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 September 28, 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)
(
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.
 
Large accelerated filer   ☒    Accelerated filer   ☐
Non-accelerated filer   ☐    Smaller reporting company   ☐
     Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Act). Yes ☐ No ☒
Indicate the number of shares outstanding of the registrant’s common stock as of
October 25
, 2024: 59,376,174
 
 
 
 

Table of Contents

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  

Table of Contents
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.
 
3
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.
 
4
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.
 
5
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.
 
6
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.
 
7
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.
 
8
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(unaudited, in
thousand
s)
 
 
  
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.
 
9
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.
 
10
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.
 
11
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      $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
 
12
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.
 
13
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.
 
14
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
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
    
Nine Months Ended
  
    
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.
 
15
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.
 
16
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 
3
1,
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