   $ 85,745      $ 116,065        (26 %) 

Japan

     35,547        46,494        (24 %) 

Asia Other

     86,267        90,522        (5 %) 
  

 

 

    

 

 

    

 

 

 

Total Asia

     207,559        253,081        (18 %) 

Americas:

        

United States

     202,839        202,305        —   

Americas Other

     38,332        44,116        (13 %) 
  

 

 

    

 

 

    

 

 

 

Total Americas

     241,171        246,421        (2 %) 

Europe

     188,109        185,172        2
  

 

 

    

 

 

    

 

 

 

Total net sales

   $ 636,839      $ 684,674        (7 %) 
  

 

 

    

 

 

    

 

 

 

Geographically, the Company’s sales decline in the first quarter of 2024 was broad-based across most major regions except for Europe, which increased 2%, and the U.S., which was flat and benefited from Wyatt sales contributions. The decline in sales can be attributed to the lower demand for our instrument systems and chemistry products as customers delayed the purchase of these products. Foreign currency translation decreased sales growth by 3% in Asia and increased sales growth by 2% in Europe in the first quarter of 2024.

Sales by Trade Class

Net sales by customer class are presented below for the three months ended March 30, 2024 and April 1, 2023 (dollars in thousands):

 

     Three Months Ended  
     March 30, 2024      April 1, 2023      % change  

Pharmaceutical

   $ 374,207      $ 384,898        (3 %) 

Industrial

     195,334        209,650        (7 %) 

Academic and government

     67,298        90,126        (25 %) 
  

 

 

    

 

 

    

 

 

 

Total net sales

   $ 636,839      $ 684,674        (7 %) 
  

 

 

    

 

 

    

 

 

 

 

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During the first quarter of 2024, sales to pharmaceutical customers decreased 3%, as growth in Europe and India was offset by weakness across most major regions, with foreign currency translation decreasing pharmaceutical sales growth by 1% and Wyatt contributing 4% to the Company’s pharmaceutical sales growth. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, decreased 7% in the first quarter of 2024, with foreign currency translation decreasing sales growth by 1% and Wyatt contributing 1% to industrial sales growth.

Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period. Our combined sales to academic and government customers decreased 25% in the first quarter of 2024, with foreign currency translation increasing sales by 2% and Wyatt contributing 3% to the Company’s academic and government sales growth. This overall decline in sales of 25% to our academic and government customers in the first quarter of 2024 compares to a 38% increase in academic and government sales in the first quarter of 2023, which represents a two-year compound annual growth rate of 1%.

Waters Products and Services Net Sales

Net sales for Waters products and services were as follows for the three months ended March 30, 2024 and April 1, 2023 (dollars in thousands):

 

     Three Months Ended  
     March 30, 2024      % of
Total
    April 1, 2023      % of
Total
    % change  

Waters instrument systems

   $ 191,259        34 %    $ 244,211        41 %